Q1 2022 Blackbaud Inc Earnings Call
Good day and welcome to Black box Q1, 2022 earnings call.
Today's conference is being recorded.
I'll now turn the conference over to Steve Kaufer. Please go ahead Sir.
Good morning, everyone. Thanks for joining us on Black box first quarter 2022 earnings call. Joining me on the call today are Mike <unk>, President and CEO and Tony Boor, Blackboard as executive Vice President and CFO .
Mike 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 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 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 mentioned that notice of our 2022 annual meeting of stockholders and proxy statement were filed on April 19th at our annual meeting materials were posted to our Investor Relations website at the same day.
And during the second quarter, our team will be attending the Needham 17th annual technology and media conference may 16th to 19th virtually the Jpmorgan 15th annual Global Technology Media and Communications conference on May 24th.
The Baird Global consumer Technology and services conference on June six and the Stifel Cross sector Insight conference on June seven.
We will also be participating in virtual investor meetings hosted by Raymond James on May 10th and 11th.
As a reminder were also available at IR at Blackboard Dot com, if you'd like to connect during the quarter with that I'll turn the call over to you Mike.
Thanks, Steve.
Hello, everyone and thank you for joining us on the call today. The first quarter was a strong start to the year.
Two months ago, we provided our 2022 financial guidance that calls for total revenue growth of approximately 17% at the midpoint of our guidance range a significant acceleration in organic revenue growth to approximately 5% and nearly 30% on rule of 40 at constant.
We are tracking well to this guidance and remain confident in our full year outlook in the first quarter. We had total revenue growth of 17, 3% and our organic reoccurring revenue grew six 6%, which was largely driven by the strength in our transactional volumes.
Continued growth in our contractual reoccurring revenues, it's really great to see this return to growth in Q1.
Our adjusted EBITDA margin was 22, 2% inclusive of anticipated spend that carried over from last year, and we achieved 28% on rule of 40 at constant currency.
A key point here, we outperformed our internal plans on each of these key metrics during the quarter.
And just a few months since our acquisition of <unk>, we made significant progress on our integration efforts focusing initially on systems and team integration as well as synergy execution cross selling plans with your cause are underway and we recently began marketing the products together.
This acquisition advances our position as a leader in a rapidly evolving ESG and corporate social responsibility spaces with over half of our addressable opportunity now in the corporate sector.
Last month, we recognized financial literacy month, which raises awareness.
Promotes financial understanding and preparedness as young people move toward financial independence is critically important to understand the most basic and foundational financial lessons and everybody helps fulfill this need.
As companies continue to invest more in these types of programs to get back to their communities and employees, we will be a leading partner to help them drive meaningful social impact across a large span of technology enabled program areas from community education to voluntary.
Making and philanthropy.
Looking to the remainder of the year, our recent coffee performance combined with ever Phi acquisition allowed us to significantly pull forward our timeline for achieving our long term goal of mid to high single digit organic revenue growth into 2022.
We are pacing well against our full year expectations as we continued to execute on our key growth and margin drivers with solid visibility into the remainder of 2022.
Like everyone else. We're also closely monitoring the global macro environment.
I thought as a unique role to play in times of crisis as the need for many of our customers services increases and our focus is always on supporting our customers to help them achieve their missions.
It has been inspiring to see how our customers have come together and respond to the conflict in Ukraine to raise millions and funds for humanitarian relief well.
Well blackboard does not have operations our employees based in the area of conflict. We're proud to be powering critical work that is making a real difference in the lives that have been offended by this crisis.
Since the start of a conflict on February 24th organizations have leveraged blackboard technology to engage supporters and raised funds for a minute Cherry and relief.
For example carriers, providing basic supplies and services for families swaying, Ukraine with the goal of reaching 4 million people in need.
Direct relief is partnering with Ukraine's Ministry of health and others to provide critical shipments of 164 tons of medical aid and kickback children's home that successfully evacuated over 3000 people and continue to secure for refugees in country.
Oh, no just getting platform more than $55 million has been raised for Ukraine related causes through individual giving.
