Blackbaud Q2 2026 Earnings Call Transcript

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Provided by Quartr
July 29, 2026

Key Takeaways

  • Positive Sentiment: Blackbaud reaffirmed its 2026 outlook at the upper half of its guidance ranges, with EPS and free cash flow expected at or above the high end. Q2 adjusted EPS rose 9% to $1.33, while free cash flow increased 46% year over year to $75 million.
  • Positive Sentiment: Q2 organic revenue grew 3% to $291 million and adjusted EBITDA reached $110 million, or approximately a 38% margin. Management cited strong bookings, improved win rates, new-logo momentum, and longer contract terms as supporting future growth.
  • Positive Sentiment: Blackbaud reported encouraging early customer results from its Development Agent, including above-industry reply and open rates and higher-than-average attributable gift sizes. Four additional AI agents are planned, although management does not expect meaningful AI revenue contribution in 2026.
  • Negative Sentiment: Results are expected to remain heavily weighted toward the second half, particularly Q4, partly due to the rollout of a platform fee on certain online transactions. A contractual recurring-revenue renewal cohort approximately 40% larger than last year is also expected to pressure reported gross dollar retention in the near term, though management expects it to recover to 91%–92% by the end of 2027.
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Earnings Conference Call
Blackbaud Q2 2026
00:00 / 00:00

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Operator

Good day, welcome to Blackbaud's Second Quarter 2026 Earnings Conference Call. Today's conference is being recorded. I'll now turn the conference over to Tom Barth, Head of Investor Relations. Please go ahead, sir.

Tom Barth
Tom Barth
Head of Investor Relations at Blackbaud

Good morning, everyone. Thank you for joining us on Blackbaud's second quarter 2026 earnings call. Joining me on the call today are Mike Gianoni, Blackbaud's Chief Executive Officer, President, and Vice Chairman, and Chad Anderson, Blackbaud's Executive Vice President and Chief Financial Officer. Please note that our comments today contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our most recent Form 10-K and other SEC filings for more information on those risks. Today's discussion will focus on non-GAAP results. Please refer to our press release and investor materials posted to our website for full details on our financial performance, including GAAP results, full year guidance, and long-term aspirational goals. We believe that a combination of GAAP and non-GAAP measures provide a more representative view of how we measure our business.

Tom Barth
Tom Barth
Head of Investor Relations at Blackbaud

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 substitute for GAAP measures. We have also provided a slide presentation with supplemental data and additional highlights and financial metrics. The earnings release, supplemental tables, and presentation are available in the investor relations section of our website on blackbaud.com. With that, let me turn the call over to you, Mike.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Thank you, Tom. Good morning, everyone. We appreciate you joining today. We delivered another quarter of solid execution against our operating plan with a continued focus on efficiency and a rapidly accelerating pace of product innovation. We achieved our planned revenue and other financial targets for the quarter. As you saw in our press release, we pointed investors to the high end of our full year financial guidance ranges, which does not include any meaningful revenue contribution from our five new AI products launched or announced this year. AI enablement remains central to our success, both in terms of the capabilities we're delivering to customers and in the way Blackbaud is operating. Our first agentic products moved from launch into real customer results, which is reinforcing our confidence in both our strategy and the opportunity ahead.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

We continue to invest aggressively in innovation to produce meaningful product enhancements and new solutions throughout our portfolio, including generative and agentic AI capabilities. Our products enable our customers to dramatically improve engagement levels, raise more money, and lead their organizations while increasing operational efficiency, ultimately allowing them to spend more time executing on their missions and less time on administrative tasks. No company can better help customers deliver on their meaningful missions than Blackbaud. Blackbaud brings nearly 45 years of specialized domain expertise, serving as the system of record for our customers with deeply embedded workflows purpose-built for the social impact sector. At the same time, we have continued to invest heavily in cybersecurity and AI governance to help protect our customers' data and provide a framework for our AI solutions to use that data responsibly.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

