Q1 2021 Blackbaud Inc Earnings Call
Good day and welcome to the Black, but Q1, 2021 and earnings call. Today's conference is being recorded on.
I'll now turn the conference over to Steve Hufford. Please go ahead Sir.
Good morning, everyone.
Thanks for joining us on Black box first quarter 2021 earnings call. Joining me on the call today are Mike G&A on a black box, President and CEO and Tony Boor, Blackboard Executive Vice President and CFO, Mike and Tony will make prepared comments and then we will open up the line for your questions. Please.
Please note that our comments today contain forward looking statements subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Please refer to our most recent form 10-K, and other SEC filings for more information on from those risks.
We believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure our business unless otherwise specified we will refer only to non-GAAP financial measures on this call. Please.
Please note that non-GAAP financial measures should not be considered in isolation from or as a substitution for GAAP measures.
Reconciliation of GAAP and non-GAAP results is available on the press release, we issued last night and on.
And more detailed supplemental schedule is available on our presentation on our Investor Relations website.
Before I turn the call over to Mike If you didn't get a chance to attend our virtual investor session and March. Please note that a recording of the event and the full presentation are available on our Investor Relations website.
I'll also mention that during the second quarter, our team will be virtually attending the Needham 16th annual Technology Conference Baird's 2021, Global consumer technology and services conference and the Stifel Cross sector Insight conference. We will also be participating and virtual investor meetings during the quarter posted by the bench.
And our company and P. T I G with that I'll turn the call over to you Mike.
Thanks, Steve Good morning, everyone and thank you for joining our call Tonight.
And a strong finish to 2020, you posted solid financial results for the first quarter and our optimism continues to build around the coming quarters and years.
The progress being made to distribute COVID-19 vaccines is encouraging for our market our customers and our company.
Our first quarter performance combined with an improving macro environment, how does well positioned for a strong and successful year ahead. In fact, our latest financial outlook suggests the upside scenarios, we laid out and our Q4 earnings call and are looking more likely which Tony will cover in more detail shortly.
<unk>.
Before I share a few highlights from the quarter I'd like to thank those of you were able to attend our virtual investor session in March and.
And I speak for the entire executive team when I say, we appreciate the engagement and dialogue with the investment community.
And if you haven't had a chance to watch yet there were four clear takeaways from that first blackboard as a leader and a large Brazilian and growing global market.
Our current addressable market is over $10 billion and that time his more than doubled and my seven year tenure at black box through acquisitions and internal product sales and studied market growth.
Or at the same time frame, our ability to drive organic growth and make strategic acquisitions as a result, and nearly doubling our total revenue Theres. No question, we have plenty of room to grow and expand both organically and with future acquisitions.
Which brings me to the second takeaway, we have multiple levers with which to accelerate revenue growth.
This includes several programs already underway as well as macro level drivers tied to the pandemic, which will abate and returned quickly once the world returns to normalcy, we have a higher degree of confidence and increasing visibility into our growth reacceleration.
The third takeaway is our revenue growth and scalability will drive margin expansion and.
Not only do we gain scale through growth, but we're driving several strategic initiatives focused on delivering margin expansion over the next several years and fourth we are rapidly innovating for our customers and are well positioned as a market leader to capture the exciting rig digital shift within our industry.
Blackboard is truly a one other time company with a unique opportunity you had.
Turning to the first quarter I'll provide a few updates and the context of our four point growth strategy.
As a reminder, while our strategy is unchanged. We recently modified our four points to elevate our specific strategy focused on employees culture, and ESG initiatives and this isn't new for us it's something that's been in our DNA for a long time and it's a big advantage as we look to attract and retain.
Top talent.
You'll find this evident and our 2020 social responsibility report, which was released last week and demonstrates how our company responded to the unique challenges and <unk>.
And it created for our employees customers and communities.
We also expanded this year's report to include voluntary ESG reporting disclosures and aligned with the sustainability accounting standards Board and global reporting initiative to highlight one of the many reasons I'm incredibly proud of this report.
I'll note our company is comprised of 46% female employees and 54% male employees, which positions us as a leader and our industry. We are fully committed to continuing to create a diverse and inclusive environment and all levels of the organization.
Recently, our chief marketing officer accounts on the core was named one of the top 50, most powerful women and technology by diversity <unk> and the National Diversity Council. This is a tremendous award and female leaders will it become champions for diversity and the technology industry is one.
Well as inspirations and their communities.