And without a complete cover model and the hard work of our teams to proactively accelerate our vetting process, we're ensuring more donated funds get to those who need even faster. Additionally.
Additionally, with one in three fortune 500 companies relying on Black box your cause CSR solution, we were able to quickly launch resources to help customers build response programs for the crisis and provide a list of verified overarching relief funds, helping those affected.
In Ukraine.
Example of this is wells Fargo employees, who have donated more than $330000 to Ukraine relief effort. It's either your cars portal and those donations are makes it even more of an impact to the grant program.
We are honored to be a key technology partner for our customers as they pursue their missions.
And we will continue to delight, our customers through our industry leading innovation.
Our end markets continue to display resilience in the post pandemic recovery with a digital first mindset in.
In February Blackboard Institute released its annual charitable giving report overall, giving in 2021 grew 9% year over year with a percent of giving done online up significantly from pre pandemic levels and holding steady in the low teens.
Nearly 30% of those online donations are being made on a mobile device.
Which we see as a long term tailwind as we equip organizations to process mobile donations and optimized mobile user interfaces.
I'm really excited about the role of Blackboard is playing and developing innovative solutions for our customers to diversify the way, they're receiving process donations.
Recently, we announced a new product integration in the U S. Between Blackboard merchant services, our end to end payment processing solution, and Paypal, allowing social good organizations to offer donors the option to checkout with Paypal or venmo.
This integration Blackberry customers will have access to a broader audience of donors with Paypal more than 400 million active consumer accounts, enabling a more satisfying giving experience to expand impact. We are also driving a differentiated giving experience through our partnership with <unk>.
<unk> to provide blackhawks corporate customers an option to run charitable campaigns at point of sale like Roundups after purchase the ability to match customer donations.
Offer a donation options and loyalty programs.
Change is a good example of the ecosystem, we're building through our social good startup programs.
Their platform is already making an impact in the mission driven commerce space.
Cleaning, enabling a new frontier of giving with crypto currency.
And just last week, we held our product update briefings.
My annual event designed to share new product features and Roadmaps, we provided updates on innovations in the pipeline for raisers edge NXT financial edge NXT Grantmaking data intelligence payment services illuminate online.
And team razor Justgiving and Sky developer to name a few.
And new this year, we hosted an executive summary session. There briefly highlighted our most important product enhancements and strategies, which can be accessed along with all of the sessions by visiting our corporate website.
Also in just over a month, we are projecting our highest turnout ever at our developers conference designed as a learning of that that brings together all levels of developers and technology enthusiasts to share best practices collaborate with Blackrock product experts and build relationships with peers.
<unk>.
We continue to drive significant growth in our developer ecosystem, consisting of customers consultants partners individual change agents. Additionally, we recently issued press releases welcoming two accomplished leaders to our team as you look to drive future innovation and customer delight.
We recently hired city data as chief product officer to oversee our global product portfolio.
She is an accomplished growth minded and outcome driven technology executive with a stellar track record in managing large business portfolios, while creating and delivering value for customers.
So he has held executive leadership roles, leading product and engineering teams are companies, such as Oracle and IBM and most recently broadcom.
We also recently hired Chuck Miller as Chief Information Security Officer to oversee our global Trust and security program.
<unk> all elements of cyber security.
<unk> has deep domain expertise in security and technology services gained it organizations like truest Suntrust capital, one and Verizon.
To date in shock being over 25 years of experience and proven leadership in their respective areas.
Next I'd like to cover some recent headway we've made on our strategy focusing on employees culture and ESG initiatives, We recently announced that we achieved carbon neutrality for 2021.
This is a goal we haven't striving towards for a while now and our shift to a remote first workforce enabled us to accelerate our timeline.
Since 2019, Blackboard has reduced its global real estate footprint by 50%.
Energy emissions to run office space by 63% and employee commute emissions by 75% with.
With a multi pronged climate strategy blackboard is focused on reducing emissions using energy efficiently and investing in our environmental projects for a more sustainable future.
And we look forward to sharing more about our ESG strategy on our corporate social responsibility website. Launching later this month as I've mentioned before our mission driven culture has been in our DNA since inception and has very attractive in a competitive labor market.
