Blackbaud, Inc. 2026 Q3 Earnings Call

Please go ahead, sir. Good morning, everyone.

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

Unless otherwise specified, we will refer only to non-GAAP financial measures on this call. Please note that non-GAAP financial measures should not be considered in isolation from or as a substitute for GAAP measures. We have also provided a slide presentation with supplemental data and additional highlights and financial metrics. The earnings release, supplemental tables, and presentation are available in the investor relations section of our website on blackbaud.com. With that, let me turn the call over to you, Mike.

Thank you, Tom. Good morning, everyone. We appreciate you joining us today. We delivered another quarter of solid execution against our operating plan, with earnings per share and cash flow coming in better than expected as we continue to focus on a balanced financial profile driven by productivity efficiencies and a rapidly accelerating pace of product innovation. These results reflect the leadership position Blackbaud holds at the intersection of innovation and community. We understand the organizations we serve, the people who do the work, and the communities that depend on them. We are equally committed to the technology and the transformation they need and proud of how we lead in both. We convene the sector, we share what we learn, and we build the products it runs on.

This foundation took 4 decades to build, and as AI changes how social impact organizations operate for the years to come, here and abroad, this intersection of innovation and community is becoming more urgent and more indispensable. Our customers want human ingenuity combined with the best of innovation from a partner they trust. As such, what we do and what we offer has never been more important. This has never been more evident in our pace of innovation over the past year. Last year, we talked about moving our products from systems of record to systems of intelligent action, and we continue to improve on that vision. In fact, at bbcon 2026, we announced Platform for Good, our unified operating system for social impact, and introduced Lantern, the first domain-specific language model purpose-built for fundraising.

I want to spend most of my time on those announcements, on how we are continuing to invest in the core products our customers rely on every day, and on what we are hearing from customers. Platform for Good is the next step. A single connected operating system in which our products, data, AI, and expertise work together, learning from every interaction and getting smarter with every product that runs on it. It is built on 3 layers. The data core brings together our differentiated data assets, including the Blackbaud Philanthropic Data Set, research and industry data from the Blackbaud Institute, and Blackbaud Giving Search. The intelligence layer is powered by our Social Impact Signal Graph, which connects signals across the social impact ecosystem to surface patterns, relationships, and context.

The action layer is where our AI moves from intelligence to execution through assistance, agents, and workflows with appropriate human oversight and control. Importantly, Platform for Good requires no action from existing customers. It unites our products under the surface, and customers adopt new capabilities as they become available while continuing to work in the Blackbaud solutions and workflows they use today. That matters in a sector where many organizations have limited IT resources and face turnover and staffing shortages. We also introduced Lantern. Lantern is the newest part of our intelligence layer. Our research shows that 85% of social impact professionals use AI in their daily work, yet only about 10% of organizations are seeing returns. General-purpose models learn from the internet. Lantern learns from philanthropy. Developed through a strategic collaboration with Databricks, Lantern combines leading open-weight models on the Databricks data and AI platform with more than 40 years of Blackbaud's fundraising experience.

It is post-trained on synthetic scenarios modeled on our Social Impact Signal Graph, so it understands giving behavior rather than buying behavior, including retention, upgrade paths, and lifetime relationships, which are central to fundraising but not native to general purpose AI. Just as importantly, it is developed under our responsible AI principles with privacy, transparency, and sector appropriate governance at its core, and with input from customers, including Boston University, Hesed House, and YMCA of the North. On timing, Lantern will begin powering featured Raiser's Edge NXT and Agents for Good capabilities in 2027, with broader availability across Platform for Good to follow. Our Agents for Good family continues to grow.

The Development Agent, our first agentic product, which became available earlier this year, is helping fundraising teams identify and engage donors who are not in a major gift officer's portfolio under human supervision. At bbcon, we announced new advancements to Development Agent and introduced the Data Health Agent, a continuous data steward that detects and addresses data issues through review and approve workflows. We also previewed agentic experiences for finance and education, including our vision for an accounts payable agent in Financial Edge NXT that reviews invoice details, prepares cash-aware payment runs, and stages recommendations for human approval. I want to be clear about something. Our AI investment is in addition to, not instead of, our investments in the core products our customers depend on every day.

Our use of AI in engineering has expanded our capacity and increased our velocity such that we are announcing more new solutions than we ever have, and at the same time, significantly advancing our core solutions. Those core products are the systems of record, the workflows, and the trust that make our AI valuable, and we continue to invest in them aggressively. The clearest example of enhancement was improvements within Raiser's Edge NXT. At bbcon, we unveiled its next chapter, rebuilt from the ground up as a native cloud AI-powered platform with embedded intelligence, automation, and connected data. The new, more powerful Raiser's Edge NXT enhancements were planned for customer use in 2027, but were accelerated and pulled forward by more than a year and include purpose-built AI that surfaces high potential prospects and giving signals.

These enhancements also include Strategy Assistant, which delivers benchmarks and recommendations directly in the flow of work, drawing on more than $1 trillion in giving history tracked through Raiser's Edge NXT. We also introduced Blackbaud Marketing embedded within Raiser's Edge NXT to help teams plan campaigns, identify audiences, and coordinate engagement across channels. In financial management and payments, we announced our next generation Payment Assistant through a strategic partnership with BILL and Deposit Connect, which brings gift, fee, and disbursement data together across Raiser's Edge NXT, Blackbaud Integrated Payments, and Financial Edge NXT. In education, we unveiled the higher education connected campus solution built with our partner, Student First, which brings the student life cycle together with advancement, finance, awarding, and payments, and we continue to invest in our Total School Solution for K12.

Together, these investments reflect our strategy, modernize the products customers already trust, then add embedded intelligence and new AI solutions so customers get value from AI without replatforming or adding bolt-on tools. That approach is reflected in contract terms and customer satisfaction with approximately 90% of our contractual recurring revenue on contracts of 3 years or longer and approximately 25% on 4 years or longer, up from 20% earlier in the year. Our approach to the established parts of the portfolio is deliberate. We continue to fund modernization, performance, security, and compliance work across our fundraising, financial management, education, and corporate social responsibility and grant-making solutions because customers judge us first on whether the products they use every day are reliable, intuitive, and getting better. We also see the two new efforts reinforcing each other.

Every improvement to a core product, such as cleaner data, tighter integrations, and faster workflows, makes the intelligence layer more accurate and more useful. Every agent and model we ship is embedded in a solution customers already trust, which reduces the data gaps and security risks created by bolt-on tools. That is a large part of why we believe our differentiation is clear and widening. Turning to customers, this quarter, we again saw a healthy mix of new customer logo wins and cross-sales of additional solutions to our existing customers across all verticals. Within our higher education vertical, we replaced a well-known global CRM at Cal State University, Chico, with Raiser's Edge NXT. Like many of our new logos, they wanted to modernize their advancement operations, streamline fundraising and reporting processes, and provide their team with a scalable cloud platform to support future growth and donor engagement.