Q2 2021 Blackbaud Inc Earnings Call
Good day and welcome to Blackboard second quarter 2021 earnings call Today's conference is being recorded.
I'll now turn the conference over to Steve Halford Director of Investor Relations at Blackboard. Please go ahead Sir.
Okay.
Good morning, everyone. Thanks for joining us on Black box second quarter 2021 earnings call. Joining me on the call today are Mike journey, Black box, President and CEO, and Tony Boor Blackhawks Executive Vice President and CFO.
Nick and Tony will make prepared comments and then we will open up the line for your questions.
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 those risks.
We believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure of our business.
Unless otherwise specified we will refer only to non-GAAP financial measures on this call.
Please note that non-GAAP financial measures should not be considered in isolation from or as a substitution for GAAP measures. A reconciliation of GAAP and non-GAAP results is available in the press release, we issued last night and the.
A more detailed supplemental schedule is available on our presentation on the Investor Relations website.
Before I turn the call over to Mike I'll remind you that of recording of our Investor session held in March and the full presentation are available on our Investor Relations website on <unk>.
Also mentioned that during the third quarter, our team will be virtually attending the Oppenheimer, 24th annual technology, Internet and Communications Conference and Jefferies Virtual software conference.
And we will be participating in virtual non deal roadshows with the investors both domestically and abroad, if you're interested in connecting at 1 of these events. Please email IR at Black box Dot com with that I'll turn the call over to you Mike.
Thank you Steve.
Everyone. Thank you for joining our call today Blackboard had another strong quarter as our markets progress toward the post pandemic recovery and the shift to a digital first world continues to accelerate.
We have so much of the excited about as a company Inc.
Given our strong performance through the first half we're well positioned for success as you look ahead to the second half of this year. After the next several years Tony will cover the financials in more detail shortly but the trends through the first half combined with our latest financial outlook suggests we could exceed our best estimate.
The new scenario laid out on our Q4 earnings call, whereas our upside scenarios continuing to look more likely.
You've heard me say in the past eventually taking place on the last year and half will be catalyst for the industry to adopt digital capabilities and move even faster towards modern purpose built cloud solutions with.
But the first half behind Us I believe we're saying this take hold.
Increasingly bullish on the outlook for our market our customers and our company as we move through 2021.
Turning to believe blackboard stock is undervalued, given our outlook and thus we continued our share buyback program in the second quarter.
The impact of the pandemic manifested itself in different ways across the broker markets, we serve but we're now seeing encouraging signs of recovery across the board.
In fact, 2020 was the highest year of U S charitable giving on record growing to over $470 billion. According to giving USA in.
In addition to record levels of giving overall the purse.
<unk> of giving done online grew by 40% year over year and the total industry went from 9% to 13%.
This is a trend we believe is here to stay.
We're also beginning to see the return of physical events for our customers with more organizations planning for in person events. During the second half of 2021 the.
The Great example, is our arts and cultural vertical where zoos museums and other cultural organizations were challenged with lost revenue from the absence of in person attendance and events last year.
But we can see in the data the emissions and associated payments volume are now on the rise.
And in our K 12 vertical schools are planning for the upcoming school year, having navigated from virtual to hybrid and now in person learning and fundraising.
Last month, we again virtually hosted thousands of registrants and our annual Tech conference for K 12, private schools, Yeah that featured innovation updates and deep dives around the blackboard education management platform as well as best practice and thought leadership sessions across all areas of school of management.
We remain very well positioned as the leader in the K 12 market and overall, that's the best long term partner for social good organizations across all of the markets we serve.
Turning to the quarter I'll provide a few updates on the context of our 4 point strategy on.
I'll start with our strategy to delight customers with innovative cloud solutions since the pandemic began last year, we've been quick to re prioritize the expedited product enhancements to support our customers' changing needs as they adopt to operate more digitally.
For example, I mentioned were seeing arts and cultural organizations begin to open the doors.
They reopened maintaining high standards of the safety and security of their patrons of the top priority.
So just a few weeks ago, we announced the general availability of payment terminal. The solution allows organizations to receive secure contactless chip and tap payments for tickets and donations to blackboard all true of Black card merchant services not only does this minimize out of handling of credit cards.