And with many of our employees living near our headquarters and Charleston, and we're proud to have been awarded the diversity Champion Award on the Charleston Metro Chamber of Commerce, which honors a company who is committed to creating a more diverse equitable and inclusive workplace and community.
That brings me to another recently revised point and our strategy, which is to lead with world class teams and operations. This expands upon our previous strategies to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the rule of 40.
We have a strong and executive team, we're all incredible leaders and <unk>.
Moving on our mission and executing on our strategy.
We have tremendous talent across the company at every level of line with these goals as well.
Our people are just one reason I'm excited about the opportunity in front of us as we continue to drive the business forward.
Which is a good segue to our next strategy to delight customers with innovative cloud solutions as we've said 2020 required unprecedented speed and scale to support our customers and we were quick to re prioritize expedite product enhancements to support our customers' changing needs.
And it's a scramble to operating digitally we've.
We've carried that momentum into 2021 for example, we upgraded virtually all of our blackboard grantmaking customers to our new Sky UX version and just one month's time. This is a big deal for our customers and and it enables them to alleviate the burden improved day.
The security with Multifactor authentication and provides freedom and flexibility to access advanced Grantmaking technology anywhere via any browser on any device with more veteran grantmakers using mobile technology.
Younger generation of Grantmakers emerging and the philanthropic community, providing convenient access to grants data and grants management tools will continue to be critical for success Blackboard plays a crucial role and accelerating our markets move to the cloud.
And higher education for example, with the COVID-19, pandemic accelerating and the need for powerful cloud based systems that allow for easy collaboration Blackboard and CRM has been the trusted solution for grilling number of institutions to support their overall advancement needs.
Institutions, including Baylor University, Clemson University University of Houston, and University of Louisville University of Saskatchewan University of South Carolina, and West Virginia University Foundation have recently gone live on our selected Blackboard CRM and Microsoft Azure.
In fact, a recent third party study found that institutions using blackboard CRM, we're able to raise more money at a faster rate with a 63 percentage point increase and funds raised compared to non blackboard CRM institutions I.
And I could go on but these are just a couple of examples of how we're delighting customers through our innovative cloud solutions.
With that I will turn to our strategy to expand our total addressable market on it.
Wiring building and partnering into near adjacent markets and expanding within our existing markets. This strategy is unchanged and that's been a very successful strategy and we've been executing for years with a combination of organic growth and M&A, we have a proven history of double digit revenue growth.
We continue to evaluate opportunities for M&A and through our innovation and the Sky platform, we've created additional optionality to build and partner as well.
I'm, particularly excited about the momentum, we're seeing with blackboard marketplace or have you seen and over 150% increase and apps available in the marketplace and in fact, one on a four black line customers have extended their solutions with the sky applications.
I'll summarize by saying I continue to be bullish about the opportunity ahead of us.
And our market is showing its resiliency and.
The vaccine rollout continues organizations are planning for post pandemic recovery, which is expected to include more budget dollars for software investments at.
And as part of our planning we recently conducted on market study with the help of a third party firm and they found that even during the pandemic organizations are anticipating an increase in their annual software spend over the next few years.
Black Knight is well positioned to capture this growth opportunity, we're accelerating investments in key areas like digital marketing engineering security and customer success and you look to extend our leadership position.
And we have our sights set on a substantial opportunity ahead of us to drive meaningful acceleration and financial performance of the context on the rule of 40.
Overall, we had a solid start to the year and I am increasingly optimistic about what's to come in 2020, one and over the next several years.
With that I'll turn the call over to Tony before we open it up for Q&A Tony.
Thanks, Mike and good morning, everyone.
Today I'll cover our results for Q1, and our current outlook for the full year before opening up the line for your questions.
You can refer to yesterday's press release, and the Investor materials posted to our website for the full detail on our Q1 2021 and financial performance.
We continue to witness resiliency and our markets first quarter recurring revenue grew roughly 1% on an organic basis. Despite the tough compare to Q1 of last year, which was largely pre pandemic.
This was driven primarily by continued strength and online payments, particularly in the U K. We also incurred a favorable foreign currency impact for the quarter, our contractual recurring revenue remains healthy with customer retention and holding at 93%.
And year to date renewals tracking in line with 2020 performance as.
As expected the shortfalls and bookings that began at the start of the pandemic are putting pressure on our contractual recurring revenue growth and the near term.
That said we are optimistic this pressure will abate as we progress through 'twenty one we.
We had a solid bookings performance and the first quarter, which came in ahead of plan and Q1, and 2020 and were seeing healthy pipeline heading into Q2 one.
