Q4 2022 Blackbaud Inc Earnings Call
Speaker 1: The.
Speaker 1: I.
Speaker 2: Good day and welcome to Blackboard's fourth quarter and full year 2022 Earnings Conference Crawl.
Speaker 2: Today's conference is being recorded. I'll now turn the call over to Steve Hufford. Please go ahead, sir.
Speaker 3: Good morning, everyone. Thank you for joining us on Blackbaud's fourth quarter and full year 2022 earnings call. Joining me on the call today are Mike Giannone, Blackbaud's president and CEO , and Tony Boer, Blackbaud's executive vice president and CFO . Mike and Tony will make prepared comments, and then we will open up the line for your questions.
Speaker 3: 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. Please refer to our most recent Form 10-K and other SEC filings for more information
Speaker 3: 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.
Speaker 3: 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. With that, I'll turn the call over to you, Mike.
Speaker 4: Thank you Steve. Good morning everyone. Thank you for joining us on the call today.
Speaker 4: I would like to take a brief moment to mention that Steve has taken an internal opportunity to further advance his career at Blackbaud and is transitioning to another role in the company. Congratulations, Steve. Thank you for leading our IR program over the last several years. Moving forward, Kevin Mooney, our Executive Vice President of Corporate Strategy and Development, and his team, is going to be joining us.
Speaker 4: of Alex Dirti and Jeff Klein will take over the leadership of our investor relations program.
Speaker 4: My remarks today will focus on three key areas. I'll start with a review of the numerous steps we took throughout the year to improve company performance. Next, I'll give a brief overview of fourth quarter and full year 2022 results versus our guidance. And then I'll end with our 2023 outlook.
Speaker 4: Before turning the call over to Tony to provide additional detail
Speaker 4: 2022 was a year of substantial progress for our company.
Speaker 4: We proactively took steps to better position the company, manage it efficiently and effectively in a weakened economy and drive profitability, cash flow and improvement on rule 40.
Speaker 4: On the revenue front, we institutionalized our pricing approach.
Speaker 4: We increased transaction fees were warranted.
Speaker 4: Set subscription prices based on contract term lengths.
Speaker 4: And embedded escalators in our two and three are contract renewals.
Speaker 4: We improved our renewal and retention processes by establishing a dedicated team and remaining focused on customer success.
Speaker 4: In the fourth quarter, we signed several new and existing enterprise customers to six and seven figure ARR contracts, including the company's largest deal in 2022, closed by the EverFi team.
Speaker 4: We were also active on the cost side of the business. We tightly managed our largest expense, which is people costs. We selectively replaced the Trishon, closed open requisitions, and had a workforce reduction late last year as a result. We ended the year with fewer employees than we had at the end of 2021.
Speaker 4: We also maintain our lower run rate on rent expense as well as travel costs.
Speaker 4: Further, we renegotiated some of our largest vendor contracts such as Microsoft Azure and AWS.
Speaker 4: and simultaneously reduced our footprint by closing four data centers last year. In short, we examine every cost driver in the business with a critical eye.
Speaker 4: which took a lot of cost out of our company.
Speaker 4: We have a strong internal focus at every level of the company to generate significant value and drive substantial improvements on the Rule of 40.
Speaker 4: Now, let's turn to our financial results. We saw a strong December in overall fourth quarter bookings performance with year-over-year improvement in our social sector.
Speaker 4: In the fourth quarter, we had total revenue growth of 11%.
Speaker 4: And our organic revenue grew approximately 2% of constant currency.
Speaker 4: One time revenue was roughly one point of drag on organic growth in the quarter. Adjusted EBITDA grew 12% when they adjusted EBITDA margin at constant currency of 25%. Taking together, Louis 40 at constant currency was approximately 27% for the quarter. For the full year.
Speaker 4: Our financial performance met or exceeded our guidance ranges we gave on our Q2 call last year.
Speaker 4: We achieved a significant milestone in 2022. Revenue surpassed the $1 billion mark for the first time in our history, reaching $1 billion 58 million, a 14% increase year-of-year.
