Q4 2021 Blackbaud Inc Earnings Call

Good day and welcome to the Blackboard first quarter 2021 earnings call. Today's conference is being recorded I'll now turn the conference over to Steve Hubbard. Please go ahead Sir.

Good morning, everyone. Thanks for joining us on Black box fourth quarter and full year 2021 earnings call. Joining me on the call today are Mike <unk>, President and CEO and Tony Boor, <unk> 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 those risks, we believe that a combination of both GAAP and non-GAAP measures are more representative.

How we internally measure our business.

Unless otherwise specified we will refer only to non-GAAP financial measures on this call.

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 a more detailed supplemental schedule is available in our presentation on our Investor Relations website.

Before I turn the call over to Mike I'll briefly mention that during the first quarter our team will be participating in virtual investor meetings hosted by Stifel on March 2nd and we will attend the Raymond James 40, <unk> annual institutional investors conference in Orlando on March 8th and ninth please.

Please reach out to IR at Blackboard Dot com, if you're interested in connecting at these events with that I'll turn the call over to you Mike.

Thanks, Steve and welcome everyone.

Thank you for joining us on the call today, the fourth quarter was a strong finish to what was a very successful year for black clog and our customers on a much improved market backdrop.

Our organic reoccurring revenue grew 4% our adjusted EBITDA margin was 24, 5% and we generated nearly $30 million of free cash flow, which was up roughly 20% over Q4 2020, we finished the year with total revenue of $928 million.

<unk> not just our best estimate heading into the year, but also our original upside scenario.

Adjusted EBITDA margin for the full year was 26, 5% and 150 basis points above our original best estimate.

And free cash flow was 162 million, which marks one of our best free cash flow years ever.

Just over a year ago, we laid out the road map for our journey to achieving rule of 40.

And we're already pacing ahead of our own expectations.

We ended 2021 at 27% on a rule of 40 basis at constant currency, a full two percentage points higher than our near term expectations.

Well it has been really excited what's on the horizon, we have solid visibility into what should be another strong year in 2022.

Further acceleration on a rule of 40 basis, the mid point of our financial guidance ranges for this year calls for total revenue growth of approximately 17%.

<unk> of our recent acquisition of <unk> a.

A significant acceleration in organic revenue growth to approximately 5% and nearly 30% on a rule of 40, which is roughly 250 basis point improvement year over year constant currency.

Combined with our 2021 performance that equates to roughly five percentage points of improvement on a rule of 40 relative to our expectations in just two years since laying out our long term aspirational goals.

Given our strong performance and our acquisition of <unk> at the end of last year. We're also pulling forward our timeline to achieve our long term aspirational goals.

We expect to achieve our original mid term goal of mid single digit organic revenue growth. This year 2022, which is a big acceleration in revenue growth and several years ahead of schedule.

Additionally, we have heightened confidence our original aspirational goal for mid to high single digit organic revenue growth annually is now well within reach.

With a guidance of roughly 30% on a rule of 40 in 2022 and.

And our accelerated expectations for future top line and adjusted EBIT growth, we have line of sight into our ability to continue to improve and the rule of 40 going forward.

The pandemic inflation and the current labor market are certainly topics that we continue to monitor.

We are very encouraged by the near term and long term growth opportunities in front of us.

Tony will cover our financials and our 2022 outlook in more detail shortly.

Our performance for the quarter and the full year is a direct result of our successful execution against the growth and margin drivers we laid out at our investor session in March of 2021.

As expected our revenue performance accelerated in the second half of 2021.

As our near term growth drivers start to take hold with bookings improving year over year pricing initiatives underway and in person events beginning to return.

And we're confident this momentum is sustainable our end markets are taking the lessons learned during the pandemic and looking forward with a digital first mindset and their technology strategy at the forefront.

I'll highlight one example of many.

Accident Academy and independent High school with a centuries old tradition of academic excellence recently selected Blackberry education management, and raisers edge NXT to serve as core systems in support of a multi year effort to build a best of breed set of cloud solutions there.

Their evaluation for education management alone.

You did over 700 individual requirements and a comprehensive annual review with Blackhawk emerging as a clear leader.

Differentiated by our modern cloud architecture, the extensibility of our best in class solutions, our growing partner ecosystem, our vast user community and our commitment to customer success.

We are uniquely positioned to serve as a key technology partner for our customers and we gained momentum in 2021 with fantastic wins at organizations like LSU Foundation, Adrian College American Museum of natural history.

The National Fund for Animal Welfare National Park Foundation, Alzheimer's Association and del Monte just to name a few.

Not only is our go to market motion picking up steam, but we're executing a strategy that enables us to gain efficiencies at the same time in.

In 2021, we drove a substantial increase in sales rep productivity, while significantly improving our CAC payback period.

As I said on our Q3 call I believe we are at an inflection point for our market and our company and there is no shortage of growth opportunities ahead.

We continue to drive industry, leading innovation customer success security and cloud infrastructure.

I could take up the entire call highlighting examples of the innovation and determination I've seen from our teams to highlight just a few we released an entirely new experience for all of our blackboard grantmaking customers.

Also we're transforming the entire accounts receivable experience and financial edge NXT.

Just giving to new global markets delivered secure contactless payment capabilities to arts and cultural organizations and roll out the availability of getting checkout in the U S. As an easy to add simple to use donation button that can be used by any nonprofit organization.

The ecosystem, we're building in the market with offerings like giving checkout, just giving them the global network of nonprofit charities Ngos receiving funds through our <unk> solution is impressive and I believe underappreciated.

There are over 150000 organizations across the globe receiving funds, thanks to a black box solutions.

We're committed to giving customers the flexibility to benefit not just from black box innovation, but also from the blackboard marketplace and our rapidly growing developer community with more tools than ever to create new capabilities that extend blackboard solutions. We now have over 6000, non Blackberry developers right.

Mr in our ecosystem and we're driving substantial growth in the blackboard marketplace.

We've enabled roughly 6500 organizations to find a curated app that helps them work smarter and the number of apps available is growing rapidly increasing nearly 90% in the last year alone I'm really excited about the network effect, we are creating here as we help our customers drive more impact.

<unk>.

It's clear the vision of the Sky platform, we laid out several years ago is becoming a reality the <unk>.

<unk>, we're driving in our products and our architecture results in greater scalability and a lower cost operating structure. For example, we're well underway on a multiyear journey to shift towards third party cloud infrastructure providers and by the second half of this year, we expect to begin exiting some of our Colo.

The centers.

This shift reduces our operating costs, while enhancing our ability to deliver secure stable modernize and affordable solutions for our customers.

Another core component of our four point strategy is expanding our addressable market, we closed out the year in a big way with the acquisition of <unk> on December 31.

As a reminder, we hosted a call on January 4th with <unk>, founder and CEO , Tom Davidson recovered an overview of <unk> and the transaction details.

Transcript of that call and accompanying presentation are available on our Investor Relations website.

In short <unk> shared mission driven culture World class team.

<unk>, leading impact as a service cloud platform large addressable market and high growth reoccurring revenue model checked all the boxes that we look for in a high quality acquisition.

This acquisition advances our position as a leader in a rapidly evolving ESG and corporate social responsibility spaces.

<unk> roughly $10 billion in Tam, which doubles, our total addressable market opportunity to $20 billion.

So significant over half of our addressable opportunity is now in the corporate sector.

As companies continue to invest more in programs to get back to their communities together Blackhawk and <unk> will be a leading partner to help them drive meaningful social impact across a large span of technology enabled program earrings from community education to voluntary to grant, making and philanthropy.

We're also going to aggressively pursue what we believe to be a substantial revenue synergies in the form of cross selling and up selling given the complementary product offerings, what are your cost solutions and minimal customer overlap.

<unk> financial profile is highly attractive.

And will be immediately accretive to our revenue growth, adding an estimated $120 million 2022 revenue, but are also profitable with a sub 5% EBIT margin in 2021 that we conservatively expect to be closer to 10% now just a couple of months post close and theirs.

Significant upside potential throughout this year and going forward.

The combination of sustainable double digit revenue growth and improved margin profile as we complete future integration work means <unk> should be accretive to black box rule of 40 in the coming years.

This acquisition combined with our recent company performance and our updated outlook allows us to significantly pull forward our timeline for achieving our long term goal of mid to high single digit organic revenue growth for being a few years out. So now beginning this year in 2022.

