We have Mike Gianoni, CEO, Chad Anderson, CFO, and Tom Barth from Investor Relations. Mike, maybe just kick things started, high level overview on Blackbaud. What do you guys do? Growth profile, margins, just kinda kick us off here.
Yeah, sure. Cloud software company focused on K12 education space, nonprofits, foundations. We have a platform for companies for volunteering and matching gifts. We're focused on what we call a social good space. About a third of the revenue of the company is transaction processing. The rest is subscription. Global business, 85% of it, roughly in North America, about $1.2 billion in revenue. Put a multi-year target out years ago to become a Rule of 40 company. We did last year.
Mm-hmm.
It was a big year for us to do that in 2025.
As we're thinking about that Rule of 40 framework and rule of beyond.
Yeah.
you know, how do we think about the pace of where you were at before and what are kind of the longer term growth and margin targets you're aspiring to get to?
Yeah. It's, you know, it's been a journey. This is my 12th year. We were not a subscription business 12 years ago, and we're 98% recurring revenue now. The Rule of 40 makeup, we grew about 5.5% organically last year and, you know, mid-30s on EBITDA. We put out some long, long range aspirational goals for the next several years as well.
Mm-hmm.
To become a Rule of 45 business. You know, we're on track to continue to do that.
As we think about that growth, maybe we focus on some of the new opportunities.
Sure.
Can you talk about your customer base today and what does that total available market look like?
It's about a $10 billion TAM in all the sectors that we're in. It's different vertical markets, like I just described, and also different components in that market. We have about 17 products that make up the whole of the company. There's a big TAM opportunity in things like our payments business, which is donation processing.
Mm-hmm.
There's a big TAM in just our subscription business, and we're coming to market with new products as well.
I know some of those are AI focused.
Right.
I wanna hit on some of the AI innovation that you've seen. Any early use cases that you can speak to in the value proposition for customers?
Yeah. At our annual customer conference, which is every October, called bbcon, we announce a lot of products and a lot of innovation. One key thing we announce, we call Agents for Good, and it's a new catalog of AI products coming to market. Specifically, we announce one product which is called a Development Agent. This is a fully agentic agent embedded inside of our fundraising system of record that essentially raises money for our, for our customers. It acts as a fundraiser. It's, it uses the data inside of the system, understands and learns workflows, gets assigned targets, gets assigned work, and goes to work and raises money through different communication mechanisms to potential donors.
Have you seen any early use cases that are interesting in terms of adoption?
We just started to roll this out. We have early adopter customers using it now, starting in December, so we're a couple of months in. We expect this to get into general availability fairly soon. Could be as soon as this month or the next couple of months. The use cases and the ROI is quite simple, right? How much does this cost a customer? How much money does it raise? We're seeing those use cases. What's interesting too is we've got, for the first time with early adopter program, we've had customers paying for this and signing contracts for it.
Mm-hmm.
It's not like, "Here, try this new product." They're signing up for the product. We've got customers that are K12 schools, universities, healthcare systems, and nonprofits. It's hitting all of our sectors, the interests for this product.
I guess is there any way to kind of frame the monetization opportunity? I know it's very early, but, like, if we're thinking about the revenue per customer that you have today, if they were to adopt a lot of AI, what could that mean to the growth trajectory longer term?
This product, first of all, these new products are not in our guide, and they're not in our long-term aspirational goals yet 'cause it's too early. This particular product, the first one called the Development Agent, we will be charging, call it tens of thousands of dollars a year for it. It's a subscription product. We don't have any pricing that's per seat pricing.
Mm-hmm.
This will be a fee per year, if you will. It'll be a multi-year contract.
If you-
We have thousands of customers that this is applicable to. To answer your specific question, you know, think of it in terms of, you know, $25,000-$35,000 a year.
Sure.
Thousands of customers could be potential buyers.
I guess maybe, double clicking on the customer base. Like, what have they been able to do in terms of hiring for fundraising over time? 'Cause that's much lower than it is to bring in more people.
Sure.
Like, what do you think this could ultimately do in terms of their fundraising capabilities?
The example that I gave on the earnings call a little while ago that I think is very straightforward example, one of the universities we're working with has 190,000 alumni.
Mm-hmm.
They have a group of fundraisers that focus on the what they think is the top 10,000 prospective donors from the alumni base. There's 180,000 untouched prospective donors. This agent can go after those donors and create relationships or go after those alumni, create relationships, and eventually turn them into, you know, donors and sustainable donors. They can expand their team by hiring, if you will, a software agent.
Mm-hmm.
Which costs a lot less per year than hiring a person.
Right.
You can't have someone on your payroll that you might pay, call it $90,000 a year to make phone calls to, you know, alumni that might give you $10 or $20. We can have the piece of software do that.
