Blackbaud, Inc. (BLKB) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call shows positive financial performance with year-over-year growth in revenue, EBITDA, and EPS. The company's commitment to a significant stock repurchase program enhances shareholder returns. Despite risks in AI investments and economic uncertainties, optimistic guidance and operational efficiency improvements are promising. The Q&A highlights strong interest in AI products, new customer wins, and a strategic focus on expanding market reach. Given the company's market cap, a positive sentiment is expected, aligning with the company's strategic goals and growth trajectory.

Key Financial Performance

Organic Revenues $281 million in Q1 2026, representing a 4.2% year-over-year growth. This growth reflects continued demand for mission-critical solutions and growth in transactional revenue volumes.

Non-GAAP Adjusted EBITDA $99 million in Q1 2026, up $7 million year-over-year, with an approximately 1 percentage point improvement to adjusted EBITDA margin. This improvement is attributed to the company's operating focus.

Non-GAAP EPS $1.14 in Q1 2026, up 20% compared to $0.95 last year. The increase is driven by mid-single-digit organic revenue growth and improved EBITDA margin.

Free Cash Flow $37 million in Q1 2026, up nearly $50 million year-over-year. This increase is attributed to strong expected free cash flow for the year, enabling investments in go-to-market initiatives, product innovation, and share repurchases.

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Operating Highlights

AI-enabled product innovation: Blackbaud has launched its first agentic AI offering, the Fundraising Development Agent, which is a virtual team member designed to handle complex tasks and workflows. This product is expected to generate new revenue streams and is priced in the tens of thousands per year. It has already shown results for early adopters and is commercially available.

Generative AI features: Blackbaud is expanding generative AI features across its portfolio, including Blackbaud AI Chat, which provides contextual answers and initiates actions within workflows. These features are embedded within Blackbaud's systems of record and leverage customer-permissioned data.

Agents For Good initiative: Blackbaud introduced a new product category called Agents For Good, with plans to launch more agentic AI solutions across its portfolio. These solutions aim to unlock new revenue streams and improve operational efficiency for customers.

New customer acquisitions: Blackbaud secured new customer logos, including private K-12 schools, a performing arts center, a veterans organization, and a UK-based nonprofit. These organizations adopted Blackbaud's solutions for digital transformation and operational improvements.

AI adoption momentum: More than half of Blackbaud's Raiser's Edge NXT customers use machine learning-enabled donor prospecting, generating nearly 30 billion predictions annually. This reflects strong adoption of AI-powered workflows.

Operational efficiency through AI: Blackbaud is using AI internally to improve engineering, sales, marketing, customer support, and back-office operations. This has led to faster development, better customer support workflows, and improved operational efficiency.

Cost management and profitability: The company balanced cost management with growth opportunities, achieving a 1 percentage point improvement in adjusted EBITDA margin and a 20% increase in non-GAAP EPS compared to the previous year.

Long-term financial goals: Blackbaud aims for double-digit annual EPS growth from 2026 to 2030, driven by organic revenue growth of 4%-6% annually, adjusted EBITDA growth of 6%-8%, and a focus on stock repurchases.

Capital allocation strategy: The company plans to allocate over 50% of its cumulative free cash flow from 2026 to 2030 towards stock repurchases, while also considering debt repayment and strategic M&A.

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Risk or Challenges

AI enablement and innovation: The company is heavily investing in AI capabilities, which could pose risks if these investments do not yield expected returns or if competitors outpace Blackbaud in AI advancements.

Cybersecurity and AI governance: Despite heavy investments, there is a risk of data breaches or misuse of AI solutions, which could harm customer trust and lead to regulatory or legal challenges.

Customer IT resource limitations: Many customers face IT resource constraints and staffing shortages, which could impact their ability to adopt and effectively use Blackbaud's solutions.

Dependence on long-term contracts: Over 20% of customers are on 4-year or longer contracts, which could pose risks if customer needs change or if competitors offer more attractive solutions during the contract period.

Transactional revenue variability: Transactional revenue is variable quarter-to-quarter, which could lead to financial unpredictability and impact revenue stability.

Economic uncertainties: The company’s performance could be impacted by broader economic conditions, which may affect customer spending on Blackbaud’s solutions.

Heavy reliance on subscription model: The subscription-based pricing model could face challenges if customers reduce spending or if there is a shift in market preferences.

