Q1 2023 Blackbaud Inc. Earnings Call

Speaker 1: I.

Speaker 2: Good day and welcome to Black Fod's first quarter 2023 earnings call. Today's conference is being recorded. I'll not turn the call over to Kevin Mooney. Please go ahead sir. Good morning everyone. Thank you for joining us on Black Fod's first quarter 2023 earnings call.

Speaker 3: Joining me on the call today are Mike Gianoni, Blackbods President and CEO , and Tony Boer, Blackbods Executive Vice President and CFO . Mike and Tony will make prepared comments and then we'll 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.

Speaker 3: Please refer to our most recent Form 10K and other SEC filings for more information on those risks.

Speaker 3: We believe a combination of both GAP and non-GAAP measures are more representative of how we internally measure our business.

Speaker 3: 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 form or as a substitution for GAAP measures.

Speaker 3: A reconciliation of GAP and non-GAP results is available in the press release we issued this morning, 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 on today's call we'll be sharing incremental commentary to provide more detail.

Speaker 3: behind the key initiatives of our operating plan.

Speaker 3: I encourage you to review our presentation on our IR website that contains these additional details as well.

Speaker 3: Also, notice of our 2023 annual meeting of stock holders and proxy statement were filed on April 25th, and our annual meeting materials were posted to our investor relations website that same day.

Speaker 3: And during the second quarter, our team will be virtually attending the Needham 18th Annual Technology and Media Conference on May 18th.

Speaker 3: The Eppercord Diamonds of the Rough Conference on May 31st.

Speaker 3: The Steeple Cross Sector Insight Conference on June 6th.

Speaker 3: The Bayard Global Consumer Technology and Services Conference on June 7th.

Speaker 3: and the Bank of America Technology Conference on June 7.

Speaker 3: Additionally, we'll be participating in investor meetings with Raymond James on June 1st.

Speaker 3: With that, I'll turn the call over to you, Mike.

Speaker 4: Thanks Kevin. Good morning everyone. Thank you for joining us on the call today.

Speaker 4: Replace to report strong first-query results and improved outlook that underscored the strength and potential of our operating plan.

Speaker 4: Results of our plan are just beginning to bear fruit, with performance expected to further accelerate with each successive quarter of 2023 and beyond.

Speaker 4: I'd like to spend time today reflecting on the actions we've taken, the momentum in our business.

Speaker 4: and the continued upside we see over the near, mid, and long term. Our improved outlook from the beginning of the year stems from better than expected performance on a few key factors. I'll touch on these in more detail momentarily, but our increased level of confidence in our operating plan is driven by strong Q1 bookings that were ahead of expectations.

Speaker 4: continued strength in transactional revenue despite a challenge micro.

Speaker 4: Renewer rates remaining strong as we started implementing our new contractual pricing approach And meaningful margin improvement beginning to flow through as cost actions take full effect

Speaker 4: and represented in adjusted ebit-a-margin of 27.5% of constant currency, which is up five points from Q1 2022. Taking together, rule of 40, a constant currency was 31% for the quarter, a three-point increase year-to-year. Importantly, the quarter reflects only a modest impact from the initiatives we have underway to drive revenue growth and cost savings, with significant upside still to come.

Speaker 4: I'd like to spend a few minutes discussing those initiatives, how we arrived at them, and why they give us confidence in our trajectory.

Speaker 4: examining every revenue stream and cost center to determine how best to improve both the top and bottom line. Following this review last summer, we developed and began to execute a five point plan that focuses on first, product innovation, second, bookings growth and acceleration, third, transactional revenue optimization and expansion, fourth, modernized approach to pricing and multi-year customer contracts.

Speaker 4: and sip keen attention on cost management.

Speaker 4: Q1 results show early indications of the plan success.

Speaker 4: These new capabilities and partnerships strengthen our offers and create new opportunities for customers to deliver on their missions. For example, with the availability of Sky API endpoints for BlackBot CRM and BlackBot Altru, we're enabling customers to leverage applications in the BlackBot marketplace to seamlessly integrate complementary point solutions with our partners. CRM customers can now easily activate the double the donation solution a BlackBot partner to drive matching gift funding automation from donors without extra operational lift.

