Hello, everyone. My name is Zach Canter. I'm a Managing Director in the technology investment banking group at JP Morgan, and I'm very pleased to be joined this afternoon by Mike Gianoni, CEO of Blackbaud, the leading technology platform to the nonprofit and social impact sector. To start, Mike, can you provide an overview of Blackbaud's business and the social impact sector that you serve?
Yeah, sure. We're a cloud software business. We serve several different end markets, nonprofits, foundations, community foundations within universities, within hospitals and hospital systems. We serve education market, K-12 schools. We also serve performing arts centers, arts and cultural institutions, museums. We have a platform for companies that we provide to large companies globally for volunteering and matching gift processing. In Europe, we have a consumer-facing platform called JustGiving.
Great. How do you think about sizing up that market? How do you think about sort of the TAM around social impact and the not-for-profit industry that you guys serve?
Yeah. We have the TAM pegged at $10 billion in our IR deck. We kind of break it down by sector, we also show our penetration in each of the sectors as we break it down. It's basically the addressable serviceable market that we serve in those end markets that I just described.
Great. Can you maybe go into a little bit more detail about sort of what are the most important products and solutions within the Blackbaud portfolio that your customers are focused on?
Yeah, sure. We have fundraising platforms for all those markets I described except the company or corporate market. Fundraising platforms. We have a financial platform, essentially a general ledger, accounts payable, accounts receivable, fixed assets, specifically built for the accounting nuances of nonprofits and foundations. We have a full ERP platform for K-12 schools. In those schools, we run the entirety of the school from student recruitment, student enrollment, classroom scheduling, student information system. We have a mobile app for the parents. We do tuition processing, fundraising, and financials for the schools. We really cover a lot of what the schools do. We have a platform for performing arts centers that does fundraising, membership management, ticket sales. They all sell tickets. We have a platform for companies called YourCause.
We have a lot of Fortune 500 companies as customers. That platform, once implemented, will get integrated to the HRIS system and the payroll system, and it's used for all the employees will be registered on the platform. It's used for employees for coordinating volunteering with nonprofits, either individually or within groups. It could be virtual volunteering or in-person amongst all the employees. It's also used for them to make donations to nonprofits all over the world and for their corporate matching gift programs as well, and we distribute the funds to the end recipient nonprofits as well.
Can you talk a little bit about the competitive landscape for Blackbaud? Who do you typically see most often out there when you're selling products into the market?
Yeah, sure. With all of those product sectors and those vertical markets, our competition are small, private, usually founder-led, software companies, and they're kind of single point solutions. Like, all that I described in that K-12 platform, if a K-12 school doesn't use us, they probably have five or 10 separate vendors, unintegrated. That really is the whole of the marketplace. Standalone, private, mostly founder-led, software companies.
To what extent do you see horizontal solutions providers trying to sell into your market?
Yeah.
Like a Salesforce?
Yeah, we see them. Some of those small software companies build apps that go on top of Salesforce or Microsoft Dynamics, less so. We see them. We compete with sort of the Salesforce and their ecosystem a little bit, but not in all of our markets. Most of our markets, we don't have a competitor like a Salesforce. They're not in performing arts and K-12 schools, religious organizations. They're not in any of those. The corporate market we're in, they don't have a platform there. We see them occasionally in higher ed, but mostly they're in a different part of the higher ed institution. We're in the foundation-
Yeah.
Because that's our specialty, and they're usually sort of somewhere else in the, in the school.
How do you think about or how do you define, like, the key competitive differentiators for Blackbaud? What are the factors that drive, aside from breadth, because clearly there's tremendous breadth across the social impact space. What do you think are the key factors that drive customers to choose Blackbaud over other alternative solutions in the market?
Yeah. We've been in the space a long time, and, you know, we're a vertical software provider, so our solutions are very, very deep in the data needed for these solutions. These are all system of records, so the data is not available to large language models because it's inside of our products. We enrich the data with our own data that we create, which are trends across the industry, we enrich the customer's data. Very deep workflows, deeply integrated, and purposely built, you know, for the markets that we serve. Because of our portfolio, when you have multiple solutions and they're integrated together, that also provides a different sort of competitive moat against the competition. Most of the competition will have one of those platforms.