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Guidance & Outlook

AI and Product Innovation: Blackbaud is aggressively investing in AI and product innovation, including generative and agentic AI capabilities. The company plans to expand generative AI features across its portfolio, such as Blackbaud AI Chat and the Agents For Good initiative. The first agentic AI product, the Blackbaud Fundraising Development Agent, has been launched and is expected to generate significant revenue through annual subscription fees and transactional revenue. The company plans to introduce more agentic AI solutions in the future.

Revenue Growth: Blackbaud targets organic total revenue growth of 4% to 6% annually from 2026 through 2030, with potential upside from viral events and new product launches.

Earnings Growth: The company aims for double-digit annual EPS growth from 2026 through 2030, with a goal of 13%+ non-GAAP EPS CAGR during this period. For 2026, non-GAAP EPS growth is expected to be 17% at the midpoint of guidance.

EBITDA and Margin Expansion: Blackbaud expects adjusted EBITDA growth of 6% to 8% annually from 2026 through 2030, with an adjusted EBITDA margin target of 40%+.

Free Cash Flow: The company projects strong free cash flow growth, with the 2026 midpoint guidance at $285 million, representing a 25% CAGR since 2020. At least 50% of cumulative free cash flow from 2026 to 2030 will be allocated to stock repurchases.

Capital Allocation: Blackbaud plans to deploy over 50% of its cumulative free cash flow from 2026 to 2030 towards stock repurchases. Additional capital may be allocated dynamically to debt repayment or synergistic M&A based on market conditions.

Operational Efficiency: The company is leveraging AI internally to improve operational efficiency across engineering, sales, marketing, customer success, and back-office functions. This includes using AI to write code, qualify inbound interest, and improve customer support workflows.

Long-Term Aspirations: Blackbaud aims to become a Rule of 45 company, balancing revenue growth, earnings, and cash flow improvements. The company is focused on achieving its long-term financial and operational goals.

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Shareholder Return Plan

Stock Repurchase Program: Blackbaud has committed to deploying over 50% of its cumulative free cash flow generated between 2026 and 2030 towards stock repurchases. This is a continuation of its significant stock repurchase program over the last few years, which has already reduced common stock outstanding by approximately 14% since Q4 2023. In Q1 2026, Blackbaud repurchased approximately 4.5% of its shares outstanding at the end of 2025.

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Key Q&A

Q:Was the comment about AI adoption in thousands of customers on Agents For Good specifically about 2026 adoption or longer term?

A:The comment was not specifically about 2026 adoption but rather a longer-term perspective. The first agentic product, the development agent, has been made generally available and is targeted at thousands of existing Blackbaud customers. Sales are ramping up, and there is significant interest from customers.

Q:Can you provide context around new logo wins and their contribution to bookings?

A:The sales teams are divided into vertical market teams focusing on specific markets. New logo sales are showing good progress, with significant wins across verticals, including one of the largest deals in the company's history with a large nonprofit. The Blackbaud Verified Network is also driving interest from new logos by connecting nonprofits with Fortune 500 companies.

Q:How much of the planned AI investment will impact adjusted EBITDA and in what areas?

A:Adjusted EBITDA dollars are expected to decline slightly year-over-year in Q2 due to planned AI investments. These investments are primarily for new product builds, engineering productivity enhancements, and internal tools. Gross margins are expected to improve year-over-year due to the closure of legacy data centers and reduced reliance on legacy software infrastructure.

Q:What is the pricing structure for the new AI agents, and how does it ensure value for customers?

A:The first AI product, the development agent, follows an annual subscription fee model in multiyear contracts, similar to other Blackbaud products. The company is exploring other pricing models, including usage-based pricing, for future products. The addressable market is expanding beyond IT budgets to include other customer budgets, such as hiring for fundraising.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the percentage of new bookings attributed to new logos and the exact breakdown of AI investment impacts across R&D, sales, and marketing.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call reveals strong financial performance with record high revenue, improved profitability, and enhanced shareholder returns through aggressive stock repurchases. Despite some uncertainties in AI product contributions and nonprofit sector challenges, the company's strategic focus on innovation and operational efficiencies is promising. The Q&A section confirms strong renewals and resilience in the customer base. The market cap suggests moderate volatility, supporting a positive stock price reaction (2% to 8%) over the next two weeks.

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Blackbaud's earnings call highlights strong financial performance with 5.2% organic revenue growth, improved EBITDA margins, and a significant increase in free cash flow. The company is investing in AI innovations and has a robust stock repurchase plan, increasing its target to 7%. While there are concerns about a prior noncash error, the overall sentiment is positive due to optimistic guidance and strategic initiatives. The market cap suggests a moderate but positive reaction, likely resulting in a 2% to 8% stock price increase.

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