One time services and other revenue declined $6 million, which was approximately 300 basis point drag on total revenue growth as.
As we noted in our March Investor session, One time services and other revenue has decreased with a four year negative CAGR of 18% from 2016 through 2020.
Which has been a material drag on on overall growth, but positive for the long term.
We expect this drag to bottom and 'twenty, two which should result in a lift of a couple of points on total revenue growth and the future.
Turning back to 'twenty, one as Mike mentioned, we're gaining confidence that we could see upside to our best estimate for the year based upon the solid start to the year and thus our downside scenario is looking very unlikely.
Looking ahead macro levered drivers, coupled with pent up demand and increased level of online, giving create opportunities for us to achieve low to mid single digit revenue growth as early as 2022.
Moving to earnings our first quarter gross margin was 59, 4%, we generated adjusted EBITDA of $57 million.
Representing an adjusted EBITDA margin of 26, 1% and diluted earnings per share a 60 day chess.
The evolution of our go to market strategy with a digital first mindset and substantially reduced our go forward cost base and sales and marketing.
The first quarter was a solid indicator of our ability to drive bookings performance, while reducing customer acquisition costs and we remain committed to further improving our cash payback period and increasing sales velocity.
We are also continuing to make critical investments and the business related to areas like digital marketing engineering security customer success, and our continued shift of cloud infrastructure to third party cloud service providers.
Our current plan calls for and the level of investment to increase in the coming quarters and Thats, our estimate of roughly 25% adjusted EBITDA margins holds as our best estimates for the full year 'twenty one.
That brings me to the cash flow statement and balance sheet.
Our Q1 free cash flow was $17 million and increase of $55 6 million year over year, and representing a free cash flow margin of seven 9%.
I'll remind you historically, we have typically been a net borrower and the first quarter prior to switching more of our compensation plans to be equity base. We ended up the quarter with $523 million and net debt our capital strategy calls for a debt to EBITDA ratio of less than three five times and at the end of Q1, we.
And at one eight times, which is our targeted optimal leverage ratio and.
And we had 406 million of borrowing capacity.
And the first quarter, we repurchased approximately 466000 shares of our common stock for $28 million.
And as of March 31, we had approximately $181 million remaining and available under our current share repurchase authorization.
As we look forward, we plan to Opportunistically execute on share repurchases one our internal estimates determined that the company shares are undervalued by the market.
Future share repurchases can also be used to offset dilution related to our equity compensation programs.
As a reminder, our recent share repurchases offset roughly three years of dilution related to our decision to shift our company bonus plans from cash to equity.
To summarize our outlook for 2021 from a revenue perspective, we are encouraged by the solid start to the year and the durability of our recurring revenue streams and as we've said previously the obvious challenge continues to be to accurately predict the duration and magnitude of the pandemic and the ultimate impact on our revenues.
And particular, the heightened level of variability and transactional revenue makes it difficult for us to put out definitive guidance range is like we've done in the past, but I do want to provide current perspective on our best estimates for 2021 and the scenarios, we laid out on our Q4 call.
Our latest modeling and gives us additional confidence in and our best estimate and suggest our upside scenarios are looking more likely.
This is inclusive of and anticipated, 15% to $20 million decline and one time services and other revenue.
Contractual recurring revenue, which is the core of our business is expected to grow modestly in 2021, and we're optimistic that we'll set up for an acceleration and revenue growth post the pandemic.
After a solid Q1 bookings performance, we expect to see a pickup in bookings and the second half of the year and we're encouraged to see progress with the vaccine rollout, which bodes well for a quick recovery and the transactional revenue tied to in person events.
And the trends we are seeing to start the year combined with favorable foreign exchange rates significantly reduces the likelihood of our downside revenue scenario.
Shifting to profitability and cash flow, we continue to progress on initiatives like the migration of our cloud infrastructure to third party cloud service providers, which we expect a result and future gross margin improvement as we were able to reduce our own colo footprint and associated duplication of costs.
The enhancements, we're making and our go to market will significantly reduce the payback period for our customer acquisition costs, while increasing sales velocity and I do not expect our sales marketing and customer success expense to return to pre pandemic levels.
Also our work in 2020 to optimize our real estate footprint will generate approximately $14 million of annual cost savings going forward.
Our most likely scenario costs on an adjusted EBITDA margin of approximately 25% and this is inclusive of several cost actions taken in 2020 debt will not repeat in 2021, while revenue.
Remains somewhat variable and the near term, we're confident and our ability to manage costs and ultimately profitability across various revenue scenarios.