During the point of sale enables them to process payments 3 times faster than with the magnetic swipe device and protect their true tissue Ensign organization from credit card fraud with E. On the certified card readers that offer end to end encryption.
During the second quarter, we also announced general availability of <unk>.
<unk>, Peter peer fundraising powered by Justgiving, and Australia, New Zealand and Canada.
So as Kevin has already proven to be a game changers of organizations across the globe looking to raise more funds digitally and we're thrilled to bring this turnkey solution to <unk>.
Even more organizations with no subscription fees or sub costs.
We are of a unique approach with the just getting pricing structure away from the fixed platform fee. So of voluntary contribution model a true win win for us and our customers.
<unk> made tremendous progress globalizing our products in recent years, and just giving US yet. Another example of this.
Additionally, your cost is poised for globalization as we look to capture tremendous international opportunity with forthcoming market launches in Canada, the UK and Australia.
The return of mass participation events alongside of the market launch investments, we made in the U S, Canada, and Australia, plus further pricing innovation have us optimistic that we will see strong sustained growth.
The international markets in the short medium and long term.
And as I've said before our ability to drive innovation is no longer just about black box engineering efforts as we continue to build on our partner programs. Just last month, we hosted our annual developers conference where attendance was up 50% year over year and our investments in support for open AP is resonating with customers.
<unk> and partners alike.
Our vision is to power of community of developers and partners, who are passionate about social good to create amazing new capabilities evolve as the needs of their organizations evolve and we're just beginning the scratched the surface of what's possible here.
Next I'll cover our strategy focused on employees culture and ESG initiatives.
The share marks blackboard, 40th anniversary and since day, 1 our focus has been on building a better world. We just capped off a month long celebration with our employees some of them.
Who have been around to watch our business grow from just 1 product to providing purpose built solutions the entire social good industry.
As we reflect on this milestone we remain steadfast on our commitment to enable our customers to drive more social good to support our communities from inside and outside of work and celebrate our people to which we all of our success.
Our company is made up of employees from all over the world who come from diverse backgrounds and experiences and we're thrilled to celebrate these differences and unique contributions to honouring celebrations and observed since that reflect the quality justice and further promote of higher purpose to help could take over.
In June alone, we honored pride month in June team, our strong corporate culture enables us to retain and attract top talent around the globe, which is even more critical in today's environment and we're building on the strength of recent hires and the creation of new roles focused on establishing new pipelines of talent.
Including outreach of diverse campus programs HBC use of national diverse organizations. In Q2, we also furthered our efforts to create the best in class candidate and employee experience with the launch of our new careers site the.
This enables us to lift our social presence and visibility create personalized experiences for candidates via AI reduce the time to apply by half and accept applications start to finish off on the mobile device.
It also enables us to leverage data analytics to better understand the talent marketplace and inform future investments.
This is a big step, especially when combined with our work force strategy, both key parts of our internal digital first approach.
This brings me to our strategy to lead with World class teams and operations as I've said this expands on our previous strategy to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the rule of 40.
And supported our strategy during the second quarter, we merged our enterprise market group and general market group to create 1 U S market group reporting to Kevin Greg Waller, who many of you heard from an investor session. In March we did the should better align our resources towards customer retention and growth we have of <unk>.
From the executive team.
We're all incredibly capable leaders delivering on our mission and executing on our strategy as part of this recent change Kevin Mooney, who previously led our general markets Group is now focusing on M&A as executive Vice President strategy and business development.
Which brings me to our strategy to expand our total addressable market by acquiring and building a partnering into near adjacent markets and expanding within our existing markets. We have a strong historical track record of driving inorganic revenue growth through M&A with last year being the exception.
Given our primary focus was on our employees, our customers and preserving liquidity during the pandemic.
We are now actively evaluating opportunities ex acquisitions remain an important element of our growth strategy going forward.
I remind you that with the combination of organic growth and M&A, we have the history of double digit revenue growth.
I'll summarize by reiterating that I continue to be bullish about the opportunity ahead of us.
The market is showing signs of strength and organizations are planning for post pandemic recovery.
We continue to make investments in key areas like digital marketing innovation security and customer success as we look to extend our leadership position.
