Q4 2023 Blackbaud Inc Earnings Call

Speaker Change: [music].

Good day and welcome to Black box Q4 full year 2023 earnings call. Today's conference is being recorded I'll now turn the conference over to Kevin Moon. Please go ahead Sir.

Operator: Good day, and welcome to Blackbaud's Q4 full year 2023 earnings conference. Today's conference is being recorded. I will now turn the conference over to Kevin Moon. Please go ahead.

Matt van Vliet: Good morning, everyone. Thank you for joining us on Blackbaud's fourth quarter and full year 2023 earnings call. Joining me on the call today are Mike Gianoni, Blackbaud's CEO, President, and Vice Chairman, and Tony Boor, Blackbaud's 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 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 on our website for the full details on our financial performance, including GAAP results, as well as full year guidance. We believe that a combination of both GAAP and non-GAAP measures is more representative of how we internally measure our business. Unless otherwise specified, we will refer only to non-GAAP financial measures on this call. Please note that non-GAAP financial measures should not be considered in isolation from or as a substitute for GAAP financial measures, for Gap Measure.

Matt van Vliet: Good morning, everyone. Thank you for joining us on blackboard fourth quarter and full year 2023 earnings call.

Matt van Vliet: Joining me on the call today are Mike Genuity Blackboard.

Michael P. Gianoni: President and Vice Chairman.

Michael P. Gianoni: And Tony Boor Blackhawks, Executive Vice President and CFO Mike.

Speaker Change: Mike and Tony will make prepared comments and then we'll open up the line for your questions.

Speaker Change: Please note that our comments today contain certain forward looking statements.

Speaker Change: The risks and uncertainties that could cause actual results to differ materially from those projected.

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

Speaker Change: 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 on our financial performance, including GAAP results as well as full year guidance.

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

Speaker Change: Otherwise specified we will refer only to non-GAAP financial measures on this call.

Speaker Change: Please note that non-GAAP financial measures should not be considered in isolation from or as a substitute for GAAP measures.

Matt van Vliet: With that, I'll turn the call over to you, Mike. Thank you, Kevin. Thank you, everyone, for joining our call today. I'd like to start today's comments by offering a few perspectives on 2023. Then I'll comment on our product evolution, share a few customer wins, and then conclude with an update on our capital allocation and stock repurchase plans before turning the call over to Tony. The fourth quarter concluded a year of substantial transformation for Blackbaud.

Speaker Change: With that I'll turn the call over to Mike.

Michael P. Gianoni: Thank you Kevin.

You you everyone for joining our call today.

Michael P. Gianoni: I'd like to start today's comments by offering a few perspectives on 2023, then I'll comment on our product evolution.

Michael P. Gianoni: Sure a few customer wins, and then conclude with an update on our capital allocation and stock repurchase plans before turning the call over to Tony.

The fourth quarter concluded a year of substantial transformation for Blackhawk.

Michael P. Gianoni: Approximately a year and a half ago, we implemented our five point operating plan, which began producing results in the second quarter of last year continued through yearend and has put our company on a clear trajectory of improving financial performance in the second quarter, our cost management initiatives drove cigna.

Michael P. Gianoni: Approximately a year and a half ago, we implemented our 5-point operating plan, which began producing results in the second quarter of last year, continued through year-end, and has put our company on a clear trajectory of improving financial performance. In the second quarter, our cost management initiatives drove significant adjusted EBITDA margin expansion as expenses declined year-over-year. Then, in the third quarter, our revenue growth rate accelerated as our modernized pricing program gained traction, and we achieved the Rule of 40 ahead of schedule. And today, I'm pleased to report that our company's adjusted free cash flow grew substantially and enabled the company to begin returning cash to shareholders in the form of an active stock repurchase program. So 2023 has been a transformational year for the company. To put that transformation into perspective, we entered the year in our social sector with only about a third of opportunities renewing on multi-year contracts, and we exited the year with three-quarters of opportunities renewing on multi-year contracts. We entered the year with none of our customers on our modernized contract pricing, and we exited the year with approximately 35% of our eligible customers on modernized contract pricing.

Michael P. Gianoni: Adjusted EBITDA margin expansion as expenses declined year over year.

Michael P. Gianoni: In the third quarter, our revenue growth rate accelerated as our modernized pricing program gained traction and we achieved the rule of 40 ahead of plan.

Michael P. Gianoni: And today I'm pleased to report that our company's adjusted free cash flow grew substantially.

Michael P. Gianoni: Table the company to begin returning cash to shareholders in the form of an active stock repurchase program.

Michael P. Gianoni: So 2023 has been a transformational year for the company to put that transformation into perspective, we entered the year and our social sector with only about a third of opportunities renewing on multiyear contracts and we exited the year with three quarters of opportunities renewing a multiyear.

Contracts.

Michael P. Gianoni: We entered the year with none of our customers on our modernized contract pricing and we exited the year with approximately 35% of our eligible customers on modernized contract pricing.

Michael P. Gianoni: We ended the year with organic revenue growth of less than 1% and we exited the year with fourth quarter organic revenue growth of over 7%.

Michael P. Gianoni: We entered the year with organic revenue growth of less than 1%, and we exited the year with fourth quarter organic revenue growth of over 7%. We entered the year with EBITDA margins of under 25%, and we exited the year with fourth quarter adjusted EBITDA margins of over 33%. And we entered the year with a Rule of 40 score of 25, and we exited the year with a fourth quarter Rule of 40 score of 41.

Michael P. Gianoni: We entered the year with EBIT margins of under 25% and we exited the year with fourth quarter adjusted EBIT margins of over 33%.

Michael P. Gianoni: And we entered the year with a rule of 40 score of 25, and we exited the year with our fourth quarter rule of 40 score of 41.

Michael P. Gianoni: That's transformational performance. I'm pleased with the results the team has produced. I'm excited about the continued momentum we expect in 2024, as you'll hear today. For the full year 2023, Blackbaud produced revenue of $1,105,000,000, and adjusted EBITDA of $356,000,000.

Michael P. Gianoni: That's transformational performance.

Michael P. Gianoni: Pleased with the results. The team has produced and excited about the continued momentum we expect in 2024 as you'll hear today.

For the full year of 2023, blackboard produce revenue $1 billion $105 million adjusted.

Michael P. Gianoni: EBITDA of $356 million.

Michael P. Gianoni: Non-Gap Diluted Earnings Per Share $3.98, Adjusted free cash flow of $214 million, and a Rule of 40 score of 37%. All these measures are substantially better than 2022's performance and meet or exceed the increased guidance ranges we released in Q1 of 2023. Tony will share greater detail on our financial results in his comments. Now turning to products, during the fourth quarter, we continue to focus on delivering more value to our customers through product innovation. For example, we increased the power of social impact-based fundraising with the announcement of an early adopter program for new, optimized online giving capabilities. These new capabilities enable native integration with products across Blackbaud's portfolio and, in early testing, are raising considerably more funds for our customers. It will be generally available for U.S. Razor's Edge NXT users this week, with availability coming soon for Blackbaud CRM and Altru customers.

Michael P. Gianoni: non-GAAP diluted earnings per share of $3 98 <unk>.

Michael P. Gianoni: Adjusted free cash flow of $214 million and our rule of 40 score 37%.

Michael P. Gianoni: All of these measures are substantially better than 2020, twos performance and meet or exceed the increased guidance range. As we released in Q1 2023, Tony will share greater detail on our financial results in his comments.

Anthony W. Boor: Now turning to product during the fourth quarter, we continued to focus on delivering more value to our customers through product innovation. For example, we increased the power of social impact based fund raising with the announcement of an early adopter program for new optimized online giving capabilities.

Anthony W. Boor: These new capabilities enable many of integration with products across black box portfolio and an early testing are raising considerably more funds for our customers.

Anthony W. Boor: It will be generally available for U S raisers edge NXT users this week with availability coming soon for Blackrock CRM and all through customers.

