Blackbaud
Investor Presentation
TICKER: BLKB
July 29, 2020
Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this presentation consist of, among other things, statements regarding future operating results, all of which are based on current expectations, estimates, and forecasts, and the beliefs and assumptions of the Company's management. Words such as "expects," "anticipates," "aims," "projects," "intends," "plans," "likely," "will," "should," "believes," "estimates," "seeks," variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that could cause actual results to differ materially from the Company's expectations expressed in this presentation include: expectations for continuing to successfully execute the Company's growth and operational improvement strategies; expectations of future growth in the social good software solutions market, segments within that market and the Company's total addressable market; expectations that achieving the Company's goals will extend its competitive advantage and provide improved product quality and innovative solutions for its customers; expectations that centers of excellence and use of best-of-breed platforms will drive increasing operating efficiency and contribute to margin improvement; expectations that the Company's financial position provides flexibility to fuel future growth through acquisitions or other opportunities; expectations that past acquisitions have expanded the Company's customer and market opportunities; risks associated with unfavorable media coverage; risks associated with acquisitions; risks inherent in the expansion of our international operations; risks related to the United Kingdom's departure from the European Union; the possibility of reduced growth or amount of charitable giving; uncertainty regarding increased business and renewals from existing customers; risks associated with implementation of software products; the ability to attract and retain key personnel; risks related to the Company's leverage, credit facility, dividend policy and share repurchase program; lengthy sales and implementation cycles; technological changes that make the Company's products and services less competitive; risk related to the adequacy of our data security procedures; the implementation of our new global enterprise resource planning system; uncertainty regarding the COVID-19 disruption and the other risk factors set forth from time to time in the Company's SEC filings. Factors that could cause or contribute to such differences include, but are not limited to, those summarized under Risk Factors in the Company's most recent annual report on Form 10-K, and any quarterly reports on Forms 10-Q thereafter, copies of which are available free of charge at the SEC's website at www.sec.govor upon request from the Company's investor relations department. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent the Company's beliefs and assumptions only as of the date of this presentation. Except as required by law, the Company does not intend, and undertakes no obligation, to revise or update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Trademark Usage
All Blackbaud product names appearing herein are trademarks or registered trademarks of Blackbaud, Inc. This presentation contains trade names, trademarks and service marks of other companies. The Company does not intend its use or display of other parties' trade names, trademarks and service marks to imply a relationship with, or endorsement or sponsorship of, these other parties.
2
Historical Financials and Non-GAAP Financial Measures
Use of Non-GAAPFinancial Measures: The Company has provided in this presentation financial information that has not been prepared in accordance with GAAP. The Company uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating the Company's ongoing operational performance. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial results from period to period with other companies in the Company's industry, many of which present similar non-GAAP financial measures to investors. These non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. The Company believes that these non-GAAP financial measures reflect the Company's ongoing business in a manner that allows for meaningful period-to-period comparison and analysis of trends in the Company's business. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.
Blackbaud discusses non-GAAP organic revenue growth measures, including non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth, which Blackbaud believes provide useful information for evaluating the periodic growth of its business as well as growth on a consistent basis. Each measure of non-GAAP organic revenue growth excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, if any, each measure of non-GAAP organic revenue growth reflects presentation of full year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, and it includes the current period non-GAAP revenue attributable to those companies, as if there were no acquisition- related write-downs of acquired deferred revenue to fair value as required by GAAP. In addition, each measure of non-GAAP organic revenue growth excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is intended to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. Blackbaud believes this presentation provides a more comparable representation of our current business' organic revenue growth and revenue run-rate. In these materials, Blackbaud is presenting the following unaudited information: historical recurring and total revenue for the three and six month periods ended June 30, 2020, for the fiscal year ended December 31, 2019 and the interim periods therein; calculations for recurring revenue growth and total revenue growth for the six month period ended June 30, 2020 and the interim periods therein; and calculations of non-GAAP organic recurring revenue growth, non-GAAP organic revenue growth and non-GAAP organic revenue growth on a constant currency basis for the same periods.
Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.
