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Blackbaud Announces 2017 Third Quarter Results

Subscriptions Represent Roughly Two-Thirds of Total Revenue and Grew 21%; Profitability Hits a 2017 High;

Management Updates 2017 Full-Year Financial Guidance for JustGiving Acquisition

CHARLESTON, S.C., Oct. 25, 2017 /PRNewswire/ -- Blackbaud (NASDAQ: BLKB), the world's leading cloud software company powering social good, today announced financial results for its third quarter ended September 30, 2017.

"Our unique ability to maximize customer outcomes through innovative new technology and industry expertise is a powerful combination, and it is driving our strong financial performance," said Mike Gianoni, Blackbaud's president and CEO. "We just concluded our annual user conference bbcon, and it's quite clear to customers that our social good-optimized cloud Blackbaud SKY™ provides the industry's best cloud capabilities, and that we are rapidly evolving it with new innovation. Blackbaud SKY is fueling our strong revenue growth, which is becoming increasingly stable and predictable, as we shift our mix of revenue towards recurring subscriptions. Subscriptions revenue now represents 65 percent of our total revenue and non-GAAP organic subscriptions revenue was strong, growing 19 percent during the third quarter."

Third Quarter 2017 Results Compared to Third Quarter 2016 Results:

  • Total GAAP revenue was $195.5 million, up 6.8%, with $159.0 million in GAAP recurring revenue, representing 81.3% of total revenue, and $127.5 million in subscription revenue, representing 65.2% of total revenue.
  • Total non-GAAP revenue was $195.9 million, up 7.0%, with $159.3 million in non-GAAP recurring revenue, representing 81.3% of total non-GAAP revenue, and $127.8 million in subscription revenue, representing 65.2% of total revenue.
  • Non-GAAP organic revenue increased 5.6%, non-GAAP organic recurring revenue increased 10.7%, and non-GAAP organic subscription revenue increased 19.0%.
  • GAAP income from operations increased 32.7% to $18.0 million, with GAAP operating margin increasing 180 basis points to 9.2%.
  • Non-GAAP income from operations increased 23.3% to $42.0 million, with non-GAAP operating margin increasing 280 basis points to 21.4%.
  • GAAP net income increased 40.5% to $12.5 million, with GAAP diluted earnings per share of $0.26, up $0.07.
  • Non-GAAP net income increased 25.8% to $26.9 million, with non-GAAP diluted earnings per share of $0.56, up $0.11.
  • Non-GAAP free cash flow was $59.1 million, an increase of $17.5 million.

"We posted a very solid third quarter balancing accelerated growth in revenue with improved profitability," said Tony Boor, Blackbaud's executive vice president and CFO. "The company's strong financial performance continues to position us well toward achieving our financial guidance and long-term aspirational goals. We've updated our financial expectation for 2017 to include the acquisition of peer-to-peer giving leader JustGiving™, which closed on October 2nd, and we look forward to keeping this steady momentum by finishing the year strong. "

An explanation of all non-GAAP financial measures referenced in this press release, including Blackbaud's definition of non-GAAP free cash flow, is included below under the heading "Non-GAAP Financial Measures." A reconciliation of the company's non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Recent Company Highlights:

Visit www.blackbaud.com/press-room for more information about Blackbaud's recent highlights.

Dividend

Blackbaud announced today that its Board of Directors has declared a fourth quarter 2017 dividend of $0.12 per share payable on December 15, 2017 to stockholders of record on November 28, 2017.

Financial Outlook

Blackbaud today updated its 2017 full-year financial guidance to reflect the acquisition of JustGiving, which closed on October 2, 2017:

  • Non-GAAP revenue of $785 million to $795 million
  • Non-GAAP income from operations of $159 million to $165 million
  • Non-GAAP operating margin of 20.3% to 20.8%
  • Non-GAAP diluted earnings per share of $2.12 to $2.20
  • Non-GAAP free cash flow of $125 million to $135 million

Blackbaud has not reconciled forward-looking full-year non-GAAP financial measures contained in this news release to their most directly comparable GAAP measures, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliations would require unreasonable efforts at this time to estimate and quantify with a reasonable degree of certainty various necessary GAAP components, including for example those related to compensation, acquisition transactions and integration, tax items or others that may arise during the year. These components and other factors could materially impact the amount of the future directly comparable GAAP measures, which may differ significantly from their non-GAAP counterparts.