Speaker 4: Organic Revenue grew 4% in a constant currency.
Speaker 4: Our renewals continue to improve throughout the year as we shifted towards multi-year contract terms.
Speaker 4: And our transactional business was a meaningful contributor to growth for the full year.
Speaker 4: Adjusted EBITDA margin, a constant currency, came in at 25% and exceeded the top end of our full year guidance range. And rule of 40 of 29% for the year, a constant currency, increased by two points over 2021.
Speaker 4: The business generated strong adjusted free cash flow of $154 million, which exceeded the high end of our full year guidance range and enabled debt repayment ahead of schedule.
Speaker 4: During the year, we also made improvements to our corporate governance by formalizing our policy on board member tenure. Most recently, Yogesh Gupta and Rupal Hollenbeck joined our board of directors in December , replacing Tim Cho and Joyce Nelson, who retired. In a little over a year.
Speaker 4: Four of our seven independent directors have been newly appointed.
Speaker 4: This not only provides diverse new business perspectives.
Speaker 4: but has also added important skills in cybersecurity, enterprise software, digital transformation and global operations.
Speaker 4: I could be more pleased and appreciative of the board that we have.
Speaker 4: Turning to 2023, I'll start by reminding you that the end markets we serve are large and resilient. For U.S. nonprofit space alone, total annual giving is $485 billion.
Speaker 4: There are over 1.4 million registered nonprofits.
Speaker 4: And it's the third largest employment sector in the US.
Speaker 4: And in the corporate market, we were greatly expanded our footprint with our ever-file acquisition. It's clear that this market is sustainable through choppy economic orders. In fact, Carol Gibbig in the United States has comprised about 2% of total GDP for more than 40 years.
Speaker 4: and it's only fluctuated modestly downward in one of the past five recessions.
Speaker 4: That said, remain laser focused on improving operating performance and driving efficiencies in the company. With that, we are reducing our workforce starting with notifications today in the US.
Speaker 4: Following the planned action at the beginning of the fourth quarter to reduce overhead and rebalance our workforce.
Speaker 4: We experienced a slowdown in voluntary attrition where relatively expectations leading to a further reduction in force to achieve our regional plan.
Speaker 4: We did not come to this decision lightly as we know what effects value employees.
Speaker 4: where we take him in necessary steps to work more efficiently and effectively as a company. It's important to know that while we are illuminating positions in some areas, we'll continue to hire other areas. Most of these reductions are in areas of the business that are not customer facing or in sales.
Speaker 4: And when combined with the cost actions we took in Q4, we expect our total head count will be reduced by approximately 14% since Q3 2022.
Speaker 4: From a revenue perspective, our sales teams are fully staffed. We're starting to see less nutrition, and we have strong pipeline coverage as we head into 2023.
Speaker 4: Our customer success and renewals teams are operating well, but we expect stable to slightly improve retention rates, accompanied by the continued shift to multi-year contract terms.
Speaker 4: And while it's still early days on the pricing initiatives, we expect to see improving performance with each successive quarter as contracts are renewed throughout the year.
Speaker 4: Additionally, these pricing initiatives have a double benefit to Rule 40, with much of the revenue upside falling through to profit.
Speaker 4: Turning to profitability, we have high visibility into step-level margin expansion in 2023. The actions we've taken throughout 2022 and early this year are driving scale and efficiencies in the business.
Speaker 4: Our company is well positioned for substantial and sustainable margin improvement over the next several years.
Speaker 4: While Tony will cover the 2023 financial guidance in more detail, I'll provide the highlights.
Speaker 4: At the midpoint of our full year financial guidance ranges, we anticipate organic revenue growth at constant currency of 4% consistent with last year.
Speaker 4: We expect adjusted even to margin of 30%, which is a 5.0 increase versus 2022. And consistent with our focus on optimizing the business, we expect Rule of 40, a constant currency, to expand from 29% last year.
Speaker 4: to 34% this year as we march towards attaining 40%. Further, we expect adjusted free cash flow of $180 million.
