Q3 2023 Blackbaud Inc Earnings Call
Good day and welcome to the Black box third quarter of 2023 earnings call. Today's conference is being recorded I'll now turn the conference over to Kevin Many executive Vice President Investor Relations. Please go ahead Sir.
Good morning, everyone. Thank you for joining us on Blackboard third quarter 2023 earnings call joining.
Joining me on the call today are Mike <unk>, Black was president and CEO and Tony Boor, Blackboards Executive Vice President and CFO.
Mike and Tony will make prepared comments and then we'll open the lineup for your questions.
Please note that our comments today contain certain 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.
The discussion today will focus on non-GAAP results.
Please refer to our press release and the Investor materials posted to our website for the full details of our financial performance, including GAAP results as well as full year guidance.
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.
Note that non-GAAP financial measures should not be considered an isolation form or as a substitute for GAAP measures with that I'll turn the call over to you Mike.
Thank you for joining the call today I'm pleased to share that Black dog produced very strong results in the third quarter. Our performance accelerated as we continue to execute on our five point operating plan to improve product innovation accelerate bookings growth optimized transactional revenue modernize.
As contract pricing and improved cost management.
You may recall that on last quarter's call I suggested that our plan would deliver a one two punch.
First an improvement in profitability and second improved organic revenue growth in the second quarter. The business delivered the first punch much improved margins. This strong margin expansion continued in the third quarter with total cost again being below last year's level, we're continuing.
To aggressively manage our cost and margin going forward.
This quarter. We also delivered the second tranche with improved organic revenue growth for the quarter total organic revenue grew 6.6% that's more than twice the rate of growth in the second quarter and up almost five percentage points from a year ago.
And our organic reoccurring revenue, which is our most strategic revenue line comprising 97% of our total revenue grew even faster at eight 3%.
The combination of accelerating revenues and lower costs drove improved margins and excellent cash flow for the third quarter.
As a result of our execution on both the top and bottom line, we delivered on our commitment to become a rule of 40 company with a result of 41, 6%.
We have changed this northstar goal a few years before our initial expectation and a full quarter ahead of recent expectations.
And that score is up a remarkable 14 points from the third quarter of last year.
Most likely take a coordinated effort across the entire company I'd like to thank blackboards employees for their strong execution and commitment to delivering for our customers in the quarter. Our team made continued progress across all five points of our plan one aspect I'd like to discuss in greater detail on today's call are then.
Many new capabilities, we are driving through innovation during the quarter, we continued to invest in new innovations and increase the value of our products and solve customer pain points, we're investing for the intermediate and longer term, where several exciting opportunities for example.
During the quarter, we placed a new optimized donation form into an early adopter program with customers across charity education, and arts and cultural organizations.
<unk> appreciated our investment in our system of engagement.
Designed to obtain higher conversion rates with fewer clicks and therefore drive customer revenue.
So it's both more impactful and more efficient we expect to make this generally available in the first half of next year.
Also we're hoping to solve a large customer pain point, where the early introduction of a new product called impact edge starting in the corporate sector.
This newly developed solution aggregates advertise educational impact data with employee volunteering and giving data from our euro cost platform.
It provides a single view of our corporations social impact programme and replaces labor intensive mainly produce reports into a standardized structure.
We then Pac edge human resources, and GE Eni leaders are able to track and analyze performance of their programs in real time.
Current plans are to put this new solution into an early adopter program. This year with a full rollout in the second half of 2024.
And lastly, we continue to build on our intelligence for good strategy that we introduced last quarter that leverages the power of machine learning and artificial intelligence. For example, recently, we introduced a new capability, we call the story enhancer, and just giving our consumer giving platform.
This generative AI capability resulted in more engagement. Among early adopters is expected to have positive downstream impact on our payments revenue.
We're enthusiastic about what these new features and products can do to make our customers more effective and efficient increase the value of our offerings and add to our growth going forward.
To illustrate how our products impact our customers I'd like to share a few examples of recent customer wins.
Sarcoma Foundation of America was a new logo win from blackboard in the third quarter. They came to us with the goal of increasing awareness around the disease.
And raising funds for researchers and their advocacy efforts. They chose to replace two competitive products Black Baas raisers edge NXT donor management system and team razor for their peer to peer fundraising.
Delaware County Christian School is a case to 12 independent school in Pennsylvania. They were running several disparate systems one for academics second for advancement in a third for the business office.
This was a real pain point there was no 360 degrees view of students revenue management was challenging.
Communication was fragmented across departments.
As part of their strategic plan. The school was looking for an innovative education technology partner, while enhancing school communication and Fellowship Blackboard is providing a total school solution to enable their strategic vision.
On the corporate impacts out of the business ever find welcome Cisco as a new partner Cisco systems is partnering with every Fi to offered mental wellness and financial literacy education for K 12 students and adults.
Cross seller, Alabama as a part of their broader CSR program efforts in the region.
Additionally, every fi renewed and expanded their nine year partnership with the National Hockey League and National Hockey League Players Association, who sponsored the future goals Hockey scholar Education course, Leverages the game of hockey to teach stem skills to students in grades four to seven.
The third quarter was also a period of very active customer outreach with several high touch events. For example, the annual just giving awards were held in London and received over 20000 votes to celebrate 24 individuals that fund raise for causes our peer to peer platform.
In Charleston, several top nonprofit cio's convened at our digital innovation summit that cover topics ranging from AI to cyber security.
And our corporate impact team assembled some of its largest customers to its annual impact summit in Miami.
They're leaders discuss my social impact is a business imperative.
To best drive impacts your employee volunteering and giving.
Finally last week, we held <unk> in Denver with smaller pop ups slated for Toronto, Sydney and London. This is our largest customer conference and this year, we held the conference and hybrid format of virtual and in person attendees.
This had a dual benefit of expanding the 10th of attendees, while also enabling personal come Roderick interaction that our customers enjoy.
Through these events, we have reached the full spectrum of our customers from individuals to nonprofits to corporations. In addition to strengthening our robust brand. This program on outreach affirms our position as the leading software company. So you know.
We've focused on our social impact movement.
With that I'll turn the call over to Tony for coverage of our financial results.
Thanks, Mike.
As Mike mentioned, we had outstanding execution in the third quarter, resulting in strong third quarter results in line with the increased guidance we communicated in may.
We accelerated topline growth as envisioned continue.
Continued tight focus on cost management.
Produce strong EBITDA and growing cash flow and achieved our goal of becoming a rule of 40 company one quarter ahead of plan.
Let's dive into the details.
Total revenue for the quarter reached $278 million, representing an organic growth rate of six 6% over the third quarter of 22 the.
The third quarter marks the third consecutive quarter of increasing revenue growth rates, notably this growth is more than double the growth rate of the previous quarter.
During the quarter foreign exchange had a slight dampening effect as the British pound strengthened against the dollar such as the business grew five 9% at constant currency.
Non strategic onetime revenues have leveled out over the past three quarters and declined by $3 million year over year as we've talked about in the past. This line item is mostly comprised of professional services. They carry a modest margins and are not a strategic focus of the company going forward.
Recurring revenues grew faster at an organic rate of eight 3% or seven 5% at constant currency as Mike noted earlier recurring revenues constitute 97% of total company revenues.
The excellent growth in recurring revenues was driven by both our contractual and transactional recurring revenue streams.
Contractual recurring revenue is generated from our software subscriptions and is at the core of what we do accounting for about two thirds of total revenue for.