Historical Financial Statements Being Presented: In these materials, Blackbaud is presenting the following unaudited historical financial information: historical consolidated balance sheets as of the fiscal year ended December 31, 2019 and interim consolidated balance sheets for each of the quarters within fiscal 2020 and 2019; historical consolidated statements of comprehensive income for the fiscal year ended December 31, 2019 and interim consolidated statements of comprehensive income for each of the quarters within fiscal 2020 and 2019; historical consolidated statements of cash flows for the fiscal year ended December 31, 2019 and interim consolidated statements of cash flows for each of the interim year-to-date periods within fiscal 2020 and 2019; and historical non-GAAP financial information for the fiscal year ended December 31, 2019 and for each of the quarters within fiscal 2020 and 2019 as well as reconciliations of the non-GAAP measures to their most directly comparable GAAP measures and related non-GAAP adjustments. Blackbaud is providing this unaudited financial information to allow investors and analysts to more easily access and review the Company's historical consolidated financial data by including such information in one document. In order to provide comparability between periods presented, certain previously reported historical financial information has been reclassified to conform to the presentation of the most recent reporting period, which is discussed in more detail with that information. In addition, certain of the unaudited historical financial statements have been adjusted for the effects of recently adopted accounting pronouncements, which are discussed in more detail with that information.
Reconciliation of GAAP to Non-GAAPFinancial Measures: Reconciliations of the most directly comparable GAAP measures to non-GAAP financial measures and related adjustments, as well as details of Blackbaud's methodology for calculating non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth can be found in the Appendix to these materials and on the "Investor Relations" page of the Company's website.
Blackbaud has not reconciled forward-lookingnon-GAAP financial measures contained in this investor material to their most directly comparable GAAP measures. Such reconciliations would require unreasonable efforts at this time to estimate and quantify with a reasonable degree of certainty various necessary GAAP components, including for example those related to compensation, acquisition transactions and integration, tax items or others that may arise. These components and other factors could materially impact the amount of the future directly comparable GAAP measures, which may differ significantly from their non-GAAP counterparts.
3
Key Messages
The leader in | Highly | Executing a |
a large and | differentiated from | clear four-point |
growing market | the competition | growth strategy |
4
01
Our Markets
5
Social good is a significant global sector
ARTS AND CULTURAL | HIGHER EDUCATION |
ORGANIZATIONS | INSTITUTIONS |
COMPANIES | INDIVIDUAL |
FAITH | CHANGE AGENTS |
COMMUNITIES | K-12 SCHOOLS |
FOUNDATIONS | NONPROFITS |
HEALTHCARE | |
ORGANIZATIONS |
6
Blackbaud is the world's leading cloud
software company powering social good
$100B+ | Millions | 80% | 1 out of 3 |
raised, granted, and | of users across | of the most | Fortune 500 |
invested in their | 100+ countries1 | influential | companies3 |
programming by our | nonprofits2 | ||
customers each year1 |
30 of 32 | 93% | 25 | 150+ |
largest nonprofit | of higher education | of the largest | experts dedicated |
hospitals4 | institutions with | Catholic Dioceses | to arts and cultural |
billion-dollar | in the US1 | organizations1 | |
campaigns5 |
- PROVEN LEADER
Among the Top 30 | ||
Largest Cloud Software | Nonprofit CRM | Nonprofit Financial |
Providers Worldwide, | ||
Solution | Accounting Solution | |
2019 | ||
Source: (1) Internal Statistics, (2) Top 50 listed by The Street.com featured by MSN, (3) Fortune 500, (4) Becker's Hospital Review, (5) Council for Advancement and Support of Education
7
Driving significant value for our customers
$10M | +335% |
in contribution revenue | Marshfield Clinic Health System |
in first 30 days post-implementation | exceeded their fundraising goal for |
for Fellowship of Christian Athletes | their ALS Steps for Hope event |
$3.5M | 100% | 2 weeks | +513% |
raised by Brown University | participation in employee | saved off month-end | growth in |
in 24 hours, a 63% increase | volunteering program | close process for | sustaining donor |
in year over year fundraising | achieved by Berkshire Bank | Acero Schools in Chicago | program for San Diego |
on #GivingTuesday | Humane Society |
Sourced from Blackbaud customer stories
8
Substantial TAM with significant penetration opportunity
