08.05.08 

blkb: GOOD Q2:08 RESULTS DESPITE MARKET CONCERNS; ADJUSTING PRICE TARGET TO $25 PER SHARE
After a 7.3% drop in share price last week and almost a 25% decline over June and August this year, the market appeared to indicate both dissatisfaction with the Kintera acquisition and an expectation for a significant financial shortfall in Q2:08 financial results. Fortunately, the latter item was essentially a non-issue. The Company reported revenue, non-GAAP operating income, and non-GAAP EPS in the middle of management guidance, and while Blackbaud's FY:08 revenue and earnings forecast excluding the Kintera acquisition was lowered slightly for the year, we think the overall tone of the release was positive. Subscription revenue grew nicely in Q2 and the Company added two eCRM deals during the period. In regard to balance sheet and cash flow items, deferred revenue grew a healthy 11% q/q, while cash flow from operations slowed to $7.1M from $14.4M in Q1:08. However, with receivables increasing by ~$21.9M sequentially due to the installation of a new accounting system, and a higher deferred revenue balance, we expect a sharp increase in cash flow in the upcoming quarter. We also expect the Company to aggressively pay down debt after paying dividends. Looking ahead, we lowered our core-Blackbaud revenue a bit to $295.2M from $298.2M to reflect a slower market, but raised our Kintera revenue estimates to $18.9M (up from $18.0M). In total our FY:08 revenue estimate currently stands at $314.1M, while our diluted earnings per share estimate is $0.98 (up from $0.97), on slightly better margins. We also made several very minor adjustments to FY:09 estimates resulting in revenue of $379.9M (down from $382.1M) and diluted non-GAAP EPS of $1.24 (up from $1.19). Finally, based on a P/E multiple of 20x our FY:09 diluted non-GAAP earnings estimate, we arrive at a price target of $25 (down from $30). Contact Us for Full Report - PDF

06.05.08 

blkb: ADJUSTING ESTIMATES ON KINTERA & SERVICES REVENUE - MAINTAIN BUY
Since our road show with management two weeks ago and Blackbaud's announcement surrounding Kintera, Inc. last week, we have made several adjustments to our model. Those changes incorporate a higher percentage of consulting fees in the Services revenue segment, the addition of Kintera sales and operating costs, and an additional $40 million in debt due to the purchase. Overall, those changes on our FY:08 estimates increase revenue to $317 million (from $299 million previously), lower non-GAAP operating income to $71.6 million (from $74.2 million), and reduce Pro Forma EPS by five cents to $0.97. The impact on our Q2:08 forecast is negligible due to an estimated July close date on the Kintera purchase, and an expected ramp in services fees beginning in Q3:08. For FY:09, our current revenue and earnings forecast is $382.9 million and $1.19 per diluted share, respectively. That compares to our previous forecast of $339 million in sales and EPS of $1.22. Finally, we are modeling earnings dilution of $0.04 per share in FY:08 from the Kintera acquisition and a penny accretion in FY09. The additional penny decline in our FY:08 EPS forecast is due to increased Services sales. From a valuation perspective, we continue to believe a FY:09 P/E multiple of 25x and P/FCF multiple of 15x is appropriate. As such, we reaffirm our 12-month price target of $30. Contact Us for Full Report - PDF

05.30.08 

blkb: PLANS TO ACQUIRE KINTERA, INC.; MAINTAINING BUY
After the market close, Blackbaud (Company) announced that it plans to offer an all-cash tender offer of $1.12 per share for Kintera, Inc. (KNTA: Not Covered), a software as a service (SaaS) provider of donor management, engagement, and accounting software to non-profit organizations. The offer represents a 65% premium to Kintera's closing stock price of $0.68 per share on May 29, 2008. Blackbaud's management does not expect to formally launch its offer until next week and then close the deal until July. While we would expect this planned acquisition to be slightly dilutive to our FY:08 earnings estimates, (which we plan to release in detail in a subsequent note) and short-term (ST) debt to rise to more than $50 million, we think that the deal makes sense over the long-term as it meaningfully contributes to Blackbaud's growth in on-demand solutions and online fundraising and adds experienced web software engineers to the Company's staff. Moreover, we believe that this planned acquisition should have minimal to no impact to our FY:09 earnings estimates. Consequently, we are maintaining our Buy rating and $30 price target. Contact Us for Full Report - PDF