Michael P. Gianoni: Also in the fourth quarter, we announced the availability of our Goodmove mobile application for all Team RZR peer-to-peer events. This enables a streamlined experience for participants, while expanding participation to virtual as well as in-person events, and as part of Blackbaud's Intelligence for Good strategy. Our investment in artificial intelligence continued with the launch of Prospect Insights Pro, an intuitive, guided experience to deliver AI-driven insights in support of planned and major gift fundraisers. With plenty of progress on the product innovation front, customers are utilizing this technology to further their mission and improve their operations, and this is shown by our wins from this last quarter. For example...

Anthony W. Boor: Also in the fourth quarter, we announced the availability of our good move mobile application for all team razor peer to peer events.

Anthony W. Boor: This enables a streamlined experience for participants while expanding participation to virtual as well as in person events.

Anthony W. Boor: And as part of a black box intelligence for good strategy.

Anthony W. Boor: Our investment artificial intelligence continued with the launch of prospect insights pros.

Anthony W. Boor: Intuitive guided experience to deliver AI driven insights in support of planned and major gift fundraising.

Anthony W. Boor: So plenty of progress on our product innovation front.

Anthony W. Boor: Customers are utilizing this technology to further their mission and improve their operations and this is shown by our wins from this last quarter for example.

Michael P. Gianoni: The American Parkinson's Disease Association selected Blackbaud to consolidate its direct marketing and CRM functions from multiple vendor solutions. A Blackbaud Unified solution, which includes partner capabilities, will help APDA continue to surpass their fundraising goals and support their mission to help everyone living with Parkinson's disease to live life to the fullest. Also during the fourth quarter, the Salvation Army Western Territory sought to modernize and improve how it manages constituent data to increase fundraising and enhance engagement. The organization chose Blackbaud's BBCRM over two very large competitors owing to our singular focus on non-profit, and Rockford Christian School in Illinois purchased our total school solution. The school was driven by a strong desire to better inform business decisions as well as optimize the parent, student, and teacher experience as it plans for growth over the next five years. This competitive win replaced several disparate legacy systems and included a comprehensive suite of student enrollment, student information, tuition management, and financial management on the corporate impact side of the business. News Corp selected your cause to power their corporate giving and volunteering programs in the communities they serve across the globe.

Anthony W. Boor: American Parkinson's disease Association selected Blockboard to consolidate its direct marketing and CRM functions for multiple vendor solutions.

Anthony W. Boor: <unk> unified solution, which includes partner capabilities will help <unk> continue to surpass their fundraising goals and support their mission to help everyone living with Parkinson's disease to live life to the fullest.

Anthony W. Boor: Also during the fourth quarter, our Salvation Army Western territory sought to modernize and improve heart manages constituent data to increase fund raising and enhanced engagement.

Anthony W. Boor: The organization, just black Bart BD CRM over two very large competitors, owing to our singular focus on nonprofits in the Rockford Christian School, Illinois purchased our total school solution.

Anthony W. Boor: The school was driven by a strong desire to better informed business decisions as well as optimize the parent student and teacher experience as it plans for growth over the next five years. This competitive win replace several disparate legacy systems and includes a comprehensive suite of student enrollment.

Anthony W. Boor: Good information tuition management and financial management.

On the corporate impact side of the business News Corp selected your costs to power their corporate giving and volunteering programs in the communities they serve across the globe.

Anthony W. Boor: And fidelity investments expanded its collaboration with <unk> by sponsoring a new high School financial Education program, featuring a first of its kind investing simulation aligned to fidelity's commitment to financial literacy and providing the next generation with access to meaningful financial education.

Michael P. Gianoni: And Fidelity Investments expanded its collaboration with EverFi by sponsoring a new high school financial education program featuring a first-of-its-kind investing simulation aligned to Fidelity's commitment to financial literacy and providing the next generation with access to meaningful financial education. So, in summation, we're bringing mission-critical solutions to our customers that we're continually enhancing to have greater impact and value. Our customers recognize the value of our solutions, as shown by the increase in multi-year contract renewals and the adoption of our modernized contract pricing. Now, I'd like to provide an update on our expanded stock repurchase program. This is an important development in our transformation, and it's predicated on our strong and growing cash generation. On January 22nd, we disclosed that in December and January of this year, we were actively buying shares in the open market, investing approximately $41 million to acquire almost 500,000 shares. Given the upside we see in the business and the computed strong performance expected in 2024, we believe these repurchases are a good investment for our shareholders. We also announced that our board increased our go-forward repurchase authorization to $500 million, doubling the previous $250 million authorization.

Anthony W. Boor: Yeah.

Anthony W. Boor: So information, we're bringing mission critical solutions to our customers that we're continually evolving greater impact and value our customers recognize the value of our solutions as shown by the increase in multiyear contract renewals and the adoption of our modernized contract pricing.

Anthony W. Boor: Now I'd like to provide an update on our expanded stock repurchase program. This is an important development in our transformation is predicated on a strong and growing cash generation.

Anthony W. Boor: January 22nd we disclosed that in December and January of this year, we're actively buying shares in the open market investing approximately $41 million require almost 500000 shares.

On the upside we see in the business and continued its strong performance expected in 2024. We believe these repurchases are good investment for our shareholders.

Anthony W. Boor: We also announced that our board increased our go forward repurchase authorization to 500 million doubling the previous $250 million authorization.

Michael P. Gianoni: That gives us a lot of headroom for future stock repurchases, at a minimum. We plan to buy back the dilution through annual stock-based compensation. Historically, we have taken an opportunistic approach to capital allocation, and we expect that to continue. Value-creating M&A will also remain a capital allocation priority to the extent that investments and acquisitions are available that strengthen our business, enable growth, and create shareholder value. We will deploy cash to do so. But, of course, such opportunities are hard to predict.

Anthony W. Boor: That gives us a lot of headroom for future stock repurchases at a minimum we plan to buy back dilution from an annual stock based compensation. Historically, we have taken an opportunistic approach to capital allocation and we expect that to continue.

Anthony W. Boor: Creating M&A will also remain a capital allocation priority.

Anthony W. Boor: To the extent that investments and acquisitions are available that strengthen our business enabled growth and create shareholder value, we will deploy cash to do south of.

Anthony W. Boor: Of course, such opportunities are hard to predict we remain focused on making prudent investments to grow the business, both organically and inorganically, while returning excess capital to shareholders.

Michael P. Gianoni: We remain focused on making prudent investments to grow the business, both organically and inorganically, while returning excess capital to shareholders. So, with the books closed on what was an outstanding year for Blackbaud, let me turn the call over to Tony, who will share more details on the financials and why we're enthusiastic about 2024.

Anthony W. Boor: So the books closed on what was an outstanding year for Black, but let me turn the call over to Tony who will share more details on our financials and why we're enthusiastic about 2020 for Tony.

Anthony W. Boor: Thank you Mike and thank you all for attending our call today.

Anthony W. Boor: Thank you, Mike, and thank you all for attending our call today. I'll start my comments today with our fourth-quarter financial results and what's driving the significant improvement the company has been delivering. Then I'll briefly cover the full year 2023 before turning to our financial guidance for 2024 and conclude with a discussion of our capital allocation strategy. Turning first to our fourth-quarter financial results, we had another quarter of improving performance. Results for the quarter were strong and demonstrate the impact of our five-point operating plan is having on the business. Specifically, our modernized pricing initiative continued to produce price increases at renewal, gross dollar retention rates were within the range of expectation, and transactional revenues were seasonally strong from both a giving and pricing perspective. As a result, contractual recurring revenues grew 6.4%, transactional recurring revenues grew 12.5%, and total recurring revenues grew 8.4%. Non-strategic one-time revenues declined by $2 million and represented about a point of drag on total revenue. For the quarter, total revenues reached $295 million, which was an organic growth rate of 7.4%.