Speaker 4: Our capital allocation strategy continues to call for deleveraging in the near term as we gain more visibility on costs related to the security incident in 2020. We're targeting a leverage ratio approximately two times significantly less than where we ended 2022 at 3.2 times.
Speaker 4: Collectively, we expect financial performance to improve with each successive quarter, starting with meaningful improvement in a second quarter as a pricing and cost initiatives take hold.
Speaker 4: In summary, we had a strong execution in 2022. We're focused on continuing improvements across the business in 2023, as we progress along our Rule of 40 journey. We're confident in our outlook with plans in place to achieve substantial performance acceleration throughout the year.
Speaker 4: and deliver significant enhanced shareholder value. With that, I'll turn the call over to Tony.
Speaker 5: Thanks Mike. Good morning everyone. Today I'll cover our results for the fourth quarter in the full year 2022, as well as our outlook and guidance for 2023 before opening up the line for questions.
Speaker 5: 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 2022 financial performance.
Speaker 5: 2022 was a year of significant change. We started the year with a strong economy and lingering overhang from the pandemic. Conversely, we actually, to the year, with a weakening global economy and minimal impacts related to COVID.
Speaker 5: Despite this change in environment, we remained intently focused on efficiency gains and strong execution across revenue, profitability and cash flow.
Speaker 5: Against this backdrop, we met or exceeded our full year guidance ranges we gave on our Q2 call for revenue, adjusted EVA to margin, and adjusted free cash flow.
Speaker 5: In the fourth quarter, we reported total revenue of $275 million, adjusted EVITA of $68 million, adjusted EVITA margin of 24.7%, and rule of 40 at 25.1%.
Speaker 5: Revenue of $275 million represented organic growth of 0.4% and when adjusted for 4 million of negative foreign exchange impacts, organic growth at constant currency was 1.7%.
Speaker 5: Growth in the quarter was largely driven by contractual occurring revenue. We continue to see improvements in renewal rates and strong bookings in the quarter.
Speaker 5: This was partially offset by roughly one point of drag from one-time services and other revenue, and we experienced softness in the quarter in some payment services in the U.S.
Speaker 5: Adjusted EBITDA of 68 million grew 12% with an adjusted EBITDA margin of 24.7%. We saw some early benefits from operational actions taken at the beginning of the fourth quarter in addition to actions taken earlier in the year. Rule of 40 at constant currency in the quarter was 26.6%.
Speaker 5: Turning to our cash and balance sheet, our adjusted free cash flow was $8 million in the fourth quarter, largely driven by the timing of our cash collections shifting from Q4 into Q3 and a shift in cash tax payments from Q3 into Q4.
Speaker 5: Additionally, we had incremental spend in the quarter related to employee severance for those impacted by the workforce reduction late last year.
Speaker 5: winded the quarter with 827 million in net debt with an additional 320 million of barring capacity.
Speaker 5: The depth to EBITDA ratio was 3.2 times, and we remain focused on rapidly de-leveraging in the near term.
Speaker 5: For the full year 2022, revenue of $1 billion 58 million was a record for us and fell within our full year guidance range.
Speaker 5: adjusted EBITDA margin at constant currency of 25%, exceeded the top end of our guidance range.
Speaker 5: Taken together, rule of 40 at constant currency of 29% was a two-point improvement over last year and in line with our full year expectations.
Speaker 5: We generated an adjusted free cash flow of $154 million, which exceeded the top end of our guidance range.
Speaker 5: EPS of $2.69 also exceeded the high end of our guidance range.
Speaker 5: Now let's turn to 2023.
Speaker 5: We remain focused on operational execution across our business that will generate significant improvements to profitability in the Rule of 40. As Mike mentioned, our contractual software prices increase at renewal dates throughout the year. That combined with realizing the cost actions we announced today.
Speaker 5: should lead to successive quarters of improving financial performance, starting with higher acceleration beginning in the second quarter.
Speaker 5: Our full year 2023 financial guidance is available in yesterday's press release.
Speaker 5: I'll cover some of the highlights.
Speaker 5: Starting with revenue, we see revenue in the range of $1 billion, $80 million to $1 billion, $110 million.