05.14.08 

blkb: ASSUMING COVERAGE WITH A BUY RATING AND $30 PRICE TARGET
We are assuming coverage of Blackbaud, Inc. (BLKB), with a Buy rating and a 12-month price target of $30 (previously a Buy and $32 price target), representing 25x our FY:09 EPS estimate of $1.22 (versus the Street consensus estimate of $1.20) and approximately 24% upside potential from the current price. Our applied P/E multiple is supported by a comparable group of enterprise software companies, a historical forward P/E range, and a FY:09 FCF multiple of 15x. Overall, we believe that Blackbaud is a compelling story given its dominant position in the nonprofit market, improving revenue mix, and consistent double-digit earnings and cash flow growth. In addition, any prolonged softness in the domestic economy should only have a modest impact on earnings this year, in our view, since the Company has just 6% of the addressable market in the United States and significant growth opportunities internationally. Contact Us for Full Report - PDF

02.08.08 

blkb: FQ4:07 RESULTS, MAKING IT LOOK EASY; MAINTAINING BUY AND INCREASING PRICE TARGET TO $32
Blackbaud posted FQ4:07 results of $70.0 million (+41.3%) in revenue and non-GAAP EPS of $0.23 (+15% y/y), ahead of management's prior guidance and the Street's revenue estimate of $67.9 and EPS estimate of $0.22. The results were more or less in line with our Street high estimates of revenue and non-GAAP EPS of $69.5 million and $0.23, respectively. The international business grew 35% on a year-over-year basis and this was all organic as both Target and eTapestry have very little international exposure. Currently, international represented roughly 15% of the total revenue in FQ4 and management believes that there is still a significant opportunity to more than double the international business as a percentage of total revenue going forward. We believe that this is a large and untapped market that has been overlooked in the past by Blackbaud. The Board increased the annual dividend to $0.40 / share from $0.34 / share. However, during the quarter, the company did not buy back any shares, but rather focused on using FCF for debt reduction, which amounted to some $11.5 million in FQ4. We believe that the company will step up its buyback activities in the coming months. On the call, the company reiterated CY:08 revenue and non-GAAP EPS guidance of $295-305 million and $0.98-1.02, respectively. We continue to believe that Blackbaud is a compelling story and the company is taking the right steps in pursuing tuck-in acquisitions to bolster its positioning in the non-profit space while maintaining double-digit growth in its core business. Clearly, the company appears to be gaining share and entering new markets, which should bolster growth over the longer term. In addition, the potential for margin expansion once the integration of eTapestry is completed and the kinks are worked out in the Services area could provide for upside surprises in CY:08 and beyond. Accordingly, we are maintaining our Buy rating and increasing our price target to $32, which represents 25x our CY:09 EPS estimate of $1.28 and 15x our CY:09 FCF estimate of $87 million. Contact Us for Full Report - PDF

11.02.07 

blkb: STRONG Q3 RESULTS, OPERATING MARGIN GUIDANCE DISAPPOINTS, BUT STAYING THE COURSE. MAINTAINING BUY RATING
Blackbaud posted Q3:07 results of $67.8 million (+36%) in revenue and non-GAAP EPS of $0.23 (+4.5% y/y), above prior revenue guidance of $65.4-$67.2 million and exceeding the high end of the revenue range, but more or less in line with Management's prior EPS guidance of $0.22-$0.23. Consensus estimates had been for $66.9 million and $0.23, respectively. Investors had been anticipating that Blackbaud's operating margins would begin to show signs of improvement after digesting the Target and eTapestry acquisitions. For now, it appears that the 'good old days' of 27-28% operating margins are still on hold as the consulting services' utilization rates were well below normal, creating a 'better wait until next year' scenario before seeing a significant increase in operating margins going forward. This will weight heavily on the stock in today's trading, in our view. Management established Q4:07 guidance of $66.5-$68.5 million in revenue and non-GAAP EPS of $0.21-$0.22. Our prior estimates had been for $67.3 million and $0.24, respectively (and consensus was $67.4 million and $0.23). For CY:07, Blackbaud tightened up the revenue guidance to $253-$255 million (from $251-$254.3 million) versus our prior estimate of $254.1 million and consensus of $253.7 million. Full year EPS guidance was adjusted to $0.82-$0.83, which was at the lower end of the previous guidance range of $0.82-$0.85. Our prior estimate had been for $0.85 (and consensus was $0.84). We continue to believe that today's pullback in the shares of BLKB presents a compelling entry point for investors to create and or build positions in a quality software name and solid management team. Accordingly, we are maintaining our Buy rating and $26 price target, which represents 25x our revised CY:08 EPS estimate of $1.02 and 15x our unchanged CY:08 FCF estimate of $82 million. Contact Us for Full Report - PDF

