According to a survey by NetChange on technology use by the not-for-profit sector, only a modest 11% of the nonprofit organizations feel that their approach to digital technology is effective. Nonprofits need specialized consulting, direction, and, at times, tools to manage their businesses effectively. Blackbaud (Nasdaq: BLKB) is one player who has remained focused on helping nonprofits reap the benefits of cloud technology.

Blackbaud’s Offerings

Blackbaud was founded in 1981 with a mission to provide software and services designed for nonprofit organizations to help these businesses establish strong relationships. It is the leading cloud software company that provides software, services, expertise, and data intelligence that helps empower nonprofit organizations and connect them to others to drive impact for social good.

When I met with its CTO, Mary Beth Westmoreland, a few years ago, she helped highlight the key focus areas of the company. Blackbaud is empowering the growth of nonprofits by helping them realize the importance of data and analytics, workflow mobilization, and by building an ecosystem of openness. It has been focused on enabling innovation through the cloud so that people can develop something different and leverage the cloud to do more things.

Today, Blackbaud’s offerings include technology solutions for analytics, financial management, fundraising and relationship management, grant and award management, marketing and engagement, organizational program management, payment services, and social responsibilities.

Blackbaud’s Financials

Blackbaud earns revenues through maintenance and subscription-based services for its software and by providing one-time services to its clients. Its recently reported second-quarter revenues grow 5.5% to $226.4 million, ahead of the market’s forecast of $224 million. Adjusted EPS of $0.66 was also better than the Street’s forecast of $0.55. Adjusted net income declined 3.4% to $31.9 million. The company attributed the decline to the continued investment in new sales representatives and a higher interest expense on additional debt funding used to finance the YourCause acquisition. It believes that the dilution of earnings is a short-term impact.

By segment, recurring revenues, which include software subscriptions, grew 8% to $209.2 million. The growth help offset the 18% decline in revenue from one-time services and other sources. The reduction in one-time services revenues was primarily due to the company’s continued push to migrate to a subscription-based revenue model.

For the current year, Blackbaud expects to generate revenues of $880-$910 million with an EPS of $2.11-$2.28. The market was looking for revenues of $892.5 million with an EPS of $2.19.

Blackbaud’s YourCause Acquisition

Earlier this year, Blackbaud announced the $157 million acquisition of YourCause, a corporate social responsibility and employee engagement software provider. Plano, Texas-based YourCause was set up in 2007 and has estimated annual revenue of more than $12 million. It offers a flexible and scalable software solution with a customer base ranging from Fortune 500 companies to smaller businesses. Its network of more than 8 million people have helped raise more than $245,000 in donations every hour and have delivered more than 30 million volunteer hours.

Blackbaud plans to leverage YourCause’s solutions for maximizing global social impact with its leadership in delivering cloud solutions for social good to help drive efficiencies and measurable outcomes across nonprofit companies globally.

Blackbaud’s Growth Strategy

Blackbaud is driving growth by focusing on a four-point strategy. First, it is focusing on a vertical focused model of delivering integrated and open solutions on the cloud. For instance, to cater to churches, it developed Blackbaud Church Management that helps churches to digitally transform their daily operations through a single connected experience.

Its second growth strategy is of driving sales effectiveness. As part of this, it has simplified its sales structure to better enable its sales team for success. Its account executives now continue to lead the total solution selling by vertical, are focused on recurring revenue and driving more products for customer. It is also investing in hiring more sales team to drive market expansion.

Its third strategy focuses on the expansion of the Total Addressable Market (TAM). The acquisition of YourCause will help with the initiative as the inclusion of Corporate Social Responsibility will help Blackbaud drive efficiencies across the organizations. The acquisition has helped the two companies add several new customers including names like the NHL Foundation and the Philadelphia 76ers. Blackbaud believes that its current TAM stands at over $10 billion, and it will continue to evaluate other growth opportunities to further expand this TAM.

Finally, Blackbaud is focusing on operational efficiency to strengthen the business and position it for long-term success. Besides sales investments, it is investing in building a more scalable operating model and in its internal infrastructure development to drive productivity within the organization.

The market is pleased with Blackbaud’s performance. Its stock has climbed nearly 3% since the result announcement. It is currently trading at $93.26 with a market capitalization of $4.6 billion. It was trading at a 52-week high of $105.7 nearly a year ago. It hit a 52-week low of $58.23 in December last year.

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