Speaker 4: We've also focused on expanding strategic partnerships to unlock even more value for our customers with partners like Alma base and Swipe Tracks X-Toolink.

Speaker 4: We recently announced an expanded partnership with Amadeus.

Speaker 4: to provide a modern solution for advancement teams to unlock higher education and K-12 school alumni engagement and better fundraising by creating integrations that enable secure movement of constituent gift and event data between systems without friction.

Speaker 4: Additionally, we have partnered with SwipeTrap Solutions to create a seamless and secure integration between BlackBot Altru and BlackBot Merchant Services to modernize the patron digital experience of back office operations at arts and cultural organizations.

Speaker 4: With most organizations getting back to pre-pandemic levels of visitors, we are able to provide our customers with critical technology to keep lines moving and provide guests and members with a fast and easy way to enter their locations.

Speaker 4: We also recently announced a new feature for General Availability with Blackboard Team Razor Good Move.

Speaker 4: Good move, leverages, culture, which we acquired last year, and helps terrible organizations raise more with mobile first, gamified activity tracking.

Speaker 4: and peer-to-peer fundraising.

Speaker 4: For example, good move will help the nonprofit carry the load, expand the reach and impact of hundreds of thousands of volunteers who have walked millions of miles to honor and remember military service members and first responders.

Speaker 4: These innovations and partnerships will strengthen our customer value proposition and drive products, stickiness, and bookings growth.

Speaker 4: Turning to our second point, sales bookings.

Speaker 4: We drove strong bookings performance in the first quarter up significantly versus last year, led by our team in the corporate sector who more than doubled their bookings over Q1 2022.

Speaker 4: As a reminder, our corporate sector consists of our URACOS and EVERFY solutions.

Speaker 4: As a reminder, our corporate sector consists of our URACOS and EVERFY solutions. We have strong pipeline heading into the year.

Speaker 4: This speaks to the resilience of our end markets. We serve, and the focus we have placed on driving further improvements in sales productivity. And productivity per sales rep has improved over 30% year over year. The only thing to say, there can be volatility quarter and quarter in bookings. However, the strong start to the year with the most in-year revenue impact positions as well. Third, transactional revenue, which is about a third of our total revenue, has proven to be resilient so far in 2023, following the softness and average donation size we experienced in Q4.

Speaker 4: The rate changes that we announced on BlackBot Merchant Services in the US in late 2022 began to take effect this quarter and added durability contributing to the 7% growth rate despite a tough compare.

Speaker 4: As we look ahead, our teams are hard at work to drive innovation across our payment solutions. They're a win-win for both our customers and BlackBud. We have recently introduced our two fee cover models, and we're also looking at ways to optimize our payment solutions to drive a better donor experience. We're excited to share more on what the team is working on in the coming months. The fourth area I'd like to discuss is our modernized approach to pricing on renewals of our contractual software subscriptions. We've been talking about this a lot lately, and I want to ensure that the powerful compounding effect

Speaker 4: of our pricing changes is fully appreciated. Let me start by saying that we deeply value the relationships we have with our customers.

Speaker 4: changes is fully appreciated. Let me start by saying that we deeply value the relationships we have with our customers. Many of whom have been with us for decades.

Speaker 4: Our solutions add considerable value for our customers and raise billions of dollars annually to fuel social impact.

Speaker 4: and we continue to innovate on our suite of products to generate incremental value. Found the implementation of our five point plan last summer, we put in place an updated pricing policy that directly reflects the value we provide to customers is in line with the broader market and reflects the inflationary pressures that all businesses are facing.

Speaker 4: In November of last year, we started knowing flying customers with a March 2023 contract renewal that we'd be making two important contract changes. First, we'd be offering a three-year contract renewal terms as our standard, replacing one year renewal terms.

Speaker 4: This process was already being implemented outside of the pricing changes. Second, we be implementing a more material rate increase on the one-year option versus the three-year option.

Speaker 4: In third, the three-year option includes annual rate increases that will compound.

Speaker 4: For context, our three-year options did not historically include annual compounding rate increases.