Our pivot to place a greater emphasis on profitability positions us to significantly improve on rule of 40, and a post pandemic environment and gives us heightened confidence on our expected future free cash flow generation.
And the potential for near term variability and transactional revenue and bookings makes it a bit difficult to be precise and our free cash flow estimates for 2021 with that said, we feel very confident the floor for free cash flow is $100 million for 'twenty, one and free cash flow could vary materially to the upside depending on.
Our bookings rebound this year and when and in person events return.
We will also continue to execute against our capital deployment strategy, which calls for ensuring access to adequate levels of capital to grow the business through balance sheet management rigorous oversight of investments on the business, including acquisitions and identifying.
And efficiently returning excess capital to shareholders, including the option for additional share repurchases.
In summary, Q1 was a solid start to the year and positions us well for a strong 2021, we.
We have increasing visibility into our near term performance and as we exit the pandemic, we see significant growth opportunities ahead of us as we outlined on our recent investor session. We have 10 key growth drivers already being worked throughout the business and we are increasingly confident and our ability to hit our mid and long term growth.
Gross.
Accelerating growth combined with other margin expansion initiatives puts us on a path to achieving the rule of 40 and our proven capital strategy, which includes continued M&A and our newly expanded share repurchase program provides us with ample optionality to allocate capital and a way that maximizes value for our.
Holders over the long term.
With that like to open up the line for your questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signaled to reach our equipment again as a reminder, please press star one.
And to ask your question and please limit yourself to one question plus a follow up to allow us to facilitate as many questions as possible one moment. Please.
We will now take our first question from Brian Peterson at Raymond James Go ahead caller. Your line is now open.
Good morning, gentlemen, and congrats on the strong bookings and a good start to the year. So I wanted to double click on the go to market.
It looks like with the bookings you've had some success this quarter and and we've talked about the digital motion T and he's been kind of an interesting thing with COVID-19, but we've seen the sales and marketing line decline a lot over the last several quarters. So I want I want to understand how youre thinking about that go to market motion and the ability to tackle those growth opportunities over the next few years.
Yeah sure, Brian Hey, it's Mike Good morning. Thanks.
Thanks for the question, Yes, we've had a multiyear effort around.
Okay.
Optimizing our customer acquisition cost and investing and our digital capabilities.
And with several new platforms and new leadership on the digital side, and we've seen productivity increase quite a bit.
We've had really good improvements and bookings are good.
Quarter, this year and first quarter to.
And to plan and growth over last year's first quarter and last year's Q1 was largely not in the pandemic. So we feel pretty good about that increase and productivity and kind of where we're going we're related to that our focus is on driving organic growth and bookings and so we're making.
And those balance decisions and.
And so far we think it's working out quite well.
Great good to hear and and maybe just comment on you know.
Are we seeing a commentary on bookings and renewals.
How how much and a typical year and again and I know, we're still and COVID-19 here, but you.
How much and a typical year do you see the bookings come in the first quarter or the renewals come and the first quarter I'm just curious how meaningful that data point is just as we think about kind of a full year of bookings and renewal activity and Brian. It builds. So Q1 is always a low quarter for bookings for us.
And.
From a renewal standpoint, it's kind of Q2 Q3 end of Q2 beginning of Q3.
Is a spike in renewal activity.
And we've talked a lot about that.
And the Q2 call last year, because we are in and obviously middle of the pandemic and.
People were worried about renewals and we exceeded our plans.
Last year in that timeframe and so that's every year typically for us bookings start off budgeted low because the activity is just low for the markets. We serve and then it builds.
And we did well this year and Q1 and again renewal the biggest activities back half of Q2 Q3 and last year, we did really really well. So we don't anticipate any change there and our retention rate just to remind you went up last year from 92% and 93% and Brian and I'll just add obviously.
Q1 is very important as is Q4 of last year just from a rule of 78 from a bookings perspective, that's been yeah.
So much of the business being recurring and so.
Although a seasonal low is still a very good indicator right, where we're off to the year and exceeding.
Exceeding plan and.
Is exciting for us and Thats, why and allows us I think that and the renewal rights to look at the downside scenario and largely take that off the table because if you recall when we spoke about that on the last call that was assuming that things fell apart and the vaccine rollout was not going well and that transaction volumes Mike.
Fall off even further and bookings and pipeline drop off and so to see a positive start.
Largely allows us to take that downside case off the table.
Okay, great great. That's good to hear very clear gentlemen, thank you.
Yeah.
