If you guys hadn't seen, we had an 8-K out this morning, and we added to the investor presentation. I wanted to run through those really quickly. I'm not going to spend a lot of time draining these, but I wanted to at least run through and show you some of the information that we brought with us. I should mention Mr. Kevin Mooney is with me as well today to help us talk through some of the questions Brian has. Background on the company: hopefully a lot of you are aware of us, clear market, the nonprofit and corporate CSR space. We have had an effort over the last few years to move to a Rule of 40 company. Original plans were to get there by 2025, 2026. We actually pulled that forward, and we made that by Q3 of 2023. Have had significant improvement.
Walk through some of those metrics here in a minute. We rolled out a new five-point operating plan, helped us drive the growth and the improvement in profitability. And then this morning, after our earnings release after Q4, we had a big pullback in the stock. We had been in the market buying the stock in the '1980s. Prior to that, stock pulled back, I think, like 12% right after the call. And so this morning we announced a $200 million ASR for the stock. The intention is this year we'll buy back 7% to 10%, overall of the stock. Blackbaud at a glance, 40+ years. So we've been around the software space a long time. Our founder started this business, out on the East Coast in the school, private K-12 school space. We still have our original customer, Bamford School for Girls, is still a customer today.
Obviously grown a bunch since that. 40,000-plus customers worldwide, millions of users on our platform, process a tremendous amount of donations, tuition payments, etc., nonprofit space. And then a few years ago we actually ventured off into the corporate space, more corporate social responsibility. 2 years ago bought EVERFI. They create programs for financial institution, community reinvestment, hospitals, universities, other corporations. Started in the financial institution space, so a lot of that Reinvestment Act, financial literacy courses in the public school systems, etc. We'll talk about the corporate space, which is actually a little bit of drag on our revenue growth this year, as well. I won't go through these, but we have a broad portfolio of solutions, obviously, that we've built and bought over the last 40+ years. A lot of different services as well, analytic services.
We've started to branch out into the AI space and add a lot of new AI capabilities to some of these solutions. Payment service is a big piece of our business. Transactions make up about 15% of our revenue now. 14% is in the corporate space. The rest would be in what we'd call the charity or nonprofit space. This is just a quick snapshot of our guidance for the year. $1.85 billion at the midpoint, 33%, so about an 80 basis point improvement on the EBITDA margin year-over-year. We'll talk about that on another slide here. That would have been up about another two percentage points, but we had to make some near-term surge investments in cybersecurity. We had a breach, going on four years ago now. We had settlements that we reached in late Q4 with 49 state attorneys general.
We are close to having the FTC done. We've got the SEC done. Internationals, we have one or two small work streams, then some class action that we're still working through. But as part of that, we agreed in the settlement to some injunctive items, most of which were already in our roadmaps, but we did need to accelerate the completion of some of those. So we have a little bit more than $20 million of incremental, kind of one-time expense this year that we're incurring to get compliant in a little shorter time frame than we had been planning, and that was about a 2-point drag on our EBITDA margins. I think that's one of the things the street didn't like, when we provided the guidance. I think they were expecting a bit more fall through from some of the pricing initiatives that we've been doing.
Then adjusted free cash flow, another really nice year of improvement. We're up another 300 basis points in free cash flow margin this year over last year, and we had 200 basis point improvement in free cash flow margin last year. So really nice performance on the EBITDA and free cash flow front. Revenue growth disaggregation. After the call, with the feedback we got from shareholders, Mr. Mooney and team spent quite a bit of time and found that there was a need for some incremental disclosure. And that's what we're trying to get here, Brian, with some of these. There's been a lot of question between corporate social, what's going on in the space. We've got some big pricing initiatives that are driving some significant growth. So we broke out in this chart.
You can see quite a bit more granularity, which I think is going to be very helpful for you all in evaluating the performance of the company. See, we've got the contractual recurring, the transaction, all the one-time services, then the total sector, and then gives you an idea of what's really pulling back on us right now for this year's revenue growth and performance. As you can see is the bottom line there, the corporate space. And that's really the economy, has hit us hard on the EVERFI business. YourCause is holding its own. EVERFI's really had a challenge. We bought them right after that. The economy turned. Inflation hit. Interest rates start rising. Silicon Valley Bank went up belly up, created some havoc in that space. We sell a lot of the services back to the banks and the financial institutions.