Right. Right. Well, you mentioned bbcon before. you know, I've been out there in the past talking to customers.
Right.
It's always amazed me that the stickiness of the product. I'd love to understand, like, as you see retention, I know there's been some pricing initiatives that you've put in place. Can you maybe walk through some of the pricing initiatives and any impact that you've seen on retention from those?
Yeah. We started, actually, I think this month is four years ago.
That's right. Yeah.
It's just a normal part of the business now. We wanted to move our customers to multi-year contracts. Three-year contracts, we moved the whole subscription base to three-year contracts. Interestingly enough, over 20% of our customers are on four-year or longer contracts because they wanted to do that. The customer base is on a three-year contract that included price increases for each of the three years. Historically, if a customer was on a three-year contract, there was no price increase.
Mm-hmm.
in years two and three. Now there's an annual price increase, customers that are re-signing now, call it years four, five, and six, now have an annual price increase go forward. It's not new for us anymore.
Mm-hmm.
It's just a, you know, a part of doing business. It's not unlike any other cloud software company.
Sure.
We were gonna do this, earlier, but COVID showed up, so we put it on the shelf and, rolled it out starting, you know, four years ago.
Maybe to highlight, like, if a customer was to shut off Blackbaud, like, what would they need to go buy? I know fundraising, but there's 17 different products that you mentioned. For the average customer, what would they actually need to go out and find in the market?
Yeah. If you use, like, a K12 school, we run the whole school. We're the ERP for the school.
Mm-hmm.
We do fundraising, tuition management, and the financials, which is a general ledger. On the school administration side, we do student recruitment, student enrollment, SIS system, grades, a mobile app for the parents. We run the whole school.
Mm-hmm.
If you leave Blackbaud, you have to replace all that software to run your school.
Right. I think there's a lot of the system of record in multiple areas in that-
Yeah, they're all system of record.
So-
Right
... there's a lot of debate right now around AI and what that could do to, you know, app software vendors and a lot of different... You know, given your experience in the industry-
Sure
what do you think about that? Maybe for Blackbaud, like, you know, how is that impacting the nonprofit space?
Yeah. For Blackbaud, we're a vertical software company with systems of record, and the data is not, you know, is not available to large language models because it's inside of our product. Our system of records has customer data and Blackbaud enriched data, so we actually add to the data. Data we create, data we buy, patterns that our software recognizes. Now you have this unique set of data.
Mm-hmm
... on the system, for our customers, whether it's a school or a fundraiser, right? To get access to that data, you need to be inside of the Blackbaud system.
Mm-hmm.
The agents we're building are inside of the system of record. It's not publicly available data. There's a great opportunity for system of record businesses like Blackbaud to use the modern tools like Anthropic Claude, which we use. We have a partnership with Anthropic, Copilot, and other tools to build new software integrated inside of the system of record available to our customers.
It-
That's what we're doing.
Yeah, maybe talk about the partnership with Anthropic a little bit in terms of, like, what you think that could do in terms of the innovation for your customers.
Yeah. We use Anthropic Claude for lots of different things: building products, you know, code generation, building products, internal automation at Blackbaud. It's a great opportunity for us and any software company to automate sort of the operations and the mechanics of software engineering.
Mm-hmm.
It's not just building products. You know, much of the software engineering time in any software company is for your engineers, they don't spend most of their time on innovation. They have to. You know, there's bug remediation, there's maintenance, there's administrative work. If you can eliminate or significantly reduce that, you have a huge opportunity to redeploy folks to innovation or lower your cost or both. We've have a partnership with Anthropic. We made an announcement with them a couple of months ago. They actually approached us because they wanted to make an announcement in the sector that we're in, the nonprofit sector that we're in. We work with them on things that I just described. We also work with other partners like Microsoft and others as well.
How do you see that I mean, do you think that it will just be Anthropic, Microsoft, or do you envision that you're gonna be partnering with multiple LLM vendors? I'm curious how you see that all playing out.
Yeah, we have a few others. There's a product called Devin that we use as well.
Okay.
It's an AI product. which is awesome. We won't have a lot, but there'll be a handful that are a fit for us, and we're trying to make sure we have tools that are not duplicate tools.
Mm-hmm
... that they have a specific purpose for us, you know, within engineering.
Well, Maybe just staying on engineering for a second. As you deploy a lot of these AI initiatives, what is your engineering output or your innovation cadence? Is that a lot faster than it was a couple years ago?
I would say it's early days.
Okay.
Two things. One is all of our engineers use either Copilot or Claude for code generation. Everyone's doing that now. There's a lot of innovation from that. It also A lot of speed of innovation from that. It also requires engineers to take the time to review everything, to make sure it's right.