Anthony W. Boor: I'll start my comments today with our fourth quarter financial results and what's driving the significant improvement. The company has been delivery that I'll briefly cover the full year of 2023 before turning to our financial guidance for 2004 and conclude with a discussion of our capital allocation strategy.

Anthony W. Boor: Turning first to our fourth quarter financial results, we had another quarter of improving performance.

Anthony W. Boor: Results for the quarter were strong and demonstrate the impact of our five point operating plan is having on the business specifically our modernized pricing initiatives continued to produce price increases at renewal gross dollar retention rates were within the range of expectation and transactional revenues were seasonally strong from both a giving them <unk>.

Anthony W. Boor: Missing perspective.

Anthony W. Boor: As a result contractual recurring revenues grew six 4% transactional recurring revenues grew 12, 5% and total recurring revenue grew eight 4%.

Anthony W. Boor: Non strategic onetime revenues declined by $2 million and represented about one point of drag on total revenue growth.

Anthony W. Boor: For the quarter total revenues reached $295 million, which was our organic growth rate of seven 4%. That's the fourth consecutive quarter of posting an increased growth rate.

Anthony W. Boor: That's the fourth consecutive quarter of posting an increased growth rate. Cost management has been a key focus. The cost actions we've taken, from headcount reductions to data center closings, vendor renegotiation, and a virtual workforce environment, all contributed to an expense base that was lower than last year.

Anthony W. Boor: Cost management has been a key focus the cost actions, we've taken from head count reductions to data center closings vendor renegotiation and virtual workforce environment. All contributed to an expense base that was lower than last year with.

Anthony W. Boor: With $20 million of revenue growth and $11 million of cost reductions, our adjusted EBITDA grew by $31 million, or 46%, to $99 million for the quarter. That's excellent flow through and leverage. In terms of margin, the adjusted EBITDA margin of 33.6% was almost 9 percentage points higher than Q4 of last year. Earnings per share were $1.14 in the quarter, and the business produced a Rule of Forty score of 41%. So it is really solid.

Anthony W. Boor: With $20 million of revenue growth and $11 million of cost reductions, our adjusted EBITDA grew by $31 million or <unk>, 46% to $99 million for the quarter.

Excellent flow through and leverage in terms of margin. The adjusted EBITDA margin of 33, 6% was almost nine percentage points higher than Q4 of last year.

Anthony W. Boor: Earnings per share was $1 14 in the quarter and the business produced a rule of 40 score of 41% So really solid performance.

Anthony W. Boor: The full-year financials tell the same story of improving top-line growth coupled with cost-cutting measures, which dramatically improve profitability and cash flow. A year ago, when we offered initial financial guidance, I said that in 2023, we expect financial performance to improve with each successive quarter, starting with meaningful improvement in the second quarter. And that all held true.

Anthony W. Boor: The full year financials tell much the same story of improving top line growth, coupled with cost cutting measures, which dramatically improved profitability and cash flow.

Anthony W. Boor: A year ago. When we offered initial financial guidance I said that in 2023, we expect financial performance to improve with each successive quarter, starting with meaningful improvement in the second quarter and that all helps right.

Anthony W. Boor: We met or exceeded our financial guidance ranges across all metrics for 'twenty three.

Anthony W. Boor: We met or exceeded our financial guidance ranges across all metrics for 2013. Full year revenues were up 4.8% on an organic basis to $1,105,000,000. Adjusted EBITDA of $356,000,000 was up $94,000,000 or 36% and was evenly distributed between revenue growth of $47,000,000 and cost reductions of $47,000,000. Our ability to lower costs while growing revenue speaks to the power of our five-point operating. Earnings per share increased to $3.98 compared to $2.69 last year. Adjusted free cash flow came in at $214 million, up from $154 million last year, representing an adjusted free cash flow margin of 19.3%.

Anthony W. Boor: Full year revenues were up four 8% on an organic basis to $1 billion $105 million adjusted EBITDA of $356 million was up $94 million or 36% and was evenly distributed between revenue growth of $47 million and cost reductions of $47 million.

Anthony W. Boor: Our ability to lower costs, while growing revenue speaks to the power of our five point operating cost.

Anthony W. Boor: Earnings per share increased to $3 98.

Anthony W. Boor: Compared to $2.69 last year adjusted free cash flow came in at $214 million up from $154 million last year, representing an adjusted free cash flow margin of 19, 3% and as Mike noted this strong cash flow enabled us to return capital to shareholders through the repurchase of almost 500.

Anthony W. Boor: And as Mike noted, this strong cash flow enabled us to return capital to shareholders through the repurchase of almost 500,000 shares through January. Now, let's spend a few minutes on our financial guidance for 2024. To set the table, we foresee a continuation of what we started a year and a half ago with our five-point operating plan, driving improvement across the business. We're continuing to invest in our products and expect to continue delivering capabilities that our customers value. Our modernized approach to renewal pricing and contract terms is well established and will be managed closely.

Anthony W. Boor: 1000 shares for January.

Anthony W. Boor: Now, let's spend a few minutes on our financial guidance for 'twenty four to set the table, we foresee a continuation of what we started a year and a half ago with our five point operating plan driving improvement across the business, we're continuing to invest in our products and expect to continue delivering capabilities that our customers value our modernized approach to re.

Anthony W. Boor: No pricing and contract terms is well established and will be managed closely.

We have a proven track record of tight cost management and will drive the business to maximize profitable growth and cash generation.

Anthony W. Boor: We have a proven track record of tight cost management and will drive the business to maximize profitable growth and cash generation, starting with revenue. We see revenue in the range of $1,170,000,000 to $1,200,000. At the midpoint, our organic revenue growth will expand to 7.2%, up from 4.8% last year, an increase of 240 basis points. Importantly, we believe the decline in non-strategic one-time revenues will slow in 2024 compared to the last few years, with a drag on total organic revenue growth of about one-half of one percent. For guidance purposes, we've assumed a relatively stable foreign exchange rate environment.

Anthony W. Boor: Starting with revenue.

Anthony W. Boor: We see revenue in the range of $1 billion $170 million to $1 billion $200 million at the midpoint, our organic revenue growth will expand to seven 2% up from four 8% last year, an increase of 240 basis points importantly, we believe the decline in <unk>.

Anthony W. Boor: Non strategic onetime revenues will slow in 24 compared to the last few years with a drag the total organic revenue growth of about one half of 1%.

Anthony W. Boor: We've assumed a relatively stable foreign exchange rate environment for guidance purposes.

Anthony W. Boor: Shifting to profitability, we will keep a tight hold on costs and maintain headcount close to our current levels, realizing there will be quarter-to-quarter fluctuations with the timing of attrition and hiring. And at the same time, we are making investments in the business in areas of innovation, artificial intelligence, product roadmaps, and cyber security. Accordingly, we are guiding that costs will grow at a slower rate than revenue.

Anthony W. Boor: Shifting to profitability, we will keep a tight hold on costs and maintain head count close to our current levels, realizing there will be quarter to quarter fluctuations with the timing of attrition and hiring.

Anthony W. Boor: And at the same time, we're making investments in the business in areas of innovation artificial intelligence product Roadmaps and cyber secure accordingly, we are guiding the costs will grow at a slower rate than revenues and as a result, adjusted EBITDA margin is expected to be in the range of 32, 5% to 30%.

Anthony W. Boor: And as a result, adjusted EBITDA margin is expected to be in the range of 32.5% to 33.5%, with a midpoint of 33%. The combination of higher growth and better margin is expected to result in a Rule of Forty score of 40.2% at the midpoint of guidance for the full year, a more than three-point improvement year-over-year. Also recall that our business has a degree of seasonality, with the second and fourth quarters typically outperforming the first and third quarters. Earnings per share are expected to be between $4.12 and $4.38 with a midpoint of $4.25.

Anthony W. Boor: Three 5% with a midpoint of 33% the combination of higher growth and better margin is expected to result in a rule of 40 score of 42% at the midpoint of guidance for the full year of more than three point improvement year over year.

