Blackbaud : Acquires EVERFI Conference Call - Transcript

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Blackbaud Inc Acquires EVERFI Inc Call

EVENT DATE/TIME: JANUARY 04, 2022 / 1:00PM GMT

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JANUARY 04, 2022 / 1:00PM GMT, Blackbaud Inc Acquires EVERFI Inc Call

CORPORATE PARTICIPANTS

Michael P. Gianoni Blackbaud, Inc. - President, CEO & Director

Steve Hufford Blackbaud, Inc. - Director of IR

Thomas M. Davidson EVERFI, Inc. - Co-Founder & CEO

CONFERENCE CALL PARTICIPANTS

Jeffrey Parker Lane Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

Jessica Wang

Koji Ikeda BofA Securities, Research Division - VP & Research Analyst

Matthew David VanVliet BTIG, LLC, Research Division - VP & Application Software Analyst

Robert Cooney Oliver Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

PRESENTATION

Operator

Good day, and welcome to this morning's call with Blackbaud. Please note that today's conference is being recorded. I'll now turn the call over to Steve Hufford, Director of Investor Relations. Please go ahead, sir.

Steve Hufford Blackbaud, Inc. - Director of IR

Good morning, and welcome to the conference call to discuss Blackbaud's acquisition of EVERFI. Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO; and Tom Davidson, EVERFI's Founder and CEO. Mike and Tom will make brief prepared comments this morning, and then we will open up the line for questions.

During the course of this call, we may make forward-looking statements, including, but not limited to, statements regarding Blackbaud's expectations or predictions of future financial or business performance, business strategy and plans and anticipated impacts from pending or completed acquisitions. Forward-looking statements are inherently subject to risks uncertainties and assumptions, and they are not guarantees of performance. Please refer to our most recent Form 10-K and other SEC filings as well as the legal disclaimer included in the presentation posted to our Investor Relations website for more information on those risks.

Also, we believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure our business. Unless otherwise specified, we will refer only to non-GAAP financial measures on this call. Please note that non-GAAP financial measures should not be considered in isolation from or as a substitution for GAAP measures. A reconciliation of GAAP and non-GAAP results is available in our most recent earnings release and a more detailed supplemental schedule is available in our presentation on our Investor Relations website.

With that, thank you for joining us, and I'll turn the call over to you, Mike.

Michael P. Gianoni Blackbaud, Inc. - President, CEO & Director

Thanks, Steve. Good morning, everyone. Thank you for joining us on short notice. Yesterday, we announced the exciting news that we have acquired EVERFI, a global social impact technology leader. I'm delighted to have EVERFI's Founder and CEO, Tom Davidson, on the call with us today to talk about our shared vision and commitment to driving social good through world-class technology.

Before we jump in, I encourage you to refer to yesterday's press release and the slide deck we posted to our Investor Relations website for an overview of EVERFI and transaction details.

In short, the total purchase price for EVERFI was approximately $750 million or just over 6x estimated 2022 revenue comprised of $450 million in cash and $300 million in common stock, subject to certain purchase price adjustments. I'll cover the strategic rationale in a moment, but first, I'd like to start by saying welcome to any EVERFI employees that are tuned in today. As we got to know the team at EVERFI, it became abundantly clear that our companies are united by a strong shared purpose of driving impact for social good, and I'm energized by the deep cultural alignment between our teams.

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JANUARY 04, 2022 / 1:00PM GMT, Blackbaud Inc Acquires EVERFI Inc Call

For those on the call that may not be familiar, EVERFI is a high-quality SaaS company that drives impact by leveraging the resources, commitment and expertise of the corporate sector to create and deliver digital education and training to K-12 students, employees and communities.

EVERFI offers programs on important societal topics: such as financial literacy; health and well-being; social and emotional learning; STEM; and digital literacy among many other topics. We also deliver adult-focused content and HR compliance training space for companies and institutions. Tom will have more on this shortly.

EVERFI pioneered the field of impact as a service, offering a subscription-based model that enables organizations to deliver social impact at scale through their cloud-based software platform and digital education content. Through their platform and program offerings, EVERFI is also able to yield anonymized learner data to reflect the true impact of their educational offerings. Their innovative strategy and technology has placed them among the most highly regarded and trusted brands in a technology and data-driven social impact space.

It has also earned them recognition, such as Fast Company's list of the World's Most Innovative Companies, Fortune's Impact 20 List and the GSV EdTech 150, a list of the most transformative growth companies in digital learning. EVERFI has cultivated an impressive and uniquely diversified customer base and include some of the world's largest and most well-known financial institutions, companies, foundations and sports leagues. This includes 7 of the top 10 U.S. banks by assets, 3 of the top 5 U.S. insurers, 3 of the top 5 most valuable technology companies in the world and 5 of the major global professional sports leagues.

