Executive Vice President of Corporate Development & Strategy, BLACKBAUD INC
Blackbaud (BLKB) CFO On Fundraising & Engagement Solutions
Blackbaud (BLKB) is a cloud computing provider that serves foundations, education, nonprofits, and more. CFO Tony Boor joins ...
About Anthony Boor
Anthony Boor, Executive Vice President and CFO of Blackbaud, has discussed the company’s financial performance and strategic initiatives in several recent interviews. He stated that Blackbaud has approximately 40,000 nonprofit and corporate customers and generates about $1.1 billion in annual revenue. Boor noted that the company is 97% recurring revenue and has shifted from annual to multi-year contracts, which he said has been successful. He reported that Blackbaud improved its rule of 40 metric—a combination of growth and profitability—by 600 to 700 basis points over the prior year and a half, and guided that the company would reach the rule of 40 in the fourth quarter of 2024 and for all of 2025. Boor also mentioned that the company increased prices due to inflation and saw renewal rates improve. Boor has emphasized operational efficiency and consolidation efforts at Blackbaud. He described reducing the company’s portfolio from about 70 solutions to 18 core solutions and cutting the finance and accounting staff by roughly half while the business grew to three times its size. He highlighted that over $100 billion passes through Blackbaud’s platform annually, with about a third of revenue now coming from transactions, a business that largely did not exist 11 years ago. Boor also discussed the importance of soft skills for executives, stating that technically qualified people often fail due to a lack of communication and relationship-building abilities. He reflected on his early career, including running a motorcycle shop in New Mexico, and noted that building relationships and treating customers well drove growth in that business.
Transcript (13 segments)
H
Host0:02
Welcome back to Morning Trade Live, keeping an eye on the market as we lost a little of that early bid, but we're still higher and we're continuing to focus on software companies around earnings this season. Up next, the chief financial officer of Blackbaud joins us. We had a discussion with the CEO of the software business focused on social impact, ESG companies, education, nonprofits, etcetera. Tony Boor joins us, the CFO. BLKB is the ticker. As a reminder, Tony, thanks for being here this morning.
A
Anthony Boor0:35
Great to be here. Good to see you. Appreciate that.
H
Host0:37
Your stock is up 20% since your earnings at the end of October. We've been talking about the sector as a whole. Market seems to be getting more favorable responses to the cloud group. What sets you guys apart with your very distinct customer base?
A
Anthony Boor0:55
Yeah, I think Mike was on it in Q2 and gave a little insight. We've been in the nonprofit social impact space for over 40 years. We have 40,000 plus nonprofit and corporate customers under contract, about $1.1 billion this year in revenue. We make critical solution software and analytic services for the nonprofit space and social impact corporations from a CSR perspective. We found that even through the pandemic, when times have been tough, these nonprofits have needed our solutions even more. So we have a very sticky customer base. We believe the value we add has created tremendous value for our nonprofits and helped them survive turbulent economic times over the last few years.
H
Host1:48
Yeah, in particular, a few moments there where it looked like the economy maybe was heading towards a big rollover. We've managed to kind of skate through and thread the needle still, but how did that change pricing dynamics or contract commitments? If you look at those kind of stats in your business versus maybe a couple of years ago during COVID when there was a lot of liquidity out there and it seemed like spending at any cost was okay, what do those contracts look like? Have they changed at all over the last few years?
A
Anthony Boor2:27
We implemented a new pricing strategy just recently. It actually went into effect a couple of months late last year, but really in March of this year. We've been moving our customer base away from what have historically been annual contracts to multi-year contracts, which align with where the overall software industry has gone. Most vendor agreements I'm signing now as CFO for Blackbaud are three, five, to seven year agreements. We started shifting from single year to three year agreements, and it's been very successful. We've had to increase our prices this year due to inflation, and we've seen a fairly significant price increase that held really well. Renewal rates have actually improved and are running ahead of plan. The mix of contracts shifting from one year to multi-year is also running ahead of plan. So the vast majority of customers are shifting to these three year multiyear agreements, which is really positive for our outlook for predictability and certainty of that revenue in the future.
H
Host3:34
Okay Tony, what right now is the main factor that remains uncertain or what's the unknown that determines customers' commitment right now? Is that the inflation background from a macro perspective, or is there less money flowing through the nonprofit channels? Are people giving less? Can you give us a sense on what that outlook looks like?
A
Anthony Boor4:08
Absolutely. Giving was down slightly last year. During the pandemic, interestingly, some nonprofits struggled because they were shut down entirely, like museums and zoos. But many found ways to survive as supporters and donors came out in droves to help them stay open. So fewer went out of business than expected. Then there were surges in giving to food banks and other organizations helping those in need, which actually caused a surge in overall giving in the US. We saw overall giving exceed $500 billion for the first time ever. It was down just a little bit overall in the US last year, but it's still a tremendous opportunity for us and our customers. The key on our side is our diversity. We sell into a broad set of customers across higher ed institutions, private K-12 schools, normal charities and nonprofits, as well as Fortune 500 corporations for corporate social responsibility. That diversification really helps. And our systems are systems of record, so customers need these solutions to be successful in raising money, doing financials, grantmaking, etc. Because they are core critical systems, we didn't see a real negative impact. They couldn't afford to be without our solutions. So we fared really well through the tough economic cycles.
H
Host5:44
One of the things that really stood out in our conversation with Mike was that almost all of your revenue is annual recurring revenue, which is what investors prefer in software companies. A lot of software companies are constantly trying to shift their revenue streams to recurring revenue. The consistency also seems to make its way to the bottom line. In a sector with a lot of unprofitability, you guys are GAAP profitable and even more profitable on an adjusted basis. It seems like you've been comfortably profitable for a very long time. The growth side maybe isn't as bullish as some super disruptive tech, but it's consistent. So tell me about that. What expectations for top line do you guys have?
A
Anthony Boor6:35
Yeah, you hit that one right on the head. We're 97% recurring revenue now. We've had a bit of a drag on our growth for the last several years as we've strategically focused on getting out of one-time services businesses and moving to SaaS offerings, which requires less customization. That's been a big focus over the 12 years I've been here. The services line has shrunk by about one and a half to two points as a drag on overall growth, but we see that bottoming out sometime in the next year, so that will be a growth driver. We've been historically running at a low single-digit growth rate, but we've done a lot strategically on the growth front, and you saw this year with our Q3 earnings a nice improvement. Low single digits, kind of mid-single digits is what we're guiding for the year. For 2024 and beyond, we're guiding to high single-digit growth. I think we have the opportunity to potentially crack low double digits if things line up well and our strategic initiatives continue to perform. One key driver will be how giving goes for the end of the year. About 36% of all giving in the US happens in Q4, with 20% in December alone. We just had Giving Tuesday this week, and we rang the closing bell at Nasdaq on Monday to kick off Giving Tuesday, which we co-founded. So we're keeping an eye on that transactional revenue and how it trends through the rest of the year, which is a big piece of the total year of giving.
H
Host8:18
That's great info. Appreciate that. It seems like right now, if people are giving as much as they're spending, you guys might be in pretty good shape. Good timing from the charitable side given the surprising strength of the economy and what we saw post-Thanksgiving retail indications. Tony, thanks for the analysis and the outlook on the company. We appreciate the details.
A
Anthony Boor8:42
Appreciate it. Great talking to you.
H
Host8:45
Likewise. Tony Boor, CFO at Blackbaud. BLKB having a good year, pretty close to breakout potential on the charts too, so we'll be keeping an eye on it.