Blackbaud Inc Q2 FY2021 Earnings Call

Good day, and welcome to Blackbaud's Second Quarter 2021 Earnings Call. Today's conference is being recorded. I'll now turn the conference over to Steve Hufford, Director of Investor Relations at Blackbaud. Please go ahead, sir.

Good morning, everyone. Thanks for joining us on Blackbaud's second quarter 2021 earnings call. Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO; and Tony Boor, Blackbaud's Executive Vice President and CFO. Mike and Tony will make prepared comments, and then we will open up the line for your questions. 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. We believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure our business. Unless otherwise specified, we will refer only to non-GAAP financial measures on this call. Please note that non-GAAP financial measures should not be considered in isolation from or as a substitution for GAAP measures. A reconciliation of GAAP and non-GAAP results is available in the press release we issued last night, and a more detailed supplemental schedule is available in our presentation on our Investor Relations website. Before I turn the call over to Mike, I'll remind you that a recording of our investor session held in March and the full presentation are available on our Investor Relations website. I'll also mention that during the third quarter, our team will be virtually attending the Oppenheimer 24th Annual Technology Internet and Communications Conference and Jefferies Virtual Software Conference, and we will be participating in virtual non-deal road shows with investors both domestically and abroad. If you're interested in connecting at one of these events please email ir@blackbaud.com. With that I'll turn the call over to you Mike.