These are some of our customers' largest concerns. We have addressed them head-on. A significant number of organizations in our vertical markets have limited IT resources and face turnover and staffing shortages. We win because our solutions are intuitive, require fewer complex customizations and integrations, and translate advances like AI into practical outcomes customers can trust, building confidence that is supporting longer contract terms at renewal. In fact, approximately 90% of our contractual reoccurring revenue is on three-year or longer contracts and 25% on four-year or longer contracts. You may recall that just a few years ago, more than half of our renewal volume was from customers on one-year contracts. This quarter, we again saw a healthy mix of new customer logo wins and cross-sales of additional solutions to our existing customers. Several of our new logo wins were competitive displacements across multiple verticals.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

New logos this quarter included Nelson University, which selected Raiser's Edge NXT together with our analytics capabilities, and the East Hampton Historical Society, which chose Raiser's Edge NXT to modernize its fundraising. Additionally, we continue to see great momentum in upselling with our Development Agent with cross-sales in our higher ed and nonprofit verticals. We also had several notable wins that were competitive takeaways and returning customers. Jacksonville Zoo moved to Raiser's Edge NXT and Prospect Insights, displacing an incumbent point solution and returning to Blackbaud after several years away. The Centre for Autism Services Alberta selected Financial Edge NXT, a competitive takeaway from a horizontal accounting provider and another returning customer. These wins reflect the strength of purpose-built, connected solutions over fragmented generic alternatives and the value of our solutions in meeting our customers' ambitious goals.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

We are more confident than ever that AI strengthens our ability to deliver differentiated solutions and drive future growth, as well as improving how we run Blackbaud. Our first agentic AI offering, the fundraising Development Agent, launched into general availability ahead of schedule earlier this year. We are now seeing genuine, measurable results and return on investment from our customers. The Development Agent identifies potential and dormant donors who are not in a major gift officer's portfolio and executes personalized, brand-aligned, multi-touch engagement sequences under human supervision. Early results are compelling. In production, the agent is generating a reply rate that's significantly above the industry average, a message open rate metric meaningfully above industry benchmarks, and an average attributable gift size well above industry norms. Importantly, customers are engaging a broader donor base without adding headcount.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

The Development Agent is just the first of many ways we expect to add value for customers. Over the last few weeks, we announced four additional Agents for Good solutions planned for the coming months, each embedded directly in the solutions our customers already use every day. The Data Health Agent, which will run autonomously within our fundraising solutions to identify duplicate entries, confirm contact information, resolve constituent life changes, helping development offices run more curated and targeted campaigns. This agent will free up customer resources as most customers have data health assigned to staff. The Admissions Agent, which will enable any independent K-12 school to offer the high-touch personalized admissions experience that previously only the most well-resourced institutions could achieve. The Digital Marketing Agent, which will help plan campaigns intelligently, from selecting the right audience, to generating tailored content, to optimizing outreach across channels in real time.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

The Accounts Payable Agent, Financial Edge NXT's first autonomous AI agent, which will work alongside finance teams to improve their own efficiencies to include being able to automate invoice intake and optimize payments. Alongside these agents, we're advancing a reimagined cloud-native, AI-first connected platform, a single operating system for social impact that connects every product, learns from every interaction, and gets smarter over time, all while keeping humans firmly in control. We'll unveil the full details of this connected system, along with additional product news at bbcon 2026 in Columbus, Ohio at the end of September. We're excited about what's ahead. I also wanted to highlight some innovations specific to our K-12 vertical.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Within K-12, we previewed the Admissions Agent at our bbcon 2026 user conference and introduced a wave of embedded AI across our total school solution, including predictive candidate insights, new enrollment contracts capabilities, and student success insights that help schools proactively support at-risk students. Also embedded is Chat for Blackbaud AI that helps administrators quickly ask questions of their data, get insights in plain language, and take action directly within the solution, as well as a common records engine that syncs data in real-time across our student information and fundraising systems, breaking down silos between departments and offering our customers the capability to integrate various systems. Our competitive differentiation is clear and widening. Our strength comes from combining proprietary data, one of the most robust sets of social impact data processed and secured in real-time with the sector's richest social impact signal graph, deep embedded sector context, and purpose-built governance.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Native integrations across systems of record, engagement, financial accounting, transaction processing, and intelligence further strengthen that advantage. Our agents stand apart precisely because they're embedded in the solutions customers already trust, reducing the data gaps and security risks created by bolt-on tools. We're also seeing continued momentum in customer adoption. Usage of AI-powered workflows has expanded meaningfully over the past several quarters. More than half of our Raiser's Edge NXT customers use machine learning-enabled donor prospecting, generating tens of billions of predictions annually that live and aggregate within our systems, creating a self-improving feedback loop that generates better fundraising outcomes across our customer base. We also believe trust is critical to organizations allowing intelligent systems to act on their behalf.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Our customers trust in us as their partner, trust in our solutions that they are used to, trust in the data, and trust in our security are advantages for both our customers and for Blackbaud. Trust matters as AI usage increases. Recent research from the Blackbaud Institute shows that AI is now common across the social impact sector. Yet most organizations are held back by a gap between adoption and effective use. We're helping close that gap in two ways, by delivering trusted, transformational AI capabilities inside the tools our customers already use, and through the AI Coalition for Social Impact, which recently launched a free product-agnostic AI for Social Impact Certification Program to help professionals adopt AI effectively and responsibly. Turning to how we use AI internally.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