I am very confident that the combination of blackboard and <unk> adds tremendous value to a very large and rapidly growing market, which will accelerate our growth pillar, our long term financial goals forward and create value for our customers and our shareholders.

2021 was also a big year for our own internal ESG efforts as well.

We formalized our ESG program joined the UN Global compact advanced our voluntary ESG reporting and we're actively pursuing carbon neutrality.

Our focus on employees culture ESG initiatives have been in our DNA since the company was founded 40 years ago and it has.

Big advantage as we look to attract and retain top talent, which is even more critical in today's environment.

We're thrilled to be included among America's top companies as a corporate social responsibility and ESG leader.

With external recognition such as the U S Chamber of Commerce Foundation Citizen Award and Newsweek's list of America's most responsible companies and Forbes America's Best employers list for mid sized companies.

<unk> is a unique company showing that it's possible to provide exceptional products generate shareholder value and do good in the world.

By staying mission aligned we built not just a successful business model, but an innovation engine has played a role in driving advances on social issues of every kind.

In summary, I believe 2021 was a turning point for our market and our company, we're carrying a lot of momentum into 2022, and we just layered on a tremendous acquisition in <unk>.

I believe our plan to accelerate progress towards achieving rule 40 by balancing sustainable mid to high single digit organic revenue growth and meaningful margin expansion over the next few years is a winning combination for Blackrock and our shareholders.

Our teams are executing at a high level and I'm confident we're well positioned to capture the opportunities in front of us.

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 Q4 and full year 2021, our outlook for 2022.

And our updated long term financial targets.

Please refer to yesterday's press release, and the Investor materials posted to our website for the full details of our Q4 and full year 2021 financial performance.

The continued acceleration of contractual recurring revenue growth and another strong transactional revenue performance drove Q4 recurring revenue growth of 4%, we've seen strong year over year improvement in sales productivity per rep, which has helped drive an increase in overall <unk>.

Bookings, we also continued to see strong positive trends and renewal rates that exceeded our plan for the full year and some of our early pricing initiatives starting to have a meaningful impact.

This is a great indication of what's achievable going forward as we continue to execute against the 10 growth drivers laid out at our investor session last year.

On a full year basis, our organic recurring revenue growth was three 5% and onetime services and other revenue was roughly a 190 basis point drag on our total revenue growth.

After several years of strategically shifting away from onetime services, we expect this drag to bottom out in 'twenty, two and we're guiding for minimal impact on full year 2022 total revenue growth.

Overall, we're very pleased with our revenue performance in Q4 and full year 'twenty one we.

We expected an acceleration in the second half and not only did our results deliver but they exceeded expectations. We're excited to carry that momentum into 2022.

Moving to earnings our fourth quarter gross margin was 55, 3%, we generated adjusted EBITDA of $61 million, representing an adjusted EBITDA margin of 24, 5% and diluted earnings per share of <unk> 75 cents.

Please recall that the fourth quarter tends to be our seasonal low for gross margin given it includes our user conference Bebe Com, which we again offered for free to our customers and Q4 is typically our seasonal high for payments revenue, which is generally dilutive to our total gross margin.

Overall, we are laying the foundation for considerable margin expansion going forward and for the full year 2021, we had an adjusted EBITDA margin of 26, 5%. This was roughly a 150 basis points ahead of our original best estimate for the full year adjusted EBITDA margin due to a combination of strong execution.

And timing of planned spend.

As we mentioned on our last call. We continue to have good success, attracting top talent in a competitive labor market. We also successfully transitioned to a remote first workforce in 'twenty, one and going forward, we will opt for more flexible on demand office and team space.

In addition, we will use our headquarters office in Charleston, South Carolina for customer meetings employ gatherings and team building.

This resulted in restructuring and other real estate charges of approximately $12 million for the quarter as we shattered most of our remaining losses.

That brings me to the cash flow statement and the balance sheet, our free cash flow was $30 million for the fourth quarter a year on year on year increase of $5 million or 20%, representing a free cash flow margin of approximately 12%.

For the full year, we generated approximately $162 million of free cash flow with a free cash flow margin of 17, 4% an increase of 910 basis points year on year.

This was largely a result of our strong operating performance.

And was well above the original $100 million floor, we said at the beginning of the year.

Also note that we completed another $10 million of opportunistic share repurchases during the quarter, bringing the total amount of shares repurchased in 2000 $21 million to $108 million.

In December our board of directors, reauthorized, and replenished our share repurchase program to $250 million and we plan to continue on.

Domestically executing on share repurchases when our internal estimates determined that the company shares are undervalued by the market and we have adequate availability to capital.

We ended the quarter with $901 million and net debt with an additional $240 million of borrowing capacity following our acquisition of <unk> or.

Our capital strategy calls for a debt to EBITDA ratio of less than three five times.

And at the end of Q4, we stood at three three times.

Consistent with previous acquisitions, we plan to rapidly Delever in 2022.

We also remain active in evaluating future acquisition opportunities.

Now, let's turn to 2022 are.

Our full year 2022 financial guidance is available in yesterday's press release and is inclusive of our acquisition of ever fine.

So covered the high points of our underlying assumptions for Standalone blackboard, excluding <unk> the midpoint of our guidance includes an expected acceleration to mid single digit organic revenue growth and adjusted EBITDA margin of roughly 26%, resulting in roughly 30%.

On a rule of 40 basis, which is nearly 300 basis points of improvement year on year at constant currency.

And then anticipated adjusted free cash flow margin of 17, 6%.

Also included in our guidance, we are estimating that <unk> will generate approximately $120 million in revenue, adding roughly 13 points to our total revenue growth rate, we expect <unk> to add approximately $13 million and adjusted EBITDA, which is dilutive to our combined EBITDA margin by roughly <unk>.

160 basis points.

So I'll note there is likely material margin upside as we complete our integration work and pursue both revenue and cost synergies.

From a revenue perspective, the midpoint of our guidance calls for approximately 5% organic total revenue growth at constant currency and our organic recurring revenue growth should be similar as we're not anticipating much if any drag from onetime services other on a full year basis.

Consistent with our historical definition of organic revenue growth our acquisition of <unk> closed on December 31, 2021, and therefore will be included in our organic revenue growth calculation in 2022, and we will pro forma 2021 results as if we had owned them for an entire year.

<unk> constitutes roughly a point of 2022 organic revenue growth expectations.

We anticipate the majority of our full year organic revenue growth in 2022 to come from accelerated contractual recurring revenue growth continued strength in our transactional revenues and leveling off of our onetime services and other revenue.

From a profitability and cash flow perspective, we're well underway in our efforts to drive efficiencies in our go to market and additional scalability in our products and infrastructure and we're well positioned to drive substantial margin expansion beyond 'twenty two.

We anticipate roughly $30 million to $33 million of interest expense inclusive of the incremental debt associated with our acquisition of <unk> and we estimate our non-GAAP tax rate will remain consistent with 2021 rate of 20%.

Moving on to cash flow.

Coming off a tremendous year in 'twenty, one we're expecting additional growth in our adjusted free cash flow in 'twenty two or.

Our estimate for combined capital expenditures is expected to be $60 million to $70 million.

Please note our guidance for adjusted free cash flow excludes cash to be spent net of insurance related to the ongoing litigation of our previously disclosed security incident.

We expect to exceed the limits of our insurance coverage in the first quarter of 'twenty, two and currently anticipate a net cash outlay of roughly 25% to $35 million and the full year 2022 for ongoing legal fees related to the security incident in.

In line with our policy, we expense legal fees as they are incurred.

Also as of year end 2021, we have not recorded a loss contingency related to the security incident, given the current unpredictability of the timing and magnitude of potential financial obligations that could result from the security incident.

With that said, we believe adjusted free cash flow provides a useful measure for our operating performance, but we will also continue to be transparent in our disclosures relating to the security incidents and associated financial impacts.

Lastly, 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 balance sheet management rigorous oversight of investments in the business, including acquisitions, and identifying and efficiently returning excess capital to shareholders, including the option for additional.

Share repurchases.

In summary, 2021 was a strong year for blackboard in 'twenty two has us even more excited.

We're executing against our strategic plan to achieve a rule of 40 as a company and our accelerating growth combined with our margin expansion initiatives has us well positioned to accomplish this goal sooner than we originally anticipated.

We continue to execute our capital deployment strategy and remain committed to allocating capital in a way that maximizes value for our shareholders with that I'd like to open up the line for your questions.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.

Microphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Again as a reminder, please press star one to ask a question. Please limit yourself to one question plus one follow up to allow us facility.

As many questions as possible.

Our first question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Congrats gentlemen, and thanks for taking my question. So wanted to start off Mike will comment on the inflection point was pretty loud and clear, but I'm curious just thinking about pulling forward those mid and long term targets versus your prior expectations, what's really changed that we heard a little bit about pricing sales productivity.

Curious how much of it is maybe blackboard driven versus marquee prevent because you referenced some of that as well. So I'm just looking to unpack that a little bit.

Sure Brian Thanks, Thanks for the question <unk>.

It's a combination of things the market is opening up with events coming back we've talked about that for a while.

We've also been executing quite well the last several quarters and this is translating into being able to pull those long range.

<unk> targets forward into 2022.

We've had our <unk>.

Multiple price.

Efforts coming into fruition, we talked about that almost a year ago now and there are several and theyre kind of paced out because they are different.

Types of initiatives.

Increase in sales productivity is happening.

Good pipeline coverage and production.

From that standpoint.

Got some operating improvements that are still coming I mentioned in my prepared remarks finally towards the backend of this year, we're going to close a couple of our Colo data centers, which helps a bit.

So it's the combination of the things that we really laid out at that Investor day.

A year ago coming to fruition. The company has executed all of those quite well.

And then we've got an addition of a great acquisition and <unk> coming in.

Driving the top line a little faster.

We finished the year stronger than anticipated in Q4, including things like bookings, which translates over into 'twenty two.

So it's all of those things that we've been executing on quite well coming together.

Brian This is Tony I would add a couple.

Online, giving obviously, we've seen some significant increase there and that gives us another revenue stream opportunity in many cases as well as renewal rates have continued to trend very very positively we put a lot of focus on customer success and getting our customers real value out of our solutions and we've seen some.

Positive trends on renewal rates and those have continued into this year as well and already running well ahead of plan and I think the last thing, which is really not built into this yet as we still have quite a bit of work to do on the revenue and cost synergies associated with <unk> and I said in my prepared comments, we expect theres. Some good material upside as we get through planning for those <unk>.

<unk> on top of it.

Understood.

And maybe just a follow up you mentioned that half the Tam is now in the corporate market I'd be curious what is the revenue growth.

It looked like for you guys over the last year or two I'm, assuming it's a follow up I just wanted to confirm it or how do you balance the investment in some kind of incremental growth opportunities.

Corporate opportunity that's now have your Tam versus your existing portfolio today. Thanks, guys.

Yes, sure it's been strong for US the year College acquisition has performed really well we've.

We've invested more in resources.

In our corporate.

Sector.

You are cautioned grants platform ever.

<unk> is in addition to that which is a fast grower and very accretive and so that marketplace that ESG and corporate social responsibility marketplace, which makes up our corporate solutions.

As a fast grower, it's a big Tam it's half our Tam now.

And it's very accretive to the company as well so we continue to balance our investments were.

We've got a pretty broad product portfolio, there's really 17 core products in the company.

<unk>.

Inside of ever Phi.

And it's been a strong market for us and has performed well for several years and advertise additive to that.

Okay.

Thank you. Our next question comes from the line of Parker Lane with Stifel. Please proceed with your question.

Yeah, Hi, guys. Thanks for taking the question maybe just to follow up on Brian's question. There are number five what are the initial conversations looking like between the <unk> customer base.

Your clients' customer base and what are those joint go to market efforts look like today. It's just a work in progress situation. It's obviously, a fairly new deal, but how quickly should we start to see those respective sales teams coming together and start achieving some of those revenue synergies you were just talking about doing it.

Yes, sure I'll take that Parker, it's Mike we've been talking about that for a while including working on due diligence last year. That's one of the synergy opportunities for us. So we've had a really good start.

With <unk> post close and a couple of areas. One is the coordination of go to market or are your cause.

Buyers are the same corporate buyers as ever Fi.

There is little customer overlap. So the cross sell is sort of just sitting there and we've organized ourselves to go after that both cross selling to <unk> customers and then every five <unk> customers and then also the integration.

Operationally is going really well, we're integrating right out of the gate all our corporate functions.

And that's going really well, we've got a lot of experience in that we've got a really solid set of operating models and corporate it systems that we're integrating them too.

And if you're really going quite well.

And these are really great.

Culture synergy between ever volume Blackboard, we've come together quickly as one company, there's a clear opportunity that our larger scale is going to help them scale faster in the back office and in go to market.

I'd say super positive run out of the gate and we're right on target of what we thought we would do from an operating plan standpoint.

Got it and Mike when I look at the improvement in the adjusted EBITDA that were filed in 2022 or the anticipated improvement is it simply those operational changes that you just referenced there or did that come mostly in the form of <unk>.

Really heightened levels of sales efficiency in that business because of the anticipated cross sell opportunities.

Yes, I would say that that improvement from last year to this and their EBITDA.

We basically achieved that.

The view that it took about a month.

I would also tell you it's early days.

With that EBIT opportunity with <unk> as well.

Because we offer a lot of scale.

That business and so.

There is upside to that frankly, even in the short term and.

And it's coming from a couple of areas one that I already covered.

<unk> back office, a few other areas.

I appreciate it thanks, again and congrats on the quarter.

Thanks Bart.

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.

Mike.

Couple of points.

Thompson.

In your prepared remarks, you mentioned about sales productivity and I was just sort of wondering what what the focus is on for this year on that front. Just any are there any changes just anything you could add on that on that basis would be great.

Yes, sure I mean, we keep improving our sales productivity customer acquisition costs have gone up nicely last year, we plan on doing that again this year.

A lot of it's coming from a bigger investment in digital tools.

And automation.

Digital lead generation.

And just having.

Better way to go to market if you will.

And we have that plan to improve this year as well there's more opportunity there.

No doubt. We also think there is opportunity on the <unk> sort of integration side, there as well.

Okay.

You guys are obviously forecasting about 15% growth if I understood that correctly is there opportunity for you all that sort of.

That's more to potentially accelerate that this year or are you just sort of trying to take a fairly conservative approach to that to start.

Yes, I'd say, it's a conservative approach.

We anticipate that partner blackboard nine it would be a 20% grower forward. They did really well last year above their plan in Q4, that's why we have it in there at 15%, but yeah, I think there's opportunity to accelerate that as well so it's fairly conservative.

Thank you. Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.

Hi, Thank you good morning, guys I appreciate it but two for me one just on the pricing initiatives. It sounds like you guys have already begun some of those pricing initiatives I was just wondering if we could get some color on.

How we can expect those to roll in through the product.

Throughout the year will it be rolling across the product lines throughout 'twenty two is.

Is it a one time event and what are your expectations in terms of.

How that contributes this year to that organic revenue guide increase and then I had a follow up.

Sure, Rob I'll start and maybe Tony will add to this too so.

So theres multiple pricing initiatives frankly, the first one started in the summer of last year, we put into place.

Basically get full year effect of that this year another.

Another one started in Q4 ish timeframe.

And thats ramping up so we will get.

Most of the full year effect of that.

This year and in the back half. So that's two of them. Another one goes across the product portfolio and thats coming in over time and another one is a new offering which is a pricing model that we've proven out quite well with just giving.

On a product that we.

We've launched here in the U S. That's going to take a longer multi year ramp up let's.

Let's call it complete cover.

That's underway and Thats a longer term one so there is multiple ones underway.

All of them.

We will be fully.

In place at least by the end of this year, but a couple of them will get full year effect. This year starting in Q1, yeah. So Rob just from a modeling perspective, you'll get.

The full annualized impact of one of those key ones from last year Youll get almost full annualized impact.

So it is tough on like you are causing some of the areas and the other one will come in over multi years. So this will be contributing to that acceleration in growth that helps us get towards the high single digit over the next several years.

Okay, Great. That's helpful color. Thanks, guys.

Tony could be for you or for Mike either one, but just you guys historically have been a direct organization and I think.

I've got a really nice job of getting that service line.

And Tony I think you mentioned on your prepared remarks like that will cease to be a headwind towards that growth.

Our top line growth this year.

I think it's great just wanted to ask about.

As you get to a broader or have a broader cam within organizations, you know 50% of the business now being on the corporate.

For profit side.

Services that shouldn't becomes important.