Thank you Steve. Good morning, everyone. Thank you for joining our call today. Blackbaud had another strong quarter as our markets progress toward a post-pandemic recovery and the shift to a digital-first world continues to accelerate. We have so much to be excited about as a company. And given our strong performance through the first half, we're well-positioned for success as we look ahead to the second half of this year and to the next several years. Tony will cover the financials in more detail shortly, but the trends through the first half combined with our latest financial outlook suggests we could exceed our best estimate revenue scenario laid out on our Q4 earnings call with our upside scenarios continuing to look more likely. You've heard me say in the past the events that have taken place over the last 1.5 years will be a catalyst for the industry to adopt digital capabilities and move even faster towards modern purpose-built cloud solutions. With the first half behind us, I believe we're seeing this take hold and I'm increasingly bullish on the outlook for our market, our customers and our company as we move through 2021. We continue to believe Blackbaud's stock is undervalued given our outlook and thus we continued our share buyback program in the second quarter. The impact of the pandemic manifested itself in different ways across the broader markets we serve, but we're now seeing encouraging signs of recovery across the board. In fact 2020 was the highest year of US Charitable Giving on record growing to over $470 billion according to Giving USA. In addition to record levels of giving overall, the percentage of giving done online grew by 40% year-over-year and the total industry went from 9% to 13%. This is a trend we believe is here to stay. We're also beginning to see the return of physical events for our customers with more organizations planning for in-person events during the second half of 2021. A great example is our arts and cultural vertical where zoos, museums and other cultural organizations were challenged with lost revenue from the absence of in-person attendance and events last year, but we can see in the data the admissions and associated payments volume are now on the rise. And in our K-12 vertical, schools are planning for the upcoming school year having navigated from virtual to hybrid and now in-person learning and fundraising. Last month, we again virtually hosted thousands of registrants at our annual tech conference for K-12 private schools. The event featured innovation updates and deep dives around the Blackbaud education management platform, as well as best practice and thought leadership sessions across all areas of school management. We remain very well positioned as a leader in the K-12 market and overall as the best long-term partner for social good organizations across all the markets we serve. Turning to the quarter, I'll provide a few updates in the context of our four-point strategy. I'll start with our strategy to delight customers with innovative cloud solutions. Since the pandemic began last year, we've been quick to reprioritize and expedite product enhancements to support our customers' changing needs as they operate more digitally. For example, I mentioned we're seeing arts and cultural organizations begin to open the doors. As they reopen, maintaining high standards for the safety and security of their patrons is a top priority. So just a few weeks ago, we announced the general availability of a payment terminal. This solution allows organizations to receive secure contactless chip and tap payments for tickets and donations to Blackbaud Altru and Blackbaud Merchant Services. Not only does this minimize staff handling of credit cards during point-of-sale, but it enables them to process payments three times faster than with a magnetic swipe device and protects their constituents and organization from credit card fraud with EMV certified card readers that offer end-to-end encryption. During the second quarter, we also announced general availability of Blackbaud peer-to-peer fundraising powered by JustGiving in Australia, New Zealand and Canada. JustGiving has already proven to be a game changer for organizations across the globe looking to raise more funds digitally and we're thrilled to bring this turnkey solution to even more organizations with no subscription fees or sub costs. We have a unique approach with JustGiving's pricing structure away from a fixed platform fee to a voluntary contribution model, a true win-win for us and our customers. We've made tremendous progress globalizing our products in recent years and JustGiving is yet another example of this. Additionally, YourCause is poised for globalization, as we look to capture a tremendous international opportunity with forthcoming market launches in Canada, the UK and Australia. The return of mass participation events alongside the market launch investments we made in the US, Canada and Australia plus further pricing innovation have us optimistic that we'll see strong sustained growth in our international markets in the short, medium and long term. And as I said before, our ability to drive innovation is no longer just about Blackbaud's engineering efforts, as we continue to build out our partner programs. Just last month, we hosted our annual Developers' Conference, where attendance was up 50% year-over-year, and our investments in support for open APIs are resonating with customers and partners alike. Our vision is to power a community of developers and partners who are passionate about social good to create amazing new capabilities that evolve as the needs of their organizations evolve, and we're just beginning to scratch the surface of what's possible here. Next, I'll cover our strategy focused on employees, culture and ESG initiatives. This year marks Blackbaud's 40th anniversary. Since day one, our focus has been on building a better world. We just capped off a month-long celebration with our employees, some of whom have been around to watch our business grow from just one product to providing purpose-built solutions for the entire social good industry. As we reflect on this milestone, we remain steadfast in our commitment to enable our customers to drive more social good to support our communities both inside and outside of work, and to celebrate our people, to whom our success is owed. Our company is made up of employees from all over the world, who come from diverse backgrounds and experiences, and we're thrilled to celebrate these differences and unique contributions by honoring celebrations and observances that reflect equality, justice and further promote a higher purpose to help good take over. In June alone, we honored PRIDE month and Juneteenth. Our strong corporate culture enables us to retain and attract top talent around the globe, which is even more critical in today's environment. And we're building on this strength with recent hires and the creation of new roles focused on establishing new pipelines of talent, including outreach to diverse campus programs, HBCUs and national diverse organizations. In Q2, we also furthered our efforts to create a best-in-class candidate and employee experience with the launch of our new careers site. This enables us to lift our social presence and visibility, create personalized experiences for candidates via AI, reduce the time to apply by half, and accept applications start to finish from a mobile device. It also enables us to leverage data analytics to better understand the talent marketplace and inform future investments. This is a big step especially when combined with our workforce strategy to build key parts of our internal digital-first approach. This brings me to our strategy to lead with world-class teams and operations. As I've said, this expands upon our previous strategy to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40. In support of our strategy during the second quarter, we merged our Enterprise Market Group and General Market Group to create one US market group reporting to Kevin Gregoire who many of you heard from at an investor session in March. We did this to better align our resources towards customer retention and growth. We have a strong executive team. We're all incredibly capable leaders delivering on our mission and executing on our strategy. As part of this recent change, Kevin Mooney, who previously led our General Markets Group, is now focusing on M&A as Executive Vice President Strategy and Business Development. Which brings me to our strategy to expand our total addressable market by acquiring, building and partnering into near-adjacent markets and expanding within our existing markets. We have a strong historical track record of driving inorganic revenue growth through M&A with last year being an exception given our primary focus was on our employees, our customers, and preserving liquidity during the pandemic. We are now actively evaluating opportunities as acquisitions remain an important element of our growth strategy going forward. I'll remind you that with the combination of organic growth and M&A, we have a history of double-digit revenue growth. I'll summarize by reiterating that I continue to be bullish about the opportunity ahead of us. The market is showing signs of strength and organizations are planning for post-pandemic recovery. We continue to make investments in key areas like digital marketing, innovation, security, and customer success as we look to extend our leadership position. We have our sights set on a substantial opportunity ahead of us to drive meaningful acceleration in financial performance in the context of the Rule of 40. Blackbaud is well-positioned to capture the organic and inorganic growth opportunities in front of us. Overall, we had a solid first half and I'm excited about the coming quarters and the next several years. With that I'll turn the call over to Tony before we open it up for Q&A. Tony?

