Blackbaud, Inc. (BLKB) Q2 2025 Earnings Call Transcript

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Overview

The company demonstrated strong financial performance with a 6.8% organic revenue growth, improved EBITDA margins, and increased EPS. The strategic focus on AI and capital allocation, including debt repayment and stock repurchases, supports future growth. Despite some uncertainties in AI monetization and tax benefits, the overall sentiment is positive with a focus on long-term growth and stability. The market cap suggests a moderate reaction, aligning with a positive sentiment of 2% to 8%.

Key Financial Performance

Revenue $281 million, which is 6.8% organic growth year-over-year. The growth was powered by transaction solutions and additional support from foreign currency rates.

Adjusted EBITDA Margin 38.5%, up nearly 300 basis points year-over-year. This improvement reflects operational discipline and efficiencies.

Non-GAAP Diluted Earnings Per Share (EPS) $1.21, up 12% year-over-year. The increase was driven by improved revenue and EBITDA margin.

Adjusted Free Cash Flow $53 million, up from $36 million last year, representing an adjusted free cash flow margin of 18.9% compared to 12.7% in Q2 2024. The increase reflects disciplined operational management and improved profitability.

Leverage Decreased to 2.7x in the second quarter compared to 2.9x last quarter, indicating improved financial stability.

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Operating Highlights

Raiser's Edge NXT and Data Intelligence: A large youth development organization adopted these products to replace an outdated tech stack, aiming to reach 10 million youths in 6 years. The integration connects nonprofit fundraising solutions with corporate employee engagement solutions, creating a unique network effect.

Blackbaud CRM: SunnyBrook Foundation selected Blackbaud CRM for its digital transformation due to its leadership in the fundraising market and ability to modernize donor experience.

Raiser's Edge NXT for Higher Education: California Polytechnic State University adopted this solution to replace a legacy system, highlighting its momentum in the higher education vertical.

YourCause Solution: Expanded customer base with large organizations like NASDAQ, Tyson Foods, Chevron, and others due to innovations like Impact Edge and expedited payments.

AI Everywhere Strategy: Includes predictive AI for identifying untapped giving potential, generative AI-powered acknowledgments, and the upcoming Blackbaud copilot for natural language data interaction.

Higher Education Vertical: Gaining momentum with institutions like California Polytechnic State University adopting Blackbaud solutions for digital transformation.

Corporate Employee Engagement: Expanded global markets served by YourCause solution, attracting large customers like NASDAQ and Chevron.

Operational Efficiencies: Achieved a Rule of 45, the highest in company history, with a 6.8% organic revenue growth and 38.5% adjusted EBITDA margin.

Cost Management: Implemented operational discipline, resulting in improved free cash flow and reduced leverage to 2.7x.

AI and Innovation Investments: Focused on AI-driven solutions like predictive AI, generative AI, and Agentic offerings to enhance customer operations and revenue.

Leadership Addition: Hired Bill Fort as Head of North American Sales to drive growth in U.S. and Canadian markets.

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Risk or Challenges

Market Conditions: The company's guidance assumes no material changes in the macroeconomic landscape, indicating potential risks if economic conditions worsen.

Regulatory Changes: The company is analyzing the tax implications of recent tax law changes, which could impact cash taxes and financial performance.

Operational Costs: Annual merit increases for employee compensation in Q3 and Q4 could lead to higher operational costs.

Revenue Seasonality: Transactional revenue fluctuations, with Q4 typically being the highest revenue quarter, could impact financial predictability.

Cybersecurity: Investments in cybersecurity are ongoing, suggesting potential risks if these measures are insufficient.

Innovation and AI: Heavy investments in innovation, including AI, could pose risks if these initiatives do not yield expected returns or competitive advantages.

Supply Chain and Transactional Revenue: Transactional revenue overperformance in the first half of the year may not continue, and viral giving events are not included in guidance, posing risks to revenue stability.

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Guidance & Outlook

Revenue Projections: Blackbaud is projecting revenue in the range of $1.120 billion to $1.130 billion for 2025, representing organic growth at the midpoint of approximately 5% on a constant currency basis. This includes a $5 million increase driven by strong first-half transactional revenue performance and foreign exchange upside.

Profitability and Margins: The company anticipates EBITDA margins of approximately 35.4% to 36.2% for 2025. Adjusted EBITDA dollars are expected to grow approximately 7% year-over-year after accounting for the EVERFI divestiture. Non-GAAP EPS is projected in the range of $4.30 to $4.50, implying an approximately 11% growth rate year-over-year.

Free Cash Flow: Blackbaud is increasing its adjusted free cash flow guidance to $190 million to $200 million for 2025. The company expects approximately $60 million of one-time items in working capital fluctuations negatively impacting 2025 free cash flow, which are not expected to repeat in 2026.

