Everyone, hopefully everyone got a chance to have a bite of lunch. I'm Rob Oliver. I follow software here at Baird. I'm a managing director in the technology research team. It's my pleasure to have the management of Blackbaud here. To my left, Chad Anderson, who is the CFO, and Jeff Klein, who is Director of Corporate Strategy and Development. Thank you guys both for joining me. Appreciate it. Oh, appreciate it. Thanks, Rob. Blackbaud is a company we've followed for many, many years. It's a vertical software leader. I don't even think you can call it a niche market. It's actually a really, really big market. It's just niche relative to investors, but you guys really dominate it, and that's the not-for-profit space. Today, the goal of the meeting here, you have a stock that's incredibly inexpensive from our view. We recently upgraded it. My goal is to have everyone leave the room with a better understanding of the moats around your business, both current and then with AI, what you guys are doing to drive the really strong margin and growth profile that you have, and set it up for future inquiry in the room. Let's just start, maybe, Chad, with a little overview. Yeah. You've been at the company, even though you've only been CFO maybe a little over a year, you've been at the company a long time. maybe an overview for the room. I was a week into the job this time last year. Thank you for having us back. The company, and those of you that aren't familiar, we're a cloud software company, right? We serve several end markets. Rob mentioned the nonprofit space, it's a variety. Nonprofits come in different shapes and sizes. You can think about foundations, community foundations, the foundations of universities and hospital systems are all within the hemisphere of our client base. We've been doing what we do, like you said, for 45 years now. Over that time, we've been able to capture and develop domain expertise, not only within how nonprofits operate, but also the solutions that we provide to them. In the core, there's a fundraising solution. We'll talk a little bit more about that as well as a very point-specific financial solution to aid with fund-related accounting designed for nonprofits. We have embedded analytics, embedded payments platform, as well as, again, these years of domain expertise with deep workflows to be able to help the nonprofits do what they do. From the highest level, to step back, we grow roughly in mid-single digits. We've got a revenue profile that is roughly 2/3 subscription base, which is typically the fundraising and financial management solutions. Then roughly 1/3 of the revenue base is payments and different usage and consumption models. As far as where we're at, we're focused on driving new logo sales as well as back-to-base sales. Then we'll talk a lot more about innovation and AI. Maybe to start, because I think with the emergence of AI, investors are thinking a lot about systems of record, systems of action, defensibility, moats. You guys are both a system of record and a system of action. Maybe talk about what these. You're the ERP, you're the SaaS HR provider. You're a lot of things to your customers. Maybe talk about that moat around the Raiser's Edge platform, the products, and the stickiness around that. Yeah, for sure. I'm happy to take that one. Chad mentioned it. When you look at it, at its core, a lot of our systems are mission-critical systems of record. You think donor management, CRM, financial management, general ledger accounting system, payment processing all their donation flows. We are the tools that they wake up and log into every day, and are critical to running the operations of the business, and in many cases, the revenue operations of the business, right? Without our solutions, they're not raising funds, they're not generating revenue for their causes. In terms of when you think of the AI overlay for that, I think there's been three waves over the last couple of years in terms of how I think about AI within our platform and some of the moats around that. I think for a long time now, what we call our analytics business is what I think a lot of people today are referring to as AI. Specific to our customers, it's things like donor prospecting, it's intelligent gift ask. How much should you be asking for? Identifying the right donors to ask, when to ask them, how to ask them, right? Those are things that we've been doing for the last five, 10 years now. Over the last two to three years, we've branched more into generative AI and embedded those in our solutions at no additional cost to our customers. We've lit those solutions up within the existing CRMs and financial management solutions, et cetera. One good example of that is Blackbaud AI Chat. In addition to interacting with the embedded workflows in the UI, UX, you also are able to ask natural language questions, where instead of running a formal database report or querying your database, you can ask for, "Hey, bring up the donor record for Rob Oliver. What types of causes does he like to give to? Hey, please draft an outreach email. I want to get lunch with him next week." Right? It's just another way that you can interact with your system and your donors. The third wave, and I think this is where a lot of companies are now talking about AI, is on the agentic side. Little less than a year ago, we unveiled what we call our Agents for Good strategy, right? That is now the third wave, and I think where a lot of the focus at the company is. That is intended to be a catalog