So readiness for the external services effort, maybe help us understand that.

Hey, as we enter this kind of next couple of year period, where you're going to be much more rely on an external services like how ready you guys offer that thank you very much.

Hey, Rob I'll take that.

We hired a new global head of customer success halfway through the year last year and he is driving that.

In general I would say that the blackboard network effect and ecosystem has been growing a lot and it's a couple of areas. So one is directly at your question, which is services partners and that's growing a lot. Another one that I talked about in my prepared remarks is our marketplace.

Which is third party apps that grew I think over 90% last year.

Thousands of customers have access to apps that are additive to the black box solutions and a third one that's super important we've got over 6000 developers.

Building code and integrating to black box solutions outside of Black box. So 6000 developers in growing outside of Black side. Another example of sort of this network effect in this ecosystem. We are building just not developer side. If you go back five years that was maybe a few hundred and so between that the service partner.

To your question the Black dog marketplace, Theres, a lot going on outside of Blackboard, that's making our products stickier and adding capabilities from.

New sales and booking standpoint as well.

And Rob just from a modeling perspective on the onetime services and others that was about 190 basis point drag on the year to our overall growth, but in Q4, only about a 90 basis point drag and we're saying hopefully for.

For 2022, it will be zero drag so that's probably.

Between a point and a half and two points improvement on growth just by that not pulling us backwards in 'twenty two versus 21.

Thank you. Our next question comes from the line of Matt.

With BTG. Please proceed with your question.

Yeah, Thanks for taking.

Taking my question guys.

I guess as you look at.

Both the payments upside in the quarter and the strength throughout the year.

Wanted to just sort of I guess look at it on two fronts, one what percentage of the events in overall interactions with your customers.

The year in terms of how much line of sight you have were.

Sort of back to normal in person.

Versus additive from a virtual standpoint, or maybe displaced in the virtual setting.

And then sort of how do you think about that from an upside perspective heading into 'twenty two and beyond.

Yes, Matt Thanks.

So a couple of things there.

In the last few years, including the last year virtual events have grown quite a bit and.

And depending on the institution type.

They're either have taken over for things or they've been additive and it depends on how our customer institution kind of goes to market for their revenue generation.

It's been a mix the big thing for us going into 'twenty two to your question.

Is the fact that we'll have more of a full year effect of that this year last year.

As we said in the beginning of the year last year, we would have a slow first half.

At our second it proved out to be accurate some of that is related to.

A couple of components, but events as some of that.

And we didn't have a full year effective events last year, and we will much more so this year I think that's the biggest change year over year as more of a full year effect this year compared to last.

Okay, and then Tony as we look at the gross margin.

Fourth quarter had pretty decent headwind, both sequentially and certainly year as well.

Wanted to maybe better understand kind of what was impacting.

Particular, the recurring margin.

Given last year was a larger payments growth quarter versus this year, but it was still up this year.

So maybe just what are the moving pieces there how should we think about ever Fi as that layers in impacting gross margins into 'twenty two.

And really just kind of what are some of the puts and takes as we look ahead at 22.

Yes, Matt.

Q4, gross margins had several factors impacting it a bit to the negative one of the items. We talked about is that onetime services drag on overall revenue growth in that line of the business. As you know has shrunk significantly over the last several years and we have had frankly, a tough time trying to keep up with the cost base.

On that side of things and so the gross margin I think year on year.

In 2020, we were somewhere in that 11%, 12% gross margin and we were at negative 11% or something I think for 'twenty, one and so that's put some pressure on gross margins. We are focused on correcting that situation and so I would expect by the time, we head into 'twenty three will be in a better position on gross margins related to one time.

At that much lower revenue number and it will no longer be a drag on overall growth either so kind of a double.

Positive impact on the business growth will be higher and margins will improve and then as you stated transactions Q4 is typically are our biggest seasonal quarter from a transaction perspective and several of those when you think about the standard payments business and a few of the other transactions are actually still dilutive today to gross margins, so with that mix being up.

Gross margins will be down now some of the new pricing initiatives that we're rolling out over this year and next should have a very positive impact on gross margins on the payment side in transaction side. So we'd expect to see that gross margin dilution impact mitigate as we rollout some of these new pricing opportunities that have been so successful in.

And the just giving and U K markets and then we've continued to make some pretty heavy investments in security.

As well as hitting gross margins and lastly, our move to third party cloud, which has some security components to it but also to get out all these old Colo data centers. So we've got all of those duplicative costs and those continue to ramp and Thats put pressure on gross margins. The good news is in 'twenty. Two we are going to start closing data centers.

For the first time.

Since I've been here and we won't see a lot of positive impact in 'twenty two on margins, but we will start to see that positive impact and that'll be a positive trend over several years, starting in 2003, and so we should see some nice impact for you to build into your models from 23 forward.

Our next question comes from the line of Cody <unk> with Bank of America. Please proceed with your question.

Hey, guys. Good morning, Thanks for taking my questions.

Couple of questions from me first one.

Should we be thinking about the linearity of revenue growth. This year from the sequential net add perspective, just given the addition of ever Phi in the pandemic headwinds dissipating I mean is there any sort of seasonality that we should be thinking about given these dynamics.

Got you I think that we will certainly see some change in seasonality as a result of adding <unk>, it's not something that we're guiding to so I can't give that to you today, but it will certainly have an impact on our seasonality I would still expect.

To see our typical kind of Q2 and Q4 spikes in seasonality with transactional related.

Given and events.

Those kind of seasonal trends should still hold that said I think the overall. The addition of $20 million that we're guiding now.

Everybody will have some impact on seasonality to flatten it out a little bit.

Got it got it and then just.

I was going to say the.

A key thing for us is that the macro.

Big acceleration in total growth rate, we are going to grow at the mid point and 17% year over year.

At the midpoint organic growth at 5% Big change over last year.

Got it thanks for that and then.

I noticed in the deck you were talking about the return to in person events that began in 'twenty one.

And really expected to continue in 2022, just thinking about the guide I mean, how do we think about the pace of the return to in person event that you guys are incorporating within the guidance is that front end loaded or back end loaded what are you hearing out there from from your customers for the pipeline from in person events, yes, those are spread throughout the year coaching there.

I'm still helping the chair of the heart valve for Charleston, and that one's in April <unk> got marathons already being run in person with fundraising associated with them, so that will be spread throughout the year as organizations do their various fundraising events.

Got it got it Okay and then last one for me just kind of thinking about that slide.

With a 10 growth drivers I guess.

Which ones do you think are potentially the most meaningful from a growth driver perspective in that near term bucket. There's four of them. There and then also from a longer term potential too.

I would say the most impactful.

Immediate impact would be the pricing.

Initiatives because once those are put in place.

They will have an immediate.

Positive impact on revenue.

Several others are fairly significant we've put in some new framework and controls around discounting which is going to be very positive.

The efforts on the renewal rates are fairly quick to have an impact obviously not losing that revenue in the first place and happen to replace it and so I think those very positive renewal trends that we saw start.

Second half of last year and that are continuing to be very positive against plan already end of this year I think we start seeing a pretty immediate impact of that on the revenue numbers I think that the ongoing efforts on sales productivity and improvements Mike spoke to there and the improvement in CAC payback and although.

Those things are a little longer.

<unk> obviously.

Obviously events coming back in the increase in online, giving all of those are fairly quick the nice thing on the revenue front as most of them are all fairly short term to get to positive impact I think some of the cost.

And margin improvement opportunities take a little longer like exiting the data centers that will be a multi year project to get rid of those duplicative costs and to finish move into third party cloud.

Continuing to simplify and standardize and automate things and gain efficiencies as a business will take a little longer but most of the revenue side or.

Much shorter term.

Yeah, I'll, just add to that our ESG and CSR.

Sector with your Cogs and ever Fi, our short term revenue accelerators as well.

Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. <unk> for any final comments. Thank you operator, I'll just close by reiterating the second half of 'twenty, one, including the fourth quarter was a strong and what I believe was a turning point for our markets and our company works.

Celebrating up the rule of 40 and carrying a lot of momentum into 2022, including a strong acquisition ever fine I believe our plan and progress towards achieving rule of 40 by balancing sustainable mid to high single digit organic revenue growth and meaningful margin expansion over the next few years.

As a winning combination for Blackrock and our shareholders.

Our teams are executing at a high level and I'm confident we're well positioned to capture the opportunities in front of us thanks, everyone.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

[music].