For example, our fundraising solutions, we don't have a competitor that has a financial platform or that has a payments platform. They have one of those things, not all of them, and we integrate them all together.
What are the benefits to a customer that uses sort of the integrated solution versus using multiple point solutions and trying to stitch them together?
Well, it automates a lot of their workflow. If you have a fundraising solution, which is your revenue generation platform integrated with financials and payments, you could do things like automated account reconciliation. If you don't have that from one vendor, it's manual, you have to make sure you can move the data between multiple vendors, right? The fundraising platform is collecting your revenue, you have to get into your general ledger, you've got to reconcile with banks. It's not all connected together like our solutions are. What we've done is we've done things like create common data models that sit on top of those, the executives within our customer base have dashboards that look across multiple departments and multiple systems of record that aggregated into one.
If you have multiple vendors, you either build that yourself, which nonprofits typically don't do.
Yeah.
You're the systems integrator.
Yeah.
The customer.
A moment ago you mentioned large language models, which is a nice segue to everyone's favorite topic around AI. Can you talk a little bit about Blackbaud's AI strategy?
Yeah, sure. We've been building machine learning and predictive analytics in our solutions for over a decade. We have, in the last two years, put a lot of AI capabilities in many of our solutions in the last two years, and we just came out with our first fully agentic product. It's been in the market for six weeks. It's a fully agentic fundraiser, so it raises money. From a, from a, from a system makeup standpoint, I just did a position paper on this that got picked up by Forbes Digital yesterday, and I'll give you kind of the summary of it. Because we're a system of record, first of all, again, the data is not available to large language models. It's inside the system.
It's the customer's data and the data we enrich. That's sort of one layer of what I would describe as a moat. Another layer is all the contextual information and predictive analytics and things that we can do that make our systems of record as systems of intelligence. They know the workflows, they know how our customers run and what the automation is, right? On top of that, there are specific workflows by job type, by role base, and by customer type inside of the system. You have all of that, which is proprietary, with unique data and trends that we collect industry-wide, in which we enrich each customer's database with. That's all quite unique.
Of course, you know, we're using Anthropic Claude and Devin and other tools to advance our roadmaps and build new products as well. We've become an AI development shop, you know, in the last two years also. I think we're in a pretty good spot related to that. On top of that, we have transaction systems too, that are embedded in our system of record. Think about like a donation processing system, you know, akin to like a PayPal, but it's ours, and it's embedded inside of our system of record. You've got all that transaction data, credit card data that's, you know, data from donors that are inside the systems of record. On top of that, in some cases, we've built a network effect.
That platform that we sell to corporations that does donation processing, matching gifts, and volunteering, last summer, we connected that platform through our payments rails to our fundraising platforms. It's unique in the world, there's no company except Blackbaud that has all three of those pieces. There are folks we compete with that have one of those. We connected all that. Today, using our platform for companies, it's called YourCause, you know, a lot of Fortune 500 companies, an employee makes a donation, the nonprofit gets the funds 24 to 48 hours later. The competition, two to four months later, do the funds arrive because it's all connected.
On the nonprofit side, a prospective customer looking at Blackbaud for fundraising, you know, we have to win on the merits of our software, but a value add is you join what we call the Blackbaud Verified Network. That nonprofit is now in a network connected to millions of employees in companies that become their volunteers and their donors, and they can get sort of posted on an employee internal system to promote their nonprofit. It's a sort of a two-sided closed network.
Yeah, that sounds really exciting. As it pertains to AI, are you getting a lot of pull from your customers that are saying, "Hey, Mike, we'd really like it if you could build out this type of functionality for us?" Or is it more your product roadmap, what you're thinking that, you know, they might like to have good functionality? How are you sort of product roadmapping out?