We continue to identify, experiment, and scale solutions across engineering, sales and marketing, customer success, and the back office to improve speed and operational efficiency. Our engineering teams use leading generative AI tools such as Microsoft, GitHub Copilot, Anthropic Claude, and other approved solutions to accelerate development, reduce time to remediate software issues, and increase throughput on new product delivery. We're also applying AI to better qualify inbound interest, support sales development, and improve customer support. I believe our past performance is compelling. In addition to improving our operations, go-to-market capabilities, and pace of innovation, we are focused on the value creation opportunities ahead in the near, mid, and long term, both operationally and financially. As a reminder, from 2026 through 2030, we are targeting double-digit annual EPS growth driven by the following.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Organic total revenue growth of 4%-6% annually, with potential upside based on viral events and new product launches such as our Agents for Good catalog. Adjusted EBITDA growth of 6%-8% annually while expanding our Adjusted EBITDA margin to 40%+. Slide 24 in our investor deck provides more detail on the planned initiatives to drive continued margin expansion, most of which are already underway. We expect this improvement in EBITDA to continue to translate to strong free cash flow growth. We plan to use our very strong cash flows to drive purposeful capital allocation strategy with consistent stock repurchases as a core tenet. We expect to deploy 50% or more of our cumulative free cash flow generated between 2026 and 2030 towards stock repurchases and continue to reduce our common stock outstanding.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

This is a continuation of our significant stock repurchase program over the last couple of years, in which we have reduced common stock outstanding by approximately 15% since the fourth quarter of 2023. In the more near term, as we stated in our earnings press release today, we are pointing investors to the high end of our original FY 2026 guide across revenue, Adjusted EBITDA, EPS, and free cash flow. Chad will provide more detail and color in a minute. Conclude, we believe Blackbaud is a compelling investment with multiple opportunities for strong shareholder returns. From an operating, financial, and strategic perspective, we are pleased to be carrying real momentum into the second half of the year and the years ahead. We look forward to our continued journey.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