For the quarter, we continued to see excellent results from modernizing our pricing model and the social sector. We also continued to extend contract terms last year. The majority of contract renewals were for one year term. This year. The vast majority have been for a three year term.
Recall that there are embedded mid to high single digit price escalations in years, two and three of multi year contracts.
The power of this transformation is remarkable and is just now being felt in the business. There are three additional benefits of this modernization program first.
First it provides a higher degree of revenue security.
Second and dramatically increases resin revenue visibility and predictability, which AIDS planning and third it reduces the volume of internal work effort involved in the renewal process and given that our retention metrics have held up or are slightly improved we're quite happy with the impact. This program is generating.
The remaining third of our revenues are transactional in nature and are composed of donation processing consumer, giving and tuition processing for our K 12 school clients.
These revenue streams are connected to and result from our software subscriptions. They have good value for our customers eliminate their busy work and create greater customer stickiness. All three saw good volume growth this quarter and like contractual recurring we've had good success implementing price increases in this area of the business as well although at more.
Modest rates.
In summary, our revenue initiatives are progressing very well and we're pleased by the top line performance during the quarter, which reflects progress against our five point plan, we're keeping a very close eye on the macro environment, but so far we have not witnessed any additional impact on giving as we head into the fourth quarter, the largest giving season of the year.
Therefore, we are reiterating our full year 2023 revenue guidance of $1 billion $95 million to $1 billion $125 million.
Now, let's turn to the bottom line.
Cost management has been a strength of ours. This year in the third quarter was no exception during the quarter, we reduced total costs by $13 million or approximately 6% from a year ago. When you factor in accelerating revenue growth, which was $16 million during the quarter you see the strength of the P&L management. This performance demonstrates this.
Scalability of our business.
Our intention is to keep a tight hold on costs going forward. However, we will be adding a few positions throughout the company.
And we will also be increasing our investment in the area of security our cost management should continue to produce results with some minor quarter to quarter fluctuations owing to modest cost increases and a likely revenue mix shift to payments processing and the heavy giving savings even though the fourth quarter.
Our adjusted EBITDA for the period came in at $97 million, that's a $30 million improvement over last year's third quarter, and a 45% increase the.
The adjusted EBIT margin was 35% compared to 25, 6% last year at constant currency. The EBITDA margin was 34, 8% we remain on track to attain our full year EBITDA margin guidance of 35% to 31, 5%.
There's a lot to be satisfied with this report however, I'm most pleased with surpassing the rule of 40 and this has been a north star for US just one year ago, we set our sights on this goal as we launched our five point plan.
We were then at 27, 3% and suggested that we'd cross 40 in 2025, obviously, we made progress against Cisco more quickly than anticipated. This quarter Blackboard became a rule of 40 company with a result of 41, 6% or 47% at constant currency.
That's more than 14 point improvement from the third quarter of last year.
And it's even a quarter earlier than we had expected as of last quarter's earnings call.
There could be some volatility on this number from quarter to quarter as certain costs are lumpy and as the fourth quarter's heavy payment volume naturally comes at lower margins that said, we will not stop here and are working to make further improvements looking ahead to 2024, we expect to continue growing revenue and expanding margin to achieve rule of 40 for the full year.
We also had a very good quarter of adjusted free cash flow. The third quarter is typically our seasonally strongest quarter for cash flow production and that held true. This year, we generated adjusted free cash flow of $118 million in Q3 and that puts us on track to meet or exceed the high end of our increased guidance of 190.
$210 million for the full year.
We ended the quarter with $712 million of net debt and as we previously announced we will be making aggregate payments of $49 5 million to 49 state attorneys general and the district of Columbia during the fourth quarter and settlement of the security matter, even with these payments we still expect to end this year at our previously.
Announced goal of approximately two times debt to adjusted EBITDA. Additionally, given our strong cash flow, we expect to resume share repurchases. This year under our existing $250 million board authorization, we'll be giving longer term guidance on our capital allocation and share repurchase plans when we announce our fourth quarter results in early 2020.
Four.
Before we open the call for questions. Let me summarize Q3 was a very strong quarter for blackboard and represented an inflection point for revenue growth as we continue to deliver on our five point operating plan coupled with continued progress on cost management, we drove a dramatic improvement in adjusted EBITDA, which was a $30 million or <unk> 45.
5% and the adjusted EBIT margin expanded to 35% from 25, 6%.
We delivered on our vision to become a rule of 40 company sooner than planned and we generated a sizable amount of adjusted free cash flow positioning us to maintain a strong balance sheet and return capital to our shareholders in the form of share repurchases.
With that operator, please open the lines for any questions the audience may have.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again as a reminder, please press star one to ask a question. Please limit yourself to one question plus a follow up to allow us to facilitate as many questions as possible.
Yeah.
We will now take our first question from Brian Peterson from Raymond James Go ahead caller. Your line is now open.
Thanks, gentlemen, and congrats on the quarter. So Mike just wanted to start off with a macro would love to understand what your customer conversations have been like over the course of the year.
And you also have laid out some growth targets as well you mean for 2024.
To understand the visibility that you have into that bigger and what kind of gives you that confidence in the high single digit growth rate.
Sure Brian.
Yes, we've had like I said in my prepared remarks, there's been this time of year, there's a lot of customer interactions kind of aggregated together, because we have bebe con and we've had other events in the last couple of months. So.
Lots of customer interaction for me personally and for a lot of folks are all very positive I think.
<unk> a lot of excitement for customers with all the product announcements.
Yes, we had a big marketplace setup with demos on new products and new capabilities. We put together a couple of press releases in the last few weeks on product initiatives around generally I and several products coming to market a brand new.
Protocol, then package so lots of excitement.
From our customers.
So I think all in all that.
That feedback is super positive for me personally and for the rest of the company from a growth standpoint, I think that was your second question. Yes, we are.
Really happy with.
The quarter, we just announced.
I think for me on the growth side. The most exciting part is the.
The organic reoccurring revenue.
Which is 97% of the total grew eight 3% for the quarter.
Which is awesome.
We really put it in place a lot of initiatives related to top line growth going forward, we feel good about.
The quarter this quarter Q4, and next year, we do internally long range forecast given the businesses mostly reoccurring.
Business, So we've got pretty high confidence on the outlook on growth and margin.
Going forward.
Really excited that we hit the rule of 40, this past quarter Q3, and have that viewpoint going forward as well.
It's great to see the rule of 40, <unk>, you've heard a lot about the innovation out there no I wouldnt understand as you think about the pickup in innovation here.
Is that something that we'll be able to drive pricing further than you guys had kind of already announced or is that something that's maybe more embedded in what you guys are doing today I'd just love to understand how we think about the innovation driving pricing over the long term.
Kevin Mooney: Good day and welcome to Blackbaud's third quarter, 2023 earnings call. Today's conference is being recorded.
Kevin Mooney: I'll now turn the conference over to Kevin Mooney, Executive Vice President Investor Relations. Please go ahead, sir. Good morning, everyone.
Yes, sure. So it really is that the pricing that we've started in the basically it's a conversion of our customers to three year contracts with new pricing.
Kevin Mooney: Thank you for joining us on Blackbaud's third quarter, 2023 earnings call.
Kevin Mooney: Joining me on the call today are Mike Vice President and CFO. Mike and Tony will make prepared comments and then we'll open the line up for your questions. Please note that our comments today contain certain board 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 10k and other SEC filings for more information on those risks. This discussion today will focus on non-GAF results.
