Blackbaud (NASDAQ:BLKB) continues to win over new customers and retain the ones it already has with a growing slate of cutting-edge cloud-based software solutions. Those factors enabled the company to generate strong revenue and earnings growth in the second quarter, keeping it on track to hit its full-year forecast.

Blackbaud results: The raw numbers

Metric Q2 2018 Q2 2017 Year-Over-Year Change

Non-GAAP revenue

$214.6 million

$191.9 million

11.8%

Non-GAAP net income

$33.0 million

$25.6 million

28.8%

Adjusted EPS

$0.69

$0.54

27.8%

Data source: Blackbaud. EPS = earnings per share.

A road with arrows pointing forward toward a bright sun.

Image source: Getty Images.

What happened with Blackbaud this quarter? 

Software subscriptions continue to grow:

  • Total recurring revenue, which includes software subscriptions, increased 16.2% from last year's second quarter to $193.6 million, accounting for 90.2% of total sales. That more than offset a 17% drop in revenue from one-time services and other sources.
  • Two factors contributed to the company's faster profit growth: Its operating margin expanded by 10 basis points to 21.1%, and it benefited from a lower corporate tax rate.
  • Blackbaud generated even stronger free cash flow during the quarter, which jumped $9.8 million year over year to $41.6 million.

What management had to say 

CEO Mike Gianoni said that what drove the quarter was that "we've continued moving the business toward a subscriptions-based revenue model with our mix of recurring revenue now standing at 90% of total, a new all-time high for us." By continuing its shift to a cloud-based, recurring revenue model, the company further enhanced the predictability of its income stream.

Meanwhile, it continues to develop innovative solutions to meet the needs of its nonprofit customers. During the quarter, Blackbaud announced a new cloud solution for faith-based communities by introducing Blackbaud Church Management. Gianoni noted that faith communities represent a "massive market" for the company and it now has an integrated solution to offer them, which has customers "lining up to be a part of our early adopter program."

Looking forward 

Blackbaud's solid showing in the second quarter kept it on pace to achieve its full-year forecast. As a result, the company still anticipates non-GAAP revenue in the range of $870 million to $890 million -- up roughly 11% from last year -- while non-GAAP earnings should come in between $2.75 to $2.88 per shares, an increase of about 30% at the midpoint of that range.

CFO Tony Boor also said that "we've also seen solid gains in our sales productivity and plan to ramp sales hiring heading into the second half of 2018." However, he emphasized that the company doesn't expect to "see [a] material top-line return on these investments until 2019 and more fully in 2020."

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