And then corporations, as we know, have all tightened their belts during this difficult economic time. We believe that will turn again as the economy improves and rates come back down. But I think that was a key point that people didn't get in the call in Q4 on the guidance. And so we wanted to make sure we provided that clarity. I won't dive into this, but there's a lot of good information. We're happy to take calls or questions in the follow-up, or Brian, we may touch on some of these, so I, I won't dive into them here today. This is just getting to the EBITDA margin we're talking about. As you can see in that right-hand side, we've had really lovely improvement. We're 24.8% in 2022, all the way up to 33% this year with the guide.
That includes about a 2-point drag for this surge in cyber investments we're making. That's largely one-time. Not all of that will reverse, but a lot of it is kind of one-time to get these things implemented more timely. Third-party consultants we brought in to help accelerate things. We'll also have some tools we're implementing and then turn off some old tools. So we've got some duplicative costs in here that'll come out. But we would expect to see margins improve more significantly next year than the 80 points, we 80 basis points we saw this year, because we should not have this incremental, cyber investment required again next year. And then on the capital structure side of things, I want to make sure that was probably the biggest. This morning we announced that we're going to buy back 7% to 10% of the stock.
We had already been in the market. Like I said, we were buying in the 191980s. Stock pulled back, so we're going to get more aggressive on the front. We're generating significantly more EBITDA and free cash flow, so we have the wherewithal and capital and capacity to do that. With the ASR coupled with what we've already purchased back this year, we should be over, depending on what the stock price does, should be above the 7% target threshold, and then we'll look at doing some other open market transactions, depending on what happens in the economy and the market to get us up to that 10% target before the end of the year. I think that's it. Keep it quick.[crosstalk]
Cool. Go ahead.
Sure.
So, Tony, you know, all the color on that. You know, I wanted to maybe start with some of the pricing initiatives that you guys have done. It's been interesting, and I've obviously talked to a decent amount of your customers, but just kind of understand the rationale on the pricing side and what's that done to the financials over the last 12 to 18 months.
Yeah. We started some of these pricing initiatives, you know, Brian, four years ago probably. We brought an in-house team in-house and hired some folks with expertise. We'd use some third-party folks outside. We started with the low-hanging fruit, I would say. We looked at where some of our products were not at the comparable level to peers, like YourCause was a good example, right? After we bought them, we saw they were significantly below market compared to what the peers were charging for similar capabilities. So we started making some increases in pricing there. We've done that in a few places around the business. One of the most successful, as you're aware of, is the JustGiving business. We went to that kind of tipping donor cover model in the U.K. business on the peer-to-peer fundraising with JustGiving.
That's been a huge success. We got a much higher take rate with that. And that's where you're making a donation, online, and we give folks an option to cover the platform fee side of things. So instead of charging historically somewhere between 2% to 3%, we allow you to tip. So you could tip 0%, you could tip 20%. And we've seen a really lovely improvement in the take rate on that, and so that improved our growth rate in JustGiving and then the margin substantially. So we've done several of those things. Just last year, we really moved into kind of the new initiative, which was the new pricing approach that we put on the social sector, the Raiser's Edge, Financial Edge, all of those kind of core products. That started last March. There's really three components to it that are important.
We broke some of that out in the slide to give people more visibility. We historically had, you know, 1-year kind of license and then maintenance contracts. We started moving several years ago to multi-year agreements on new deals. And so we'd sell somebody a 3-year contract, and typically that would renew on an annual basis. Afterwards, we now have moved to we're trying to push everything to multi-year contracts. Those multi-year contracts now include an annual price escalator, which we did not have. Our annual price increases are slightly higher. We've been kind of in the mid-single-digit now and the high single-digit. And then for the first time ever, that I'm aware of in my 13 years, we had an inflationary price adjustment. And so we're getting kind of high teens now on the core of the social contractual revenue business.
It's been really meaningful. We're just starting that. We renewed about 35% of the base last year. 30% will be up this year, 25% next year, and the final 10% in 2026. So this will be kind of a compounding effect as all this rose through the base on the, you know, what is about 55% of the revenue base.