Sure.
You've got to go through your process. It has to be inside of our cyber stack, right? The code has to be scalable. It has to have, you know, the ability to have disaster recovery capabilities. It's not just writing the code to meet the business specs, right?
Yeah.
It's inside of our system of record, so integrated to the data. There's a lot of work related to that. I think there's going to be a massive increase in productivity for any software company.
Mm-hmm.
For, again, automation, not just code generation, but things like automatically, investigating, fixing and deploying software bugs inside of your products.
In bu-
It'll free up a lot of time for engineers to work on innovation.
It's 'cause there's a lot of debate around AI and what that does for software companies.
Yeah.
The efficiency on the R&D side.
Yeah.
I think there's some concern about the underlying compute. How do you maybe kind of balance the opportunities and the spend as you kind of evolve the AI product moving forward?
Yeah. First of all, again, our products are system of record. The data just sits there. It's not available to large language models. Using AI inside of that data set, which is a moat of data for us, if you will, and we continue to increase that moat because of the value add for the, for the data that we provide, just allows us to the ability to go faster.
Mm-hmm.
You know, inside of those system of records, providing new solutions for our customers, like this Development Agent I just described.
Got it. Maybe just the clicking on some of the verticals. I know you mentioned K through 12. What have you seen in that vertical specifically, and how do we think about the growth opportunity there?
Yeah. That vertical has been tremendous for us. We do really well with the mid-tier and the larger private K through 12 schools. It's just a great growth opportunity for us. It's been a fast grower. We made an acquisition about a decade ago. That was the core SIS for that platform.
Mm-hmm.
Then we're doing very innovative things around it too, like a Common Data Model. Those schools right now, you know, they have a lot of different systems from us, and if they don't have our complete suite, then they have probably 12 vendors in there. Our complete suite is fundraising, tuition, financials, and the school system. They don't have a Common Data Model. We're coming out with a Common Data Model so they can see the data across all of their platforms, from fundraising from parents to students within the schools, then also AI solutions that can look at trends that are happening within the schools as well.
I'd love to maybe understand. Okay, so you mentioned a lot of different vendors. Are there any competitors worth note in the K12 space? Maybe just kind of framing the competitive dynamic more broadly. Has anything changed there?
Yeah. In that space, you know, if it's a fundraising opportunity in the school, we'll have a set of small vendors.
Mm-hmm.
DonorPerfect and a few small private companies. In the school, if it's a competitor for the SIS system, there's one or two small vendors that just have the SIS system.
Mm-hmm.
There isn't a vendor that has the whole, the whole suite, which makes us pretty unique.
Sure
because we integrate these things together, where, you know, if schools don't have an integrated suite from Blackbaud, they have to integrate it themselves.
What about on the payment side? Do you see people wanting to buy, bundle the payments with the software solutions?
Yeah. Our payment solution is bundled as well.
Yeah.
We don't have a competitor that has the SIS system and the fundraising and the tuition and the financials and the payments.
what about-
Those are usually one company for each of those.
Right. you can come in and rip out a lot of different solutions.
Yeah.
What about the competitive dynamic more broadly? We're thinking about nonprofit side outside of K through 12. Anything?
Yeah. There's small private companies. There are small companies that build apps on top of things like Salesforce or Dynamics.
Mm-hmm.
There isn't a company of any size that is a direct competitor to Blackbaud.
Just as you think about your customer base, where are you in kinda the land and expand motion, and what parts of the product portfolio are you really excited about to kinda drive that adoption within the install base?
Yeah. Our sales teams are separated between new logo only and land and expand, or expand, and in each vertical market. I'll just stay with K12. The K12 sales team, they just sell to K12 schools.
Mm-hmm.
Half of them roughly are new logo, half are, you know, back to base sales. Most of our customers have maybe two of our products, so there's an opportunity to sell three, four, or five products to that existing base, and then we're building new products to cross-sell as well.
Maybe just how do we think about the growth from the transactional side of the business? I think it's grown a little bit faster than the contractual-
Yeah
recurring. How do we think about the growth opportunity there?
The transaction business is a little over a third of our total revenue. There's three platforms inside of that business. One is a traditional payments business. It's donation processing. You can think of it as like a PayPal, but it's specific to our markets, integrated with our platforms. Another one is the tuition management.
Mm-hmm.
You know, it's for schools, so it just does tuition processing. The third is a platform over in the U.K. called JustGiving. It's sorta like the GoFundMe of Europe, if you will. Those are the three that make up a little over a third of our revenue. They've historically been growing in the high single digits organically. Lots of room to grow there. It's a volume-based business, so adding new logos to those platforms or picking up new revenue lines. What I mean by that is we may have a fundraising system of record customer that uses our payments platform. They may have five or six revenue lines. We may have one or two of those revenue lines.