Speaker 4: You can think of the rate increase for year one of both the one year and three year renewals as catch up in nature.

Speaker 4: with a subsequent annual rate increases in years 2 and 3 as above inflation.

Speaker 4: Through April , we have already renewed over 25% of the customers that are up for renewal in our 2023 cohort.

Speaker 4: Through April , we have already renewed over 25% of the customers that are up for renewal in our 2023 cohort. In terms of our process.

Speaker 4: Over 50% are expected 2020-23 revenue at the midpoint will renew in a little over three years. In approximately 35% of that renewable base will renew in this year. These contracts are renewing every day and create revenue growth that we expect to accelerate with each success of quarter this year. So in 2023, we will see only a portion of the rate increase. That sets up an even more impactful situation in 2024, 2025 and beyond as we begin to see the full-your impact of the rate increases.

Speaker 4: compound annually. A little over 30% of the renewal base is up for renewal in 2024 and more than 20% in 2025. The adoption of three-year renewals as a standard will have an added benefit of higher retention.

Speaker 4: as a 2023 signed contracts will begin to renew. This is a sustainable and meaningful revenue growth stream for us, and it comes with minimal cost increases, so it's margin-rich. We have included an illustrated example of this in our updated investor presentation that was posted earlier this morning to our IR website for everyone to fully appreciate this compounding effect. The last driver I'd like to discuss today is our keen attention to costs. As we have already reported, we closed four data centers last year.

Speaker 4: We renegotiated key vendor contracts, including Microsoft Azure and AWS, and made a difficult decision to further reduce our staff in the first quarter. Because we have organized to achieve much better scale efficiencies, we now have reduced our headcount by 14 percent since Q3 2022. Our goal is to run the business at about this headcount for the foreseeable future. Such that our revenue growth will have much greater fall through to drive margin acceleration. Also, the competitive dynamics are shifting a bit in our favor. Just this past quarter, two very large enterprise companies in an effort to reduce costs and focus on their core markets.

Speaker 4: discontinued their point solutions that were targeted to nonprofits.

Speaker 4: In the first quarter, we began to see the impacts of our initiatives targeting these priority areas, which strengthened our overall confidence for the year and underscored the strength and potential of our operating plan.

Speaker 4: Seeing these initiatives progress even faster than anticipated across these areas, supports raising guidance across all metrics. For the full year at midpoint, we now anticipate organic revenue growth at constant currency of approximately 5.5 percent adjusted ebitimargin at constant currency of 31 percent. In a rule of 40, a constant currency of approximately 36.5 percent up nearly 7.5 points versus 2022. And with the acceleration plan for each sequential quarter,

Speaker 4: We expect to exit this year at Organic Revenue Growth Free in the high single digits and rule of 40 performance to cross the 40 percent line in the fourth quarter this year.

Speaker 4: And looking ahead to 2024, we expect to continue growing revenue, expanding margin to achieve rule of 40 for the full year. With that, I'll turn the call over to Tony. Thanks, Mike. Good morning, everyone. Today I'll cover our results for the first quarter of 2023, as well as our updated outlook and guidance for 2023 before opening up the line for questions. Please refer today's press release and the investor materials posted to our website for the full details of our Q1 financial performance.

Speaker 5: Adjusted evita of 71 million, adjusted evita margin of 27.2% and rule of 40 of 29.5%.

Speaker 5: Revenue of 262 million represented organic growth of 2.3 percent, and when adjusted for 3 million of negative 4 and exchange impacts, organic growth at constant currency was 3.4 percent. As I mentioned last quarter, we had a strong pipeline heading into Q1 and our sales teams delivered. Lookings in the quarter were well ahead of plan and increased significantly year over year.

Speaker 5: This speaks to the resiliency of the end markets we serve and proves our focus on driving further improvements in sales productivity as paying off. On last quarter's call, we introduced our contractual renewal price increase. In Q1, our effective rate increase on renewal contracts was in a low double digits, which is a blended rate reflecting two months of our old pricing with one month of our new or no pricing model.

Speaker 5: since our rate increases began with March renewals. We've seen higher adoption of the three-year option versus the one-year option relative to our plan. I'll share more on what that looks like for the full year shortly.