We of our sights set on a substantial opportunity ahead of us to drive meaningful acceleration in financial performance in the context of the rule of 40.
Blackboard is well positioned to capture of the organic and inorganic growth opportunities in front of US overall, we had a solid first half and I'm excited about the coming quarters and 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 Good morning, everyone.
Today I'll cover our results for Q2 on our latest 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 of our Q2.2021 financial performance.
We had another solid quarter of execution, which has us well positioned heading into the second half of the year second quarter recurring revenue growth was roughly flat year over year inclusive of the tough compare in our payments business, which was expected given the elevated volumes we saw at the onset of the pandemic.
Our contractual recurring revenue, which is the core of our business grew $3 million during the quarter and the trends, we're seeing in bookings and renewals bode well for continued growth in the second half onetime services and other revenue declined $3 million, which was approximately.
<unk> 100 basis point drag on total revenue growth again, we expect this drag the bottom as soon as 2022, which should result in a lift on total revenue growth of the future.
And as I said on our last call macro level drivers, coupled with pent up demand and increased levels of online, giving great opportunities for us to achieve low to mid single digit revenue growth as early as 2022.
Moving to earnings our second quarter gross margin was 59, 1%, we generated adjusted EBITDA of $66 million.
Representing an adjusted EBITDA margin of 28, 7% and diluted earnings per share of <unk> 82.
As you know last year, we evolved our go to market strategy with the digital first mindset, which was substantially which has substantially reduced our go forward cost base of sales and marketing.
I'm really pleased with the progress being made to enhance sales productivity and we remain committed to further improving our cash payback and increasing sales velocity we.
We are also continuing to make critical investments in 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 I'll reiterate that our current plans call for the level of investment to increase in the second half and Thats, our estimate of roughly 25.
The 5% adjusted EBITDA margin haulage is our best estimate for the full year 2021.
That brings me to the cash flow statement of balance sheet. Our Q2 free cash flow was $57 million, an increase of $8 million year over year, and representing a free cash flow margin of approximately 25% as Mike pointed out the market and our customers are showing signs of recovery and is just 1 example of this.
We had our best cash collection month ever as a company in the month of June.
We put that strong cash performance to use and completed $30 million of opportunistic share repurchases during the quarter.
We still feel that the valuation today does not fully reflect where we're heading as a company.
We ended the quarter with $517 million of net debt our capital strategy calls for a debt to EBITDA ratio of less than 3.5 times at the end of Q2, we stood at 1.8 times, which is our targeted optimal leverage ratio.
And we had 100 and we had $410 million of borrowing capacity.
As of June 30, we had approximately $150 million remaining available under our current share repurchase authorization as we look forward. We plan to continue opportunistically executing on share repurchases when our internal estimates determined that the company shares are undervalued by the market.
Moving to our outlook for 2021 from a revenue perspective, we are encouraged by our first half performance on the durability of our recurring revenue streams.
With 2 quarters now behind US, we have greater visibility into our second half performance. However, accurately predicting the duration and magnitude of the pandemic remains a challenge and in particular, the heightened level of variability in transactional revenue makes it difficult for us to put out definitive guidance range is like we've done in the past.
That said.
Again provided provide our latest perspective on our best estimates for 2021 in relation to the scenarios, we laid out on our Q4 call.
Our first half performance combined with our latest modeling and gives us additional confidence we could exceed the best estimate of $900 million in revenue and suggests we may achieve our upside scenarios of roughly $910 million to $920 million.
This is inclusive of an anticipated 15% to $20 million decline in onetime 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 in revenue growth post pandemic.
We continue to expect to see a pickup in bookings in the second half of the year and we're encouraged to see our customers schedule the in person events, which bodes well for recovery and the associated of transactional revenue beginning in the second half at this point the trends we're seeing through the first half combined with favorable foreign exchange rates have effectively taken our DAU.
<unk> side, we're never revenue scenario off the site.
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.
We expect to result in future gross margin improvement as we are able to reduce our own colo footprint and associated duplication of costs. The.
The enhancements, we're making our go to market with significant significantly reduce our average customer acquisition cost as well as it related payback period, while increasing sales velocity.
And I do not expect our sales and marketing and customer success of expense to return to pre pandemic levels.
