BLKB

Blackbaud is a dominant niche-software vendor (fundraising, education, financial management for nonprofits) that screens as a classic value-with-optionality setup. The headline FY2025 numbers show a genuine profitability inflection: operating income jumped 170% to $191M (16.9% margin), net income swung to +$115M from a -$300M loss in FY2024, and diluted EPS hit $2.37. Some of that swing flatters the comparison — FY2024's loss was clearly distorted by a large charge — but the underlying operating leverage is real: gross margin is 58.8% and the business converted $266M into operating cash flow against just $7.8M of capex, i.e. roughly $258M of free cash flow, a ~19% FCF yield on a $1.35B market cap. At 12.4x earnings and 1.2x sales, the market is pricing this as a no-growth bond, which leaves room to be wrong in your favor.

The catch, and the reason conviction is moderate rather than high, is that revenue is actually shrinking: $1.13B in FY2025, down 2.3%, after stalling around $1.1B for three years. The bull case rests entirely on management's 'mid-single-digit revenue growth' target re-accelerating the top line. The MD&A gives some credible scaffolding for that — ~64% of revenue is contractual recurring, customers now sit on standard three-year contracts with mid-to-high single-digit renewal price increases and embedded annual escalators, and over 20% have committed to four-year-plus terms. That embedded pricing alone should push revenue up if retention holds. Layered on top is the AI push (Blackbaud AI Chat, the 'Agents for Good' agentic suite launched at bbcon, ML prospect-identification already adopted by >half of Raiser's Edge NXT customers) as a cross-sell/upsell vector.