Blackbaud, Inc. (BLKB) Earnings Call Transcript & Summary

Hello, everyone. Welcome to Blackbaud's first virtual investor session. My name is Steve Hufford, and I'm Director of Investor Relations at Blackbaud. I'll briefly cover our agenda and a few housekeeping items before I hand the meeting over to our CEO, Mike Gianoni. Turning to our agenda today. We have just over 1 hour of prepared content for you to start this session. This will be followed by a brief 5-minute break before we invite all of our speakers back for live Q&A. I'm sure I'm not the only one whose virtual attention span isn't quite what it used to be when the pandemic began, so we've tried to take that into account. Mike will kick off today's session with an overview of our company, what makes us unique and our strategy to capture the long-term growth opportunity in front of us. Next, Kevin McDearis, our Chief Products Officer, will discuss how we're extending our leadership position through a clear product and tech strategy. Then we have 2 speakers you've not heard from before, Kevin Gregoire and David Benjamin, who will give you insight into key strategic objectives in both our U.S. and international markets. And finally, our CFO, Tony Boor, will cover how the initiatives discussed today translate into the financial model and ultimately put us on a strong path toward our long-term aspirational goal of achieving the Rule of 40. Before I turn the call over to Mike, I do have a couple of housekeeping items. Please note, we will hold all questions until the Q&A session at the end, and I encourage you to submit your questions throughout the presentation. [Operator Instructions] This brings me to our safe harbor statement. Our comments today will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. I encourage you to refer to our most recent Form 10-K and other SEC filings for more information on those risks. Also note that unless otherwise specified, we will refer only to non-GAAP financial measures on this call. You can find reconciliations of our GAAP to non-GAAP results in the appendix of this deck, which we will post on our Investor Relations website at the conclusion of today's presentation. All right. With that, we are ready to get started. I'll go ahead and turn the meeting over to you, Mike.

Thanks, Steve. Good morning, everyone, and thanks for joining us today for our 2021 virtual investor session. Today, we're going to take a deeper dive into the long-term aspirational goals we introduced back in December. What you will walk away with today are 4 key points that drive improved financial performance and increased shareholder value. First, Blackbaud is a leader in a large, resilient and growing global market. This market is massive. Second, we have multiple levers with which to accelerate revenue growth. We have a high degree of confidence in increasing visibility into our growth reacceleration. Third, our revenue growth and scalability drive margin expansion. And fourth, we are rapidly innovating for our customers and are well positioned to capture the digital shift within our industry. The pandemic has accelerated demand of our solutions and poses an incredible opportunity ahead for Blackbaud. These 4 points have us on the path to achieving our long-term aspirational goals of mid- to high single-digit organic revenue growth and 40-plus on our Rule of 40 framework. Before we move into our strategy, I want to give you a brief background on our presenters today. After my section, you'll hear from Kevin McDearis, our Chief Products Officer, who is responsible for product management, engineering and operations for our global portfolio of products. He joined Blackbaud in 2014 from Manhattan Associates, where he served as Chief Information Officer. Prior to Manhattan Associates, Kevin was the Chief Technology Officer for Fiserv's Enterprise Technology Division. Following Kevin McDearis, there'll be 2 executives who lead our U.S. and international market groups, Kevin Gregoire and David Benjamin. Kevin Gregoire is President of our U.S. Markets and is responsible for go-to-market business units in the U.S. and customer success, customer support and our professional services teams globally. Kevin is in his 25th year in information technology and joined Blackbaud 3 years ago from Fiserv. At Fiserv, Kevin was the group president of the Financial Institutions Group, responsible for $1 billion-plus portfolio of businesses. He is also a veteran of the United States Army, where he served as lieutenant in the Corps of Engineers after graduating from West Point. David Benjamin is our President of our international markets and a member of our ESG Committee. David has more than 20 years of general management experience having served at Guardian Media Group, British Telecom and Box. During his career, David has built and led high-growth and go-to-market teams in the U.K., Europe, Middle East, Asia Pacific and Canada. He joined Blackbaud 3 years ago and leads our activities outside the United States as well as our JustGiving and YourCause business units globally. For reference, our U.S. markets make up roughly 85% of our revenue, and our international markets make up the remaining 15%. Lastly, you'll hear from Tony Boor, our Chief Financial Officer, who joined Blackbaud in 2011 from Brightpoint, where he served as their Chief Financial Officer and Treasurer. We have a strong executive team outside of today's presenters who are all incredible leaders, delivering on our mission and executing on our strategy. Not shown here is the talent we have across our company at every level. I'm incredibly proud of the achievements we made together in 2020, all while adapting quickly to a new normal. And I'm excited about the opportunity in front of us as we continue to drive our business forward. 2021 marks Blackbaud's 40th year serving the social good sector. We are uniquely positioned to connect funders, companies and causes together as we support a wide range of participants in the ecosystem of good. 2020 tested the social good industry and underscored the resiliency of our customers as they strive to serve such a critical role in solving the challenges we face as a society. The stability, resiliency and health of our end markets is often underappreciated. Last year, our customer retention rate increased from 92% to 93%. Our customers faced many of the same challenges other organizations did on the pandemic on how to operate in a virtual world and how to engage with their donors, students and others who are increasingly expecting that engagement to be done digitally. Our cloud solutions allowed our customers to digitally transform to meet those needs. We are the leading cloud software company powering social good. We have tens of millions of users from over 100 countries using our solutions. 1 out of every 3 Fortune 500 firms use a Blackbaud solution. And we have 30 of the 32 largest nonprofit hospitals as our customers today. I won't go through all the stats here, but the key is our global reach really informs our solution development to ensure we drive continuous innovation on behalf of our customers. We're well positioned to capture this large market opportunity. We have a wide moat as our competition is highly fragmented and is largely made up of providers, offering legacy software and single-point solutions. We have strong win rates against the competition in every vertical market. Our strong balance sheet and cash flow support both strategic acquisitions and internal product builds. You will hear more about each of these from our speakers throughout the session today. We recently modified our 4-point strategy. The first point is to expand our TAM, our acquiring, building and partnering into near adjacent markets and expanding within our existing markets. This has been a very successful strategy that we've been executing for years. The second point is to lead with world-class teams and operations as we continue to improve our company performance and execute on our long-term aspirational goals. We've made massive strides to optimize our business and see further opportunity ahead. The second point also includes one of our prior strategies in driving sales effectiveness, which Kevin Gregoire will touch on today. The third point is our continuous focus on innovative cloud solutions. You'll hear a lot about this from Kevin McDearis. The fourth and final point in our strategy is to focus on employees, culture and ESG initiatives. This isn't new for us and something that's been in our DNA for a long time. I'll cover this more in a bit. We participate in a massive and growing global market, which provides us with a significant long-term growth opportunity. Our current addressable market is over $10 billion, and has more than doubled in my 7-year tenure at Blackbaud through acquisitions, internal product builds and steady market growth. Over the same time frame, our ability to drive organic growth and include strategic acquisitions has resulted us in doubling our total revenue. If you look back, Blackbaud has produced a 12% revenue CAGR since going public in 2004, and that has well outpaced the overall market growth. As part of our planning, we recently conducted a market study with the help of a third-party firm and estimate the total market opportunity to be over $20 billion in size. They also found that even during the pandemic, organizations are expecting to increase their annual software spend 3% to 4% over the next few years. There's no question, we have a large and growing global addressable market with plenty of room to grow and expand both organically and with future acquisitions. Our $10 billion-plus TAM, a significant penetration opportunity across our product portfolios and broker markets, which you'll hear Kevin Gregoire and David discuss later this morning. Our retention rates are high because our solutions are mission-critical, systems of record and not discretionary. Our products run our customers' operations, financials and revenue production. Lastly, we found that the more solutions our customers own, the higher the retention rate, and we have a long runway of opportunity here. The pandemic accelerated the digital-first mindset in the social good sector, not just for our customers, but their constituents as well. Our recent market study found that social good organizations across our verticals are more likely to increase rather than decrease their software investments in the aftermath of COVID. We are already seeing early indicators of the acceleration of the digital-first mindset in the significant step-up we experienced in online giving as a percentage of total fundraising in 2020. It took several decades for online giving to get to 9% of total giving in the U.S. And in 1 year, it jumped up 4 percentage points to 13%. This is a trend we believe is here to stay and a big shift forward. We are well positioned to capture this opportunity as it both helps our customers raise funds more efficiently and accelerates our revenue. On the growth front, we have multiple drivers of future growth that fall into a few buckets. Macro drivers tied to the pandemic, which will abate and return quickly once the world returns to a relative normal. This includes product usage and sales bookings. Also, new growth programs around pricing across a few areas to meet the market changes, and in some cases, catch up to the market. Tony is going to hit these growth programs in detail later this morning. I won't spend too much time here, but I want to touch on this quickly for those who are newer to the story. When I first joined the company 7 years ago, we focused on building an efficient, scalable operating model, which is now complete. We have centers of excellence in each key part of the company that provides efficiency and scale. This enables faster M&A integration and provides opportunities for growth and margin expansion. We also are organized to continue to improve our performance as measured by the Rule of 40. Our continued focus on innovative cloud solutions will always be a key area for us. We build, support and service our solutions through our end-to-end SKY engineering system, which enables us to scale across the entire portfolio. In 2020, we quickly adapted and responded to the specific needs of customers as they scramble to operate digitally. Kevin McDearis will touch on this soon. Our culture is built on an unmatched commitment to social good. It's at the core of who we are is a big advantage as we look to attract and retain top talent. 9 out of 10 employees say our mission was important to their decision to join the company. We have deep subject matter expertise on the social good sector, with over 500 employees who have previously worked for social good organization, and 1 out of 4 of our employees served on a nonprofit board. Our ability to attract talent is powerful. In a typical year, we hire several hundred new employees and receive over 55,000 applicants. Lastly, with our positive experience in working at home for over 1 year now, we have permanently shifted our workforce strategy to a hybrid one. In our go-forward model, our employees will be working remotely and occasionally coming into the office near where they live. This has allowed us a different level of access to higher talent and diversity. For a long time, we've had a focus on the areas of environment, social and governance. For example, we have had employee-led affinity groups for years, and our new headquarters building is LEED Gold-certified. Not long ago, we began publishing a social responsibility report to share these initiatives externally with our stakeholders. More recently, we also appointed our first Head of Diversity and Inclusion, joined the UN Global Compact and committed to adopting the Sustainability Accounting Standards Board ESG standards. We have an incredible story to tell at Blackbaud, and I truly believe they're highly differentiated and unique when it comes to the topic of ESG. We plan on raising our profile within the growing community of investors, focused on ESG and impact investing. To accomplish this, we set up an ESG Steering Committee, of which I'm the executive sponsor, and assigned a dedicated ESG program manager. One of the members of our Board of Directors is involved as well. We will produce our third Annual Social Responsibility Report next month, and then we'll have a lot more ESG data and reporting in it than prior years. So please keep your eyes open for that. To summarize, our markets are resilient, large and growing that create multiple opportunities for sustainable revenue growth and margin expansion. We are rapidly innovating for customers and are well positioned to capitalize on the accelerated digital shift from last year. We are the world's leading cloud software company with unmatched commitment to the social good sector. And lastly, we have multiple growth drivers underway. With that, I'll turn the meeting over to Kevin McDearis to provide you with an update on our industry-leading cloud technology. Kevin?