[music].

Good day and welcome to the Blackboard fourth quarter 2021 earnings call.

<unk> Conference is being recorded I'll now turn the conference over to Steve Hubbard. Please go ahead Sir.

Joining me on the call today are Mike, Germany, Blackboard, President and CEO , and Tony Boor, <unk> 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 those risks, we believe that a combination of both GAAP and non-GAAP measures are more representative.

How we internally measure our business.

Unless otherwise specified we will refer only to non-GAAP financial measures on this call.

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 a more detailed supplemental schedule is available in our presentation on our Investor Relations website.

Before I turn the call over to Mike I'll briefly mention that during the first quarter our team will be participating in virtual investor meetings hosted by Stifel on March 2nd and we will attend the Raymond James 40, <unk> annual institutional investors conference in Orlando on March 8th and ninth please.

Please reach out to IR at Blackboard Dot com, if you're interested in connecting at these events with that I'll turn the call over to you Mike.

Thanks, Steve and welcome everyone.

Thank you for joining us on the call today, the fourth quarter was a strong finish to what was a very successful year for black line and our customers on a much improved market backdrop.

Our organic reoccurring revenue grew 4% our adjusted EBITDA margin was 24, 5% and we generated nearly $30 million of free cash flow, which was up roughly 20% over Q4 2020, we finished the year with total revenue of $928 million.

<unk> not just our best estimate heading into the year, but also our original upside scenario.

Adjusted EBITDA margin for the full year was 26, 5% and 150 basis points above our original best estimate.

And free cash flow was 162 million, which marks one of our best free cash flow years ever.

Just over a year ago, we laid out the road map for our journey to achieving rule of 40.

And we are already pacing ahead of our own expectations.

We ended 2021 at 27% on a rule of 40 basis at constant currency, a full two percentage points higher than our near term expectations.

It has been really excited is what's on the horizon, we have solid visibility into what should be another strong year in 2022.

Acceleration on a rule of 40 basis, the mid point of our financial guidance ranges for this year calls for total revenue growth of approximately 17%.

<unk> of our recent acquisition of ever by.

A significant acceleration in organic revenue growth to approximately 5% and nearly 30% on a rule of 40, which is roughly 250 basis point improvement year over year constant currency.

Combined with our 2021 performance that equates to roughly five percentage points of improvement on a rule of 40% relative to our expectations in just two years since laying out our long term aspirational goals.

Given our strong performance and our acquisition of <unk> at the end of last year. We're also pulling forward our timeline to achieve our long term aspirational goals, we expect to achieve our original mid term goal of mid single digit organic revenue growth. This year in 2022, which is.

A big acceleration in revenue growth and several years ahead of schedule.

Additionally, we have heightened confidence that our original aspirational goal for mid to high single digit organic revenue growth annually is now well within reach.

With the guidance of roughly 30% on a rule of 40 in 2022, and our accelerated expectations for future top line and adjusted EBIT growth. We have line of sight into our ability to continue to improve and the rule of 40 going forward.

While the pandemic inflation and the current labor market are certainly topics that we continue to monitor we are very encouraged by the near term and long term growth opportunities in front of us Tony.

Tony will cover our financials and our 2022 outlook in more detail shortly.

Our performance for the quarter and the full year. There is a direct result of our successful execution against the growth and margin drivers we laid out at our investor session in March of 2021.

As expected our revenue performance accelerated in the second half of 2021.

As our near term growth drivers start to take hold with bookings improving year over year pricing initiatives underway and in person events beginning to return.

And we're confident this momentum is sustainable our end markets are taking the lessons learned during the pandemic and looking forward with a digital first mindset and their technology strategy at the forefront.

I'll highlight one example of many.

<unk> accident Academy and independent High school with a centuries old tradition of academic excellence recently selected Black box education management, and raisers edge NXT to serve as core systems in support of a multi year effort to build a best of breed set of cloud solutions.

Their evaluation for Education management alone included over 700 individual requirements and a comprehensive annual review with Blackhawk emerging as a clear leader differentiated by our modern cloud architecture. The extensibility of our best in class solutions, our growing partner ecosystem.

Avast user community and our commitment to customer success.

We are uniquely positioned to serve as a key technology partner for our customers and we gained momentum in 2021 with fantastic wins at organizations like LSU Foundation, Adrian College American Museum of natural history International Fund for animal Welfare National Park.

Foundation, Alzheimer's Association and del Monte just to name a few.

Not only is our go to market motion picking up steam while we're executing a strategy that enables us to gain efficiencies at the same time.

In 2021, we drove a substantial increase in sales rep productivity, while significantly improving our CAC payback period.

As I said on our Q3 call I believe we are at an inflection point for our market and our company and there is no shortage of growth opportunities ahead.

We continue to drive industry, leading innovation customer success security and cloud infrastructure I.

I could take up the entire call highlighting examples of the innovation and determination I've seen from our teams to highlight just a few we released an entirely new experience for all of our Blackhawk Grantmaking customers.

Also we're transforming the entire accounts receivable experience and financial edge NXT.

We brought just giving to new global markets delivered secure contactless payments capabilities to arts and cultural organizations and roll out the availability of giving checkout in the U S. As an easy to add simple to use donation button that can be used by any nonprofit organization that.

E consistent we're building in the market with offerings like giving checkout, just giving and the global network of nonprofit charities Ngos receiving funds through our <unk> solution is impressive and I believe underappreciated.

There are over 150000 organizations across the globe receiving funds, thanks to a black box solution.

We're committed to giving customers the flexibility to benefit not just from black lots of innovation, but also from the black dog marketplace, and our rapidly growing developer community with more tools than ever to create new capabilities that extend Blackrock solutions. We now have over 6000, non blackboard developers Reggie.

Richard in our ecosystem and we're driving substantial growth in the black box marketplace.

We've enabled roughly 6500 organizations to find a curated app that helps them work smarter and the number of apps available is growing rapidly increasing nearly 90% in the last year alone I am really excited about the network effect, we are creating here as we help our customers drive more impact.

It's clear the vision of the Sky platform and we laid out several years ago is becoming a reality the innovation, we're driving in our products and our architecture results in greater scalability and a lower cost operating structure. For example, we're well underway on a multiyear journey to shift towards third party.

Cloud infrastructure providers and by the second half of this year, we expect to begin exiting some of our Colo data centers. This.

This shift reduces our operating costs, while enhancing our ability to deliver secure stable modernize and affordable solutions for our customers.

Another core component of our four point strategy is expanding our addressable market, we closed out the year in a big way with the acquisition of <unk> on December 31.

As a reminder, we hosted a call on January 4th with <unk> founder and CEO , Tom Davidson recovered an overview of <unk> and the transaction details the transcript of that call and accompanying presentation are available on our Investor Relations website.

In short <unk> shared mission, driven culture World class team industry, leading impact as a service cloud platform large addressable market and high growth reoccurring revenue model checked all the boxes that we look for in a high quality acquisitions.

This acquisition advances our position as a leader in a rapidly evolving ESG and corporate social responsibility spaces and adds roughly $10 billion in Tam, which doubles, our total addressable market opportunity to $20 billion.

Also significant over half of our addressable opportunity is now in the corporate sector as.

As companies continue to invest more programs to give back to their communities together Blackhawk and <unk> will be a leading partner to help them drive meaningful social impact across a large span of technology enabled program earrings from community education to voluntary to grant, making and philanthropy.

We're also going to aggressively pursue what we believe to be a substantial revenue synergies in the form of cross selling and up selling given the complementary product offerings, what are your cost solutions and minimal customer overlap.

<unk> financial profile is highly attractive and will be immediately accretive to our revenue growth, adding an estimated $120 million 2022 revenue. There are also profitable with a sub 5% EBIT margin in 2021 that we conservatively expect to be closer to 10% now.

Just a couple of months post close and there is significant upside potential throughout this year and going forward.

The combination of sustainable double digit revenue growth and improved margin profile as we complete future integration work means <unk> should be accretive to black box rule of 40 in the coming years.

This acquisition combined with our recent company performance and our updated outlook allows us to significantly pull forward our timeline for achieving our long term goal of mid to high single digit organic revenue growth for being a few years out to now beginning this year in 2022.

I am very confident that the combination of blackboard and <unk> adds tremendous value to a very large and rapidly growing market, which will accelerate our growth pull our long term financial goes forward and create value for our customers and our shareholders.