08.07.07 

blkb: STRONG Q2 RESULTS; ACQUISITION OF ETAPESTRY
Blackbaud posted Q2:07 results of $64.0 million (+31%) million in revenue and non-GAAP EPS of $0.22 (+10% y/y), above prior revenue guidance of $61-63 million and at the top end of EPS guidance of $0.20-0.22. Consensus estimates had been for $62.5 million and $0.21, respectively. Raiser's Edge grew over 20% on a y/y basis in H1:07, and Financial Edge was the fastest growing core product. License revenues of $11.0 million came in ahead of prior guidance of $9.8-10.3 million. Average deal size surpassed the $40K mark for the first time in company history, which we believe reflects the smooth integration of Target's products and the company's success in upselling these new product features to existing customers. Prior to the Q2 conference call, the company announced the acquisition of eTapestry, a provider of on-demand fundraising solutions, for roughly $24.8 million plus up to an additional $1.5 million in performance incentives. eTapestry has over 3,000 existing customers, and we believe this is a logical extension of Blackbaud's existing non-profit targeted products. Although margins may be pressured in the near-term, we believe management is being conservative on margin expansion potential, and would not be surprised to see margins recover quicker than the Street expects. We continue to believe valuation presents a compelling entry point for investors to create or build positions in a quality software name and management team. We believe Blackbaud is taking the right steps in pursuing tuck-in acquisitions to bolster its positioning in the non-profit space while maintaining double-digit growth in its core business. In addition, the potential for margin expansion once the integration of eTapestry is completed could provide for upside surprises in CY:08 and beyond. Accordingly, we are maintaining our Buy rating and $26 price target, which represents 25x our revised CY:08 EPS estimate of $1.05 and 15x our unchanged CY:08 FCF estimate of $82 million. Contact Us for Full Report - PDF

05.04.07 

blkb: Q1 RESULTS ON TARGET
Blackbaud posted Q1:07 results of $55.3 million (+27%) million in revenue and non-GAAP EPS of $0.16 (flat y/y), above prior revenue guidance of $52.4-54.1 million and at the top end of EPS guidance of $0.14-0.16. Consensus estimates had been for $53.6 million and $0.16, respectively. Core products (Raiser's Edge, Financial Edge, Education Edge) delivered y/y revenue growth in the mid-20% range, the highest quarterly growth in two years. License revenues of $8.1 million came in slightly ahead of prior guidance of $7.5-8.0 million, reflecting the reversal of the timing issues that negatively impacted Q4:06. Investors should note that international revenues (15% of total revenues) grew over 30%, which we believe bodes well for future growth opportunities in a relatively untapped market. The quarter's results appear to indicate that the integration of Target into the Blackbaud sales organization is on track if not ahead of plan, with Target revenues growing in the mid-20% range on an apples-to-apples organic basis. We believe this is the key driver behind the increased guidance for FY:07. We continue to believe valuation presents a compelling entry point for investors to create or build positions in a quality software name and management team. We believe the Target acquisition will allow Blackbaud to take a leadership position in the direct response marketing industry while maintaining double-digit growth in its core business. In addition, the smooth integration of Target to the Blackbaud platform bodes well for upside surprises in the back half of FY:07, in our view. Accordingly, we are maintaining our Buy rating and $26 price target, which represents 25x our revised FY:08 EPS estimate of $1.06 and 15x our increased FCF estimate of $82 million. Contact Us for Full Report - PDF