Turning to foster a diverse and inclusive environment focused on employee engagement and connectedness without remote first workforce strategy I, just one proof point of our more recent hires 67% have come from historically underrepresented groups.
That number jumped to 74% for our incoming summer intern class, where we just received recognition from college Grad Dot com for being a top in turn and entry level employers, we have a significant role to play in driving advances in the social good states and I'm proud of the strong corporate culture.
We have built continue to cultivate in today's environment.
In summary, we are executing well against our plan moving quickly to integrate ever high and solid visibility into the remainder of 2022 and beyond.
The midpoint of our financial guidance ranges for this year calls for total revenue of approximately 17% inclusive of our recent acquisition of <unk>, 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 at constant currency, we expect a similar improvement on the rule of 40 in 2023 as we target our midterm goal of roughly 35 on a rule of 40 in the next few years by balancing sustainable mid to high single digit organic revenue growth and meaningful.
Margin expansion over the next few years, we believe we can drive significant value for our customers employees and shareholders.
That I will 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 the first quarter and review our outlook for the full year 2022 before opening up the line for questions.
Please refer to yesterday's press release, and the Investor materials posted to our website for the full details of our Q1 2020 to financial performance we.
We started the year with total revenue of $257 million, representing total revenue growth of 17% versus the prior year quarter Orgs.
Organic recurring revenue grew six 6%, which is a solid start to the year and has us on track to achieve our full year revenue guidance.
We posted solid growth in both contractual recurring revenue and transactional revenue for several quarters in a row and as expected that continued in the first quarter.
In fact, we exceeded our own plans for the quarter due largely to elevated transactional volume.
Onetime services and other revenue was roughly 100 basis point drag on our total revenue growth in the quarter.
As a reminder, we are guiding for one time services to have a minimal impact on full year 2022 total revenue growth.
<unk> total revenue was in line with what we had assumed in our guidance contributing approximately $27 million in the quarter.
Moving to earnings.
Our first quarter gross margin was 58, 5%, we generated adjusted EBITDA of $57 million, representing an adjusted EBITDA margin of 22, 2% and diluted earnings per share of <unk> 57, as expected and as we discussed when we issued our guidance in February our profitability.
To start the year reflects the addition of ever Fi and incremental spend in areas like innovation security and go to market that was originally planned to occur in 2021, but pushed into 2022. Our plan continues to call for a meaningful improvement in profitability as we progress through this year and <unk>.
We believe that there is likely material margin upside related to <unk> as we continue to progress on our integration work and pursuing both revenue and cost synergies.
To reiterate what Mike said earlier, we outperformed our internal plans in Q1 inclusive of the front end loaded spend this year and we have high confidence in our ability to achieve our full year financial guidance.
Overall, we're pacing well against our plan and we're well positioned for considerable margin expansion going forward.
That brings me to the cash flow statement and balance sheet, our adjusted free cash flow was $8 million for the first quarter year on year, a decrease of $10 million, representing an adjusted free cash flow margin of approximately 3% similar.
Similar to profitability or free cash flow inclusive of incremental spend exceeded plan in the quarter and we are tracking well to our full year expectations. We ended the quarter with $947 million and net debt with an additional $210 million of borrowing capacity at the end of Q1, our debt to EBITDA ratio.
Stood at three six times I'll remind you historically, we have typically been a net borrower in the first quarter without to a lesser extent now we switched more of our compensation plans to be equity based or a cash impact as primary primarily limited to payroll taxes on net share settlements.
We remain intently focused on rapidly deleveraging throughout the remainder of 2022 consistent with previous acquisitions. We also remain active in evaluating future acquisition opportunities.
Turning to the remainder of 2022, we are reiterating our full year financial guidance issued just two months ago on our Q4 earnings call. We are pacing well to plan and our full year expectations remain unchanged unchanged, including our underlying assumptions from a revenue perspective, we anticipate 1 billion 85.
$5 million at the midpoint of our guidance, calling for approximately 5% organic revenue growth at a constant currency and organic recurring revenue growth should be similar as we're anticipating minimal drag from onetime services and other revenue on a full year basis.
