Why Is Blackbaud (BLKB) Down 21% Since Last Earnings Report?

A month has gone by since the last earnings report for Blackbaud (BLKB). Shares have lost about 21% in that time frame, underperforming the S&P 500.

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

Blackbaud Q4 Earnings & Revenues Surpass Estimates

Blackbaud, Inc. delivered fourth-quarter 2019 non-GAAP earnings of 51 cents per share, outpacing the Zacks Consensus Estimate by 2%. However, the figure declined 21.5% from the year-ago quarter.

Total non-GAAP revenues increased 7.3% year over year to $238.1 million, beating the consensus mark by 2.9%.

Revenue growth was driven by robust adoption of the company’s solutions like Blackbaud CRM, Blackbaud Financial Edge NXT, and Blackbaud Target (NYSE:TGT) Analytics as well as a growing customer base for the company’s faith-based offerings.

Quarter in Detail

Blackbaud reports maintenance and subscriptions under recurring revenues as it is shifting toward a cloud-based subscription model from the traditional revenue-based model.

Total non-GAAP recurring revenues for the reported quarter were $220.1 million, accounting for 92.4% of total non-GAAP revenues. The figure was also up 9.8% year over year.

One-time services and other revenues were $18 million, down 15.4% year over year.

Non-GAAP organic revenues improved 4.6% year over year to $231.9 million. Meanwhile, non-GAAP organic recurring revenues advanced 6.7% to $214 million.

Operating Details

Non-GAAP gross margin contracted 280 basis points (bps) on a year-over-year basis to 56%.

Research & development expenses, as a percentage of revenues, expanded 40 bps from the year-ago quarter to 10.9%. Moreover, sales, marketing & customer success, and general & administrative expenses expanded 200 bps and 20 bps, respectively.

Increase in sales, marketing & customer success expenses was due to aggressive hiring of sales representatives to address the company’s market opportunity.

Non-GAAP operating margin contracted 420 bps from the year-ago figure to 14.9%.

Balance Sheet & Cash Flow

As on Dec 31, 2019, Blackbaud had cash and cash equivalents of $31.8 million compared with $29.1 million as of Sep 30, 2019.

Total debt (including current portion) as of Dec 31, amounted to $467.1 million compared with $503.1 million as of Sep 30, 2019.

Cash flow from operating activities as of Dec 31, 2019 was $182.5 million. Non-GAAP free cash flow during the quarter was $46.1 million.

The company recently approved a quarterly dividend payment of 12 cents per share to be paid out on Mar 13 to shareholders of record as of Feb 28, 2020.

Guidance

For full-year 2020, the company anticipates revenues of $930-$955 million.

Blackbaud anticipates non-GAAP earnings of $2.20-$2.35 per share for 2020.

Non-GAAP operating margin is projected to be 16%-16.5%.

Non-GAAP free cash flow is expected to be in the range of $100-$115 million for 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -5.88% due to these changes.

VGM Scores

Currently, Blackbaud has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Blackbaud has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.