Anthony W. Boor: Also recall that our business has a degree of seasonality with the second and fourth quarters typically outperforming the first and third quarters.

Anthony W. Boor: Earnings per share is expected to be between $4 12, and $4 38 with.

Anthony W. Boor: With a midpoint of $4 25.

Anthony W. Boor: We factored into our projection a higher non-GAAP annualized effective income tax rate of 24.5%, a 450 basis point increase from the 20% rate used in 2023. The increase reflects greater profitability in the business, as well as an increase in UK corporate tax revenues. Additionally, we have a sharp focus on driving adjusted free cash flow and returning capital to our shareholders. For the year, we are guiding to adjusted free cash flow of $254 million to $274 million.

Anthony W. Boor: We've factored into our projection of higher non-GAAP annualized effective income tax rate at 24, 5%, a 450 basis point increase from the 20% rate used in 2023, the increase reflects greater profitability in this business as well as an increase in U K corporate tax rate.

Anthony W. Boor: Additionally, we have a sharp focus on driving adjusted free cash flow and returning capital to our shareholders for the year. We are guiding to adjusted free cash flow of 254 million to $274 million the $264 million midpoint represents a 22, 3% adjusted free cash flow margin.

Anthony W. Boor: The $264 million midpoint represents a 22.3% adjusted free cash flow margin and a significant improvement of 300 basis points over 2023, despite approximately $30 million in additional cash taxes expected this year and additional investments in product and cybersecurity. Our last, but certainly not least, are a few thoughts on capital allocation. This past year, we turned a corner and, for the first time ever, generated more than $200 million of adjusted free cash flow.

Anthony W. Boor: A significant improvement of 300 basis points over 2023, despite approximately $30 million in additional cash taxes as expected this year and additional investments in product and cyber security.

Anthony W. Boor: Our last but certainly not least our few thoughts on capital allocation. This past year, we turned the corner and first time ever generated more than $200 million of adjusted free cash flow has enabled us to make approximately $50 million in security incident settlement payments repurchase approximately $19 million in shares in December.

Anthony W. Boor: This enabled us to make approximately $50 million in security incident settlement payments and repurchase approximately $19 million in shares in December, while at the same time reducing our debt to adjusted EBITDA ratio to approximately two times. Looking to the future, the company believes adjusted free cash flow will continue to grow and anticipates offsetting dilution from share-based compensation. Beyond that, the company has tremendous optionality to dynamically allocate capital to its highest use based on market conditions, including synergistic M&A, additional stock repurchases, or repayment of debt. The availability of acquisitions, the performance of our share price, and the interest rate environment will help inform our capital allocation decisions.

While at the same time, reducing our debt to adjusted EBITDA ratio to approximately two times looked.

Anthony W. Boor: Looking to the future. The company believes adjusted free cash flow will continue to grow and anticipates offsetting dilution from share based compensation beyond that the company has tremendous optionality to dynamically allocate capital to its highest use based on market conditions, including synergistic M&A additional stock repurchases or repayment of debt.

The availability of acquisitions, the performance of our share price and the interest rate environment will help inform our capital allocation decisions.

Operator: Before we open the lines for your questions... Let me summarize. The fourth quarter demonstrated continued progress against our five-point operating plan that has transformed our financial results. This past year, the company accelerated revenue growth, reduced costs, expanded profitability, and started returning capital shareholdings. We have a plan for 2024 that we expect will continue those trends, improve financial performance, and will continue enhancing value for our show. With that, we can open up the line for questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using your speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Anthony W. Boor: Before we open the lines for your questions let.

Anthony W. Boor: Let me summarize the fourth quarter demonstrated continued progress against our five point operating plan that has transformed our financial results. This past year. The company accelerated revenue growth reduce cost expanded profitability and started returning capital to shareholders. We have a plan for 2024 that we expect will continue those.

Trends improved financial performance and we will continue enhancing value for our shareholders with that we can open up lines for questions.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please signal back rising star one on your telephone keypad.

Speaker Change: If you are using your speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our recently.

Operator: 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. We will now take our first question from Rob Oliver, there. Please proceed with your, Hi, good morning, guys.

Speaker Change: Again as a reminder, please press star one to ask a question. Please limit yourself to one question plus one.

Speaker Change: One follow up to allow us to facility as many questions as possible.

We will now take our first question from.

Rob Oliver: Rob Oliver.

Rob Oliver: With Baird.

Rob Oliver: Please proceed with your question.

Rob Oliver: Hi, Good morning, guys. Thanks for taking my questions. Mike I had one for you and then Tony a follow up for you So Mike as we enter.

Rob Oliver: Thanks for taking my questions. Mike, I had one for you, and then, Tony, I have a follow-up question for you. So, Mike, as we enter, you know, year 2 of the sort of new price optimization regime for you guys, it appears to be going quite well. And I was just curious, you know, if you could share your thoughts relative to, as we get into kind of the second half of this renewal motion on pricing, how you guys are thinking about the contribution of price to the top line relative to other things, like cross-sell, up-sell, and new product sales I know you cited some wins for EverFi. Just want to get a sense for how we should think about, you know, expansions and new customers in addition to just price, and then some kind of follow-up for Tony. Yeah, sure, Rob.

Rob Oliver: Two of them.

Rob Oliver: Sort of price optimization regime for you guys it appears to be going quite well.

Rob Oliver: Just curious if you could share your thoughts relative to that as we get into kind of the second half of this renewal renewal motion on pricing. How you guys are thinking about the contribution of price to the topline.

Rob Oliver: Chip to other things like cross sell upsell new product sales I know you said, it's a win for everybody just wanted to get a sense for how should we should think about expansions and new customers. In addition to just price and then kind of follow up for Tony.

Anthony W. Boor: Yeah sure Rob. Thanks for the question, Yes. The program is going really well it kicked off a while ago, but.

Michael P. Gianoni: Thanks for the question. Yeah, the program's going really well. It, you know, it kicked off a while ago but went live in March last year.

Speaker Change: <unk> March last year, and the volume grew as we got through the year.

Michael P. Gianoni: And the volume, you know, grew as we got through the year and got through about 35% last year of the total. Retention rates are up. Most folks are taking the three-year contract option.

Anthony W. Boor: Got through about 35%.

Anthony W. Boor: Last year of the total retention rates are up because most folks are taken the three year.

Anthony W. Boor: Contract option. So we're basically moving the company from historically one to three year.

Michael P. Gianoni: So we're basically moving the company from historically one- to three-year contracts, which is really great for retention going forward. And so we're in the second year, and we'll renew about 30% more roughly this year, coming out of the year at about 65% of the total at the end of this year. So it's a multi-year program going really well, focused a lot on innovation because we need to keep earning our clients' right to sign three-year contracts with new products. I talked a little bit about that in my prepared remarks. Sales booking is going pretty well. We closed the year fairly strong. We had a good start to the year. Pipeline's good.

Anthony W. Boor: Contracts, which is really great for retention.

Go forward and so we're in we're in the second year, and we will renew about 30, 30% more roughly this year coming out of the year and about 65% of the total at the end of this year. So it's a multi year program going really well.

Anthony W. Boor: <unk> focused a lot on innovation, because we need to keep earning our clients' rights to signed three year contracts with new products I talked a little bit about that in my prepared remarks sales bookings going pretty well.

Anthony W. Boor: We closed the year fairly strong we had a good start to the year pipeline's good.

Anthony W. Boor:

Anthony W. Boor: The corporate impact sector I mentioned, a couple of clients that we closed I'd say, that's a little bit softer than the rest of the business, but lots of interest there too we don't see anybody really pulling back on.

Michael P. Gianoni: I mentioned a couple of clients that we closed. I'd say that's a little bit softer than the rest of the business, but there's lots of interest there, too. We don't see anybody really pulling back on investments there. Don't know if you noticed it, but the NFL chose to run two ads during the Super Bowl on what's called a character playbook that runs on our EverFi platform.