Thanks, Mike. Hi, everyone. I'm Kevin McDearis. As Mike mentioned, I'm our Chief Products Officer. I have been with Blackbaud for 6 years. And for more than 30 years, I've served in a variety of technology leadership roles in the financial services and supply chain industries. Today, I want to share with you how Blackbaud's engineering strategy powers the digital transformation for those we serve and how our purpose-built solutions are core to the efficient and effective delivery of their social good missions. I'll break this down into 3 key segments: technology strategy, product strategy and innovation. I'll begin by directing you to our tech strategy, which is the key component of our long-range vision and defines how we transform our core technology in support of our product strategy. This strategy creates new modern solutions that coexist with current solutions, paving the way to fully modern capabilities. Additionally, this strategy tightly aligns our engineering and delivery organizations to provide real value to our customers, minimizing disruption as we continue modernizing existing products and solutions. It accelerates innovation and growth, allowing us to release, learn and respond to the market and global changes while driving predictable results; drive scale, reducing duplicative technologies and associated costs; and fuels growth of an open and modern cloud ecosystem where Blackbaud, our clients and partners deliver valuable capabilities with a consistent user experience. As you will see in the graphic on the left of the next slide, our industry-leading cloud technology provides modern cloud-first solutions that leverage economies of scale, efficiency and flexibility through reuse and simplified operations, unmatched insights from customer interactions, faster time to market with high quality and faster response time to needs. And it's not just about our modern architecture, the power of the platform influences how we build. Together, our tech and development methodology deliver solutions that meet current and future needs, accelerate our time to market and enable a network effect. Now let me show you how our security is built right into our architecture. As this slide calls out on the left, our investments to build a leading cybersecurity practice have grown by 5x, engaging respected third-party experts to benchmark and ensure best practices are established and followed. Our cybersecurity practice, first, is built on a robust product security function that spans our entire software development life cycle; second, ensures our products are penetration-tested by third parties, further enabled via access to our source code; third, provides extensive training to all employees, including security best practices, phishing defense and how to develop secure software; fourth, employs an internally built red team capability that constantly tests our defenses, simulating advanced nation-state level attacks; fifth, our practice is fortified by talent, which is demonstrated by the partnerships our security leaders have with experts across the field, sharing information and strengthening the community as a whole. This includes organizations like Women in Cybersecurity and the Cloud Security Alliance. In fact, our CSO and leaders on the team teach at numerous leading universities, including Carnegie Mellon and The Citadel. Finally, our risk management practice helps us identify risk and respond in ways that avoid and minimize impact to business operations. Chartered in 2015, we're one of only a few companies that have dedicated board-level risk committee. The combination of our tech and talent are driving meaningful results in quality, scale, speed, value and efficiency, as you'll see on the next slide, where we've supported significant increases in scale over recent years. For example, since 2015, Giving Tuesday transaction volume has increased by 144%. And there are many more examples as we've scaled up environments to support viral peer-to-peer campaigns and pandemic-related telethons. Our product quality health index looks at availability, call center volume, application defects and many more measures, and it's improved by 17%. We're also getting work done with higher velocity as our release frequency has shifted from twice a year to hourly. And there's no better example of openness than the more than 2,800 SKY apps delivered by and developed by Blackbaud, our clients, partners that are now available to our customers. Finally, at the bottom of this slide, I want to highlight that to date, we've taken 31 products through the end of support cycle. Let's take a closer look at the implications on the next slide. The end of support cycle has driven a 1/3 reduction in the complexity of our product portfolio in just 5 years. Even more important, this effort has allowed us to redeploy more than 30 development teams or roughly 200 engineers to support current and empower future product development. And we did this while retaining 2/3 of the customers served by these products, migrating them to more modern solutions. Well, for our customers, we are the cloud, providing valuable, secure, stable and modern solutions. You can see the value of our shift from private to public cloud on the next slide. Today, over 40% of our cloud spend is with a public cloud provider, either Microsoft Azure or Amazon Web Services. We shift workloads to the public cloud in 1 of 2 ways. First, we can migrate existing products, automating and optimizing for the public cloud; or second, we build new capabilities or retrofit existing capabilities on our SKY platform running in the public cloud. Regardless of which approach we take, the modernization process allows us to quickly deliver updates, expand and contract capacity, all at great efficiency. So far, we've seen a 21% reduction in costs once the solution is optimized for the public cloud. Now that we have optimized the process for Raiser's Edge NXT, Financial Edge NXT and Blackbaud CRM, we are accelerating our pace of relocations by: enabling more products for the public cloud, increasing customer eligibility to relocate, and decreasing the time and effort it takes for relocation. As savings are realized, we reinvest to fund further improvements to quality, security, new capabilities requested by customers and innovations that drive our tech strategy. We'll take a closer look at these investments on the next slide. We've innovated 4 fundamental technology platforms that provide the ability to solve problems, add value and reach a broader set of customers than we've ever reached in the past. These tech platforms accelerate us as a world-class SaaS provider. The commerce platform allows us to rapidly deliver or update solutions, known as offers, to a target market. Offers can be complete solutions or add-ons to existing products. The developer platform is our public-facing portal that includes tools and APIs that allow customers and partners to extend our cloud solutions by exposing data, workflows and insights hosted and maintained outside of our applications. A key goal of the developer platform is fueling innovation from our partners. The data platform is a modern cloud-first data solution that brings customer and operational data together to transform, enrich and expose data in new ways. This access, combined with data science and machine learning, unlocks unique exponential value for our customers and the missions that they serve. Our engineering system is built on industry-leading Microsoft technologies and open source solutions as well. The engineering system has enabled a rate of delivery unseen in years past. Our latest stats showed that teams using the system released an average of 113 times a day versus those that are released on other tools at an average of 4 times a day. Our technology strategy guides how we develop. Our product strategy lays out the path for what we develop. As you will see, our product strategy remains unchanged and is a beacon on our journey to provide an integrated portfolio of solutions delivered via an open cloud architecture. First, our products are propelling organic growth while improving total cost of ownership. Second, across our product portfolio, integrated capabilities like data insights and payments inform and streamline the acquisition and management of supporters, members, patrons, donors, donations, grants, tuition and so much more into a seamless experience. Third, our open architecture makes it easy for our customers and partners to consume existing and deliver new services, extending the reach of our ecosystem. Fourth, we're expanding the ecosystem to include new markets like corporate social responsibility, faith, peer-to-peer fundraising and grant making. This expansion is driven via key prescriptive sales plays crafted in partnership with marketing and vertical leadership. Kevin Gregoire will speak more about this later. And fifth, our value-driven monetization has created subscription pricing that scales with clients, and as David will highlight later, innovative pricing approaches for things like payments continue to increase value for our customers, Blackbaud, and our shareholders. Let me show you how we translate our strategy into results on the next slide. To ensure focus, we first define a framework of desired outcomes with supporting goals and objectives. Next, a portfolio of opportunities is scored and prioritized. I should call out that it's a complex portfolio that orders priorities starting with foundational obligations, such as quality and performance, followed by security and compliance and then market needs and optimization. With priorities set, we leverage our one-work system framework to align resources and track against desired outcomes. It sounds simple enough, but keep in mind that we evaluate well over 1,200 multi-week projects each year. Our comprehensive purpose-built solutions set us apart from our competition, providing solutions that are core to our customers, powering their digital transformation that supports the rapidly growing online engagement of their constituents. As Mike noted earlier, a trend that we believe is the new normal. So how do we do it? Well, it's all about learning and adapting. Something we do based on market data, customer feedback and usage data to inform our agile methodology. This allows us to nimbly respond to shifting market needs to ensure continued retention and growth. From these learnings, we design customer experience into the product, ensuring that future solutions scale from enterprise selling to guided and self-service purchasing, enable value on the first day through guided onboarding, provide a robust partner in-app marketplace that's discoverable and supported by a rich developer program, provide customer self-service for subscription changes and renewals and adapt to changing needs informed by customer usage and feedback. On the next slide, let me show you how we're leveraging innovative platforms like SKY developer to power innovation for social good. Let's start on the top half of this slide with Blackbaud Marketplace. We've seen an over 150% increase in apps available in the marketplace. 25% of our customers have extended their solutions with a SKY application, and that's up 21%. And year-over-year, we've added more than 4,000 registered SKY developers. On the bottom half of the slide, I want to highlight the Blackbaud Social Good Startup Program. First piloted in 2020 with 14 companies, the goal of the program is to support early-stage start-ups with the potential of impact on the ecosystem of good by connecting them with grant funds, business resources and an accelerated path to Blackbaud partnership. At bbcon 2020, our Social Good Startup efforts graduated from pilot to program. For our 2021 cohort, we partnered with the Opportunity Hub to recruit early stage software companies with diverse founders. From 50-plus applications, we invited our top 8 to join, and I can't wait to see the results. On the next slide, let me show you how additional examples of innovation are helping customers every day. And if there ever was a year that demanded agility, action and innovation, it was 2020. The year required unprecedented speed and scale to support our customers, and here are just a few of the proof points. We rapidly adapted the health guidelines, enabling museums to reopen through time to entry and safety payment methods. As faith communities shifted online, we delivered new virtual prayer wall functionality so that congregants can support each other. Similarly, when K-12 schools moved to virtual learning, we rapidly innovated new ways to support teachers, students and parents. We worked quickly to connect companies using our corporate social responsibility solution from YourCause to connect them to nearly 5 million validated charities worldwide. And in the last year, we've upgraded 99% of our grant making customers to a new SKY UX version in just 1 month's time. And there are so many more examples, but alas, my time is at an end. So I will leave you with a few key messages. First, online growth is accelerating in the social good sector, and our solutions enable digital transformation for our customers. Second, our technology strategy is built for growth and scalability while powering rapid innovation across the entire social good ecosystem. Third, we are extending our market leadership position through a clear product strategy that drives value for Blackbaud and our customers. And fourth, we're accelerating our shift to third-party cloud and realizing efficiencies as we relocate. Well, thank you for your time. I'll now turn it over to Kevin Gregoire, who will be highlighting our U.S. markets. Kevin?