Speaker 5: We anticipate a negative FX impact of roughly 5 million for the full year with most being front half loaded.
Speaker 5: This assumes no further material unfavorable movements in foreign exchange rates.
Speaker 5: At the midpoint, we anticipate organic revenue growth at constant currency of 4%. We expect an acceleration in our revenue growth as the year progresses with our pricing initiatives that are already in place, as well as new pricing initiatives coming online during 2023.
Speaker 5: At the end of last year, we rolled out new contract pricing that will go into effect as contracts come up for renewal. And as a reminder, our peak renewal seasons fall in July and December .
Speaker 5: We saw strong bookings in the fourth quarter, have fully staffed sales teams in place with quotas increasing, and a strong opportunity pipeline to start 23.
Speaker 5: Also, we expect that one-time services and other revenue will continue to decline by 30 to 40 percent versus 2022, driven by our continued migration to the cloud and our core business as well as an opportunity to shift Everfi one-time revenue to a recurring model.
Speaker 5: We anticipate between 150 to 200 basis points of drag on total revenue growth for 2023.
Speaker 5: shifting to profitability.
Speaker 5: We remain intently focused on managing costs and driving significant improvement to margins throughout the year. We anticipate adjusted EBITDA margin in the range of 29.5% to 30.5%. Nearly a five point improvement year over year at the midpoint.
Speaker 5: As a reminder, Q1 is typically our seasonal low and profitability of certain annual costs related to employee benefits fall in the quarter. Additionally, we don't expect the reduction in force we are taking today to have a meaningful impact to margin until Q2.
Speaker 5: Taken together, we are targeting rule of 40 at constant currency of 34 percent, a five-point improvement year over year at the midpoint, largely driven by our margin expansion efforts.
Speaker 5: Before I turn to cash, in the fourth quarter recorded an additional 18 million aggregate liabilities for certain probable loss contingencies related to the security incident that we believe we can now reasonably estimate.
Speaker 5: There are some potentially material security incident related matters for which we have not recorded a liability as we're unable to reasonably estimate the possible loss at this time.
Speaker 5: Lastly, moving to cash flow. We anticipate adjusted free cash flow in the range of $170 million to $190 million, approximately 17% growth year over year at the net bill.
Speaker 5: The year-over-year increase is driven by our expected significant margin expansion, partially offset by working capital changes and higher cash taxes.
Speaker 5: As a reminder, our adjusted figure excludes cash to be spent related to the security incident.
Speaker 5: Our expectation for the full year is a net cash outlay of $25 million to $35 million for ongoing legal fees related.
Speaker 5: to the security incident.
Speaker 5: In the near term, we remain focused on reducing our net debt with our cash generation. As we gain clear visibility into the timing and magnitude of any probable security incident costs, we will consider other alternatives to deploy our cash as well as continue to lower our debt to our targeted range.
Speaker 5: As always, we will provide updates to the investment community and regulatory bodies through appropriate disclosures in our SEC files.
Speaker 5: In summary, we had a strong 2022 and met or exceeded full year guidance across the board. In 23, we expect to drive further operational improvements throughout the year that deliver substantial margin expansion and earnings potential. As a result, we expect 34% of constant currency on a roll of 40 at the midpoint.
Speaker 5: of our full year guidance ranges, up five points versus 2022, giving further confidence in our ability to reach our goal of 40% in the next few years.
Speaker 5: With that, I'd like to open up the line for your questions.
Speaker 2: Thank you ladies and gentlemen. If you'd like to ask a question, please sign up by pressing star one under telephone keypad. If you're using your speaker phone, please make sure your mute function is turned off to a lighter signal to reach our equipment. Again, as a reminder, please press star one to ask a question.
Speaker 2: Please let me yourself to one question, plus a follow-up, to allow us to facilitate as many questions as possible. We'll now take our first question from Brian Peterson from Raymond James, your line is
Speaker 5: Hi, gentlemen. Thanks for taking the questions. So I wanted to start on some of the pricing initiatives you guys have mentioned. I think the question I get a lot from investors is how do we think about the art of those impacts? And some of them are coming in on contracts and we have some transactional components and you know any color you could provide on how much that's kind of helping or how we should think about that is it is kind of a terrible growth.