How does that help your visibility, right? Because, like, I'm assuming you're notifying the customers ahead of time. So, like, as we're thinking about 2024 and you just give some numbers out there, like, how much visibility do you have in terms of the customers accepting the price increases? I know you're 35% of the base through 2023. Is that right?
Correct.
How much is up in 2024?
30% this year.
Just love to understand the visibility component to that and what that.
Yeah. So we'll, you know, by the time we get through this year, we'll have gotten through 65% of the base. We're, we're several months out. So we notify the customers well in advance, typically about five months out is where we are. And so we're already, you know, well into the second half of the year now of getting some visibility as to what customers think. And they have to give us advance notice. Most of the contracts, I think, are 45-day advance notice they have to give so that they are going to terminate. So we already, you know, if you're working out five months, they want to give notice. We're already getting some good feel for that. We've been doing it almost a year now. March will be, you know, it's March. So it's a year exactly.
We are seeing a higher percent, and we're trying to force this a bit with a stick with pricing. We're trying to force people to multi-year contracts. We're seeing a higher percentage choose the multi-year contract at renewal. We're seeing a better than planned rate. So we're getting a slightly better rate overall. So controlling discounting better than we planned, and that's in the high teens. And then any other big movers, I think the retention rate, renewal rate's actually a little bit higher than we'd planned, which is great. So kind of you're hitting on all three cylinders on that front. We're just coming up to those folks who chose last March not to sign a three-year agreement. The question then, will they churn this year? Do they want a year to go out and find a new solution?
So we're just coming up on the those renewals as we speak. So I'd expect for Q1, we'll provide some granular what we're seeing on that front. But right now, to your question, we really have good visibility out to probably June or July at this point of what customers are doing, a pretty good sense. And that gives us good comfort in that contractual recurring revenue line that you saw in the one chart. We feel really good about that thus far just because the mix is better, the, the rates we're getting are better, and the renewal rates are better.
You know, this comes up a lot when I talk to investors. You hear, "Hey, mid-teens or high, mid-high teens." Like, but I think people may not understand, like, the average revenue per customer, like, in dollars to the customer. It may not be that much. So can you kind of walk through some of that and what it might mean, like, at least in terms of the averages?
Yeah, absolutely. I, I think it, it sounds like a huge number. And I think while people were concerned about the churn. But when you think about an organization that this is their core systems of record, right? Their core accounting system, we use Workday. It'd be like me pulling Workday out, which is not an easy decision. Stacy would shoot me. So it's a core system of record. So it's not something that they take lightly. And they're raising, in, in many cases, for a product that costs, you know, $15,000 to 20,000, in your case, $10,000 to 12,000 on some of them, you know, they're raising potentially hundreds of thousands, if not millions, of dollars on that core system of record. So the, the percentage sounds high, but, you know, 15% on $10,000 is not going to make or break a multimillion-dollar nonprofit, right?
Or even hundreds of thousands. So it's not a significant amount in dollars. We actually, Kevin was bringing this up in the meetings this morning, we really held our rates down during the pandemic trying to help our customer base. So we hadn't had any real meaningful increases in several years either. So there's a little bit of catch-up, and then you have the inflation on top of it. I think most folks in the tech space were raising prices fairly significantly because of inflation. I know I saw that on most of my vendors that I was dealing with.
Yeah. Right. We're, we're seeing that kind of across the SaaS space. So maybe just unpacking the new logo opportunity, because a lot of it's the focus has been on pricing. But what are you guys seeing in terms of, you know, net new logos kind of specifically in the social sector?
I think it's more of the same. I think we play from literally the high end of the market down through the middle end of the market. We do have some solutions that are as low as like $119 a month. That's a very different tale of the market. But one of the things that's unique about our company is we are the full suite provider, which is unique. We play, we compete against a lot of point solutions. So once we have one implementation in, it's very fertile for us to go back and try to sell a multiple solution. Maybe if you have your classic CRM, you may want to add a peer-to-peer, or you may want to add a financial management general ledger solution. And once we get more than one solution in, the retention actually goes up quite dramatically.
About half of our sales base is selling back to the customer, back to base. We call it consider those, you know, farmers and client account executives. And the other half are doing prospecting and are the hunters. And so we're seeing good progress on both.
