Blackbaud, Inc. is the leading software provider exclusively dedicated to powering social impact. Serving the nonprofit and education sectors, companies committed to social responsibility, and individual change makers, the company's essential software is built to accelerate impact in fundraising, nonprofit financial management, digital giving, grantmaking, corporate social responsibility, and education management. With operations in the United States, Australia, Canada, Costa Rica, and the United Kingdom, Blackbaud supports users in over 100 countries.

Financials

In the fiscal year 2023, Blackbaud reported annual revenue of $1,105,432,000 and net income of $18,200,000. The company's annual operating cash flow was $199,634,000, and its annual free cash flow was $135,506,000. These strong financial results demonstrate Blackbaud's ability to deliver value to its customers and shareholders.

During the first quarter of 2024, Blackbaud continued its impressive performance, reporting total revenue of $279,250,000, up 6.7% year-over-year. The company's recurring revenue, which accounts for the majority of its top line, grew 7.4% to $271,518,000. This growth was driven by a 10% increase in contractual recurring revenue to $160,000,000, as well as a 7.5% rise in transactional recurring revenue to $78,000,000.

The company's social sector, which represents approximately 88% of total revenue, grew 8.7% year-over-year to $244,444,000 during the first quarter. This strong performance was primarily attributable to the increases in contractual recurring revenue and transactional recurring revenue. In contrast, the corporate sector, which accounts for around 12% of total revenue, declined 5.6% to $34,806,000, largely due to challenges faced by the EVERFI business.

Business Overview

Blackbaud's management team has been executing a five-point operating plan to drive the company's transformation. This plan focuses on improving product innovation, accelerating bookings growth, optimizing transactional revenue, modernizing contract renewals, and enhancing cost management. The results of this strategic initiative are evident in the company's improved financial performance.

During the first quarter, Blackbaud continued to invest in product innovation, with a focus on two key areas: generative artificial intelligence (AI) and enhancements to improve the connectivity of its solution suite. The company has released new AI capabilities for its JustGiving platform and is preparing to introduce Blackbaud Copilot, an AI-powered tool, to Raiser's Edge NXT customers. These innovations are aimed at improving fundraising outcomes and reducing the administrative burden for end-users.

Additionally, Blackbaud has integrated its Online Giving and Prospect Insights capabilities into Raiser's Edge NXT, enabling fundraising administrators to manage various aspects of their campaigns, from driving viral giving to identifying new donation opportunities, all within a single integrated experience. The company has also introduced optimized donation forms for Raiser's Edge NXT, which are expected to drive higher revenue for both Blackbaud and its customers.

Pricing and Contract Strategy

Blackbaud's modernized approach to pricing and multi-year contracts has also been a key driver of its financial performance. The company has implemented a renewal pricing policy that directly reflects the value it provides to customers, aligns with market trends, and accounts for inflationary pressures. This initiative includes offering three-year contract renewal terms as the standard, embedding annual price increases within the renewal term, and implementing larger first-year price increases to bring pricing in line with the broader market.

Approximately half of Blackbaud's total company revenue growth in 2024 is expected to be impacted by this modernized contract and pricing initiative, and the company anticipates that by the end of 2024, it will have renewed approximately two-thirds of its customer base into the new model. During the first and second quarters of 2024, the company expects a larger contribution to its total revenue growth to come from this initiative.

Profitability and Cash Flow

Blackbaud's strong financial performance is also reflected in its profitability and cash flow generation. In the first quarter of 2024, the company's income from operations increased by $20.7 million, driven by the growth in revenue, a decrease in Security Incident-related expenses, and various cost optimization initiatives. Blackbaud's adjusted EBITDA margin expanded to 31.8% in the quarter, up from 27.2% in the same period last year.

The company's robust cash flow generation has enabled it to return capital to shareholders through a substantial stock repurchase program. During the first quarter of 2024, Blackbaud repurchased approximately 3 million shares, representing around 5.5% of its outstanding common stock as of the end of 2023. The company has committed to repurchasing between 7% and 10% of its outstanding shares in 2024.

Liquidity

Blackbaud's balance sheet and liquidity position remain strong. As of March 31, 2024, the company had $26,376,000 in cash and cash equivalents, and its net leverage ratio was 2.72 to 1.00. In April 2024, Blackbaud refinanced its debt, entering into a new $1.5 billion credit facility with improved terms and increased flexibility.

Risks and Challenges

While Blackbaud has made significant progress in its transformation, the company continues to face certain risks and challenges. The ongoing Security Incident, which occurred in 2020, has resulted in substantial expenses and legal proceedings that have negatively impacted the company's profitability and cash flow. Blackbaud has recorded approximately $8.5 million in aggregate liabilities for loss contingencies related to the Security Incident as of March 31, 2024, and it expects to incur additional expenses and cash outflows in the future.

Furthermore, the company's corporate sector, particularly the EVERFI business, has faced macroeconomic headwinds in the form of tightening corporate social responsibility budgets, especially in the financial services market. Blackbaud has taken steps to address these challenges, including the divestiture of EVERFI's non-strategic creative services business in the U.K.

Outlook

Despite these risks, Blackbaud remains the clear market leader in the social impact software market, with a strong competitive position and a comprehensive suite of solutions tailored to the needs of its customers. The company's focus on innovation, customer value, and operational efficiency positions it well for continued success in the years ahead.

Conclusion

In conclusion, Blackbaud's impressive financial and operational performance in the first quarter of 2024, coupled with its strategic initiatives and market-leading position, suggest that the company is well-positioned to deliver long-term value for its shareholders. The company's commitment to powering social impact through its innovative cloud solutions and its ability to adapt to evolving market dynamics make it an attractive investment opportunity in the software and technology sector.