Company Reports

We are maintaining our $77 fair value estimate for narrow-moat Blackbaud, after the firm reported first-quarter results that came in ahead of our revenue expectations but below our bottom-line estimates. Given Blackbaud’s service into the nonprofit niche, we note the firm is more susceptible to macro swings compared with software peers, and its first quarter is seasonally the weakest. Nevertheless, we are encouraged by Blackbaud’s execution of its operating plan thus far, which we expect will enable the firm to attain its Rule of 40 objective (the sum of organic revenue growth and adjusted EBITDA margin) for the year. The firm lowered its 2024 revenue guidance to reflect the divestiture of a nonstrategic business, while bottom-line targets are unchanged. We see shares as fairly valued.

On April 14, Clearlake Capital made a new and unsolicited offer to acquire all of the outstanding shares of Blackbaud for $80 per share, or $4.1 billion in total, in cash, representing a 4% premium to the most recent closing price. In a statement, Blackbaud said its board of directors will review this offer. We think $80 per share is reasonable given our fair value estimate of $77 per share, and we view shares as fairly valued at current levels.

Narrow-moat Blackbaud reported fourth-quarter results that included impressive profitability, with adjusted EBITDA margin ahead of our estimates. Management laid out 2024 targets that were below FactSet consensus estimates. We anticipated that a weaker macro environment would weigh on 2024 results, so our model skewed conservative. We are therefore raising our estimates for revenue and profitability in 2024 to account for more-normal demand and company guidance. As a result, we are raising our fair value estimate to $77 per share from $70. We are encouraged by Blackbaud’s improved productivity and booking momentum, which we expect will continue to support the firm in achieving its Rule of 40 objective (the sum of organic revenue growth and adjusted EBITDA margin). We view the shares, which were down sharply following the announcement, as fairly valued.

We believe Blackbaud is well entrenched in the social good space, providing the broadest portfolio of nonprofit software solutions. We expect the company to continue to benefit from long-standing customers needing a technology-first approach and believe its cloud migration will progressively enable margin expansion. However, we see Blackbaud as more susceptible to cyclical shocks compared with software peers, given its exclusive service to the social good niche. We view this market as mature, with a more muted pace of growth. These factors combined with the evolving software landscape cause us to scrutinize the firm's long-term trajectory.

Narrow-moat Blackbaud reported third-quarter results that were ahead of our expectations. We were most impressed by the firm surpassing its "Rule of 40" goal ahead of schedule. Management reiterated its full-year 2023 targets, which we are confident the firm can achieve as its pricing actions, improved productivity, and booking momentum from the EVERFI acquisition continue to take effect. Although Blackbaud is exposed to macroeconomic risk and seasonality, we expect margin expansion to continue throughout 2024. Balancing near-term expectations with our long-term outlook, we maintain our $70 fair value estimate and view the shares as fairly valued. We believe Blackbaud is well positioned as a leader in the not-for-profit niche and see no changes to that arising from third-quarter results.

Narrow-moat Blackbaud reported second-quarter results that were slightly below our revenue expectations while delivering upside against our bottom-line estimates. Management reiterated its fiscal 2023 targets and affirmed that Blackbaud is on track to achieve its Rule of 40 goal by the end of fiscal 2023. While its 2023 targets are exposed to macroeconomic risk and seasonality, we expect the firm’s pricing actions, data center closures, and improved productivity to continue to drive margin expansion in the back half of the year. We are also pleased to see strength in bookings bolstered by Everfi and expect revenue and profitability upside from the acquisition to accelerate. Balancing near-term expectations with our long-term outlook, we maintain our $70 fair value estimate and view the shares as fairly valued.

Narrow-moat Blackbaud reported first-quarter results that were slightly below our revenue expectations while delivering upside to adjusted EBITDA margin. Management raised its fiscal 2023 targets, driven by better-than-expected results and outperformance in bookings relative to internal projections in the quarter as well as increased confidence that its operating strategy will continue to bear fruit. With this, management moved up its timeline for its Rule of 40 goal, expecting to reach it by the end of fiscal 2023, compared with 2025 previously. While its 2023 targets face macroeconomic risk and seasonality, the firm expects its pricing actions, data center closures, improved productivity, and headcount reductions to enable margin expansion, which we anticipate will be weighted to the back half of the year. We are pleased to see strength in EVERFI bookings and anticipate revenue and profitability upside from the acquisition throughout the year. Finally, we see pricing actions that have taken effect to modestly boost revenue growth in the coming quarters. Balancing near-term expectations with our long-term outlook, we are raising our fair value estimate to $70 from $66 and view the shares as fairly valued.

We believe Blackbaud is well entrenched in the social good space, providing the broadest portfolio of purpose-built software solutions. Looking ahead, we expect the company to continue to benefit from long-standing customers necessitating a technology-first approach and believe its cloud migration will progressively enable margin expansion. However, we see the company as more susceptible to cyclical shocks compared with software peers, given its exclusive service to the social good niche. We view this market as mature, with a more muted pace of growth. These factors combined with the evolving software landscape cause us to peer closer into the firm's long-term trajectory.

On March 27, Blackbaud rejected a buyout offer from Clearlake Capital (received on March 24) for $71 per share, representing a 23% premium to the closing price. Blackbaud stated that its board unanimously agreed that it significantly undervalues the company. This comes after Clearlake Capital first disclosed its ownership of Blackbaud shares in October 2022, as the investment firm holds an 18% stake and has been evaluating avenues for its future investments in the company.