What does the competitive dynamic look like in the space? Like, I think people may underestimate how fragmented it is really. Like, you know, like, so like, what are you seeing out there in the market in terms of competition and people that you call out there?
I would say there's, you know, there it's a competitive market, that's for sure. But there is no other organization, at the risk of being a little repetitive, that has the breadth of the solutions we do. Our brand in the marketplace is the highest quality solution for fundraising. We're not considered to be the cheapest. We do have a lot of smaller players that may be focused on a niche market. Like, for example, maybe somebody is doing fundraising in animal welfare or, or particularly there. But I would say, it would be unusual for us not to have a competitor on a deal. Even sometimes, when we're selling back to the base, the market will go out and check, keep us honest on pricing and other things. So, typical that we would be in a competitive situation. But also, we're generally considered to be one of the better solutions in the marketplace.
Maybe just pivoting a bit to the corporate side. I know you mentioned that the bookings there have been a little bit slower. It is a big opportunity. So how do you guys kind of frame the, "Hey, it's a little bit slower right now, but still a big opportunity," and work through the investments and growth versus profitability there, Tony?
Yeah. It's been a tough one with this economy. And as you know, Brian, you were with us when we, by the time we did this. When we bought EVERFI, initially out of the gate, we had a lot of turnover in the go-to-market team. There was a lot of planned turnover just because of the synergies we were expecting to take out. We moved the accounting and finance team in and the IT team, etc. So we expected those synergies, but we had quite a bit of turnover and folks getting poached early on. And so right out of the gate, we had some struggles. And then the economy turned on us. And it's been kind of a double whammy on that perspective. So we feel like we've got the go-to-market team in place, pulled people over from our side of the business, kind of cross-pollinated.
So we feel good on that front. And we're seeing a lot of momentum in the market. But corporate budgets are tight right now. And because financial services was the core of that business where it kind of started, they got hit really hard in the rising rates and the failures and all of the other stuff. So they pulled back. We're not losing customers in that, but more downgrades because it is more discretionary on the corporate side. The YourCause business, another piece of that corporate that we bought several years ago, that one's held its own. It's done pretty well. Folks are still doing the CSR programs. This, you know, YourCause, we use a Blackbaud for our volunteer hours, our matching gifts, the donations.
I can go and Stacy can go on and say, "I want to give to these four different organizations. Take that out of my payrolls, payroll deduction, get the company to match it," etc. That's all part of that. We have a DAF associated with that. One's still holding its own, actually doing fairly well. But the EVERFI place is where we've really been hurt. And that's truly more discretionary in corporate nature.
How do you kind of think about, like, the downgrades? Do you think you're kind of through the worst of that, or is that something like I know we don't we can't predict the macro, but how do you kind of handicap some of that?
I get the sense we are because it feels like there's some momentum starting to build. It's very early, and it's going to take a while to dig back out from underneath this. I don't know if you saw, like, the Super Bowl. They had two ads on this, new character building that they're trying to do for kids. It's had two separate ads on it. And that's EVERFI platform within conjunction with the NFL. So it's; there's some neat opportunities. But, you know, we got hit hard.
We had a lot of deal going on in the financial services space. We had a bunch of stuff with, you know, the Bitcoins and Coinbases and stuff that kind of fell by the wayside because they had all kinds of different issues. So there's, you know, it'd been a tough downturn for us on that piece of the business. And it's, it's about, like I said, 14% overall corporate as of the total.
Just on, I appreciate the incremental disclosure on the margins here. You know, what are you thinking about in terms of, like, longer-term margins? I know that the accelerated security investments, like, that makes sense. But what do you think margins should look like long-term?
Well, we realized we pulled this Rule of 40 thing in so quickly. You know, that was our to get us to 25, 26. So we need to have probably another investor session this year and roll out some more longer-term guidelines just for you and everybody else, which we'll plan to do. We would expect this pricing to you'd have a big portion of that fall through, right, to the bottom line. If we didn't have this incremental cyber acceleration surge, we would have probably seen another 200 basis points fall through this year. So I would expect you'll see some nice benefit margin next year from the pricing, certainly, as that takes hold and gets another year under our belt.