Thanks Mike. Good morning everyone. Today I'll cover our results for Q2 and our latest outlook for the full year before opening up the line for your questions. You can refer to yesterday's press release and the investor materials posted to our website for the full detail of our Q2 2021 financial performance. We had another solid quarter of execution which has us well positioned heading into the second half of the year. Second quarter recurring revenue growth was roughly flat year-over-year inclusive of the tough compare in our payments business, which was expected given the elevated volumes we saw at the onset of the pandemic. Our contractual recurring revenue, which is the core of our business, grew $3 million during the quarter and the trends we're seeing in bookings and renewals bode well for continued growth in the second half. One-time services and other revenue declined $3 million which was approximately a 100 basis point drag on total revenue growth. Again we expect this drag to bottom as soon as 2022 which should result in a lift on total revenue growth in the future. And as I said on our last call, 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. Moving to earnings, our second quarter gross margin was 59.1%. We generated adjusted EBITDA of $66 million, representing an adjusted EBITDA margin of 28.7% and diluted earnings per share of $0.82. As you know last year we evolved our go-to-market strategy with a digital-first mindset which has substantially reduced our go-forward cost base in sales and marketing. I'm really pleased with the progress being made to enhance sales productivity and we remain committed to further improving our CAC payback and increasing sales velocity. We are also continuing to make critical investments in the business related to areas like digital marketing, engineering, security, customer success and our continued shift of cloud infrastructure to third-party cloud service providers. I'll reiterate that our current plans call for the level of investment to increase in the second half. And that's our estimate of roughly 25% adjusted EBITDA margin, which holds as our best estimate for the full year 2021. That brings me to the cash flow statement and balance sheet. Our Q2 free cash flow was $57 million, an increase of $8 million year-over-year, and representing a free cash flow margin of approximately 25%. As Mike pointed out, the market and our customers are showing signs of recovery. And as just one example of this, we had our best cash collection month ever as a company, in the month of June. We put that strong cash performance to use and completed $30 million of opportunistic share repurchases during the quarter. We still feel that the valuation today does not fully reflect where we're heading as a company. We ended the quarter with $517 million in net debt. Our capital strategy calls for a debt-to-EBITDA ratio of less than 3.5 times. And at the end of Q2 we stood at 1.8 times which is our targeted optimal leverage ratio. And we had $410 million of borrowing capacity. As of June 30th, we had approximately $150 million remaining and available under our current share repurchase authorization. As we look forward, we plan to continue opportunistically executing on share repurchases, when our internal estimates determine that the company's shares are undervalued by the market. Moving to our outlook for 2021, from a revenue perspective, we're encouraged by our first half performance and the durability of our recurring revenue streams. With two quarters now behind us, we have greater visibility into our second half performance. However, accurately predicting the duration and magnitude of the pandemic remains a challenge. And in particular, the heightened level of variability in transactional revenue makes it difficult for us to put out definitive guidance ranges like we've done in the past. That said I'll again provide our latest perspective on our best estimates for 2021, in relation to the scenarios we laid out on our Q4 call. Our first half performance combined with our latest modeling gives us additional confidence we could exceed the best estimate of $900 million in revenue and suggest we may achieve our upside scenarios of roughly $910 million to $920 million. This is inclusive of an anticipated $15 million to $20 million decline in one-time services and other revenue. Contractual recurring revenue which is the core of our business is expected to grow modestly in 2021. And we're optimistic that we'll set up for an acceleration in revenue growth post-pandemic. We continue to expect to see a pickup in bookings in the second half of the year. And we're encouraged to see our customers schedule the in-person events, which bodes well for recovery in the associated transactional revenue beginning in the second half. At this point, the trends we're seeing through the first half, combined with favorable foreign exchange rates have effectively taken our downside revenue scenario off the table. Shifting to profitability and cash flow, we continue to progress on initiatives like the migration of our cloud infrastructure to third-party cloud service providers, which we expect to result in future gross margin improvement, as we're able to reduce our own COLO footprint and associated duplication of costs. The enhancements we're making in our go-to-market will significantly reduce our average customer acquisition cost as well as the related payback period while increasing sales velocity. And I do not expect our sales and marketing and customer success expense to return to pre-pandemic levels. While revenue remains somewhat variable in the near term we're confident in our ability to manage costs and ultimately profitability. As I mentioned earlier, certain investments are expected to be more heavily weighted towards the second half of 2021 and thus, our latest modeling continues to call for an adjusted EBITDA margin of approximately 25% for the full year. Our pivot to place a greater emphasis on profitability positions us to significantly improve on the Rule of 40 in a post-pandemic environment, and gives us heightened confidence in our expected future free cash flow generation. The potential for second half variability in transactional revenue and bookings makes it challenging to be precise in our free cash flow estimates for 2021. With that said, year-to-date we've generated roughly $74 million of free cash flow. And thus, we feel very confident we will exceed the $100 million floor we set for 2021, given our downside revenue case is now effectively off the table. Again, free cash flow could vary materially depending on the second half performance of bookings and transactional revenue. But our latest modeling suggests we could generate at least $120 million to $130 million of free cash flow this year, inclusive of heightened investments in the second half. We will also continue executing against our capital deployment strategy, which calls for ensuring access to adequate levels of capital to grow the business through balance sheet management, rigorous oversight of investments in the business, including acquisitions and identifying and efficiently returning excess capital to shareholders, including the option for additional share repurchases. In summary, with the first half behind us, we are incrementally more positive than we were at the beginning of the year and very well positioned for a strong 2021. We have greater visibility into our near-term performance. And as we exit the pandemic, we see significant growth opportunities ahead of us. We are increasingly confident in our ability to hit our mid- and long-term growth goals with the potential to see low to mid-single-digit revenue growth as early as next year. We're aiming to achieve the Rule of 40 as a company and accelerating growth, combined with our margin expansion initiatives, puts us on that path. And our proven capital strategy, which includes our renewed focus on M&A and our share repurchase program, provides us with ample optionality to allocate capital in a way that maximizes value for our shareholders over the long term. With that, I'd like to open up the line for your questions.