Thanks, Kevin, and hello, everyone. As Mike mentioned earlier, I'm the head of our U.S. Markets Group as well as our Veterans Affinity Group. I'm excited to speak with you during this, my first investor session at Blackbaud. Today, I will discuss some of the many opportunities ahead within the U.S. markets. These opportunities, combined with the incredible people at Blackbaud, give me high confidence in our ability to meet or exceed our midterm and long-term aspirational goals. Mike talked about Blackbaud's huge addressable market of over $10 billion. And today, roughly 90% of that addressable opportunity is in the U.S. While we're a clear market leader with 4 decades of experience and tens of thousands of customers, our strategy to expand our TAM continues to provide substantial room for growth and further penetration into this TAM. The unique challenges of last year demonstrated that digital capabilities were no longer a nice-to-have, but instead a must-have. In each of our verticals, traditional in-person events and meetings were instantly forced to adapt to a digital environment. This goes well beyond fundraising events to meetings like scholarship decisions, budget meetings, grant decisions and meeting with donors, just to name a few. The feedback we've heard from our customers of all sizes on both the efficiency and effectiveness of our cloud solutions indicate that we've reached a new normal in digital transformation in our market. We have substantial runway for growth in the U.S. as we are no more than 25% penetrated in any of our vertical markets. With that said, I'll share with you 3 key opportunities ahead of us as we look to extend our leadership position while maximizing our growth potential. First, while we have opportunity to gain share across all of our verticals, we have specific verticals where we are significantly underpenetrated. For example, we're less than 5% penetrated into our company's vertical where we acquired YourCause a couple of years ago. And we're also less than 5% penetrated into the faith-based, where we have new offerings built by our engineers. Next, we have verticals with a strong base of existing customers and a broad solution set creating a sizable cross-sell opportunity. That's a win-win for us and our customers. A strong example here would be K-12, where we have the widest solution set of any other vertical. Here, we continue to attack our opportunity to double our penetration into our existing customer base. And finally, as I talk about later, our relentless focus on delighting our customers at every stage of the customer journey ultimately increases customer lifetime value. Our vertical market alignment, when combined with our broad solution portfolio, enable us to not only better understand our customers, but also to address those needs more completely than our competition. The verticals themselves are highly nuanced. The needs and market dynamics for a small K-12 school seeking technology that enables them to efficiently run their school will be vastly different than those of a large university system looking to maximize their scholarship disbursements and fundraising; or a museum looking to grow their membership, increase admissions and steward donors over time. Our deep understanding of these nuances is in the DNA of our products and our company, and it's one of our primary differentiators as a leading vertical software provider. Our sales and marketing teams are experts in their vertical markets and focused on solution selling. They work closely with prospective and existing customers to solve their challenges by adopting solutions from Blackbaud and, increasingly, our partners. We've made huge strides in creating a scalable go-to-market model and driving efficiencies in that model. Despite the pandemic, and as Mike and Tony shared on the Q4 earnings call, January of 2021 was a solid example of the strides we have made, with bookings exceeding prior year with roughly 1/3 less sellers. Our focus on increasing time and territory for our sales account executives is clearly beginning to pay off. Having laid a solid foundation to improve our seller effectiveness, we've been making investments in digital marketing to pour fuel in the tank, if you will, and accelerate our sales velocity engine. We continue to grow our investments in digital marketing and the related marketing sciences to optimize how we engage buyers online, whether through targeted, strategically placed digital account-based marketing, with deep personalization, or to the deployment of new online engagement tools that connect with the customer or prospect on their terms and their timing. All of these things will allow us to act and respond more quickly to customer needs and accelerate sales cycles. As just one example, we're seeing the deployment of our 24 hours, 7 day per week online chat powered by artificial intelligence, driving faster sales cycles as it enables us to identify and interact with the buyer at the very first moment they have interest. Notably, 70% of these interactions are after typical business hours. Our ability to fully leverage the power of digital marketing is underpinned by a highly sophisticated marketing technology stack and an intense rigor around automation and strategic measurement. This constant state of learning, fine-tuning and optimizing is not only making our marketing more effective, it promises to better cover our very large addressable market, increase sales productivity and reduce our customer acquisition costs. And our go-to-market efforts aren't just combined -- confined to Blackbaud's direct channels. We continue to build out our indirect partner channels, which present a long-term growth opportunity as roughly 9 out of 10 deals today are direct to market. A little over 1 year ago, we shifted a portion of our implementation work to partners who have a vested interest in our mutual customer success. Since making that shift, we've seen an increasing interest in more service partners joining our ecosystem, which enables faster time to value for our customers and ultimately extends our reach in the markets we serve. We are also piloting a business process outsourcing program within our partner channel focused on nonprofit accounting as a service. Many accounting firms are looking to increase vertical specialization. And with nonprofits as the third largest employer in the U.S., this is a natural fit. In fact, a 2020 study by Accounting Today indicates that nearly 70% of the top accounting firms are increasing their specialization in nonprofits. One of these accounting firms we've started to work with, recently brought us to the table with a K-12 private school, which resulted in a deal of over $50,000 in annual recurring revenue. And as Kevin McDearis just mentioned, we recently launched the updated Blackbaud Marketplace, which not only offers curated third-party apps, but also opens up opportunities for us to develop deeper and stronger relationships with those independent software vendor partners. This plays a massive role in retention as it increases the value for our customers with custom plug-ins and specialized additions to our portfolio. There's a large opportunity for us here in building out a robust partner channel that will help us to better penetrate our $9 billion TAM. I just spent quite a bit of time talking about our go-to-market efforts and how we've positioned ourselves to go after our large addressable market opportunity. We also have an enormous opportunity to expand our share of customer software budget by leveraging our comprehensive product portfolio. This is not new for us, and the opportunity has only grown larger in recent years as we've expanded the portfolio through a combination of acquisitions and new product builds. The depth and breadth of our products widens our competitive moat and gives us the ability to respond to our customers' needs, how and when they need us to. Our go-to-market shift to sales by vertical with a focus on solution selling the full portfolio is driving more products per customer and ultimately more revenues as well. In fact, since implementing a strategy to go wider within our vertical several years ago, we've seen the average number of products per customer double with more room to go. I'll note that expanding across our solution set isn't always linear for our customers as we are often replacing multiple competitive point solutions with separate contracts and separate contract end dates. And importantly, we know that when our customers adopt multiple solutions, the value we provide increases, and so do our retention rates. Now I want to share with you a clear example of how our solutions have met the needs of one of our customers while also expanding our share of wallet. This is a real customer today. The customer is a community college foundation serving roughly 20,000 students that has realized significant value through our connected cloud solutions. They became a customer of ours when we acquired AcademicWorks in 2017. Shortly thereafter, we were selected to solve their challenges with Blackbaud solutions for fundraising and relationship management, payment services, marketing and engagement, analytics and on-demand training. In 2019, they also added our financial management solution. As we have expanded our relationship, we have significantly increased our annual recurring revenue and ultimately our customer lifetime value. This is a growth opportunity that plays out across our verticals. Speaking of cross-sell opportunity, I want to take a few minutes to talk about what I view as an underappreciated opportunity for Blackbaud. We have a very strong payments business that is significantly underpenetrated in an addressable opportunity of at least $3 billion. At Fiserv, I led card-based payments, and I see a tremendous opportunity ahead for Blackbaud in the payment space. These opportunities exist in a few key areas, some related to sales and some not. First, we fully expect a rebound in event-driven payments revenue beginning in the second half of this year. Next, the percent of giving done online grew 40% in 2020, jumping from 9 percentage points to 13 percentage points of total giving, which roughly mirrors the trends being seen in the retail industry. We expect this secular shift to online payments in 2020 to continue going forward. Third, we have the opportunity to capitalize on pricing innovation in the U.S. markets that we've successfully proven in the international markets, which David will address shortly. And last but not least, we have a material opportunity to accelerate adoption with our existing customer base as well as include payments pre-enabled when we sign new customers. We also continue to innovate our payment solution from a product perspective to ensure we continue to deliver a safe, secure, world-class payment processing service for our customers. And we continue to look for ways to leverage payments to grow our addressable opportunity. For example, we know that 1/3 of charitable giving is to faith-based organizations. As we grow our presence in this vertical market, we'll see an acceleration of our payments opportunity. There is no doubt we have a long runway for growth in payments. Speaking from experience, this is a tremendously valuable revenue stream, as it not only drives revenue growth, but it's increasingly accretive to our operating margin, which Tony will be covering later in the presentation. Importantly, we also know that customers that use our payment solutions have much higher retention rates as well which speaks to the value of our integrated offering. This brings me to my last point. Never in my career have I seen an employee base with this level of customer engagement. Enabling customers to help social good take over the world is at the very core of who we are and what we do. As Mike mentioned, Blackbaud's social good mission attracts employee top talent within software. And we have hundreds of associates at Blackbaud that come from the industry we serve. We have the domain expertise and know this market better than the competition. Our 93% customer retention rate increased from 92% last year. And I'm incredibly proud of our ability to be nimble and respond to the shifting needs caused by the pandemic. What's not widely known, and a key contributor to our improved customer retention, is that we formed an enterprise-wide, cross-functional leadership team, which focuses on the customer experience. I sponsored this team, with partners at all levels of our organization, to transform our customers' experience. We're actively investing in people, process and technology across our organization to continue to support our customers so that they can do what matters most: delivering on their missions. I'll close by saying there's tremendous opportunity in our U.S. markets and a clear path to growth acceleration. We have substantial runway with a $9 billion-plus TAM and a less than 10% penetration rate into our market. We'll continue to add new customers while expanding our share of software spend with our existing customers. Our vertical go-to-market strategy is supported by a new and highly sophisticated digital marketing program that will increase sales productivity and velocity. And we're also in the early stages of expanding a successful partner channel that will only enhance our existing model in capturing the large opportunity in front of us. Our continued product expansion, tightly integrated payment solutions and relentless focus on customer delay all bode well for improved retention over the long term as we increase the value we provide our customers. I'm excited about what the future holds for not just the U.S. market group, but for all of Blackbaud. With that, I'll now hand it over to David Benjamin, the President of our International Market Group, who's joining us virtually from the U.K. today. David?