02.15.07 

blkb: ON THE ROAD WITH MANAGEMENT
Yesterday, we hosted Blackbaud's CEO Marc Chardon in a series of meetings with investors in the Boston area. The meetings were a timely opportunity for investors to discuss the recent Target Acquisition and various new initiatives that the company had planned for 2007. We continue to believe the acquisition of Target Software and Target Analysis Group represents a valuable asset to Blackbaud's overall product mix. Target's larger-scale and higher-volume fundraising functionality creates interesting new market opportunities, particularly in the Public Broadcast Sector. In addition, we believe the high degree of synergy between the product lines may create the potential for significant cross-selling opportunities. We believe that the company will invest in new products such as Fund Raiser Enterprise (Project Name - Galileo), Net Community, Business Intelligence (with help from Target) and host-based solutions. Near term, this may keep a lid on significant margin growth, but management's y/y top line growth rate of 13+% may prove conservative, in our view. We continue to believe valuation presents a compelling entry point for investors to create or build positions in a quality software name and management team. We believe the Target acquisition will allow Blackbaud to take a leadership position in the direct response marketing industry while maintaining double-digit growth in its core business. Accordingly, we are reiterating our Buy rating and $26 price target, which represents 25x our unchanged FY:08 EPS estimate of $1.02 and 15x our FCF estimate of $78 million. Contact Us for Full Report - PDF

02.06.07 

blkb: STEADY AS SHE GOES
Blackbaud posted Q4:06 results of $49.6 million (+15%) million in revenue and non-GAAP EPS of $0.20 (+25%), in line with pre-announced guidance and consensus estimates of $49.8 million and $0.20, respectively. Similar to prior quarters, the majority of revenues in the quarter were driven by strong sales of the core products Raiser's Edge, Financial Edge, and Education Edge. Core products (Raiser's Edge, Financial Edge, and Education Edge) delivered revenue growth of just under 10% for the quarter. The conversion of Financial Edge sales to an entirely direct model helped contribute to services revenue growth of 18% y/y. Renewal rates remained consistent in the mid-95% range. We continue to believe the acquisition of Target Software and Target Analysis Group represents a valuable addition of larger-scale and higher-volume fundraising functionality to the Blackbaud product platform, and follows closely with management's previously announced initiatives for CY:07. In addition, we believe the high degree of synergy between the product lines may create the potential for significant cross-selling opportunities. Management noted that they expect the acquisition to contribute revenues in the mid-$20 million range for FY:07 and be dilutive to Q1 by $0.02-0.03 per share, which we have accounted for in our revised estimates. We continue to believe valuation presents a compelling entry point for investors to create or build positions in a quality software name and management team. We believe the Target acquisition will allow Blackbaud to take a leadership position in the direct response marketing industry while maintaining double-digit growth in its core business. Accordingly, we are maintaining our Buy rating and $26 price target, which represents 25x our revised FY:08 EPS estimate of $1.02 and 15x our FCF estimate of $78 million. Contact Us for Full Report - PDF

01.17.07 

blkb: VALUATION TOO COMPELLING; UPGRADING TO BUY
Marked weakness in Blackbaud's stock this morning following a competitor downgrade on yesterday's acquisition and pre-announcement news offers in our view a strong entry Point to 'Take a Stand' and/or 'Build a Position' in a quality software name and management team. Accordingly, we are upgrading our rating to Buy from Hold, and establishing a $26 price target, which represents 26x our revised CY08 EPS estimate of $1.00 and 15x our FCF estimate of $78 Million. We believe this is reasonable given estimated top-line growth of 13+% and bottom-line growth of 22+% in CY08, compared to the group average of 7%-9%. At first blush it appears that Blackbaud slightly missed its license revenue guidance of $8.5-9.0 million by pre-announcing roughly $8.2 million for the quarter, which is likely the primary reason for the weakness behind the stock today. That said, we believe this is an overreaction to a timing issue on one of the largest deals in company history. We believe that if this deal had closed during the quarter, FQ4 license results would have equaled or exceeded management's guidance. We have recast our estimates to incorporate the integration of the Target businesses, which will be discussed in further detail on the February 5th earnings call. This will give us the opportunity to hone in on some of the expense classifications, but we believe that our EPS and top-line estimates are reasonable at this time. Bottom line, we believe weakness in trading this morning and resulting valuation presents a compelling entry point for investors to create or build positions in a quality software name and management team. Accordingly, we are upgrading our rating to Buy and establishing a $26 price target, which represents 26x our revised CY08 EPS estimate of $1.00 and 15x our FCF estimate of $78 Million. Contact Us for Full Report - PDF