Anthony W. Boor: On investments there I don't know if you noticed if at the NFL chose to run two ads during the Super Bowl.

Anthony W. Boor: On what's called the character playbook that runs on our <unk> platform.

Michael P. Gianoni: And as you might guess, we're getting a lot of interesting inbounds from that. So all in all, we had a really good year last year. And coming in at 4.8%, our growth is the highest in, what, six years for our organic growth, and then a guy at a midpoint of 7.2 up to 8.6 on the high end. I think we're set up really well for 24 also.

Anthony W. Boor: And as you might guess, we're getting a lot of interesting inbounds from that.

Anthony W. Boor: So all in all we had a really good year last year.

Anthony W. Boor: Yes coming in at four 8%.

Anthony W. Boor: Our growth is the highest in six years and our organic growth and then our guidance midpoint of seven two up.

Anthony W. Boor: To $8 six on the high end I think we're set up really well for for 24 also.

Rob Oliver: Great. Thanks, Mike. Appreciate that. And then, Tony, just a question on the EBITDA margins. What are some of your priorities for you as sources of spend are for this year? You know, you guys continue to do a really strong job on the margin side. It was a little bit below what we thought you guys were going to do for 24, but still solid.

Speaker Change: Great. Thanks, Mike appreciate that and then.

Speaker Change: Just a question on the.

Speaker Change: The EBITDA margins.

Speaker Change: Some of the priorities for you as sources of spend are for this year you guys continue to do a really strong job on that on the margin side. It was.

Speaker Change: Little bit below what we thought you guys are going to do for 'twenty, four but still solid. So I just wanted to get a sense for kind of where perhaps that spending or divergence between that and our thought relative to what you guys are going to be spending on what that might be thanks.

Anthony W. Boor: So just wanted to get a sense for kind of where perhaps that spending or divergences between that and our thought, you know, relative to what you guys are going to be spending on. We know what that might be. Thanks. Yeah, Rob, thanks for that question. You know, EBITDA margins have improved dramatically. As we've seen, we finished the year really strong and did great last year. 24. We're currently expecting that we'll manage the business for the year somewhere close to the same headcount where we ended, which is down about 600, I think, from our high or peak.

Speaker Change: Yeah, Rob Thanks for that question.

Speaker Change: EBIT margins have improved dramatically as we've seen we finished the year really strong did great last year.

Speaker Change: 24, we're currently expecting that will manage the business for the year somewhere close to the same head count oriented which is down about 600, I think from our high.

Anthony W. Boor: So we're kind of planning on running the business with that same headcount. Obviously, you're going to have some merit increases and cost of living increases, those kind of things that we have to deal with, even with that lower headcount. The biggest thing really, Mike alluded to it, and we talked about it a little in prepared comments, we've got a bit of incremental investment in innovation on the R&D side of the business, some security and cyber security-related investments as well that are driving a little bit of incremental costs. Overall, costs are still growing slower than revenue, which is a key focus for us.

Speaker Change: Our peak so we're kind of planning on running the business in that same head count, obviously youre going to have some merit increase and cost of living increases and those kind of things that we have to deal with.

Speaker Change: Even with that lower head count.

Speaker Change: The biggest thing really Mike alluded to it when we talked about aluminum <unk> prepared comments, we've got a bit of incremental investment in innovation.

Speaker Change: On the R&D side of the business some security cyber security related investments as well that are driving a little bit of incremental costs. Overall costs are still growing slower than revenue, which is a key focus for us with this year with a couple of those incremental investments were not seen.

Anthony W. Boor: But this year, with a couple of those incremental investments, we're not seeing quite as much leverage on the EBITDA front as we'd expect going forward, longer term. www.TheBusinessProfessor.com, Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Quite as much leverage on the EBITDA front as we would expect going forward longer term.

Speaker Change: Okay. Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Brian Peterson: Gentlemen, thanks for taking the question. So I wanted to follow up on some of the pricing initiatives. Obviously, that's gone pretty well.

Brian Peterson: Hi, gentlemen, thanks for taking the question. So I wanted to follow up on some of the pricing initiatives, obviously, that's gone pretty well it looks like you have 30% of the base coming up for renewal in 2020 for any.

Brian Peterson: It looks like you have 30% of the base coming up for renewal in 2024. Any lessons learned in 2023 that can help you attack that? And then, you know, how should we think about anything in that base in terms of timing or customer exposure or products that we should be paying attention to? Yeah, I think, you know, we learned a lot last year. We didn't really need to make many adjustments, though.

Brian Peterson: Any lessons learned in 2023 that helps you attack that and then how should we think about anything in that base in terms of timing or customer exposure of products that we should be paying attention to.

Speaker Change: Yes, I think we learned a lot last year.

Speaker Change: We didn't really need to make many adjustments though.

Speaker Change: I think we just got better at communicating we notify customers five months ahead right. So we're already out almost in June of this year now so.

Michael P. Gianoni: I think we just got better at communicating. We notify customers five months ahead, right? So we're already out almost in June of this year now. So we saw retention rates go up. Most customers are signing for the three-year contract.

Speaker Change: We saw retention rates go up.

Speaker Change: Most customers are signing for the three year contract.

Michael P. Gianoni: We've got our heads down on just driving more innovation because we feel like we need to continue to earn the right to have a price increase and have three-year contracts, so we're really focused on a lot of innovation. Tony just mentioned that, but the program's going really well. We did, like I said, 35% of the base last year starting in March, we'll do another 30% this year, and so we're starting to get sort of, you know, the full year effect of last year, and then partial year effect of this year, because most of the larger volumes are sort of June, July, and then toward the fourth quarter, so it takes kind of the next year to really pick up on that, on that uptick in volume You know, with this program.

Speaker Change: We've got our heads down on just driving more innovation, because we feel like we need to continue to earn the right.

Speaker Change: To have a price increase and have three year contracts. So we're really focused on a lot of innovation, Tony just mentioned that that program is going really well.

Speaker Change: We did like I said, 35% of the base last year starting in March we will do another 30% this year.

Speaker Change: And so we're starting to get sort of.

Speaker Change: Full year effect this year of last years, and then partial year effect of this year's this year.

Speaker Change: Because most of the larger volumes are sort of June July and then.

Speaker Change: Towards the fourth quarter. So it takes kind of the next year to really pick up on that on that uptick in volume, but program is going really well, it's good to see retention rates increase.

Speaker Change: With this program.

Michael P. Gianoni: That's good to hear. And maybe a follow-up to Rob's question on the net new side. It sounds like the pipeline and some of the opportunities you mentioned there are pretty strong. I'm curious, how is the pricing and the kind of the multi-year contract looking on the net new side, and anything that's changed competitively that you're seeing out there in the market? Thanks, guys.

Speaker Change: That's good to hear and maybe a follow up to Rob's question on the net new side. It sounds like the pipeline and some of the opportunities you mentioned there are pretty strong I am curious.

Speaker Change: How is the pricing and kind of the multiyear contract looking on the net new side anything thats changed competitively that that youre seeing out there in the market. Thanks guys.

Speaker Change: Yes, we moved our list prices up a bit.

Speaker Change: As well some other products, we hadn't done that in a while.

Michael P. Gianoni: Yeah, we moved our list prices up a bit as well. Some of the products, we hadn't done that in a while, and we're faring pretty well there. We've made a tweak in our sales comp plan to drive more units. So we're focused on units. That's the new logo and cross-sell.

Speaker Change: And we're faring pretty well there.

Speaker Change: We've made a tweak in our sales comp plan to drive more units. So we're focused on units.

Speaker Change: New logo and cross sell we still have our teams focused in that way in the vertical markets outwards. Other like historically they are assigned by vertical market and assigned to cross sell to existing or go get new logos that hasnt changed, but we made a tweak to the plan to just keep focused.

