Blackbaud, Inc. Earnings Fly Higher Into the Cloud

By Matthew DiLallo Markets Fool.com

Blackbaud's (NASDAQ: BLKB) transition to a cloud-based software provider continues to pay dividends. Not only has it enabled the company to generate higher-margin subscription-based revenue but these solutions are driving sales growth. The company expects that growthto continue in 2017, putting the company on pace to achieve each of its long-term aspirational goals by the end of this year.

Continue Reading Below

Blackbaud results: The raw numbers

Metric

Q4 2016

Q4 2015

Year-Over-Year Change

Non-GAAP revenue

$198.3 million

$178.1 million

11.3%

Non-GAAP net income

$28.0 million

$17.8 million

57.1%

Adjusted earnings per share

$0.59

$0.38

55.3%

Data source: Blackbaud.

What happened with Blackbaud this quarter?

Rising subscription sales push Blackbaud's margins higher.

Continue Reading Below

  • Blackbaud's revenue climbed double digits thanks to strong organic sales growth following the release of several new products. Subscriptions revenue continues to lead the way, soaring 24.7% to $122.7 million. Service revenue also increased during the quarter, up 9.8% to $35.2 million. This growth more than offset weaker maintenance revenue and a dip in license fees.
  • As a result of rising subscription sales, recurring revenue now represents 80% of total sales, That is a milestone number for the company as it is the highest in its history.
  • Margins improved by 400 basis points, rising to 22.1%. That margin expansion, when combined with increasing revenue, drove robust profit growth.
  • Cash flow from operations also grew sharply, up 34.8% to $53.5 million.
  • Meanwhile, for the full year, non-GAAP revenue rose 13.5% to $734.5 million, while non-GAAP net income jumped 30.2% to $90.7 million, or $1.92 per share. As a result, the company hit the mark on its full-year guidance across the board.

Image source: Getty Images.

What management had to say

As CEO Mike Gianoni said about the quarter:

This was a banner year for Blackbaud in which we furthered our strategic growth objectives and strengthened the financial profile of the business. Our recurring revenue reached 80% of total revenue in the fourth quarter, which is a major milestone for us, and the highest in our company's history. We made tremendous progress delivering new, innovative, cloud-based technology to the market that drove an increase in our mix of subscription-based recurring revenue, which adds additional stability and predictability to our already strong business... We're doing something quite unique here at Blackbaud, in that we've accelerated revenue growth and improved profitability while transitioning our solution portfolio from on-premises to the cloud.

Blackbaud capped a strong year by delivering a suite of new cloud-based products that were well received by its customer base. Last quarter, for example, the company added SKY API for Raiser's Edge NXT and Financial Edge NXT customers, enabling them to "customize, integrate, or extend the functionality of their current solutions." That added feature was one of the many steps the company took to broaden its already robust product offering, which continues to appease current customers and draw new ones to its platform. That is why revenue and profits are rising despite the added investments needed to shift over to the cloud.

Looking forward

Blackbaud expects its revenue to keep rising this year, with guidance that non-GAAP sales will jump to a range of $775 million to $795 million. At the midpoint, sales would be up 6.9% from last year. Meanwhile, the company sees its non-GAAP earnings increasing to between $2.06 to $2.18 per share, which at the midpoint is 10.4% higher than last year. This guidance puts the company on pace to achieve the aspirational goals it outlined in 2014.

10 stocks we like better than Blackbaud
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Blackbaud wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Matt DiLallo owns shares of Blackbaud. The Motley Fool recommends Blackbaud. The Motley Fool has a disclosure policy.