Blackbaud Earnings: A Promising Start to the Year With Improved Profitability on the Horizon

Narrow-moat Blackbaud BLKB reported first-quarter results that were slightly below our revenue expectations while delivering upside to adjusted EBITDA margin. Management raised its fiscal 2023 targets, driven by better-than-expected results and outperformance in bookings relative to internal projections in the quarter as well as increased confidence that its operating strategy will continue to bear fruit. With this, management moved up its timeline for its Rule of 40 goal, expecting to reach it by the end of fiscal 2023, compared with 2025 previously. While its 2023 targets face macroeconomic risk and seasonality, the firm expects its pricing actions, data center closures, improved productivity, and headcount reductions to enable margin expansion, which we anticipate will be weighted to the back half of the year. We are pleased to see strength in EVERFI bookings and anticipate revenue and profitability upside from the acquisition throughout the year. Finally, we see pricing actions that have taken effect to modestly boost revenue growth in the coming quarters. Balancing near-term expectations with our long-term outlook, we are raising our fair value estimate to $70 from $66 and view the shares as fairly valued.

First-quarter revenue increased 3% year over year to $262 million as reported, slightly above FactSet consensus of $261 million. Recurring revenue grew 3% year over year to $253 million, while one-time services decreased by 28%. Organic revenue, which excludes the EVERFI acquisition, was up 3% in constant currency. We are impressed by the firm’s strength in transactional revenue, which was up 7% year over year, especially in light of recent rate increases on Blackbaud Merchant Services. As well, we are encouraged by strong renewal rates as the firm transitions toward multiyear contracts and executes on its pricing strategy across services.