Michael P. Gianoni: You know, we still have our teams focused in that way in the vertical markets that we're in. So, like historically, they're assigned by vertical market and assigned to cross-sell to existing customers or go get new logos. That hasn't changed, but we made a tweak to the plan to just keep focusing on adding new units across the board, so no major changes there. Thanks a lot.

Speaker Change: On adding new units.

Speaker Change: Across the board so.

Speaker Change: No major changes there.

Speaker Change: Thanks, Mike.

Michael P. Gianoni: Youre welcome.

Delilah Parker Lane: You're welcome. Thank you. Our next question comes from Delilah Parker Lane with CIFU. Please proceed with your, Yeah, Mike, Tony, thanks for taking the questions here. Tony, I was wondering if you could talk about leverage a little bit more in the business. We look at your adjusted EBITDA and free cash flow guide.

Michael P. Gianoni: Okay.

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

Yes, Toni thanks for taking the questions here.

Matt van Vliet: Tony I was wondering if you could talk about leverage a little bit more in the business. If we look at your adjusted EBITDA and free cash flow Guide I know you referenced youre going to have head count relatively stable at the end of this year relative to where it started what other opportunities are there to drive efficiencies across the different cost lines of the business.

Anthony W. Boor: I know you referenced that you're going to have headcount relatively stable at the end of this year, relative to where it started. What other opportunities are there to drive efficiencies across the different cost lines of the business? Thanks, Parker. That's a good question.

Anthony W. Boor: Thanks, Mark and Thats a good question.

Anthony W. Boor: I would expect we will continue to see us gain scale and leverage just from the higher growth rate.

Anthony W. Boor: I would expect we will continue to see us gain scale and leverage just from the higher growth rate that we're driving on the top side. It's a lot easier to drive more profitability when you're growing in the high single digits than the low single digits. You eat up most of that lower growth improvement and profitability just in the normal merits and other increases that we see year on year. So as we grow faster, it will certainly be easier to scale and gain leverage in the business, and be able to hold our headcount. Our investments are going to be up a bit this year, so that's why we're not seeing quite as much leverage. Some of that's kind of one-time in nature.

Anthony W. Boor: We are driving on the top side, yes, it's a lot easier to drive more profitability. When you are growing in the high single digits in the low single digits, you eat up most of that lower growth improvement in profitability just in the normal merit.

Anthony W. Boor: Other increases that we see year on year, so as we grow faster it will certainly be easier to scale and gain leverage in the business.

Anthony W. Boor: All of our head count.

Anthony W. Boor: Our investments are going to be up a bit this year, that's why we're not seeing quite as much leverage.

Anthony W. Boor: Some of that is kind of onetime in nature, we're accelerating some of the investments on the cyber front.

Anthony W. Boor: We're accelerating some of the investments on the cyber front to get some things completed a little bit more quickly than what was originally planned. And so that's pulled a little bit of expense into the year. And then we're putting a good chunk of money into AI and innovation. We talked a lot about that at BBCon.

Anthony W. Boor: To get some things completed a little bit more quickly than what was originally planned and so thats pulled a little bit of expense into the year and then we're putting a good chunk of money into AI and innovation, we've talked a lot about IBD Con we've had quite a few press releases. So theres a lot of good news on the innovation front coming as well.

Anthony W. Boor: We've had quite a few press releases. There's a lot of good news on the innovation front coming as well. So I think we're up a little bit higher than what we would typically expect to be this year on some of the spend, hence not seeing as much leverage. But I would think going forward, you'd see us continue to generate additional leverage in the business year on year on year.

So I think we're up a little bit higher than what we would typically expect to be this year on some of the spend has not seen as much leverage, but I would think going forward, you'll see us continuing to generate it.

Anthony W. Boor: Additional leverage in the business year on year on year.

Speaker Change: Got it very helpful and then.

Speaker Change: Mike on the corporate impacts Smedes I think you mentioned that was a little bit softer, but didn't necessarily see people pulling back can you go into the dynamics of that market.

Michael P. Gianoni: Very helpful. And then, Mike, on the corporate impact space, I think you mentioned that it was a little bit softer, but you didn't necessarily see people pulling back. Can you go into the dynamics of that market, in particular, a little bit deeper? And how do you feel about the structure of the team you've got centered around the corporate opportunity right now? Yeah, sure. Tom Davidson heads up that corporate impact team for us. He is the CEO and founder of EverFi, so we combine that with a few other products. They have five products now they take to that corporate market, which is great because there's cross-sell opportunities there. It's a solid team. The market is a very large market; what's interesting about that side of the business is there's optionality for contracts substantially larger than the historic Blackbaud cloud software side; some of these contracts can be several million a year in ARR because they're big companies with big footprints.

Michael P. Gianoni: Particular add a little bit deeper and how do you feel about the structure of the team you've got centered around the corporate opportunity right now.

Speaker Change: Yes sure.

Speaker Change: Yes, Tom Davidson heads up that corporate impact team for us.

Speaker Change: Is the CEO and founder of <unk> and so we combine that with a few of the other products AFI products now they take to that corporate market.

Speaker Change: Which is great because as cross sell opportunities there, it's a solid team.

Speaker Change: The market is a very large market.

Speaker Change: What's interesting about that side of the business is there is optionality for contracts substantially larger than the historic Blackboard cloud software side. Some of these contracts can be.

Speaker Change: <unk> million dollars a year in IRR.

Speaker Change: Because they are big companies and big footprint.

Speaker Change: And we've got an amazing presence in that market I mentioned, the NFL decided to run two ads during the Super Bowl.

Michael P. Gianoni: And we've got an amazing presence in that market. You know, I mentioned the NFL decided to run two ads during the Super Bowl on a platform that's built on EverFi, which is amazing. And there are many, you know, Fortune 500 companies that are customers or prospective customers; we put together a partnership with Fortune, you know, a little over a year ago, they started a whole focus around this corporate impact space, and we were a founding partner with them and have met with several hundred Fortune 500 global heads of corporate social responsibility. So EverFi definitely punches above its weight, if you will, as far as presence goes. I haven't met a customer that wasn't enamored with EverFi.

Speaker Change: On a platform that's built on <unk>.

Speaker Change: Which is.

Asia and Theres, many fortune 500 companies that are customers or prospective customers, we put together a partnership with fortune yes.

Speaker Change: Yeah, a little over a year ago, they started a whole focus.

Speaker Change: Around this corporate impact space than we were a founding partner with them.

Speaker Change: Met with several hundred Fortune 500 global heads of corporate social responsibility. So.

Speaker Change: <unk> definitely punches above its weight, if you will as far as presence I haven't met a customer that wasn't enamored with every Fi now the downside is it is a discretionary spend.

Michael P. Gianoni: Now the downside is it is a discretionary spend, and so the programs are subject to that occasionally, but it's a solid platform with an unbelievable brand and a lot of really interesting relationships. So that market's not really pulling back. You know, the companies, there's a lot in the news about, you know, CSR and ESG programs and things like that, but, you know, if you look at just, I'll give you an example in the financial services space, banking in the U.S., the government requires those institutions to invest in the space, so there's a regulation that requires a give-back.

So.

Speaker Change: The programs are subject to that occasionally.

Speaker Change: But it's a solid platform with an unbelievable brand.

Speaker Change: And a lot of really interesting relationship so that market is not really pulling back the companies. There's a lot in the news about.

CSR and ESG programs and things like that but.

Speaker Change: If you look at just I'll give you. An example in the financial services space in banking in the U S.

Speaker Change: The government requires.

Speaker Change: Those institutions to invest in this space.

Speaker Change: So there is a regulation that requires to give that.

Michael P. Gianoni: In a lot of cases, they're choosing GearCos or EverFi as that platform, so that's a regulated requirement, which is great for us. It is the biggest space that we're in, financial services. So it's a big space, global customers, and a really solid team. I think we've got great opportunities. I mentioned... would I mention News Corp and Fidelity in my prepared remarks, two recent, larger expansions. Very interesting. Congratulations on the quarter. Thanks. Yeah, thank you.

