Blackbaud Returning to Normal After COVID-19; Profitability Guidance Hits Our Model; FVE Down to $77

Wide-moat Blackbaud reported solid third-quarter results that were better than our expectations. With more concrete guidance including EVERFI for 2022, we think our initial post-deal model was too aggressive, notably on the margin side. We are also a little surprised by the guidance for EVERFI, which was unchanged at $120 million in revenue for 2022. We agree with management's characterization of this as conservative. As a result, we are lowering our fair value estimate to $77 per share, from $85, but given the recent sell-off, we see shares as attractive. On the positive side, Blackbaud updated its rule of 40 framework to include mid- to high-single-digit revenue growth in the medium term, from mid-single-digit growth previously. We note our model shows 7% revenue growth in 2026, which is consistent with this outlook. Despite lowering our growth estimates slightly and our margin expectations a little more meaningfully, we continue to believe in the roadmap for improvements in both over the next five years. We see this as a combination of price increases, revenue and cost synergies from the EVERFI acquisition, improved salesforce productivity as a result of an increased focus on digital, and the elimination of duplicative costs as Blackbaud moves its solutions to the public cloud.