of agentic solutions. The first of those, and we can talk more about that, is the fundraising development agent. That is a fully autonomous virtual teammate that fundraises on behalf of your organization. That went into early adopter program Q4 of last year and into Q1 of this year, and is now generally available to the full customer base, as of late March. Early traction there has been good. I think we're very confident not only in the customer base we have and the solutions we have today, being very sticky with those core and record products, but doing a lot on the AI innovation front to make sure that we're staying ahead of the curve on innovation and what our customers expect. On that point, Jeff, one of the things about your market, if I can generalize, is that there always seems like they've been a few years behind the for-profit enterprise when it comes to innovation, and probably for a few reasons. One, many of them are operating on shoestring budgets, and they're not for-profit entities. They're sticking with what they have, which benefits you. Are you seeing that with AI as well? Obviously AI is so much in the news. Everybody can fool around and play with the tools and stuff like that. Do you guys have a similar window of opportunity to execute on embedding AI into your platform? One of the concerns on software right now is that these SaaS companies just don't have enough time to flip the model and flip the innovation. You guys strike me as being an industry where maybe you have that time, if you're acting quickly, which you are. Address that. Yeah, no, I think that's a really good point. For one, to Rob's point, the pace of adoption in our market historically has not been the same as the for-profit. This isn't true of all of our customers. We have some customers that are very sophisticated, have fully staffed IT departments, and are thinking through these things and moving quickly. By and large, our customers are not technologists. Their IT functions are not staffed the same way that a public company or a large private company would be. The reason we win versus the horizontal players is because our systems of record are purpose-built for them, right? You don't need to customize them out of the box. They're using language that makes sense to you. It's purpose-built for those nonprofit use cases and tends to be looked at that way. The other thing I'd say, too, is on that thread, I think one of the threats that Blackbaud software is seeing is, hey, why can't we use these new cloud code or AI tools to vibe code these solutions in-house, right? The cost and timeline to doing that is lower than ever before. Many of our customers, frankly, just don't have those capabilities. They're looking to vendors like us to bring those technologies to them and frankly, educate them on the best use cases for their end market. Got it. Maybe we could also just talk a little bit briefly before we dive back into the products and the financials, about the current environment, beg your pardon, buying environment. There's been a lot of cuts. The administration came in, and there's been cuts to local funding for charities, nonprofits, we saw it with USAID. I know we've talked about this before, and you guys, even in your public calls have stated you're pretty good on this front. Since this is, I think, a concern that investors have when they look at you, maybe talk about why it is that you guys are relatively immune. I know Mike has said, "Well, we don't get funding directly from the federal government." That's really not what it's about, though. It's really about those customers' budgets and how they feel, because you're coming into a time period now where you have some customers on that three-year renewal cycle. Certainly. Yeah, there's a couple of things. First, I would say, for investors or potential investors, the sector is massive. The nonprofit sector is roughly the third-largest employer in the country, if we're just looking at the U.S. It's significant. It's also growing. The annual donations that flow through nonprofits in the U.S. is somewhere in the range of $600 billion per year and growing. It is vibrant and significant. Doesn't mean there's not pressure. With that said, the nonprofit sector, if you will, has weathered a lot of storms over the years, from financial recessions, COVID, and the like. I think over that time, it's proven to be very resilient. As we talk about the macro environment, what's going on in the Middle East, there are organizations that are impacted. Typically, what we've seen is that whenever big nonprofits are in the federal funds flow, typically big nonprofits will have seven, eight, nine different revenue streams. If some of those are in the funds flow from the government and they go away, it just makes them more reliant on Blackbaud's solutions at the end of the day, then it actually becomes a little bit of a tailwind to the company. Another important point is that not all nonprofits are in that space either. If you think about K-12 organizations, perhaps hospitals and hospital foundations. It's a little bit different depending on the particular vertical, if you will. In the main, while some of our clients have been under pressure, we haven't seen a notable change in client attrition to speak of. Got it. Great. You guys made a bunch of changes a few years back, and you moved your customers towards three-year contracts. You also have done a lot of operational changes internally around cost structure and now leveraging AI. For those maybe