Narrow-moat Blackbaud reported fourth-quarter results which came in below our revenue expectations, while delivering better profitability. Management laid out its 2023 targets, which while light on revenue, provided a solid pathway for margin improvement toward its Rule of 40 goal. While its 2023 targets face macroeconomic risk, the firm expects its pricing actions, data center closures, improved productivity, and substantial headcount reductions to enable margin expansion, which we expect to be weighted to the back half of 2023. We are also pleased to see improvement in EVERFI bookings and anticipate revenue and profitability upside from the acquisition to bear fruit as the year progresses. Finally, we see recent pricing actions as driving modestly accelerating revenue growth throughout 2023. Balancing near-term headwinds with our long-term profitability outlook, we retain our $66 fair value estimate and view the shares as moderately undervalued.

We believe Blackbaud is well entrenched in the social good space, providing the broadest portfolio of purpose-built software solutions. Looking ahead, we expect the company to continue to benefit from long-standing customers necessitating a technology-first approach and believe its cloud migration will progressively enable margin expansion. However, we see the company as more susceptible to cyclical shocks compared with software peers, given its exclusive service to the social good niche. We view this market as mature, with a more muted pace of growth. These factors combined with the evolving software landscape cause us to peer closer into the firm's long-term trajectory.

We believe Blackbaud is well entrenched in the social good space, providing the broadest portfolio of purpose-built software solutions. Looking ahead, we expect the company to continue to benefit from long-standing customers necessitating a technology-first approach and believe its cloud migration will progressively enable margin expansion. However, we see the company as more susceptible to cyclical shocks compared with software peers, given its exclusive service to the social good niche. We view this market as mature, with a more muted pace of growth. These factors combined with the evolving software landscape cause us to peer closer into the firm's long-term trajectory.

We revise our economic moat rating for Blackbaud to narrow from wide, as we have less confidence in the firm’s ability to generate excess returns over a long-term horizon. As we adjust our model for expected growth and profitability, we also lower our fair value estimate to $66 per share from $70. We expect Blackbaud’s cloud transition and improved salesforce productivity to boost profitability within the next decade. However, Blackbaud operates in a mature market with lower margins and high sensitivity to economic shocks. The software landscape is also evolving, creating opportunities for competitors. We believe these factors may outweigh Blackbaud’s fundamental performance, and our confidence in the firm’s ability to sustain returns beyond a 10-year horizon is diminished.

Wide-moat Blackbaud reported solid overall third-quarter results that were in line on revenue and better in terms of profitability relative to our expectations. Guidance was redirected toward the middle of the range for the previously issued outlook for revenue and the top of the range for adjusted EBITDA margin. The company also previewed 2023 guidance, which was loosely in line with our revenue estimate and a little better on profitability. In short, pricing actions are helping on both revenue and margins, data center closures, sales productivity, targeted headcount reductions, and slowed hiring are all contributing to margins. Management is pleased with improved renewals even in the face of pricing recent pricing actions. Lastly, we note EVERFI issues from last quarter seem to have stabilized. Based on positive results, we are maintaining our fair value estimate of $70 per share. We continue to see shares as attractive for long-term investors, but we view shares as more sensitive to a recession than most of our enterprise software stocks. We also see the involvement of Clearlake partners as putting a floor under the stock, although the recently adopted one-year shareholder rights action muddies the water somewhat.

Clearlake Capital originally disclosed a 12% stake in Blackbaud in June for investment purposes. After the market closed, Clearlake indicated it had increased its stake to 18%, to 9.8 million shares, and is now evaluating alternatives for its current and possible future investments in Blackbaud. Given that Clearlake recently took Cornerstone OnDemand private and was involved in the spin out of Constant Contact, we think its possible that the private equity firm is eyeing a complete leveraged buyout. Given Clearlake’s initial investment was disclosed when Blackbaud shares were around $65, it seems reasonable to assume with shares closing at $44 today that Clearlake believes it can unlock shareholder value through privatization.

We believe Blackbaud is deeply entrenched in the social-good community and expect its leadership to continue to drive the space forward over the long term as it transitions to a subscription model. Such transitions tend to pressure near-term results, but we think the worst is behind the company and that results should naturally improve over the next couple of years. We also see the company as among the most negatively affected from the pandemic within our software coverage, so as the world returns to normal, Blackbaud is benefiting.

Wide-moat Blackbaud reported solid overall second-quarter results that were mildly mixed compared with our expectations. Given that the firm provides only annual guidance, we think the quarter was generally in line with investor expectations, with revenue slightly light and profitability better. Management reined in its full-year outlook for both revenues and operating margins, mostly to account for worsening currency but also for a continued decline in one-time services and a modest slowdown in EVERFI bookings. While we think Blackbaud is obviously progressing toward its "rule of 40" goals, based on results and the outlook, we are modestly lowering our expectations for 2022 and 2023, which drives our fair value estimate to $70 per share, from $74. We still see shares as attractive for long-term investors but we view shares as more sensitive to a recession than most of our enterprise software stocks.

Wide-moat Blackbaud reported solid overall first-quarter results that were mixed compared with our expectations. Given the firm provides only annual guidance, we think the quarter was generally in line with investor expectations, with growth a bit better and profitability a bit light, and we see the company as progressing toward its full-year outlook, which was reiterated. Based on results and the outlook, we are modestly lowering our profitability outlook through the medium term, thus we are lowering our fair value estimate to $74 per share, from $77. We still see shares as attractive. We continue to believe in the roadmap for margin expansion and organic revenue growth over the next five years based on 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.

We believe Blackbaud is deeply entrenched in the social-good community and expect its leadership to continue to drive the space forward over the long term as it transitions to a subscription model. Such transitions tend to pressure near-term results, but we think the worst is behind the company and that results should naturally improve over the next couple of years. We also see the company as among the most negatively affected from the pandemic within our software coverage, so as the world returns to normal, Blackbaud is benefiting.

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.