Blackbaud Is A Hold Despite EPS Beat

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Elevator Pitch

I proceed to complaint Blackbaud, Inc.'s (NASDAQ:BLKB) banal arsenic a Hold.

In my anterior article for BLKB written connected December 5, 2022, my attraction was connected Blackbaud's mediocre stock value capacity past year, and activistic liking successful nan company. With this latest update, I reappraisal Blackbaud's precocious disclosed Q4 2022 results and full-year fiscal 2023 financial guidance.

My position of Blackbaud's caller financial capacity and guidance guidance is mixed aft considering metrics specified arsenic revenue, profit margins, and free rate flow. As such, I clasp my Hold standing for BLKB.

Below Expectations Revenue

Revenue for Blackbaud accrued by +5.2% QoQ and +10.8% YoY to $275 cardinal for nan last 4th of nan erstwhile fiscal year. BLKB's existent Q4 2022 apical statement turned retired to beryllium -1.3% little than nan Wall Street's statement gross projection of $278 million. Moreover, Blackbaud's adjusted apical statement would person only grown by +2% successful nan caller 4th if nan effects of inorganic transaction and overseas speech fluctuations were excluded, arsenic per guidance comments astatine nan Q4 net call.

One cardinal metric worthy noting is nan humble +2.5% YoY description successful Blackbaud's integrated recurring gross adjusted for overseas speech effects successful nan astir caller quarter. In comparison, BLKB had recorded a overmuch higher +5.2% YoY summation successful its changeless rate integrated recurring gross successful Q4 2021.

Another cardinal metric that warrants much attraction is nan level YoY maturation successful transactional gross for BLKB successful nan 4th fourth of 2022. Blackbaud explained astatine nan company's Q4 2022 results briefing that a diminution successful "average transaction size" and unfavorable "foreign exchange" effects were a resistance connected its transactional gross maturation for nan caller quarter.

I mentioned successful my earlier December 2022 write-up that nan marketplace is concerned that "weak economical conditions" could beryllium a cardinal downside consequence for "BLKB's early financial performance." Blackbaud's weaker than expected Q4 2022 gross appeared to validate investors' concerns.

To make matters worse, nan mid-point of Blackbaud's FY 2023 gross guidance astatine $1,095 cardinal (source: BLKB's Q4 2022 investor presentation) came successful -1.6% beneath nan sell-side's statement 2023 apical statement estimate of $1,113 million. The company's apical statement guidance for nan existent fiscal twelvemonth besides implies a -3.4% diminution successful its revenue.

Above Expectations Profitability

There are still affirmative takeaways from Blackbaud's astir caller quarterly financial performance; nan company's profitability metrics came successful supra expectations.

EBITDA for BLKB grew by +9.2% YoY from $62.2 cardinal successful Q4 2021 to $67.9 cardinal for Q4 2022, while its operating profit accrued by +11.9% YoY from $49.0 cardinal to $54.9 cardinal successful nan aforesaid clip frame. Blackbaud's operating separator improved by +0.9 percent points QoQ and +0.2 percent points YoY to 20.0% successful Q4 2022, and this was +200 ground points up of nan sell-side analysts' statement EBIT separator forecast of 18.0%. BLKB's existent 4th fourth non-GAAP adjusted EPS of $0.68 was +13.7% higher than nan market's statement bottommost statement of $0.60 per share.

Moving forward, Blackbaud is expecting to registry EBITDA and normalized EPS of $328.5 cardinal and $3.45, respectively, successful 2023 based connected nan mid-point of its financial guidance. Based connected S&P Capital IQ's statement data, BLKB's EBITDA and bottommost statement guidance were +4.1% and +7.1% amended than nan analysts' earlier statement financial estimates.

In its astir caller quarterly investor position slides, BLKB specifically highlighted "workforce rebalance" and "shift to third-party unreality infrastructure" arsenic immoderate of nan measures that nan institution is taking to trim costs and amended profitability. This helps to explicate why Blackbaud is capable to execute supra expectations Q4 2022 profit margins and 2023 EPS guidance.

Read-throughs From BLKB's Post-Results Stock Price Performance

Blackbaud's shares person underperformed pursuing its caller quarterly results announcement. Since reporting its Q4 2022 financial results connected February 13, 2022 aft nan marketplace closed, Blackbaud's banal value pulled backmost by -4.5% successful nan past fewer trading days arsenic compared to a milder -1.4% correction for nan S&P 500 complete nan aforesaid period.

Taking into relationship Blackbaud's post-results performance, it will beryllium reasonable to presume that nan marketplace doesn't position BLKB's Q4 2022 results arsenic a high-quality net beat. A high-quality bottommost statement hit is typically supported by beardown gross maturation which besides exceeds expectations, and this isn't nan lawsuit pinch Blackbaud. Specifically, nan existent sell-side analysts' statement financial figures constituent to BLKB's apical statement description moderating from +14.1% successful FY 2022 to +3.4% for FY 2023.

Also, while BLKB's 2023 bottommost statement guidance is up of expectations arsenic discussed earlier, nan company's free rate travel guidance for nan existent twelvemonth isn't arsenic bully arsenic what analysts had expected. The mid-point of Blackbaud's FY 2023 free rate travel guidance is $180 million, and this is -6.2% little than nan anterior statement free rate travel forecast of $192 cardinal (source: S&P Capital IQ). At its Q4 2022 net briefing, Blackbaud noted that negatives associated pinch "working superior changes and higher rate taxes" will partially offset positives relating to profitability improvement, successful narration to its 2023 rate travel outlook.

In a nutshell, investors person concerns relating to nan slowdown successful Blackbaud's gross maturation and nan company's weaker than expected free rate travel for 2023, notwithstanding nan truth that BLKB's achieved an betterment successful profitability for Q4 2022.

Closing Thoughts

Blackbaud's standing stays arsenic a Hold. The company's mixed results and guidance mean that my Neutral position of BLKB's shares is unchanged.