Morningstar | Blackbaud Reports In-Line Quarter and Reiterates Outlook; Maintaining FVE $102
Blackbaud’s third-quarter results were in line with our estimates. However, they were ahead of consensus as recurring revenue increased solidly year-over-year and one-time services declined at a less precipitous pace than perhaps the market expected. Management’s updated guidance from Oct. 8 is unchanged, as does our long-term thesis. We continue to view Blackbaud as the premier software merchant focused on the nonprofit market and believe the firm still warrants its wide-moat status. We are maintaining our fair value estimate of $102. Shares traded up about 6% on the positive news, but we still view shares as undervalued and believe there is significant upside at current levels.Revenue in the third quarter increased by 8% year over year with recurring revenue growing by nearly 13% and offsetting the 22% decline in one-time services revenue over the same period. Sequentially, the decline in one-time sales was minimal, with revenue coming in roughly flat with the second quarter. Management again highlighted that the diminished outlook for the year was largely a result of the declines in these service-related sales and within transactional revenue, due to a lack of one-time events hampering sales. As previously indicated, the firm did experience some near-term attrition in the transition of clients from the one-time services relationship to the subscription model.
Adjusted operating margins declined by nearly 300 basis points year over year due to a decline in higher-margin transactional sales, ongoing investments, and integration of acquisitions as well as an increase in head count. Blackbaud provided more details on plans to increase sales head count by 100 in an effort to mitigate any long-term issues with client retention as they work toward sunsetting the one-time model. The head count increase of 20% over 2019 will affect the near-term margins but longer term should help sustain revenue growth as employees are fully ramped near the end 2019 and into 2020.
Blackbaud is a cloud software company. The company is engaged in providing software solutions in cloud and hosted environments, providing payment and transaction services, providing software maintenance and support services, and providing services, including implementation, consulting, training, analytic and other services. The company's portfolio provides fundraising and relationship management, marketing and engagement, financial management, grant and award management, organizational and program management (such as education management, church management and ticketing), social responsibility, payment services and analytics.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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