While revenue remains somewhat variable on the near term, we're confident in our ability to manage costs and ultimately profitability as I mentioned earlier certain investments are expected to be more heavily weighted towards the second half of 2021 and Thats. Our latest modeling continues to call for an adjusted EBITDA margin of approximately 25% for the full year are.
Pivot to place a greater emphasis on profitability positions us to significantly improve on a rule of 40 of the post pandemic environment and gives us heightened confidence in our expected future free cash flow generation.
The potential of our second half variability in transactional revenue and bookings makes it challenging to be precise in our free cash flow estimates for 2021 with that said year to date, we've generated roughly $74 million of free cash flow and thus we feel very confident we will exceed the $100 million floor, we set for 2021.
Non.
Given our downside revenue cases, now effectively off the table.
Again free cash flow could vary materially depending on the second half performance of bookings in transactional revenue, but our latest modeling suggests we could generate at least $120 million to $130 million of free cash flow. This year inclusive of heightened investments in the second half.
We will also continue executing against our capital deployment strategy, which calls for ensuring access to adequate levels of capital to grow the business through the balance sheet management rigorous oversight of investments in the business, including the acquisitions and then in identifying and efficiently returning excess capital to shareholders, including the option for additional share repurchases.
<unk>.
In summary, with the first half behind us.
We are incrementally more positive than we were at the beginning of the year and very well positioned for a strong 2021, we have greater visibility into our near term performance and as we exit the pandemic, we see significant growth opportunities ahead of US we are increasingly confident in our ability to hit our mid and long term growth goals.
With the potential to see low to mid single digit revenue growth as early as next year.
We're aiming to achieve the rule of 40 as a company and accelerating growth combined with our margin expansion initiatives puts us on that path and our proven capital strategy, which includes our renewed focus on M&A and our share repurchase program provides us with ample optionality to allocate capital in a way that maximizes value for our <unk>.
Shareholders over the long term.
With that I'd 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 1 on your telephone keypad.
You are using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again as a reminder, please press star 1 to ask a question and please limit yourself to 1 question and 1 follow up to allow us the facility as many questions as possible.
Our first question comes from the line of Parker Lein with Stifel. Please proceed with your question.
Hi, guys. Thanks for taking my question on solid quarter.
If I look at the contractual recurring revenue, obviously much better environment this year and it looks like bookings and renewals of trended.
According to or better than plan has that been recognized are seen across all of the end markets that you play in are there any particular areas of the business that have seen a little bit better strength here as you move into the back half of the year.
Hey, Carter, it's Mike Good morning, No no particular area, that's much stronger than the others bookings of come back pretty well so far this year.
<unk> are doing pretty well.
We're seeing sort of the slow recovery on.
It's the plan everything looks pretty good on those 2 areas.
Got it and then you alluded to it a little bit on the on the script there.
Some events are potentially going to be disrupted.
Net things seem a little uneven with the opening of its theres a lot of stuff on the news around some variance of Covid are you seeing any real time conversations from your customers around potentially reformatting any events that you expected to return in the back half of the year or.
As everyone sort of plotting ahead with the the existing plans of Dave they've made for the back half.
So far the everyone's just moving ahead of major outdoor events are still scheduled slide major marathons those are still on.
A lot of there's a lot of smaller events still planned.
And it is different as you look around the world of the U K is wide open.
The nations are high the Delta cases are falling in the UK.
Canada is pretty good as well, but Australia is struggling so.
Tough time, but in general we see the events still coming back this year on the major ones of plans.
No changes yet.
We'll watch that obviously.
A lot of the big runs and walk the rides and stuff will fall in the spring time as well so we kind of missed those already for this year.
And that will be planned the kind of hit in the first half of next year as well.
Got it great feedback thanks again.
Okay.
Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.
Good morning, gentlemen, so wanted to hit on on some of the digital marketing investments that you've made and maybe somebody at the go to market investments is there any way to size the impact on what that's done to the overall pipeline and if we started to see the efficiency or bookings impact of those investments or is that more on the come.
Yes. This is Mike.
Morning.
Yes, we've made a lot of investments in digital marketing and lead Gen and.
1 of the things that we've.
2 and I think we've mentioned this maybe on the Q1 call, which is holding true as bookings are doing pretty well to plan.