who haven't looked at Blackbaud in a few years, the profitability profile of the business is phenomenal. Maybe talk about some of the different changes, and obviously on the contracts side, I want to dive into that a little bit. Sure. Talk about some of the changes overall that have happened over the last few years of the business. Certainly, we're focused on driving profitability. No surprise there. We target 6%-8% kind of EBITDA growth on an annual basis. We've got lots of levers. Over the years, we've focused on internal efficiencies, if you will, vendor consolidation related activities. We've shut down 80% of our private data centers over that time in the migration to public cloud. We actually still have two of those that we're focused on and look forward to winding down here in the near to mid-term. Just as a few examples. Beyond that, we opened up a global capability center in Hyderabad, both to access talent as well as to provide potential opportunities for labor arbitrage. While we've had partners that have provided staffing on a consultancy or staff augmentation basis, we now have badged full-time Blackbaud employees. That's another lever that's going quite well. It's gone from site selection to employee one, to hundreds of employees. We're not the first or the last software company to be in that zone, so we're quite confident that we'll be successful in being able to leverage the global capability center. Beyond that, we see AI as a real potential tailwind. Obviously, there's lots of speculation in regards to, does it put gross margins under pressure or not? We're going through it in a methodical manner. We're all in. We've got the entirety of our employee base trained, as well as leveraging the tools, but being mindful in regards to the use cases and making sure that we're targeting a return at the end of the day. I could mention leveraging the tools in engineering is probably not a surprise. We have a great opportunity to be able to further write code, test code, not only for the solutions that we're selling, but also how we're running the infrastructure of the organization. We're leveraging agentic AI for demand generation sales forecasting. You can kind of go on and on, and it's still very early days on that front. Again, very optimistic that that'll be just another feather in the cap relative to how we're pressing and expanding on margins in the future. Got it. Like music to the ears for an analyst is when you're at a user event, and you're talking to a bunch of customers at a lunch, and you ask them about the price increases, and they kind of say, "Oh, well." No one's ever happy about it. Then you ask them, "What are you thinking about doing? Are you" Not one of them is leaving. In fact, they're looking to do more, so they can get more value. Obviously very, very encouraging. You guys went through this period where you pushed your customers on price, which was a great test of the stickiness of your product and your platform, in our view. You then moved to the three-year contracts. Some of those are coming up for renewal now. How are those going? Give us a look into that sense, because that seems like that's the next kind of catalyst or thing that the Street should really be looking out for. Yeah. In regards to the pricing and the renewal program journey, we really started thinking about it about five or six years ago. We had shorter contracts, and we made a decision to move to more standard three-year agreements. We'd really planned to put it in place during COVID, and we paused. In 2023, we rolled it out. These are standard multi-year contracts, which are quite common in the space. They have embedded price escalators. We've held very solid from a retention perspective. It's kind of stayed stable in kind of those around 92% on a gross dollar retention perspective. To Rob's point, we've now lapped that. At the tail end of Q1, we're basically through the three-year cycle, if you will. We're entering into that next kind of wave. The retention is kind of in line with expectations. We're feeling good about it. It's far better revenue durability for us, longer standard contracts. The ability for us to be able to prove the value to the clients has really not been a challenge for us to this point. We're pleased, but at the same time, we're mindful. The renewals, the retention is there. The other thing you guys have done, which is encouraging, is really focus on that cross-sell, which has always felt like an embedded opportunity for you guys. Obviously, you've got many customers that have multiple products, but it felt like a more concerted effort there could really bear fruit. You brought in some new sales leadership, and you've talked a lot about it. Mike's really made it a theme on the calls. As these renewals come up, how should we think about not just the retention, which we expect will be there, but also that NRR equivalent metric of how you guys are cross-selling? Yeah. It is a very big piece of our model, that land and expand model over time. We have roughly half our sales folks that are focused solely on new logos, so refilling the top of the funnel. The other half are focused on cross-selling the portfolio solutions, and I think as Chad and I have mentioned, we do have a fairly broad portfolio. It's give or take 18 products. We're now bringing new AI products to the market. The agentic AI product will be priced separately. That's a new SKU and what we think is a big back to base opportunity, at least initially. We are very, very focused on driving