Conference Call Details

What:

Blackbaud's 2017 Third Quarter Conference Call

When:

October 26, 2017

Time:

8:00 a.m. (Eastern Time)

Live Call:

877-616-0061 (domestic) or 719-325-2171 (international); passcode 976294.

Webcast:

Blackbaud's Investor Relations Webpage

About Blackbaud

Blackbaud (NASDAQ: BLKB) is the world's leading cloud software company powering social good. Serving the entire social good community—nonprofits, foundations, corporations, education institutions, healthcare institutions and individual change agents—Blackbaud connects and empowers organizations to increase their impact through software, services, expertise, and data intelligence. The Blackbaud portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility, school management, ticketing, grantmaking, financial management, payment processing, and analytics. Serving the industry for more than three decades, Blackbaud is headquartered in Charleston, South Carolina and has operations in the United States, Australia, Canada and the United Kingdom. For more information, visit www.blackbaud.com.

Investor Contact:


Media Contact:


Mark Furlong


Nicole McGougan


Director of Investor Relations


Public Relations Manager


843-654-2097


843-654-3307


mark.furlong@blackbaud.com


nicole.mcgougan@blackbaud.com


Forward-Looking Statements

Except for historical information, all of the statements, expectations, and assumptions contained in this news release are forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding: expectations that certain aspects of our operations, financial results and financial condition will continue to improve, and expectations that we will achieve our projected 2017 full-year financial guidance and long-term aspirational goals. These statements involve a number of risks and uncertainties. Although Blackbaud attempts to be accurate in making these forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. In addition, other important factors that could cause results to differ materially include the following: management of integration of acquired companies; uncertainty regarding increased business and renewals from existing customers; a shifting revenue mix that may impact gross margin; continued success in sales growth; risks related to our dividend policy and stock repurchase program, including the possibility that we might discontinue payment of dividends; and the other risk factors set forth from time to time in the SEC filings for Blackbaud, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from Blackbaud's investor relations department. Blackbaud assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Trademarks

All Blackbaud product names appearing herein are trademarks or registered trademarks of Blackbaud, Inc.

Non-GAAP Financial Measures

Blackbaud has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP revenue, non-GAAP recurring revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP diluted earnings per share. Blackbaud has acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, Blackbaud recorded write-downs of deferred revenue to fair value, which resulted in lower recognized revenue. Both on a quarterly and year-to-date basis, the revenue for the acquired businesses is deferred and typically recognized over a one-year period, so Blackbaud's GAAP revenues for the one-year period after the acquisitions will not reflect the full amount of revenues that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP measures described above reverse the acquisition-related deferred revenue write-downs so that the full amount of revenue booked by the acquired companies is included, which Blackbaud believes provides a more accurate representation of a revenue run-rate in a given period. In addition to reversing write-downs of acquisition-related deferred revenue, non-GAAP financial measures discussed above exclude the impact of certain items that Blackbaud believes are not directly related to its performance in any particular period, but are for its long-term benefit over multiple periods.

In addition, Blackbaud discusses non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis, non-GAAP organic subscriptions revenue growth and non-GAAP organic recurring revenue growth, which it believes provides useful information for evaluating the periodic growth of its business on a consistent basis. Each of these measures excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, each of these measures reflects presentation of full-year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, and it includes the non-GAAP revenue attributable to those companies, as if there were no acquisition-related write-downs of acquired deferred revenue to fair value as required by GAAP. In addition, each of these measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. Blackbaud believes this presentation provides a more comparable representation of its current business' organic revenue growth and revenue run-rate.

Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.

Blackbaud uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Blackbaud's ongoing operational performance. Blackbaud believes that these non-GAAP financial measures reflect the Blackbaud's ongoing business in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business. In addition, Blackbaud believes that the use of these non-GAAP financial measures provides additional information for investors to use in evaluating ongoing operating results and trends and in comparing its financial results from period-to-period with other companies in Blackbaud's industry, many of which present similar non-GAAP financial measures to investors. However, these non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to differences in the exact method of calculation between companies. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.