Thank you, Kevin, and welcome. As Mike and Kevin mentioned, I'm David Benjamin, President of Blackbaud's International Market Group. I'm based in the U.K., and I've spent more than 15 years as a general manager within the international theaters or global business-to-business organizations, as well as more than 10 years within the business-to-consumer sector. I joined Blackbaud in 2018, I could not be more excited about our growth potential and the resiliency of our international markets. Blackbaud has been operating internationally for many years, starting with the U.K. 25 years ago. Today, we serve customers in 60 countries outside of the United States and engage with constituents from more than 120 countries. We've always known our international market is highly attractive, with our current addressable opportunity exceeding $1 billion, of which we have 15% share. With year-on-year growth of 16%, we also saw an exceptional level of resiliency during the 2020 pandemic. Now I attribute this resiliency to a couple of factors. Firstly, we've assembled an exceptionally strong leadership team in Europe, Asia Pacific and Canada, for example. Since appointing a General Manager to the Canada, who I hired from AWS 2 years ago, the region has delivered high double-digit booking growth in 2019 and again in 2020 despite the pandemic. Secondly, we have a highly differentiated proposition. As well as offering our leading fundraising management technology, we also now have launched in each of our core international markets a consumer payments business, JustGiving. This means not only are we able to help customers digitally transform, but also, and uniquely, we play a vital role in helping nonprofits raise money online and specific to the pandemic virtually. As Mike and Tony referenced in our last investor call, online giving during the pandemic has actually increased. What you might not know is our consumer payments business, JustGiving, is the market leader and therefore has materially benefited from the shift to online. We acquired JustGiving in 2017, and I have to say the investment case has proved out in a very significant way. There is no other company in the market that can offer such compelling and unique solutions as Blackbaud. And I'm really excited about how well our proposition is resonating with customers. We do serve the entire spectrum of the market, from small, single chapter nonprofits to some of the largest and prestigious social impact organizations around the world. And as a reminder, it is the breadth of what we can offer customers that represents our key differentiator. So I want to give you a few examples of the type of value our solutions bring to customers and, in so doing, the wider social impact we enable. Let me start with CBM Australia. They're an international development organization dedicated to improving the lives of people with disabilities in the poorest places on earth. Over 40,000 Australians give to the poor each year, topping CBM positively impact over 700,000 lives. Now we've shared CBM in a number of campaigns and needed a secure payment solution to help generate the funds they need to fulfill their mission. They chose us because Blackbaud merchant services comprised of the toughest data security standards in the industry. Secondly, the Eden Foundation. They're based in Canada, and they promote hope and healing to those with mental health concerns. They decided to use Blackbaud fundraising solutions because of our exceptional ability to engage with their supporters and deliver return on investment. So despite moving to the platform during the pandemic, along with their integrated peer-to-peer solution, we were still able to raise over $100,000 through their signature annual campaign, which enables them to provide the continuous service their community requires. And finally, the Charities Aid Foundation. They are based in the U.K. and they run many grant-making programs on behalf of donors using Blackbaud's Grantmaking platform. They selected Blackbaud because of our proven ability to track and process applications at scale, decreasing time to approval and, therefore, allowing the client to maximize its effort to fulfill its mission. So when COVID-19 hit, they received an overwhelming response from small charities with requests totaling more than GBP 50 million. So far, and enabled by Blackbaud technology, more than 1,250 charitable organizations have received the grant. So I hope you can see, we win in the market because of our full suite of offerings. Looking further ahead, I see further significant runway for growth due to our large addressable market alongside our still relatively low penetration, which, in my view, gives us a great opportunity to win new clients and continue to upsell to existing ones. Next, I want to share our vision around the concept we call global by design. This is the approach we have been embedded into the company to develop, market, communicate and operate in a way that from the outset, intends to be commercially viable for all our international markets and throughout our customers around the world. I believe we've made tremendous progress on globalizing our capabilities in recent years. Our fundraising solutions are available in all our international markets. Also, following the successful performance of our financial management solution in the U.S., we've now also launched in Canada and Australia, and the U.K. up next. And as you will shortly see, since acquiring, JustGiving in 2017, we have expanded its market coverage by launching in the U.S., Canada and Australia, and Blackbaud Grantmaking developed on the SKY engineering platform is currently being rolled out on all our international markets. Up next for globalization is YourCause, the leading corporate social responsibility platform for companies. Since its acquisition in 2019, we have successfully executed on the first phase of the investment plan. Phase 2 is focused on capturing the international opportunity, with forthcoming market launches in Canada, U.K. and Australia. This will leave with the recent announcement we made about the partnership with GlobalGiving, which means we now offer companies access to the most complete and trusted database of nonprofits in the world. I'm going to return to this opportunity shortly. But before I do so, I want to share more insights on one of our most powerful investments. JustGiving is the world's leading online fundraising platform with exceptionally high brand awareness in the U.K. and Net Promoter Scores. Consumers use JustGiving to raise money for good causes, often through physical run, ride and walk events. I was slightly concerned, therefore, when all mass participation events were canceled due to the pandemic. However, those concerns proves to be completely unbounded as consumer generosity today have remained steadfast, and our teams worked tirelessly with customers to help them pivot from physical events to virtual. Partnering with our customers in the sector was also key to innovating with JustGiving pricing model, away from a fixed platform fee to now a voluntary contribution model which reduces cost for our customers, and as you can see from our 10-K, improved our U.K. performance, where JustGiving revenues grew over 40% year-on-year. To give you some examples, the London Marathon is one of our biggest charity one event in the U.K. It's typically held in April. However, it was postponed to October and subsequently placed with a virtual challenge, an event that raised $10 million on JustGiving more than any other platform. Now obviously, the pandemic has had a devastating effect on many visitor attractions, many of whom rely upon the income from ticket sales to fund their operations. One such visitor attraction was Chester Zoo in U.K. They turned to JustGiving to help them reach out to the public in order to raise funds so they can continue to fulfill their conservation projects. In just a matter of weeks, JustGiving helped Chester Zoo raising $4 million. And of course it would be remiss if I did not mention Captain Tom, the British Army Officer who set out to raise GBP 1,000 of charity by walking 100 laps of his yard to coincide with his 100th birthday. This campaign captured the world's attention and in so doing, spurred Captain Tom to raise an incredible $53 million from 1.5 million donors across 162 countries, elevating Captain Tom to become the single largest individual fundraiser ever in the world. Sadly, Captain Tom passed away recently, but he leaves a legacy of kindness and true altruism. Looking forward, I continue to see strong demand from virtual fundraising, and I expect this to continue for the first half of this year. Our business plan assumes a return of mass participation events during the second half of 2021, with events such as the London Marathon already confirmed for October. I then expect a full program of in-person events in 2022. This, alongside the market launch investments we've made in the U.S., Canada and Australia, plus further pricing innovation, means I'm optimistic for sustained growth in the short, medium and long term. Before I summarize and hand over to Tony, I want to circle back and highlight another acquisition, which we're executing well upon. You heard Mike mention earlier Blackbaud's focus on environmental and social governance. You may not be aware that we have an ESG platform in YourCause which focuses on volunteering, matching gifts and other aspects of social responsibility. YourCause has an impressive roster of branded clients. It has a high client Net Promoter Score. It has a global ecosystem of nonprofits where employees and companies can support as well as strong SaaS fundamentals in terms of gross dollar retention, net dollar retention, LTV to CAC, CAC payback and ARR to OTE. YourCause also operates in a large addressable market of more than $1 billion within the U.S., U.K., Canada and Australia alone, and it is currently benefiting with strong tailwinds as companies increase their focus and adoption of environmental and social governance. Since completing its integration to Blackbaud and focusing on its domestic agenda, the business has delivered revenue increases at a level which is multiple times the overall company's aspirational growth. Looking forward, we are now very much focused on optimizing pricing, replicating the innovation that has benefited JustGiving as well as globalizing YourCause with plans advancing for Canada, U.K. and Australia, whilst continuing to expand in the U.S. I therefore expect forward revenues to continue to perform at the high double-digit growth rates. 2020 was a hugely successful year for Blackbaud in our international markets. Based upon our investments to globalize our capabilities, adoption of best practices in go-to market, as outlined by Kevin Gregoire, our strong brand and our unique value proposition, our significant international TAM as well as our further opportunities for price innovation, I'm excited about the prospects for continued international growth over the foreseeable time horizon similar or better to that what we have delivered historically. Thank you for your time, and I'll now hand over to Tony.