01.17.07 

blkb: VALUATION TOO COMPELLING; UPGRADING TO BUY
Marked weakness in Blackbaud's stock this morning following a competitor downgrade on yesterday's acquisition and pre-announcement news offers in our view a strong entry Point to 'Take a Stand' and/or 'Build a Position' in a quality software name and management team. Accordingly, we are upgrading our rating to Buy from Hold, and establishing a $26 price target, which represents 26x our revised CY08 EPS estimate of $1.00 and 15x our FCF estimate of $78 Million. We believe this is reasonable given estimated top-line growth of 13+% and bottom-line growth of 22+% in CY08, compared to the group average of 7%-9%. At first blush it appears that Blackbaud slightly missed its license revenue guidance of $8.5-9.0 million by pre-announcing roughly $8.2 million for the quarter, which is likely the primary reason for the weakness behind the stock today. That said, we believe this is an overreaction to a timing issue on one of the largest deals in company history. We believe that if this deal had closed during the quarter, FQ4 license results would have equaled or exceeded management's guidance. We have recast our estimates to incorporate the integration of the Target businesses, which will be discussed in further detail on the February 5th earnings call. This will give us the opportunity to hone in on some of the expense classifications, but we believe that our EPS and top-line estimates are reasonable at this time. Bottom line, we believe weakness in trading this morning and resulting valuation presents a compelling entry point for investors to create or build positions in a quality software name and management team. Accordingly, we are upgrading our rating to Buy and establishing a $26 price target, which represents 26x our revised CY08 EPS estimate of $1.00 and 15x our FCF estimate of $78 Million. Contact Us for Full Report - PDF

10.31.06 

blkb: Q3:06 REVENUE RESULTS IN LINE; STILL LOOKING FOR UPSIDE
Blackbaud posted Q3:06 results of $49.9 million in revenue (+16%) and non-GAAP EPS of $0.22 (+29%), roughly in line with our revenue estimate of $49.6 million, but well above our EPS estimate of $0.20. Consensus estimates had been for $49.3 million and $0.20, respectively. Results for the quarter were driven primarily by strong sales of the core Raiser's Edge product and growth in its NetCommunity product segment. Growth in core products (Raiser's Edge, Financial Edge, Education Edge) of over 20% posted its highest quarterly growth in two years. New solutions revenue growth of over 50% was led by NetCommunity, with year-to-date sales more than double of last year. Similar to the prior quarter, the EPS upside surprise was driven by higher than expected margins as the company continues to enjoy higher margins from the completed transition to a fully direct sales model. Gross margin of 71.6% was roughly 90bps higher than our estimate of 70.7%, while operating margins of 31.6% were well ahead of our 30.0% estimate. The company plans to release solutions which will address the direct response marketing needs of NPOs, as well as the needs of distributed national organizations in H1:07, and noted the signing of an early adopter in Q3, with two more early adopters likely to sign in Q4. Blackbaud continues to deliver solid results with growth in both core products and new solutions. That said, we continue to look for additional signs that Blackbaud can capitalize on the opportunities it has targeted in the broader non-profit customer market. In addition, with shares trading at 15x our FY:07 FCF estimate of $69 million on an EV basis, we believe the risk/reward profile is balanced at current levels. Accordingly, we are maintaining our Hold rating on BLKB shares until further catalysts emerge. Contact Us for Full Report - PDF