Those contracts assume in our cloud platforms continued innovation in that in those existing new contracts and so this new innovation is just assumed in those contracts. So some of this innovation as well.
We will not have new pricing. However, some of the things we announced like impact edge is a brand new product.
So obviously new revenue from from that but also some of the other innovation like the new donation forms.
It creates the ability for our customers to drive their revenue and their donations, which downstream will impact organic revenue growth on our payments platform from us soon as organic revenue growth built in here from new products to driving transactions not necessarily.
Kevin Mooney: Please refer to our press release and the investor materials posted to our website for the full details of our financial performance including gap results as well as full year guidance. We believe that a combination of both gap and non-GAF measures are more representative of how we internally measure our business. Unless otherwise specified, we will refer only to non-GAF financial measures on this call. Please note that non-GAF financial measures should not be considered in isolation form or as a substitute for gap measures.
Reising in addition to what we're doing in our existing pricing and three year.
Conversion model.
I appreciate the color thanks, Mike.
Youre welcome.
Michael Gianoni: With that, I'll turn the call over to you, Mike. Thank you for joining the call today. I'm pleased to share that Blackbaud produced very strong results in the third quarter. Our performance accelerated as we continue to execute on our five-point operating plan to improve product innovation, accelerate bookings growth, optimize transactional revenue, modernize contract pricing, and improve cost management. You may recall that on last quarter's call, I suggested that our plan would deliver a one-two punch.
Our next question is from Rob Oliver with Baird. Please proceed with your question.
Great Hey, good morning, Thanks, guys I had two Mike one for you and then Tony a follow up for you So Mike just.
Obviously nice job you guys are executing well on these price increases and on the contract discussions I imagine you know these can always be easy discussions in this economy and just curious you know.
How you guys are thinking about it I mean switching people from one to three years.
Is this an opportunity to get more product into people's hands as well.
Michael Gianoni: First, improvement in profitability, then second, improved organic revenue growth. In the second quarter, the business delivered the first punch, much improved margins. This strong margin expansion continued in the third quarter with total cost again being below last year's level. We're continuing to aggressively manage our cost and margin going forward. This quarter, we also delivered the second punch with improved organic revenue growth. For the quarter, total organic revenue grew 6.6%. That's more than twice the rate of growth in the second quarter and up almost five percentage points from a year ago.
To really showcase some of the other capabilities for byproducts, we sometimes see when price increases happened with software companies Hey, it's an opportunity to maybe negotiate around some additional use cases, just help help us understand how you're thinking about that.
Yes sure so.
The good thing on this move to three year contracts and new pricing is our retention numbers have held which.
Which is great.
And we just had thousands of customers in Denver for BV, Jon and I spoke to many customers.
One is already known as excited about getting higher pricing, but customers are excited about all the innovation coming in so I feel like the stream of innovation is us just earning the right to have higher pricing and maintaining our retention rates and customers are seeing that.
Michael Gianoni: And our organic reoccurring revenue, which is our most strategic revenue line, comprising 97% of our total revenue grew even faster at 8.3%. The combination of accelerating revenues and lower cost, drove improved margins, and excellent cash flow for the third quarter. As a result of our execution on both the top and bottom line, we delivered on our commitment to become a rule of 40 company with a result of 41.6%. We obtained this North Star goal a few years before our initial expectation in a full quarter ahead of recent expectations, and that score is up a remarkable 14 points from the third quarter of last year. Results like these take a coordinated effort across the entire company.
Our platforms are very sticky their systems of record.
There are non discretionary and.
Customers are loyal and excited about what's coming from an innovation standpoint. So it's been positive we have some of the conversations aren't great.
But customers are not leaving because of pricing theyre staying because of the impact our products have on their business and they see a stream of innovation coming.
So it's been really positive.
And I have very.
Good insight into the future related to this program because if you recall when we started talking about this program.
We notified customers five months ahead so.
Michael Gianoni: I'd like to thank Blackbaud's employees for their strong execution and commitment to delivering for our customers. In the quarter, our team made continue progress across all five points of our plan.
We're into next year with this program now it's not like it happens next week right. So we have very good insight into the future of the <unk>.
Michael Gianoni: One aspect I'd like to discuss in greater detail on today's call are the many new capabilities we're driving through innovation. During the quarter we continue to invest in new innovations that increase the value of our products and solve customer pain points. We're investing for the intermediate and longer term with several exciting opportunities. For example, during the quarter we placed a new optimized donation form into an early adopter program with customers across charity, education and arts and cultural organizations.
Revenue improvements that this program drives and a lot of the innovation is to continue to earn the right to serve our customers and so they expect that so it's a very good program for us.
Rob It's gone extreme.
Extremely well.
And the customers are super excited with what they've seen at DB com and the other events, we've got a bunch of other events I mentioned in my.
Our prepared remarks, so it's going really well.
Okay. That's really helpful. Thanks for all that Mike and then Tony just.
As a follow up question, Mike mentioned, we have some visibility.
Michael Gianoni: Customers appreciated our investment in a system of engagement that designed to attain higher conversion rates with fewer clicks and therefore drive customer revenue. So it's both more impactful and more efficient. We expect to make this generally available in the first half of next year.
Given that the notice to five months' notice.
How should we think about.
Think about about half of the contracts at very high mix of contracts up for renewal next year or so.
How should we think about.
Michael Gianoni: Also, we're hoping to solve a large customer pain point with the early introduction of a new product called Impact Edge, starting in the corporate sector. This newly developed solution aggregates ever-fired educational impact data with employee volunteering and giving data from our URCAWS platform. It provides a single view of a corporation's social impact program and replaces labor-intensive, manly produced reports into a standardized structure. With Impact Edge, human resources and DE&I leaders are able to track and analyze performance of their programs in real time. Current plans are to put this new solution into an early adopter program this year with a full rollout in the second half of 2024.
That linearity is it going to be more backend loaded is it going be more even throughout the year.
Any help there would be great.
Yeah, Rob So we we had the biggest cohort this year from a renewal perspective, we've got a slide in the in the Investor materials that you can look at I think next year is about 30%.
The contractual recurring base will be up for renewal and we'll be working on the new pricing and the shift to three year contracts.
We've got the seasonality to keep in mind as typical on those contracts. So a lot of those at the end of the quarters certainly the Q2 and early part of Q3 with the school years and just a typical end of year is when we sold those and then some also.
Late in the year as well so we'll have some lumpiness around the end of Q2 start in Q3.
Michael Gianoni: And lastly, we continue to build on our intelligence for good strategy that we introduce last quarter that leverages the power of machine learning and artificial intelligence. For example, recently we introduced a new capability we call the story enhancer in just giving our consumer giving platform. This generative AI capability resulted in more engagement among early adopters is expected to have positive downstream impact on our payments revenue. We're enthusiastic about what these new features and products can do to make our customers more effective and efficient. Increase the value of our offerings and add to our growth going forward.
Not unusual that's typical for us So you would expect that and then.
The pricing and that uplift turns on very quickly on most of those contracts.
And Thats a straight line method over the three year contract term. So I think as long as you get that seasonality right and when the renewals come up you can spread that revenue pretty cleanly in your model.
Okay, great. Thanks, Thanks for that Tony Yeah, I misread, it's 30 24, great. Thanks for the question there and thanks for the answers guys appreciate it.
Thanks.
Our next question comes from Parker Lane with Stifel. Please proceed with your question.