Thank you. Our first question comes from the line of Parker Lane with Stifel. Please proceed with your question.

Hi, guys. Thanks for taking my question and solid quarter. If I look at the contractual recurring revenue, obviously a much better environment this year and also bookings and renewals have trended according to or better than planned. Has that been recognized or seen across all the end markets that you play in? Are there any particular areas of the business that have seen a little bit better strength here as you move into the back half of the year?

Hey, Parker, it's Mike. Good morning. No, no particular area that's much stronger than the others. Bookings have come back pretty well so far this year and renewals are doing pretty well. So we're seeing a steady recovery and, all in all, everything looks pretty good in those two areas.

Got it. And then, you alluded to it a little bit on the script there. Some events are potentially going to be disrupted here, as things seem a little uneven with openings. And obviously there's a lot of stuff in the news around different variants of COVID. Are you seeing any real-time conversations from your customers around potentially reformatting any events that you expected to return in the back half of the year, or is everyone sort of plotting ahead with the existing plans that they've made for the back half?

Yes. So far, everyone is just moving ahead. Major outdoor events are still scheduled, like major marathons, those are still on. There's a lot of smaller events still planned. It is different as you look around the world. The U.K. is wide open; vaccinations are high and the delta cases are following in the U.K. Canada is pretty good as well. But Australia is struggling, so they're having a tough time. But in general, we see the events still coming back this year and the major ones are planned. So no changes yet, but we'll watch that closely.

Yes. And I was going to note, a lot of the big runs and walks and rides fall in the spring time as well. So we kind of missed those already for this year. And they'll be planned to kind of hit in the first half of next year as well.

Got it. Great feedback. Thank you, guys.

Sure.

Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Good morning, gentlemen. So I wanted to hit on some of the digital marketing investments that you made and maybe some of the other middle-market investments. Is there any way to size the impact on what that's done to the overall pipeline? And have we started to see the efficiency or bookings impact of those investments, or is that more on the comp? And I just maybe wanted to hit on the K-12 space. I think it's been in the news for a lot of obvious reasons. But we're also seeing federal funding that's coming into the market. Historically, that's been funded more by state and local resources. Mike, I want to get your characterization of the demand environment for K-12 as we kind of head into the 2021 school year? Thanks guys.