It's a little bit of both. You know, a lot of times a customer, unless you're deep into the technology, you don't know what is the art of possible, right? They can describe the business problem, but they can't describe how something like AI might address it. That's where we come in. It's a pretty big mix. We have customers from, you know, the animal shelter around the corner from your house to the largest universities in the world and largest hospital systems in the world. They're a little bit different related to their ability to describe their business problems, their understanding of technology. It's a little bit different. We do have in each of our sectors, we have customer advisory groups that we collaborate with. There's a group of them in K-12, universities, hospitals, large nonprofits.
That is a ongoing collaborative effort around the advancement of the roadmaps within our existing solutions, of which we're pulling forward quite a bit because of the use of AI, which is awesome. Also around what business problems they have and how we might be able to solve those through new solutions. We're launching new AI solutions. We're using AI, and we're building agentic AI products.
Could you maybe talk a little bit about just sort of the overall market backdrop for nonprofits today? Where are they at? you know, the impact of sort of federal regulatory.
Sure.
That overlay.
Yeah. You know, I'll just talk about the U.S., but we're a global company. The U.S. market is a massive market. It's the third-largest employer as a sector in the country. Donations cross $600 billion a year in donations. It grew 6% in 2024. There's a report that comes out every June from Giving USA that kind of breaks down the sector. $600 billion. For the last 45 years, it's pretty much tracked U.S. GDP. You know, it went a little flat in 2007 and 2008. Slowed down a little bit during COVID. Massive sector as far as donations. There's about 1.8 million registered nonprofits in the U.S. Most of them are too small for us as an addressable market. The sort of mid-tier and larger.
Some of the dynamics that have changed in, you know, in the last 18 months or so, less federal funding. We're not in the, in the funds flow of that. Blackbaud isn't. If you look at a large nonprofit, they might have, you know, seven or eight revenue lines. We're in the fundraising. Our software's in the fundraising, major gifts, events, side of the business. The federal funds are inbound grants, and if those have been lessened or gone away, it frankly makes our platform a higher percentage of their revenue.
Yeah.
We actually become more important to them. It hasn't had an impact in a way that it has caused nonprofits to close. They might have had to pull back a little bit on their spend or their, you know, their operations. The sector is large. It's growing. It's resilient. The biggest test of the sector was COVID. Our K-12 schools are thousands of K-12 schools. They shut down on a Friday. On a Monday, the kids are in school at home.
Yeah.
They are using our platform to run the school, and but the kids are in school.
Yeah.
There was a lot of schools that weren't using our platform that couldn't run that way. They're out of business. Also, institutions like museums and performing art centers and zoos closed during COVID. We helped them pivot to digital online fundraising. We made some changes to membership management. We didn't have any customers go out of business during COVID. That was the ultimate test to the sector. They all survived. It's pretty amazing.
Remarkable.
We didn't know what was gonna happen, right?
Yeah.
Yeah.
No kidding. You mentioned the focus on the customer demographics, sort of mid-market to large enterprise within the nonprofit space. How do you think about the longer tail of smaller nonprofits?
You know, there are tens of thousands that start up every year.
Yeah.
They're really small.
Yeah.
You know, maybe no employees, maybe one. You know, to get big is pretty hard to do. Some of them emerge and get big. Again, like I said, it, you know, our customers have been around for a really long time. It's a massive marketplace. They have a lot of needs because turnover is fairly high. Like, if you're a fundraiser, 24 months is a turnover.
Yeah.
24 months. You can equate that to a salesperson in a software company, right? You hire a salesperson, you know, it takes five, six months to kind of get going, gotta build a pipeline, gotta build relationships. If you stay for several years, you can really do well. Well, fundraisers build relationships with donors, and they turn a lot. Easy-to-use, mobile-first, intuitive software with embedded AI is really important.
Yeah.
For the customers.
Sure.
Yeah.
I think the Blackbaud's revenue mix today is roughly 85% U.S., remainder is rest of the world.
Correct.
How do you think about opportunities to grow the business outside of the United States?
Yeah. It's interesting because like many software companies, you can't just go anywhere geographically.
Yeah.
The regulatory environment's different. The regulatory environment for the types of institutions you sell to or the payments environment is completely different.
Yeah.