Thanks, David. Good morning, everyone. Much of what you've heard from the team is centered around the significant growth opportunities in front of us at Blackbaud and our commitment to achieving sustainable growth at scale. I'll cover off on how these initiatives will tie into our financial goals over the coming years. I also want to spend a few minutes to discuss the recent updates to our capital strategy as we look to maximize the creation of shareholder value. First, I want to quickly highlight the strong progress we made last year despite the pandemic. At the onset of the pandemic, we took aggressive action to ensure we would have the liquidity and capital necessary to address any related uncertainty. We have subsequently reversed many of the cost-saving actions taken in '20. For example, we've reinstated our 401(k) match and have returned to cash-based merit and promotional compensation increases. That said, our use of performance-based equity in lieu of cash-based bonuses will continue in '21 and beyond. We froze hiring for a large portion of last year and rebalanced resources to better align headcount with our muted growth trajectory during the pandemic. We looked at that hiring freeze late last year, and have been hiring in key areas such as engineering and customer success. We also purchased our headquarter's building and exited several office leases to better align with our new more remote and flexible workforce strategy. Our efforts in 2020 have us well positioned to accelerate growth, expand margins and achieve the Rule of 40. I won't go through all of these points here as many were covered on our Q4 earnings call, but the key takeaway is we have a lot to be excited about. We now have improved visibility, and meaningful parts of our business are beginning to benefit as we start to recover from the pandemic. We provided you with our best estimate on revenue for 2021, along with alternative upside and conservative scenarios, which are largely dependent on macro drivers, such as the successful vaccine rollout and timing of when things open back up again. Right now, the progress on the vaccine rollout in our key markets and the sharp declines in reported rates of infection have us encouraged. Our update -- our upside scenario, which includes an incremental $10 million to $20 million, is looking a bit more likely based upon the strong start to the year and an aggressive vaccine rollout. We expect to achieve EBITDA margins of roughly 25%, which includes the return of many of the cash expenses I spoke about a few moments ago, as well as increased investments in R&D, security, customer success and cloud infrastructure. Our floor for free cash flow is $100 million for '21, and free cash flow could vary materially to the upside, depending on how bookings rebound this year when in-person events return. Overall, we're in a strong position to capitalize on the opportunities in front of us. As many of you know, we've always run a balanced strategy centered around capturing our long-term growth opportunity while remaining committed to generating strong margins and cash flow. This has not changed. Our strategy and goals fit nicely into the Rule of 40 framework. Thus, we've framed our long-term goals accordingly. We believe continued improvement on the Rule of 40, combined with efficient capital allocation, will generate significant shareholder value. Looking ahead, macro-level drivers, coupled with pent-up demand and increased levels of online giving, create opportunities for us to achieve low to mid-single-digit revenue growth as early as 2022. However, given much of this is out of our direct control, we can't be certain. A key point I'd like to make here is it will not take 3 to 4 years after the pandemic to see mid-single-digit revenue growth. These are annual growth figures, that combined with scalability and margin improvement, drive us towards Rule of 40 goals in the midterm and long term. With that said, let's dive into the growth drivers in a bit more detail. Summarizing what you heard today, we have 10 organic growth drivers that we're focused on to accelerate future organic revenue growth to at least the mid to high single digits. We have organized these drivers into 3 different categories, as Mike discussed earlier. Our first group contains 4 near-term growth drivers. The first 2 are related to the recovery from the pandemic. The third is the anticipated continuation of recent improved rates of online giving. The last and very material item is that in the very near future, we expect to see an end to the multiyear negative drag on growth, resulting from declines in onetime services and other revenue. That alone will drive a 200 basis point improvement in our overall revenue growth rate. The second group is rather near term in nature as well and contains several material pricing opportunities for the business. The first is related to bringing recently proven international pricing innovation, like the voluntary contribution model that David discussed from the U.K. to the U.S. and Canada. This model has proven to add both growth and profitability while also reducing the cost to our customers, a real win-win. We are actively testing this opportunity in the United States now. We have also recently completed a breadth of competitive market pricing analyses and have identified several areas where we feel strongly that we need to increase pricing, in some cases fairly significantly, just to stay in line with competitive offers. Our third and final group contains 4 significant but longer-term growth initiatives. The results from these initiatives will materialize over the next several years. These initiatives are related to improving sales productivity, increasing innovation, creating true value from a partner channel and improving our already strong retention rates back towards levels we previously obtained prior to the aggressive portfolio rationalization efforts of the past several years. It's important to note that all of these growth drivers tie to organic growth. We also have a strong track record of driving inorganic revenue growth through M&A. We are an acquisitive company and have averaged at least 1 acquisition a year for the past 5 years, with last year being an anomaly, as we were focused on preserving our liquidity during the pandemic. Our acquisition strategy post 2020 is unchanged, and we expect to remain acquisitive going forward. As a reminder, our strategy calls for acquisitions to meet certain criteria. They should expand TAM, accelerate our shift to the cloud, accelerate revenue growth and be accretive to profit margins. David walked you through a few examples of our successful acquisition strategy with both JustGiving and YourCause. Looking at our acquisitions for the last 5 years collectively, they have added roughly $175 million to our recurring revenue base. With the combination of organic growth and M&A, we have a proven history of double-digit revenue growth. It's worth noting that this is inclusive of the significant drag from onetime services and other revenue over the past several years. In my tenure at Blackbaud, our total revenue CAGR has been 11%, and our recurring revenue CAGR for that same period has been 15%, inclusive of 2020, which was obviously a down year impacted by the pandemic. From 2016 through '20, onetime services and other has decreased with a 4-year negative CAGR of 18%, which has been a large drag on overall growth. Again, we expect this drag to bottom in '22, which will give us a lift of a couple of points on total revenue growth. When you step back and look at the multiple levers we have to drive growth, both organically and inorganically, it is clear that we have significant growth potential for the future. With goals in place to drive accelerated revenue growth, I want to take a deeper dive into our margin expansion opportunities. Recently, we provided more transparency into our material revenue streams, and I think it's important to understand, these each have different margin profiles as well. Obviously, services is a low-margin business, and thus we've been actively working to reduce this side of the business for years now. As we've mentioned before, the margins associated with various types of transactional revenue are not all dilutive to gross margins, but all are accretive to fully burdened operating margins. Payments tend to be dilutive versus our recurring gross margins, and we see opportunities for improvement here as we execute some of the pricing changes you've heard about today. Other transactional revenues delivers the highest margins, though this is a relatively small piece of the business. The key takeaway here is that as we execute on growth drivers I just discussed, it will drive margin expansion and positions us to accelerate against the Rule of 40 framework, which brings me to the next slide. Not only do we gain scale through growth, but we have several strategic initiatives focused on driving margin expansion over the next several years. Similar to the growth drivers, these are aggregated into 3 major categories. The first is go-to-market efficiency. Having laid the structural foundation over the last few years, we've committed to reducing our customer acquisition costs and increasing sales velocity. As you heard from Kevin Gregoire, we've been increasing our investments in digital marketing to fuel these efforts. Second is increased R&D investments, which will accelerate product improvements, security and innovation. As Kevin McDearis mentioned, these investments will drive a lower cost operating structure in future years and should also improve sales velocity and retention rates. Margin accretion from our shift to third-party cloud will be more of a step function over the next several years versus a sharp spike at the end of the journey. The final category is operational scale and efficiency. Our move to a more flexible workplace model has largely been completed, and we will begin to see the impact of those efforts this year. We are switching to a hybrid model, where employees will continue to work remotely. And when we do reopen our offices, we expect employees to spend 2 to 3 days a week in the office on average. Combining the pricing optimization opportunities we've discussed today, along with ongoing efforts to drive continuous simplification, automation and efficiency gains should drive meaningful margin expansion over the next several years. Ultimately, this is what will help us to achieve the Rule of 40 as we accelerate growth while improving profitability and significantly increasing free cash flow. Our recently revised capital strategy has 3 tenets and is structured to maximize return on investment and provide increasing shareholder value. The first tenet of this strategy is to maintain adequate liquidity and access to capital. We refinanced our debt last year, taking advantage of the low interest rate environment, which resulted in increased capacity and the lowest borrowing rate in the company's history. The second tenet is to invest in the business to drive growth and profitability at rates of return that are meaningfully higher than our cost of capital. The third and final tenet is to return capital to shareholders, which I'll walk you through in more detail over the next couple of slides. We have a history of generating strong returns on invested capital. Our ROIC increased from 17% in 2019 to 19% in 2020, which is largely 2x our weighted average cost of capital on each of those years. As you can see, this isn't new for us. We have consistently delivered meaningful returns while we have also significantly grown our investment base. Our focus on accelerating our company performance, combined with a diligent capital deployment strategy, creates significant potential for increasing returns as we march up to path towards 40. Last year, we bolstered our capital deployment strategy with the increased authorization of our share repurchase program. This program offers us more optionality in terms of driving shareholder value over the long term through efficient uses of capital. We executed on a share buyback program at the end of 2020 and repurchased roughly $69 million of our stock. As we look forward, we plan to opportunistically execute on share repurchases when our internal estimates determine that the company shares are undervalued by the market. Future share repurchases could also be used to offset disproportional dilution related to our equity compensation programs. Our recent share repurchases offset roughly 3 years of dilution related to our decision to shift our company bonus plans from cash to equity. One important note I also want to make related to our stock compensation plans are that we typically net share settle on all equity vestings on behalf of our employees. And thus, our actual final dilution on granted shares is roughly 70 cents on the dollar. Today, our dilution from stock comp is relatively low when compared to many of our peers. Before we move to Q&A, I'll quickly recap. As we exit the pandemic, we see significant growth opportunities ahead of us. The 10 key growth drivers or initiatives are already being worked throughout the business, and we have high confidence in our ability to hit our mid- and long-term growth goals. Accelerating growth, combined with other margin expansion initiatives, puts us on a path to achieving the Rule of 40. Our proven capital strategy, which includes continued M&A and our newly expanded share repurchase program provides us with ample optionality to return capital in a way that maximizes value for our shareholders over the long term. As you've heard from the team today, this is a one of a kind company with a unique opportunity ahead. We're all excited about what the future holds for Blackbaud, and we are well positioned to continue driving shareholder value. With that, let's take a quick 5-minute break before we jump into the Q&A session. [Break]

Welcome back, everyone. Thank you for sending in your questions. We're ready to begin the Q&A portion of today's session. [Operator Instructions] With that, let's go ahead and get started. Our first question comes from Rob Oliver at Baird. There is a lot of talk about the pandemic accelerating digital transformation. Your industry was impacted last year, but now it seems to be recovering and vaccines have people optimistic. From a big picture perspective, can you talk about the discussions you are having with customers around the pace of digital transformation? Do you believe that the pandemic will accelerate this for your sector? Mike, why don't I turn that one over to you?

Sure. Thanks, Steve. Thank you, Rob. Yes, I believe that, that is the case. I think it's the case for the whole cloud software industry. Frankly, in our particular markets, the customers that were Blackbaud customers were up and running because they're cloud solution customers. We've seen non-Blackbaud customers who did not have a cloud solution be out of business for a while. And so the discussion around acceleration for digital is clearly there. Customers in our markets are looking for a solid long-term cloud solution provider. We saw this also in just online giving and the big increase we talked about in our prepared remarks in online giving and the growth of online giving as a percentage of total. So yes, I think last year was a wake-up call around all of our markets needing cloud solutions. And I think that, that trend is going to accelerate.

Great. So our next question is from Ryan MacDonald at Needham. Based on your recent conversations with customers, which of your end markets do you believe have the most attractive runway for growth long term? And where do you see pockets of recovery in the near term? I think that's a good one for Kevin Gregoire and David Benjamin. Kevin, why don't we start with you first?

Sure, Steve. Thanks, Ryan. With no more than 25% penetration in any of our businesses, we have multiple avenues for growth, especially over the long term. I see a mix of very significant opportunities that span multiple businesses, like our financial solution, FE NXT; our fundraising solution, RE NXT. And as I spoke to earlier, there's a very significant opportunity here for us in payments. In addition, I'll point to a couple of things is, one, we've established our dedicated sales team and business in the faith-based vertical. And we're seeing very good opportunities for many of our solutions, including education management, marketing and engagement as well as RE NXT and FE NXT. And these solutions are -- add real value to the customer relationships that will enable us to continue to grow as our church management product continues to move well. And finally, I'd point to the -- to our opportunity to double our product penetration in K-12. We have lots of remaining runway there for new customers, but when we're at less than 50% penetrated with key products for that base, it's a really strong opportunity. And there's many more with scholarship management and higher ed. And right now, there's -- we're clearly seeing increasing interest in grant management, which applies across multiple verticals, including nonprofits, health care, corporations. David, would you like to add your perspective?