Yeah, Hi, guys. Thanks for taking the question here, maybe Tony just to pick up on that last response, you had I know you guys are pretty proactive last year in getting in front of these 2023 cohort customers.
Michael Gianoni: To illustrate our products impact our customers, I'd like to share a few examples of recent customer wins.
Michael Gianoni: The Sarcoma Foundation of America was a new logo win from BlackBod in the third quarter. They came to us with a goal of increasing awareness around the disease and raising funds for researchers and their advocacy efforts. They chose to replace two competitive products with BlackBods, Razors, AIGNXT, donor management system, and Team Razor for their peer-to-peer fund rating.
Communicating pricing changed perhaps doing early renewals is there any potential for early renewals for 2024 cohort of people starting to think about that or is that going to come at the time the contract down.
Yeah Park, and we're already I think through Mike's prepared comments he spoke to it we're already through largely December at this point from how far in advance we're working and would be speaking with some of those customers that were new in the first part of 2024 already.
Michael Gianoni: Delaware County Christian School is a K-12 in the Penn School in Pennsylvania. They were running several disparate systems, one for academics, a second for advancement, and a third for the business office. Thomas.
Certainly you have some discussion with some of the larger customers is well well in advance talking about upsells and all the other pieces and parts. So we would be as normal course of business speaking to some of those larger customers as well as well as anybody who has an interest.
Michael Gianoni: This was a real pain point. There was no 360 degree view of students. Revenue management was challenging and communication was fragmented across departments.
Michael Gianoni: As part of their strategic plan, the school was looking for an innovative education technology partner on enhancing school communication and fellowship. Blackbaud is providing a total school solution to enable their strategic vision.
So right now the visibility is very good we've got almost a full year under our belt because we've largely renewed through December we haven't really good sense of where those renewal rates are and they're holding up very well a little better than expected, even which is tremendous considering this increase in price and shift to three year and then we'll get good visibility as well because.
Michael Gianoni: On the corporate index out of the business, Everfai welcomes Cisco as a new partner. Cisco Systems is partnering with Everfai to offer mental wellness and financial literacy education for K-12 students in adults across Selma, Alabama as a part of their broader CSR program efforts in the region. Additionally, Everfai renew and expanded their nine-year partnership with the National Hockey League and National Hockey League Players Association who sponsored the future goals Hockey Scholar Education course that leverages the game of hockey to teach STEM skills to students in grades 4 to 7.
Those customers, who chose to go with one year contracts will already be renewing here over the next couple of months. So even before we finished this year, we'll be working on some of those.
At year renewals on the folks that chose one year contracts.
And we've got some visibility into that as well already from work and some of those for early part of 'twenty four and late this year and those renewal rates are looking pretty holding up pretty well also so we feel very positive.
Yes, I'll add I'll add.
So we're going to get about 35% of the total this year, we're pretty much done with this year close to it.
We thought we noticed five months ahead. So we're already notified customers in March next year and.
Michael Gianoni: The third quarter was also appeared a very active customer outreach with several high touch events. For example, the annual just giving awards were held in London and received over 20,000 votes to celebrate 24 individuals that fundraised for causes on our peer-to-peer platform. In Charleston, several top non-profit CIOs convened at our Digital Innovation Summit that covered topics ranging from AI to cybersecurity. And our corporate impact team assembled some of its largest customers to its annual impact summit in Miami. Their leaders discussed why social impact is a business imperative and how to best drive impact employee volunteering and giving.
And when our customers get notified that is one of the conversation starts in a weak that month. So think about like the February March customers, we've already been talking to.
Everyone's already got notice and the margins are getting noticed now.
We'll start those conversations so this whole thing.
Five months ahead of US all the time, which is really great. So we're able to manage it with very good future visibility.
Got it appreciate the color on that and then Mike maybe you can stick with you I think the impact goods in and out. So it was very interesting can you help us understand is that primarily going to be an expansion vehicle with our corporate vertical that you're playing in today or.
Michael Gianoni: Finally, last week, we held D.D. Con in Denver with smaller pop-ups slated for Toronto, Sydney, and London.
The potential to actually drive.
Incremental interest in that new business.
You bet.
Yes, so that product is.
Michael Gianoni: This is our largest customer conference. In this year, we held the conference and hybrid format of virtual and in-person attendees. Just how the dual-benefit expanding the tent of attendees will also enabling the personal camaraderie and interaction our customers enjoy. Through these events, we reached the full spectrum of our customers from individuals to nonprofits to corporations. In addition to strengthening our robust brand, this program of outreach affirms our position as the leading software company, similarly focused on a social impact movement.
Well, it's super popular at DD card, there was lines of people waiting to see the demo.
Yeah, It is announced into our corporate impact business sorts for companies.
Think of like Fortune 1000 companies.
To be able to measure and sort of graphics, we display their impact around the world, but then we will move it over to large.
Non profits and foundations in our other markets as well, it's starting off in our corporate impact group.
Anthony Boor: With that, I'll turn the call over to Tony for coverage of our financial results. Thanks, Mike. As Mike mentioned, we had outstanding execution in the third quarter, resulting in strong third quarter results in line with the increased guidance we communicated in May. We accelerated top line growth as envisioned, continued a tight focus on cost management, produced strong evita and growing cash flow, and achieved our goal of becoming a rule of 40 company, one quarter ahead of plan.
Understood I appreciate it guys. Thanks.
Welcome.
Our next question comes from Kirk <unk> with Evercore ISI. Please proceed with your question.
And congrats on the nice quarter you Mike I was wondering can you just talk a little bit about sort of your thought process on sort of.
Organic innovation versus acquisition at this point in time, we're at sort of a different period in terms of where interest rates are and I was just kind of curious when you think out three to five years do you feel good about the ability to perhaps be a little bit more focused on organic I know you have it it's not like you weren't but but less dependent on M&A.
Anthony Boor: Let's dive into the details. Total revenue for the quarter reached 278 million, representing an organic growth rate of 6.6% over the third quarter of 22. The third quarter marks the third consecutive quarter of increasing revenue growth rates. Notably, this growth is more than double the growth rate of the previous quarter. During the quarter, foreign exchange had a slight dampening effect as the British crown strengthened against the dollar, such as the business grew 5.9% at constant currency.
As you go forward I realize it's always a balance, but just kind of curious how you're thinking about it given where rates are and I just had a quick follow up for Tony.
Yeah sure. So we've been fairly acquisitive as a as a company we made a small acquisition last year, which is a technology expansion that's worked out very very well.
We made a small equity interest in one of our.
Anthony Boor: Non-strategic one-time revenues have leveled out over the past three quarters and declined by three million year over year. As we've talked about in the past, this line-up is mostly comprised of professional services that carry modest margins and are not a strategic focus of the company going forward. Recurring revenues grew faster in an organic rate of 8.3% or 7.5% at constant currency. As Mike noted earlier, recurring revenues constitute 97% of total company revenues.
Startup partner businesses recently.
And those are technology investments.
To add to our innovation.
<unk>.
Focus this year has been.
Doing some things that we've already talked about and announced frankly related to capital such as.
Closing out.
Litigation.
With the attorney generals and paying that which we have paid.
Paying down debt Tony mentioned, we're still expecting to be around two.
Anthony Boor: The excellent growth in recurring revenues is driven by both our contractual and transactional recurring revenue streams. Contractual recurring revenue is generated from our software subscriptions and is at the core of what we do, accounting for about two thirds of total revenue. For the quarter, we continue to see excellent results from modernizing our pricing model in the social sector. We also continue to extend contract terms. Last year, the majority of contract renewals were for a one-year term.