We're predominantly in countries where there are nonprofits and foundations. Some of them don't have any of those, right. We have opportunities to grow our footprint in areas like the K-12 space. Most of our customers are U.S.-based. There's an opportunity to grow more internationally with our K-12 platform. We are the leading provider in K-12. A lot of our schools do have some international arms, if you will. Also in the corporate space, our YourCause platform is really going global. We had a big customer conference in Nashville for that platform. We had 300 companies there. Over 100 are Fortune 500. We're having one of those in London in a month as well. A lot of our customers are global customers, and that platform has done really well.
In the last six or eight months, you know, we've closed new customers on that platform like Eli Lilly, Tyson Foods, PwC, Berkshire Hathaway, ServiceNow, the Nasdaq, and others on that platform, all new logos. That has a big opportunity to go global. We've been setting up the operations so that we can distribute the funds globally as well, which is important. There's a lot of big companies that have employees donating to global nonprofits. They can't get them the money.
We've got this global network. We've got over 100,000 certified nonprofits that are able to receive funds from us, and that grows all the time. We kind of bring that network in addition to the software.
Is the major hurdle to penetrating the continental European markets the money movement rails or it's the markets themselves are less attractive, or how do you think about that?
Yeah, the markets are all different, so every country in Europe is a little bit different related to how many nonprofits, how many foundations, what's their role in society, in the market. We travel well with global universities because most of them have foundations, so that's a really good spot for us. We also have a platform that's very substantial in Europe called JustGiving. It's a consumer-facing platform. Over 20 million people use it a year, and it's the biggest platform over there for individuals creating events and then for major events like the London Marathon and other big events are on that platform.
Cool. Maybe we can shift gears a little bit and talk about Blackbaud's financial profile. Can you just walk us through sort of high level how we should think about the financials of the business?
Yeah. We just, you know, we just announced our quarter and our year last year. We had a great year last year. We crossed the Rule of 40 for the first time ever, which is our combined organic revenue growth and EBITDA. We laid out plans for the next several years about how we're gonna get to Rule of 45. If you think about us in the next several years as mid-single-digit organic revenue growth with some potential upside because these new AI products that we're building and taking to market are not factored in. They're too new to factor them in. Mid-single-digit organic revenue growth, high single-digit EBITDA growth, mid double-digit EPS growth, so 13% or higher EPS growth, and really strong cash flow performance. Cash flow for us last year was $208 million.
Midpoint of guide this year is $285 million. Really good cash flow performance. Debt to EBITDA is about 2x.
Can you talk a little bit about the underlying drivers of your growth projections in the coming years?
Yeah. A third of our revenue is transaction processing. We have three platforms that make up a third of our revenue. That's donation processing. You think about that as, you know, a couple of points of volume in donations, the JustGiving platform, and then tuition management for schools. Those three combined, a little over 1/3 of our revenue. They grow in the higher single digits organically. The rest of the business, 70% of the business is all cloud software contracts. Our customers have either three-year or longer contracts. We just crossed over more than 20% of our customers have four-year or longer contracts. Combined, you know, those two major parts of the revenue lines, if you will, grow at sort of mid-single digits. You know, over the last decade, we've pretty much grown mid-single digits.
Slowed down a little bit during COVID, if you will. Couple of years we grew in total revenue double digits because we made some acquisitions. If you normalize those out, pretty much mid-single digits. We've come a really long way in margin, EBITDA, and cash flow in the last three or four years.
As a newly minted Rule of 40 company, how do you think about balancing organic revenue growth with continuing to drive margin expansion? How do you think about the trade-offs?
Yeah. It's a healthy forced balance. I think that metric is a really healthy forced balance. I trade faster growth anytime. It's a balance. We're in the, you know, the new world of AI related to not just building new products, pulling roadmaps forward of our current solutions, which we are doing, building AI products that are built with AI, and then the potential impact of AI on internal automation, I think is a tremendous opportunity for Blackbaud, and we're not even there yet. The numbers I just described in the next couple of years don't have AI-influenced products on the top line and don't have AI-influenced productivity. We've come a long way in productivity. You know, I've been with the company, you know, over a decade.
