Blackbaud (BLKB) Q2 2025 Earnings Transcript

BLKB is transitioning from a “cleanup story” to a compounding story: the operating model is now showing enough torque that incremental revenue is falling disproportionately to free cash flow and EPS. The underappreciated second-order effect is that the business is becoming more capital-allocation efficient just as the renewal base is rolling forward, so management can keep repurchasing shares while still de-levering and funding product. That combination usually matters more to valuation than headline growth because it reduces the market’s haircut on durability.

The bigger strategic shift is that AI is not being framed as a cost story but as a new SKU creation engine layered on top of a sticky system of record. If they execute, the addressable wallet expands from software seat pricing into outcome-based monetization tied to fundraising productivity, which can re-rate the multiple because it creates an additional growth layer without needing broad customer churn. The risk is that investors may initially underwrite the AI launch as “feature creep” rather than incremental ARR, so the stock may not fully price the option value until bbcon/product pricing clarity lands.

Consensus is likely underestimating the non-linearity in cash flow next year: a meaningful share of current FCF drag is explicitly temporary, and the tax change could make the 2026 cash conversion step up materially even if revenue growth merely stays mid-single digit. That creates a setup where BLKB can screen as a low-growth vertical SaaS name today while morphing into a higher-quality capital return compounder over the next 2-4 quarters. The main tail risk is that transactional revenue remains the hidden variable; if viral giving normalizes harder than expected, the market will punish the stock for being more cyclical than management wants it to look.