Blackbaud, Inc.'s Revenue Soars Into the Cloud

Blackbaud reported its second-quarter results after the market closed on Wednesday. The non-profit-focused software maker delivered stronger-than-expected revenue and earnings growth as a result of its transition to a cloud-based subscription model. Given its strong results so far this year, and expectations for more of the same, the company is also boosting its full-year guidance.

A look at the numbersBlackbaud reported revenue of $156.3 million, 12.1% higher than the second quarter of last year. Meanwhile, non-GAAP revenue, which the company uses to reflect deferred revenue from acquisitions that had to be written down to fair value, was $158.7 million and was roughly $3 million more than analysts were expecting. Moreover, non-GAAP organic revenue grew 5.6% over the past year, though growth would have been 7.2% if not for foreign currency fluctuations.

Driving revenue growth was the company's subscription-based revenue, which was up 23.1% to $80 million, marking the first time the company's cloud-based revenue comprised more than half of total revenue. Further, total recurring revenue has now increased to 75.9% of total revenue, which provides the company with more revenue stability.

Strong subscriptions growth, along with acquisitions, drove non-GAAP net income to $19.2 million, 21.6% higher than the year-ago quarter. This performance resulted in non-GAAP earnings per share of $0.41, up from $0.35 in the second quarter of last year and beating the consensus analyst estimate by $0.03 per share. Another big driver of the strong earnings growth was the 120-basis-point improvement in operating margins, which hit 20.6% in the quarter. Driving that margin improvement wasproduct integration and operational improvement initiatives.

A look at the outlookAs a result of that stronger growth, the company is updating its full-year guidance. Blackbaud is raising the lower end of its non-GAAP revenue guidance by $10 million, which pulls the expected range up to a range of $635 million to $645 million. Meanwhile, non-GAAP earnings are now expected to hit or exceed the high end of its previous guidance, which is why Blackbaud is now bumping up its guidance for earnings to a range of $1.47 to $1.53 per share. Finally, the company is also boosting its guidance on cash flow from operations by $5 million to a range of $115 million to $125 million.

As this guidance update shows, Blackbaud's shift toward cloud-based offerings is really paying financial dividends for the company, as it's driving better-than-expected growth. It's a shift that the company continues to make, as it recently announced the availability of its newest cloud-based offering, Raiser's Edge NXT, which should drive incremental growth going forward. In addition, the company maintains a strong balance sheet and robust cash flow, which, according to comments from CFO Tony Boor in the company's earnings release, "positions the company well for continued investments to drive increased growth over the long term."

Investor takeawayBlackbaud's cloud-based offerings are really driving solid growth. The company doesn't see any stumbling blocks in its way, which is why it's rising its full-year guidance. With new cloud offerings being released, and plenty of dry powder to capture new opportunities, the company doesn't expect its growth to slow anytime soon.

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Matt DiLallo owns shares of Blackbaud. The Motley Fool recommends Blackbaud. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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