We're triple our size after about a dozen acquisitions. We're triple our size in revenue, and we have about the same headcount. We bought 12 companies. We've done a pretty good job from a productivity standpoint. None of that is yet AI influenced. I think it's a wonderful future opportunity.
You mentioned that the AI products that you're now in market with are not currently factored into your growth expectations. How do you set a bar for yourself? How do you measure success? Or what would success look like with the AI products for your company?
Yeah. This year, we announced back in the fall at our customer conference a new category of products that we've never had before because we serve the social sector, we call them Agents for Good. I like the name. We announced the first product in general availability six weeks ago, and it's a development agent. It's a fundraiser, fully agentic, fundraiser that's embedded in our system of record. A measure of success would be that that grows nicely. It's brand new, also that we get to the fall and the end of the year where we've announced more products in early adopter and in general availability because we said we're gonna have a catalog of many new fully agentic products. We're on the path to do that. You'll see some more announcements coming in the summer months and in the fall.
Products that we've never had before and the market's not seen before.
When you say, fully agentic fundraiser, can you just go into a little more detail? What does that mean exactly?
I'll use an example. One of the universities we're working with has 190,000 alumni. They have our software. They have a group of fundraisers that use our software to prepare to reach out to potential donors, right? They can only get access or have enough scale to go after 7,000 or 8,000 of the 190,000. It's just you can't hire enough people
Yeah.
To go after that many folks. You can't hire someone to be a fundraiser and raise $50 either across tens of thousands of people. A fully agentic development agent can do that. Let's take that a step further. Imagine we're working together and you're a fundraiser and there's a group of you and I'm your boss, and I give you 500 potential alumni, and you do your work on Blackbaud software. You get prepared, you start to build relationships, and you're raising money.
Yeah.
Right? My next hire is this development agent from Blackbaud. It's in my system because I have the management screens. I get this agent, I give this agent 500 potential donors.
Is he a calling agent?
Yeah.
Okay.
SMS, email, and a full avatar. He could look like you, me. If you're an animal shelter, it could be a talking dog.
Yeah.
Whatever the customer wants. It learns. It uses all our data in the system, uses our predictive analytics, it uses our wealth screening. Does the profile work that you would do, probably does it a little bit faster than you would do it. Then it starts to build relationships and reach out to 500 potential donors. Now, before it does that, I check its work, I check the email, I check the SMS text. I don't just let it go. I could just let it go. I have controls over it. Then it just goes to work. It can do everything from generate a lead.
If the potential donor is having a conversation where they might donate $5,000, and by the way, the donor knows it's an agent, the agent could say, "Well, I'd like for you to talk to one of our" And it passes it over to you, and then it gets to a human, or it can close the full transaction. Because it's inside of our system of record, using our payments rails, the transaction's closed. So think about my university example, where you would never have a person call the 10,000 students that just graduated.
Yeah.
They don't have any money, right? But in agent, you know what happens? Is they wait 20 years.
Yeah.
They call you to try to get you to donate some money. Well, you've lost your affinity.
Yeah.
If you're living on campus for four years and you just got out and you got a new job, our systems know all that about you. They know that you're on campus, you're a finance major, you played in the band, you stayed in dorm A, you went to the football games, and you got a financial analyst job at Blackbaud. I can build that relationship with you as an agent and ask you to donate $5 a month. The biggest thing that you wanna do in fundraising is you wanna get a sustainer donor, someone that donates all the time, every single month, right?
Yeah.
You can get a student to donate $5 a month and wait 15 years to ask for the $5,000, but you lose them. You lose the affinity. That model applies to animal shelters, religious organizations, performing arts centers. We're positioning this solution as get scale and drive revenue. There's a big education going on related to that. Some of our customers are like, "Wait a second, that's my job."
Yeah.
Some of them, the boards are saying, "You gotta get AI solutions in this business." It's kinda all over the map. You have one of these that's never been built, never been sold, and never been used.
Yeah.
We're five months into this thing, but we think there's tremendous upside, you know, to products like that. We'll have more products coming out like that.
How do you price a product like that to your customers?