Levered at two by the end of the year close to there now.
We mentioned in our prepared remarks.
We're going to be back in the market and our buyback program, we've got $250 million authorized by the board that we haven't really executed on because we're focused on paying down debt and closing this out with the attorney generals.
So that's sort of some insight into capital thinking if you will and Tony also mentioned that when we announce the Q4 and the year end.
Anthony Boor: This year, the vast majority have been for a three-year term and recall that there are embedded mid-to-high single-digit price escalations in years two and three of multi-year contracts. The power of this transformation is remarkable and is just now being felt in the business.
And the guidance for next year.
Also talking about long term capital allocation strategy as well related to M&A, we're still active in the market.
Anthony Boor: There are three additional benefits of this modernization program. First, it provides a higher degree of revenue security. Second, it dramatically increases revenue visibility and predictability, which aids planning. And third, it reduces the volume of internal work effort involved in the renewal process. And given that our retention metrics have held up or are slightly improved, we're quite happy with the impact this program is generating. The remaining third of our revenues are transactional in nature and are composed of donation processing, consumer giving, and tuition processing for our K-12 school clients.
Yeah, we've got a really good.
Go forward view on really strong organic growth as well.
But there are still really good.
Acquisition opportunities out there for us to expand Tam expand number of products per customer as well again package of new organic build that we'll do that more products per customer, but theres still opportunities.
M&A for the same.
That's helpful and Tony just a quick one for you you mentioned.
Sort of the some of the it seemed like a little bit one time.
Anthony Boor: These revenue streams are connected to and result from our software subscriptions. They have good value for our customers, eliminate their busy work, and create greater customer stickiness. All three saw good volume growth this quarter, and light contractual recurring. We've had good success implementing price increases in this area of the business as well, although at more modest rates.
And it fits in transaction, while this quarter around our Hawaii wildfire relief in Dbms rate change, where there's meaningful it seemed like the performance was largely driven just by better better activity levels, but I was just kind of curious how we should think about that.
A seasonal basis I guess.
Yes, Kirk I don't I don't think that the <unk>.
Anthony Boor: In summary, our revenue initiatives are progressing very well and we are pleased by the top line performance during the quarter, which reflects progress against our five-point plan. We're keeping a very close eye on the macro environment, but so far we've not witnessed any additional impact on giving as we head into the fourth quarter, the largest giving season of the year. Therefore, we're reiterating our full year 2023 revenue guidance of $1.95 million to $1.125 million.
Viral stuff was that significant in the quarter. Obviously contributes we ended up as you are aware <unk> been following us a long time, we have a lot of different drivers on the transaction side of the business.
At times will cause a little bit of volatility, but not meaningful material to the overall revenue numbers. We had continued to see good traction in BMS and good growth on that front overall tuition management also has done well the number of families at the private schools that we.
Anthony Boor: Now let's turn to the bottom. Cost management has been a strength of ours this year, and the third quarter was no exception. During the quarter we reduced total cost by $13 million, or approximately 6% from a year ago. When you factor in accelerating revenue growth, which was $16 million during the quarter, you see the strength of the P&L management. This performance demonstrates the scalability of our business. Our intention is to keep a tight hold on costs going forward.
<unk> support is up year on year, we have had some price increases in both PV MF and PV T M.
And then your cause.
Business add some transaction components, it's done well and then just Kevin has also done well in the UK and that model and the take rates on the donor cover complete cover things.
Have done really well in the U K business also so we kind of seeing across the board.
Anthony Boor: However, we will be adding a few positions throughout the company, and we'll also be increasing our investment in the area of security. Our cost management should continue to produce results with some minor quarter fluctuations. The dollar improvement over last year's third quarter and a 45% increase. The adjusted EBITDA margin was 35% compared to 25.6% last year. At constant currency, the EBITDA margin was 34.8%. We remain on track to attain our full year EBITDA margin guidance of 30.5% to 31.5%.
Steady growth in transactions is very similar to what we saw in the last couple of years. So that growth rate continues to be kind of in that high single to low double dependant on the quarter.
Okay, great. Thanks, very much sandeep, congrats guys and you better.
As a reminder.
Mind, you if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Matt <unk> with BTG. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question I guess on the <unk> side. It seems like it's continues to gain momentum and have some strong traction there anything you'd point to that you've either done internally from a strategic or staffing perspective, or maybe more from a macro.
Anthony Boor: There's a lot to be satisfied with in this report. However, most please was surpassing the rule of 40. This has been a North Star for us. Just one year ago, we set our sights on this goal as we launched our five point plan. We were then at 27.3% and suggested that we'd cross 40 in 2025. Obviously, we made progress against this goal more quickly than anticipated. This quarter, Blackbaud, became a rule of 40 company with a result of 41.6% or 40.7% at constant currency.
No.
Headwind participation perspective, but.
What's really driving the success on the ever Fi side, and how should we think about that heading into 'twenty four.
Yes, I'd say bookings are up year over year pipeline is looking good.
Structurally yes, we put that business together with our <unk> business in the last year because there are similar.
<unk>.
The job types. The buyers are the same the customers.
Anthony Boor: That's a more than 14 point improvement from the third quarter last year. And it's even a quarter earlier than we'd expected as of last quarter's earnings call. There could be some volatility on this number from quarter to quarter is certain costs are lumpy. And as the fourth quarter's heavy payment volume naturally comes at lower margins.
Target markets, the same and we do not have a lot of overlap and shared customers between <unk> and your cost that is a good cross sell opportunity. So we've got a corporate impact group now that Tom Davidson heads up that has five products. The two main products are ever find your comments and we are selling.
Anthony Boor: That said, we will not stop here and are working to make further improvements. Looking ahead to 2024, we expect to continue growing revenue and expanding margin to achieve rule of 40 for the full year. We also had a very good quarter of adjusted free cash flow. The third quarter is typically our seasonally strongest quarter for cash flow production. And that held true this year. We generated adjusted free cash flow of 118 million in Q3.
<unk> solutions to companies.
So that's fairly new within the last year, so that is a new structure.
We changed the name didn't change because we added named kind of corporate impact.
We are focused on corporations.
But we have a suite of products, there and impact edge, which we just announced it will be coming out next year is a product we built for that market as well so yes, new structure in the last year.
Anthony Boor: And that puts us on track to meet or exceed the high end of our increased guidance of 190 million to 210 million for the full year. We ended the quarter with 712 million of net debt. And as we previously announced, we will be making aggregate payments of 49.5 million to 49 state attorneys general and the district of Columbia during the fourth quarter in settlement of the security matter. Even with these payments, we still expect to in this year at our previously announced goal of approximately two times debt to adjusted EBITDA. Additionally, given our strong cash flow, we expect to resume share repurchases this year under our existing 250 million board authorization.
It's a new sales leadership and their new product an impact edge.
Anthony Boor: We'll be giving longer term guidance on our capital allocation and share repurchase plans when we announce our fourth quarter results in early 2024.
Pretty good pipeline for that business.
I'd say, that's the summary.
All right very helpful and then Tony following up on.
<unk> question before rather than looking at the one time potential impacts on transactions curious as you look towards the fourth quarter and sort of the busier year end, giving season and even into the early part of next year. What have you seen of late in terms of whether it's frequency or size of transactions that gives you confidence.
<unk> said youre not going to have any kind of seasonal headwinds or any macro impact there.