Speaker 5: Lastly, transactional revenue grew 7% year-over-year, supported by the rate change that took effect at the beginning of this year, as well as elevated volumes associated with a few events. And as a reminder, this is 7% growth over a tough compare. If you'll recall, we experienced elevated volumes in Q1 and 2022 related to the U.K.

Speaker 5: at $71 million.

Speaker 5: grew 25% with an adjusted EBITDA margin of 27.5% at Constant Currency. In the quarter, we aggressively managed the business towards profit and cash flow optimization through a series of cost actions.

Speaker 5: And while many of these actions have been completed as of early March, we've only realized the portion of the year over year improvement and expect to realize more in each subsequent quarter this year. Additionally, we're going to continue to manage our cost structure to get more scale from our expenses.

Speaker 5: Taken together, rule of 40 at constant currency in the quarter was 30.9%. Turning to our cash and balance sheet, our adjusted free cash flow was 16 million in the first quarter and benefited from a decrease in payroll, strong performance in transactions, and better than expected cash collections.

Speaker 5: We ended the quarter with 854 million in that depth with an additional 298 million in a borrowing capacity.

Speaker 5: The depth evidero ratio was 3.0 times, and we remained focused on rapidly de-leveraging in the near term.

Speaker 5: Now let's turn to 2023. We remain focused on operational execution across our business that will generate significant improvements to growth, profitability, and the Rule of 40. As Mike walked us through our strategic activities earlier, it's evident that we are well underway on the plan that we embarked on last summer.

Speaker 5: We are getting even more out of the 5T drivers outlined than we initially expected, and we are raising our guidance across the board to reflect those early successes and increase confidence in our operating plan. Starting with revenue, we see revenue in the range of $1.95 million to $1.120.

Speaker 5: full year with the drag occurring in the first half and a benefit in the second half.

Speaker 5: Our overperformance versus the following key metrics support the revenue guidance raise versus our February outlook. First, on the bookings front, our sales teams outperformed internal plans in the quarter and versus last year. Our corporate sector more than doubled their bookings versus last year, and total company pipeline remains solid as we look into Q2 and the remaining...

Speaker 5: volumes across our payment solutions related to relief for those impacted by several extraordinary events.

Speaker 5: Third, renewal rates remain strong as we started implementing our new renewal rate increases on our contractual software subscriptions primarily in the social sector.

Speaker 5: Let me provide some additional context. As Mike mentioned earlier, over 50% of our expected 2023 revenue at the midpoint were well-renewed in a little over three years, and approximately 35% of that renewable base were renewed in this year. So far, more than 25% of the customers in the 2023 cohort have renewed, and here's what we're seeing. A rate increase of low double digits in Q1.

Speaker 5: that reflects a blended rate of two months with old pricing and March renewals with new rate increase.

Speaker 5: We expect the effective radian crease to step up to the high teens in Q2 and hold steady there. We've also seen a meaningful shift in term mix from one year renewals to three year renewals.

Speaker 5: Just to ensure this is fully appreciated in 2022, three-year renewal terms comprised of the minority of the total mix.

Speaker 5: and that has jumped to the vast majority of total mix in 2023, which is outpacing our initial expectations.

Speaker 5: In renewal rates are performing well against our plan and above last year. For the remainder of 2023, we expect successive quarters of improvement to total company organic revenue growth with a growth rate in the high single digits as we exit the year.

Speaker 5: Shifting to profitability, we remain intently focused on managing costs at our new run rate and driving significant improvement to margins throughout the year, while we increase organic revenue growth.

Speaker 5: We now anticipate adjusted even a margin in the range of 30.5% to 31.5% a 6-point improvement year-over-year at the midpoint and a 1-point increase versus our prior guidance.

Speaker 5: As we previously shared, we further reduced our headcount in February to achieve our original plan with a November action and when combined, represents a 14% reduction to staff from Q3 of 2022.

Speaker 5: We also continue scaling our infrastructure by renegotiating some of our largest vendor contracts with both AWS and Microsoft Azure and reducing our private cloud footprint by closing four data centers last year and expect to close another two that's coming here.