From a profitability perspective, our over performance versus plan in the first quarter has us on track to achieve our adjusted EBITDA margin range of 24% to 24, 5%, 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.
<unk> margin expansion beyond 'twenty two.
We anticipate roughly $30 million to $33 million in interest expense for the year inclusive of the incremental debt associated with our acquisition of <unk> also we made the decision to utilize the discrete effective tax method as we believe this is more appropriate method given our full year forecasted pretax income relative to our.
Forecasted permanent differences has the potential to distort our estimated annual effective tax rate.
We estimate our non-GAAP tax rate will hold at 20% for the full year.
Combining our profitability expectations, whether our accelerated organic revenue growth, we are targeting 30% on a rule of 40, which is roughly a 250 basis point improvement year on year at constant currency.
Given our recent performance and our acquisition of refi Youll see in our proxy that we raised our rule of 40 performance incentive targets for 22% and 23% to 29% and 33% respectively. As we targeted our midterm goal of roughly 35% on a rule of 40 in the next few years.
Moving onto cash flow, we're expecting further growth in our adjusted free cash flow in 2022 inclusive of some of the spend that pushed into the first half of this year, we anticipate our adjusted free cash flow to be in the range of $165 million to $175 million for the full year, our estimate for combined capital expenditures of 60 to seven.
<unk> million dollars as a reminder, our guidance for adjusted free cash flow excludes cash to be spent net of insurance relating to the ongoing litigation of our previously disclosed security incident.
We exceeded the limits of our insurance coverage in the first quarter and recorded security incident related costs net of insurance of $7 2 million.
The security incident related cash flows net of insurance were $823000 due to timing of the payments.
We still anticipate a net cash outlay of roughly 25% to $35 million for the full year 2022 for ongoing legal fees related to the security incident.
In summary, the first quarter was a solid continuation to a very strong 2021, we.
We are executing well against our plan for 'twenty two with a focus on achieving rule of 40 as a company and through our balanced approach of accelerated growth in initiatives that will generate meaningful margin expansion, we expect to drive significant earnings and adjusted free cash flow growth over the next several years, we continue to execute on 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 the line for your questions.
Thank you, ladies and gentlemen, if you would like.
To ask a question.
<unk> signaled by pressing star one on your telephone keypad.
If you are using a speakerphone.
Please make sure your mute function is turned off allowing a signal to reach our equipment.
Again as a reminder, please press star one to ask the question and also please limit yourself to one question plus one follow up to allow us to facilitate as many questions as possible.
Yes.
We will now take our first question from the line of Parker Lane with Stifel. Please proceed with your question.
Yeah, Hi, good morning, Thanks for taking the question Mike You mentioned that you recently began.
Co marketing your cause never fight together curious to hear the initial feedback on those efforts and anything you are hearing from the existing <unk> customer base around there.
Potential to add over Ed refi over the course of 2022 or beyond.
Yeah. Thanks Parker, Yeah, we started to do that in the first quarter as planned.
It's the same buyer a same target customer.
We don't have a lot of overlap in existing customers. So there's a nice cross sell opportunity as well.
So it's early days on that but for us.
With ever five we've got a much bigger footprint.
In that space of corporate buyers. They are focused on ESG and corporate social responsibility. So we're super excited about the go to market opportunity.
It was part of.
The synergy case with that acquisition.
Yes got it Okay and then the <unk>.
Integration between Black card merchant services and some of these more online giving channels like Paypal and Venmo can you give us a sense of how many black blackboard products actually support those channels today, and then when you will sort of achieve international availability and support for those channels. Thanks.
Yeah, a lot of our product support those channels today, it's all about customer choice.
That partnership.
Those products Paypal venmo, others, Blackrock merchant services.
All out in the marketplace and we've been hearing for a while then Custer.
<unk> is one of those choices. So we made that investment we think it's a great opening of new opportunities for for us and for customers to offer that given the popularity of those platforms.
So we're super excited about that that partnership rolling out and.
That work has been going on for a while and we're happy to be able to announce that finally in the first quarter.
Got it I appreciate the feedback thanks Scott.
Youre welcome.
