Blackbaud (NASDAQ:BLKB) continues to steadily add customers to its subscription-based software, which drove revenue and earnings higher in the first quarter. Adoption was especially strong among higher education institutions due to the attraction of the company's integrated and smart set of cloud solutions. That strong start to the year has the company on pace to hit its full-year forecast.

Blackbaud results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Non-GAAP revenue

$204.5 million

$185.1 million

10.5%

Non-GAAP net income

$31.9 million

$23.5 million

35.8%

Adjusted EPS

$0.66

$0.50

32%

Data source: Blackbaud. EPS=earnings per share.

A keyboard with the word cloud technology written on a blue button.

Image source: Getty Images.

What happened with Blackbaud this quarter? 

Software subscriptions continue rising:

  • Total recurring revenue, which includes software subscriptions, rose 13% to $180.8 million, hitting a record 89% of total sales. That more than offset a nearly 7% decline in revenue from one-time services and other sources.
  • Two factors drove that faster-paced earnings growth. First, margins expanded by 130 basis points to 21.1%. Blackbaud also benefited from a lower corporate tax rate thanks to the U.S. corporate tax cut.
  • While earnings jumped, the company consumed $1.1 million in cash flow during the quarter, after producing $3.5 million in free cash flow during the year-ago period. The first quarter is traditionally a low one for free cash flow, and this year's slow start didn't diminish the company's view that it will generate between $165 million and $175 million in free cash flow, which would be 24% higher than the 2017 showing.

What management had to say

CEO Mike Gianoni commented on the company's results, saying:

We've continued moving the business toward a subscriptions-based revenue model with our mix of recurring revenue now standing at 89% of total, a new all-time high for us. The market remains strong and we continue to integrate our solution portfolio at a rapid pace and deliver innovative new software capabilities to our growing base of over 40,000 customers and to the millions of individual change makers using our platforms.

Blackbaud's management team also pointed out that it was experiencing strong momentum in winning higher education customers to its cloud-based subscription model. The company recently signed up or expanded its relationship with several universities and colleges because its software tools are helping these schools operate more efficiently and raise more funds.

Looking forward

"Execution against our strategic plan allowed us to post solid results for the quarter," said CFO Tony Boor. Because of that, the company had the confidence to affirm its full-year outlook. That forecast anticipates non-GAAP revenue in the range of $870 million to $890 million, which at the midpoint would be about 11% above last year's total. The company still sees non-GAAP earnings coming in between $2.75 and $2.88 per share, or up nearly 30% from 2017 at the midpoint.

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