I also would like to thank the entire Blackbaud team for their continued strong efforts in having Blackbaud named to TIME's list of America's Best Companies in 2026, a job well done. I'd like to turn it over to Chad to walk through our second quarter results and our guide for the remainder of 2026.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Thanks, Mike, and good morning, everyone. In the second quarter, we continued to balance cost management with growth opportunities and innovation. As we do each quarter, we're focused on durable subscription-led performance, prudent expectations around transactional revenue, and steady progress on profitability and cash flow. Our Q2 performance reflected continued demand for our mission-critical solutions, along with growth in transactional revenue. As always, transactional revenue can vary from quarter to quarter, and our guidance philosophy assumes performance consistent with historical patterns and does not include any assumption for viral giving events. Q2 organic revenue grew 3% to $291 million. As we previously indicated, we expected some moderation in organic revenue growth during the year, given the size and timing of certain renewal cohorts.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Our second quarter results were in line with those expectations and support our full year outlook. Non-GAAP Adjusted EBITDA was $110 million, representing an Adjusted EBITDA margin of approximately 38%, reflecting continued operating discipline while maintaining investment in growth initiatives and innovation. Our disciplined operating focus again translated into strong bottom-line performance. non-GAAP EPS increased 9% to $1.33 in the second quarter. We're on track to achieve high teens EPS for the full year 2026, the high end of our guidance range. Free cash flow increased approximately $24 million, up 46% year-over-year to $75 million in the quarter.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Strong free cash flow generation continues to support our balanced capital allocation strategy. We remain committed to investing in growth, innovation, and customer success while returning capital to shareholders. During the first half of 2026, including the net share settlement of employee stock compensation, we repurchased just over 6% of our outstanding common stock as of December 31st, 2025.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Since the fourth quarter of 2023, we've offset 100% of dilution from stock-based compensation and also reduced common shares outstanding by approximately 15%. Overall, we delivered another solid quarter and first half, reinforcing our confidence in the full-year outlook. Moving on to our 2026 outlook. Based on our first half performance and our current view of the operating environment, we're reaffirming our full year guidance ranges. We now expect to finish in the upper half of the range across all four key metrics: revenue, Adjusted EBITDA, EPS, and free cash flow. For EPS and free cash flow, we expect results to be at or above the high end of the ranges.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

As a reminder, we continue to expect 2026 quarterly financial performance, including revenue growth and profitability, to be heavily weighted to the back half of the year, and particularly the fourth quarter, some of which I'll discuss in a moment. Before I close, I'd like to provide a few housekeeping items that are already contemplated in our financial guidance and may be helpful as you think about modeling the business through the balance of 2026 and into 2027. Donor expectations continue to evolve with increased emphasis on donor experience, reliability, privacy, and security. Blackbaud continues to invest in modern online giving capabilities to meet these expectations. Our modern online giving forms are designed to help customers raise more for their missions through configurable donor experiences, streamlined data integration, and optional fee offset capabilities while maintaining a strong focus on donor trust and data protection.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Part of that investment, we've introduced a platform fee on certain online form transactions. The fee supports continued innovation and investment in secure, reliable online giving infrastructure and related platform enhancements to minimize the impact to the majority of our customers. They can use our existing donor cover option, whereby donors pay the fee associated with their transaction. We previously discussed, the platform fee is expected to contribute to the back half weighting of our 2026 financial results, with the largest benefit expected in the fourth quarter. Turning to gross dollar retention. We've discussed previously, Blackbaud's 2026 contractual recurring renewal cohort is approximately 40% larger than last year. A result, we continue to expect a near-term dip in reported gross dollar retention as a greater amount of recurring revenue comes up for renewal during the year.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

As we move past this larger renewal cohort, we expect gross dollar retention rates to climb back to our more recent norm of 91%-92% by the end of 2027. This dynamic was factored into our full year 2026 revenue guidance, and as stated earlier, we currently expect to finish in the upper half of the guidance range. Looking to 2026 and beyond, we expect free cash flow to continue growing significantly. We anticipate deploying at least 50% of cumulative free cash flow generated from 2026 through 2030 toward share repurchases. Beyond that commitment, the company has tremendous optionality for dynamically allocating capital to its highest and best use based on market conditions, including additional share repurchases, debt reduction, and strategic tuck-in acquisitions.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

We have a lot to be proud of, executing well through recessions, financial crisis, COVID, and the shift to the cloud through a commitment to providing meaningful solutions to our customers and strong execution of our operating plan. On our journey to becoming a Rule of 45 company, we remain committed to providing investors with an attractive financial model balanced between growth of revenues, earnings, and cash flows, along with a prudent and purposeful capital allocation strategy. Always, we remain focused on providing enhanced value to our customers and our shareholders. Thank you all. Mike and I would be happy to take your questions. Operator?

Operator

Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using your speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, as a reminder, please press star one to ask a question and please limit yourself to one question plus a follow-up to allow us to facilitate as many questions as possible. Our first question comes from Brian Peterson with Raymond James. Please proceed with your question.

Brian Peterson
Brian Peterson
Analyst at Raymond James

Thanks. I wanted to start on some of the win backs that you mentioned, Mike. You don't always mention them every quarter, but I'd love to understand if there's anything in terms of the timing of why you're winning back some of those customers you may have lost. As we think about win rates overall, is there anything you can share about how those have developed in 2026?