$10B+ | <10% |
2020 TAM | Revenue Penetration |
Fundraising, Relationship | Payment Services | Financial Management, Grant | Organizational and Program | Social Responsibility |
Management and Engagement | and Award Management | Management |
$3B+ | $3B+ | $1.5B+ | $1.5B+ | $1.0B |
<20% Penetrated | <10% Penetrated | <10% Penetrated | <10% Penetrated | <5% Penetrated |
Sources: FY 2019 Blackbaud Revenue. TAM based on IRS data, Canadian Revenue Agency, Private School Universe, IPEDS, Dun & Bradstreet, HIMSS, Guidestar, Blackbaud internal data
9
Opportunity for growth extends across vertical markets
$10B+ | <10% |
2020 TAM | Revenue Penetration |
Revenue Penetration by Vertical
$3.5B+ TAM | Each vertical represents $1.5B+ TAM | Each vertical represents $0.5B - $1B TAM |
Faith- | K-12 | Higher |
based | Schools | Education |
<5% | <15% | <20% |
Nonprofits | Companies & | Healthcare | Arts & |
Cultural | |||
<10% | Foundations | <15% | |
<10% | |||
<5% | |||
Sources: FY 2019 Blackbaud Revenue. TAM based on IRS data, Canadian Revenue Agency, Private School Universe, IPEDS, Dun & Bradstreet, HIMSS, Guidestar, Blackbaud internal data
10
02
Key Differentiators
11
The market's most comprehensive solutions for social good
Blackbaud is the largest cloud software vendor focused exclusively on the social good community1
Only Blackbaud offers a full portfolio of purpose-built,integrated solutions
Highly fragmented competition offers single-pointsolutions
Large customer base
with 92% customer retention
Strong balance sheet and cash flows to support strategic
acquisitions and internal product development
Fundraising & | Marketing & | Financial | Organizational | Payment | |
Relationship | & Program | Analytics | |||
Engagement | Management | Services | |||
Management | Management | ||||
OUR COMPETITORS
(and partners)
1 IDC #29th largest cloud software provider worldwide
12
Built on industry leading cloud technology
Power of the Platform
Common shared components
Continuous innovation and feature deployment
Accelerated time to market
Integrated capabilities
Enables a network effect
13
We make it simple with one accountable partner
Cloud Software
We build, integrate, and
implement vertical-specific solutions purpose-built for the unique needs of our customers.
Expertise | Services |
With nearly four decades | We drive impact through |
of experience, we are | dedicated customer support and |
undisputed industry | training, along with strategic |
experts on technology | and managed services tailored |
for social good. | to our customers. |
Data Intelligence
Using exclusive data, analytics, and expertise, we deliver unparalleled insight and intelligence to the customers we serve.
14
A culture built on unmatched commitment to social good
4 out of 5
employees volunteer regularly logging over 100,000 hours annually
500+
employees worked previously for social good organizations
Note: Internal Statistics
1 out of 4
employees serve on nonprofit boards
9 out of 10
employees say Blackbaud's
mission was important to their decision to join the company
600+
engineers; largest R&D investment in the sector
1 out of 3
employees belong to an employee-led affinity group
A
MSCI ESG Rating
Over 2x
employees participating in matching gift program compared to U.S. national median
15
03
Strategy for
Growth
16
Executing a clear four-point growth strategy
01 Delight customers with innovative cloud solutions
Comprehensive, purpose-built
cloud solutions - backed by service to deliver differentiated value
02 Drive sales effectiveness
Improving go -to-market efficiency to drive recurring revenue growth
Expand total | Improve operating | ||
03 | 04 | ||
addressable market | efficiency | ||
Acquiring, building, and partnering into | Executing a world-class operating | ||
near adjacent markets | model |
17
Delight customers with innovative cloud solutions
STRATEGY 1
18
Drive sales effectiveness
Scalable | Prescriptive |
Model | Selling |
Global sales operations | Vertical go-to-market focus |
Customer success organization | Integrated clouds |
Best-in-breed back | Bifurcate hunters vs. farmers |
office systems | Customer advisory councils |
STRATEGY 2
Go-to-Market
Efficiency
Quality lead generation
Optimize market coverage
Productivity focus
Expand partner channel
19
Expand total addressable market
Acquiring, building, and partnering into near adjacent markets
STRATEGY 3
$4B+ | in TAM added through acquisitions and |
new solution builds |
Blackbaud Education Management Portfolio | |||||
Blackbaud Church Management™ | |||||
2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
Expand TAM into | Accelerate shift | Accelerate revenue | Accretive to operating |
near adjacencies | to the cloud | growth | margins |
Note: Criteria calls for investments to be accretive to operating margins over time.