Speaker 5: Collectively, these actions are by and large complete and have produced our annualized expenses. We will continue to have a sharp focus on cost management and expect to further optimize and scale in 23 and beyond.

Speaker 5: Also, many of our pricing initiatives have a double benefit to the rule of 40, as much of the revenue upside follows through to margin.

Speaker 5: Our cost management initiatives combined with ramping pricing initiatives in the second quarter should generate a step-level improvement to margin from Q1 to Q2 with more modest sequential improvement, true Q4.

Speaker 5: Taken together we are targeting rule of 40 at constant currency of approximately 36.5% for the full year.

Speaker 5: a nearly seven and a half point improvement year over year at the midpoint. As we progress through the year, we anticipate exiting 2023 at a rule of 40 run rate above 40 percent when considering the ramp in organic revenue growth to the high single digits.

Speaker 5: and an adjusted EBITDA margin north of 31% in the fourth quarter. Before I turn to the cash flow in the quarter, we settled all claims with the SEC related to our previously disclosed security incident.

Speaker 5: We continue to make improvements to our cybersecurity program to minimize future risks of cyber attacks in the ever-changing threat landscape. We're pleased to have resolved this matter and have shifted our focus to resolving the remaining regulatory investigation matters as well as ongoing litigation related to the incident.

Speaker 5: At the end of the first quarter, we had 30.2 million and aggregate liabilities for certain probable loss contingencies related to the security incident that we believe we can now reasonably estimate. There are other security incident-related matters which we have not recorded at liability as we are unable to reasonably estimate the possible loss at this time. We will continue to update the investment community and regulatory bodies through disclosures in our SEC 5. Lastly, moving to cash flow.

Speaker 5: We now anticipate adjusted free cash flow in the range of $190 million to $210 million, approximately 30% growth year-over-year at the midpoint.

Speaker 5: The increase in guidance is supported by our cost management initiatives, which are driving a decrease in payroll on outside services.

Speaker 5: We are also benefiting from strength in our transactional revenue versus initial expectations.

Speaker 5: to our targeted range. In summary, our primary focus is to continue to run our business well. Early overperformance relative to our budget has given management a higher degree of confidence to support raising our 2023 guidance across the board. We've started the year better than expected and will drive strong execution on our plan to generate an acceleration in financial performance as we progress throughout the year. And with that, we anticipate heading into 2024 with a high single digit revenue growth and 40% plus on the rule of 40. With that, I'll put up the line for your questions. Thank you, ladies and gentlemen. If you would like to ask a question.

Speaker 2: Please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, as a reminder, please press star 1 to ask a question and please limit yourself to one question plus one follow-up to allow us to facilitate as many questions as possible. The first question today is coming from Brian Peterson of Raymond James. Please go ahead.

Speaker 5: Hey gentlemen, congrats on the really strong start to the year. So, my cratone, I don't know who wants to take this, but it's great to see the success that you've had in the bookings and the pricing initiatives. You know, you guys don't typically raise the outlook in the first quarter of the year and you're pointing to an acceleration. So, if we think about...

Speaker 5: what's driving that acceleration from a stack rank perspective. I'd love for you guys to unpack that a bit.

Speaker 4: Yeah, it's your Brian , thanks. There's some new things here that we're seeing that we haven't seen before, predominantly in the contract renewing process, which I mentioned in my prepared remarks. So, for example, we're pretty much through with Q2.

Speaker 4: As of today, almost through with June , we've already notified customers out to early October of this year.

Speaker 4: So we notify customers about five months ahead and they have 45 days.

Speaker 4: to talk to us about any changes. So, and we haven't had this before. So, we can see many months in the future closed renewed contracts.

Speaker 4: And with most customers signing up for three-year renewals, which we haven't had before, and very different pricing in those contracts.

Speaker 4: much higher in year one and then price uplift in year two and three which we have not had before. We have a very good view to the future of that new and substantial revenue line which predominantly falls to the bottom line as well.

Speaker 4: Now, I'll combine that with really strong bookings, year-to-date in a really strong pipeline as well. And we had a price increase in our payments platform at the end of the year last year, which came into effect in January of this year. So, you combine all of those with a very good view to the future on this quarter by quarter sequential growth and for 2024 as well.