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yeah. Hey, Brian. Thanks for the question. Yeah, I mentioned a couple of those. Those customers are coming back due to the innovation that we're driving in our core products. The AI Solutions we're embedding in those core products. It really is all about the innovation investments that we're making and announcing, and the outcomes that our customers are producing. We've got a lot of information around when customers join Blackbaud and use one of our fundraising solution, there's a pretty big uplift in donations raised, it really improves their revenue. That I think is a prominent factor in these win backs. We feel really good about when that happens.

Brian Peterson
Brian Peterson
Analyst at Raymond James

Okay. Well, that's great to hear. I know you guys raised the guidance to kind of the upper end of the range. Any help-

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yeah

Brian Peterson
Brian Peterson
Analyst at Raymond James

On what's underpinning that, and how do we think about that in terms of the line items between contractual, recurring, and then transactional? Thanks, guys.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yeah, thanks. We mentioned that we are pointing everyone to the top half of the guide range. We also mentioned, in addition to that, or included, is sort of the very top end of the range for cash flow and EPS. Sort of top half for the other metrics like revenue, very top for free cash flow, and EPS. We're having a great year in bookings. Super positive achievement in overachieving our internal sales bookings plans. We've got a lot of great leadership in sales. Some new leadership has come in just in the last six or eight months. We're having a great year related to win rates, and just beating our internal sales quota plans in a lot of areas in the company. That gives us a lot of confidence in pointing everyone to the top half of revenue for this year.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

As you know, great effect for next year and future years, because pretty much when customers sign up with us, they sign a three-year contract. The other thing, I mentioned this in my prepared remarks, I'll just mention because it's relevant to your question. Last time I talked about the fact that we had 20% of our customers on four-year or longer contracts. I just made an update in this call where it's 25% of our customers are on four-year or longer contracts, which is really great for the long run for us.

Brian Peterson
Brian Peterson
Analyst at Raymond James

Thanks, Mike.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yep, you bet. Excuse me.

Operator

Our next question comes from Rob Oliver with Baird. Please proceed with your question.

Rob Oliver
Rob Oliver
Analyst at Baird

Great. Thanks. Good morning, guys. Two for me. Mike, first for you. Just an update on the new logo program. I know this has been part of your go-to-market push since bringing in new sales leadership, and obviously, there's some noise around the gross retention around current customers and stuff. Just wanted to understand where you are with the new logo program and any proof points you can point to get us comfortable that that's on the right track.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yeah. The gross retention we talked about is gross revenue retention, and I think we've said this many times. We have a cohort this year that's 40% higher. The results of the quarter and the guide moving to the upper half is all in our plan, and we finalized the plan a year ago. All that's contemplated in the plan, so we're actually on track. All this is quite well expected. We feel good about that, Rob.

Rob Oliver
Rob Oliver
Analyst at Baird

First part of the question is new logos.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Oh, yeah. New logos. Yeah, Rob, we're doing really well with new logos, in areas like K-12, and nonprofit, and higher ed. Those markets are doing really well. Our YourCause business is just nailing a lot of new logos across the board. I've mentioned these in past calls. YourCause is closing new logos with some of the largest companies in the world. Fortune 100 companies are signing up. It's a pretty wide distribution in new logos. Again, many of our sales teams are only selling new logos. We have some that do cross-sell once a new logo's in the door or we announce new products, but many of them just do new logos. Again, we feel really good about sales bookings. We're nicely ahead of plan. All that's going quite well.

Rob Oliver
Rob Oliver
Analyst at Baird

Great. Thanks, Mike.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yep

Rob Oliver
Rob Oliver
Analyst at Baird

Chad, one for you. I'm trying to square the commentary around the high end of the guidance versus the kind of 3% constant currency growth that we saw in this quarter versus the 4%-4.5% for the full year. I know that you called out a couple things, second half waiting on renewals, obviously that makes sense. Then transactions and stuff like that being Q4. Just wondering if there's anything else going on there in terms of the pricing around these renewal contracts, if you're getting the price. Then one specific question, just around the platform fee, since that's new, would you be willing to size the potential impact of that on that Q4? Thanks.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Yeah. No, that's great. Thanks for the question, Rob. Good morning. To Mike's earlier point, we're performing to plan. The renewals program continues to perform well. Mike described the increased cohort size. As we think about the second half of the year, we're operating to plan. We talked about the renewals. I'd also mention that the transaction revenue in the quarter

