Blackbaud Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 10 speakers on the call.

Operator

Good day, and welcome to Blackbaud's Second Quarter 2023 Earnings Call. Today's conference is being recorded. I'll now turn the conference over to Kevin Mone. Please go ahead, sir.

Speaker 1

Good morning, everyone. Thank you for joining us on Blackbaud's Q2 2023 earnings call. Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO and Tony Bohr, Blackbaud's Executive Vice President and CFO. Mike and Tony will make prepared comments and then we'll open the line for your questions. Please note that our comments today contain certain forward looking statements Form 10 ks and other SEC filings for more information on those risks.

Speaker 1

The discussion today will focus on non GAAP results. Please refer to our press release and the investor materials posted to our website for the full details of our financial performance, including GAAP results as well as full year guidance. 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.

Speaker 1

Before I turn the call over to Mike, I'll briefly mention that our Investor Relations team will be participating in investor meetings with Stifel I'll turn the call over to you, Mike.

Speaker 2

Thank you for joining our call. I'm pleased to share that we're making measurable progress On the 5 point operating plan we introduced in May. With this plan, we essentially have a one two punch. The first It's the margin expansion that we began to realize in the Q2. And the second punch is a new layer of revenue Driven by our modernized approach to renewal pricing that will accelerate revenue growth in the second half and will have good margin flow through.

Speaker 2

Accordingly, we're confident in the delivery of our increased financial guidance for the year. That strong operational execution produced solid financial results in the quarter. As expected, the cost actions completed in previous quarters It drove a substantial increase in adjusted EBITDA. Additionally, our modernized approach to renewal pricing And multiyear customer contracts continues to perform very well. Recall that our heaviest months for renewals are June, July December.

Speaker 2

June July are now completed and we will begin to see revenue build in the second half and subsequently in future years. From a numbers perspective, we reported total revenue of $271,000,000 which was up 3.2% year over year On an organic constant currency basis, reoccurring revenue is now 97% of total revenue And grew faster at 4.8% on a constant currency basis. Adjusted EBITDA at constant currency With $89,000,000 which was up a very meaningful $17,000,000 or 24% over the Q2 of last year. That represented an adjusted EBITDA margin of 32.9% at constant currency, which was an increase A 5.9 percentage points above the Q2 of 2022. Taken together, Rule of 40 The constant currency was just over 36% for the quarter, just over a 4 percentage point increase year over year and 5 points higher sequentially.

Speaker 2

And we had another good quarter for cash flow production with adjusted free cash flow of 44,000,000 Now turning to our operating plan, which focuses on 5 key drivers. 1, product innovation and delivery 2, bookings growth and acceleration that results from improving sales channel efficiency 3, contracts that reflect the value of the services we provide. With 97% of our revenue recurring, This is secured and predictable revenue. And 5, keen attention on cost management. I'm excited about the significant progress we're making in each of these areas.

Speaker 2

I'll provide an update on product delivery and innovation As well as our modernized pricing initiative, I'll also share examples about the enthusiasm we're seeing from our customers, Which is driving numerous new wins and cross selling success. Then Tony will cover the upside being realized from bookings, Transaction revenues and cost management as well as a deeper review of the 2nd quarter financial results. Product is core at Blackbaud, and we strive to bring increased value to our customers through their software subscriptions with improved and innovative capabilities. For example, we recently released a new next generation donation form in Raiser's Edge NXT With the goal of increasing the conversion rate and donations our customers raise, we match the new donation form with Prospect Insights, Which utilizes AI to identify and qualify candidates for major gifts. It's still early days.

Speaker 2

However, The results are promising. Many customers are raising more money and that fuels the delivery of their missions and revenue growth for us. I'd like to drill into this example a bit more to illustrate the power of our suite. We think it's unmatched in our space And it's a strong competitive differentiator. After using our next generation donation form and prospect insights, Donations can be processed via our credit card processing service, Blackbaud Merchant Services.