Speaker 4: contract renewals also. Those have already begun. The ramp in those, though, for us historically in this year, is
Speaker 4: We have some pretty big renewal seasons, if you will, in June , July time frame and then November , December time frame. So we'll get some. And you see that in our guidance this year. We'll get some benefit this year from those initiatives. And it'll build in the back half of this year.
Speaker 4: and more significantly in 2024 as well will get a full year impact in 24.
Speaker 5: Tony, maybe a follow-up for you or Mike if you want to take this one. You mentioned some of the transactional components, some variability in the US in particular. Any perspective on what kind of transpired over the fourth quarter? Any thoughts on how to think about the transactional growth maybe in 2023? Thanks, guys.
Speaker 6: Yeah, we saw a little bit of softness at the end of the year, mainly in December on...
Speaker 6: largely the BVMS side of the business. We did well in tuition management all year. We saw good growth, frankly, in transactions overall for the full year as well. A little bit of softness in December with year in giving and it was actually volumes were up.
Speaker 6: But the average transaction size was down a bit here over here. Bigger impact actually was FX. I think we had about a $2 million negative impact. FX also in the quarter on the transaction side. January's off to a good start. So we feel pretty good on the 23 number overall for transactions.
Speaker 6: transaction size was down a bit year over year. Bigger impact actually was FX. I think we had about a $2 million negative impact, FX also in the quarter on the transaction side. January's off to a good start, so we feel pretty good on the 23 number overall for transactions. Thanks, Tony.
Speaker 2: Back in next question is coming from Parker Lane from Steve Fooley, Relined is now live.
Speaker 7: Yeah guys thanks for taking the question just wanted to follow up on that last point there Tony at the US talked about charitable giving being relatively stable over the last 40 years you know in those periods of recessions is it typical to see that average transaction size come down for a sustained period of time or is that something that you think is sort of
Speaker 6: an anomaly here in the fourth quarter. I think when we look back at, we talked about this a bit on the last call as well, when we look back at past recessions, we've held up pretty well, and certainly the industry has. I think the...
Speaker 6: The worst impact of any that we saw to overall giving was the 08-09 period. I think giving was down slightly in the market or in the industry for two to three years before it fully recovered. We didn't have nearly the mix of transactions back then that we do today.
Speaker 6: That said, we've had really good transaction volume.
Speaker 6: All through this past year and started off January like in the just giving business.
Speaker 6: So that's held up really well. Again, big events can drive giving as well, like we saw with the war or the pandemic, et cetera. So there's a lot of different drivers there. But we've seen that hold up really well. I think probably the biggest thing we saw in December , maybe on Giving Tuesday a little bit, was potentially disposable income.
That that may be driving a little bit of this you know dollar amount per transaction being down Which is an impact obviously the economy that said We did see higher volumes overall to finish up the year even though the economy's been tough So kind of a little bit of mixed bag on that front in January is off to a good start. So
We feel pretty good thus far. We'll have to wait and see what what shakes out of.
Yeah, part of my, in just getting's been really strong, which is another part of our transaction mix and you know a bigger drag really in Q4 was our one-time services and FX
much more than transactions.
got it. And then Tony, when I think about the fact you guys close for data centers last year, it sounds like you renegotiated some contracts with the public cloud providers. How should I think about the impact of gross margins in 23 on that stem function in EBITDA? Like what does the share look like of gross margin versus opX6?
Yeah, we'll have some other puts and takes in their parker. It's very positive that we got four color data centers closed. Those renegotiations are going to help because we're obviously moving more volumes of those third-party cloud providers. So that's all positive. We've been capitalizing a lot of R&D because we've been spending a lot on innovation and security enhancements. So you're going to see a little more amortization of the...
that we'll see over the next several years. We still have several more data centers to close and networks to shut down. So I would kind of spread that over the next two to three years that will continue to see improvements in the gross margin line. Some assets just because of those other items I spoke to.
Yeah, that makes sense. I appreciate the time you guys. Thanks.
