BLACKBAUD INC (BLKB) stock intrinsic value fair value estimate & owner earnings analysis

Blackbaud sells cloud software to nonprofits, foundations, private K-12 schools, healthcare charities and corporate giving programs. Its main products are Raiser's Edge NXT (donor management), Financial Edge NXT (fund accounting), its K-12 school management suite, YourCause (corporate giving), JustGiving (online fundraising, mainly in the United Kingdom) and Blackbaud Integrated Payments, which processes donations. About two-thirds of revenue comes from multi-year software subscriptions. About a third comes from transactions: roughly 55% of that from donation processing, 20% from JustGiving and 20% from tuition processing for private schools. In 2025 about 84% of revenue came from customers in the United States, about 10% from the United Kingdom and about 6% from other countries. What drives the business: for many customers, Blackbaud's software holds the donor history and keeps the books, so replacing it is costly and disruptive. Most software customers are on multi-year contracts with a price increase at renewal and price increases built into each year of the contract. After removing EVERFI, the education business it sold at the end of 2024, revenue grew 5.5% in 2025. Growth slowed to 3.6% in the first half of 2026 and 3.0% in the second quarter. The company says about 40% of its contracts come up for renewal in 2026, and that the dollars renewing are about 40% larger than in 2025. It warns this may mean more lost customers this year. About 30% renew in each of 2027 and 2028. How we measured earnings: we start from operating cash flow. We remove short-term working-capital swings, then subtract stock-based compensation (a real cost, $93 million in 2025) and the spending needed to keep the business running. That spending includes $54 to $60 million a year of capitalized software development, which we treat as an ongoing cost. On that basis, cash earnings per share were $1.83 in 2016, $2.25 in 2017, $1.68 in 2018, $1.10 to $1.20 in 2019 through 2021, negative $0.36 in 2022, $0.71 in 2023, $2.08 in 2024 and $2.90 in 2025. Four things weighed on the middle years: very heavy stock compensation, costs from the 2020 ransomware breach, losses at EVERFI and a peak in development spending. We added back the $390 million EVERFI write-down and the $17 million loss on its sale because they did not use cash. But the money was really lost: Blackbaud paid about $750 million in cash and stock for EVERFI in December 2021 and exited it three years later. We count that record against the company in the bear case. Amortization of acquired intangibles is small and falling (about $25 million in 2026, $11 million by 2030). The development spending we already subtract is what keeps the products current, so we did not add a further decline for it. Starting point: the business as it exists today is the one without EVERFI, which makes 2025 the only clean full year. 2025 cash earnings were $141 million. That figure includes a one-time $24.3 million charge to get out of EVERFI's Washington, DC office lease. Without it, the level is about $165 million. The first half of 2026 supports that level. Cash earnings were about $90 million, against about $78 million a year earlier excluding the lease charge. About $9 million of the improvement came from taxes deferred to later years, which we do not treat as permanent. Buybacks, partly funded with debt, cut the diluted share count to about 45.0 million in the second quarter of 2026 from 48.5 million on average in 2025. We value per current share. The extra interest on that debt is already in the cash earnings. Base case ($63 per share): cash earnings of about $170 million in 2026, 3% above the $165 million underlying 2025 level. Reported cash earnings grew 34% in 2025, so this assumes much slower growth from here. After that, earnings grow 3% a year through 2035 and reach about $222 million. That is at or below the rate Blackbaud has shown without acquisitions: 5.5% in 2025 and 3.0% to 3.6% so far in 2026. It is supported by the price increases already written into contracts, net of normal customer losses. We credit no gains in profit margin, no revenue from Blackbaud's AI features and no benefit from further buybacks, because none of these is secured yet. From 2036, earnings stay flat for twenty years and then we stop counting. Blackbaud has run a leading nonprofit donor database for decades, and multi-year contracts and high switching costs support that persistence. The roughly $1 billion credit facility comes due in April 2029. Its interest is already near market rates, and the company's interest-rate swaps are close to break-even, so the base case assumes it is refinanced at similar cost. Bear case ($34 per share): the large 2026 to 2028 renewal cycle brings more lost customers. Price increases are used up offsetting churn, and competition from specialist nonprofit vendors and from large vendors the company names, such as Salesforce, Microsoft and Oracle, limits pricing. Cash earnings fall to about $158 million in 2026 and drift down to about $145 million by 2035. The roughly one-third of revenue tied to donations and tuition payments adds to the weakness in a downturn. The case also charges $200 million in 2028 for another failed acquisition or major security incident, because Blackbaud has had one of each in the last six years. From 2029 it adds $15 million a year of extra interest, on the view that refinancing about $1 billion of debt costs more. After 2035, earnings shrink 3% a year for twenty years. The debt, about $1.13 billion at June 30, 2026, is roughly seven times a year's cash earnings. That is why the downside is wide. Even so, the bear case does not leave the company worth less than its debt. Bull case ($87 per share): the first-half 2026 improvement holds, and 2026 cash earnings reach about $185 million. Revenue keeps growing at the 2025 pace of about 5% a year, with profit growing in line, so earnings reach about $287 million by 2035. After that, the price increases built into contracts keep earnings growing 3% a year for ten years, and then they hold flat for ten more. Even here we credit no margin expansion and no AI revenue. What changed since our previous analysis: the value is lower, mainly in the bull case. Before, both the base and bull cases counted on profit margins widening as stock compensation shrank relative to revenue. That has not yet shown up as a trend: stock compensation in the first half of 2026 ran at about the same yearly pace as in 2025. So we now let earnings grow only as fast as revenue. Our starting level is higher, because we now use the full underlying 2025 result and the first half of 2026 rather than an average that included EVERFI's final year. The bear case is slightly higher because the strong first-half cash flow makes a very weak 2026 less likely. What would make this wrong: a clear rise in customer losses during the 2026 to 2028 renewals; slowing growth in the second half of 2026 if the second-quarter slowdown continues; another large acquisition that fails; a new data breach; or a drop in donation and tuition volumes. Because of the debt and the company's record of costly mistakes, the margin-of-safety price is set roughly 37% below the base value, at about $40. From that price the bear case implies only a modest loss.