A month has gone by since the last earnings report for Blackbaud (BLKB). Shares have added about 3.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Blackbaud due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Blackbaud delivered second-quarter 2018 non-GAAP earnings of 69 cents per share, outpacing the Zacks Consensus Estimate by a couple of cents. Moreover, the figure surged 27.8% from the year-ago quarter.

The company adopted a new Accounting Standards Codification (“ASC”) 606 using full retrospective method in the first quarter. Per the new accounting standards, Blackbaud now reports maintenance and subscriptions combined under recurring revenues as it is shifting toward a cloud-based subscription-based model from the traditional revenue-base model.

Quarter Details

Total non-GAAP revenues increased 11.8% year over year to $214.6 million, almost in line with the Zacks Consensus Estimate of $214 million.

Total recurring revenues for the quarter came in at $192.7 million, amounting to 90.2% of total revenues and up 15.8% year over year. Non-GAAP recurring revenues came in at $193.6 million. This figure represented company’s highest in its history.

One-time services and other revenues were pegged at $20.9 million (9.8% of total revenue), declining almost 17% year over year.

Non-GAAP organic revenue increased 4.8% year over year, while non-GAAP organic recurring revenues improved8%.

Non-GAAP gross profit advanced 13.6% from the year-ago quarter to $131.8 million. Non-GAAP gross margin expanded 100 basis points (“bps”) to 61.4%.

Blackbaud’s non-GAAP operating income for the quarter increased to $45.2 million from $40.4 million reported in the year-ago quarter. Blackbaud’s non-GAAP operating margin expanded 10 bps to 21.1%. The increase was primarily due to better execution strategy, synergies from strategic acquisitions, productivity improvement and higher revenue base.

Non-GAAP net income increased to $33 million from $25.6 million reported in the prior-year quarter.

Balance Sheet

As on Jun 30, 2018, Blackbaud had cash and cash equivalents of $29.2 million. Total debt (including current portion) amounted to $479.8 million.

Cash flow from for the six months ended Jun 30, 2018 came in at $66.4 million. Free cash flow was $40.5 million during the same period.

The company recently approved a quarterly dividend payment of 12 cents per share to be paid on Sep 14, 2018 to shareholders as on Aug 28, 2018.

Developments in the Quarter

The company introduced new comprehensive cloud offering, Blackbaud Grantmaking, to enable grant management solution. Notably, the new solution is deployed on Blackbaud SKY cloud.

The company powered its flagship cloud-based fundraising and relationship management offering — Raiser’s Edge NXT —with new innovative benchmarking capabilities.

Recently, the company partnered with Daxko. Per the terms of the partnership, Raiser’s Edge NXT will be integrated with Daxko Operations, a non-profit membership solution of Daxko.

The partnership will enable non-profit organizations leverage both Raiser’s Edge NXT and Daxko Operations to share data, extend the market reach with enhanced visibility ofdonor bases and membership.

The company also acquired Reeher, a provider of fundraising performance management solutions aimed at supporting higher education, in particular. Consequently, Blackbaud will gain performance management capabilities.

Blackbaud unveiled new world headquarters at Daniel Island location in South Carolina. With the aim of expanding international presence, the company also announced its plans of opening an office in San Jose, Costa Rica. Notably, this will mark its foray in Latin America.

We believe portfolio expansion, enhancements to existing products, buyouts, introduction of new facilities bode well for Blackbaud in the longer haul.

Guidance

The company reiterated fiscal 2018 guidance. Management continues to expect fiscal 2018 revenues in the range of $870-$890 million (mid-point $880 million).

Non-GAAP operating margins are expected to remain unchanged in the range of 20.6-21%.

Non-GAAP earnings per share are still anticipated to be in the range of $2.75-$2.88 per share (mid-point $2.82 per share).

Free cash is maintained in the range of $165-$175 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.54% due to these changes.

VGM Scores

Currently, Blackbaud has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Blackbaud has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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