Mm.
They could add more, which grows the volume in that business.
Sure.
It's new logos. It's more attachments to existing customers that are not using payments, that are existing customers, and then getting new revenue lines from existing customers.
Yeah. I know we've talked about this in the past, but the share of kind of like online giving, like what is the trend line there, and where do you see that mix going to over the long term?
Yeah. It's in the mid-teens, online giving.
Okay.
online giving is, you know, or giving in the U.S. is massive. It's over $600 billion a year. It grew, almost 6% in 2024. Over $600 billion a year in giving, and a little over 70% of the $600 billion is what I would describe as kinda retail. $50 donation, a $200 donation. That is an opportunity for going online and moving through our payments platform.
What do you think in terms of giving trends that you call out, like, as we've been through macro cycles, I know there's.
Yeah
headlines in the news right now.
Sure.
In terms of the health of the giving, what are you seeing out there in terms of trend lines?
Yeah. Giving in the U.S. has grown at U.S. GDP for over 40 years. It's 2%-4% for 45 years, and that's well studied and published. It's over $600 billion a year now. 70% of it is kinda retail. It's been mostly impacted in last year, where there's less government funding.
Mm-hm coming, you know, coming from governments to nonprofits. We're not in that, in that funding line. You know, our systems are not used for that. Our systems are used for, you know, donations from donors or, you know, tuition management. You know, it's a, it's a big number, and it continues to grow, and it's super healthy.
How would you.
It did well in 2007 and 2008. You know, it did well through COVID.
Mm-hmm.
It's pretty resilient.
How anything you would share that would sound like the health of the customer base is actually pretty strong?
Yeah, it's very strong.
thoughts around that?
The biggest test of our customer base was COVID.
Yeah.
Some of our customers are performing arts centers and museums and schools. We didn't see any customers close. They permanently closed. Museums and performing arts centers shut down. They still did online giving. They got creative on, you know, extending memberships for multi-year memberships as opposed to annual memberships. You know, post-COVID, they all opened back up, became healthy. That was the biggest test.
You talked about some of the growth drivers. Maybe you can unpack some of the margin drivers that are kind of fuel some of that Rule of framework.
We've done a lot, you know, in margin in the last several years. Probably four years ago, our EBITDA was maybe in the low 20s. It's above 35% now. We still think there's really great opportunity there. Just organically growing that, there's opportunities at the gross margin line. Specifically, we have a couple of legacy data centers we're gonna be closing.
Okay.
We've closed several in the last couple of years. We have two more to close. We just stood up a Blackbaud India a little over a year ago. We've moved away from a third-party engineering relationship to direct employees.
Mm-hmm.
There's natural labor arbitrage when you do that. That's growing quite quickly. We have some legacy tech in the operations of our SaaS platforms that will completely go away in the next couple of years.
Okay.
Those will all go toward improving gross margin.
Just maybe why now on some of the international efforts that you're making in terms of switching from the third party to building your own team out there. Curious to get the color behind that.
Yeah, we started the plan that maybe 18 years ago, and it's been live for... 18 months ago.
Okay. I'm just gonna say that.
It's been live for 14 months. 18 years ago. For 14 months. It was just the right time to do it.
Sure.
The engineering team got to be a pretty good size. We saw a great opportunity to stand up a direct office, hire our direct engineers, get away from the markup from the third party. We have other functions going there as well. It'll be a substantial part of our labor base, you know. It already is, but in the next year.
Maybe just lastly on the, on the stock, you guys have bought back a lot of stock.
Yeah.
You know, talk about your capital allocation priorities and what you're gonna do with the cash you generate.
Yeah. We bought a lot of stock in the last couple of years. Even after stock-based compensation, it's a net reduction in shares outstanding. We continue to do that. Buying back our shares is a top priority, from our capital strategy standpoint, and we're paying down debt at the same time as well. Thirdly, potentially tuck in M&A. Those are the priorities.
How much do you have left under the authorization? You've articulated, I believe, some plans for buyback.
Yeah, we have quite a bit left. I think it's about a half a billion left on the authorization.
Okay.
Quite a bit.
The cash flow generation is?
Cash flow is great. Yeah. Our cash flow last year, we finished at $208 million. Midpoint of guide is $285 million this year. Little help from the 5th July bill, in the main, you know, cash flow is very, very strong in the company.
Great.
EPS is going up. You know, our guide this year is mid-teens EPS growth this year. On the last call, we've laid out the next five years, aspirational goals related to organic growth, EPS, and EBITDA.
Great. We'll wrap it there.
Thanks.
Everyone, thanks for listening in.
Thank you.