Speaker 2

Those donations Then get recorded in our fund accounting system, Financial Edge NXT and are logged into Raiser's Edge NXT, Our donor management system of record. All of this is enabled seamlessly and automatically. This has great value for our customers As it not only maximizes their fundraising, but also minimizes their back office and administrative workloads. A great example of this is Martletts, a U. K.-based hospice provider.

Speaker 2

With their previous technology solution, Donation processing required 5 to 6 distinct steps. Now donation batches are processed with a single click. That includes sending each donor an automatically generated thank you message. In their own words, Blackbaud Free's up time for our team to love our supporters more and that enables their scarce human resources to spend more time on their mission and with donors. Another example of the power of this suite is a win this past quarter with Grace School in Houston, Texas.

Speaker 2

After a recent strategic planning meeting, this private faith based K-eight school Realized their data was disconnected and had limited decision making. They wanted a connected system Not just for convenience, but because they see the power in the outcomes that connected data can drive. Our solution included 5 major We also have a number of new product innovations that are underway. In early June, we announced additions to our Intelligence for Good product suite. That announcement outlined initiatives and investments that we plan to implement over the next several quarters to make artificial intelligence more accessible, Powerful and responsible across the social impact sector.

Speaker 2

Much has been said of AI lately, but AI is not new to us. For years, Blackbaud has been using AI enabled capabilities in our analytics offerings. That said, We're expanding our strategy into next generation and generative AI technology that addresses specific challenges related to fundraising, stewardship, corporate impact and education needs. We'll be rolling out an extensive new set of capabilities across our product portfolio. For example, AI for peer to peer fundraisers, AI for donor stewardship and AI for corporate impact, and these are only a few of the capabilities we have planned.

Speaker 2

In July, we announced our newest cohort of participants in our socially good start up program. This program, which was launched in 2020, It's designed to help new companies with creative solutions launched successfully. This year's cohort is focused on using generative AI To increase impact for nonprofits and companies, this cohort includes 10 startups that provide AI solutions for grant writing, Purpose built marketing, prospect outreach and strategy, major gift administration and content creation to name just a few. Also at the beginning of June, we hosted our annual developers conference. With nearly 10,000 third party developers registered In almost 4,000 customers using a third party app, our developer community is an important component of our ecosystem.

Speaker 2

And looking more broadly at our ecosystem beyond software development and AI, we're also focusing more energy on our partner network to the Blackbaud marketplace. This is a great way to extend our joint capabilities, leverage our extensive customer base and distribution And enter into revenue share agreements. Last but not least, we recently announced that we made a small but strategic investment in Momentum, A leading AI focused Blackbaud partner and graduate of our Social Good Startup program, our investment in momentum allows us to accelerate product delivery And embed AI capabilities in solutions like RE NXT to optimize fundraising and stewardship processes. So as you can see, there's plenty underway on the product side of our business. We look forward to sharing more about these exciting developments During our product update briefings in October, at our BBCon user conference and during future quarterly earnings calls.

Speaker 2

I'd now like to spend a bit of time updating you on the progress we've made on our initiative to modernize our pricing and contract terms. The effort is maturing nicely and is well on its way. We have already renewed customer contracts dated Through mid September, have notified customers with December 2023 contract renewals and in some cases Are already working larger strategic accounts with renewal dates into the first half of twenty twenty four. The vast majority of customers are opting for the 3 year contract option. It is higher than we expected when we launched the program late Pricing aspect of the program is performing equally well.

Speaker 2

For software subscriptions we renewed in the 2nd quarter, The 1st year subscription price increase is up from what we experienced in the Q1. These multiyear contracts include annual Please keep in mind, as we reported on our last call, that our heaviest months for renewals are June, July In December, so while the June July renewals are now completed and the December renewals are largely notified, The revenue impact has yet to be recognized in a meaningful way. Before I turn the call over to Tony, I'd like to spend some time talking about the commitment we make every day to our employees and our customers. We're committed to strengthening the impact we make Through the way we operate our business, setting the very highest standards, we continue to be the leader in helping individual change makers, Universities, schools, nonprofits, charities and companies around the world drive impact for their causes. To give you a sense of the impact our business has, over $100,000,000,000 are donated, granted or invested through our systems every year.