How have you looked at it on maybe a like for like customer base or things of that nature to ensure that the fourth quarter will continue to be strong.
Anthony Boor: Before we open the call for questions, let me summarize. Q3 was a very strong quarter for BlackBOD and represented an inflection point for revenue growth as we continue to deliver on our five point operating plan. Coupled with continued progress on cost management, we drove a dramatic improvement in adjusted EBITDA, which was 30 million or 45%. And the adjusted EBITDA margin expanded to 35% from 25.6%. We delivered our vision to become a rule of 40 companies sooner than planned, and we generated a sizeable amount of adjusted free cash flow, positioning us to maintain a strong balance sheet, and return capital to our shareholders in the form of share repurchases.
Yes, Matt that's a really good question coming into the end of the quarter and year end, giving and giving Tuesday, and all those related pieces.
Last year, we saw.
A bit of a decline in the average donation size in Q4 that created a little bit of softness I think thats the impact of the economy and disposable income for individuals.
With corporations and foundations in das and stuff are actually up so that volume is done well overall transactions, even last year, when things turn south a little bit with the economy. The transaction volume was up but the average donation size was down slightly we've not seen any further deterioration in that so we keep it.
Operator: With that operator, please open the lines for any questions the audience may have. Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad.
Most eye on it so you know.
At this point, we're assuming that that that's going to hold for us.
Operator: If you are using your speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, as a reminder, please press star one to ask a question, and please limit yourself to one question plus a follow-up to allow us to facilitate as many questions as possible.
Hard to say until we get to that and see what volume is there at the end of the year, but thus far through the year those transaction sizes have held up pretty well and we've seen good transaction volume as we spoke through the first three quarters and some good given with some of the viral events and we spoke about with Hawaii. So overall, we feel pretty good we've not seen any firm.
Brian Peterson: We will now take our first question from Brian Peterson, from Raymond James. Go ahead, caller.
Brian Peterson: Your line is now open. Thanks, gentlemen. Congrats on the quarter.
Deterioration.
Really hard to project, but right now we're expecting that will hold with that what is slightly softer than what we saw the prior couple of years, but a continuation of last year was kind of giving.
Brian Peterson: Mike, just wanted to start off with a macro. I would love to understand what your customer conversations have been like over the course of the year, and you also have laid out some growth targets as well, even for 2024. I'd love to understand the visibility that you have, and what kind of use that confidence in the high single-digit growth rate. Sure, Brian. Yeah, we've had, like I said in my prepareable marks, there's been a, you know, this time of year, there's a lot of customer interaction kind of aggregated together because we have BVCon, and we've had other events in the last couple of months, so lots of customer interaction for me personally and for a lot of folks.
Yeah, and the other part of that is in that mix of transactions, we've seen really nice growth in the tuition platform with more families more students and more.
Use of the tuition platform as well really really strong in that that's kind of locked in.
Were in the school year.
Got it thank you.
Youre welcome.
Yes.
Our next question comes from Koji Aikido Bank of America. Please proceed with your question.
Brian Peterson: All very positive. I mean, I think the BVCon, a lot of excitement for customers with all the product announcements, and, you know, we had a big marketplace set up with demos on new products and new capabilities. We put together a couple of press releases in the last few weeks on product initiatives around gendered AI and several products coming to market brand new product called Impact Edge. So lots of excitement from our customers. So I think all and all that feedback is super positive for me personally and for the rest of the company.
Hey, Good morning, Hey, Mike Hey, Tony Thanks for taking the questions I just have one.
So when I was looking through the deck. This.
Good morning, and I'm on the outlook.
Outlook slide for 2023 and 2024.
I noticed there was a slight change I was hoping you could walk through it a little bit so on the 2024 plus outlook.
Traction of recurring revenue and total revenue now says high single digit growth and looking at some of the past.
It's a high single digit growth to a low double digit growth. So I was wondering.
Maybe what's changed in the outlook this quarter versus earlier this year and that is resulting in its moderate I guess I guess you could considered a moderation in the 'twenty 'twenty four plus growth outlook. Thanks, guys.
Brian Peterson: Yeah, from a growth standpoint, I think that was your second question. We're really happy with the corridor we just announced. I think for me, on the growth side, the most exciting part is the organic reoccurring revenue, which is 97% of the total grew 8.3% for the quarter, which is awesome. So that, you know, we've really put it in place a lot of initiatives related to top line growth going forward. We feel good about the quarter, this quarter, Q4, and next year we do internally long range forecast given the business is mostly a reoccurring business.
Yeah sure I can take that it's not it's not a material change really because if you think about this quarter and you know what it and maintaining the guide kind of gives you an outlook into what we're thinking about Q4, obviously, because we maintained our guide for the year.
Which is still kind of 555 or so at the midpoint I think.
And so the growth next year, which really we haven't really talked about yet.
It's going to be quite significant.
This year's results were.
A pretty slow start in the first two quarters and then a ramp up on the top line in Q3, and Q4, and we guide to the year not to the quarter.
Brian Peterson: So we've got, you know, pre high confidence on the outlook on growth and margin going forward and, you know, really excited that we hit the rule 40 this past quarter Q3 and have that, you know, viewpoint going forward as well. It's great to see the rule 40 being out of BBcon to, you know, you heard a lot about the innovation out there.
And so really that's all about what the year could look like above this year.
Got it thanks for taking the question.
Brian Peterson: You know, I would understand, as you think about the pickup and innovation here, is that something that will be able to drive pricing further than you guys have kind of already announced or is that something that's going to be more embedded in what you guys are doing today. We just love to understand, you know, how we think about the innovation driving pricing over the long term. Thanks. Yes, sure. So it really is, but the pricing that we've started in the, basically it's a conversion of our customers to three or contracts with new pricing, you know, those contracts assume in our cloud platforms continued innovation in those existing new contracts.
There are no further questions at this time I would now like to turn the floor back over to Mike.
<unk> for closing comments.
Great. Thank you thanks for joining us this morning just.
Just to summarize we delivered really strong results during the third quarter. We continued to successfully execute our five point plan with.
With solid expense management, and accelerating organic growth and rule of 40 attainment, we're very pleased with the quarter and excited for the future and the significant value. We are confident will create for shareholders.
I'm really proud of the progress we've made and grateful for the hard work and positive spirit of our team members, who continue to drive our success.
Brian Peterson: And so this new innovation is just assumed in those contracts. The new pricing, however, some of the things we announce like impact edge is a brand new product. So obviously, you know, new revenue from from that, but also some of the other innovation like the new donation forms, you know, creates the ability for our customers to drive their revenue in their donations, which downstream will impact organic revenue growth on our payments platform from us.
Look forward to sharing more with you on our fourth quarter earnings call. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Okay.
Okay.
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Brian Peterson: So there's organic revenue growth built in here from new products to driving transactions, not necessarily pricing in addition to what we're doing in our existing pricing in three year conversion model. Appreciate the color. Thanks Mike. You're welcome.
Okay.
Robert Oliver: Our next question is from Rob Oliver with there. Please proceed with your question. Great. Good morning. Thanks guys. I had two Mike one for you and then Tony a follow up for you. So to Mike, just on these obviously, you know, nice job. You guys are executing well on these price increases on the contract discussions. I imagine, you know, these can't always be easy discussions in this economy. Just curious, you know, how you guys are thinking about it.
Yes.