2021 was also a big year for our own internal ESG efforts as well.

We formalized our ESG program joined the UN Global compact advanced our voluntary ESG reporting now we're actively pursuing carbon neutrality or focus on employees culture and ESG initiatives have been in our DNA since the company was founded 40 years ago.

And it's a big advantage as we look to attract and retain top talent, which is even more critical in today's environment.

We're thrilled to be included among America's top companies as a corporate social responsibility and ESG leader with external.

On recognition such as the U S Chamber of Commerce Foundation citizen reward and Newsweek's list of America's most responsible companies and Forbes America's Best employers list for mid sized companies.

Bob is a unique company showing that it's possible to provide exceptional products generate shareholder value and do good in the world.

By staying mission aligned we built not just a successful business model, but an innovation engine has played a role in driving advances on social issues of every kind.

In summary, I believe 2021 was a turning point for our market and our company, we're carrying a lot of momentum into 2022, and we just layered on a tremendous acquisition in <unk>.

I believe our plan to accelerate progress towards achieving rule 40 by balancing sustainable mid to high single digit organic revenue growth and meaningful margin expansion over the next few years is a winning combination for Blackrock and our shareholders our team executing at a high level and I'm confident we're well positioned to capture the.

Opportunities in front of us.

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 Q4, and full year 2021, and our outlook for 2022.

And our updated long term financial targets.

Please refer to yesterday's press release, and the Investor materials posted to our website for the full details of our Q4 and full year 2021 financial performance.

The continued acceleration of contractual recurring revenue growth and another strong transactional revenue performance drove Q4 recurring revenue growth of 4%, we've seen strong year over year improvement in sales productivity per rep, which has helped drive an increase in overall.

Our bookings we also continued to see strong positive trends and renewal rates that exceeded our plan for the full year and some of our early pricing initiatives starting to have a meaningful impact.

This is a great indication of what's achievable going forward as we continue to execute against the 10 growth drivers laid out at our investor session last year.

On a full year basis, our organic recurring revenue growth was three 5% and onetime services and other revenue was roughly a 190 basis point drag on our total revenue growth.

After several years of strategically shifting away from onetime services, we expect this drag to bottom out in 'twenty, two and we're guiding for minimal impact on full year 2022 total revenue growth.

Overall, we're very pleased with our revenue performance in Q4 and full year 2001, we.

We expected an acceleration in the second half and not only did our results deliver but they exceeded expectations. We're excited to carry that momentum into 2022.

Moving to earnings our fourth quarter gross margin was 55, 3%, we generated adjusted EBITDA of $61 million representing.

And adjusted EBITDA margin of 24, 5% and diluted earnings per share of <unk> 75.

Please recall that the fourth quarter tends to be our seasonal low for gross margin given it includes our user conference BB Con, which we again offered for free to our customers and Q4 is typically our seasonal high for payments revenue, which is generally dilutive to our total gross margin.

Overall, we are laying the foundation for considerable margin expansion going forward and for the full year 2021, we had an adjusted EBITDA margin of 26, 5%. This was roughly 150 basis points ahead of our original best estimate for the full year adjusted EBITDA margin due to a combination of strong execution.

And timing of planned spend.

As we mentioned on our last call. We continue to have good success, attracting top talent in a competitive labor market. We also successfully transitioned to a remote first workforce in 'twenty, one and going forward, we will opt for more flexible on demand office and team space.

In addition, we will use our headquarters office in Charleston, South Carolina for customer meetings employ gatherings and team building.

This resulted in restructuring and other real estate charges of approximately $12 million for the quarter as we shuttered most of our remaining losses.

That brings me to the cash flow statement and the balance sheet, our free cash flow was $30 million for the fourth quarter a year on year on year increase of $5 million or 20%, representing a free cash flow margin of approximately 12%.

For the full year, we generated approximately $162 million of free cash flow with a free cash flow margin of 17, 4% an increase of 910 basis points year on year.

This was largely a result of our strong operating performance and was well above the original $100 million floor, we set at the beginning of the year.

I'll also note that we completed another $10 million of opportunistic share repurchases during the quarter, bringing the total amount of shares repurchased in 2000 $21 million to $108 million.

In December our board of directors, reauthorized, and replenished our share repurchase program to $250 million and we plan to continue.

Opportunistically executing on share repurchases when our internal estimates determined that the company shares are undervalued by the market and we have adequate availability to capital.

We ended the quarter with $901 million and net debt with an additional $240 million of borrowing capacity following our acquisition of <unk>.

Our capital strategy calls for a debt to EBITDA ratio of less than three five times and.

And at the end of Q4, we stood at three three times.

Consistent with previous acquisitions, we plan to rapidly Delever in 2022.

We also remain active in evaluating future acquisition opportunities.

Now, let's turn to 2022.

Our full year 2022 financial guidance is available in yesterday's press release and is inclusive of our acquisition of <unk>.

To cover the high points of our underlying assumptions for Standalone blackboard, excluding amplify the midpoint of our guidance includes an expected acceleration to mid single digit organic revenue growth and adjusted EBITDA margin of roughly 26%, resulting in roughly 30%.

On a rule of 40 basis, which is nearly 300 basis points of improvement year on year at constant currency.

And then anticipated adjusted free cash flow margin of 17, 6%.

Also included in our guidance, we are estimating that <unk> will generate approximately $120 million in revenue, adding roughly 13 points to our total revenue growth rate, we expect <unk> to add approximately $13 million and adjusted EBITDA, which is dilutive to our combined EBITDA margin by roughly <unk> <unk>.

160 basis points, though I'll note there is likely material margin upside as we complete our integration work and pursue both revenue and cost synergies.

From a revenue perspective, the midpoint of our guidance calls for approximately 5% organic total revenue growth at constant currency and our organic recurring revenue growth should be similar as we're not anticipating much if any drag from onetime services other on a full year basis.

Consistent with our historical definition of organic revenue growth our acquisition of <unk> closed on December 31, 2021, and therefore will be included in our organic revenue growth calculation in 2022, and we will pro forma 2021 results as if we had owned them for an entire year.

<unk> constitutes roughly a point of 2022 organic revenue growth expectations.

We anticipate the majority of our full year organic revenue growth in 2022 to come from accelerated contractual recurring revenue growth continued strength in our transactional revenues and leveling off of our onetime services and other revenue.

From a profitability and cash flow perspective, we're well underway in our efforts to drive efficiencies in our go to market and additional scalability in our products and infrastructure and we are well positioned to drive substantial margin expansion beyond 'twenty, two we anticipate roughly $30 million to $33 million of interest expense inclusive of the incremental debt.

Associated with our acquisition of <unk>, and we estimate our non-GAAP tax rate will remain consistent with 2021 rate of 20%.

Moving on to cash flow.

Coming off a tremendous year in 'twenty, one we're expecting additional growth in our adjusted free cash flow in 'twenty two or.

Our estimate for combined capital expenditures is expected to be $60 million to $70 million.

Please note our guidance for adjusted free cash flow excludes cash to be spent net of insurance related to the ongoing litigation of our previously disclosed security incident.

We expect to exceed the limits of our insurance coverage in the first quarter of 'twenty, two and currently anticipate a net cash outlay of roughly 25% to $35 million and the full year 2022 for ongoing legal fees related to the security incident.

In line with our policy, we expense legal fees as they are incurred.

Also as of year end 2021, we have not recorded a loss contingency related to the security incident, given the current unpredictability of the timing and magnitude of potential financial obligations that could result from the security incident with that said, we believe adjusted free cash flow provides a useful measure for our.

Our performance, but we will also continue to be transparent in our disclosures relating to the security incident and associated financial impacts.

Lastly, 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 balance sheet management rigorous oversight of investments in the business, including acquisitions and identifying and efficiently returning excess capital to shareholders, including the option for addition.

Share repurchases.

In summary, 2021 was a strong year for blackboard in 'twenty two has us even more excited.

We're executing against our strategic plan to achieve a rule of 40 as a company and our accelerating growth combined with our margin expansion initiatives has us well positioned to accomplish this goal sooner than we originally anticipated.

We continue to execute our capital deployment strategy and remain committed to allocating capital in a way that maximizes value for our shareholders.

With that I'd like to open up the line for your questions.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.

Your 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 one to ask a question. Please limit yourself to one question plus one follow up to allow us facilitate as many questions as possible.