Speaker 5: Great. That sounds like a lot of visibility there, Mike. And maybe just following up, I know you guys mentioned the really strong corporate bookings this quarter. I know it's a choppy environment overall if you look at software broadly, but any more color on what's driving the shrink there. Thanks, guys.

Speaker 4: Yeah, good start to the year in our corporate impact group. I think that's your question. That's EverFi and your cause. We got it slow year last year with EverFi and they came out of the gate really strong. They're sure doubled their bookings in the first quarter year-to-year. I mentioned some of the customers closed and my prepared remarks like...

Speaker 4: Microsoft, Guardian, Accenture, really great pipeline there as well. Tom and Jean are really driving that. It's come back really strong. Really good marketplace there, a lot of enterprise customers that we're upselling and new logos as well.

Speaker 4: Accenture. Really great pipeline there as well. Tom and Jim are really driving that. It's come back really strong. Really good marketplace there. A lot of enterprise customers that were upselling and new new logos as well. Good here. Thanks Mike.

Speaker 2: You're welcome. Thank you. The next question is coming from Rob Oliver of Baird. Please go ahead.

Speaker 3: kind of a double benefit here because you know on the one hand you know people looking to cut costs and maybe look towards you know platform vendors like you on the other as you guys important out you also have you know a lot of business up for renewal over the next year so can you talk a little bit about you know sort of plan of attack around maybe taking advantage of getting more products into people's hands as you guys renew these contracts and then I just had a quick follow up for Tony. Yeah sure so we do have a lot of cross-sell efforts to existing customers underway in addition to new logos right but a lot of cross-sell efforts and a corporate sector you know we put the last July we put the URCA's and Everett by business together.

Speaker 4: under Tom Davidson. Not a lot of shared customers there, so good, open, cross-cell opportunities in our corporate impact sector. We remain focused on that in the rest of the company as well under Dave Benjamin's leadership. So there is a lot of opportunity there.

Speaker 4: You know, there's some of the, I mentioned my preferred remarks around that, you know, some of the very large Enterprise players in our space of

Speaker 4: have walked away from some of their solutions. So that creates new enterprise opportunities for us as well, given this space is our sole focus. So lots of opportunity there. And then back to what I just said earlier on the contract renewal program that we put in place.

Speaker 4: About a year ago, planning and started to notify customers last November is something brand new for us that will continue to repeat every single year because we, you know, give you be a quick example. You know, this year we're going to renew about 35% of those.

Speaker 4: customers next year 30% the year after 25% and in 2026 the remaining 10% but also in 2026 renew the 2023 customers. So this compounding effect we tried to make this apparent in our several new slides in the IR deck.

Speaker 4: So there's some graphs in there that show the compounding nature of this new initiative. So super powerful for us from a cop line and bottom line growth standpoint and its increased retention. So customer retention is up as well.

Speaker 3: are getting that on that. Yeah, exactly. Exactly. Like, is it more typically back and loaded? Is this the Q1 strength? Yeah. A sign of good sign, but somewhat anomalous from a timey perspective. That's what I'm trying to understand.

Speaker 5: Yeah, you know last year if you recall right after we completed that transaction the end of the prior year we had quite a bit of turnover and attrition in the ranks for the go-to-market. So our big effort last year was getting those sales and go-to-market teams restaffed and trained and ramped. You

Speaker 5: We're seeing the benefits of that. We saw some of that to finish the year. So they finished the, you know, very end of last year strong. And as you've seen here, a very good start to the year and good pipeline. I think the tough thing on the, especially on the EverFi side and a bit on your cause, is those are lumpier enterprise size deals.

Speaker 5: And so I think from a seasonality perspective, I don't expect there to be a lot of seasonality necessarily from quarter to quarter. There will be a little bit more because a lot of that training is done into the school systems. So maybe a little bit more of that in advance of a new school year.????

Speaker 6: Mike, somewhat of a timing question here, when you're talking about getting in front of some of these renewals towards the back end of the year, I think you referenced October . In the event that some of these customers decide to go with the three-year renewal, will the effect of that come into the model at that point in October ? Are you actually pulling forward these renewals on sort of a co-terminous basis?