Year over year.
Quite a bit less head count.
All of that goes toward sales productivity.
Some of that is attributed to the digital investments that we've made on.
So the pipeline build is pretty good.
And you can just see the again bookings.
Total head count ratios much better than it was last year.
Brian This is Tony I would add is we've got significant focus especially on the.
The mid market and down on improving velocity of Mike kind of hit on the productivity improvements that we're seeing with heightened bookings with less head count, but we're also simplifying the offer is trying to shrink the sales cycle again, all comes down to velocity moving more units with less sales adds within the day, we're seeing good results there still.
A lot of opportunity a lot of work to do over the coming periods.
Understood. That's good to hear and I, just maybe wanted to hit on the K 12 space I think it's been in the news for a lot of obvious reasons, but we're also seeing federal funding that's coming into the market and historically that's been funded more by state and local resources, Mike I'd Love to get your characterization of the demand environment.
For K through 12, because we kind of head into the 2021 school year. Thanks, guys.
Yes, sure Sean margin for US, we've got a really great product portfolio there.
That continues I'll remind you that we are in the private K 12 space not the public school space.
So it's different related to funding.
But all in all of its a really solid market for us.
And we continue to go after new opportunities therein.
Also getting new opportunities there in the face space market, because theres a lot of K 12 schools.
On the faith based market and we've got a concentration on net market as well.
Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.
[noise] not many of these novel.
Alright. Thank you. Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.
Great. Thanks, guys. Good morning, I appreciate you taking the questions I had 2 Mike 1 for you and then Tony a follow up for you so from Mike.
He just emerging from the pandemic here.
Hey, everybody do the for profit of World and the new non for profit World is kind of like taking the opportunity to kind of re imagine their investments and.
Kevin Macquarrie of as laid out like a really good plan it.
The Investor event that you guys held about.
The calling brought out Ken.
The cloud migration and.
And dental seems great I'm, just curious I mean, where that jibes with a few years ago. You had laid out of couple of near term initiatives near term initiatives and that was the faith based and higher Ed and I know of third of charitable giving is still faith based on that seems like an attractive market, but are those still too that the 2 markets where.
You guys still see the most opportunity or has the pandemic created any any change in that and I'm not expecting you to give away exactly where that might be because I know you said you guys are in the market. The bi but just curious how you think about those 2 and then I had a quick follow up.
Yes sure.
I wouldn't characterize those as the tops of opportunities, but there are good opportunities and we keep moving those platforms ahead.
In the 1 and the phase area, it's our existing portfolio and on our New Church management platform and we still keep driving those ahead.
Moving to that strength.
We're now selling more of the portfolio solution.
That space.
The second 1 is education management.
The new platform that is being sold to smaller colleges and universities and we're continuing to do that and build that platform now.
The third area I'll mention the Oes corporations as well.
Are your cause the acquisition, we made a while back very very strong.
We're really doubling down on.
The investments in engineering there at some of the growth in engineering is in the year caused stays and adding a lot of capabilities more international capabilities for that platform as well.
So all of those are continuing to move along.
And we feel pretty confident in all of them takes a while some of the new loans to yes.
To get going but.
We're closing new deals the new logos all the time on those are moving along.
Okay, great. Thanks, Mike and then.
Tony You mentioned I think you said investments will.
It will increase the bid in the second half if I heard that right.
And is that I know, Mike I talked a little bit about some sales changes that you guys are making consolidated the sales team is that is that the reason for that or could you just talk a little bit about debt expense profile on the second half of this year.
Yes, Rob that's going to be more so in core of IP security and our R&D areas of square those investments fees for that.
Continuing Ted.
Innovate on the NXP and Sky platforms all of that work, we've been doing we're increasing investment there the lose more quickly hardening of our environment security investment. So those kind of things of the Crazy World. We live in the and that's always 1 of that just continues to seem to take resources getting out of our Colo data centers and get the third party cloud provide.
So increase of investments to try and get that done more quickly does the kind of the major buckets, but more on the Rd of corporate IP security area, We don't expect sales and marketing to come back to the levels. It was before.
We believe that the redeployment and focus on this digital marketing and simplify the <unk>.
Green lining and improving velocity is going to allow us to improve bookings with less net spend I think at the end of the day.
Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.
Hey, guys, sorry about that was on mute good morning, everyone. Thanks for taking my question.
Just a couple from me just just thinking about payment understand it had a tough compare.
Last year in Q2, I understand the mechanics, there with the onset of pandemic.
Just trying to think looking forward over the next few quarters, how should we be thinking about payment in the third quarter of being with payments being down last year, and then in the fourth quarter with payments being up last quarter or last 4 kids. Thank you.
Yes so.
We do have some seasonality with payments the fourth quarter is always the ramp up around the holidays on.
Giving tuesday, and just sort of loans like that it's just normal seasonality from.
For this quarter Q3 right now.
Yes, there is some changes that are coming what events coming back we are seeing some of that also institutions that were closed last year of lot of performing arts centers in museums, we've got a strong presence there with all true platform, we just announced and some new payment capabilities with all true with the payments terminal we saw.
The press release out on that on about a week or 2 ago.
And those institutions are opening up and also as well.
On the comprehensive platform net bruns, performing arts centers, including changing of chicken sales, which are starting to come back. So we're starting to see that market operating again and they are.
Pretty dormant year ago interest this quarter on the fourth quarter.
Last year, so some good stuff happening regarding those markets.
Got it thanks, probably the Tony is probably our biggest wildcard for the second half is the payments again on what's going to shake out kind of across the board. That's the hardest 1 to predict because as we've discussed.
Got it got it thanks.
A follow up for you Tony just trying to think about the bridge from non-GAAP to GAAP really around stock pop here I recall there was some changes made during the pandemic last year round comp that showed up with stock comp could you could you remind us about that change and I believe we're almost lapping that decision was curious if the stock.
<unk> levels that we see now is a good way to think about it going forward in our models. Thank you for the question.
We.
At initially taken some action to discontinue merit of 4.1 K promotional increases last year, just not knowing how bad the pandemic was going to be.
We turned around that and move those to be stock based with a 1 year vest. So theres a lot of moving parts in there. So you had merit increases promotional increases.
And then bonus has also moved from cash to stock comp that also had an impact on when the timing of accruals for those items because of the vesting period moved all the way into May of 2021. So it's shifted expense in the 'twenty, 1 and out of 'twenty EBITDA.
Just because of the timing of the accruals and the vesting periods.
<unk> promotional 401k all of those are the items are back to cash base for 2021.
And going forward, we currently contemplate the keep the bonuses equity going forward.
So that would have a bit of of heightened kind of stock comp run rate for GAAP to non-GAAP reconciling item going forward.
And then of course as we stated in the prepared comments. We also did another $30 million of buyback in the quarter.
At this point with the buybacks we've done between Q4 Q1 Q2, we purchased about I think it's 3 years of 4 years' worth of.
Comparable to the bonus being in stock and I think right now we still believe that the stock is undervalued. So I think buybacks are still certainly in play for us in the coming quarters.
Thank you. Our next question comes from the line of Kirk <unk> with Evercore ISI. Please proceed with your question.
Hi, yes, thanks, very much and congrats on a solid quarter I was wondering Mike of either expand a little bit more on your comments just around M&A.
It seems like your thought process around that's ticked up a little bit of I assume that's because you guys are feeling really good about the the core business, but what are you hearing from clients also just around vendor consolidation wanting to have sort of 1 hand, the shake and how you're approaching M&A, maybe a little bit differently. This time versus say 5 or 6 years ago given.
Yeah. The focus on rule of 40, maybe maybe it or not but I was just kind of curious of that plays into your thought process about the type of deals you can look at just in terms of finding that right balance between growth and margin.
Yeah sure so.
And the the second part first 1 rule of 40, so yes from the M&A perspective, and our goal of moving down the path of a rule of 40 acquisitions have to help us down that journey.
Not slow us down on that journey, so we would keep that in mind.
When were modeling those things out it's not sort of 1.
The 1 part of it.
On the other part of as we see a lot of opportunities out there and just moved from 1 of our most senior executives in that role of kind of ammonia has been with the company a long time.
Kevin.
Ron.
Half the business for a decade, or so and now has moved over into the strategic planning in M&A full time.
So he is on that we think theres a lot of opportunity.