Speaker Change: A lot of cases, they are choosing your cause or ever fine as that platform. So that's a regulated requirement, which is great for us. It is the biggest space that were in financial services. So it's a big space global customers.

Speaker Change: Really solid team and I think we've got great opportunities I mentioned.

Speaker Change: What I mentioned news Corp, and fidelity and my prepared remarks, two recent larger expansions.

Speaker Change: Got it fair.

Speaker Change: Very interesting congrats on the quarter. Thanks.

Speaker Change: Yes. Thank you thanks Mark.

Delilah Parker Lane: Thanks, Parker. Thank you. Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question. Hey, good morning.

Speaker Change: Thank you. Our next question comes from the line of Matt Van <unk>. Please proceed to questions.

Matt van Vliet: Hey, good morning, Thanks, guys.

Matthew David VanVliet: Thanks, guys. Maybe I can follow up on the last question, Tony. In the slide deck, it calls out that there are still two more data centers to wind down. Curious, on a go-forward basis from here, given you've gotten through most of the DCs you're operating, how much benefit from here is true cost reduction as your favorable contracts with Azure and AWS roll through versus sort of offsetting future spending of continuing CapEx and reinvesting in those data centers? How should we think about that sort of impact on gross margins over the long term?

Matt van Vliet: Maybe just following up on the last question Tony <unk>.

Matt van Vliet: Slide deck it calls out that there's still two more data centers to wind down curious on a go forward basis from here given you've gotten through most of the Dcs who are operating how much benefit from here is through cost reduction as your favorable contracts with azure and AWS rolled through versus sort of offsetting few.

Matt van Vliet: <unk> spending of continuing Capex and reinvesting in those data centers.

Matt van Vliet: How should we think about that sort of impacting gross margins long term.

Matt van Vliet: Yes method Capex as you know has been dropping off substantially as we've shut down the data centers and move to the cloud.

Anthony W. Boor: Matt, CapEx, as you know, has been dropping off substantially as we've shut down the data centers and moved to the cloud. As a continuation of that same story this year, as you saw in the earnings release on the guide, CapEx is going to be down. Cap software is relatively stable and growing with all the spin that we're putting on innovation, so we'll see that up a little bit. But CapEx itself, true CapEx buying property equipment, will be down substantially.

Matt van Vliet: Continuation of that same story this year.

Matt van Vliet: As you saw in the earnings release on the guide Capex is going to be down cap software.

Matt van Vliet: As relatively stable and growing with all of the spend that we're putting on innovation. So we'll see that up a little bit, but capex in itself true capex buying property equipment will be down substantially.

Anthony W. Boor: We are still spending money to move data centers, so we've got some duplicative costs because we've got the cost of the cloud environments and the existing data centers and the cost to move and migrate. And there's still some engineering work that's being done as well to prepare the products to move to the cloud out of the existing infrastructure. So there's still some duplicative costs that go away on that front, and then I do think we'll be more efficient in the cloud over the long run, certainly when you incorporate all the benefits of additional cyber opportunities within the cloud environments. And so we'll continue to see some improvements there. We've still got some leases.

Matt van Vliet: We are still spending money to move data centers. So we've got some duplicative costs, because we've got cost of the cloud environments in existing data centers and the cost to move and migrate and there's still some engineering work.

Matt van Vliet: That's being done as well to prepare the products to move to the cloud out of the existing infrastructure.

Matt van Vliet: Some duplicative costs go away on that front and then I do think we'll be more efficient in the cloud over the long run certainly when you incorporate all the benefits and additional cyber.

Matt van Vliet: Opportunities within the cloud environments, and so we'll continue to see some improvements there we still got some.

Anthony W. Boor: We inherited a pretty big operating lease on the facility for EverFi that we're still working to sublease and get out from under. So we've still got some of those costs, which we would hope would go away. So there are a few of those kind of big movers.

Matt van Vliet: Leases, we inherited a pretty big operating lease on the facility for everybody that we're still working to sublease and get out from under so we've still got some of those costs, which we would hope would go away. So there are a few of those kind of big movers.

Anthony W. Boor: And then we're starting to look at the use of AI internally as a company. We still have a lot of automation opportunities within the business. So we still have other areas that we're pursuing that should drive some fairly substantial cost savings overall over the next few years. And then I think just leverage again, as we spoke about earlier, from the business growing faster will certainly make it easier to gain scale. So we would expect that we've got some opportunity on the profitability side going forward. And the nice thing is we're already up, as you've seen at the midpoint of the guide, above a 22% adjusted free cash flow margin guide, which is tremendous. I think we were down in the 14% range in 22 and jumped up to 19 last year in 22 for this coming year, which is just tremendous.

And then we're starting to look at use of AI internally as a company, we still have a lot of automation opportunities within the business. So we still have other areas that we're pursuing that should drive some fairly substantial I would say cost savings overall over the next few years and then I think just leverage again as we spoke about earlier from the business.

Matt van Vliet: Growing faster, we will certainly make it easier to gain scale. So we would expect that we've got some opportunity on the on the profitability side going forward and the nice thing is we're already up as you've seen at the midpoint of guide above a 22% adjusted free cash flow margin guide, which is tremendous so I think we were down in the 14% range in 'twenty.

Matt van Vliet: Two and jumped up to 19 last year and 'twenty two.

Matt van Vliet: For this coming year, which is just tremendous and I think that we would expect to see that improve kind of in line with profitability improving the only area that we've had that's taken US backwards is just our expectation for cash taxes and that improvement to 22, 3% at the midpoint includes about $30 million of incremental cash taxes because our.

Anthony W. Boor: And I think that we would expect to see that improve kind of in line with profitability improving. The only area that we've had that's taken us backwards is just our expectation of cash taxes. And that improvement to 22.3% at the midpoint includes about $30 million of incremental cash taxes because, as you saw, our book rate we're using is going up 24.5%. I spoke about that a bit in my prepared comments from 20. And that's largely because we've got a great profitable business in the UK and the statutory rates there went from 19% to 25% last year, so we'll have a full year impact of those. And then we're just getting closer to the statutory rate in the US. Our federal government is about 21%, and state, I think, is roughly 5%.

Matt van Vliet: As you saw our book rate, we're using is going up to 24, 5% spoke about that a bit in my prepared comments from 'twenty.

Matt van Vliet: And that's largely because we've got a great profitable business in the UK and the statutory rates there went from 19% to 25% last year.

Matt van Vliet: I have a full year impact of those and then we're just getting closer to the statutory rate from the U S. Our federal is about 'twenty, one and state I think it's roughly 5% and so we're getting close to the statutory rate in the U S. As well largely because our credits are relatively fixed on our income is going up so fast. So we'll have a little higher cash tax rate from book and cash tax.

That's it and I've been on the free cash flow and Thats built into that improved number as well which is great.

Speaker Change: Alright, very helpful and then I guess, Mike when you're looking at.

Speaker Change: Kind of the emphasis on new units as you mentioned and trying to drive some some new business there.

Michael P. Gianoni: And so we're getting close to the statutory rate in the US as well, largely because our credits are relatively fixed and our income is going up so fast. So we'll have a little higher cash tax rate for book and cash taxes that's hitting a bit on the free cash flow that's built into that improved number as well, which is great. All right, very helpful. And then, I guess, Mike, when you're looking at kind of the emphasis on new units, as you mentioned, trying to drive some new business there, where do you feel like you stand from a sales capacity standpoint versus improving the productivity and execution of the current reps? Any ideas around headcount growth? Or do you feel like you have the right team in place, and it's just about driving the right performance? I think we have the right team in place and the right leadership in place, too. We've hired some outside leaders in the last six months or so to lead some of our teams, so we don't see a substantial increase in the headcount.

Speaker Change: Where do you feel like you stand from a sales capacity standpoint versus improving productivity and execution of the current reps any any ideas around head count growth or do you feel like you have the right team in place and it's just about.