Yes. This is Mike. Good morning. Yes, we've made a lot of investments in digital marketing and lead generation. One thing that we've pointed to, and I think we mentioned this maybe on the Q1 call, which is holding true, is that bookings are doing pretty well to plan and year-over-year with quite a bit less headcount. So that goes towards sales productivity. Some of that is attributed to the digital investments that we've made. So the pipeline build is pretty good, and you can see the bookings-to-total-headcount ratio is much better than it was last year.

Brian, that's the other thing. I would add is we've got a significant focus, especially in the mid-market and down, on improving velocity and Mike kind of hit on the productivity improvements that we're seeing with heightened bookings with less headcount. But we're also simplifying the offers, trying to shrink the sales cycle, again, all comes down to velocity: moving more units with fewer sales heads at the end of the day. We're seeing good results. There's still a lot of opportunity and a lot of work to do over the coming periods.

Understood. That's good to hear. And I just maybe wanted to hit on the K-12 space. I think it's been in the news for a lot of obvious reasons. But we're also seeing federal funding that's coming into the market. Historically, that's been funded more by state and local resources. Mike, I want to get your characterization of the demand environment for K-12 as we kind of head into the 2021 school year? Thanks guys.

Yes. Sure. Strong market for us, we've got a really great product portfolio there and that continues. I'll remind you that we're in the private K-12 space, not the public school space, so it's different related to funding. But all-in-all, it's a really solid market for us and we continue to go after new opportunities there. We're also getting new opportunities in the faith-based market, because there's a lot of K-12 schools in that segment and we've got a concentration there as well.

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.

No. Maybe he's not there.

Sorry. Thank you. Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.

Great. Thanks guys. Good morning. Appreciate you taking the questions. I had two, Mike one for you, and then Tony follow-up for you. So Mike, just emerging from the pandemic here, I think everybody in the for-profit world and the not-for-profit world is kind of taking the opportunity to reimagine their investments. Kevin McDearis laid out like a really good plan at the investor event that you guys held about calling product and cloud migration and that all seems great. I'm just curious, I mean where that jibes with a few years ago you had laid out a couple of near-term initiatives and that was faith-based and higher ed. I know one-third of Charitable Giving is still faith-based that seems like an attractive market. But are those still the two markets where you guys still see the most opportunity, or has the pandemic created any change in that? I'm not expecting you to give away exactly where that might be, because I know you said you guys are in the market to buy. But just curious how you think about those two. And then, I had a quick follow-up.

Yes, sure. So I wouldn't categorize those as the only opportunities, but they are good opportunities and we keep moving those platforms ahead. In the faith area it's our existing portfolio and then our new church management platform, and we still keep driving those ahead in that space and we're now selling more of a portfolio solution in that space. The second one is education management. We have a new platform that is being sold to smaller colleges and universities and we're continuing to do that and build that platform out. The third area I'll mention is corporations as well with our YourCause acquisition. That's very strong. We're really doubling down on investments in engineering there and some of the growth in engineering is in the YourCause space and adding a lot of capabilities and more international capabilities for that platform as well. All of those are continuing to move along and we feel pretty confident in each. It takes a while for the new ones to get going but we're closing new deals and new logos all the time.

Okay. Great. Thanks Mike. And then, Tony you mentioned investments will increase a bit in the second half, if I heard that right. Is that from R&D or is that part of the sales changes? Could you talk a bit about that expense profile for the second half of this year?

Yes. No Rob, that's going to be more so in core IT, security and in our R&D areas—those are where those investments fit. So that's continuing to innovate on NXT and SKY platforms and all that work we've been doing. We're increasing investment there to move more quickly. Hardening of our environment, security investments—those keep taking resources. Getting out of our COLO data centers and moving to third-party cloud providers. So increasing investments trying to get that done more quickly. Those are the major buckets but more in R&D, corporate IT and security. We don't expect sales and marketing to come back to pre-pandemic levels. We believe that the redeployment and focus on digital marketing, simplifying, streamlining and improving velocity is going to allow us to improve bookings with less net spend at the end of the day.

Thank you. Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.

Hey, guys. Sorry about that. I was on mute. Good morning, everyone. Thanks for taking my question. Just a couple from me. Thinking about payments, I understand it had a tough compare last year in Q2. I understand the mechanics there with the onset of the pandemic. I'm just trying to think looking forward over the next few quarters, how should we be thinking about payments in the third quarter being down last year and then in the fourth quarter with payments being up last 4Q?