that further penetration in the customer base over time, both with the software products, the AI products, payments enablement. There's a long runway in terms of the payments side of the business and getting folks payments-enabled for donation processing, tuition processing on the education side. Multiple angles there. I think the other thing that's important to understand because I think many companies, they really only open up their customer relationship at the time of renewal for the cross-sell, up-sell motion. Our teams are cross-selling and upselling every day. It doesn't necessarily have to be tied just to that renewal moment. We have multiple opportunities throughout the year to do that. Those teams are now divided up into the hunters and farmers. Is customer success an element of the cross-sell as well? Has that been combined? The cross-sell, up-sell motion is a sales motion today, so the direct sales force, new logo, and cross-sell, up-sell, and then we have a separate team in the customer success and renewals org that is handling- Got it. just the existing customer relationship and renewals. Got it. Got it. Yeah. Okay, great. Payments is a significant portion of the business for you guys. I should know off the top of my head. It was a high 20s% of the business. It's roughly 1/3. Yeah. Roughly, yeah, more roughly 1/3 of the business. Yeah. Very sticky, and in turn, creates stickier customers when they have it. Great pedigree background here with Mike having been at Fiserv and really driven this very strong payments opportunity, which has defied a lot of the bear cases over the years of different payment vendors coming in, taking this business. How should we think about attach of payments currently into your installed base, the opportunity for payments down the road? It strikes us as a pretty meaningful compounder for you guys in terms of the customer stickiness, what it can add, all that. Yeah. There's a couple of nice things about the transactional side of the business for us. That's actually a piece of the business, as Chad mentioned, it's a little over 1/3 of total revenue today, a very meaningful part of our revenue algorithm. That piece of the business actually tends to grow slightly faster than the core software base. Core software is more mid-single digit. This is mid to high single digit, 6%-8% historically. Couple reasons for that. You've got some of the same growth levers that you have on the software side, which you've got new logos, so you sign a new customer, they're payments-enabled. To Rob's point about the penetration in the existing base, there is a long runway there. We don't disclose specifically the penetration rates, but I'd say needless to say, there's plenty of opportunity even within just the existing base to get them payments-enabled and processing on our platforms, which is obviously a benefit to us. Some things that are specific to payments, we do have pricing levers that are unique there in terms of take rate optimization and donor cover models that have been very positive for us over time. We also benefit from just what we call same-store growth, so donation volume growth or tuition volume growth over time within existing customers. When you think of the total pie of hundreds of billions of dollars donated in the U.S. every year, that tends to grow a couple percent as well, and that's a further tailwind. The last one, which hasn't been as meaningful the last year or two, but is at points in time, is we're primarily monetizing the digital payment side, so credit card processing. As more and more of that pie shifts to digital payments, that's a further tailwind to that business. Multiple growth vectors that we like within that transactional business, and it continues to be a bigger piece of our story over time. Got it. Exciting. I was remiss, if you do have questions, you can send an email. The email's in front of you, and I'll try to get it in. We have about eight minutes left. I have a few more questions. Feel free to add in. On competitive landscape, for years there was a big buzz around Salesforce getting into this business, and they have a small share with some larger places, but they never really seemed to make an impact on you guys. How has the competitive landscape changed? Obviously, barrier to entry in this market is high. You guys are far and away the number one player. We see a lot of action at the low end, a lot of startups, small companies. You guys actually, I think, disclose a chart in your investor deck where you actually lay them all out. Maybe talk about if there's been any change there with AI and what you see in the market. Nothing material. I would say this: Our customer base or our competitive segment is extremely fragmented. We are the only provider in our space that has the full suite of solutions. When you think from financial management to fundraising, to digital marketing, to the school operations, to ticketing for our arts and cultural customers, we have a very broad suite of solutions that integrate with each other, and that tends to be a core differentiator for us. Our competitors, by and large, are vertical specific point solution players. The people we compete with on the fundraising side is different than the people we compete with on the K-12 side, than the financials side. From time to time, we do see some of the larger horizontal players. On the CRM side, do we see Salesforce? Yes. Microsoft Dynamics, yes. They're not purpose-built solutions. If you're going down that path, and some organizations