Our next question comes from the line of Kirk <unk> with Evercore ISI. Please proceed with your question.
Yes, thanks, very much and good morning.
Mike can you just talk about some of the puts and takes on the organic contractual business right now sort of what.
Whats working on that side some of the you know what you see in the pipeline just a you know.
Kind of interested in what youre seeing on that front.
Yeah well.
We're at a point where.
A lot of the buying behavior looks a lot.
Post pandemic kind of buying behavior. These days.
So.
Our opportunities and our our vertical markets from nonprofit to K 12 pipeline looks pretty solid.
Across the portfolio in that organic contractual business and I'll add that even the transactional side of the business has picked up two in platforms like Justgiving and <unk>.
Markets like Arts, and cultural being fully open is helping both sides.
On the organic contractual and the transaction.
Business as well so we see a healthy market, we see good pipeline build.
And big opportunities.
Spent a lot of time now.
Last 18 months or so really improving our CAC as well.
Which we're seeing that productivity come to fruition. So we're pretty happy about the first quarter's results on that opportunity for the rest of the year as well that's why we're keeping our guidance.
Guidance intact, we feel pretty good about.
2022 guidance all around.
That's helpful. And then just one follow up obviously you have a lot of macro crosscurrents right now with inflation and things that would maybe be counterbalancing some of the opportunity coming out of the pandemic. How do you see that impacting your discussions with customers that if at all right. Now can you just give us some sense of what youre seeing in terms of whether or not some of these you know inflation et.
It's having an impact on some of your customers buying decisions or our thought process around that thanks.
Yes, Kurt we haven't seen that impacting buying decisions, obviously, its a big conversation.
A lot of folks like us are driving price increases, we see that in the payments world.
With some of the folks that are in the payments marketplace.
A few of our other platforms, we've talked about our pricing initiatives.
Over the last year, we had more we laid out multiple pricing opportunities and initiatives to either catch up to the market.
Or.
Rollout of new models that were actually favorable for our customers as well.
And how those models work and we don't see any of that changing.
So we still have the same pricing opportunities, which drive both our top and bottom line.
So we haven't seen the impact of inflation per se in our buying behavior.
Across our markets, we do see transactions growing based on activity, the giving market Super healthy grew a lot last year, so that drives our transaction side of our business quite well and we're seeing that in markets in the U S like nonprofit and arts and cultural and we're seeing it as I've just mentioned on the just giving platform as well.
<unk>.
Thanks, Mike appreciate it yeah you bet.
Okay.
Our next question comes from the line of Brian Peterson with Raymond James CPUC with two questions.
Hi, good morning, gentlemen, thanks for taking the questions. So Mike first off and it's great to hear the impact there on what you guys are doing.
Grain situation, but.
I'm curious how big of an impact has that had on transaction volumes and I realize events are coming back, but I'm. Just if we did see a big pickup in kind of a transaction volumes. This quarter I'm curious how sustainable you think that is.
Yes, Brian I would say that we always there's always something going on.
Just go back over the years.
That drives transactional.
The improvement in revenue growth and we.
We see the impact of just museums and performing arts centers opening again and selling tickets and things we.
Yeah, we see some fund raising in the Ukraine, I wouldn't say that what you see.
From the Ukraine standpoint, as material for us given the size of our business.
It's a pickup in that area. We saw in the last two years a pickup in food bank.
<unk> raising in the U S, giving public school closures because of Covid.
So if you just go back over time.
I guess, Fortunately and unfortunately, there's always something going on in the world a natural disaster.
And those things are given the size of our business and our transaction business in that and it really material at the blackboard level.
It was a pickup but I wouldn't look at it as being material for us at a total revenue level per se.
Understood, Mike maybe a higher level question, but if you look at CSR and ESG, it's interesting kind of looking at the slides that's more than half. Your Cam now you have sub 5% penetration there versus some of your other end products and markets that are a little higher.
How do we think about the investment philosophy, there and what sort of required from a kind of a product and then it go to market perspective.
Versus what you have today.
Yes, so big AD with ever fine right.
In that space.
They cover financial services quite well and just other corporations quite well if you go on their website you can see.