Your next question comes from the line of Ryan Macwilliams with Stephens Inc. Please proceed with your question.
Thanks for taking the question and there's just a follow up there and you talk about how bookings trended during the quarter.
And the head of plan overall, but just curious to see if you're seeing bookings improve each month as they return to normalcy and the pandemic.
Brian I don't know.
And that we're seeing anything unusual from a <unk>.
Trend perspective that being said, we would have projected and upward into the right trend throughout the entirety of the year. So if you recall because we're in the pandemic.
We're anticipating that we'll have on a bigger recovery and the second half assuming things start to get back to normal what the vaccine rollouts and the economy opened and backup and so we're kind of back end loaded so everything really is.
<unk> wise was kind of upward and to the right throughout the year with a bit more hockey stick per se. This year for bookings and the back half just because we're assuming things start opening up more from a pandemic perspective and the second half.
Same with the other.
And can be on the transaction side, we've spoken about that as we expect to see mass participation events start to open back up and the second half as well.
But it trends upward Ryan we budget it that way every year from the first month from January through the year it moves up.
And I appreciate the color that makes sense and is helpful from a bookings on the outer standpoint.
And now look this one's a little more higher level and on.
No it's still early but.
Do you have any thoughts on how potential changes and bite and tax policy debt impact terrible dividend, giving maybe at the end of this year.
And into next year.
Yes, I just look back at all of the administration changes over the years and the.
The size of the giving market and <unk>.
Justin.
And the U S.
And 2019, it was $450 billion, it's such a huge market and it's pretty much track U S. GDP for over 40 years.
And so it's such a big number and.
And even even when we've had tough economic times.
And then are we kind of goes backward a point or stays roughly flat and then it comes right back to.
Our normalized GDP and that last years.
And so it really hasnt ebb and flow that much based on tax changes.
Per se and frankly, it's so big and we capture such a small part of it that even if it ever did go backwards I wouldn't be all that concerned because it's so big.
But then again, it's never really gone backwards based on those changes so we feel pretty good about being able to get more of that and the future and.
And the shift to digital has been a big move.
And the last year as well, which is which is really positive for US also and I think Mike If you look back and like the 86 Act, which put it and some of the first limitations on itemized deductions.
Given bounced a little bit next year, but not significantly to your point and then last year or two years ago, we were talking about with the changes they made again to the debt.
Deduction and deductibility thought we might have a change there and we really didn't see that we saw a very positive year overall and given yes, and remember that 450 billion.
I think the number is 73% of it.
Is it and they're all small transactions those debt.
Most of it is a few hundred dollars its high frequency.
Very retail oriented sort of motion.
And that's what we're digitizing and Thats, what sort of the flow that goes through our system not major gifts right. So.
And folks that are donating $50 or $100 to something and they care about don't really think about the tax implications of that per se.
On.
So it doesn't.
And that change has never been a concern for us and I anticipate that is going to be the case here as well.
Appreciate the color congrats on the results.
That's right.
Your next question comes from the line of Tom Roderick with Stifel. Please proceed with your question.
Alright. Thank you, it's actually Parker lane on for Tom Thanks for taking the questions.
And Mike and Tony as you think about the balance of payments revenue and <unk> seen nice acceleration and that is payments shift to online methods and as you've gone to the rest of the year and reopening and and what that's meaningful or transaction revenue how much durability. Do you think there isn't that shift to online payments do we get back to a level that you've seen prepaid.
And then make or do you expect that to always be a little bit higher than we saw as you know you're on.
And customers have gotten more comfortable with what those fundraising and methods.
Yes, I'd say that it's it was a big move last year, it took decades to get to 9%.
And last year, we went from 9% to 13% and one year.
And we don't see that going backwards per se, it's sort of yes.
Equivalent to the rest of the online payments and Digitization and that's going on and all industries.
Consumers are used to that they're used to doing things on a mobile device.
A quarter of those transactions last year on a mobile device and so those macro changes that all sort of digital payments companies talk about.
Is the same here because it's the same and consumer if you will.
And conducting their lives on a mobile device and their personal financial lives and making donations that way.
We don't see the behavior going backwards, because it's common across everything else that happens and so that bodes really well for our markets our customers.
And for US the other thing that's happened is a lot of our customers switch to virtual events.
And there's a lot of sort of the traditional nonprofit customers that had in person event, they're going to go back to in person events, but they're also going to keep the new virtual events going as well.
So we see the in person events coming back in the second half of the year, but we also see the intermittent digital virtual events continuing.