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Robert Oliver: I mean, switching people from one to three years. Is this an opportunity to get more product into people's hands as well? To really showcase some of the other capabilities provide by as we sometimes see when price increases happen with software companies. It's an opportunity to maybe negotiate around some additional use cases that just help us understand how you're thinking about that.
Michael Gianoni: Yeah, sure. So, you know, the good thing on this move to three year contracts and new pricing is our retention numbers have helped, which is great. And you know, we just had thousands of customers in Denver for BBconn and I spoke to many customers. You know, no one's all, no one's excited about getting higher pricing, but customers are excited about all the innovation coming. And so I feel like the stream of innovation is just earning the right to have higher pricing and maintaining our retention rates and customers are seeing that.
Okay.
Yeah.
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Michael Gianoni: You know, our platforms are very sticky. They're systems of record. They're non discretionary and, you know, customers are loyal and excited about what's coming from an innovation standpoint. So it's been positive. You know, we have some of the conversations aren't great, but customers are not leaving because they're placing their stain because of the impact our products have on their business and they see a stream of innovation coming. So it's been really positive.
Michael Gianoni: And I have very, you know, good insight into the future related to this program because if you recall, when we started talking about this program, you know, we notice my customers five months ahead. So, you know, we're into next year with this program now. It's not like it happens next week, right. So we have very good insight into the future of the revenue improvements that this program drives. But the innovation is to continue to earn the right to serve our customers.
Michael Gianoni: And so, you know, they expect that. So it's a very good program for us Rob. It's gone, you know, extreme, extremely well. And the customers are super excited with what they've seen at D.V.Con and the other events, you know, we have a bunch of other events I mentioned in my prepared remarks. So it's going really well. Great. Okay, that's just really helpful. Thanks for all that, Mike. And then Tony, just as a follow-up question, Mike mentioned that we have some visibility here, given the notice, the five-month notice.
Okay.
Yes.
Hum.
Okay.
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Michael Gianoni: How should we think about half of the contracts, a very high mix of contracts, up for renewal next year? How should we think about that linearity? Is it going to be more back and loaded? Is it going to be more even throughout the year?
Hum.
Okay.
Okay.
Yeah.
Anthony Boor: Eddie, how's that going to be great?
Okay.
Anthony Boor: Yeah, Rob, so we had the biggest cohort this year from our NULLS perspective. We've got a slide in the investor materials that you can look at. I think next year is about 30%. The contractual recurring base will be up for renewal, and we'll be working on the new pricing and the shift to three-year contracts. We've got the seasonality to keep an in mind as typical on those contracts. So a lot of those at the end of quarters, certainly in the Q2, an early part of Q3, with the school years and just the table in the years when we've sold those and then some also, you know, late in the year as well.
Okay.
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Okay.
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Okay.
Mhm.
Yeah.
Yes.
Yeah.
Okay.
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Okay.
Okay.
Anthony Boor: So we'll have some lumpiness around the in the Q2, starting Q3. That's not unusual. That's typical for us. So you'd expect that. And then, you know, the pricing and that uplift turns on very quickly on most of those contracts. And that's a straight line method over the three-year contract term. So I think as long as you get that seasonality right of when the renewals come up, you can spread that revenue pretty cleanly in your model.
Okay.
Okay.
Thank you.
Okay.
Yeah.
Okay.
Okay.
Okay.
Okay.
Okay.
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Robert Oliver: Okay. Great. Thanks for that, Dota. Yeah, I miss red. It's 30 on 24. Great. Thanks for the correction there. And thanks for the answers, guys. Appreciate it. Thanks.
Okay.
Thank you.
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Parker Lane: Our next question comes from Parker Lane with Stevele. Please proceed with your question. Yeah, guys. Thanks for taking the questions here. Maybe Tony, just to pick up on that last response you had. I know you guys are pretty proactive last year and getting in front of these 2023 cohort customers, you know, communicating the pricing change and perhaps doing early renewals. Is there any potential for early renewals for that 2024 cohort of people starting to think about that?
Okay.
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Parker Lane: Or is that going to come at the time to contract them? Yeah, Parker. We're already, I think through Mike's prepared comments, he spoke to it. We're already through largely December at this point from how far in advance we're working and would be speaking with some of those customers that were renewing the first part of 2024 already. Certainly you have some discussion with some of the larger customers as well, well in advance, talking about upsells and all the other pieces in parts.
Okay.
Okay.
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Parker Lane: So we would be, you know, as normal course of business, speaking to some of those larger customers as well as well as anybody who has an interest. So right now, the visibility is very good. We've got almost a full year under our belt because we've largely renewed through December. We have a really good sense of where those, you know, renewal rates are and they're holding up very well, a little better than expected, even which is tremendous considering this increase in price and shift to three year.
Okay.
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Okay.
Parker Lane: And then we'll get good visibility as well because some of those customers who chose to go with one year contracts will already be renewing here, you know, over the next couple of months, even before we finish this year, we'll be working on some of those, you know, second year renewals on the folks that chose one year contracts. And we've got some visibility into that as well already for more than some of those for early part of 24 and late this year.
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Parker Lane: And those renewal rates are looking pretty holding up pretty well also, so we feel very positive. Dr. Allad, you know, we're going to get about 35% of the totals this year. We're pretty much done with this year close to it. We've noticed five months ahead. So we're already notified customers in March next year. And when customers get notified, that's when the conversation starts. They don't wait to that month. So think about like the February March customers, we've already been talking to because the February ones already got noticed and the March ones are getting noticed now.
Parker Lane: And we'll start those conversation. So this whole thing is sort of five months ahead of us all the time, which is really great. So we're able to manage it with very good future visibility. So I'd appreciate the color on that.
Michael Gianoni: And then Mike, maybe stick with you. I thought the impact edge and outs it was very interesting. Can you help us understand, is that primarily going to be an expansion vehicle in that corporate vertical that you're playing in today or that of the potential to actually drive, you know, incremental interest in that new business through that release? Yeah, so that product is, well, it's super popular at BBcon. There was lines of people waiting to see the demo.
Michael Gianoni: Yeah, it is announced into our corporate impact business. So it's for companies, think of like fortune 1000 companies to be able to measure and sort of graphically display their impact around the world. But then we will move it over to large nonprofits and foundations in our other markets as well. It's starting off in our corporate impact group. Understood. Appreciate it guys. Thanks. You're welcome.
Kirk Materne: Our next question comes from Kirk Motone with Evercore ISI. Please proceed with your question. Much and congrats on the, on the nice quarter.
Michael Gianoni: You like a word you just talk a little bit about sort of your thought process on for organic innovation versus acquisition at this point on where at sort of a different period in terms of where interest rates are. I was just kind of curious, you know, when you think out, you have three to five years, do you feel good about the ability to perhaps be a little bit more focused on organic. I know you have it. It's not like you weren't. But, but less dependent on M&A as you go forward. I really, that's always a balance, but just kind of curious how you're thinking about it.
Anthony Boor: Given your rates are going to have a quick call for Tony. Yeah, sure. So, you know, we've been fairly equisitive as a, as a company.
Michael Gianoni: We made a small acquisition last year, which is a technology expansion that's worked out very, very well. We made a small equity interest in one of our startup partner businesses recently. And those are technology investments to add to our innovation pipeline. You know, our focus this year has been, you know, doing some things that we've already talked about and announced, frankly, related to capital such as, you know, closing out the litigation with the attorney generals and paying that which we have paying down debt.