Speaker 2

60,000 teachers reached 3,400,000 students with critical skills learning through EverFi's learning modules. 900,000 Our YourCause platform volunteered a remarkable 12,000,000 hours last year alone. It's that kind of impact that drives our employees And our company. And most importantly, none of this could be achievable without our exceptional team members who deliver impact every day for our customers. I personally want to thank them for their hard work, their dedication and the passion they bring to the job every day.

Speaker 2

It's their efforts that enable The strong execution on the operating plan that we reviewed with you today. With that, I'll turn the call over to Tony.

Speaker 3

Thanks, Mike. Good morning, everyone. 2nd quarter financial results were solid and in line with the increased guidance we announced on last quarter's call. The benefit of cost actions we've been taking began to be realized this quarter, which drove a significant improvement in adjusted EBITDA both sequentially And over last year's Q2 and the operational progress we are making including our modernized pricing is leading to impressive bookings and cross sells And has positioned us well for accelerating revenue growth through the remainder of the year and into the next. For the Q2, Likewise Reported revenue of $271,000,000 representing organic revenue growth of 3.2% at constant currency.

Speaker 3

Organic recurring revenue grew 4.8% at constant currency and non strategic one time services revenue declined by $4,000,000 From a booking standpoint, we signed several notable enterprise level contracts during the quarter. Recent examples include EverFi's previously announced contract with the Medical University of South Carolina to provide preventative behavioral health to K-twelve students As well as its expansion with JPMorgan UK for STEM training. And we secured a multiyear renewal and cross sell by adding Blackbaud services to the ALS Association's peer to peer solution. Transactional revenue optimization and Expansion is another key business driver in our 5 point operating plan. Transaction performed well this quarter growing in the high single digits year over year.

Speaker 3

As a reminder, transactional revenues are included in the recurring revenue line. Each of the 3 revenue streams of transactional revenue performed well and grew in the quarter, Driven by tuition management as enrollment continues to trend upward. We saw a continued strong performance in the JustGiving business And began to see positive impacts from the rate change we implemented in January on Blackbaud Merchant Services. As I mentioned earlier, Our cost management program began producing sustainable results this quarter based upon actions we've previously taken. As expected, cost items are more immediately impactful to the P and L than our pricing actions.

Speaker 3

Pricing actions build each month as renewals occur. For the Q2, total costs were down $14,000,000 year on year on higher revenue. That's good performance and represents a 6% cost reduction from a year ago and it shows the leverage that's inherent in our business. It's our intention to keep a tight hold on costs going forward. While we may have some expense growth owing to inflationary pressures, we are managing headcount, our largest expense Tightly and we'll continue to scrutinize all other costs on an ongoing basis.

Speaker 3

Adjusted EBITDA at constant currency It was $89,000,000 for the quarter, which was $17,000,000 higher than the Q2 of 'twenty two and represents a 24% growth rate. The adjusted EBITDA margin at constant currency of 32.9% was an improvement of 5.9 percentage points Over the 27% recorded last year. Taken together, rule of 40 at constant currency was 36% for the quarter, Up over 4 points from last year and over 5 points sequentially. So we're tracking well against our commitment To be at a rule of 40 run rate by year end. During the quarter, we recorded an additional non cash expense of $19,800,000 to raise our liabilities for certain probable loss contingencies related to the security incident to $50,000,000 We're in active discussions with the attorneys general To settle that matter and are hopeful for resolution in the near future.

Speaker 3

We had another solid quarter of adjusted free cash flow production And are on track to attain our increased guidance range of $190,000,000 to $210,000,000 for the year. For the Q2, adjusted free cash flow was $44,000,000 Higher profitability and good cash collections self funded higher cash taxes, Which were up from last year due to increased tax rates in the UK, changes in deductibility of software development costs here in the U. S. For federal tax purposes And conclusion of tax attributes that were utilized in prior periods, all of which were already considered in our guidance range. We ended the quarter Turning to the remainder of 2023, we are reiterating the full year financial guidance, which we increased in Q1.

