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Blackbaud's Q4 Results Edge Higher

Matthew DiLallo, The Motley Fool

Blackbaud (NASDAQ: BLKB) delivered a solid finish to 2018 as revenue and earnings came in above expectations, enabling the company to beat its revised full-year forecast. The nonprofit-focused software developer anticipates continued revenue growth in 2019 as more customers shift toward its cloud-based solutions. However, that sales growth won't boost the bottom line because the company expects to heavily reinvest in its business to drive accelerated growth in the future.

Blackbaud results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Non-GAAP revenue

$221.8 million

$200.5 million

1.2%

Non-GAAP net income

$31.3 million

$30.2 million

3.5%

Adjusted EPS

$0.65

$0.63

3.2%

Data source: Blackbaud. EPS=earnings per share.

What happened with Blackbaud this quarter? 

The shift to the cloud continued paying dividends:

  • Total recurring revenue, which includes software subscriptions, increased 4.2% from last year's fourth quarter to $200.5 million, accounting for 90.4% of total sales. That more than offset a 20.5% decline in revenue from one-time services and other sources due mainly to the company's continued shift toward subscription-based recurring revenue.
  • For the full year, revenue was $851 million, an increase of 7.6%, which came in above the midpoint of the company's revised $844 million-to-$854 million guidance range. Driving the company's sales growth was recurring revenue from its cloud-based offerings, which increased 11.3% last year to 89.8% of the total.
  • Non-GAAP net income, meanwhile, increased 16.9% for the full year to $124.6 million, or $2.59 per share, which came in above the high end of the company's $2.46 to $2.52 per-share guidance range.
  • Blackbaud generated $50.7 million in free cash flow during the fourth quarter, an increase of 17% versus the year-ago period. That pushed the company's full-year total to $149 million, up 8.2% versus the prior year, which exceeded the top end of its $143 million-to-$147 million guidance range.
A man looking at a visualization of several electronic devises syncing in the cloud.

Image source: Getty Images.

What management had to say 

CEO Mike Gianoni commented on the quarter and the company's strategic progress by stating:

We had a solid finish to 2018 and we furthered our strategic initiatives to position the company for long-term success. We continued shifting the business toward a recurring revenue model, with our recurring revenue mix comprising 90% of total revenue in 2018. This was a banner year for Blackbaud innovation to digitally transform the markets we serve.

Gianoni went on to point out that the company brought several new solutions to market last year, including a new cloud solution for faith-based communities, an expanded one for higher education institutions, and a joint initiative with Microsoft for a nonprofit resource management solution.

Meanwhile, CFO Tony Boor commented on the company's financial results, stating that "our fourth quarter results allowed us to exceed the midpoint of our updated full year revenue guidance, and exceed the high end of our updated ranges for both profitability and cash flow." Though, it is worth noting that the company's results came in well below its initial forecast due to several headwinds that started showing up during the third quarter.

Looking forward 

"In 2019, we expect the positive shift in revenue mix toward recurring revenue to continue," stated Boor, which led the company to forecast that sales will increase to a range of $880 million to $910 million, a roughly 5% year-over-year increase from the midpoint. However, "from a profitability and cash flow perspective, 2019 is an investment year to further expand our selling footprint, drive cloud innovation for our customers, and ensure scalability in our business," according to the CFO. As a result, the company sees non-GAAP earnings between $2.11 and $2.28 per share, down 15% at the midpoint, with free cash flow of $124 million to $134 million, about 13% lower than last year.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Matthew DiLallo owns shares of Blackbaud and has the following options: long January 2021 $85 calls on Microsoft. The Motley Fool owns shares of Microsoft. The Motley Fool recommends Blackbaud. The Motley Fool has a disclosure policy.