Yes. So we do have some seasonality with payments. The fourth quarter is always a ramp-up around the holidays and GivingTuesday and various events, that's normal seasonality. For Q3 right now, there are some changes as events come back. We're seeing some of that. Also institutions that were closed last year like performing art centers and museums, we've got a strong presence there with our Altru platform. We just announced some new payment capabilities with Altru—the payment terminal we released. Those institutions are opening up, and Altru is the comprehensive platform that runs performing art centers including ticketing and ticket sales, which are starting to come back. So we're starting to see that market operate again; they were pretty dormant a year ago in this quarter and in the fourth quarter last year. So some good stuff happening regarding those markets.

Probably the biggest wildcard for the second half is payments again and what's going to shake out across the board. That's the hardest one to predict as we've discussed.

Got it. Thanks. And maybe a follow-up for you Tony. Just trying to think about the bridge from non-GAAP to GAAP, really around stock comp here. I recall there were some changes made during the pandemic last year around comp that showed up with stock comp. Could you remind us about that change? And I believe we're almost lapping that decision. I was curious if the stock comp levels that we see now are a good way to think about it going forward in our models. Thank you for taking my questions.

Yes. So we initially took some action to discontinue merit, 401(k) and promotional increases last year when the pandemic began. We later turned those to stock-based awards with a one-year vest. So there were merit increases, promotional increases and bonuses that moved from cash to stock comp. That had an impact on the timing because the vesting period ran into May of 2021, which shifted some expense into 2021 and out of 2020 due to accruals and vesting timing. Merit, promotional, and 401(k) items are back to cash base for 2021. Going forward, we currently contemplate keeping bonuses as equity, so that will maintain a somewhat elevated stock comp run rate as a GAAP-to-non-GAAP reconciling item. Also as we stated in the prepared comments, we did another $30 million of buybacks in the quarter. Between Q4, Q1 and Q2 we've purchased a meaningful amount of shares. We still believe the stock is undervalued, so buybacks remain in play for the coming quarters.

Thank you. Our next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.

Hi. Thanks very much and congrats on a solid quarter. I was wondering Mike if you could expand a little bit more on your comments just around M&A. It seems like your thought process around that has picked up a little bit. I assume that's because you guys are feeling really good about the core business. But what are you hearing from clients also just around vendor consolidation wanting to have sort of one hand to shake. And how are you approaching M&A maybe a little bit differently this time versus say five years or six years ago given the focus on Rule of 40—maybe you're not. I was just kind of curious if that plays into your thought process about the type of deals you look at just in terms of finding that right balance between growth and margin?

Yes, sure. So on the Rule of 40 front, acquisitions have to help us on that journey, not slow us down, so we'll keep that in mind when modeling deals. We see a lot of opportunities and we've moved one of our most senior executives into that role—Kevin Mooney is now focused on strategy and M&A full time. We think there's a lot of opportunity given our balance sheet and cash flow year-to-date and go forward. Tony's point about cash flow being more like $120 million to $130 million versus our $100 million floor: we're in a good position there. We have many markets where customers prefer integrated solutions, so we look at adding capabilities and products from good companies that fit into our vertical strategy; integrating those platforms gives us upside from cross-sell and simplifies IT environments for our customers. None of the strategies have really changed. We paused last year due to the pandemic, but given the structural changes we've made and our balance sheet and the new bank facility we put in place, we have capacity and flexibility. So between that facility, cash flow and market opportunities, we're in a strong position from an M&A standpoint.

Super helpful, Mike. And maybe just one separate question on the pricing commentary—you mentioned that the pricing model is unique and now your customers don't have to have a fixed price and it's more about donors you're adding something which makes tons of sense. Is there any comp issue on that front meaning is that change material to revenue recognition as things come back, or is it only minor? I'm guessing the latter, but I just want to clarify that.

Yes. Pricing changes fall into two areas. One is catch-up: in a couple areas we were behind the market on pricing compared to competition and we implemented adjustments. The second area is a new model we've proven out in the U.K. with JustGiving. We're rolling the JustGiving model out globally. It's a win-win where it increases our revenue and decreases customer cost because there's a small voluntary contribution passed on to end donors. It's been very well accepted in the U.K. and we're testing it in other markets including the U.S. We think there's upside with these newer models as customers like them and they can drive revenue.