Well because day exclusively did a lot of those last year, which also we've tied to <unk>.
Your question on payments.
Yes, that's very helpful and maybe quickly on the M&A opportunity I know, you mentioned and you're constantly evaluating new opportunities to expand your market and looking for good fits culturally and free and technology standpoint, but are there any signals and your end market that you would need to sort of give the green light on an M&A deal or do you feel like.
You are there today.
Yeah, I don't think we have to buy.
By our company to accomplish our current.
Objectives that we've laid out however, we're always looking at opportunities to add value to our portfolio and for our customers.
And the acquisitions we've made on.
Also in a lot of cases has made the existing product portfolio and stickier for us as well.
We've really gone and a lot of our markets to a.
Integrated portfolio approach as opposed to a standalone solution and so we continue to look at opportunities related to that but your question was do we think we need to do a deal for our portfolio and our our financial outlook and just no we don't need to but we remain quite active and.
I think Tony mentioned in the prepared remarks, our debt to EBITDA ratio is down to $1. Eight now so we're in a good spot we recapitalize the company last fall. So we're in a pretty healthy spot.
Continue to be proactive there as well.
Very helpful. Thanks, Mike.
Your next question comes from the line of Mark Chapell with benchmark. Please proceed with your question.
Yeah.
Hi, Good morning, Thank you for taking my question.
Mike your tone towards your business continues to improve that's good and I was wondering if you just go into some greater detail with respect to what Youre seeing in your business and caused us to be more positive. So for example, or are you seeing improved responses to outbound marketing campaigns or webinars on.
Customers choosing to do more virtual meetings or upsize their deals and you could just go into a little detail there.
Yes, Mark sure, it's kind of a combination of things so on the sales bookings side, we talked about that good quarter.
Lower cash costs, good bookings quarter to plan.
Higher than last year, and a non largely non pandemic Q1 last year on.
On the transaction side.
Jump and four points and.
And online giving is positive for us the trends there are positive and then the event planning happening that we could see from the back half of the year. One example is on our Justgiving platform. We have account managers that are assigned to customers that help them get ready for future events and we're seeing that on.
Activity happening on the platform for the back half of this year, we see that those events being created to ready to be executed and the back half of this year.
And so we can see all of these things and the business and and the systems that point toward a pretty good outlook for the rest of the year.
Great helpful. Thank you and then.
During the Investor Day, you mentioned that you thought there was an opportunity for price increases around your solutions and if I call correctly, even some solutions you thought you could see some meaningful price increases I know, it's still early but I was wondering if theres any update on that front.
Yes, we have a couple of activities going on there Mark and.
A lot on some of it's really kind of catch up.
We had some planned.
A year ago or so when we put it off because of the pandemic.
And we were pretty good and understanding what the market looks like what the competition looks like.
And frankly, we are behind you and a couple of areas so and a.
A couple of areas, we're just going to kind of meet what's happening in the marketplace, which is beneficial for us and.
And theyre kind of market neutral.
And from a competitive standpoint, and so we're executing on those and.
One of them is a model that we built over several years and deployed very successfully in the U K that is fully underway and the justgiving platform that we're just taking that model to the U S market that one is super interesting as well because it actually lowers customer cost.
And increases our revenue so it's definitely a win win and it.
It's been deployed really successfully and just giving and we're going to we're going to move it to the U S and it's going to take some time these arent necessarily like throwing on a switch and some cases.
Some of it is some of it's driven by adopt.
Adoption and it takes some time, but I think theres, a big opportunity across multiple pricing initiatives and they're not just price increase their structure changes like the one I just described and the U K and Kevin in the U S.
And again benefits, our customers and us and the long run and.
And I think there's big upside and all of those and I think mark the timing of those.
The long end of the tail on those is probably three to four years on on the longest because you'll go through renewal cycles on some of the price and things. So if folks are on three year contracts, you'll have to wait till that renewal comes up but to Mike's point and some will be more immediate and near term, but the length of debt will be talking about this for the next several years.
Great. Thank you helpful. That's all from me.
Okay.
Your next question comes from the line of Kashi, Canada with Bank of America. Please proceed with your question.
Hey, guys. Thanks, Thanks for taking my question I wanted to ask dig in a little bit on a prior question about.
And this gradual return to events and thinking about the monetization of in person events as we gradually get back to normal here overall it sounds like we're going to start to have some sort of in person events soon but maybe at reduced capacity rates.
However over the past year. It seems like people have become increasingly more comfortable with digital engagement too and.