A list of very well known companies in sports.
Institutions that are customers. So for us that was a big add there we started with the <unk> acquisition in 2019.
Adding ever Fi and Theres, a big opportunity, it's a big spend.
We're selling to.
The global.
4000, or so institutions had a big spend.
Yes, the interesting opportunity there is the growing importance of es.
<unk> at the board level, you see a lot of public companies, adding.
G oversight in their governance committees at the board do you see a lot of Ceos are driving ESG initiatives.
For lots of reasons and some reasons, it's too to drive their ability to improve their brand and get it back.
Another reason that companies are driving that as kind of a war for talent and employees are requiring the companies.
Be good stewards of.
Getting back and so there's a massive push around.
<unk> and we happened to have platforms SaaS products.
That allow our customers and prospective customers to meet their ESG initiatives at the board and management level, So big opportunity for us more to do there.
There's more there in organic R&D might be more there from an M&A standpoint, we're really looking at that market.
Yes, the <unk> executive team bring a lot of experience in the space lot of enterprise capabilities. They bring in that space a lot of knowledge a lot of great relationships in that space combined with your college, it's just an exciting opportunity for us it fits right well with R. R.
Sure and kind of what we do in the markets. We serve so we're super excited about that and it doubled our Tam so for US early days right. It's been a quarter, but I think a long runway for blackboard and never find it really drive that opportunity.
Good to hear thanks, Mike, Yes, Youre welcome.
Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.
Hey, Mike Hey, Tony Thanks for taking the questions here just a couple from me.
First question I'm not sure it sounds like pretty nice performance in a very very nice metrics here, 17% total growth.
Organic growth of about 6% and it sounds like the economy appears to be opening up you guys had some really good comments too that you outperformed on the internal plan. So kind of a question on the guide here.
Why not raise the full year growth guide I mean is there something that youre seeing from a metrics or maybe an end market perspective that is holding you back a little bit there.
Hey, Koji. This is Tony talk to you. This morning, no just it's one quarter in on the year and as you know we give a guidance range of $20 million. This year on the total revenue side. So it's early yet we feel really good to carry the strength, we had from 'twenty one into 'twenty two and two.
<unk> been kind of across the board on our numbers.
So it does give us obviously more confidence on the year to start that strong.
Thing that that seemed really.
Impressive to me is that most all of that.
Over performance was really on the core blackboard business, we've not yet really seen the positive impact that <unk> will have on the business. So <unk> was actually just slightly dilutive to our recurring revenue growth they were a bit accretive on the one time, but all of that 606 six for.
Organic recurring revenue growth was really driven by the core Blackrock business, which as Mike was just talking as everybody starts to ramp up when we start to see the impact of that should be really positive on the on the long term for the business.
Got it got it thanks for that and my follow up question here kind of on the M&A front.
How are you guys thinking about your M&A strategy, just given kind of the current market environment, that's going on thanks for taking my question there.
Yes, we're still active Koji I mean, we are.
Very active related to making sure we understand what's going on in the marketplace.
Given our history of acquisitions were a natural buyer in the markets that we serve so we remain active.
In this space, we're doing a lot more in the corporations and ESG space with ever Phi coming into opens a whole new world from an opportunity standpoint.
Whether it's organic R&D build or.
Or M&A.
We have historically.
They've done a super good job in integration and.
Deleveraging, which were doing Tony.
Tony mentioned that in his prepared remarks.
At our three six debt to EBIT to know, we'll Delever and you just if you look at our presentation deck in the last eight years of M&A.
We de lever, we've got a lot of capacity.
It's an important part of our strategy.
So we will we will remain active will remain in the market.
All of our verticals around what's going on there we've got a really big reach.
The smaller startups to the bigger companies.
So yes, it remains a big part of of what we do but also having said that we are heads down on <unk> integration, we've had a really good quarter.
Round integrating corporate functions, which we started right out of the gate.
But M&A is a core tenant of driving the business forward for us.
Great color. Thanks, guys. Thanks for taking my questions I appreciate it thanks.
Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.
Great. Thanks, Good morning, guys I appreciate it.