Blackbaud, Inc.
Consolidated balance sheets
(Unaudited)




(dollars in thousands)

September 30,
2017

December 31,
2016

Assets



Current assets:



Cash and cash equivalents

$

17,050


$

16,902


Restricted cash due to customers

139,095


353,771


Accounts receivable, net of allowance of $4,540 and $3,291 at September 30, 2017 and December 31, 2016, respectively

100,868


88,932


Prepaid expenses and other current assets

50,082


48,314


Total current assets

307,095


507,919


Property and equipment, net

43,903


50,269


Software development costs, net

48,618


37,582


Goodwill

472,776


438,240


Intangible assets, net

252,713


253,676


Other assets

21,889


22,524


Total assets

$

1,146,994


$

1,310,210


Liabilities and stockholders' equity



Current liabilities:



Trade accounts payable

$

17,830


$

23,274


Accrued expenses and other current liabilities

45,650


54,196


Due to customers

139,095


353,771


Debt, current portion

8,576


4,375


Deferred revenue, current portion

277,008


244,500


Total current liabilities

488,159


680,116


Debt, net of current portion

329,380


338,018


Deferred tax liability

39,352


29,558


Deferred revenue, net of current portion

5,412


6,440


Other liabilities

7,799


8,533


Total liabilities

870,102


1,062,665


Commitments and contingencies



Stockholders' equity:



Preferred stock; 20,000,000 shares authorized, none outstanding



Common stock, $0.001 par value; 180,000,000 shares authorized, 58,503,687 and 57,672,401 shares issued at September 30, 2017 and December 31, 2016, respectively

59


58


Additional paid-in capital

341,476


310,452


Treasury stock, at cost; 10,426,122 and 10,166,801 shares at September 30, 2017 and December 31, 2016, respectively

(234,329)


(215,237)


Accumulated other comprehensive loss

(1,013)


(457)


Retained earnings

170,699


152,729


Total stockholders' equity

276,892


247,545


Total liabilities and stockholders' equity

$

1,146,994


$

1,310,210



Blackbaud, Inc.
Consolidated statements of comprehensive income
(Unaudited)





(dollars in thousands, except per share amounts)

Three months ended
September 30,


Nine months ended
September 30,

2017

2016


2017

2016

Revenue






Subscriptions

$

127,492


$

105,440



$

370,923


$

306,330


Maintenance

31,486


36,410



98,184


111,019


Services and other

36,535


41,213



102,222


115,161


Total revenue

195,513


183,063



571,329


532,510


Cost of revenue






Cost of subscriptions

58,045


51,943



170,336


153,772


Cost of maintenance

5,698


5,531



17,551


16,547


Cost of services and other

23,262


25,843



71,595


76,499


Total cost of revenue

87,005


83,317



259,482


246,818


Gross profit

108,508


99,746



311,847


285,692


Operating expenses






Sales, marketing and customer success

44,193


40,690



129,394


115,707


Research and development

22,071


22,510



67,647


67,973


General and administrative

23,545


22,319



67,350


62,089


Amortization

734


687



2,164


2,147


Total operating expenses

90,543


86,206



266,555


247,916


Income from operations

17,965


13,540



45,292


37,776


Interest expense

(3,092)


(2,641)



(8,685)


(8,037)


Other income (expense), net

468


(15)



1,581


(185)


Income before provision for income taxes

15,341


10,884



38,188


29,554


Income tax provision

2,793


1,950



2,964


5,323


Net income

$

12,548


$

8,934



$

35,224


$

24,231


Earnings per share






Basic

$

0.27


$

0.19



$

0.76


$

0.53


Diluted

$

0.26


$

0.19



$

0.74


$

0.51


Common shares and equivalents outstanding






Basic weighted average shares

46,711,709


46,159,956



46,627,213


46,078,306


Diluted weighted average shares

47,846,997


47,394,106



47,679,103


47,268,469


Dividends per share

$

0.12


$

0.12



$

0.36


$

0.36


Other comprehensive (loss) income






Foreign currency translation adjustment

(188)


289



(467)


261


Unrealized (loss) gain on derivative instruments, net of tax

(267)


409



(89)


(378)


Total other comprehensive (loss) income

(455)


698



(556)


(117)


Comprehensive income

$

12,093


$

9,632



$

34,668


$

24,114



Blackbaud, Inc.
Consolidated statements of cash flows
(Unaudited)




Nine months ended
September 30,

(dollars in thousands)

2017

2016

Cash flows from operating activities



Net income

$

35,224


$

24,231


Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization

54,765


53,109


Provision for doubtful accounts and sales returns

7,246


3,139


Stock-based compensation expense

31,055


25,005


Deferred taxes

(2,511)


(225)