Through their technology and learning platform, EVERFI has reached more than 45 million learners globally, while also delivering critical insight to its corporate customers, enabling them to measure and amplify the impact of the educational programs they're sponsoring in support of their ESG and CSR goals. This acquisition advances our position as a leader in the rapidly evolving ESG and corporate social responsibility spaces and doubles our total addressable market opportunity, adding roughly $10 billion in TAM. That's a major increase for Blackbaud.

Also significant, over half of our addressable opportunity is now in the corporate sector. As companies continue to invest more in programs to give back to their communities, they need a partner who can help connect their philanthropic goals to meaningful social impact opportunities. Together, we will be the leading partner to help corporations drive meaningful social impact across a large span of technology-enabled program areas from community education to volunteering to grant making and philanthropy. We're also going to aggressively pursue what we believe to be substantial revenue synergies in the form of cross-selling and upselling given the complementary product offerings with our YourCause Solutions and minimal customer overlap.

Even before synergies, EVERFI's financial profile is highly attractive. We're expected to generate approximately $100 million of total revenue for full year 2021, representing double-digit growth over 2020, and were profitable. We plan on providing full year 2022 financial guidance for the combined companies on an upcoming Q4 earnings call in February.

At this time, I'll remind you, we had a very strong performance through the third quarter with near double-digit organic recurring revenue growth in Q3. We're reiterating our outlook for full year 2021 calling for total revenue of at least $920 million, up from our original best estimate of $900 million, adjusted EBITDA margin of at least 26% and free cash flow of at least $150 million, which has us on pace for one of our best free cash flow years ever. Building on Blackbaud's momentum heading into 2022, EVERFI is a very solid recurring revenue addition. EVERFI will be immediately accretive to our revenue growth profile, adding an estimated $120 million in 2022 revenue, with a year-on-year growth rate approaching 20%.

We expect cost synergies as we complete future integration work. But in the near term, we anticipate EVERFI to be dilutive to EBITDA margins as we look to accelerate the overall growth opportunity for the combined companies. This acquisition, combined with our recent company performance and our updated outlook provided on our Q3 earnings call, allows us to significantly pull forward our timeline for achieving our long-term goal of mid- to high-digit organic revenue growth for being a few years out to now beginning in 2022.

In summary, EVERFI's shared mission-driven culture, world-class team, industry-leading impact as a Service Cloud platform, large

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JANUARY 04, 2022 / 1:00PM GMT, Blackbaud Inc Acquires EVERFI Inc Call

addressable market and high-growth reoccurring revenue model, check all the boxes that we look for in a high-quality acquisition. I've been incredibly impressed by Tom and the leadership team around him in EVERFI.

Tom, his cofounders, Jon Chapman and Ray Martinez will join Blackbaud alongside the rest of EVERFI's executive team. With the close of this transaction, our pro forma leverage ratio stands at approximately 3.4x, which is below our maximum allowable leverage of 4.25x. And consistent with previous acquisitions, we plan to rapidly deleverage.

I'm very confident that the combination of Blackbaud and EVERFI adds tremendous value to a very large and fast-growing market, which will accelerate our growth, pull our long-term financial goals forward and create value for our shareholders.

With that, I'll turn the call over to Tom before we open it up for Q&A.

Thomas M. Davidson EVERFI, Inc. - Co-Founder & CEO

Thanks, Mike. I'll start by saying we're thrilled to be joining the Blackbaud team and couldn't imagine a more natural fit for us as a company. It's clear that EVERFI and Blackbaud have a shared sense of purpose, tremendous teams and strong mission-driven cultures. Together, we offer an unparalleled commitment to innovation, social impact and customers making us the leader in the social impact space.

EVERFI was founded with the belief that there is an infrastructure opportunity to build what we call the missing learning layer of education. This learning layer goes beyond core subjects like reading math and science to teach students about the building blocks of personal economic and financial security, mental health and wellness, sustainable lifestyles and environmental protection to name a few.

The past couple of years of the pandemic has cast a bright light on the inequities in Americas education system. The good news is there is a way to address this, by democratizing education and recognizing the vital role of corporate America and this model of inviting corporations to invest in K-12 education works.

For nearly 14 years, EVERFI has worked with corporations and organizations, including the MassMutual Foundation, Truist, NFL, the NHL, Google, Amazon and many others to deliver the road map of digital critical skills education into the classroom. EVERFI succeeded in these efforts reaching more than 7 million learners annually, through the development of a scalable educational software solution and close collaboration with school districts, schools and teachers along with a laser focus on tracking knowledge gain.