So as you're having conversations with your customers about the return to normal how should we be thinking about the monetization events that will likely have some sort of hybrid and person and virtual component as we are gradually returning to normal. Thank you.
Yes, sure and they are a little different right because events are really wide.
And in person event can be.
One night dinner gala or it could be.
Some of our customers have thousands of.
Bike rides or five or 10-K runs or walks.
And then there's a really wide.
Category, but our platforms for in person events, yes, we monetize those through usage of systems, and then payments as well as a part of it.
And so.
It's a mix and again, we see that growing and the back half of this year, because we can see them being planned.
And so some of the event and so as I mentioned earlier, we might have some customers that have sort of one big gala a year and last year. They went and they did multiple.
Digital events.
Virtual events, and they're going to put that Gallo back on right, but they are going to keep doing the virtual events, which they might have never done before in between Nogales to.
And to keep driving their revenue because they learned how to do that and so those kind of institutions might have the mix the institutions and have the.
The 10-K runs of the locks might go fully back right to those in person, but they've also got and really smart about virtual events as well and so now they've sort of increase their arsenal on revenue generation.
Being smart and more experience on virtual so we see virtual continuing and then we see the in person one is coming back and it's based on the kind of event, they're going to have a mix and.
We see all those being planned and we think thats positive for our customers and for us as the year continues as well.
Great. Thanks, guys. Thank you for taking my question I appreciate it.
Sure Matt.
Your next question comes from the line of Matt Van Vliet with BT IAG. Please proceed with your question.
Hey, guys. Good morning, Thanks for taking my question.
I guess as you look out kind of over Youre.
Youre playing across 21.
Curious, which which verticals maybe on which bigger.
And what kind of industry areas do you expect have the biggest potential inflection point, I imagine and things like arts and cultural relative to last year, where their doors were completely closed.
And you have museums and things like that opening at least a partial capacity is a big upside and.
But maybe just help us walk through kind of what some of those big buckets are that that have potential upside and then within that.
Kind of how the church management program and the build out of that sales team is progressing.
One particular highlight.
Sure Matt.
So.
From a comeback this year tied to.
<unk> openings and vaccines.
And the sharpest will be all of our existing customers and.
You mentioned like performing art centers.
That our customers that haven't had activity.
And we're going to see the benefit of that because these are these are folks that have been customers and a lot of cases for years.
And their business, one dormant and they had a tough year.
Last year and.
Again, our revenue is payments and usage based so those scenarios.
No selling motion and implementation motion.
And they are alive and they are ready to open their doors. So performing Arts center is a good one because our platforms handle not just donations, but tickets and ticket sales and that.
Net vertical and then the events I talked about if youre not having events and you all of a sudden have events.
And you're already on our platform.
It's an instant turn on of your debt.
Donation revenue, therefore usage and payments so those are sort of automatic and incident.
And so those will be the fastest returns to <unk>.
<unk> growth for us.
Related to faith based yeah, we have a dedicated team.
We've got a portfolio sell going on there now so we're actually doing really well and our financial edge NXT platform.
And that space and.
And we continue to build out the church management platform.
Fund, raising and doing well on that space and analytics. So it's.
The portfolio of cell approach and.
We do have a dedicated team that we've built up over the years.
Okay and then following up I know, we've had a lot of questions on the payments, but it seems to be and area.
A lot of opportunity can you just remind us kind of generally speaking what the attach rate is of current customers that have enabled the payments function.
And kind of what what if any opportunities there to add that on further and 21.
I guess relative to maybe what growth looks like and 'twenty in terms of customers, adding that on that didnt previously habit.
Yes, Matt we haven't broken out attach rate historically for existing customers, but we do have.
A team of folks that focus on.
Cross selling to existing customers and then the entire sales team bundles payments on at the get go as well.
And then lastly.
And this digital shift we've seen I think is a permanent growing shift and the space, which is a driver for payments.
But specifically, we don't break out the attach rates.
And I would say, though matters as we bring this new.
<unk> that we've been doing and the UK to the U S. It's going to give us another competitive advantage on the payments front I think we've got a good offer we charge the one rate and it's very simple we don't worry about card present card not present, so we've made it straightforward and clean.
This new offer thats beneficial for our customers and for us will give us a bit more differentiation, there, which hopefully will drive more payments and I think the other one and there's a lot of folks have had our payments platform did not necessarily process a lot of volume and you can speak.
I like the church space.
Lot of that was still cash on hand and checks at your servicer at mass they were forced to go to digital last year in the midst of the pandemic to online Operatory and so we think those things will have.