Speaker 3

We anticipate annual 2023 revenues of $1,995,000,000 to $1,125,000,000 Adjusted EBITDA margin of 30.5 percent to 31.5 percent, rule of 40 currency of 34.8 percent to 38.6 percent, a nearly 7.5 point improvement year over year at the midpoint And adjusted free cash flow of $190,000,000 to $210,000,000 The midpoint of our free cash flow guidance is substantially higher than last year and represents approximately $3.75 per share, Which at current share price is a free cash flow yield of approximately 5%. We intend to use this year's free cash flow to retire debt And drive to our 2.0 debt to EBITDA target. As free cash flow per share grows into 2024, we believe it will present a great value creation As we head into next year, we'll provide more guidance on our go forward capital allocation and capital return strategy. So to conclude our prepared comments, we're pleased by the progress we've made during the Q2. Our 5 point plan is driving strong results.

Speaker 3

We've started realizing cost benefits and margin improvements and set up well for increasing revenue gains and have strong cash flows. With that operator, please open the lines for questions.

Operator

Thank you. We will now take our first question from Brian Peterson with Raymond James.

Speaker 4

Thanks, gentlemen. Congrats on the quarter. So I wanted to hit on the pricing success that you guys have had. I know it's a key topic. I'd love to understand what the feedback has been from customers, anything on retention and how that's trended versus your expectations.

Speaker 4

Any color you can provide there?

Speaker 2

Yes, sure. Good morning. This is Mike. Program is going really well. We launched this last year and it Sorry to go in effect in March.

Speaker 2

Customer retention and renewals are right where we thought they would be. Most customers are opting for a 3 year contract, which started March. So we are Pretty deep into the program, we're only renewing about 35% Of the total this year and of that about 70% of that is already done. And so the New pricing eventually takes effect in the second half of this year. So we didn't get really much revenue in Q2 builds In Q3 and Q4, just go forward, but it's going well.

Speaker 4

No, that's great to hear, Mike. And maybe just a I'd be curious, when you talk to your customers, how are they thinking about leveraging generative AI? And what do you think the early use cases will be kind of across the nonprofit landscape?

Operator

Thanks, guys.

Speaker 2

The early use cases for outreach to donors is an example. I mean, there's a lot of efficiency and opportunity using generative AI. For that, it's part of the investment we made in that company I mentioned in my prepared remarks. So those are the that really is the first early use case It's market and donor messaging and outreach.

Operator

Thanks, Mike. You're welcome. Our next question comes from Rob Oliver with Baird. Please proceed with your question.

Speaker 5

Great. Hi, thanks guys. Good morning. Mike, another one on the price increases, a follow-up for you. So I appreciate that color With 35% of the total, I think you said up this year and 70% of that done.

Speaker 5

So can you just talk a little bit, I know we didn't see Much of an impact at least in the numbers in Q2 from that. Is that because deals were back end loaded in June as they tend to be in software? And then can you also talk a little bit about the pricing uplift that you're getting relative to expectations? Obviously, we've got a ramp in revenue growth in the back half the year, so just want to get comfortable what you're feeling relative to that. And then I had a quick follow-up for Tony.

Speaker 2

Sure. So the Program again started last year, but the contract renewal started March. So with the fact that we're a reoccurring Our ratable rev rec business, it ramps up and it takes a while. So you're right, we didn't get Much of an impact at all in Q2 and it will start to ramp in Q3 and Q4. We added a Slide to our investor deck, it's Slide number 21.

Speaker 2

And it does a good job in showing just The 2023, so 35% of the total, just how that ramps this year quarter by quarter. And then obviously, we get a full year effect of just that 35% next year. But then of course next year we're going to renew Another 30% on top of that 35% and it keeps rolling every single year. We're getting the pricing we anticipated. We improved or increased our guidance and we're confident in that.

Speaker 2

And so just doing the math first half second half of this year, it shows a nice ramp up in organic growth. And so I think we've really proven in the quarter, The margin opportunity is starting to happen. And these contract renewals and realizing the pricing will also drive margin Because a lot of it falls through. So we think we're going to have a really nice growth in Q3 and Q4. It's a great setup for Future years, as well.