08.08.06 

blkb: SOLID Q2 RESULTS; MAINTAINING HOLD
Blackbaud posted Q2:06 results of $48.8 million (+14%) and non-GAAP EPS of $0.20 (+25%), roughly in line with our revenue estimate of $48.6 million in revenue and slightly above our EPS estimate of $0.19. Consensus estimates were for $48.3 million in revenue and EPS of $0.19. Average deal size of just under the $35K level was roughly flat on a sequential basis, which we would attribute to the lingering effects of lower-end Campagne customers. Deals in excess of $50K and $100K both grew over 30% on a y/y basis. Continued strength in core products (Raiser's Edge, Financial Edge, Education Edge) drove 75% of revenues in the quarter, while new solutions (Patron's Edge, Information Edge, and NetCommunity) reached an all-time high of 25% of business. Gross margin of 71.5% was roughly 100bps higher than our estimate of 70.5%, driven primarily by the elimination of the Financial Edge partner channel. Blackbaud increased the low-end of revenue guidance for FY:06 to $190.0-193.5 million from $187.5-193.5 million (versus our previous estimate of $190.8 million and Street consensus of $190.7 million), and increased EPS guidance to $0.73-0.74 from $0.70-0.73 (versus our previous estimate and Street consensus of $0.73), which may be a penny or two on the conservative side. The quarter's results indicate to us that the new product initiatives are bearing fruit, and bode well for the company's next stage of growth. That said, we are looking for additional signs that Blackbaud can capitalize on the opportunities it has targeted in the broader non-profit customer market. Accordingly, we are maintaining our Hold rating until further catalysts emerge. Contact Us for Full Report - PDF

05.09.06 

blkb: GREAT STOCK, BUT TAKING A BREATHER; MOVING RATING TO HOLD FROM BUY
Blackbaud posted Q1:06 results of $43.7 (+17%) million in revenue and non-GAAP EPS of $0.16 (+23%), beating our estimates of $42.1 million in revenue and EPS of $0.15. The quarter's results were driven by growth in core products and sales from the key accounts group. Renewal rates of 95% were sustained from the previous quarter, which helped drive strong maintenance and subscription revenues (+17%). Management reported 20% growth in core products (Raiser's Edge, Financial Edge, Education Edge), the highest y/y growth in six quarters. In addition, newer solutions (Patron Edge, Information Edge, and NetCommunity) tripled in sales from the prior year period, and now represent 20% of overall revenues. Blackbaud slightly increased revenue guidance for FY:06 to $187.5-193.5 million from $186-192 million (vs. our previous estimate of $189.2 million and Street consensus of $188.6 million), and widened EPS guidance to $0.70-0.73 from $0.70-0.72 (vs. our previous estimate and Street consensus of $0.72). Overall, we were impressed with the consistent showing for the quarter, driven by continued growth in core products and new solutions. The company is clearly executing to plan with its key accounts group and international opportunities, reflected in larger deal sizes and growth in international revenues. That said, we believe growth and margin expansion have begun to normalize, and potential upside from the Campagne acquisition has been fully priced into the stock while integration risk remains. Accordingly, we are moving to the sidelines until further catalysts emerge and are downgrading our rating on BLKB shares to a Hold from a Buy. Our unchanged $21 price target represents 15x our FY:07 free cash flow estimate of $63 million and 25x our FY:07 EPS estimate of $0.82, in line with the enterprise software group. Contact Us for Full Report - PDF

02.24.06 

blkb: A DAY WITH MANAGEMENT IN BOSTON; REITERATING BUY RATING
Yesterday, we hosted Blackbaud's management team in a series of meetings with investors in the Boston area. New CEO Marc Chardon and CFO Tim Williams were in attendance for the meetings, which were a valuable opportunity to get a feel for the business as we head into 2006. Management noted that a large portion of their target market remains untapped at this point, and represents an excellent opportunity to build the core business. The key differentiator for Blackbaud remains its ability to offer a complete product solution for the education vertical, versus the non-specialized point products of its competitors. We believe this will be the factor in driving future growth of Blackbaud's core business. Management noted that the International market and new product initiatives remain key focus areas for the company. Additionally, management commented on the possibility of a hosted version of their core products, which could help expand the business to the lower-end of their addressable market. We believe Blackbaud's ability to generate impressive free cash flow gives it operational flexibility to pursue strategic acquisitions and/or increase share buyback volumes. With the removal of the distribution overhang issue following the Hellman & Friedman announcement on Tuesday, we would view any weakness over the next few weeks as a buying opportunity given our favorable view of the long-term opportunities for the company. We are reiterating our Buy rating and $21 price target, or 15x our CY:07 free cash flow estimate of $61 million and 25x our CY:07 EPS estimate of $0.82. We believe this is reasonable given its EPS growth forecast of 17% in CY:07, or roughly 2x the group. Contact Us for Full Report - PDF

