• Adjusted EBITDA Growth: 25% year-over-year increase.

• Non-GAAP EPS Growth: 28% year-over-year increase.

• Adjusted Free Cash Flow Growth: 240% year-over-year increase.

• Total Revenue: $279 million, up 6.9% organically from Q1 2023.

• Contractual Recurring Revenue: $160 million, up 10% year-over-year.

• Transactional Recurring Revenue: $78 million, up 7.5% year-over-year.

• Adjusted EBITDA: $89 million, up from $71 million in Q1 2023.

• Adjusted EBITDA Margin: 31.8%, up from 27.2% a year ago.

• Adjusted Free Cash Flow: $53 million, up $38 million year-over-year.

• Stock Repurchase: Nearly 3 million shares bought back, representing about 5.5% of outstanding stock.

• Warning! GuruFocus has detected 8 Warning Signs with BLKB.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Blackbaud Inc (NASDAQ:BLKB) reported a 25% growth in adjusted EBITDA, a 28% increase in non-GAAP EPS, and a 240% rise in adjusted free cash flow year-over-year for Q1.

• The company successfully executed its 5-point operating plan, leading to strong financial performance and positioning Blackbaud Inc (NASDAQ:BLKB) as a clear market leader in the social impact software market.

• Blackbaud Inc (NASDAQ:BLKB) is on track to achieve the Rule of 40 for the full year 2024, indicating efficient balance between growth and profitability.

• Significant product innovations were introduced, including generative AI capabilities and enhanced connectivity features across Blackbaud Inc (NASDAQ:BLKB)'s suite of solutions.

• Blackbaud Inc (NASDAQ:BLKB) demonstrated robust capital return to shareholders through a $200 million accelerated share repurchase agreement and additional open market purchases.

Negative Points

• Revenue from the corporate sector declined by 5.5%, driven by challenges faced by EVERFI, particularly due to tightening corporate CSR budgets in the financial services market.

• The divestiture of EVERFI's creative agency services business in the U.K. indicates potential instability or lack of fit within parts of the portfolio.

• Despite overall strong performance, there is an ongoing need for operational improvements, especially within the EVERFI segment.

• Increased interest expenses due to stock repurchase activities, impacting the financials despite strong EBITDA and free cash flow performance.

• The company faces uncertainty in predicting and managing the impact of viral events on transactional revenue, which can lead to variability in financial performance.

Q & A Highlights

Q: What drove the decision to divest the EVERFI asset in the UK, and how is EVERFI performing more broadly? A: (Michael P. Gianoni - President, CEO & Vice Chairman of the Board) The EVERFI UK business was not a strategic fit for Blackbaud as it was more of a creative services business rather than a software ARR business. The divestiture was part of an ongoing operational improvement plan for EVERFI. EVERFI, particularly in the K-12 sector, continues to see interest despite some budget pressures in the financial services sector.

Q: Can you discuss the cost levers Blackbaud is currently utilizing, especially in light of the increased interest expenses? A: (Anthony W. Boor - Executive VP of Finance & Administration and CFO) Blackbaud continues to focus on cost management, including maintaining headcount and exiting redundant data centers. These efforts are reflected in the improved profitability and free cash flow. The company is also leveraging its modernized contract approach to drive top-line growth and improve the bottom line.

Q: What is Blackbaud's investment posture in the corporate sector, especially given the divestiture and the current opportunities? A: (Michael P. Gianoni - President, CEO & Vice Chairman of the Board) Blackbaud is investing in both the EVERFI and YourCause platforms within the corporate sector. The company is focusing on innovation and operational improvements, particularly in the K-12 space with EVERFI and expanding international capabilities with YourCause.

Q: How is the demand environment and net new business in the social sector, particularly in terms of the pipeline and deal cycles? A: (Michael P. Gianoni - President, CEO & Vice Chairman of the Board) The demand environment in the social sector remains robust, with strong performance in areas like K-12. Blackbaud continues to drive innovation, such as new AI capabilities and donation forms, to support growth and customer retention.

Q: Can you provide more details on the success in the K-12 market, particularly in terms of new school sign-ups versus selling more products to existing customers? A: (Michael P. Gianoni - President, CEO & Vice Chairman of the Board) Blackbaud is experiencing success in both acquiring new logos and cross-selling to existing customers in the K-12 market. The company offers a comprehensive suite of solutions that cover most IT needs of schools, which supports both new sales and expansion within the current customer base.

Q: With the expansion of the credit facility and strong free cash flow, what is Blackbaud's M&A strategy moving forward? A: (Michael P. Gianoni - President, CEO & Vice Chairman of the Board) Blackbaud remains active in evaluating M&A opportunities, particularly in adjacent markets where it does not currently have a large presence. The focus is on smaller, strategic acquisitions rather than large deals, aligning with the company's capital return strategy through stock repurchases.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.