Given our balance sheet and cash flow.
Year to date and go forward, Yes, Tony's point about cash flow.
On being more like $120.130 of $100 million, yes, we're in a good position there there's lots of opportunities.
Do you have.
Many of our markets.
Preferred integrated solution.
And so we look at adding capabilities products. Some good companies that fit into our strategy of the hurdles the market's not where we're focused on.
And integrating those platforms.
Gives us upside opportunity from a cross sales standpoint.
But it also simplifies the IND.
Environments for our customers, which is really important as well so none of those strategies of really have really changed yes, we took a pause last year because of the pandemic.
With this.
And we also given the structural changes we've made in the business.
On a very very different position from a cash flow standpoint.
Just recall also lot.
Fourth quarter or so last year, we recapitalized the company and so we have a lot of capacity as well.
With that New day group deal that we did so between the.
Of that new deal from a capacity standpoint cash flow.
And the opportunities in the market I think we're in a really good spot on the M&A standpoint.
Let me per helpful, Mike and maybe 1 sort of separate question on.
Hence our commentary.
The commentary you mentioned that the the pricing model is unique in and out of your customers don't have to have sort of a fixed price and then it's more about donors.
And that's something which makes tons of sense is there any sort of comp issue on that front, meaning is that of change or is it always kind of been asked on.
Things come back.
Necessarily.
On the transactional basis of just trying to understand if that's changed or is it sort of material I'm guessing. It's the latter just clarify.
Clarify that.
Yes.
It was kind of hard of hearing you, but I think I got what you said because you were of a little breaking up there but.
On pricing changes what the question was about we have a couple of areas that we focused on there.
We categorize those really of 2.
2 general areas..1 is just a bit of of catch up because we were behind in the margin in a couple of areas, where the competition and other pricing models.
Were changed and increased and we hadn't done that in years and so we have implemented some of those the second area is a new model, which we've proven out in the UK with our Justgiving platform and in fact, we're willing to just gaming platform globally, as well, which I meant.
And in my prepared remarks, so we have a really good model there and it's a win win for blackboard and from customers, where it increases our revenue decreases our customers' costs.
There's a very small percentage of sort of passed on the end donors. It's a really good model for us and it's been very very well accepted.
In the U K. The last couple of years, we are testing that model in other markets like the U S. Not just to adjust giving but on other platforms as well because it's a win win model for us.
And so we continue to test that and we think there is some good upside opportunity.
With these newer models.
Customers like it and jobs on our revenue.
Thank you. Our next question comes from the line of Matt Van Vliet with BPI. Please proceed with your question.
Hey, good morning, guys. Thanks for taking the question.
Like you've kind of alluded to at the very.
The last comment you made but wanted to understand.
How some of these hybrid environments, our hybrid events might work, especially in the back half of the year and into early next year.
By offering a more I.
I guess more robust platform around online, giving them more engagement.
With both in person and online participants does that give you a better opportunity to sort of monetize the entire event.
Or are these still just kind of a stop gap until we get back into sort of fully in person events hopefully in the near future.
Yes, no it does.
Most of that opportunity because what happened last year, yes.
Institutions want to virtual events, it's still happening some of them are going to the hybrid right in person and virtual some will go back the fully in person.
On our platform support all of that so we in the beginning of the pandemic.
Year ago kind of March April had a ton of training and webinars for our customers and share best practices on how to drive virtual events using our platforms on it was really interesting because there are a lot of customers that had in person events for a really long time and with our St.
Platform the platform that they were used to using they switched to virtual and so we train them how to do that with a lot of examples in some of the success stories from the other other customers and so they were successful in making that shift and now we're getting to.
Moving to either continue to stay virtual go hybrid of go back to in person on the west.
All of those are available on our platforms on our customers of them Super successful. The other thing is.
The growth of an online has been massive we've mentioned a couple of times.
Last year online grew from 9% to 13% of total.
All of the margin for donations of Super strong last year in 2020.
In the U S grew by 5.1% to $471 billion, that's huge and a lot of it was online.
So having virtual and in person events is.
Doable on our platforms on the choice of our customers.
Yeah.
Very helpful and then.
Wanted to talk about maybe the corporate CSR market and how your cause has been performing especially as we're hearing a lot more notably on ESG initiatives, but companies being.