do choose to, you're bringing in a third-party excuse me, consultant to customize that database, build in those workflows, define the fields, and label all that. There's just more work and cost involved upfront. I think from a competitive positioning point, we're pretty well insulated. The other thing I'd bring up on the competitive side, and it pertains to some of the AI topics we've been talking about, I think we feel very confident in the data moat we have as well. That's something that frankly has always been important, especially when you think data intelligence analytics and the like that we've done over time, but even more so as we talk about AI solutions and making sure that we maintain that proprietary data posture. I really think of it in four main categories, right? There's different frameworks you can look at these things in, but it's volume, it's variety, it's velocity, and it's vigilance, right? From a volume standpoint, we are the largest player in the nonprofit space, and we've been around for 40 years, right? There's no one that can match, I think, the breadth of our data set. Variety, you've heard me talk about just the types of solutions we have, right? We've got fundraising data, we have financial data, we have marketing data, right? Click rates and email open rates and the like, right? We can go on and on. I think the variety of our data is very broad. Velocity is a very important one because we have kind of a closed system within the suite. There is no import-export. A lot of these point solution AI startups, you're going to a system of record like Blackbaud, you have to export data out, put it into the AI tool, it's transformed, and then you're porting it back, right? There's time and context that's lost in that porting that we don't have to deal with that we think is a core differentiator. Finally, vigilance is really about trust and data governance, right? We've been around for a long time. We have a very good reputation in this space. We've invested more than anyone in terms of data and cybersecurity, as well as spending years developing kind of data frameworks and AI governance frameworks, that I think our sector in particular, values trust and data security very highly. I think all of those things together from a data moat standpoint, put us in a good position competitively. Great. Super helpful. We only have a couple minutes left. I want to talk about capital allocation. You guys have acquired a lot of companies over the years. I think it's been a pretty solid acquisition motion for the most part. Then you had a pretty high-profile hiccup with EVERFI. You still have the same CEO who's viewed by the street as being a pretty acquisitive guy. You guys have talked a little bit about this. Help us understand how you think about that capital allocation and just to mitigate that risk that you're going to go out and whale hunting again, how to think about how you guys are thinking about that market. We have been prioritizing share buybacks significantly over the last few years. The way that I generally think about it, that's priority number one. We've been very purposeful in not only repurchasing shares, but also driving down the net shares available. If you go back a couple of years, you'll see that we've reduced the overall share count by 14%, which is meaningful. I anticipate that we'll, and certainly in today's market, in today's valuations, will continue to be very aggressive. We've publicly stated that our intent is to dedicate at least 50% of our free cash flow to share repurchases on an annual basis and drive down the number of shares between 5% and 10%. Given where we're at with valuations, I would expect that we'll be in the higher side of that in the near term. I would balance that we're also mindful of managing our balance sheet. We're mindful of trying to keep leverage in a good spot. We target somewhere in the low twos, preferably. At the same time, with valuations where they are, it's important that we also keep that in mind. We're balancing both of those, and at the same time, we've had a number of successful acquisitions over the years. As a third priority, we have optionality for tuck-in acquisitions, if it makes sense with today's valuations, that there are opportunities out there. Again, kind of tuck-ins, and I would say that is, again, the third priority on the capital allocation front. Got it. You mentioned the free cash flow, it's substantial. Yep. The stock is currently trading at, I think, nine times EV to free cash and five times price to free cash. Free cash flow has been a focus, always is. We've had good success driving free cash flow. It's up roughly 25% on a CAGR since 2020. We're going to continue to stay focused on that. If you look deeply into the financials you'll see that we're growing free cash significantly in 2026, as we kind of talked about. Yeah, we're focused on it. It's a big lever to the broader financial profile of the company. We're going to continue to target that mid-single-digit revenue growth, 6%-8% EBITDA growth, 13+ from an EPS perspective, kind of buoyed by the strong free cash flow. We're feeling good about it. AI is a potential tailwind for us, that opportunity's not factored into the guide or the numbers. We're feeling good where we're at. Certainly, with today's valuations, think that we're a great buy for companies as well. Great. Well, please join me in thanking the management of Blackbaud. Chad, Jeff, appreciate it. Thank you guys very much. Appreciate it. Thanks for your time.