Speaker Change: Driving the right performance.

Speaker Change: Yes, I think we have the right team in place.

Speaker Change: And the right leadership in place to we've hired an outside leaders in the last six months or so.

To lead up some of our teams.

Speaker Change: So we don't see a substantial increase in the head count.

Speaker Change: We do see significant opportunity, though in productivity or quota attainment by person.

Speaker Change: Alright wonderful thank you.

Speaker Change: Youre welcome.

Speaker Change: Thank you. Our next question comes from the line of Kurt.

Kurt: Evercore ISI. Please proceed to questions.

Kurt: Yeah, Hi, guys. This is Peter Berkeley unprepared.

Peter Levine: Congrats on the strong strong <unk> III.

Kurt: Tony I appreciate the color just in terms of some of the incremental investment in.

Michael P. Gianoni: We do see significant opportunity, though, in productivity or, you know, quota attainment by person. All right, wonderful. Thank you. You're welcome.

Kurt: Specifically areas like AI, just curious in terms of the timing of those investments.

Kurt: Would you expect those to ramp over the course of the year or will the investments be fairly linear.

Kirk Materne: Thank you. And our next question comes from the line of Kirk Materne with Evercore ISI. Please proceed. Yeah, guys. This is Peter Berkeley. I'm on behalf of Kirk.

Kurt: Trying to get a sense on how you see the shape of EBITDA margin over the course of the year.

Kurt: Yes.

Peter Levine: Congratulations on the strong, you know, strong 23. Tony, I appreciate the color just in terms of some of the incremental investments, you know, specifically areas like AI. Just curious, in terms of the timing of those investments. Would you expect those to ramp up over the course of the year, or would the investments be fairly linear? Just trying to get a sense of how you see the shape of the EBITDA margin over the course of the year.

Speaker Change: Yes, Peter day will ramp a little bit although I would tell you we accelerated some of those investments beginning in Q4. So they actually already started ramping that said I do think we'll see.

Speaker Change: A bit more as we get into the year because some of those include hiring new staff.

Speaker Change: Those that are outside consultants and then we also have some investments in some new solutions I think on the cyber front. So we will be bringing new software solutions et cetera online and implementing that.

Anthony W. Boor: Yeah, Peter, they will ramp up a little bit. But I tell you, we accelerated some of those investments beginning in Q4. So they have actually already started ramping up.

Speaker Change: Those costs will hit us a little more as we get into the year. So I expect that to build a bit across the year and then some of those will start falling off as well as we get there is a bit of a surge and then acceleration so as we get some things implemented and put in place in some of those will start to drop off as well towards the back end of the year.

Anthony W. Boor: That said, I do think we'll see a bit more as we get into the year because some of those include hiring new staff, those that are outside consultants, and then we also have some investments in some new solutions, I think, on the cyber front. So we'll be bringing, you know, new software solutions, et cetera, online and implementing them. So I think those costs will hit us a little more as we get into the year. So expect that to build a bit across the year, and then some of those will start falling off as well as we get. There's a bit of a surge and an acceleration.

Speaker Change: Yes.

Speaker Change: Very helpful and Mike maybe just a quick one for you as well.

Speaker Change: Yes.

Michael P. Gianoni: As you're thinking about adding some of the AI capabilities into the product set would you expect most of this to be included in the new pricing structure or do you see an opportunity.

Michael P. Gianoni: Just sort of leverage AI and create some new standalone offerings.

Anthony W. Boor: So as we get some things implemented and put in place, then some of those will start to drop off as well towards the back end of the year. Very helpful. And Mike, maybe just a quick one for you as well. Just, you know, as you're thinking about adding some of those AI capabilities to the product set, would you expect most of this to be included in the new pricing structure? Or do you see an opportunity, you know, to sort of leverage AI and create some new standalone offerings? Yeah, it's both.

Michael P. Gianoni: Yes, it's both actually Peter it's a little bit of both.

Michael P. Gianoni: Some of this new capability.

Michael P. Gianoni: Excuse me, we will just show up in products for instance, last year. The first one we announced into production with a new set of AI capability and are just getting platform already in production.

Michael P. Gianoni: We have new capabilities rolling out this week and raisers edge NXT.

Michael P. Gianoni: And more coming across other platforms like CRM and all true for example, some will be standalone new capabilities.

Michael P. Gianoni: Actually, Peter, it's a little bit of both. So some of this new capability. Excuse me, we'll just show up in the products. For instance, last year, the first one we announced going into production was a new set of AI capability in our JustGiving platform, already in production. We have new capabilities rolling out this week in Razor's Edge NXT, and more coming across other platforms like CRM and Altru, for example. Some will be standalone, new capabilities, so we have some online donation capabilities with AI that are additive and new to the market that will go across several products. And then some are embedded, like the JustGiving one I just mentioned.

Michael P. Gianoni: So we have some online.

Michael P. Gianoni: Nation capabilities with AI that are additive and new to the market that will go across several products.

And then some are embedded like the.

Michael P. Gianoni: Just giving one I just mentioned so it's a little bit above.

Speaker Change: And Peter I would just add on on some of the new capabilities like with online giving forms it won't be that you priced separately. They will drive more revenue just because of the efficiency.

Speaker Change: Given that they drive and ore.

We have a complete cover type model, where we're just getting a higher amount.

Speaker Change: Of donation to us and to our customers as we've spoken about before will be a big win win on those things with the new donation forms as they rollout.

Anthony W. Boor: So it's a little bit of both. And Peter, I'd just add on some of the new capabilities, like with online giving forms, it won't be that you price them separately; they will drive more revenue just because of the efficiency of giving that they drive and or, you know, if we have a complete cover type model where we're just getting a higher amount of donation to us and to our customers, as we've spoken about before. It'll be a big win-win on those things with the new donation forms as they roll out. Yeah, so some of the capabilities are pointed toward driving our customers' revenue, which also rides on our payment system as well.

Yes.

Speaker Change: <unk> abilities.

Speaker Change: <unk> pointed towards driving our customers' revenue, which also rides on our payment system as well so it's a win win.

Speaker Change: Great. Thanks, guys.

Speaker Change: Youre welcome.

Speaker Change: Thank you we have reached the end of the question and answer session I'll now turn the call back over to Mike <unk>.

Michael P. Gianoni: A closing comment.

Michael P. Gianoni: Thank you. Thank you for joining us this morning.

Michael P. Gianoni: To summarize two three was a year of substantial transformation for blackboard.

Michael P. Gianoni: So it's a win-win. Great, thank you. Yep. Thank you, and we have reached the end of the question and answer session. I'll now turn the call back over to you for closing. Thank you. Thank you for joining us this morning. To summarize, 2023 was a year of substantial transformation for Blackbaud. Our five-point operating plan delivered four sequential quarters of accelerating financial performance, and we met or exceeded our financial guidance ranges across all metrics. Our strong cash generation enabled us to resume stock repurchases in the fourth quarter and going forward.

Michael P. Gianoni: <unk> five point operating plan delivered four sequential quarters of accelerating financial performance, and we met or exceeded our financial guidance ranges across all metrics.

Michael P. Gianoni: Our strong cash generation enabled us to resume stock repurchases in the fourth quarter and going forward.

Michael P. Gianoni: We are focused on making prudent investments to grow the business organically and inorganically are returning excess capital to shareholders.

Michael P. Gianoni: I'm incredibly proud of the results. The team has produced and excited about the continued momentum we expect in 2024. Thank you everyone.

Operator: We're focused on making prudent investments to grow the business organically and inorganically by returning excess capital to shareholders. I'm incredibly proud of the results the team has produced and excited about the continued momentum we expect in 2024. Thank you, everyone. And this concludes today's conference, and you may disconnect your line. Thank you for your participation.

Speaker Change: And this concludes today's conference you may disconnect your lines at this time.

Speaker Change: Thank you for you.

Speaker Change:

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