Just a couple Mike one for you.
To start.
You had you guys had talked talked last year about some of the organic growth drivers in the business and our pricing was one of them you alluded to it a little bit earlier I think in response to <unk> question, but I wanted to dive in on that a little bit.
Some of the initiatives you guys talked about we're bringing some of the European based pricing to the U S and that there were other drivers as well can you talk about the contribution of our pricing to the organic uplift that you guys are seeing in showing which is which as you know.
After a great start this year.
How those prices are going to be rolling in as it upon renewal or is it across the board board and any other color there would be appreciated and then I have a quick follow up for Tony.
Sure I'm happy to we don't break out that stuff on a on a per item basis, but we laid out multiple price initiatives.
In our Investor call.
So.
The categories are laid out in that in that deck, but I can tell you. We are executing on all of them and there are different ones too. So some are.
At the transaction level.
Some are catching up to competition in some of our platforms, where we got a little bit behind and we're executing those.
And lastly, some are model changes, we implemented a model change of just giving a couple of years ago, and we tested it for a long time and implemented across our whole platform and it's proven to be very beneficial for us and for our customers. It's a win win.
Our model change and we're bringing that model change from that platform into the U S for that it's early days and so we've got a couple of years of implementing and realizing these pricing changes some were done right away.
We're going to get a full year effect of those this year summer model changes, which is going to take a little bit of time to get adoption in the marketplace, but all of those price initiatives that we laid out we are implementing across the board and its going quite well, we're not losing customers over it because in most cases, it's either beneficial to custom.
<unk> or its catch up to what's going on in the marketplace as well.
Okay, Great. That's that's helpful. Mike Thanks, and then.
Tony one for you.
Yeah.
Seeing some industries that I'd put off some some cloud related work during the pandemic.
Start to.
Pick up on that and just be curious.
What are you guys seeing some of your nonprofit customers, obviously, where we're at.
Not investing heavily through that period. It certainly seems from your numbers in commentary that that is improving.
And so just curious what that means for their cloud plans, what youre hearing in customer conversations and then more specifically.
Specifically, what that means relative to your both gross and operating margin targets for the year and whether you see any more rapid move off of co lo or anything else that could impact that mix. Thanks Tony.
Yes, Thanks, Rob we are seeing a lot of focus on cloud cyber obviously you see it in the news every day is a big focus including for the nonprofit space and then obviously with so much of our Tam moving into the corporate side has been and will continue to be a big investment area for all our corporate customers. So I think thats.
Certainly a long term big driver for Us Rob.
As we continue to shift all of our stuff to the.
Public cloud as well for lots of different benefits a lot of which are security related for our us and our customers will continue to be a driver of our customer bases is pleased with those efforts and the moves that we've made on those fronts.
The co Lo side as we said I think I may have spoken about that in that in the Q4 call, but this year will be the first year, we actually start shutting down some of the Colo data centers that will be a multiyear process. Some of our data centers are very large and we've got to move a lot of customers a lot of products out of those.
But we will start seeing some of the early benefits of shutting down Colo data centers. This year starting to impact our margins to the positive and that's been a big drag that's been a material drag on on gross profit and gross margins over the last few years have all those duplicative costs.
So we're finally to that point Youll start seeing those will as we get better line of sight to the impact on those I imagine we will discuss those more fully.
Coming earnings releases as those become more visible, but we're finally to that point, we should start seeing some nice positive impacts rolling into our gross profits over 'twenty three 'twenty four 'twenty five kind of timeframe and thats kind of part.
Part of the drivers that help us get to that acceleration on the rule of 40, we are targeting that 30% range for this year, which is I think 250 basis points over last year, which we over performed last year to plan.
So very positive 33, and that obviously sets us up very well to get to that mid term target of 35% of our rule of 40, and then if we can continue to with.
With the contributions of <unk> and some of the pricing and other sales productivity initiatives and the margin of the carloads et cetera should allow us to get to that rule of 40 in the not too distant future. So we feel really positive about where we're headed at this point.
Great I appreciate all that color. Thanks, a lot Tony Thanks, Mike.
Youre welcome.