Our first question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Yes.

Congrats gentlemen, and thanks for taking the questions.

You start off Mike will comment on the inflection point was pretty loud and clear, but I'm curious as you.

Thinking about pulling forward those mid and long term targets versus your prior expectations, what's really changed that we heard a little bit about pricing sales productivity, but I'm curious how much of it is maybe blackboard driven versus market driven because you referenced some of that as well. So just looking to unpack that a little bit.

Sure Brian . Thanks. Thanks for the question, it's a combination of things the market is opening up with events coming back we've talked about that for a while.

Also been executing quite well the last several quarters and this is translating into being able to pull those long range targets.

Targets forward into 2022.

We've had our <unk>.

Multiple price.

Efforts coming into fruition, we talked about that almost a year ago now and there are several and they are kind of paced out because they are different.

Types of initiatives.

Increase in sales productivity is happening.

Good pipeline coverage and.

Production from.

From that standpoint.

Got some operating improvements that are still coming I mentioned in my prepared remarks finally towards the backend of this year, we're going to close a couple of our Colo data centers, which helps a bit.

So it's the combination of the things that we really laid out at that Investor day.

A year ago coming to fruition. The company has executed all of those quite well.

Then we've got an addition of a great acquisition and <unk> coming in.

Driving the top line a little faster.

We finished the year stronger than anticipated in Q4, including things like bookings, which translates over into 'twenty two.

So it's all of those things that we've been executing on quite well coming together.

Brian This is Tony I would add a couple.

Online given obviously, we've seen some significant increase there and that gives us another revenue stream opportunity in many cases as well as renewal rates have continued to trend very very positively we put a lot of focus on customer success and getting our customers real value out of our solutions and we've seen some.

Positive trends on renewal rates and those have continued into this year as well and already running well ahead of plan.

I think the last thing, which is really not built into this yet as we still have quite a bit of work to do on the revenue and cost synergies associated with <unk> and I said in my prepared comments. We expect there is some good material upside as we get through planning for those synergies on top of it.

Understood.

And maybe just a follow up you mentioned that half the Tam is now in the corporate market I'd be curious.

What is the revenue growth that has that looked like for you guys over the last year or so I'm, assuming it's a follow up I just wanted to confirm it and how do you balance the investments what kind of incremental growth opportunities in the corporate opportunity that's now happier.

Versus your existing portfolio today, thanks, guys.

Yes, sure it's been strong for us for the year cost acquisition has performed really well.

We've invested more in resources.

In our corporate sector.

Sector.

You are cautioned grants platform.

<unk> is in addition to that which is a SaaS grower and very accretive and so that marketplace that ESG and corporate social responsibility marketplace, which makes up our corporate solutions.

It's a fast grower, it's a big Tam it's half our Tam now.

And it's very accretive to the company as well so we continue to balance our investments.

We've got a pretty broad product portfolio is really 17 core products in the company.

Outside of ever fine and it's been a strong market for us and performed well for several years and advertise additive to that.

Thank you. Our next question comes from the line of Parker Lane with Stifel. Please proceed with your question.

Yeah, Hi, guys. Thanks for taking the question maybe just to follow up on Brian's question. There are number five what are the initial conversations looking like between the <unk> customer base.

Your clients' customer base and what are those joint go to market efforts look like today. It's a work in progress situation. It's obviously, a fairly new deal, but how quickly should we start to see those respective sales teams coming together and start achieving some of those revenue synergies you were just talking about doing it.

Yes, sure I'll take that Parker its Mike <unk>.

<unk> been talking about that for a while including working on due diligence last year.

One of the synergy opportunities for us so we've done a really good start.

With amplify post close and a couple of areas one is.

The coordination of go to market or are your cards.

Buyers are the same corporate buyers as ever Fi.

There's little customer overlap. So the cross sell is sort of just sitting there and we've organized ourselves to go after that both cross selling to <unk> customers and then every five <unk> customers and then also the integration.

Operationally is going really well, we're integrating right out of the gate all corporate functions.

And that's going really well, we've got a lot of experience in that we've got a really solid set of operating models and corporate it systems that we're integrating them too.

And it's really going quite well.

And these are really great.

Culture synergy between ever volume Blackboard, we've come together quickly as one company, there's a clear opportunity that our larger scale is going to help them scale faster in the back office and in go to market.

I'd say super positive run out of the gate and we're right on target of what we thought we would do from an operating plan standpoint.

Got it and Mike when I look at the improvement in the adjusted EBITDA that were filed in 2022 or the anticipated improvement is it simply those operational changes that you just referenced there or does that come mostly in the form of <unk>.

Really heightened levels of sales efficiency in that business because of the anticipated cross sell opportunities.

Yes, I'd say that that improvement from last year to this and their EBITDA.

We basically achieved that.

The view that it took about a month. So I would also tell you it's early days.

With that EBIT opportunity with everybody as well.

Because we offer a lot of scale for that business and so I think there is upside to that frankly, even in the short term.

And it's coming from a couple of areas one is that I already covered.

Sales back office few other areas.

Appreciate it thanks, again and congrats on the quarter.

Thanks expert.

Thank you. Our next question comes from the line of Kirk <unk> with Evercore ISI. Please proceed with your question.

Yes, thanks very much.

Mike.

Couple of points Eric.

Thompson.

In your prepared remarks, you mentioned about sales productivity and I was just sort of wondering what what's the focus is on for this year on that front. Just are there any changes just anything you could add on that on that basis would be great.

Yes, sure I mean, we keep improving our sales productivity customer acquisition costs have gone up nicely last year, we plan on doing that again this year.

A lot of it's coming from a bigger investment in digital tools.

And automation.

Digital lead generation.

Just having.

Better way to go to market if you will.

And we have that plan to improve this year as well there's more opportunity there.

No doubt, we also think theres opportunity.

<unk>, so the integration side, there as well.

Okay and on <unk>.

You guys are obviously forecasting about 15% growth if I understood that correctly is there opportunity for you all that sort of.

That's more to potentially accelerate that this year or are you just sort of trying to take a fairly conservative approach to that to start.

Yes, I'd say, it's a conservative approach.

We anticipate that partner blackboard nine it would be a 20% grower forward. They did really well last year above their plan in Q4.

Why we have it in there at 15%, but yeah, I think there's opportunity to accelerate that as well so it's fairly conservative.

Thank you. Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.

Hi, Thank you good morning, guys I appreciate it but two for me one just on the pricing initiatives. It sounds like you guys have already begun some of those pricing initiatives I was just wondering if we could get some color on.

How we can expect those to roll in through the product set throughout the year will it be rolling across the product lines throughout 'twenty two.

Is it a one time event and what are your expectations in terms of.

How that contributes this year to that organic revenue guide increase and then I had a follow up.

Sure, Rob I'll start and maybe Tony will add to this too.

So theres multiple pricing initiatives frankly, the first one started in the summer of last year, we put into place.

Basically get full year effect of that this year. Another one started in Q4 ish timeframe.

And thats ramping up so we will get.

Most of the full year effect of that.

This year.

And in the back half so that's two of them. Another one goes across our product portfolio and thats coming in over time and another one is a new offering which is a pricing model that we've proven out quite well with just giving.

On a product that.

We've launched here in the U S. It's going to take a longer multi year ramp up let's.

It's called complete cover.

That's underway and Thats a longer term one so there is multiple ones underway.

All of them.

We will be fully in.

In place at least by the end of this year, but a couple of them will get full year effect. This year starting in Q1, yeah. So Rob just from a modeling perspective youll get.

The full annualized impact of one of those key ones from last year Youll get almost full annualized impact of some of the stuff on like you are causing some of the areas and the other one will come in over multi years. So this will be contributing to that acceleration in growth that helps us get towards the high single digit over the next several.

Yes.

Okay, Great. That's helpful color. Thanks, guys.

Tony could be for you or for Mike either one, but just you guys historically have been a direct organization and I think you.

You have done a really nice job of getting that service line down and Tony as I think you mentioned on your prepared remarks like that will cease to be a headwind towards that growth.

Our top line growth this year.

I think it's great just wanted to ask about.

As you get to a broader or have a broader tam within organizations, you know 50% of the business now being on the corporate profits.

For profit side.

Then I would assume it becomes important so what what's the readiness for the external services effort, maybe help us understand.