Speaker 2

And again, we're getting the pricing we anticipated and programs going just really well.

Speaker 5

Great. Thanks, Mike. I appreciate that. And then, Tony, one for you, and it sounds like we're going to get more color on this In late summer fall, but when you look at you guys bringing your debt ratio down nicely here, you also have some unknowns In terms of cash on the liability side from the breach, but would you look at the capital allocation strategy like looking out at some of the say privates out there, we're starting See a break in the M and A market a little bit here. Do valuations look more reasonable to you?

Speaker 5

And it's been a little while since guys made an acquisition, so we're kind of getting into the zone here where that might happen again. So any color there would be appreciated. Thank you.

Speaker 3

Yes, Rob, like you said, the cash flow is looking really good. Collections have been strong. Overall, it looks very positive obviously with the guide, we've hit that increased guide that we gave last quarter on track on that front. The debt pay down, assuming we don't have any Material settlement, we'd expect to be close to 2 times leverage by the end of the year, which is kind of as you know our optimal level. So that opens us back up To start looking at more acquisition opportunities, reinstating potentially stock buyback really between The EverFi acquisition now has been about paying down the debt and getting that leverage profile down.

Speaker 3

So we'll be in good Shay, I do think the market is opening up. I think valuations have improved a bit from the highs that they were at. So I'm sure Mr. Mooney and team will Be active and engaged looking at the market for new opportunities as well.

Speaker 5

Great. Thanks again.

Speaker 3

Thanks Rob.

Operator

Our next question comes from the line of Parker Lane with Stifel. Please proceed with your question.

Speaker 6

First one for you, Tony. When we look at the recurring gross margin improvement here, very solid year over year, quarter over quarter. Just wondering if you could unpack that a little bit and help us How much of that is the result of pricing versus IT consolidation versus any other initiatives you've put in place to improve that? Then as we look forward, do you think this is a sustainable level that we should build off of or should there be some variation along the way?

Speaker 3

Yes, Parker, it's a good question. We haven't seen a significant impact From the pricing, yes. And when you refer to that new chart in the investor deck that will help you get to those numbers. But we've seen A small impact in Q2 that's going to grow substantially in Q3, Q4 as you'll see in that new chart. And then by Q1, We're getting a full quarter impact of that pricing.

Speaker 3

So that will have some ongoing improvement, to the gross margin and overall margins because a lot of that will fall through. The bigger drivers of the gross margin improvement we've seen thus far is closing 4 colo data centers last year, Accelerating our move to the cloud, we renegotiated because of moving to the cloud, renegotiated those key contracts with Microsoft And AWS and got some more favorable pricing on those cloud environments. And then obviously the cost actions we took Late last year in Q1 this year, largely related to headcount and other cost items are having that positive impact. The one wildcard To your kind of follow-up on the sustainability, the one wild card as you know that we always have to look at is what happens on the transaction So should transaction volumes grow or shrink significantly in the future that would have an impact on the Gross margins obviously because the BBMS business obviously has a much different margin profile than does our subscription business. That would be the one wildcard is the sustainability.

Speaker 3

But within the true contractual recurring revenue, I would expect this is a point that we'll The improvement upon not go backwards from as the margin expansion from pricing comes in play. And we've got a couple more colo data And some other things that will help the cost structure as well.

Speaker 6

Got it. And the second one is for Mike. Mike, when you look at the Corporate vertical, you obviously got deeper in there last year with the EverFi acquisition. Just curious if you could Assess the health of the demand environment around corporate right now, what you're seeing out there. And if you feel like some of those challenges that you faced from A sales standpoint, I know there's somewhat of a reorganization there last year.

Speaker 6

If that's all in the rearview mirror and it's all systems go now, just What are you seeing on that corporate side of things?

Speaker 2

Yes. Year to date bookings are pretty good. Still a lot of interest out there. We've got a good pipeline. I announced a couple of deals in the last two quarters in these calls, Medical University of South Carolina, Center For Audit Quality, Microsoft, so a lot of good deals that we've closed year to date.