Speaker 4: Now, let me just explain how this is working. And again, there's some slides in IR deck that kind of have some graphics that explain this. So, we notify customers five months ahead.

Speaker 4: So, for example, our Q1 results, we just announced only March has the new price increases in it because we start to notify customers last November . And so every month go forward now, March forward, every month will have the new price increases.

Speaker 4: Most of our customers are opting for the three-year contract renewal. And in years past, most were on one-year contracts. So we're really flipping the whole subscription business of the entire company to three-year contracts.

Speaker 4: So that's number one. Number two, because we notified five months ahead and we asked for 45 days notice if they want to have any discussions relating to the contract. We have very good visibility into the future. So as of today,

Speaker 4: So this is very different than what you might think of where typically you have a backward view to your previous quarter and things like this. We have a forward view that's almost a quarter ahead to know how many contracts are already closed and at what rate. And Tony talked about the rates in these contracts. And so the three year contract Tony mentioned year one, the rate increases and the high teens. And then subsequently years two and three have rate increases. We've never had rate increases in years two and three before. So he's been zero.

Speaker 6: disability into this program many months ahead. Definitely does. Thanks to the color there. Appreciate I'll jump back in. Okay. You're welcome.

Speaker 4: I'll remind you in the transaction business about a third of our revenue, and there's three main platforms in there. So one platform is BlackBlock Merchant Services. That is our donation processing platform. So very volume driven based on donations. Number of donations and dollars per donation drive that platform, which is one of the three platforms. We implemented a price increase on that platform at the end of the year last year. So that just started in January . So we only have a first quarter financial benefit of that one platform.

Speaker 4: global platform. In some large campaigns, we have individuals from over a hundred countries that donate on that platform for particular campaigns. That's gone really, really well also. So those are the three components and we feel really good about the first quarter in the trajectory of those.

Speaker 4: for the rest of the year and going forward. So when you combine that with these, you know, subscription renewals that I just spent a lot of time on, and with bookings, you know, that's why we raise guide and that's why we're saying high single digits Q4 going forward in the 2024 and cross the rule of 40.

Speaker 3: this year Q4 as opposed to our previous guide, which is the year 2025. So big changes. Yep, and thanks for the additional slides. I'm looking at them as we speak on the renewals. Tony, if I think that's one sort of wonky accounting question for you around the renewals. Are there termination? Did these have termination for convenience?

Speaker 5: I heard the vast majority of our contracts do not have.

Speaker 5: included termination for convenience. We do have a handful like I said, I think that we inherited like on ever five year cause, et cetera. Okay, cool. We take the rest of that offline. It's just super. You're talking about it on a public call. So thanks, guys. Congrats. Thanks, bye.

Speaker 3: and talking about high single digit organic revenue growth rate, can you maybe just help us think about maybe the three or four key drivers there between the price increases being a big part of that upsell cross sell kind of as you continue to make progress there and focus on that and then maybe what net new bookings are looking like.

Speaker 3: or at least baked into that where we could see maybe a little more volatility and what high single digits ultimately it looks like.

Speaker 4: Sure, I can take that Matt, Mike. So it's all the components that we've been talking about. So first of all, strong bookings, across the board, BlackRock products and corporate impact to platforms there. And that's Cross-sell and New Logo. So our end markets are quite resilient.

Speaker 4: They're fully open, post-pandemic, and so we're seeing a really healthy buying environment. I mentioned a couple of big enterprise.

Speaker 4: companies have taken their focus off the space, which is helpful for us in the long run. A second, I just talked about the transaction business doing really well, all three components of that doing well. One of the components, block by merchant services with a price increase in volumes doing well.

Speaker 4: including the tuition platform and just giving. And then, you know, lastly, the contract renewal process, which I spent a lot of time on now, which is new for us, which is pretty significant. You know, Tony walked you through kind of what that looked like.

Speaker 4: Think of most of the customers signing up for three-year contracts. Our retention is higher. Year one, price increases in the high teams. Year two, high single digits. Year three, high single digits. And that renews after that. And so, you know, we're going to do about a third of those this year. So this all rolls forward.