The more more focused on employee engagement and understanding various social issues out there on how they can.
Play a role both on behalf of their employees and their brand. So curious how how bookings have been in that area and what your expectations are for the next couple of years in that vertical.
Yes, you bet.
The business unit's rocking it theyre doing a great job, it's growing fast.
They are closing.
Hold named logos.
We've increased our investments in engineering, there quite a bit adding capabilities.
For international customers and international markets.
We've got a new general manager running that business has been with us for a while who has corporate.
<unk> from the financial services industry and each day.
And with blackboard for several years.
Fully in place we've got some new leaders in the area. We moved over 1 of our very successful sales leaders. There we moved over to 1 of our very successful engineering leaders. There. There's a new head of customer success. We've hired there from outside of the company a couple of months ago, So really solid senior team.
And the thing on the business is doing well, what's great about that to your point is.
On slide into the S in ESG.
Lot of companies are focused on ESG and they're focused on.
The driving their culture and the brand to give back the amount of what their core businesses because of their employees want that and it's a key tool to retain and attract employees to create volunteer and give back opportunities and youre causes is a great platform for that it's being quite.
Successful.
So we're really happy with what's happening there and in the future as I mentioned.
We really doubled down on adding a lot of engineers and engineering head count because of the growth is there and we see that for the very long term as well.
Thank you. Our final question. This morning comes from the line of March of <unk>, which of Benchmark Company. Please proceed with your question.
Hi, Thank you for taking my question.
Tony.
<unk>.
With respect to retention rates and that was 1 of the components of your growth strategy and I'm wondering if you could just address where retention rates so out of the quarter.
Yes on the quarter I think Mark we will see maybe just a slight decline.
The 92% from 93% Youll see that in the in the queue I believe the.
In the life shutting down the.
Everyday hero product had an impact on the unit volume those are very low dollar units that we didn't like that with the.
Replacing most of that with the Justgiving platform in Australia, New Zealand and if you had the places around the world, where we had some of those everyday hero products I think thats caused a little downtick here within the quarter I would expect that will kind of bounce back the other direction as we get to the other side of that in the life, but all of the other renewals on the core.
Products are holding really well, we've got a big focus as you know.
On improving retention and I think those efforts are starting to pay dividends on more of a fall over the next several years will continue to see both gross and net dollar retention improvements as well as unit retention of bridge.
And of that 2 we've got a new executives in the company debt.
So on the press release out on a couple of months ago Christine.
Long term executive and he's running our customer success function.
On a really great add on.
And the.
Small customers that were on everyday hero, we shut the popcorn down.
Because we rolled out just given globally and just giving is growing fast and half of that new pricing model and has been very very successful. So we sell all of our legacy platform ahead of a bunch of small customers on it.
Right.
We rolled out just given globally, which is a really great replacement for that older everyday hero platform. So that was really positive moves.
On bringing that platform globally, what that new pricing model.
Okay, great. Thanks, and then Tony with respect to the investments addressed in your prepared remarks.
Were these investments planned at the beginning of the year 1 of the budgets were set or is this a new spend.
No. These were all planned market the begin the year and would have been in the budget.
The timing on getting the things so many of their head count related on many of those investments on the hiring process can cause a little bit of shift the or largely on track with where we expect it to be I think we may add.
<unk> run a little slower in getting folks on board of it then we would of plans with the budget, but the overall budget largely as in line.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. <unk> for any final comments. Thank.
Thank you operator ill just close by saying we have a lot to be excited about and I'm really pleased with where we're tracking through the first half of the.
This year.
We're seeing lot of positive signs of potential second half recovery as I mentioned and I believe we're very uniquely positioned to elevate our status as a leader in the market.
Looking ahead I'll remind you that we have multiple line, which to accelerate revenue growth and margin.
Kind of across a couple of areas first just the general pandemic recovery whether the.
Net driven the transactional revenue and bookings returning post pandemic second as we've talked about a few times, if your pricing model and price catch up of opportunities and third we're actively looking at M&A opportunities as well, we believe that the steady execution against the rule of 40 financial framework and our continued commitment.
The disciplined capital deployment will generate substantial shareholder value. Thanks, everyone.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.