Thanks for your time.
Thank you. Next question is coming from Rob Oliver from Bear. Your line is now live.
Great. Hey guys, good morning. Can you hear me? Okay.
Yes, I'm Rob. Okay, great. Hi, Mike Itoni. Two questions for me. One, just a follow-up to Brian's question earlier on the pricing side. You know, clearly you guys have made a ton of progress on the cloth side yourselves. And part of that is, you know, renegotiating contracts and pressuring vendors. And it's something we're hearing a lot about.
throughout our coverage in the software industry. So I just wanted to get a better sense of what gives you guys the confidence around these renewals, you know, summer and year end, that pricing will stick for you guys, how you think about that, and then I had a quick follow-up.
Sure, so I'll call into that. So the pricing initiatives had actually gone well since we started those last fall, but it ramps up. And we're very focused on multi-year contracts as well, including moving some of the historic one-year contracts to multi-year contracts. So.
So far it's gone well. It started last fall. It's ramping up between now and college, June , July . And then we think it'll go quite well in the fall. Also.
The big deal for us too is you know, we'll get some first of all you get nice fall through right when with pricing increases It impacts on a rule of 40 top and bottom line And the bigger deal for us is it's gonna build significantly the back half of this year and then next year we'll get a full year effect of those
And also next year we'll get a full year effect of some of the cost actions that we've implemented as well. So we'll see some of that this year, mostly building in the second half, but then next year as well. And Rob is Tony.
You know, we've got it. We've had an intent focus on renewal and customer satisfaction. And obviously, it made big investments on that side of the business over the last few years. And the nice thing we're seeing as far as renewal rates have been improving.
inclusive of the price initiatives that we've rolled out. So that's where we'll keep a very close eye as we'd expect to see as pressure, potential, and discounting with the price increases and then renewal rates are the two key focus areas as we watch those over the coming year.
Okay, great. Yeah, thanks for that color toning. Mike really appreciate it. My other question, Mike, is for you around ever-fine, you know, you called out in your prepared remarks, that large deal. I think you said it was the largest deal, some six and seven figure.
AR deals really exciting. I mean, I know the screen was excited when you guys made that acquisition. There were some speed bumps along the way. Can you just give us an idea where we are now with Everify in terms of how you feel about the business?
relative to your expectations and then any more color on that deal would be helpful with that was that an existing Blackboard account was in a is our cross-salt potential You know maybe talk a little bit about that deal. Thanks guys
Yeah, sure. So, ever five, you know, throughout the year last year, we had some higher attrition call at the first half of the year in sales. That's all settled down. The sales team is settled in much lower attrition. And on that team, we've closed some nice deals on the back half of the year.
Whatever file we announced a few of them, like one main financial and center for quality, for example. The deal I referenced in my prepared remarks was a...
A lot of our customers don't like to name them, so we don't. That deal I referenced was a multi seven figure ARR contract.
So this substantial deal that they closed with a customer. The pipeline looks good in building in Q4 and Q1 in this year. We've done a great job on integration there as well. So we've really integrated well the departments and.
and functions that we wanted to, you know, translate it into, took out a lot of cost.
given our scale. It's had really good progress. Tom was driving that, the founder, we integrated the year cost business because we're telling you the same customer base. So, I'd say we'll start to the front half of the year, pipeline building, close them good deals.
in the back half of the year last year and in a pretty good pipeline outlook this year as well. Great, very helpful. Thanks again, guys. Appreciate it. Thanks, Rob. Thanks, Rob. Thank you. Next question is coming from Kirk Matern from Eryk or ISIDL.
Yeah, thanks very much. Mike, please talk a little bit more detail about just sort of the bookings, a strength that you noted in the fourth quarter, anything in particular in that, you know, product-wise, give it a little bit more color on that. Start. Thanks.
Yeah, sure. We saw good bookings here last year, you know, EverFi again slower, but them aside, the rest of the Blackbot business, we exceeded our original sales quota for the year.
finishing up the year, really strong fourth quarter. So, you know, across the product portfolio, pretty strong. And we beat the original number and we set in our budget, you know, in January of 22. So we feel really good about how the year ended up.