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Had a tough compare. We exceeded kind of our traditional growth ranges in 2025, and had a little bit of viral giving as well. We've seen that come back down into kind of the normal range as you would expect. Whenever I think about the second half of the year, we also talked about the launch of the platform fee. Really, you can think about that as investments that we're making in order to drive better outcomes for our customers from a donor experience perspective. The monetization model is quite common within the industry as well. We're feeling really good about it. Our customers will have options if they choose to have their donors cover the fees or not. It's quite common. We've launched that effectively in the Q3 timeframe. We had planned for it.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

It was included in our guide, that's contributing to the back end weighting and particularly into Q4, Rob.

Rob Oliver
Rob Oliver
Analyst at Baird

Great. Thank you very much.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yep.

Operator

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

Parker Lane
Parker Lane
Analyst at Stifel

Hi, guys. Good morning. Thanks for taking the questions here. Mike, I was wondering if you could talk about the sales motion around Agents for Good. I think you're up to four solutions that are out there today. Does every seller in the organization promote those agents and try to get those into the customer base, or do you have dedicated teams around those today? Are you offering customers the opportunity to pilot and trial some of these agents before making the commitment on the subscription side of things, or do they have to commit on subscription?

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yeah, thanks. The first product out in the market is the Development Agent. We announced last year we had early adopter program, and it went to general availability for customers just in March, so a couple of months ago. What we've done with that, Parker, is we started with a dedicated team, because there was a lot of learnings for us and for customers. In the EAP program that started last year, for the first time ever in a new product, we signed up customers to paying contracts just to be early adopters, which they all did. The general availability pricing is much higher, obviously. That came out in March. It's sort of a ramp-up. You could think about a new product getting announced, getting early adopters using the product with a dedicated selling team, which are embedded in the product and engineering team.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

We're really close to the customer, and it's really important to get that very close feedback loop from customers because we're iterating and improving the product all the time. Once the product more matures, it gets to general availability, and then after a month or two or so, then we move it into the general global sales team. It really is to help the products mature, help our organization learn, help the customers learn. That's sort of the evolution when we launch these new products. The really cool thing is we've announced five of them now. Development Agent a while ago into general availability, four more in a press release just recently, and there'll be more announced this year. We'll have more new AI products announced, predominantly at our bbcon conference, at the end of September, I think it is, in Ohio.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

You guys are welcome to come if you'd like. We'll have even more products announced then. They're getting to be specific by vertical as well. We announced an Admissions Agent, for example, which is obviously for schools, for K-12, where the Development Agent kind of goes across our verticals because they all use our fundraising solutions. These are fully agentic new products for Blackbaud, which is super exciting. There's nothing better in sales to have a brand new solutions to talk to prospective or existing customers about. We're excited about the pace of innovation, and we're just getting going here.

Parker Lane
Parker Lane
Analyst at Stifel

Thanks, Mike. Chad, maybe one for you. Looking at the levers for additional margin expansion through 2030, vendor optimization, AI, and other efficiency gains are included on that list. Maybe those go hand in hand to some extent. Can you just talk about how big those levers are relative to the other areas, like the workforce strategy, platform modernization, and data center closures?

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Sure. Parker, thanks for the question. We're pleased with the progress of our margin expansion. It's continuing to progress very well. There are a number of levers. It's important to know that within the guide, we haven't contemplated efficiency gains in a meaningful way from AI. It's notable. We're continuing to execute on a number of initiatives, but it's also important just to note you have the natural fall through of the subscription model as well as the SaaS model. From that perspective, we're pleased. We continue to focus and have good outcomes relative to building out the GCC and the workforce strategy in Hyderabad. We'll expect to continue to see improvements there. We've talked about modernization of kind of our tech stack as well. Those are a couple of the items we've laid out a bit more detail on those.