Yeah. First of all, we have no seat-based pricing. Seat-based pricing freaks people out because of AI. I get it. All of our products, so 1/3 of our business is transactions. That's a sort of a percentage of total transaction type model. The cloud solutions are a fixed fee per year with annual increases. This product is a particular fee. Think of it as $25 ,000 or $30,000 a year. That's the product cost. The ROI is how much does it raise?
Yeah.
Right? We thought about consumption models. We thought about percentage of donations raised models. We decided not. We could flip to that anytime. We decided to come out with a pricing model that is like all of our other pricing models. Our customers want predictability. They don't wanna sign up for a product that costs $10,000 and all of a sudden it's $100,000, right? They need to plan their year. This is the model we're out with. The one thing we did unique here too, is we went into the early adopter program in the fall, and the first time we've ever done this with a brand new product is for the early adopters, they had to sign a contract and pay for the product even though they're an early adopter.
Yeah.
We went through all that, and it went to general availability about six weeks ago.
Six weeks is a short period of time, but can you comment on what the receptivity has been like so far from customers?
Yeah. It's interesting. We're doing webinars with hundreds and hundreds of existing customers. We're signing up customers every week. It's great to see that it's not just one sector. We've got customers in higher ed, hospitals, K-12 schools, and nonprofits all signing up. They're, you know, they're all kind of coming up the journey of how does this work, how does it learn, how do I control it, you know. We've got an outreach program and a handholding program to get people accustomed to using a product like this. It's brand new for them.
Yeah.
It's early days.
Maybe shifting gears a little bit, can you talk a little bit about Blackbaud's capital allocation strategy? How you think about investing in the business versus M&A versus returning cash to shareholders, buying back stock, et cetera?
Sure. Excuse me. I choked up, not on the question. Yeah, it's pretty straightforward actually. Our top priority is share buyback, especially now. We've been doing share buybacks for a while. We've got bigger doing more aggressive buybacks about two years ago. The interesting thing is, you know, we're focused on net share reduction, not just stock-based comp coverage.
We've had a pretty good net share reduction in the last couple of years. We've gone from about 52 million outstanding shares to about 47 million, roughly. It's an actual reduction. That's the top priority. Secondly, there's opportunities for continued tuck-in M&A. You know, everyone's valuations have gone down, even private companies. I think there's opportunities out there for kinda near adjacency, you know, AI Aware, AI first tuck-in M&A. We've got 400 software companies in our partner program. Some of those might look like interesting opportunities. We just made an investment that we announced about a month ago in a company that has a student information system for the administrative side of running universities. Our student information system is just in K-12. We sell to universities.
We sell tuition management, financials, and fundraising, and our K-12 platform is not applicable for universities, so we invested in this startup. These guys have done this before. They built an SIS system for universities. We took a equity interest in it, not a big one. We have first right of refusal to buy the company if we want to, so that may end up in an acquisition or not. It's a different go-to-market motion for us with a partner that we have an interest in now as well. Capital allocation is really pretty aggressive on buybacks, maybe some tuck-in M&A. We've reduced debt a little bit along the way in the last 18 months as well. Like I said, we're about 2.1x, you know, debt to EBITDA right now as well.
On the topic of M&A, I think something which is sort of salient is the concept of build versus buy.
Yeah.
The barriers to build stuff feel like they've come down with Claude and other agentic tools. How do you think about building something organically versus looking to do a tuck-in acquisition to maybe fill in a product gap?
Yeah. It really depends on the fit of the product and the relationship to our core system of record. You know, we can build a lot faster and integrate to our system of record. Our competitive advantage is to integrate to our system of record, right? Like, put agentic AI solutions in there, integrate payments in there, which we've done. We can go a lot faster with a deep integration. If it's a category change, it's probably an acquisition.
Yeah.
You know.
I'm mindful that we're at time. Is there anything that I missed that you'd like to cover here in the short time we have left?
Yeah. I just think that, you know, in today's market, every software company is broad-brushed like everybody else, and not all software companies are the same. I think someone like Blackbaud that has a deep data moat and a contextual workflow logic moat and customers under contract with transaction engines putting AI in that platform, I think it's a pretty protected environment, so.
Great.
Thank you.
Thank you very much.