02.17.06 

blkb: KEEP BETTING ON BLACK; RAISING ESTIMATES AND PRICE TARGET
Yesterday, Blackbaud posted strong Q4:05 results of $42.9 million in revenue and non-GAAP EPS of $0.16, beating our revenue estimate of $40.8 million and in line with our EPS estimate of $0.16. Overall, we believe the quarter was solid as all indicators that we track continued to improve. Average deal size stayed above the $30K level, the number of deals valued over $50K grew 30% year/year, newer initiatives (Patron's Edge, Information Edge, and NetCommunity) continued to show growth and now accounts for roughly 20% of sales vs. only 7% two years ago, deferred revenues grew over 15% year/year, and free cash flow for the quarter was $10.8 million, a 22% increase from the prior year period. However, these positives will likely be overshadowed by disappointing earnings guidance, which implies flat margins for 2006. In addition, we note the potential for another stock distribution by majority shareholder, Hellman & Friedman (H&F), which could create a near-term overhang on the shares. Should the stock display weakness as a result of these concerns, we would view this as a buying opportunity given our favorable view of the long-term opportunities for the company. We are maintaining our Buy rating and raising our price target to $21 from $18, which now represents 15x our 2007 free cash flow estimate of $61 million and 25x our 2007 EPS estimate of $0.82. Contact Us for Full Report - PDF

02.15.06 

blkb: Q4:05 PREVIEW; EXPECTING SOLID RESULTS
Blackbaud, Inc. is scheduled to report Q4:05 earnings results on Thursday, February 16 after the market close. We believe the company will meet or slightly exceed our estimates of $40.8 million in revenue and EPS of $0.16 and Street consensus of $40.6 million and $0.15, respectively. We believe that growth in core products coupled with continued uptake in newer product initiatives will drive a solid quarter. In addition, we are expecting slight upside to FY:06 guidance based on our view that 1) current forecasts are somewhat conservative, 2) average deal sizes should continue to increase given the momentum in new initiatives and expanded sales force, and 3) Blackbaud is continuing to win market share with its core products. With Blackbaud trading at only 13x our 2006 cash flow estimates vs. the enterprise group average of 14-16x, we continue to believe the company is a compelling FCF yield story. Bottom line, our investment thesis remains intact and we believe the story remains compelling for long-term investors. We are reiterating our Buy rating. Contact Us for Full Report - PDF

11.23.05 

blkb: OVERREACTION TO SHARE DISTRIBUTION; FUNDAMENTALS AND THESIS REMAIN INTACT
Yesterday, Blackbaud announced that its majority shareholder Hellman & Friedman (H&F) distributed 8.75 million shares to its investors. In addition, JMI Equity Fund IV, another large shareholder, distributed roughly 1.07 million shares to its investors. Although this event may lead to near-term selling pressure due to profit-taking, investors should note that this distribution reduces H&F's share ownership by over 50%, and practically eliminates JMI's share ownership. Based on previous share distributions, we believe the stock may see negative pressure over the next 2-3 weeks, but will most likely recover to pre-distribution levels after that time. Although these share distributions are painful in the near-term, we remind investors that this distribution represents over 50% of H&F's share ownership, and the vast majority of JMI's share ownership. We believe the share overhang issues that the stock has faced may be abating going forward. Bottom line, our investment thesis remains intact, as Blackbaud continues to be a compelling FCF yield story. Accordingly, we are maintaining our Buy rating and raising our price target to $18, which represents 14x our FY:06 FCF estimate of $1.28/share. We believe this is reasonable given the enterprise group average of 14-16x. Contact Us for Full Report - PDF