Speaker 2

There's the organization changes to your point were complete last year. And overall at the company level, Year to date bookings are pretty good. We're seeing the growth year to date across the whole product portfolio Pretty well. And so the exciting part of that, of what we're doing is this sort of new layer Of organic revenue with this contract and pricing, which those slides come on Slide 20 in the deck, The investor deck shows that in 2021 just as the example for this year. It's sort of a whole new layer of revenue Now we have not yet experienced and we will start to see it, to Tony's point in mind earlier, Q3 and Q4 this year, Given our increased guide, but remember that's only a small part of it too because again 35% of the contracts are renewing this year And in Q3 and Q4, we're willing to get a partial impact of those.

Speaker 2

And so we'll get a full year effect of those next year, But the next year, we're going to renew on top of that another 30% of the contract. So this multiyear program then just restarts again in 2026. So that on top of good year to date bookings is just a new layer of organic revenue growth that's pretty exciting, Drive more margin improvement as well.

Speaker 6

Yes, understood. Thanks again for taking the questions guys.

Speaker 3

Sure. Thanks, Bart.

Operator

The next question is from the line of Kirk Materne with Evercore ISI. Please proceed with your question.

Speaker 7

Yes, thanks very much. Congrats on the results guys. Mike, I was wondering if you could just talk about the opportunity for cross sells as the renewal portfolio comes up. Just getting the pricing on the renewals is obviously job 1, but just thoughts on the opportunity to cross sell and up sell other solutions as part of that process, if that's Sort of the order of the day or is that something you think of as more of like a 2024, 2025 opportunity?

Speaker 2

Yes. No, we constantly do that. We've got sales folks Focused on cross sell and new logo folks. And so that's a part of renewals and it's a part of just sort of Base assignments, job assignments around cross selling into the existing base and we've got a lot of opportunity. The other thing that's Driving that is innovation.

Speaker 2

As we continue to drive the integration of our platforms and making better user experiences On key products like Raiser's Edge NXT, Financial Edge NXT and our payments processing, that drives cross sell opportunities. So Cross selling is still a big opportunity for us across the board in the corporate sector as well.

Speaker 7

And then Tony, just on the sort of leverage in the business, I was just kind of curious, could you just talk a little bit about sort of any incremental costs around Gen AI, as every company has sort of evolved their platform to incorporate that. Just any Thoughts in terms of there are any incremental offsets, I guess, to some of the base benefits you're getting from some of the cost actions you guys have taken already? Thanks.

Speaker 3

Thanks, Kurt. Not significantly overall, so we certainly reallocate, I would say, And revisit our allocation of our investment in R and D quite often on a regular basis. And so I think it's more of a reallocation of the total investment As you know, we spend a good chunk of our overall dollars on R and D and innovation. So any place that we've had an increase in the last Couple of years, over the last few years, frankly, it's been the move to the cloud. So we've had a lot of redundant costs as we still pay for the Colo data centers and pay Move to the cloud and then also are paying for the new cloud environments.

Speaker 3

And then the other places we've made a lot of investments in cyber as every company is doing we continue to do that. That's probably one of the few places in the business that we're seeing an increase in expense overall.

Speaker 7

Thank you.

Operator

Our next question is from the line of George MacRuryan with Bank of America. Please proceed with your question.

Speaker 8

Hi, thanks for taking my question. If you could kind of comment on the recently announced Changes to the partner program and kind of what your long term expectations are for the contribution from that channel?

Speaker 2

Yes, sure. This is Mike. So we have a new leader that's running that program as of kind of mid year last year. And we're really driving a couple of components there. We've got their social what we call social good startup program, Which basically creates new partners and then we have new partners coming in of all types.

Speaker 2

They're either development Companies, software companies, services businesses, and we've got a much higher focus on This partner ecosystem and then we combine that with the developer network. I talked about the fact that we've got Over 10,000 registered developers in that program. If you go back just 4 or 5 years, there were maybe 500, now there's over 10,000. And so we're focused on the black what we call the BlackVog ecosystem, where it's partners And these are again software companies, systems integrators, professional services firms. It's developer network That's important for us.