Sure. Thanks, Kevin. So first of all, I would echo your comments that the markets we operate in, in my view, are all attractive and/or offer potential for long-term growth. Perhaps I'll speak a little bit more to the question in relation to the pace of recovery and then some comments about the verticals as well. So in terms of pace of recovery, it's probably working sane in the first instance, it differs in different markets. So in our Asia Pacific market over 2020, I'll say that's been least impacted by the pandemic. Then moving into U.K. specifically, now you can see from the GDP data that the U.K. was probably most impacted from an economic perspective, but it's also predicted to be one of the fastest recoverers as well as the vaccine rolls out. And moving to Canada, Canada is perhaps behind the pace of some other countries in terms of vaccine rollout, but as I said in my presentation earlier, we've seen consistent 20% growth in bookings in Canada in 2019 and in 2020. So that reinforces my perspective and Kevin's as well that there's opportunities in all of our markets for growth. But in terms of the specific verticals where we see greatest potential over and above my comments there, I would say that 2, which again, I referred to in my presentation that I would reference: one, YourCause; and two, JustGiving. And both of those happen to benefit from some really prevailing tailwinds at the moment. In the case of YourCause, we're really benefiting from the focus and adoption of companies on ESG. And on relation to JustGiving, they're really benefiting from this shift to online.

Thanks, David. So the next question is from Matt VanVliet, BTIG. As in-person events slowly resume, is there any reason to believe that this will cut into recent increases in online giving and Blackbaud's payments business? Or conversely where customers hesitant to invest in digital in the past, but now they have made those investments over the past 12 months. Will they more effectively use these services even while conducting in-person events in the future? Kevin Gregoire, do you want to take the payments business? You're on mute, Kevin.

Thanks, Steve, and thanks for the question, Matt. Yes, we definitely saw a big shift to online payments in 2020. I mean it took decades to get to just below double-digit growth and then we jumped to 13% 1 year. My perspective on that is in talking with our customers is, first of all, you're right, they have invested in platforms that actually support digital payments in the future. I kind of view it a little bit differently. I think that's an important step. But I also think it's important that we recognize that the donors are driven by consumers. 13% of giving was done online, but interesting, about 1/4 of giving was actually done with a mobile phone in which the convenience to the donor of anytime, anywhere donations is really important. Next, I'd point to the growth in wallets and, frankly, even recurring gifts. Last year, 65% of our customers increased the number of recurring gifts in 2020. So the high level is single gift or $15 a month, almost like a subscription. And almost all of those payments are online payments as the preferred method. We also have other opportunities in payments that I've actually talked about before. So I won't go into them a lot more, but I do want to emphasize a couple of other points, is we continue to innovate to drive mobile payments in the future. For example, we already offer a MobilePay solution that enables our customers to accept online payments for donations. And finally, we're in the early adopter stage of a congregate portal in faith, which will enable congregants to perform online payments in an area that is really an untapped opportunity that represents about 1/3 of donations in our market.

David, I'll give you a chance. If there's anything you want to add related to JustGiving on the topic, or we can move on.

Sure. I'll add and perhaps speak to the reference to in-person events, returning in the pace at which they return plus my perspective on the trend of digital as well. So starting with the former. As we have referenced, our assumption and plan is for in-person events to return in the second half of this year. And it might be worthy giving some insights in terms of our intelligence in how we manage in-person events within the organization. So whether it's a nonprofit organization or an event organizer, in Blackbaud, each of those organizations has an account manager. And those account managers, part of their job is to work with the nonprofits and the event organizers to plan and prepare for their events. So we have deep insight in terms of what events are planning for the second half of the year. And that is, as of recent times, completely in concurrence with what our expectations are for events planning in the second half of the year. In fact, I looked at the data this morning. And those events and for the second half of the year, many of them are actually oversubscribed already, which gives you a really good insight in terms of the confidence of some of these event organizers about being ready for the second half of the year. In addition to that, whilst the event may take place in the second half of the year, consumers and donors spin up their JustGiving pages, for instance, many months in advance of that. So we get good insight in the lead up to those events. And again, checking the data this morning, the page creations and the donations to those pages is completely in alignment with our expectation of those returning in the second half of this year. But very quickly in relation to the digital aspect, and it's probably worth to just emphasize my point which I just made, that many of the events which are planned for the second half of this year, and it's not just this year, generally many of these events are actually oversubscribed. And so what event organizers are doing, working with nonprofit organizations as well, it is planning to run those in-person events but augment them with virtual activities as well, therefore, increasing the pool of participants they're able to tap into. So related to this specific question, I don't see these things as substitutional. I do see them as complementary and additive.

Thanks, David. Up next, we've got another one from Rob Oliver at Baird. Kevin McDearis mentioned increasing customer eligibility for relocating in the cloud. What are the eligibility requirements? And how have they changed? Wouldn't you want as many customers on the cloud as possible as soon as you can, given: one, the cost reduction to Blackbaud; and two, the ability to deliver innovation across one platform? And as a follow-on, what pace of conversion have you assumed in your medium-term target model plan 3 to 4 years post pandemic, which has you at 30-plus percent operating margins? So Kevin, I'll turn it to you, and then maybe Tony can cover how it materializes in the model.

Thanks, Steve. And thanks for the question, Rob. As with any relocation effort, you order them from least complex to most complex. And ultimately, eligibility drives and is a function of that complexity. So addressing eligibility is essentially integration points with third-party applications. Our own plug-ins for historic applications and being able to tackle those over time, either embedded in the totally new platform where we just solve the problem and maybe even eliminate the need for that plug-in totally, or working with our partners to make sure those plug-ins are addressed and rolled out. Of course, with a 21% average cost savings as we move to the public cloud so far, we definitely want to get there as fast as we can. And I'd also note that, that 21% is an average, where the high watermark for one of our apps is approaching 40%. So regarding getting them to the cloud as fast as possible, that started a couple of years ago with all new customers going to the cloud for the respective products, RE NXT, FE NXT as well as Blackbaud CRM. And so now what we're really focused on is ordering the priorities. Every now and then, even with that level of savings, there are opportunities, including things that we have to address from a risk perspective. That ranked a little higher. And so you still get a little bit of that ebb and flow in the priorities as we execute those relocations.

Tony, you want to regard the...

Kevin, I'll jump in just for a quick second here. And what -- so just to be clear, what Kevin McDearis is referring to is our move of cloud customers from our COLO to Azure or AWS. It's not to the cloud initially, you're already in the cloud, it is from COLOs to predominantly Microsoft Azure.

Right.

Yes. Thanks, Mike and Rob. Maybe a follow-up on that as well. I think there's significant cost reduction opportunities also just with the innovation and work that Kevin and team are doing, getting off of the old legacy products. Even if those stayed in COLO data centers, we would have a significant reduction in cost there, things like Citrix costs, et cetera. So our cost structure will go down as we move to third-party cloud like Azure, AWS. And as we innovate and get off the old legacy platform, so it's kind of dual stage. What's built into the -- in our estimates, more of the savings on this front are built into the longer range. So probably more of the latter stage of midterm to long term is where we're building in more of that. And you can see that kind of in the slide deck, especially in my slide deck, where we lay that out. It's not in the more recent kind of cost savings and efficiencies and leverage and scale that we plan to gain. More so in the latter part of midterm to longer term is where we'll see those savings come in. So probably more on the move from 35% to 40%.

Great. Thanks, Tony. Next, another one from Ryan MacDonald at Needham. In what areas has the pandemic opened up new opportunities for growth, whether it be new functionality or existing -- for existing customers or new use cases for the existing technology? Mike, maybe you want to hit that at a high level. And then I'll let Kevin McDearis chime in after.

Yes, sure. Happy to do that. So from a functionality standpoint, what happened early on starting about a year ago was when our customers pivoted to remote work and remote operations, several vertical market customers asked for different sets of capabilities, both faith-based and K-12, are 2 that I recall. And our engineering teams were able to get the business requirements, build, test and deploy new capabilities within weeks to help them operate in a virtual environment. And so that went a long way quite quickly. We did all of that in probably the March, April, May time frame last year. So lots of innovation quickly and the pandemic brought that on. Those are capabilities that they'll use going forward. The second thing that we saw quite a bit, we had a lot of training for customers in how to operate in a virtual environment with the existing Blackbaud solutions they use every day. Even though they were going into the office, they really didn't realize or didn't understand that they could use the same solutions virtually that they use every single day. And that went over really, really well with customers. I remember us having webinars last year, and we had thousands of customers come to webinars to get training and listen to other customers that we brought in around best practices in a virtual environment. The third area that I would mention is from an earlier question, is just the general awareness of shifting to the cloud and shifting to being more digital and more nimble in having those solutions available. So those are the 3 areas that I saw quite quickly and then throughout the year in 2020.

Yes. I would add I think to that nimbleness ultimately, we were able to do so with engineering teams, product management teams, meeting with these customers early -- in the early days of the pandemic and listen to ideas, problems that they were having. In some cases, we had to develop new capabilities, our integration points with Zoom, for example. Or in some cases in higher ed and K-12 in particular, we took functionality that was originally intended to be marketing for promoting videos or people being able to do virtual tours. And actually within a few days, turned that into capabilities that allow teachers and students to interact online. So that was pretty rapid and I think, again, shows kind of the ability and capability of some of the new technologies that we're leveraging today. And I think it's important to note that -- and I do think these trends will continue, but we're not just moving transactions online, we're actually helping them move to virtual events. Now we had started this years ago with some virtual run, walk, ride. And so leveraging that capability has been key and critical to help many of our organizations that we support to continue with their events, but just do them in a different way, but still with great success. And then I think just a little less exciting, a lot of orgs refound and rediscovered the capabilities that were in the products they already had. So you think about organizations that were dependent heavily on attendance or on events, they were able to step back and get back to good, old-fashioned fundraising. And again, as Mike mentioned, through training, we were able to help them do that and then be ready to open -- reopen the doors as health standards change.

Thanks, Kevin. Next question from Tom Roderick at Stifel. As you address go-to-market and emerging Blackbaud TAMs like faith-based, how effective is your sales structure in reaching new logo opportunities in a virtual selling environment? Can you specifically spend a few minutes on how you're organizing your sales team for faith-based in the U.S. Kevin Gregoire, you're probably best to answer that. And Mike, anything you want to add after that?