Speaker 4: in all of those categories. The last thing I'll mention too is we spent a lot of time getting scale and efficiencies out of the business.

Speaker 4: In the last year, we had a 14% reduction in headcount, closed four data centers, optimized all of our real estate, renegotiated our contracts with Microsoft Azure and Amazon AWS, which are big contracts, so we have lower annual costs there. And we're going to about maintain our current headcount.

Speaker 4: So these initiatives are going to fall through to the bottom line. If you look at the new guide we just gave, for example, we moved up revenue 15 million, we also moved up adjusted even to 50 million also. So nice fall through there in the new guide and we're just getting started on the fall through with these contract renewals and of course we moved up adjusted for cash flow by 20 million at the midpoint as well.

Speaker 5: productivity that you talked about. Thank you. Absolutely, Matt. The go-to-market team was affected very minimally in the reductions. That team, as you know, we've done a lot of work with that group over the past several years.

Speaker 5: largely coming into the pandemic outside of EverFi, we were in really good shape and starting to see nice improvement in productivity then pandemic hit us. And so I think really what you're seeing now is just the fruits of our labor over several years. Mr. Mooney here did a lot of that work, but.

Speaker 5: It's just paying dividends and so all the things that we've done in our hiring or changes in organizational structure, we've put in a lot of new technologies and approaches, etc. And this is not the end, this is just the beginning. And so we still expect to see significant additional improvement in sales productivity over the next couple of years. We're not anywhere near where we'd like to be on a, you know, a CAC payback and return on CAC. Good afternoon.

perspective overall, although we've made tremendous progress over the last few years. So I'd say most of that is really just everything come into fruition on all the hard work we did for several years, leading into the pandemic and we're seeing the benefit of that. Now that the economy's got to rebounded, that coming out, the other side of it would be on the corporate side, every five year cause, Tom and team are doing a great job on that front. We just had a lot of disruption last year in that team and then you had the economy impacted the corporate sector as well.

and we rebounded, we got the team re-staffed and ramped and just think things are looking very positive on that corporate sector also. Yeah, now I'll just add that. What somewhere, we also reorganize sales.

So we had about a half a dozen groups running sales and they were rolling up into several different areas. So we combined the...

BlackBod Global Sales Teams under Dave Benjamin. So David runs all of Global Sales. In addition to Tom, David's and Tom, as you know, is a CEO and founder of Everett Phi, Tom runs the Global Business for the combination of Everett Phi and your CAUSE.

which were selling to corporations. And so we had a much more streamlined single leadership global selling organization as of last summer that we haven't had before too. So it's driving a lot more efficiency, common practices, and better go to market. And we're seeing those changes from last summer really come to fruition this year.

All right, great, thank you. You're welcome. Thanks, Pat. Thank you. This brings us to the end of the question and answer session. I would like to turn the floor back over to Mr. Giannone for closing comments. Thank you, everyone who joined our call today. In summary, we're laser focused on operating the business to drive strong results for our company, our customers, and our shareholders.

We're committed to providing our customers with innovative mission critical solutions to advance their causes and fuel social impact. Coming out of the pandemic last summer, we thought to begin implementing a five-point operating plan as creating durable, significant and long-lasting improvements. This plan strengthens product innovation and delivery.

drives bookings, growth, optimizes, and expands transactional revenue, modernizes our contractual pricing, and strengthens cost management.

We're just now starting to see the benefits of this plan in our financials. As evidenced by strong first quarter performance.

of this plan and our financials as evidenced by strong first quarter performance and increased guidance.

We expect to see further improvement each sequential quarter and by the fourth quarter of this year to achieve organic revenue growth in the high single digits as well as rule of 40. That's well ahead of our prior target of the year 2025 and looking ahead to 2024.

We expect a continued growing revenue and expanding margin to achieve rule 40 for the full year. I'm incredibly proud of our employees, the progress our team has made, and I'm confident that we'll build on our progress and drive strong, sustainable growth that will create value for our shareholders.

Thank you, everyone. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or lock off the webcast at this time and enjoy the rest of your day.