Amortization of deferred financing costs and discount

650


718


Other non-cash adjustments

572


(634)


Changes in operating assets and liabilities, net of acquisition and disposal of businesses:



Accounts receivable

(17,169)


(9,288)


Prepaid expenses and other assets

596


(934)


Trade accounts payable

(2,891)


267


Accrued expenses and other liabilities

(9,522)


(12,837)


Restricted cash due to customers

214,244


119,291


Due to customers

(214,244)


(119,291)


Deferred revenue

25,370


17,593


Net cash provided by operating activities

123,385


100,144


Cash flows from investing activities



Purchase of property and equipment

(8,417)


(15,459)


Capitalized software development costs

(20,605)


(19,078)


Purchase of net assets of acquired companies, net of cash acquired

(49,729)


(3,377)


Purchase of derivative instruments

(516)



Proceeds from settlement of derivative instruments

1,030



Net cash used in investing activities

(78,237)


(37,914)


Cash flows from financing activities



Proceeds from issuance of debt

588,300


179,000


Payments on debt

(594,144)


(212,581)


Debt issuance costs

(3,085)



Employee taxes paid for withheld shares upon equity award settlement

(19,092)


(10,497)


Proceeds from exercise of stock options

14


10


Dividend payments to stockholders

(17,299)


(17,108)


Net cash used in financing activities

(45,306)


(61,176)


Effect of exchange rate on cash and cash equivalents

306


46


Net increase in cash and cash equivalents

148


1,100


Cash and cash equivalents, beginning of period

16,902


15,362


Cash and cash equivalents, end of period

$

17,050


$

16,462



Blackbaud, Inc.
Reconciliation of GAAP to non-GAAP financial measures
(Unaudited)





(dollars in thousands, except per share amounts)

Three months ended
September 30,


Nine months ended
September 30,

2017

2016


2017

2016

GAAP Revenue

$

195,513


$

183,063



$

571,329


$

532,510


Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down

349




697


3,639


Non-GAAP revenue

$

195,862


$

183,063



$

572,026


$

536,149








GAAP gross profit

$

108,508


$

99,746



$

311,847


$

285,692


GAAP gross margin

55.5

%

54.5

%


54.6

%

53.7

%

Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down

349




697


3,639


Add: Stock-based compensation expense

934


916



2,675


2,603


Add: Amortization of intangibles from business combinations

9,976


9,862



29,903


29,670


Add: Employee severance


18



973


160


Add: Acquisition-related integration costs




86



Subtotal

11,259


10,796



34,334


36,072


Non-GAAP gross profit

$

119,767


$

110,542



$

346,181


$

321,764


Non-GAAP gross margin

61.1

%

60.4

%


60.5

%

60.0

%







GAAP income from operations

$

17,965


$

13,540



$

45,292


$

37,776


GAAP operating margin

9.2

%

7.4

%


7.9

%

7.1

%

Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down

349




697


3,639


Add: Stock-based compensation expense

10,926


8,818



31,055


25,005


Add: Amortization of intangibles from business combinations

10,710


10,549



32,067


31,817


Add: Employee severance

128


72



2,994


473


Add: Acquisition-related integration costs

383


917



613


1,419


Add: Acquisition-related expenses

1,519


152



3,851


265


Subtotal

24,015


20,508



71,277


62,618


Non-GAAP income from operations

$

41,980


$

34,048



$

116,569


$

100,394


Non-GAAP operating margin

21.4

%

18.6

%


20.4

%

18.7

%







GAAP net income

$

12,548


$

8,934



$

35,224


$

24,231








Shares used in computing GAAP diluted earnings per share

47,846,997


47,394,106



47,679,103


47,268,469


GAAP diluted earnings per share

$

0.26


$

0.19



$

0.74


$

0.51








Non-GAAP adjustments:






Add: Total Non-GAAP adjustments affecting income from operations

24,015


20,508



71,277


62,618


Add (less): Loss (gain) on derivative instrument

3




(472)



Add: Loss on debt extinguishment

137




299



Less: Tax impact related to Non-GAAP adjustments

(9,846)


(8,096)



(32,010)


(24,172)


Non-GAAP net income

$

26,857


$

21,346



$

74,318


$

62,677








Shares used in computing Non-GAAP diluted earnings per share

47,846,997


47,394,106



47,679,103


47,268,469


Non-GAAP diluted earnings per share

$

0.56


$

0.45



$

1.56


$

1.33


Blackbaud, Inc.
Reconciliation of GAAP to Non-GAAP financial measures (continued)
(Unaudited)