You know, we consolidate a global sales under date Benjamin. To work reports to me and is driving our consolidate to go to market. Pipeline looks good in this year. So we feel really good about much lower attrition in sales. Really solid leadership team.
you know, beating the full year number last year, we didn't see a flowdown in bookings, and we see a good pipeline, you know, starting off the year this year.
And so, how does that factor into the sort of the guide for this coming year? Obviously, you guys get a nice lift from pricing, but with bookings doing better, one would think that you can, you know, it seems that there's room for upside potentially to that guide. You know, if bookings continue to have that pace, is that the right way of thinking about it? I'm just trying to sort of connect the dots between honestly the pricing lift, but also.
What you're seeing from a bookings momentum perspective. Yeah, Kirk, this Tony, you know, ever finds shortfall in bookings last year is going to have a drag on 23 revenues, unfortunately. The positive is as Mike spoke to, we saw the bookings improve significantly in the, you know, near the end of the year.
late last year and just recently we'll have a much bigger impact as we get to the back half of the year and then obviously we head into 24 at a much improved run rate. We still expect about a five million dollar FX negative impact on revenue front half loaded so you keep that in mind when you look at those growth numbers.
And then as we said in the prepared commentary, we also expect a 100 to 200 basis point is drag in 23 from the one time services. Our BlackBot Core has largely transitioned. There's a little bit there, but not much. The bigger impact is we are converting ever-fi what was one time to our current model.
in many cases and exiting in a few places. So we're going to still see a continued fairly significant drag as well from the one time overall. I think the positive with all these things is they line up. We should see nice improvement, quarter over quarter over quarter starting in Q2. And X of the year, a really nice run rate going into 24 and I would expect.
The compounding effect of pricing, the improvement of bookings, run rates, all of those things, hopefully currency falls behind and then the drag of one-time services should diminish heading in 24. So hopefully in 24 we see both improvement in revenue growth rates.
and continued improvement and profitability as a result and continued improvement on roll of 40 and 24 and 25.
That's over. Thanks for the color on that Tony. Like just one last quick one for you, you mentioned you're trying to do more multi year deals with your clients. Does that have any impact really on the pricing, meaning do they expect more discounts up front? I mean, how do you sort of balance that out or is it sort of, I assume the pricing assumptions you're making?
you know, take that into consideration. Obviously, that you're trying to go the more multi-year deals. Yeah, Kurt, the price initiatives are inclusive of the multi-year contract and this built in price increases on those multi-year contracts.
Okay, great. Thanks so much. Thank you. Sure.
Thank you. Next question is coming from Kodia Keda from Bank of America. Your line is now live.
My Kate, Tony, thanks for taking the questions. I had a question. Just wanted to go back to the workforce, kind of reduction, rebalance news for this morning. You know, just wanted to fully understand exactly what you meant. You know, you, you, I, I jotted down 14% head count reduction. Is that the right number? So just. Yes.
You know, kind of use the 3,600 total employees reported in the K and 14% less. Is that right? And then when you think about reallocating of resources, you know, you did say that your sales capacity is fully staffed. So, you know, are you thinking about maybe moving, you know, some other people into sales capacity going forward? And...
How are you thinking about hiring this year from a timing perspective? Just trying to get a sense of the overall workforce capacity today and worse going over the next 12 months.
Yes, sure. So what you're seeing is we're getting a lot more scale in efficiency in the business. That 14% is from the last year. So it's Q3 of last year to now is the 14% and those numbers that you mentioned are right on.
So we've had some reductions kind of across the board. Our one time services revenue, as you know, is a much smaller percentage of total. And that revenue has been falling. We've taken on some partners that do implementations and one time services for us. So we've needed less resources there with less hours.
We also focused on, you know, spanner control and layers and things like that. Throughout the year, that's a really good integration with EverFi, with corporate functions in a few other areas. Some areas we've added, like an engineering, are attrition's way down.