20
Efficient, scalable operating model
Vertical Go-to-market
focus on customer needs and solution selling
Centers of Excellence
support functions with common systems, metrics, and measurement
Vertical
Go-to-Market
ARTS &
CULTURALNONPROFITS ORGANIZATIONS
Global Centers | ||
of Excellence | ||
SALES | (COEs) | GLOBAL |
MARKETING | ||
OPERATIONS | ||
COMPANIES | ||
Centralized | ||
CUSTOMER | Back Office | CUSTOMER |
OPERATIONS | ||
SUCCESS |
STRATEGY 4
K-12
SCHOOLS
Productivity Improvement
continuous improvement across all functions of the organization
FAITH | RESEARCH, | HIGHER | |
DATA | EDUCATION | ||
COMMUNITIES | DELIVERY & | ||
INTELLIGENCE | INSTITUTIONS | ||
OPERATIONS | |||
HEALTHCARE
FOUNDATIONSORGANIZATIONS
21
04
Financial Strategy
22
COVID-19
Early actions taken in response to COVID-19
In line with our strategy, made a pivot to place a greater emphasis on increased profitability and cash flow
Our Board of Directors eliminated the payment of future quarterly cash dividends beginning with the second quarter of 2020
Implemented several cost reduction measures:
Suspended the company funded 401(k) match until the end of the year
Put a temporary freeze on company hiring efforts
CEO announced he will temporarily forgo his paycheck
Restricted non-essential employee travel and put in place other operating cost reductions
Converted certain cash compensation to equity-based awards:
Replaced employee's 2020 cash merit increases with a one-time restricted stock grant
Replaced cash bonus plans for 2020 with a one-time performance stock grant
Employee relief measure providing all worldwide employees with a base salary less than $75,000 with additional support in the form of a one-time bonus of $1,000 USD
Continuously evaluate further possible actions in order to respond quickly to rapidly changing conditions, if needed
Q2 Earnings Highlights
Operating Margin
23.5%
19.2%
+430 bps
Q2 2019 | Q2 2020 |
Free Cash Flow Margin
20.8%
16.8%
+400 bps
Q2 2019 | Q2 2020 |
Non-GAAP Operating Margin and Free Cash Flow Margin
23
Business model drives recurring revenue
Continued shift in mix to over 90% recurring revenue greatly improves durability
13% | $902M |
Revenue CAGR
since IPO
$166M
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||
Recurring | One-time Services & Other | |||||||||||||||
Non-GAAP Revenue. 2016, 2017, 2018 and 2019 reflect adoption of ASC 606. Blackbaud's initial public offering was mid-year 2004; comparisons began with next full year of revenue
2019 Recurring
Revenue
92% | 18% |
of total | CAGR |
revenue | 2005-2019 |
24
Balancing growth and profitability to support future growth
Operating Margin
18.8% | 20.5% | 21.1% | 20.0% | ||
17.8% | 16.8% | ||||
2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
Investments in go-to-market and cloud innovation
Operating Margin
Future expansion depends on the level of investments in:
Go-to-Market Model
Focusing on lead generation, market coverage and sales effectiveness
Engineering and Innovation
Invest in innovative cloud solutions
Migration to Public Cloud Infrastructure
Enhanced scalability and security
Non-GAAP operating margin. 2016, 2017, 2018 and 2019 reflect adoption of ASC 606
25
Generating healthy free cash flow margins inclusive of investments
Free Cash Flow Margin
17.5% | 17.5% | ||||
14.9% | 15.0% | 13.8% | |||
2015 | 2016 | 2017 | 2018 | 2019 | |
Investments | $34M | $44M | $39M | $52M | $58M |
Investments in go-to-market and cloud innovation
Free Cash Flow Highlights
Strong free cash flow margins inclusive of investments:
- Focused on go-to-market model
- Innovation and new solution builds
- Cloud infrastructure
- Global workplace strategy
Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.
26
Maintaining a disciplined capital strategy
GROWTH AND OPERATING
INITIATIVES
- Capital investments consistent with solution roadmap and strategy
- Invest in operational efficiencies
- Strategic acquisitions
MAINTAIN STRONG
BALANCE SHEET
- Cash balances
- Debt maintenance
- Debt to EBITDA < 3.5X
RETURN OF CAPITAL
TO SHAREHOLDERS*
- Option for share repurchase- $50M authorized and available
*Our Board of Directors may decide, in its sole discretion, at any time and for any reason, whether to repurchase our common stock.
27
Proven history of deleveraging
Ratio
3.50x
Targeted Max Leverage 3.5x
3.00x
2.50x | |
~2.2x | |
2.00x | Q2'20 |
Leverage
1.50x
1.00x
Optimal Leverage 1.8x
0.50x
0.00x
Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 |
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
Note: Current covenant for leverage ratio is less than or equal to 3.5x. Calculation of debt over TTM EBITDA is based on credit agreement in place at the end of the respective reporting quarter.