(dollars in thousands)

Three months ended
September 30,


Nine months ended
September 30,

2017

2016


2017

2016

Detail of certain Non-GAAP adjustments:






Stock-based compensation expense:






Included in cost of revenue:






Cost of subscriptions

$

331


$

318



$

963


$

904


Cost of maintenance

103


137



294


391


Cost of services and other

500


461



1,418


1,308


Total included in cost of revenue

934


916



2,675


2,603


Included in operating expenses:






Sales, marketing and customer success

1,686


1,055



4,906


2,972


Research and development

2,093


1,674



5,877


4,874


General and administrative

6,213


5,173



17,597


14,556


Total included in operating expenses

9,992


7,902



28,380


22,402


Total stock-based compensation expense

$

10,926


$

8,818



$

31,055


$

25,005








Amortization of intangibles from business combinations:






Included in cost of revenue:






Cost of subscriptions

$

8,061


$

7,790



$

24,099


$

23,454


Cost of maintenance

1,289


1,332



3,871


3,996


Cost of services and other

626


740



1,933


2,220


Total included in cost of revenue

9,976


9,862



29,903


29,670


Included in operating expenses

734


687



2,164


2,147


Total amortization of intangibles from business combinations

$

10,710


$

10,549



$

32,067


$

31,817



Blackbaud, Inc.

Reconciliation of GAAP to Non-GAAP financial measures (continued)

(Unaudited)





(dollars in thousands)

Three months ended
September 30,


Nine months ended
September 30,

2017

2016


2017

2016

GAAP revenue

$

195,513


$

183,063



$

571,329


$

532,510


GAAP revenue growth

6.8

%



7.3

%


(Less) Add: Non-GAAP acquisition-related revenue (1)

(2,134)




(4,048)


3,639


Total Non-GAAP adjustments

(2,134)




(4,048)


3,639


Non-GAAP revenue (2)

$

193,379


$

183,063



$

567,281


$

536,149


Non-GAAP organic revenue growth

5.6

%



5.8

%








Non-GAAP revenue (2)

$

193,379


$

183,063



$

567,281


$

536,149


Foreign currency impact on Non-GAAP revenue (3)

(480)




785



Non-GAAP revenue on constant currency basis (3)

$

192,899


$

183,063



$

568,066


$

536,149


Non-GAAP organic revenue growth on constant currency basis

5.4

%



6.0

%








GAAP subscriptions revenue

$

127,492


$

105,440



$

370,923


$

306,330


GAAP subscriptions revenue growth

20.9

%



21.1

%


(Less) Add: Non-GAAP acquisition-related revenue (1)

(1,986)




(3,749)


3,534


Total Non-GAAP adjustments

(1,986)




(3,749)


3,534


Non-GAAP organic subscriptions revenue

$

125,506


$

105,440



$

367,174


$

309,864


Non-GAAP organic subscriptions revenue growth

19.0

%



18.5

%








GAAP subscriptions revenue

$

127,492


$

105,440



$

370,923


$

306,330


GAAP maintenance revenue

$

31,486


$

36,410



98,184


111,019


GAAP recurring revenue

$

158,978


$

141,850



$

469,107


$

417,349


GAAP recurring revenue growth

12.1

%



12.4

%


(Less) Add: Non-GAAP acquisition-related revenue (1)

(1,986)




(3,749)


3,625


Total Non-GAAP adjustments

(1,986)




(3,749)


3,625


Non-GAAP recurring revenue

$

156,992


$

141,850



$

465,358


$

420,974


Non-GAAP organic recurring revenue growth

10.7

%



10.5

%


(1)

Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period, and it includes the non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those companies.

(2)

Non-GAAP revenue for the prior year periods presented herein may not agree to non-GAAP revenue presented in the respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth is calculated.

(3)

To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Canadian Dollar, EURO, British Pound and Australian Dollar.

(dollars in thousands)

Nine months ended
September 30,

2017

2016

GAAP net cash provided by operating activities

$

123,385


$

100,144


Less: purchase of property and equipment

(8,417)


(15,459)


Less: capitalized software development costs

(20,605)


(19,078)


Non-GAAP free cash flow

$

94,363


$

65,607


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SOURCE Blackbaud, Inc.