Blackbaud is experiencing steady demand in the nonprofit sector, even amid rising economic pressures. During a recent discussion at the Baird conference, executives from the cloud software provider highlighted ongoing efforts in artificial intelligence and the potential for revenue growth through new payment options and a solid capital return strategy.
Focus on Nonprofit Software
Chad Anderson, Blackbaud’s chief financial officer, detailed the company's long-standing commitment to the nonprofit sector, pointing to its 45 years of experience. Blackbaud serves a variety of stakeholders, including foundations and educational institutions, by offering specialized fundraising and financial management tools. About two-thirds of its revenue comes from subscription models, while the remaining third is generated from payments and other consumption-based services.
Anderson reported that Blackbaud typically sees revenue growth in the mid-single digits, reflecting its established position in the nonprofit market. The company’s deep expertise in nonprofit operations has allowed it to tailor its offerings to meet the sector's specific needs.
AI Integration in Nonprofit Operations
Jeff Klein, director of corporate strategy and development at Blackbaud, discussed the company’s three-phase AI strategy. The first phase centers on analytics capabilities, including donor prospecting and intelligent recommendations. The second phase incorporates generative AI into existing solutions, such as the newly launched Blackbaud AI Chat, which facilitates donor engagement through natural language queries.
The final phase, called “Agents for Good,” aims to introduce autonomous AI solutions designed to assist nonprofits in fundraising efforts. This offering, which includes a fundraising development agent, has shown promise in early adopter programs.
Klein emphasized the essential role of Blackbaud’s platforms in managing donor relationships and financial operations. Many clients rely on these tools for their daily activities. The company’s AI advancements come at a crucial time, as the nonprofit sector has historically lagged in technology adoption, often lacking the resources for large tech teams.
Navigating Economic Pressures
In response to recent funding challenges faced by various charities, Anderson assured stakeholders that Blackbaud has not seen significant changes in client attrition. The nonprofit sector remains stable, with annual U.S. donations estimated at $600 billion and a workforce that ranks as the third largest in the country. While some organizations are feeling the impact of government funding cuts, larger nonprofits often diversify their revenue streams, which can help cushion the blow.
“While some of our clients have been under pressure, we haven’t seen a notable change in client attrition to speak of,” Anderson stated, underscoring the resilience of the nonprofit landscape.
Growth Levers: Contracts and Cross-Selling
Blackbaud's growth strategy includes a shift toward standardized three-year contracts that feature built-in price escalators. This initiative, paused during the pandemic, resumed in 2023. The company reported a stable gross dollar retention rate of around 92% and is now entering a new cycle of contract renewals, which could further enhance revenue.
Klein pointed out that cross-selling is a crucial part of Blackbaud’s expansion strategy, with about half of the sales team focused on acquiring new clients and the other half dedicated to existing customers. The company is also rolling out new AI products, expanding its suite of roughly 18 offerings.
Payments remain a significant revenue driver, accounting for more than one-third of total revenue and historically growing faster than core software sales. New client acquisitions and improved payment features are expected to sustain this trend.
Capital Allocation and Future Outlook
Regarding capital allocation, Anderson revealed that Blackbaud has prioritized share buybacks in recent years, reducing its overall share count by 14%. The company plans to allocate at least 50% of its free cash flow to repurchases annually, targeting a 5% to 10% reduction in shares. Additionally, Blackbaud aims to maintain leverage in the low two times range and is open to tuck-in acquisitions to support its growth.
With free cash flow increasing at a compound annual growth rate of about 25% since 2020, the company has set ambitious targets for mid-single-digit revenue growth, 6% to 8% EBITDA growth, and over 13% EPS growth. While AI is expected to act as a growth catalyst, it has not yet been included in current projections, allowing for potential upside as these technologies develop.
As Blackbaud navigates the changing landscape of nonprofit technology, its commitment to AI-driven solutions and a stable client base positions it well for future growth.
The stories that move AI & crypto markets — before the market reacts.
Free. 7am ET. Five stories. 62,400 readers.