Speaker 2

And so we're building this ecosystem because frankly it helps our customers and it helps us. Our solutions are If you will, they're expanded through the partner network and we're looking to drive shared revenue And some more organic growth through these partnerships.

Operator

Thank you. The next question is from the line of Matt Van Vliet with BTIG. Please proceed with your question.

Speaker 9

Good morning, guys. Thanks for taking the question. I guess first on the education space, just Curious, maybe if you could dive in a little bit there and seeing this being kind of the key selling season, especially on the upsell, cross sell side of it. What you're seeing there? How much appetite is there from your schools to continue to sort of use more of the platform as you've made some additions a product standpoint?

Speaker 2

Yes. I mentioned one school in my prepared remarks. This is actually pretty heavy implementation because the schools need to get ready for the fall. So we see a higher selling season Sort of earlier in the year and the spring summer is like implementation time to get the schools ready. Good cross sell opportunities there.

Speaker 2

The K-twelve space that we're in, it's really our widest product portfolio. So there's quite a few products that we sell there from tuition management to financials To fundraising, to running the school, SIS student enrollment systems, and we typically will Go in, in a new logo and provide a platform. It might start with the school operating system, SIS and school admissions and things or it might start with fundraising, but then we have a lot of opportunity to keep going back and adding to that, Which happens quite often. So yes, that business is doing well. We get a really good footprint there, good partner network there as well.

Speaker 2

And so yes, it's been a really good environment for us. The payment side of that, which is the tuition management, that platform has been really strong for us Year to date this year?

Speaker 3

Matt, we're seeing good continued increase in enrollment as well in the school space, which is really helping on the tuition side.

Speaker 9

Okay, great. Thank you. And then, Mike, you talked about even starting to discuss with larger enterprises level customers On the renewals for early next year, curious on what their feedback is in terms of the level of price increases. Are you seeing Are hearing much pushback as they look at that 3 year option versus 1 year? Just curious what the feedback is on some of those very large customers?

Speaker 2

Yes. No, we're not. I mean, you have to remember too that we're not alone there. What I mean by that is These enterprise customers have lots of software providers. It could be SAP or Oracle or Microsoft and others, Forte and others.

Speaker 2

And so we're not necessarily alone there in basically requiring multiyear contracts And price increases. So that's kind of one point. The other point is, we are a system of record. So the solutions we provide for The midyear and enterprise is a system of record. Their revenue we're the revenue generator for those foundations, if you will.

Speaker 2

So we are a it's not a discretionary choice for them. So we're a core system of record. We have great long term relationships. And those contract renewals of customers of all sizes are going to plan and going quite well. And the way the process works, as I mentioned in my prepared remarks, we've already notified the customers through the end of this year, And we've already completed pretty much the end of July and most of August and a big part of September October It's already complete.

Speaker 2

So our visibility to these renewals and our visibility to organic revenue growth Has never been this strong because we've got this future view of renewed contracts and price increase in organic growth, which is awesome. So the enterprise customers, we're dealing with some of those discussions right now because they're into next year Because we notify quite far in advance. It's all going really well.

Speaker 9

All right. Great. Thank you.

Speaker 2

Yes. You're welcome.

Operator

Thank you. At this time, we've reached the end of our question and answer session. And I'll turn the call back to Mike Gianoni for closing remarks.

Speaker 2

Thank you, operator. Thanks everyone who joined the call today. In summary, we had a solid second quarter And we are successfully executing our 5 point plan. We're innovating products, driving bookings, optimizing transactional revenue, Modernizing contractual pricing and tightening cost management. Our operating plan has in effect a 1 two punch.

Speaker 2

The cost initiatives are the first and have started to produce improved margins in the second quarter. And the second punch It is the progress we're making on the renewal side of the business that will accelerate revenue growth in the 3rd and 4th quarters. By the Q4 of this year, we expect to achieve organic revenue growth in the high single digits as well as Rule of 40, Well ahead of our prior target of 2025 and looking ahead to 2024, we expect to continue growing revenue and expanding margin confident that we will continue to build on our momentum and drive strong, sustainable growth and value creation for shareholders.

Speaker 5

Thank you.

Operator

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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