And then outside of that, because we're growing faster, right, we're now kind of seeing low single digits, 1% or 2% for many years, ramped up to almost 5% last year. We're guiding at the midpoint to 7.2% with the drag from corporate. It makes it a lot easier for me to figure out how to get some scale and leverage in the business and margin when we're growing at that kind of rate. So I'd expect you'll see back to where we've historically been, kind of continual margin improvement each year, push a little bit of that extra growth through to the bottom line. And then, again, I'm, I'm very happy with what we're seeing on the cash flow front. We've had some really nice, strong improvement in free cash flow margins, dramatic.
It sounds like you're putting that, that cash to work here.
To work, yeah. Absolutely.
So, maybe just, like, you gave some perspective on this. But, you know, as you're thinking about the opportunities historically emanating, it's been there. Obviously, this is the statement you made on the stock today. So maybe walk us through how you're thinking about the opportunities and what ultimately led you to the.
Yeah. I think, you know, like I said, we were buyers in the '1980s. So we thought we were undervalued before the, the pullback up to the earnings release. So we're certainly buyers at this price. And so we'll be more aggressive on that front. Not a lot that Kevin and team were working on from an acquisition front. We had kind of pulled back from major acquisition after EVERFI just before we stood. We needed to pay that debt down. And then we still had these legal cyber-related, you know, security incident stuff we were dealing with. We will still be in the market. We're still doing smaller tuck-in type things. I think, as you said, Kevin, they're more product-related, right, filling gaps and.
Yeah. I just don't see us doing a substantial acquisition in the near term, for sure. But we've made a couple of very small, like, I'm talking low single-digit $ millions to buy code base that snaps into our existing products, makes the products better, justifies some of the price increases that we've had. I think right now, the general view is we think the buyback of the stock is a tremendous opportunity for shareholder value creation. And that's where our focus is near term.
Yeah. There's a lot of information here. I want to give the audience time if there's any questions. Feels like speed dating when it owns a van.
That was a lot. That was.
I wouldn't know. I never did it.
Go ahead.
Can you talk a little bit about your rights to win in terms of functionality? Is it ease of payment? You know, what are the big rights to win too versus a lot of products that are?
I'll start. It gets back a little bit to the brand. But we have a 40-year track record of being successful at helping organizations fund more of their mission delivery. So in essence, by and large, what drives a nonprofit is their passion about the mission. It could be feeding the hungry. It could be curing animal welfare. It could be so many different issues. And our company, with 40 years of expertise in this area, is really good at not only helping them fundraise, identifying donors, helping them analyze what the ask should be, online and peer-to-peer giving. So our right to win is not only classically from where our core was, but in many of the verticals, we have a very fulsome solution that goes much deeper than that.
And again, this notion of you can come on board and then add capabilities since we have an extensive suite is something that nonprofits who have an aspiration to grow find attractive. So as I mentioned earlier, there's competition at every level. And that competition keeps us, you know, on our toes. But I think we have what I would consider to be the most fulsome, rich product solution set in terms of the capabilities of each of our solutions are very good.
So maybe just if you kind of, like, rewind, you know, back to, like, pre-COVID, you know, I'd love to understand, you know, any usage in the product that's changed. And is there maybe a larger propensity to buy a suite now, given what we've learned, versus kind of point solutions? Like, kind of any.
Private schools is a big one, right?
Yeah. I was going to say, COVID was the asset test for our industry because, quite frankly, a number of organizations closed down, faith-based organizations, you know, arts and cultural, zoos, aquariums, they shut down. What happened was a remarkable thing, better than we ever envisioned, was fundraising moved online. Most organizations made it through the difficulty period of that period of time. I, I think, generally speaking, people are getting more and more involved in online donations. We have a strong position there with a good number of solutions.
I just I just have the general sense that the market has gotten a little more sophisticated. We are experimenting with some really cool capabilities around artificial intelligence. We put it on a press release back out in late fall that just lists eight or so specific things underway. We're evolving the product, I think, to be even more, you know, sophisticated for customers to use.
Thank you . But obviously, AI is a huge topic with this room and investors. So I'd really love to understand or highlight maybe a couple of the few features that you think can, you know, drive automation or customization.
