Convio (Nasdaq - CNVO) Acquired by Blackbaud

Convio (CNVO), a leading provider of solutions for non-profit organizations, announced Tuesday it agreed to be purchased by rival Blackbaud, Inc. (BLKB) for $16.00 per share. The sale price is 49% higher than Convio's Friday close price of $10.74; it is a 51% increase over Growth Stock Insider's initial recommendation last July of $10.60. There is still a slight chance that another company will purchase Convio moving forward. Oracle and SAG, both of which recently purchased similar software companies, are possible potential buyers. The share price could rise if this happens, but there is risk in waiting it out.

Convio ( Nasdaq - CNVO ) -- Adoption Rate Grows Among Non-Profits

Convio (CNVO $9.25) reported excellent on target Q3 results.  Earnings (fully taxed) were flat year to year at $.08 a share.  Revenues improved 18% to $21.0 million.  Margins were affected by the cost associated with rolling out the high potential Luminate product line.  Efforts to move mid-size customers to a cloud computing format also impacted short term profitability.  Both of those programs are likely to bolster margins in future periods as recurring revenue expands.  Convio's computer based donation management technology is gaining market share among non-profit organizations.  The system coordinates all activities so donor activity can be monitored more efficiently.  Historically, charities have maintained separate databases for mailings, telemarketing, events, and other activities; making it difficult to quickly assemble a complete picture of each donor's involvement.  The better analytics also help non-profits target new solicitations more effectively.

Performance is being impacted by the weak economy.  Convio earns a piece of the donations it raises in addition to the money it makes on software sales and service.  The company is gaining a larger portion of its existing customers' money raising activities.  It's also adding more clients.  But overall donation volume is stalled due to economic factors.  Still, organic growth of 10%-15% appears sustainable in the current climate.  Two small acquisitions completed earlier in the year are providing an additional 5% revenue boost.  Changes to the tax code by the "Super Committee" theoretically could impact giving over the long haul.  Liberal members have proposed deductibility limits to divert money from non profits to government welfare agencies.  President Obama is believed to favor that approach.  Change seems unlikely but if the current policy was altered investment risk would elevate.

We estimate 2012 income (fully taxed) will advance 60% to $.40 a share.  Revenues are poised to expand 15%-20% to $92-$96 million.  Our estimate assumes the low end of the range.  International expansion promises to reinforce growth over the long haul.  A rebound in the U.S. economy could reinvigorate donation volume, providing further leverage.  In 2-3 years sales could reach $150 million to provide earnings of $1.00 a share.  Applying a P/E multiple of 20x suggests a target price of $20 a share, potential appreciation of 115% from the current quote.

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Convio (Nasdaq — CNVO) -- Ahead of Estimates

Convio (Nasdaq: CNVO $10.30) reported Q2 results that were above our estimates. Revenue for the quarter totaled $20.7m, up 13% from the year before ($18.2m). Revenue for the full year is expected to range between $79.4m and $80.3m, ahead of our previous projection of $78m.

Due to the company’s accounting, actual sales are higher than what was reported. The company only reports revenues from contracts so far as they are guaranteed – customers can opt to cancel a contract after a certain amount of time has passed. Ninety percent of existing customers are retained, so most of that revenue will be collected in the future.

Convio clients raised $380m from online donations, a 21% increase from $314m the year before. The company’s collaboration with Constant Contact will make it easier for NPOs to contact donors, and should result in more donations, which Convio takes a cut of in most cases. The launch of Luminate, the company’s new cloud-based constituent engagement solution offers NPOs more integration while keeping track of data for an entire organization to easily access.

The company also named Patricia Hume the new vice president of worldwide sales. Hume has 29 years of experience in software and technology sales with companies including IBM, SAP and Avaya. She was formerly senior vice president of sales with SAP and GFI, and became vice president of business partner sales and marketing for a period at IBM.

“We are extremely excited to have Patricia join our team,” said Gene Austin, chief executive officer for Convio. “Patricia’s high energy, collaborative approach and track record of success are a great match for Convio as we execute on our growth strategy.”