Sure. Happy to. So I think if I just step back for a minute and say how we actually go to market in general, I have a business unit president that's responsible for revenue for each one of the verticals that I have responsibility for. And then we have dedicated teams within the vertical. Digging into faith, as you'd expect, there are -- there's a -- faith is a pretty diverse set of customers from relatively small community churches, which we would -- we line up by territory, in essence, with teams that are focused on -- specifically on this customer type. And digital marketing is really the driver of the reach into that customer base. I think what's really important to remember is the customer base actually uses -- we can sell multiple products into that customer base. And so we're already in the process of selling, for example, RE and FE into that base as well as church management where it's fitting appropriately. Then in addition to that, we actually have customers that are more enterprise-like. I would use the example of diocese. And so we would have -- we have a team that's focused specifically on the diocesan market. And that team is really much going to the dioceses or diocese instead of it to the individual -- typically instead of to the individual parish. And we're selling products from RE, FE, BEM and soon to be here, our congregate portal into that segment. I don't know, Mike, do you have anything else to add?

No. Just -- I guess, yes, one quick thing. It follows our model across all the verticals. We have dedicated sellers, both separated from new logo and separated to back to base or hunters, farmers, in the faith vertical, like we have in all of our verticals.

[Operator Instructions] Next question from Mark Schappel at Benchmark. The opportunity for price increases was discussed a couple of times during the prepared remarks. Can you go into more detail as far as the rate increases envisioned? And what parts of the nonprofit sector you believe are ripe for price increases? Mike, maybe you want to hit pricing overall?

Yes. Sure. Hey, Mark, thanks for the question. We have a couple of areas that we're executing on related to price changes. And I'll break them down in a few categories. So David and team did a fantastic job in the U.K. with JustGiving in the last several years in testing and then fully implementing a completely new model in which JustGiving has put in place now a while back. And that model was super successful because it did 2 things really. One, it actually lowered the cost for our customers. And two, it increased our revenue. We're taking that model and we're testing that today in some of our even larger platforms in the U.S., so that's under test. And we expect big things from that going forward. Second category is around, essentially, I'll put -- there's 2 more programs so there's 3 total. The other 2, I'll just put in the category of catching up to the market. So we got a little behind in some pricing increases and we're just catching up to the market in 2 different areas. And one of them is implemented, and one of them is being in its sort of final stage of design and will be implemented. So those are 3 buckets, if you will, of increases. And they're all increases, but different.

Thanks, Mike. All right. We have another one from Tom Roderick at Stifel. Once the effects of the pandemic subside, how does Blackbaud think about the proper mix of stock-based comp as a percent of revenue? Tony, I'll turn that one to you.

Yes. Thanks, Tom. In the -- with the onset of the pandemic, we took a lot of actions. We pulled back on merit increases and promotional increases and 401(k) match in the second quarter. And to try and make our employees whole on a lot of those things, we actually switched to stock-based comp, and that was all about preserving cash and ensuring we had ample liquidity to deal with whatever the uncertainties that came from the pandemic. And we've now reversed the -- back to cash-based merit and 401(k). Bonuses for the foreseeable future will still be equity. The HR team has done a lot of work looking at market. We're still in good shape from a cash to equity mix from an overall comp perspective. But 401(k), cash-based merit and promotional all back for '21. The -- we take a pretty serious view of our dilution, burn rate, look into that every year, look at where we compare to market overall, to peers, certainly. Historically, Tom, we've run on the low side from a dilution perspective, quite low compared to peers. The stock-based comp will be up a little now because of the added bonus component to it. We just bought back, as you're aware, in January and December, about $70 million worth of stock. That's equivalent to roughly 3 years' worth of the incremental dilution from the bonus moving to stock-based. The other thing that's important to keep in note is we net share settle on almost 100% of our vesting on behalf of our employees for their taxes. So that means the actual dilution that we see is only about 70 cents on the dollar. So I think between those, again, we keep a close eye on burn rate, our dilution versus peers, kind of market dynamics on comp and then with the net share settle, and now we've got this added optionality of a much larger stock buyback program in place where we took that from $50, as you're aware, up to $250 million last year and actually put it in place and bought back some stock at what we think were very attractive prices as we still believe the stock is undervalued today.

Great. Thanks, Tony. Next question from Brian Peterson at Raymond James. The presentation referenced 40% increase in time and market. Realizing COVID is dynamic, it's a little more complicated. Just trying to understand what the metric reference is in terms of coverage and productivity. Kevin Gregoire, do you want to maybe talk through the time and territory and what we've been doing there?

Sure. So as I alluded to in the presentation when I was talking about digital marketing, we measure with great rigor the performance of our, in that case, digital marketing channels. But we also do that with respect to our teams, our sales teams at an individual actually seller level, at a sales team level, at a vertical level. And what we've determined over a period of time is the strongest correlation that we actually have to success and productivity of the rep is their time and territory. And so it's not as much time in market because our go-to-market model is, as Mike mentioned before, we have people that are in a particular vertical, K-12, and they sell specifically into a specific, say, geography of 4 new logos. We want that person to be selling new logos into that geography for our target is a 2-year period. And in so doing, we actually, on average -- and in so doing, we actually are improving our sales productivity.

Great. Thanks, Kevin. So we've got one from Matt VanVliet at BTIG. How should we think about sales headcount moving forward? Kevin mentioned a significant reduction in total sellers and a focus on sales efficiency initiatives. So what's the current quota-carrying headcount? How does this compare to 2019? And what are the headcount growth rates under the various recovery scenarios? So on that, we won't disclose quota-carrying headcount today. We give that annually in the K. But Tony, that might be a good one for you to talk to. Or Mike, you can chime in as well.

I'm happy to take it. Yes, we're down in sales headcount by design. We came down back in the June-ish time frame last year and took sales headcount down by design and then significantly increased spend in digital marketing and digital lead gen at the same time. And it really all -- is all about an effort to drive sales productivity and increased bookings. So, so far, we've got great results. Year-to-date so far, bookings are coming in above plan. And bookings are coming in above last year, year-to-date, when we were not in a pandemic and we're down in sales headcount. And that's what we're striving to do, is lower our cap costs with a mix of higher sales per account executive, higher digital marketing spend which drives inefficiencies. That's a program we've been working on for a while. As far as additional headcount in the future, we're open to always hire more headcount in the future. We're still on the tail end of this pandemic. And so our expectations are that sales bookings will climb throughout the year, and we'll get more and more as the end markets and the economy opens up more. And if we see this continued increase in productivity, we know we have a large enough TAM, we'll keep adding sales headcount. So we'll kind of look at it that way, and we're still kind of working out of this pandemic.

Great. Up next, we've got another one from Tom Roderick at Stifel. When does capitalized software begin to come down on an absolute basis? I'll turn that to you, Tony.

So Tom, I'm not certain if you mean the amount we capitalize or the amortization impact, so 2 different things from a timing perspective. So the amount of cap software is dependent on, I think, acquisitions on one front. So depending on how acquisitive we are and what the opportunities are there to build and innovate on those product sets. Second, we -- as we've said, we've made some increased investments recently in the last year and certainly going into this year. As Kevin McDearis spoke about on several fronts to get out of the legacy 7 products, get to the cloud, hardening of some of the products and environments from a security perspective, global expansion in YourCause as David spoke to. So it's really dependent on the buy or build or partner scenarios. I do think, though, that the total amount of capitalized software has been probably a bit abnormally high in the last couple of years because we've had so much innovation and we've had such large increased investment in R&D. I would expect that to start plateauing here in the next 2 to 3 years. The wild card there is if we were to acquire or decide to build into, obviously, another new market, like we're doing with faith or higher ed that could drive, obviously, R&D and innovation investments up, which would result typically in capitalized software increasing. And then the amortization side. As you know, we amortize those costs over a various number of years, depending on the solution set and the estimated lifetime value. Some are typically between 3 and 7 years. So it will take 2 to 3 years for the amortization to kind of peak once we plateau on the cap software side of things. Thanks, Tom.

Thanks, Tony. Moving on to Kirk Materne from Evercore asking, with the end of service and legacy and reducing portfolio solutions by 1/3 over the last 5 years, you stated that 2/3 of your customers were retained and migrated to the cloud. What happened with the customers that didn't migrate? Mike, do you want to cover portfolio rationalization?

Yes, sure. Yes, happy to do that. So it's been a planned program for a long time now, which is really portfolio simplification. I could say this started probably in a big way 5, 6 years ago, 7, when I got here. And then when Kevin McDearis joined a little bit after, we put together a formal program to do that. The company had never done that previously. And we just had a portfolio cleanup effort we had to do, and it's been really successful. The good news about that is we retained most of the revenue. So most of the large customers went to our go-forward platforms. The customers that left likely went to single-point solutions. We have a lot of small competitors with single-point solutions in all of our markets, and they went to those other various environments. So really successful effort on our part to reduce the level of complexity in the portfolio. The other thing that we benefit from is the redeployment of engineering teams. So we've redeployed several engineering teams, and it's over 200 engineers that got redeployed from these legacy solutions. We shut down to our go-forward solutions so we can go faster on our newer cloud solutions and drive more innovation. So that's been a really successful program.

Yes. And I think, Mike, you hit on something we probably should say, the other side of it, so we retained a lot of the revenue. We still lost, as we stated, probably 1/3 of the customers during that migration and they went elsewhere, right, because we didn't build the exact same feature functionality into the go-forward product. And so that's a key point. And you see that has materialized in our unit retention rate. So the retention rate that we disclosed publicly in our numbers, that went from 92% to 93%. That kind of points to the impact of us having a focus on customer delight and also coming to the end of a lot of these major portfolio rationalizations is that's helping us on that front. And so that's a unit or a customer loss kind of retention tracking number. And you can see, to Mike's point, we kept a lot of the revenue but did have negative impact over the last several years on that unit retention number. And we're hopeful, as we've come to the end of that big push, that we'll see retention rates improve over the next few years, which is part of our overall growth improvement strategy.

All right. Tony, I think I have another one for you. Matt VanVliet, BTIG. Looking at the potential for payments gross margin improvements, can you expand on the biggest levers here? Are there significant fixed costs associated with the ecosystem that are naturally leveraged by growth? Are there more areas for automation or AI machine learning components to offset fraud, loss, et cetera, expenses and/or improved processing costs? And how much can pricing changes impact this in the short term?

