BLKB, Blackbaud Inc.

Will it survive?

• Can it pay its interest? 2.8×
  Adequate
  Operating income $191M ÷ interest expense $68M
  What this means

  Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.

• How heavy is the debt, net of cash? $1.1B · 5.6× operating profit
  Heavy net debt
  Cash $39M − debt $1.1B
  What this means

  Netting $39M of cash and short-term investments against $1.1B of debt leaves $1.1B owed, about 5.6× a year's operating profit (5.8× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 5d
  Tight
  DSO 26 + DIO 0 − DPO 21 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 2%
  Below average through the cycle
  10-yr median, range -19%–14%; 14% latest = NOPAT $166M ÷ invested capital $1.2B
  Industry peers: median -2%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran 14% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 19%
  High through the cycle
  10-yr median margin, range 13%–25%; latest $258M = operating cash $266M − maintenance capex $8M
  Industry peers: median 18%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 23% of revenue this year, a 19% median across 10 years. Treating stock comp as the real expense it is (less $93M of SBC) leaves $165M.

• Are earnings backed by cash? 2.31×
  Cash-backed
  Cash from ops $266M ÷ net income $115M

  In the filing’s words The filing leans on adjusted, non-GAAP earnings, but the GAAP profit is itself cash-backed — the adjustments are not papering over a cash shortfall here.

  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 84%
  Returns about half
  Dividends + buybacks $217M ÷ Owner Earnings $258M
  What this means

  Of $258M Owner Earnings, $217M (84%) went back to shareholders, $0 dividends, $217M buybacks. Net of $93M stock comp, the real buyback was about $124M. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 0.09×
  Harvesting
  Capex $8M ÷ depreciation $86M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Graham’s defensive tests · 0 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Near
  Revenue ≥ $2B · $1.1B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Miss
  Current ratio ≥ 2× · 0.79×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Miss
  Debt ≤ working capital · $1.1B vs ($252M) WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Miss
  A profit every year (10-yr record) · 2 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · 5 of 10 yrs
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Miss
  Earnings +33% over the record · −211%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $-1.32/share (latest year $2.50), the averaged base the calculator's gate runs on, and book value is $1.85/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 8 of 10
  What this means

  Lost money in 2 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 0 of 10 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 8% → −1% (3-yr avg ends)

  In the filing’s words The filing attributes gains to higher prices, but the margin in the record has not followed — the claim outruns the result here.

  What this means

  The recent-years average (−1%) sits below the early years (8%), but the latest year (17%) is back near the early level: a cyclical trough dragging the window down, not a one-way slide. The through-cycle median is 4% — read it across the cycle, not on the dip.

• Reinvestment, incremental ROIC −12%
  What this means

  Reinvested capital came back at a negative incremental return over this window — the invested base grew while operating profit did not. The filings show where it went.

• Owner earnings growth +7%/yr
  What this means

  Owner earnings grew about 7% a year over the record.

• Worst year 2024 · −23.5% op. margin
  What this means

  Operations went underwater in 2024, understand why before trusting the good years.

• Share count +0.3%/yr
  What this means

  Roughly flat share count, little dilution, little buyback.

• Dividend record paid
  What this means

  Paid a dividend in 5 of the years on record.