Our next question comes from the line of Matt Van Vliet with BTG. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question I guess first on a nice start to the year on the transactional component wanted to dig in a little bit more around what you're seeing.
Not just the return of in person events and sort of what's on the platform there but also.
Supporting the I guess the ongoing thesis that you know a lot of these organizations will run maybe interim virtual events or more smaller events. After they've sort of picked up that skill set through the pandemic.
I just wanted to see kind of the total volume of both in person and virtual events going on in the platform and how you're expecting that to play out through the rest of the year.
Yes, Matt Mike its still a mix.
But you're right in the fact that our customers learned a lot about virtual events.
The online.
<unk> are growing.
And our customers are some of them are going to live in a hybrid world, we'll do in person and virtual events. They won't just have a binary switch back to in person only and I think that's healthy.
Because it improves their reach but we are seeing in person events pick up the <unk>.
<unk>, the runs and walks and rides.
The major marathons around the world.
We're seeing all of that stuff come back.
And so I think it's healthy for our customers and for blackboard that it's going to be a mix and the virtual will continue.
While the in person ones come back.
And some of the some of the institutions like schools.
And performing Arts centers, who drive a lot of in person events.
<unk> are coming back full time as well and so it is healthy for our customers for their ability to drive revenue and for us.
And Matt This is Tony I'll, just add that what I've seen at least in some that I participated on is that it's not just an in person, but they're also utilizing virtual in conjunction with an in person. So one reset one I just had a ball we went too here in Charleston. The auction portion was opened up virtually to everybody who won.
Not just the 400 folks in the room, so I think youre going to see a combination of those which helps drive more overall, giving for those events and then also keep in mind that just online given as a percentage last year jumped up significantly and we're seeing those percentages hold so we're right historically seen online getting less than 10%.
And that 9%, 10% range, we're now up in those low teens and so we're continuing to see that trend hold as well which is positive.
Alright, very helpful and then Tony as we look at kind of the the expected costs in the plan.
Not only around the.
The sort of blocking tackling integration of ever five but as you look to cross sell that and sort of more holistically combine it with your cause.
Is there a possibility that you sort of accelerate or pull forward. Some of those costs. If the successes you know pretty apparent and you start seeing that pick up how should we think about the total cost base.
Built out in the plan for 'twenty two.
And then how that might impact not only top line, but but especially the model going into 'twenty three.
Yes, Matt I think it's a good question.
The Q1 run rate for sales and marketing and R&D and G&A as a pretty good run rate I think for the 22 year.
In that we would have some cost synergies built in later in the year as we get things integrated it ever Phi into the back end of the business as Mike spoke to and we spoke to in our prepared comments, but those would be offset with some planned increases in go to market and potentially R&D areas, but I think that run rate you saw.
In Q1 for all of those line items below gross margin are good run rates largely for the year.
I would expect as we continue to find.
And define new opportunity, especially joint opportunities between the core of Blackrock business I never Fi you could see increased.
R&D and sales and marketing go to market efforts, probably more so weighted towards 'twenty three 'twenty four at this point then in 'twenty, two but I do expect as we see heightened opportunities that it would be a worthwhile investments and good returns.
All right very helpful. Thank you.
Yeah.
And we have reached the end of the question and answer session I will now turn the call back over to Mike <unk> for closing remarks.
Thank you operator, I'll close by reiterating the first quarter was a strong start to the year, we outperformed our internal plans on growth profitability and adjusted free cash flow during the quarter.
We're executing well against our plans moving quickly to integrate <unk> and remain confident in our full year outlook with solid visibility into the remainder of 2022 and beyond.
The mid point of our financial guidance ranges for this year calls for total revenue growth of approximately 17% inclusive of our recent acquisition of <unk>.
A significant acceleration in organic revenue growth of approximately 5% and nearly 30% on a rule of 40, which is roughly a 250 basis point improvement year over year in constant currency.
By balancing sustainable mid to high single digit organic revenue growth and meaningful margin expansion over the next few years. We believe we can drive significant value for our customers employees and shareholders. Thanks, everyone.
And this concludes today's conference and you may disconnect your lines at this time.
Thank you.
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