And then go forward, we'll continue to add, if we have some attrition in areas like sales, we don't plan on reducing in customer-facing roles like that. So we're just at a point where we're able to get a lot more efficiency out of the business, you know, for less.
data centers to manage for COLOs. You know, the build on AWS and Azure is getting pretty big for us, but you know, those are single kind of data center environment, you know, platforms, and so it's less complex.
having four less COLO data centers. So I would look at it as a combination of bringing in an ever-fine reduction in data centers, getting more scale and efficiency out of the business.
and we're able to make that happen and continue growing the business as we plan to.
Got it, thanks Mike. And just thinking about kind of 2023 here, looking at your target verticals, you got a bunch. And I wanted to ask you the question of which verticals are maybe most excited as contributors to growth for 2023 versus others that you may view as particularly more challenged this year. I have a Christian Scholars have comfortable in??? morning, still in
Yeah, you know, we, if I just look at last year's bookings, we're pretty strong across the board. And remember, we sell to a lot of verticals, but we have a lot of products that go across the verticals, the same products.
So we have our core fundraising solutions and transaction systems.
You know, fundraising CRM platforms, online digital fundraising platforms and some others that are sold to all those verticals. Outside of the corporate marketplace. So we've had a pretty strong product portfolio representation. You know, when our bookings last year were not overly concerned about any vertical. There's still a big need in our space for.
modern cloud solutions. There's still a lot of white space out there. And we've got some pretty good cross-cell opportunities in areas like K-12, in the corporate impact space between your cause and Everfi related to cross-cell. So we don't expect any vertical to sort of be legit so we want to make sure the
accelerate significantly, but they're all pretty healthy. And we closed deals across all of those in a pretty big way that allowed us to exceed our quota for the year last year.
Thanks, Mike. Thanks, Tony. Thank you so much. Sure, Coach.
Thank you. Next question is coming from Matt Van Vleep from BTIG. Your life is now live. Yeah, good morning. Thanks for taking the question. I guess first question, like you mentioned, just giving performance particularly well, especially near the end of the year. Curious how that's...
been progressing in terms of migrating to the US and expanding here and maybe any other markets you're looking at for potential expansion on that platform.
Sure, yeah, it's amazing. Some of the campaigns on just giving a very much worldwide, we get folks using that platform for particular, mostly things that are sort of globally. At least communities on the fields are particularly
pain or a natural disaster what have you, we'll get folks donating from 50-60 countries all over the world. So it's got a pretty good global presence but still UK based as far as its biggest market footprint much less or so in the US.
But it's been an accelerator for us. We did a good job in getting great margins on that business and good organic growth last several years, including Q4. And this year, you know, year to date, it's a really strong platform for us and really great brand recognition around the world and mostly in Europe .
So it's been a really good, really good fit for us. Okay, great. And then I guess when you look at the higher ed space.
I'm curious if there's any sort of larger impact there from the average deal size that you're seeing across the transaction platform, maybe a particular impact in there, how the fundraising side is going in higher ed and how some of the expansions of the platform to meet some of the needs outside of fundraising and higher ed or progression.
Yeah, we had a good year in self bookings in the higher ed last year.
We got folks in that team that made the President's Club for the year, if you will. So our presence there is still really strong, a lot of the bigger schools.
our universities or customers, strong pipeline. We've got long 10-year salespeople in that vertical as well. So it's been a solid presence for us for a long time and including the bookings that we had last year as well.
All right, great. Thank you. Thank you. We reached into our question and answer session. I'd like to turn the floor back over for you further, closing comments.
Thank you, thanks operator. I'll just close by reiterating that we had a strong execution in 22 and remain focused on improvements across the business in 2023 as you progress along our rule of 40 journey. Our plan accelerates in the second half of 23.
and carries it in 2024. We expect to add at least five points on the rule of 40 this year, demonstrating significant margin expansion. We're confident in our outlook. We plan in place to achieve substantial performance acceleration. We're meaningful improvement starting in the second quarter, continuing throughout the year. Thanks, everyone.
Thank you. That does conclude today's telecompetence and webcast. Let me disconnect your line at this time and have a wonderful day. We thank you for your participation today.