Michael Gianoni: Tony mentioned we're still expecting to be around to lever it to by the end of the year, close to there now. We mentioned our prepared remarks that, you know, we're going to be back in the market in our buyback program. You know, we've got 250 million authorized by the board that we haven't really executed on because we're focused on paying down debt and closing this out with the attorney generals. So, that's sort of an insight into capital thinking, if you will.
Anthony Boor: And Tony also mentioned that when we announced the Q4 in the year and the guidance for next year, we'll also talk about long term capital allocation strategy as well related to M&A. Tony, you know, we're still active in the market. You know, we've got a really good go forward view on really strong organic growth as well, but there are still, you know, really good acquisition opportunities out there for us to expand and expand number of products per customer as well. Again, package is new organic build that will do that more products for customer, but there's still opportunities, you know, in M&A for the same.
Kirk Materne: Anthony, just a quick one for you. You mentioned some of the, seem like a little bit one-time benefits in transaction, all this quarter around the Hawaii wildfire relief and the big M.S, rate change. Were those meaningful, seemed like the performance was largely driven just by better activity levels, but it's just kind of curious how we should think about that on a seasonal basis, I guess. Yeah, Kirk, I don't think that the viral stuff was that significant in the quarter.
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Kirk Materne: Obviously, contribute we end up, as you're aware, you've been following us a long time. We have a lot of different drivers on the transaction side of the business that at times will cause a little bit of volatility, but not meaningful material to the overall revenue numbers. We had continue to see good traction in BBMS and good growth on that front. Overall, tuition management also has done well. You know, the number of families at the private schools that we support is up year on year.
Kirk Materne: We have had some price increases on both BBMS and BVTM, and then your cause business has some transaction components that's done well. And then just giving has also done well in the UK and that model and the take rates on the donor cover, complete cover things have done really well in the UK business also. So we kind of see across the board, steady growth in transactions, very similar to what we saw the last couple of years.
Kirk Materne: So that growth rate continues to be kind of in that high single to load double, depending on the quarter. Okay, right. Thanks very much, Tony. You guys got it. You better. As a reminder, if you would like to ask a question, please press star one on your telephone keypad.
Matt Evan: Our next question comes from Matt, Evan, with BTIG. Please proceed with your question. Yeah, good morning guys. Thanks for taking the question. I guess on the ever, ever five side, it seems like it's continues to game momentum and have some strong traction there. Anything you'd point to that you've either done internally from a strategic or staffing perspective or maybe more from a macro headwind dissipation perspective. But it was just what's really driving the success on the ever five side and how should we think about that heading into 24?
Matt Evan: Yeah, I'd say, you know, looking throughout your year, pipelines looking good. Structurally, yeah, we put that business together with our your cause business in the last year because they're similar customers in the job types, the buyers are the same, the customers, the target markets, the same. And we do not have a lot of overlap and shared customers between ever five and your cost. So there's a good cross sell opportunity. So we've got a corporate impact group now that Tom Davidson heads up that has five products.
Matt Evan: The two main products are ever fine, your cause. And we're selling, you know, those solutions to companies. So that's fairly new within the last year. So that is a new structure. So I think we changed the name, didn't change as we added the name called corporate impact because we're focused on corporations. Edges. But we have a suite of products there, an impact edge, which we just announced, it'll be coming out next year, is a product we built for that market as well. So, yeah, new structure in the last year, some new sales leadership in there, new product and impact edge, pretty good pipeline for that business.
Anthony Boor: I'd say that's the summary. All right, very helpful. And then Tony, phone up on Kirk's question before, rather than looking at the one-time potential impacts on transactions, curious as you look towards the fourth quarter and sort of the busier year end giving season and even into the early part of next year, what have you seen of late in terms of whether it's frequency or size of transactions that gives you confidence that you're not going to have any kind of seasonal headwinds or any macro impact there?
Anthony Boor: How have you looked at it on maybe a light for light customer base or things of that nature to ensure that the fourth quarter will continue to be strong? Okay, Matt, that's a really good question coming into the quarter and year end giving and giving Tuesday and all those related pieces. Last year, we saw a bit of decline in the average donation size in Q4 that created a little bit of softness.
Anthony Boor: I think that's the impact of the economy and disposable income for individuals, you know, giving with corporations and foundations and deaths and stuff are actually up. So that volume's done well. Overall transactions, even last year, when things turned south a little bit with the economy, the transaction volume was up at the average donation size was down slightly. We've not seen any further deterioration so we keep a close eye on it. So, you know, at this point, we're assuming that that's going to hold for us hard to say until we get to that and see what volume is there at the end of the year, but thus far, through the year, those, you know, transaction sizes have held up pretty well and we've seen good transaction volume as we spoke through the first three-quarters and some good giving with some of the viral events that we spoke about with Hawaii.
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Anthony Boor: So overall, we feel pretty good. We've not seen any further deterioration. Really hard to project, but right now, we're expecting that to hold with that. What is slightly softer than what we saw the prior couple of years, but a continuation of last year's kind of giving? Yeah, the other part of that is, you know, in that mix of transactions, we've seen really nice growth in the tuition platform with more families, more students, and more use of the tuition platform as well, but really, really strong in that. That's kind of locked in, you know, as we're in school year. Got it. Thank you.
Koji Ikeda: You're welcome.
Koji Ikeda: Our next question comes from Koji Aikido, Think of America. Please proceed with your question. Hey, good morning. Hey, Mike. Hey, Tony. Thanks for taking the questions. I just have one.
Anthony Boor: So when I was looking through the deck this morning, and I'm on the outlook slide for 2023 and 2024, I noticed there was a slight change, and I was hoping we could walk through it a little bit. So on the 2024 plus outlook, the contractual recurring revenue, the total revenue now says high single-digit growth, and looking at some of the past decks, he used to say high single-digit growth to double-digit growth.
Anthony Boor: So I was wondering, you know, maybe what's changed in the outlook this quarter versus earlier this year, and that is resulting in this moderate, I guess you could consider[inaudible] we've maintained our guide for the year which is still you know kind of you know five five point five or so at the midpoint I think and so the growth next year which we haven't really talked about yet is is going to be quite significant because this year's results were you know a pretty slow start in the first two quarters and then a ramp up on the top line in Q3 and Q4 and we guide to the year and we are not to the quarter and so really that's all about you know what what the year could look like above this year got it Mike thanks for taking the question there are no further questions at this time I would now like to turn the floor back over to Mike to you for close in comments great thank you thanks for joining us this morning just to summarize we delivered really strong results during the third quarter we continue to successfully execute our five point plan with solid expense management and accelerating organic growth and rule of 40 attainment we're very pleased with the quarter and excited for the future and the significant value where confident will create for shareholders I'm really proud of the progress we've made and grateful for the hard work and positive spirit of our team members who continue to drive our success we look forward to sharing more with you on our fourth quarter earnings call thank you this concludes today's conference you may disconnect your lines at this time thank you for your participation you you Matthew VanVliet, Michael Gianoni, Brian Peterson[inaudible] Matthew VanVliet, Brian Peterson, Peter Burkly, Jason Velkavrh, Brian Peterson[inaudible] Matthew VanVliet, Peter Burkavrh, Matthew VanVliet, Peter Burkavrh, Matthew VanVliet, Peter Burkavrh, Peter Burkavrh, Peter Burkavrh, Peter Burkavrh, Peter Burkavrh, Peter Burkavrh, Peter Burkavrh, Peter Burkavrh, Matthew VanVliet, Brian Peterson, Peter Burkly, Jason Velkavrh, Peter Burkly, Brian Peterson