Yes. Thanks, Matt. That's a really good question. Pricing in this case would be by far the most impactful. I think it's important, if you look in the slides that were part of my presentation, we provided quite a bit of detail in my prepared comments, both through this as well. I think it's really important to note that kind of the BBMS or true payment side of our business is dilutive to gross margins today. Obviously, any price increases that we can take advantage of on that front will help the gross margin line. But I think more importantly is that all of our transactional business is accretive. Some of the transactional business is very accretive to our operating margins and EBITDA margins. So that's very important to note. While gross margin, it may have some impact to profitability at the bottom line, they're all very favorable. So as we see growth there, that drives real value. Will help on the march towards Rule of 40 and certainly helps cash flows. Not a lot of fixed cost structure. There's obviously costs, and all of this is largely up in cost of goods, on doing the OFAC and KY screening and all of the other things that are required and being compliant on a regulatory basis, et cetera. But by far, the most impactful thing will be the pricing opportunities that we've identified on that front. I think the other, David spoke to it, one of the really big opportunities, and Mike mentioned that as well, is bringing the prove and voluntary contribution solution that we've had so much success in the U.K. to Canada and the U.S. has some really major opportunities to help improve margins overall as well on the transactional side of the business. So very excited on that front for both growth, and whatever growth comes with that will largely fall through to profitability. So that will help both sides of that equation.

Shifting to partners. Kirk Materne at Evercore. The partner marketplace appears to be robust with 2,800 plus SKY apps. Can you talk a little bit about what your longer-term aspirations are with the marketplace? How you see this impacting retention and customer engagement? And how you see this evolving in terms of potential monetization and growth? Mike, maybe you want to start that one.

Yes, sure. Happy to. Yes, this is a big deal for us, and it's been growing for a long time. We've talked about this for a while, but here it is. So without many apps in the program and growing exponentially, what happens is a lot of these solutions, smaller solution gaps that we'll never address are being addressed. That's number one. Number two, we're getting new partners all the time and new solutions in this marketplace, which we've never had as a company before. If you go back in our history, all the solutions we've had have pretty much been things we've built. So now we're building this ecosystem of a marketplace and it adds a ton of value for customers. A lot of these solutions are kind of nuanced by vertical market that we're in is really important. And for us, it makes the solutions -- our solution is more valuable, which is our solutions are the core ones, more valuable. It helps with customer retention in the long run, makes our solutions a little stickier because they get more deeply verticalized by specific customer type because of these added solutions in the marketplace. So I think this is really a big jump up for us and a big strategic move is going to help us in selling new logos, retaining existing customers, getting wider IT wallet share with customers. The other really cool thing here, too, is we have over 3,000 software engineers outside of Blackbaud building solutions in this marketplace, which is more than the engineers that we have in the company. So we're starting to build the sort of marketplace ecosystem on our SKY engineering platform that we, as a company, historically have never had before, and I think it's a game changer for us online.

Yes. I might add, we've seen an incredible feedback, positive feedback from a lot of our partners, those that have been around for a long time as well as some of the new larger ones saying, "Wow, the platforms, the commerce platform, the engineering system, et cetera, are really providing us access to very powerful tools to be able to integrate and deliver a common experience back to our joint customers."

Thanks, guys. Next one, Ryan MacDonald, Needham. Can you provide your thoughts on the potential opportunity down market with smaller nonprofits? We've seen some relatively healthy growth in that segment over the past year with a few smaller vendors having success down market. Is there an opportunity for Blackbaud to move down market with a more lightweight offering to perhaps grab additional share and accelerate growth? Mike, I'll turn that one to you.

Yes, sure. We have a couple of solutions in our portfolio today that I would call down market. One is our eTapestry platform, which is a full CRM fundraising platform for smaller institutions. Another one is just the ease of use of creating a fundraising page using the JustGiving platform, which we've begun to roll out in the U.S. as well. And lastly, with our SKY engineering platform and what's coming in the future, we're going to get a lot more scale both of down and up into enterprise as well than we've been able to do in the past. So we have some existing products. And I think we're going to have a really high velocity kind of lightweight set of capabilities coming from the SKY engineering platform in the not-too-distant future as well.

Great. Moving on. Matt VanVliet from BTIG. There has been significant growth in e-learning and virtual schooling, which has led to major funding of existing and new purpose-built platforms. How has the legacy WhippleHill portion of the business performed for virtual learning and student information systems? Has there been increased competition in the private K-12 market? Or are many of those large competitors still focused on higher ed and larger public school systems? Kevin Gregoire, I think we can start with you there on top K-12.

Yes. To me, the solution that we have in K-12 just did an amazing job for our schools last year. We were able to, as Kevin mentioned, very, very, very quickly pivot, Kevin McDearis mentioned, very, very quickly pivot to enable. We had already actually had integration to multiple digital providers. We're very quickly able to pivot and enable essentially schools to go virtual very quickly. That actually helps schools from an -- broadly speaking, from an enrollment perspective, as parents were looking for the best schools or the best education for their children and sometimes they're struggling to find it in a virtual environment. So our solution has held up very, very strongly. And frankly, it continues to perform at a very high level. I'd turn it over to Kevin McDearis a little bit to just explain just how much we actually had to scale that solution in order to make that happen, but we did it very successfully.

Yes. It was a quite large, that platform. It actually operates in one of our public cloud environments. And so we saw the meters pegged very quickly overnight as is the world went remote and as we begin to take functionality that might have been originally intended as marketing capability and make that the way teachers were delivering initially their plans and their lectures. And so -- and then we were able to tune that over time and be able to respond and tackle the next integration point. So it was a great testament both to the platform and our partnership with our customers to really respond and scale very quickly in a way that allowed them to, I think, differentiate themselves in the market.

Yes, I'll just jump in here quick, Steve. So this is a perfect scenario last year where the administrators of these schools didn't really realize that they can run the school and not go to the building, them or the kids. And so there's a lot of training that we gave them immediately, but they basically use the same solution they use every day to run the school. The same tuition management, the same student enrollment, classroom scheduling, student information system, on their mobile devices. And our platform has mobile solution for the parents as well. So from an administration and operation standpoint, the schools ran exactly the same way. We are already integrated with Zoom, Teams and other video conferencing platforms. And so the biggest change for them was delivering education at home through Zoom and having teachers prepared to be able to do that, either live or recorded sessions, right? But what was good for them was the same cloud solutions from Blackbaud that they use when they walk in the building work the same from the living room and home for the administrators. That got a huge notice in the K-12 market that, that happened, including with the customers that we don't have that's struggled because they have a legacy platform. Like one of the examples I gave earlier, there's a very specific one that we saw come to fruition last year.

Thanks, Mike. All right. From there, we'll move to Rishi Jaluria, D.A. Davidson. Tony, on the path to Rule of 40 use, EBITDA is the metric. Over time, how should we be thinking about free cash flow margins and cash conversion, free cash flow to EBITDA?

Yes. Thanks, Rishi. That's a good question. And EBITDA made a little more sense for us right now with us still being in this middle of the conversion effectively to the cloud, as we've talked about quite a bit today. Two big things that will close the gap on EBITDA to free cash flow margins. One is, as we've spoken, we've been investing significant dollars in innovation, Mike was just talking to, to build out our new go-forward platform. So there's been a lot of R&D investment. I spoke about that earlier in one of the questions, I think it was Matt's and Tom, both. So we have a heightened level of capitalized software costs, so that incremental capitalization that we've done is driving some delta between EBITDA and free cash flow margins. That should start to dissipate as we kind of plateau on those levels of cap software that we see in a given year and as amortization of that software kind of matches up in balances. So over the next few years, I'd expect those things to kind of hit equilibrium. That will help kind of bring EBITDA and free cash flow margins in line. And then one of the other big drivers is we still have a lot of COLO data centers as we've discussed. And we still spend quite a bit of capital on those and into those data centers. So as we move to Azure and AWS and third-party cloud provider, data centers will no longer have that CapEx. And that's one of the other big deltas there between the 2 metrics. And so I'd say over the next 3 to 5 years, as we get out of all these COLOs that Kevin McDearis and team are working so hard on, we'll see some cost efficiencies and we'll see free cash flow margins and EBITDA start to align more closely as well.

Thanks, Tony. All right. It looks like we have one last one here. I know we're running over. Brian Peterson from Raymond James. The TAM of $1 billion internationally, although theoretically, a lot of the products are applicable there, how quickly could you accelerate that TAM opportunity international? David, we'll start there. And maybe, Mike, if you want to chime in after.

Sure. Thanks. Thanks for the question, Brian. So when I think about the international TAM, I think about it from 2 perspectives: one, growing our TAM through moving to other countries; and secondly, growing our TAM from building capabilities within countries we're already existing in. Now whilst we always keep a consideration for the former, right now, my focus and our focus is on executing on the latter, building our TAM and building our capabilities in the markets we operate in today. And in my prepared remarks, you would have seen a number of examples how we've proven out our ability to do so exactly that. So starting off with, for example, our financial management solutions launched in the U.S. and then rapidly moved into Canada, Australia. U.K. is up next. So that's a good example of taking existing products and moving them internationally. We've also got examples of acquisitions which we brought on board into the Blackbaud family. And then again, moved them internationally as well. So we acquired JustGiving in 2017. We have now completed market launches in the U.S., in Australia and in Canada. And again, as I mentioned in my prepared remarks, YourCause is up next for our internationalization. So we have it in the U.S., we acquired the business in 2019. Up next is Canada, followed by U.K. and then Australia. So what I would say is that there is opportunity to build TAM internationally. And more importantly, I believe we've got a proven team with a strong playbook to execute against that. Mike, any comment?

Just agreeing what you'd said, David. I mean we are expanding TAM. We're bringing more and more existing Blackbaud products through our international markets are quite key.

Okay. Before we go, I'm going to turn it over to Mike. I'll just say on behalf of the IR team, thank you, everyone, for joining. Thanks for the questions. If we didn't get to a question or if you have more, please, you can e-mail me or the IR team, [email protected]. Mike, with that, I'll turn it over to you for any closing comments.

Great. Thank you, Steve. As all of you just heard, we have multiple drivers for growth and margin expansion. And I want to bring you back to the 4 key points that I laid out at the beginning of the session. First, we're the leader in a large, resilient and growing global market. We highlighted our total market increasing from about $15 billion in 2014 when I joined Blackbaud to over $20 billion today. Digital transformation in this market is accelerating, and software spend in our market is expected to grow at least 3% to 4% annually. We've doubled our TAM from roughly $5 billion to over $10 billion. We've also nearly doubled our revenue. Second, we have multiple levers with which to accelerate revenue growth and margin that span across 3 areas: first, pandemic recovery with event-driven transactional revenue and bookings returning post pandemic; second, a few price model and price catch-up opportunities that we discussed earlier; and third, we remain active in looking at M&A opportunities. Last point I'll make, we're rapidly innovating for our customers, and we're well positioned to capture the digital shift within our industry. With that, we'll end today's session. Tony and I look forward to updating you on our Q1 earnings call next month. Thank you.