Oh, yeah. Sure. Let me give you an example. So in the UK, we have a brand that's really strong in JustGiving. It's the dominant. I think there's over 30 million registrants on that platform. And one of the uses of what's key for that individual to be successful at fundraising is storytelling. And AI now is actually drafting for them. Here's how you can tell your story to get more engagement from your friends on Facebook, TikTok, whatever. And here's how you can get them to give more. So there is a lot of A/B testing going on with the use of AI to tell stories. That's just one small example of what's going on in terms of where AI is moving.
And as you guys think about maybe longer-term, newer products, newer efforts, like, you know, where is that, though? Is it more, I think, the R&D stuff? Is that more on into what you have today? Or are there other areas of white space that you can go out and go get?
I think right now, with the price up we have in our existing solution and to Tony's point, you know, high double digits sounds like a lot. But dollars, it's relatively small. I mean, our solutions are so much less costly than it is in a commercial setting if we were providing CRM. So we're really focused on making sure we continue to drive that retention and putting more and more content into existing solutions. If we're going to edge out, I think it'll be kind of on the margin in the near term.
Okay. What about just the transactional portion of the business? I know that has a couple of different areas. But can you talk about the stickiness of that? And then, you know, I think we've had this debate before, just kind of understanding where we are in terms of kind of the online giving mix and where that could go long term.
So I'll start, and then you can jump in, Kevin. So the online giving during the pandemic, as Kevin said, a lot more happened online. People went to virtual events as well. You're doing these raising money for people but not going to the big marathon. And you did it on your own because we couldn't have the races right and the walks and the rides. So there's been a lot of change on that front. We've come out with some volunteer solutions and some other tools that help that virtual. But I think overall, online giving had historically been something just sub 10% of total donations in the US And that jumped up to 13%. And so it, you know, a significant increase in what people were giving on online versus in person. So that was a big change. There's a lot of things we're doing.
We still have a lot of room within our own base of penetration opportunities. So not all our customers are using our payments platform. We're working hard as we speak and just starting to roll out and pilot a lot of new optimized donation forms. And those forms seem kind of silly, but it just makes it easy to give, right? I don't want to have to click through 14 screens to give $15 to an organization. So we've got these optimized giving forms that we're rolling out now. We have to build that out across the various products. Those are rolling out. We think that will raise the amount of money that people are raising because they're optimized, and they work more effectively, and have more solutions you can use.
And then we're also, as you know, we're trying to bring the donor cover model to the US Now, that'll take a little longer because we've got to roll that out across each product set. And then you have to have the customer adopt it and put it into their website. But that one could be very significant. And the big key why it's a win-win is, say, you made $100 donation to a charity. Today, we might take 300 basis points of that for processing the transaction, doing the code, you know, KYC and OFAC and everything. So they'd get $97. In the future, with this complete cover, they'd get $100. And we might get $5 because you decide to give a 5% tip to cover the charge and the processing. And so, you know, there's no incremental cost of goods for us.
So that really helps from a margin. That's what we saw in the JustGiving business, you know, three or four years ago when we rolled that out. So now, it'll take longer to get this through the US because you have customer adoption. It's not a peer-to-peer platform. I just turn it on. Here, we have to get adoption across the products that the customer is. But I would expect, over the long run, huge opportunity for us within the payment space between the optimized donation forms, them raising more money, and us getting this complete cover, rolled out across the products at the portfolio will be a big win in transactions.
So, pretty strong statement from you guys today just on the buyback. But, you know, as investors, like, what do you think that we should be paying attention to you? And, like, what are, I guess, the maybe top two or three goals for you this year?
You know, if I had one, I'd like to see our valuation improve, you know, compared to peers. Just we have a really hard time understanding why we're valued as we are, you know, what the multiples are. We're not expensive, that's for sure. And, you know, we've generated a tremendous improvement in growth rate, you know, almost 1,000 basis points improvement in EBITDA now, several hundred basis points improvement in free cash flow margin. We're in 22%, I think the midpoint guide's 22.3% free cash flow margins. That's pretty damn strong. And our multiples don't reflect it. And our stock price doesn't reflect it. And so if I had anything, it's figuring out what that right amount of disclosure or whatever that is we need to do to and to give people the confidence to get into the stock and us to see some expansion in the value.
Oh, I think that that pretty strong statement today.
Yeah.
All right, guys. Thanks for the time. Everybody, thanks for listening.