Our next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question.

Hey good morning guys. Thanks for taking my question. Mike you kind of alluded to it at the very last comment you made, but wanted to understand how some of these hybrid environments or hybrid events might work especially in the back half of the year and into early next year by offering a more robust platform around online giving and more engagement with both in-person and online participants. Does that give you a better opportunity to monetize the entire event, or do they still just kind of a stop gap until we get back into fully in-person events hopefully in the near future?

Yes. It does give us that opportunity because what happened last year is institutions wanted virtual events and many will continue to operate virtually or hybrid. Our platform supports all of that. In the beginning of the pandemic a year ago we ran a lot of training and webinars for our customers and shared best practices on how to drive virtual events using our platforms. Many customers that had in-person events for a long time switched to virtual with the same platform and we trained them how to be successful. Now organizations will choose to stay virtual, go hybrid or return to in-person events. All of those are available on our platforms and our customers have been successful. The growth in online has been massive: online giving grew from 9% to 13% and the overall charitable market in the U.S. grew by 5.1% to $471 billion in 2020. A lot of that was online. So having virtual and in-person options is valuable and the choice is with our customers.

Very helpful. And then I wanted to talk about the corporate CSR market and how YourCause has been performing especially as we're hearing a lot more not only on ESG initiatives, but companies being more focused on employee engagement and understanding social issues and how they can play a role both on behalf of their employees and their brands. How have bookings been in that area and what are your expectations for the next couple of years in that vertical?

The YourCause business unit is performing very well. They're growing fast and closing household name logos. We've increased engineering investments there to add international capabilities. We have a new general manager running that business, along with new leaders in sales, engineering and customer success, including some hires from outside the company. It's a really solid senior team and the business is doing well. YourCause fits right into the 'S' of ESG—companies are focused on ESG and on driving culture and employee engagement. It's a key tool to retain and attract employees and to create volunteering and give-back opportunities. YourCause is a great platform for that and we've doubled down on engineering headcount because the growth is there and we see the opportunity being very long term.

Thank you. Our final question this morning comes from the line of Mark Schappel with Benchmark Company. Please proceed with your question.

Hi. Thank you for taking my question. Tony, with respect to retention rates, that was one of the components of your growth strategy. I was wondering if you could just address where retention rates fell out in the quarter?

In the quarter, you'll see a slight decline to 92% from 93%, and you'll see that in the quarter. Shutting down the everydayhero product had an impact on the unit volume. Those are very low dollar units. We replaced most of that with the JustGiving platform in Australia and New Zealand and a few other places around the world where we had everydayhero products. I would expect that will bounce back as we get to the other side of that. All the other renewals on the core products are holding really well. We've got a big focus on improving retention, and I think those efforts are starting to pay dividends. We're hopeful over the next several years we'll continue to see both gross and net dollar retention improvements as well as unit retention improve.

I'll add that we brought on a new executive for Customer Success, Chris Singh, a long-term executive with experience at SAP. He's been a great addition. We shut down the small-customer everydayhero platform because we rolled out JustGiving globally. JustGiving is growing fast, has a new pricing model and has been a great replacement for the older everydayhero platform. That was a positive move to bring that platform globally.

Okay. Great. Thanks. And then, Tony with respect to the investments addressed in your prepared remarks, were these investments planned at the beginning of the year when the budgets were set, or is this new spend?

No, these were largely planned at the beginning of the year and included in the budget. The timing on getting folks onboarded can cause a little shift, so we may have run a bit slower in getting people hired than planned, but overall the budget is largely in line and where we expected to be.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Gianoni for any final comments.

Thank you, Operator. I'll just close by saying we have a lot to be excited about, and I'm really pleased with where we're tracking in the first half of this year. We're seeing a lot of positive signs of potential second-half recovery, as I mentioned. I believe we're very uniquely positioned to elevate our status as a leader in the market. Looking ahead, I'll remind you that we have multiple levers which accelerate revenue growth and margin across a couple of areas. First, the general pandemic recovery with event-driven transactional revenue and bookings returning post-pandemic. Second, pricing model changes and price catch-up opportunities. Third, we're actively looking at M&A opportunities as well. We believe that steady execution against the Rule of 40 financial framework and our continued commitment to disciplined capital deployment will generate substantial shareholder value. Thanks everyone.

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