Hey, as we enter this next couple of year period, where youre going to be much more rely on an external services like how ready you guys offer that thank you very much.

Hey, Rob I'll take that.

We hired a new global head of customer success halfway through the year last year and he is driving that.

In general I would say that the blackboard network effect and ecosystem has been growing a lot and it's a couple of areas. So one is directly at your question, which is services partners and that's growing a lot. Another one that I've talked about in my prepared remarks is our marketplace.

Which is third party apps that grew I think over 90% last year.

Thousands of customers have access to apps that are additive to the black box solutions and a third one that's super important we've got over 6000 developers.

Building code and integrating to Blackrock solutions outside of Black box of 6000 developers in growing outside of Black side. Another example of sort of this network effect in this ecosystem. We are building just not developer side. If you go back five years that was maybe a few hundred and so between that the service partner.

As to your question the Black dog marketplace, Theres, a lot going on outside of Blackboard, that's making our products stickier and adding capabilities from.

New sales and booking standpoint as well.

And Rob just from a modeling perspective on the onetime services and others that was about 190 basis point drag on the year to our overall growth, but in Q4, only about a 90 basis point drag and we're saying hopefully for.

For 2022, it will be zero drag so that's probably.

Between a point and half and two points improvement on growth just by that not pulling us backwards in 'twenty two versus 21.

Thank you. Our next question comes from the line of Matt.

With BTG. Please proceed with your question.

Yes, thanks for taking.

Taking my question guys.

I guess as you look at both the payments upside in the quarter and the strength throughout the year.

Wanted to just sort of I guess look at it on two fronts, one what percentage of the events in overall interactions with your customers.

Throughout the year in terms of how much line of sight, you have were sort of back to normal in person.

Versus additive from a virtual standpoint, or maybe displaced in the virtual setting.

And then sort of how do you think about that from an upside perspective heading into 'twenty two and beyond.

Yes, Matt Thanks.

So a couple of things there.

In the last few years, including the last year virtual events have grown quite a bit and.

And depending on the institution type.

They're either have taken over for things or they've been additive and it depends on how our customer institution kind of goes to market for their revenue generation.

It's been a mix of the big thing for us going into 'twenty two to your question.

The fact that we are.

We have more of a full year effect of that this year last year.

As we said in the beginning of the year last year, we'd have a slow first half.

That are second to proved out to be accurate some of that is related to.

A couple of components, but events as some of that.

And we didn't have a full year effect of events last year, and we will much more so this year.

The biggest change year over year as more of a full year effect this year compared to last.

Okay, and then Tony as we look at the gross margin.

Fourth quarter had pretty decent headwind, both sequentially and certainly year as well.

Wanted to maybe better understand kind of what was impacting.

Particular, the recurring margin.

Given last year was a larger payments growth quarter versus this year, but it was still up this year.

So maybe just what are the moving pieces there how should we think about ever Fi as that layers in impacting gross margins into 'twenty two.

And really just kind of what are some of the puts and takes as we look ahead at 22.

Yes, Matt.

Q4, gross margins had several factors impacting it a bit to the negative one of the items. We talked about is that onetime services drag on overall revenue growth and that that line in the business. As you know has shrunk significantly over the last several years and we have had frankly, a tough time trying to keep up with the cost base.

On that side of things and so the gross margin I think year on year.

In 2020, we were somewhere in that 11%, 12% gross margin and we were at negative 11% or something that I think for 'twenty, one and so that's put some pressure on gross margins. We are focused on correcting that situation and so I would expect by the time, we head into 'twenty three will be in a better position on gross margins related to one time.

At that much lower revenue number and I don't no longer be a drag on overall growth either so kind of a dull.

<unk>.

Positive impact on the business growth will be higher and margins will improve and then as you stated transactions Q4 is typically are our biggest seasonal quarter from a transaction perspective and several of those when you think of it the standard payments business and a few of the other transactions are actually still dilutive today to gross margins and so with that mix being up.

Gross margins will be down now some of the new pricing initiatives that we're rolling out this year and next should have a very positive impact on gross margins on the payment side in transaction side. So would you expect to see that gross margin dilution impact mitigate as we rollout some of these new pricing opportunities that have been so successful in.

And the just given and U K markets and then we've continued to make some pretty heavy investments in security as.

As well as hitting gross margins and lastly, our move to third party cloud, which had some security components to it but also to get out all these old Colo data centers. So we've got all of those duplicative costs and those continue to ramp and Thats put pressure on gross margins. The good news is in 'twenty. Two we are going to start closing data centers.

<unk> for the first time.

Since I've been here and we won't see a lot of positive impact in 2002 on margins that we will start to see that positive impact and that will be a positive trend over several years, starting in 'twenty three and so we should see some nice impact for you to build into your models from 23 forward.

Thank you.

Our next question comes from the line of Cody <unk> with Bank of America. Please proceed with your question.

Sure.

Hey, guys. Good morning, Thanks for taking my questions.

Couple of questions from me first one.

How should we be thinking about the linearity of revenue growth this year from the.

Sequential net add perspective, just given the addition of ever Phi in the pandemic headwinds dissipating I mean is there any sort of seasonality that we should be thinking about given these dynamics.

Got you I think that we will certainly see some change in seasonality as a result of adding that refi, it's not something that we're guiding to so I can't give that to you today, but it will certainly have an impact on our seasonality I would still expect.

To see our typical kind of Q2 and Q4 spikes in seasonality with transactional related.

Given and events.

Those kind of seasonal trend should still hold that said I think the overall. The addition of the $20 million that we're guiding.

<unk> will have some impact on seasonality it flattened it out a little bit.

Got it got it and then just.

I was going to say and the key thing for us is that the macro.

Big acceleration in total growth rate, we're going to grow at the mid point and 17% year over year.

At the midpoint organic growth of 5% big change over last year.

Got it thanks for that and then.

I noticed in the deck you were talking about the return to in person events that began in 'twenty one.

And really expected to continue in 2022, just thinking about the guide I mean, how do we think about the pace of the return to in person event that you guys are incorporating within the guidance is that front end loaded or back end loaded what are you hearing out there from from your customers for the pipeline from in person events, yes, those are spread throughout the year Koji there.

No.

I am still helping the chair of the heart wall for Charleston, and that one's in April <unk> got marathons already being run in person with fund raising associated with them, so that will be spread throughout the year as organizations do their various fundraising events.

Got it got it Okay and then last one from me just kind of thinking about that slide.

With a 10 growth drivers.

Yes.

Which ones do you think are potentially the most meaningful from a growth driver perspective in that near term bucket. There's four of them. There and then also from a longer term potential too.

I would say the most impactful.

Mediate impact would be the pricing.

Initiatives because once those are put in place.

They will have an immediate.

Positive impact on revenue.

Others are fairly significant we've put in some new framework and controls around discounting which is going to be very positive.

The efforts on the renewal rates are fairly quick to have an impact obviously not losing that revenue in the first place and happen to replace it and so I think those very positive renewal trends that we saw start.

Second half of last year and that are continuing to be very positive against plan already end of this year I think we start seeing a pretty immediate impact of that on the revenue numbers I think that the ongoing efforts on sales productivity and improvements Mike spoke to there and the improvement in CAC payback and although.

Those things are a little longer.

<unk> obviously.

Obviously events coming back in the increase in online, giving all of those are fairly quick the nice thing on the revenue front as most of them are all fairly short term to get to positive impact I think some of the cost.

And margin improvement opportunities take a little longer like X gene in the data centers that will be a multi year project to get rid of those duplicative costs and to finish move into third party cloud.

Continuing to simplify and standardize and automate things and gain efficiencies as a business, we will take a little longer but most of the revenue side or.

Much shorter term.

Yes ill just add to that our ESG and CSR.

Sector with your Cogs, and Evercore, Hi, our short term revenue accelerators as well.

Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Giovanni <unk> for any final comments. Thank you operator, I'll just close by reiterating the second half of 'twenty, one, including the fourth quarter was a strong and in what I believe was a turning point for our markets and our company works.

Celebrating up the rule of 40 and carrying a lot of momentum into 2022, including a strong acquisition ever fine I believe our plan and progress towards achieving rule of 40 by balancing sustainable mid to high single digit organic revenue growth and meaningful margin expansion over the next few years.

As a winning combination for Blackrock and our shareholders.

Our teams are executing at a high level and I'm confident we're well positioned to capture the opportunities in front of us thanks, everyone.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.