Chad Anderson
Chad Anderson
EVP and CFO at Blackbaud

Within the investor deck for use as well.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Parker, I'll add to that too. We're in the deep process around becoming an AI-first company. We are refactoring every department in Blackbaud, every part of the company. What you're seeing now is a pretty significant improvement in innovation with five AI products launched using AI to build those products. I also mentioned it's a key thing that those products are embedded in our trusted solutions. Having trust in the solutions for the customers is super important. We've got a system of record and system of intelligence set of products with now embedded agentic AI that gives us a competitive advantage. We are refactoring the whole company.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

We are using AI in marketing, in sales, in support, in the call center, in engineering, in product management, in the PMO to refactor the entirety of how we run the business and how the business is structured as well. That's not yet factored into additional revenue growth or improved margins yet, but it's early days. I can tell you, I can clearly see some pretty interesting improvements in the operating performance of the company based on this initiative. We're being very aggressive, but also governed as we refactor the entirety of the business.

Parker Lane
Parker Lane
Analyst at Stifel

Understood. Thanks, Mike.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yep.

Operator

Our next question comes from Peter Berkley with Evercore ISI. Please proceed with your question.

Peter Berkley
Peter Berkley
Analyst at Evercore ISI

Yeah. Hey, guys. Thanks for taking the question here. Mike, you talked about sort of the different levels of AI maturity in the industry, and you guys are sort of convening the AI Coalition to sort of help that progress over time. I'm just curious, your view today on where are your customers on average in terms of that maturity stage and understanding that agents aren't necessarily expected to contribute much to revenue this year, but do you think the maturity curve is sort of progressing where you start seeing agentic contribution first half of next year, second half of next year? Is it more of a longer-term play? Just more color along those lines would be super helpful. Thanks.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yeah, I think I'll answer that kind of in two parts, like the industry maturity, which is the customers. Everyone is using, experimenting with AI in different ways. Our customers, it depends. We have customers that are such a wide range, right? We can talk about a very small local nonprofit, or we can talk about YourCause customers, which are in the Fortune 100. It's a pretty wide range. I would say that the folks that we interact with, they're all interested in using AI. I'd say it's very early days in their ability to have AI positively impact their business, except for the products they're buying from us, like the Development Agent. I talked about some of the things we're seeing with the Development Agent around big increases in things like reply rates, message open rates, and actually gift sizes, which is revenue for them.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

They're getting improved outcomes based on that solution. I still think it's early days. The other part of that question, I think, is our ability to monetize this. Not really in our numbers this year. We'll see some new revenue coming from these solutions next year and just growing over time. The interesting part also is, again, that a really big deal for our customers is there's a mix of excitement and fear of AI. I think everybody has that, and that includes our customers of all sizes. But working with Blackbaud, there's a reason why 25% of our contracts are four years and longer now. There's a trust in working with Blackbaud. There's a trust that we're putting agentic solutions into our trusted platforms. As you know, the data in our platform are not available to large language models. It's proprietary data.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

It's customer data, Blackbaud-enriched data. There's proprietary AI-learned models, contextual models that are owned by Blackbaud, and it's a trusted environment. I think that this adoption is going to grow tremendously. I still think it's early days for customers, but I think the approach that we're taking, which is fully agentic solution under customer control, embedded in our systems of record, is going to be really exciting and beneficial for our customers and for Blackbaud.

Peter Berkley
Peter Berkley
Analyst at Evercore ISI

Very helpful. Thanks, Mike.

Mike Gianoni
Mike Gianoni
CEO, President, and Vice Chairman at Blackbaud

Yep.

Tom Barth
Tom Barth
Head of Investor Relations at Blackbaud

Okay, well, that's it for today. Thank you for joining us. We will be attending a number of investor events over the coming months, including several investor conferences, which are listed on our investor relations site, and as well as Mike mentioned, our bbcon customer conference at the end of September. We hope to see you then and/or speak with you very soon. In the meantime, we wish you continued success, and have a wonderful day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Tom Barth
      Tom Barth
      Head of Investor Relations
    • Mike Gianoni
      Mike Gianoni
      CEO, President, and Vice Chairman
    • Chad Anderson
      Chad Anderson
      EVP and CFO
Analysts
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