Long standing tenure.
And the last thing I'd mentioned is when folks are using payments as we've said before it typically improves our retention rates and when they have multiple products or services. So that's also a very positive for us at all points on the right direction obviously.
Alright, Thats all very helpful. Thanks, guys.
Sure.
Your next question comes from the line of Ryan Macdonald with Needham and company. Please proceed with your question.
Yes, good morning, gentlemen, thanks for taking my question I wanted to double click on the commentary around the success within higher Ed institutions from Blackboard CRM during the quarter.
What do you think is driving that is there is sort of AR and increased need financial stress of these universities from the pandemic to improve or step up their game on fund raising and.
He's rear I guess is it's been integrated into the platform is that having a helping your win rates there.
Yeah, Yes. It is.
And yes to your first question so.
The marketplace and higher Ed.
It's become more and more focused on fund raising and using that and you see a lot of the leaders.
And in higher Ed the University presidents getting more personally involved.
And that as well and so it's becoming a major component and we just have a really solid platform. There. It has been in this space for years.
It is purposely built for fund raising for larger institutions.
On.
It's what we call Black box CRM, it's not a general purpose CRM, it's used for fundraising exclusively and and higher Ed.
And it's becoming sort of the standard and the results are fantastic related to folks that use our platform versus folks that don't because it has detailed capabilities to drive revenue.
And for higher Ed institutions, and other verticals as well large nonprofit and healthcare but.
We've got a lot of runway ahead of us and a lot of success.
Globally, and higher Ed space with that platform.
Lots of capabilities, we've opened it up with more AP is recently.
And we've got more partners and their <unk>.
Third parties building apps, there and for our other solutions like raisers edge, NXT, frankly, and the marketplace. So yes, it's a very successful platform and is well known and that industry as well to do that that platform.
Great and a follow up for Tony I wanted to kind of focus in on the gross margin outperformance and the quarter, obviously, a nice expansion year over year can you talk about what the mix.
What was driven by between whether it was mixed shift from away from one time services or perhaps some of these the migration to cloud hosting starting to impact and how should we think about that gross margin evolution of other over the next year.
Yes, good question Ron <unk>.
And Fortunately thing I think on.
On time services and others hit.
Hit us a little hard.
This quarter that revenue drop.
Continues to put pressure on the gross margin on that line item.
There's a lot of moving parts and there, but you can see on a GAAP basis with our earnings release that was significantly negative this quarter. So it actually.
And it helps us from a mix perspective as it continues to shrink.
This quarter's performance.
Put a bit of pressure on gross margins, we've had really good.
Positive headway made on the move to third party cloud providers environments, we're seeing a cost per unit decrease already.
Having a positive impact that said, we still have a lot of duplicate costs and are weighing on margins to get to your longer term.
A question, we would expect to see kind of some steps along the way as we get off some of the old Tech stacks and get chunks of of our products moved to third party cloud provider seeing and improvement in gross margins and then the wildcard is going to be a bit of mix I think the interesting thing with these new pricing initiatives that we talked about.
At the Investor session and talked about earlier on the call those should all be very accretive to margins.
On the donor cover tip jar discussion and related Justgiving moving that to the states.
And really positive for our customers for the amount of revenue they bring and from each donation dollar and improves our profitability and certainly helps our margin structure on the payment side.
And so that would be positive and then the other pricing changes as you know.
And where Mike talked about just getting to par with competitors, there's really no incremental cost that comes with those and so those are largely all profit dropped through to the bottom line. So I'd expect we got several things and the works over the next few years as part of this brand our strategy that will help improve gross margins as.
As well as operating margins and cash flow.
Great. Thank you very much.
Okay.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Mike <unk> for closing remarks.
Thanks, Operator, I'll, just close by saying we have a lot to be excited about based on our start to 2021, a second half recovery is looking more likely and I believe we're uniquely positioned and elevate our status as a leader and the market. Looking ahead, we have multiple levers with which to accelerate revenue growth and margin.
And that spanned across three areas first pandemic recovery with event driven transactional revenue and bookings returning post pandemic second a few price model and price catch up opportunities that we discussed at Investor session and third we remain active and looking at M&A.
<unk> we.
We believe the steady execution against the rule of 40 financial framework and our continued commitment to disciplined capital deployment will generate substantial shareholder value.
And we look forward to providing a more comprehensive update on our initiatives to accelerate long term performance and our next call. Thanks, everyone.
This concludes today's conference you may disconnect your lines at this time and thank you all for your participation.
Okay.
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