Blackbaud (NASDAQ:BLKB) delivered another solid showing in the second quarter as its cloud-driven growth strategy continues winning over customers, which is driving steady organic growth. Aside from that growth, another impact of this transition is that the company is generating increasingly more predictable revenue. That's giving it more confidence that it will hit its full-year revenue and profit growth targets.

Blackbaud results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Non-GAAP revenue

$192.5 million

$182.0 million

5.6%

Non-GAAP net income

$25.8 million

$21.8 million

18.5%

Adjusted EPS

$0.54

$0.46

17.4%

Data source: Blackbaud.

Cloud computing concept of data shared at a conference table.

Image source: Getty Images.

What happened with Blackbaud this quarter? 

Blackbaud's focus on growing cloud-based subscription revenue continues to pay off.

  • Driving revenue growth were sales of subscription-based products, which hit $125.3 million in the quarter, up 20.4% from the year-ago period. Subscription revenue now represents 65.2% of total revenue, which is up from 64.4% last quarter and at a new all-time high. That growth more than offset 12.1% declines in maintenance revenue and sales from services and other sources. Overall, 82.3% of Blackbaud's revenue is now recurring, though that's down from the all-time high of 83% it set last quarter.
  • Fueling the double-digit increase in earnings was a noticeable improvement in margins, which were 21.1%. That's 200 basis points higher than last year and up from 18.5% last quarter thanks to lower costs.
  • The company generated $31.8 million of free cash flow in the quarter, up $900 million versus last year. The company paid out about a third of that money to investors via dividends, using the rest to bolster its balance sheet.
  • Blackbaud was very active on the strategic front during the quarter. First, it closed the acquisition of scholarship management platform AcademicWorks. Further, it announced the intent to acquire fundraising services provider JustGive. Finally, the company entered into a new credit facility with its banks, giving it the capacity to borrow up to $700 million. That increased liquidity provides the company with more flexibility to make acquisitions.

What management had to say 

CEO Mike Gianoni commented on the company's second-quarter results by saying:

We're delivering powerful, integrated solutions in the cloud that provide our customers with a modern and truly unified experience. This is quite unique in our industry. Blackbaud is an end-to-end partner that builds, integrates, implements and supports its solutions -- no other company in this market offers a value proposition as extensive. Our cloud solutions are fueling strong financial performance, further improving the predictability and stability of our business by shifting us toward a subscription-based revenue model, and positioning us for a long runway of growth ahead. Subscriptions revenue represented 65% of total revenue, a new all-time high for us, and non-GAAP organic subscriptions revenue was strong, growing 17% this quarter.

One of the things Gianoni pointed out is that the company's shift toward cloud-based solutions is driving its financial performance. It has developed award-winning solutions that continue drawing in new customers while proving to be increasingly sticky in retaining existing ones. That combination positions the company to continue growing, especially since its subscription-based revenue model gives it a stable base of recurring sales.

Looking forward 

Blackbaud CFO Tony Boor stated in the earnings release that the company "posted another solid quarter, which was in line with our expectations." Because of that, the company is positioned to achieve its full-year guidance of $775 million to $795 million in revenue and earnings between $2.06 to $2.18 per share. At the mid-point, those numbers are 6.9% and 10.4%, respectively, above last year's totals.

Matt DiLallo owns shares of Blackbaud. The Motley Fool recommends Blackbaud. The Motley Fool has a disclosure policy.