Capital Allocation: The company plans to dynamically allocate capital based on market conditions, including additional stock repurchases, repayment of debt, or synergistic M&A. Approximately 4% of outstanding shares were repurchased in the first half of 2025.

Innovation and AI: Blackbaud is investing in innovation, including artificial intelligence and cybersecurity. The company is launching new AI-driven solutions such as predictive AI, generative AI-powered acknowledgments, and Blackbaud Copilot. A full Agentic offering is expected to launch at the bbcon conference in October 2025.

Market Trends and Business Segments: The company is focusing on mid-single-digit organic revenue growth, EBITDA growth exceeding revenue growth, and double-digit diluted EPS growth as a framework for future performance. Blackbaud is also targeting strong free cash flow and purposeful capital allocation.

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Shareholder Return Plan

Stock Repurchase: In the first half of 2025, Blackbaud repurchased approximately 4% of its outstanding shares. The company continues to demonstrate strong belief in its value through stock repurchases. Additionally, the company has highlighted its ability to dynamically allocate capital to its highest use, which includes additional stock repurchases, repayment of debt, or synergistic M&A.

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Key Q&A

Q:How is AI coming up in customer conversations and what are the plans for AI tools over the next several years?

A:AI is a significant topic in customer conversations, with customers exploring its impact on productivity and revenue. The company has been building predictive analytics and machine learning capabilities for a decade. They have new Agentic AI capabilities, some of which will be monetized as new products and revenue lines. The company is also using AI internally across various departments to improve productivity and margins.

Q:How should we think about transactional growth relative to the mid-single-digit plus growth rate over the long term?

A:Transactional growth was strong in the first half of the year, but it is volatile and not expected to recur in the second half. Viral giving contributed in Q1 but not in Q2, and no viral events are included in the guidance. Contractual revenue performed well as planned.

Q:What are the priorities and expected benefits of the new Head of North America, Bill Fort?

A:Bill Fort brings extensive sales leadership experience from companies like Salesforce, Oracle, and SAP. He understands the competition and the market well. His priorities include driving new logos and cross-sales, and he is expected to bring new ideas, best practices, and improved competitiveness.

Q:Why was there no stock buyback this quarter, and what is the focus on capital allocation?

A:The company focused on debt repayment in Q2, reducing leverage from 2.9x to 2.7x. They have repurchased approximately 4% of stock this year and plan up to 5% for the year. They are evaluating interest rates and prioritizing both stock repurchases and debt repayment.

Q:What is the linearity and seasonal pattern of contract renewals?

A:Renewals are typically higher in Q2 and Q4, aligning with customers' fiscal years, but the overall pattern is fairly smooth. The program is three years old, and 90% of renewals will be completed by the end of the year. Most customers are signing three-year or longer contracts.

Q:Have there been any impacts on customer renewals or sales pipeline due to macroeconomic factors or federal funding changes?

A:There has been no impact on Blackbaud's sales pipeline or renewals. Customers losing federal grants may depend more on Blackbaud's solutions for other revenue lines, making the solutions stickier. Some customers have restructured but none have gone out of business.

Q:How is the company approaching upsell and cross-sell opportunities as customers come up for contract renewal?

A:Upsell and cross-sell activities are ongoing and not limited to contract renewals. About half of the sales team focuses on cross-selling. Customers often have multiple software providers, and the standardized three-year contracts align with industry norms.

Q:What are the expected cash tax benefits from the recent tax legislation changes?

A:The company expects favorable cash tax benefits from the repeal of Section 174, which removes the requirement to capitalize and amortize domestic R&D expenses. The exact impact is still being analyzed and will be updated in the next call. Offshore R&D will still be capitalized and amortized.

Q:What is the strategy for monetizing AI products like Agentic AI?

A:The company plans to monetize Agentic AI products as separate revenue lines. They are exploring various pricing models with external help. Examples include a virtual fundraiser targeting untapped donor segments. The company’s system of record and access to clean data provide a competitive advantage.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the pricing models for Agentic AI products, stating they are still exploring options. They also did not quantify the expected cash tax benefits from the recent tax legislation changes, promising updates in the next call.

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Earnings Word Cloud

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

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Blackbaud, Inc. (BLKB) Presents at 53rd Annual Nasdaq Investor Conference Transcript

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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.

Blackbaud, Inc. (BLKB) Q2 2025 Earnings Call Transcript

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The earnings call summary indicates strong financial performance with a 5.8% revenue increase and improved EBITDA margins. The share repurchase program and resilient market position add to the positive outlook. Despite concerns about federal funding and macroeconomic uncertainty, management's optimistic guidance and high customer retention suggest confidence. The Q&A session revealed no significant impact on sales or retention, and a 9% growth in transactions exceeded expectations. The market cap suggests moderate stock movement, leading to a positive sentiment rating with an expected 2% to 8% increase in stock price.

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