Non-GAAP earnings per share were $0.09, a 12% increase from $0.08 a year ago. Share earnings for the full year are projected between $0.37 and $0.40.  Our estimate of $.30 a share assumes a higher (35%) tax rate.  Convio still holds about $50 million of tax loss carryforwards so cash payments are minimal. 

Convio’s future outlook could be hampered by the continually slowing economy. Short term results shouldn’t be affected too much, but the company could be troubled if the economy continues to slip. Charitable organizations would find it increasingly difficult to find donors in a tight economy.  

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Convio ( Nasdaq - CNVO ) -- Expands to London

Convio (CNVO $11.20) acquired privately owned Baigent Digital for $2.9 million in cash.  Baigant is based in a suburb of London, England and is a leading U.K. provider of digital fundraising services for nonprofit organizations.  The new operation approximately broke even in 2010 on $2.0 million in revenue.  Convio plans to beef up Baigant's product line with its core fundraising, email marketing, and event management systems, which could provide an immediate lift.  Marketing efforts will be accelerated, as well, to take advantage of the lack of direct online competition.  Longer term, Convio also plans to integrate its high potential customer relationship systems.  Our 2011 earnings estimate is unchanged.  Future performance is likely to be enhanced by the expansion of Convio's potential market.

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Convio (Nasdaq – CNVO)

Convio (Nasdaq: CNVO $10.60) is a leading provider of solutions for nonprofit organizations (NPOs). The company helps organizations more effectively raise funds and form relationships with donors, activists, volunteers and other constituents. Convio does the bulk of its work online, and can adapt an organization’s offline materials onto computers. Customers raised $1.3 billion in 2010 using Convio’s products, and 4 billion e-mails were delivered to over 140 million people. Nonprofit organizations used the company’s technology to fuel over 32.5 million advocacy actions to state and federal elected officials and other targets of cause-related campaigns.

The company’s products include the Convio Online Marketing platform (COM) and Common Ground, a constituent relationship management application. Convio Online Marketing helps an organization get the most out of advertising its advocacy on the internet by targeting constituents through e-mail and social media. Common Ground organizes NPO data from both online and offline sources so the info can be consolidated in a central location for NPO workers to easily access.

Revenue grew to $69.7m in 2010, up from $21.5m in 2006, but only increased 10% from 2009 ($63.1m). We estimate revenues will rise again to $78m in 2011 and continue to $90m in 2012. Most of the company’s revenue comes from sales; they also receive a percentage of funds raised for special events like charity runs or rides organized using Convio software. StrategicOne, LLC was acquired in January as Convio attempts to further penetrate the large- and enterprise-size NPOs. StrategicOne specializes in data management, which has helped Convio to optimize Common Ground.

The slow increase in revenues can be attributed to (you guessed it) the slow economy. Not-for-profits account for about 2% of the U.S. GDP, which is noteworthy but certainly not substantial – if Americans had less disposable income to spend charitable donations would likely fall off.

Revenues appear smaller due to the company’s accounting technique. Customers buy software and services from Convio on 1-4 year contracts depending on the service. Customers can opt to cancel the contract after a certain amount of time, so revenue from new contracts is initially only reported so far as the contract is guaranteed. Contract fulfillment isn’t a problem, as more than 90% of existing customers are retained with new plans.

The company’s stock price is high in relation to earnings per share at $10.60. Share earnings were $.25 in 2010 and project to $.30 in 2011 and $.40 the next year. Convio reported a 9.8% pretax margin in 2010, and that also should continue to rise to 20% over the next 3-5 years. It’s too early to suggest the company now, but we’ll keep a close eye on it and it could become a good earner in the future.

Convio has a strong business model and no true competitor. Blackbaud also assists NPOs; that company has higher revenue and a larger built-in-base, but its services are more traditional (hard mail, phone calls). Blackbaud is altering its business for the internet, but Convio has the upper hand as far as the Web goes.

The future looks promising for Convio. Revenues are rising, and could jump once the economy recovers. The company is also gaining respect among larger companies, so an acquisition is a possibility. Convio is located in Austin, TX.

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