28
Strong returns on a substantially larger investment base
Strong Returns
2019 WACC: 9.1% | 1.9x | 14% | $1.7B |
2019 ROIC*: 17.3% | |||
CAGR | |||
$0.7B | |||
2013 | Invested Capital | 2019 | |
*See appendix for detailed ROIC calculation; Decrease in invested capital from 2018 to 2019 driven by write-offs on the book value of fully amortized assets and facilities-related fixed assets as a part of our facilities optimization strategy
29
Improving shareholder value
Industry leading cloud software company with an unmatched commitment to the social good sector
Rapid innovation and M&A focused on expanding a large, stable, and growing addressable market
Executing a disciplined strategy focused on accelerating financial performance
30
Appendix
31
Return on Invested Capital (ROIC) Calculation
(dollarsinmillions)
2019 | |
Total Assets | $1,993 |
Less: Restricted cash and customer funds receivable | (546) |
Less: Non-interest bearing current liabilities | (435) |
Add: Accumulated depreciation | 104 |
Add: Accumulated amortization of software development | 38 |
Add: Accumulated amortization of ROU assets1 | 20 |
Add: Accumulated amortization of intangibles | 239 |
Less: Purchase price of 2019 acquisition2 | 0 |
Add: Research & development (excluding stock-based compensation) 3Y Expense3 | 267 |
Invested Capital | $1,679 |
Income from Operations | 27 |
Add: Rent/Lease expense | 28 |
Add: Depreciation | 15 |
Add: Amortization of software development | 21 |
Add: Amortization of intangibles | 50 |
EBITDA4 | 142 |
Add: Stock-based compensation | 59 |
Add: R&D Exp (excl SBC) | 95 |
Adjusted EBITDA4 | 295 |
Less: Implied taxes (assumes 20% tax rate) | (5) |
Adjusted NOPAT4 | $290 |
Return on invested capital (ROIC) | 17.3% |
- With adoption of ASC842 and subsequent addition of right-of-use assets on the balance sheet, value of leased assets is replaced
- 2019 acquisition excluded as it closed on first business day of the year
- Sum of previous three years R&D expense excluding any stock-based compensation
- Non-GAAPEBITDA, Adjusted EBITDA, Adjusted NOPAT
32
Historical Reconciliations of GAAP and Non-GAAP Organic Revenue Growth (Unaudited)
33
Supplemental Schedule for Change in Revenue Classification
Revenue from retained and managed service contracts that we do not expect to have a term consistent with our cloud solution contracts is included in onetime services and other revenue beginning January 1, 2020. As shown below, this change in presentation resulted in decreases in recurring revenue and offsetting increases to one-time services and other revenue of $4.2 million and $8.5 million, respectively, during the three and six months ended June 30, 2020.
In order to provide comparability between the 2020 and 2019 periods, we are providing below the amounts by which reported recurring revenue and onetime services and other revenue would have changed had the change in presentation discussed above been effective January 1, 2019.
This information is not intended as a substitute for the Company's previously reported results.
34
Reconciliation of GAAP to Non-GAAP Consolidated Statements of Operations (Unaudited)
35
Reconciliation of GAAP to Non-GAAP Consolidated Statements of Operations (Unaudited)
36
Reconciliation of GAAP to Non-GAAP Consolidated Statements of Operations (Unaudited)
37
Reconciliation of GAAP to Non-GAAP Consolidated Statements of Operations (Unaudited)
38
Historical Consolidated Balance Sheets (Unaudited)
39
Historical Consolidated Statements of Comprehensive Income (Unaudited)
Note 1: The individual amounts for each quarter may not sum to full year totals due to rounding.
40
Historical Consolidated Statements of Cash Flows (Unaudited)
Note 1: The individual amounts for each quarter may not sum to full year totals due to rounding.
41
Historical Reconciliations of GAAP to Non-GAAP Financial Measures (Unaudited)
Note 1: The individual amounts for each quarter may not sum to full year totals due to rounding.
Note 2: We apply a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.
42
Historical Reconciliations of GAAP to Non-GAAP Financial Measures (Unaudited)
43
Attachments
- Original document
- Permalink
Disclaimer
Blackbaud Inc. published this content on 30 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 July 2020 22:15:06 UTC