11.01.05 

blkb: SOLID RESULTS, STEADY AS SHE GOES
Yesterday, Blackbaud posted strong Q3:05 results of $43.1 million in revenue and non-GAAP EPS of $0.17, beating our revenue estimate of $41.4 million and in line with our EPS estimate of $0.17. Consensus estimates were for $41.4 million and $0.16, respectively. Management also increased guidance for 2005 to $163-164.2 million in revenue (versus our previous estimate of $161.4 million and Street consensus of $161.1 million) and EPS of $0.61 (versus our previous estimate of $0.61 and Street consensus of $0.60). The quarter's results were driven primarily by continued strong growth for Blackbaud's core products, as well as newer product initiatives. Management announced the planned retirement of CEO Bob Sywolski, however we do not believe this will materially impact the stock. With Blackbaud trading at only 11x our 2006 cash flow estimate vs. the enterprise group average of 14-16x, we continue to believe the company is a compelling FCF yield story. We are maintaining our Buy rating and $15.50 price target, which represents 22x our 2006 EPS estimate of $0.71 and approximately 8% upside potential from current levels. Contact Us for Full Report - PDF

08.12.05 

blkb: NO PAIN, NO GAIN; WEAKNESS FROM DISTRIBUTION PRESENTS BUYING OPPORTUNITY
Yesterday, Blackbaud announced that Hellman & Friedman (H&F) will be distributing an additional 5 million shares to its investors. While this event will likely lead to increased selling volumes, we expect this pressure to ease within the next 2-3 weeks and believe such a liquidity event is beneficial to the stock over the long term as H&F will be reducing its exposure to the company. Although we acknowledge that investors are still concerned about a future liquidity event (which we admit has a high likelihood of occurring), we are encouraged that the company is moving a step closer to getting this overhang issue behind it. We remind investors that the fundamental story remains intact and with Blackbaud now trading at only 10x our FY:06 cash flow estimates vs. the enterprise group average of 14-16x, we believe this represents a compelling FCF yield story. In closing, we continue to like the story, and advise investors to use any weakness in the shares over the next few weeks to add to positions. We are reiterating our Buy rating and price target of $15.50, which represents 22x our CY:06 EPS estimate of $0.71 and approximately 19% upside potential from current levels. Contact Us for Full Report - PDF

07.28.05 

blkb: AS EXPECTED, SOLID Q2 RESULTS AND OUTLOOK
Blackbaud posted strong Q2:05 results of $42.8 million in revenue and non-GAAP EPS of $0.16, beating our estimates of $40.4 million in revenue and EPS of $0.15. In addition, management increased guidance for 2005 to $160.5-162.5 million in revenue (versus our previous estimate of $157.6 million and Street consensus of $157.1 million) and EPS in the range of $0.58-0.60 (versus our previous estimate of $0.60 and Street consensus of $0.59). Overall, we were impressed by these results as the company continues to execute in the field, and the improved new product traction bodes well for future earnings growth. With Blackbaud trading at only 11x our 2006 cash flow estimates versus the enterprise group average of 14-16x, we believe this represents a compelling FCF yield story. Accordingly, we are maintaining our Buy rating and $15.50 price target, which represents 22x our 2006 EPS estimate of $0.71 and approximately 12% upside potential from current levels. Contact Us for Full Report - PDF

07.08.05 

blkb: INITIATING COVERAGE WITH A BUY AND $15.50 PRICE TARGET
We are initiating coverage of Blackbaud, Inc. (BLKB) with a Buy rating and a 12-month price target of $15.50, representing 22x our calendar 2006 EPS estimate of $0.69 (versus the Street estimate of $0.67) and approximately 12% upside from current levels. Overall, we believe Blackbaud is a great story that is under-followed and deserves a closer look by investors. More importantly, we believe that earnings estimates for FY:05 and FY:06 will most likely be revised upward as the Street begins to account for the accretive impact of the recent self-tender. From a fundamental standpoint, the company, with its 20-year history, currently has a tight lock on the leadership position in the non-profit software market with over 13,000 customers, an installed base that not only gives the company a high degree of revenue visibility (roughly 95% maintenance renewal rates) but also allows Blackbaud to generate significant cash flows. From a valuation perspective, the company is only trading at 12x our FY:06 free cash flow estimate (versus the group at 14-16x) which we believe already discounts the overhang related to insider selling and stock liquidity issues. In addition, Blackbaud pays a $0.20 annual dividend that yields 1.4%, which is unique for an enterprise software company. Contact Us for Full Report - PDF