We are a trusted partner in school districts across North America and in the United Kingdom. We are in the top 100 largest school districts in the United States, and our digital education programs are implemented in more than 25,000 schools each year. We've also been at the forefront of some of the largest ESG and CSR initiatives in the world and our alignment with Blackbaud will only accelerate the impact we drive for millions of our learners every year.

To give you a sense of our value our customers see in our solutions, we have more than 100 customers spending 6 figures annually on our solutions, and our largest customer spend 7 figures annually. Roughly 3/4 of our customers are on multiyear contracts and approximately half of our new ARR is driven by upsell within our customer base. There is no doubt that we have a long runway for growth given the massive opportunity in front of us.

Cornerstone to our success has been our focus on 2 key areas, financial services and ESG, with upwards of 75% of our offerings being regulatory-driven or required training. For financial services institutions, we create private labeled subscription products that allow banks, credit unions, insurance companies, private wealth and asset management institutions to report on data-driven financial wellness programs and communities. Our ESG subscription enables organizations spanning global brands, foundations and sports leagues to launch and scale massive learning initiatives both internally and externally, driving measurable and lasting change.

In addition, we offer forward-leaning organizations the ability to create custom branded educational content around key topics like STEM, financial education and digital literacy. Through these corporate sponsorships, courses are offered online and free of charge.

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JANUARY 04, 2022 / 1:00PM GMT, Blackbaud Inc Acquires EVERFI Inc Call

EVERFI, in turn, makes it easy to quickly reach thousands of students in a classroom setting through our on-the-ground teams, many of whom are former teachers working directly with schools to implement the digital programs on behalf of our customers.

We see substantial opportunity to scale these programs like we have done over the last 14 years with Truist as a prime example of a customer that started with a few schools in North Carolina and now has scale and impact millions of students across their footprint.

Overall, our work together as a global team only serve to strengthen and accelerate our impact. We look forward to learning from each other, working together and, most importantly, driving meaningful societal outcomes for our customers. The world is seeking sustainable impact. We see this as the next best step to serve both of our customers while also driving growth and ultimately shareholder value. With that, we'd like to open up the line for your questions.

QUESTIONS AND ANSWERS

Operator

(Operator Instructions) Our first question comes from the line of Parker Lane with Stifel.

Jeffrey Parker Lane Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

Tom, EVERFI has a really impressive list of customers. You mentioned a few of them earlier in this call. Curious if you can give us a sense of what the businesses that aren't on the platform are doing from a social impact perspective today.

And when we think about the initial pitch here to businesses, is it finding new budget for EVERFI? Or are they reallocating budget from other initiatives they already have in place to go with your approach?

Thomas M. Davidson EVERFI, Inc. - Co-Founder & CEO

In many cases, one of the really exciting things about this moment is more and more dollars are moving into this ESG and CSR initiatives, particularly at the larger companies that we target. These are dollars that exist today in many cases, but are being amplified in a major way based on the last couple of years.

So we're finding that we can come in and reimagine dollars that are already being spent. And one of the things that's exciting is once people start to see the scale and the impact that we can have, they tend to put more dollars towards these initiatives. We think that's only going to grow and having one organization that can come in and cover a lot of ground like our 2 organizations, is going to benefit greatly from that.

Jeffrey Parker Lane Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

Yes. And then from an international perspective, I think you mentioned the U.K. is an area that you have some exposure, but what is the broader exposure that EVERFI has to international markets today? And from a content and solution standpoint, is that fully localized for language and culture to allow Blackbaud to quickly start cross-selling in a bunch of different geographies?

Thomas M. Davidson EVERFI, Inc. - Co-Founder & CEO

The answer to that is yes. We completed an acquisition in the U.K. a little over a year ago. So what's exciting about this moment is the greenfield opportunities in places where Blackbaud team already is. So we see that as a very, very significant growth vector for us. We've also had to localize and have a lot of experience in localizing our content and translations across the globe, and I think that's something we're very much ready to do.

Michael P. Gianoni Blackbaud, Inc. - President, CEO & Director

Parker, it's Mike. I'll just add that this is very complementary to our YourCause platform, which is also global, multilingual, focused on corporations. And so this -- EVERFI and YourCause is just our really fantastic portfolio for corporations in this ESG space. And we have a much larger international footprint, especially across Europe and the U.K. than EVERFI, so we can really help accelerate some of the go-to-market efforts around the world.

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