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Blackbaud Announces 2019 Third Quarter Results

Third Quarter Recurring Revenue Grows 9%; Reaffirms 2019 Financial Guidance

CHARLESTON, S.C., Oct. 28, 2019 /PRNewswire/ -- Blackbaud (BLKB), the world's leading cloud software company powering social good, today announced financial results for its third quarter ended September 30, 2019.

"We continue to gain momentum in our aim to delight customers through innovative cloud solutions, and it is clear that the progress we've made is resonating with the individuals that use our solutions every day. Earlier this month, we hosted a record number of attendees at the 20th annual bbcon, the premier tech gathering for organizations focused on the latest trends and innovations driving the social good community forward," said Mike Gianoni, Blackbaud's president and CEO. "Among the many product and innovation updates across all of our vertical markets, we announced the general availability of Blackbaud Church Management™, which is already transforming the church technology landscape. Within just one year of announcing plans for Blackbaud Church Management, we now serve churches in more than half of the 50 U.S. states, representing congregations of all different sizes and spanning more than 10 denominations. This pace of innovation is extraordinary in our industry."

Third Quarter 2019 Results Compared to Third Quarter 2018 Results:

  • Total GAAP revenue was $221.1 million, up 5.5%, with $205.2 million in GAAP recurring revenue, representing 92.8% of total GAAP revenue. GAAP recurring revenue was up 8.8%.
  • Total non-GAAP revenue was $221.4 million, up 5.4%, with $205.5 million in non-GAAP recurring revenue, representing 92.8% of total non-GAAP revenue. Non-GAAP recurring revenue was up 8.6%.
  • Non-GAAP organic recurring revenue increased 5.6%.
  • GAAP income from operations was $7.9 million, with GAAP operating margin of 3.6%, a decrease of 390 basis points.
  • Non-GAAP income from operations was $36.6 million, with non-GAAP operating margin of 16.5%, a decrease of 240 basis points.
  • GAAP net income was $4.6 million, with GAAP diluted earnings per share of $0.09, down $0.14.
  • Non-GAAP net income was $26.9 million, with non-GAAP diluted earnings per share of $0.56, down $0.03.
  • Non-GAAP free cash flow was $62.5 million, an increase of $4.7 million.

"We've posted solid recurring revenue growth through the first three quarters of the year, and anticipate carrying that performance through the end of 2019," said Tony Boor, Blackbaud's executive vice president and CFO. "The investments we're making in innovation are delivering tremendous value for our existing customers and we've created entirely new product opportunities in our Higher Education and Faith verticals. The investments into sales and marketing are improving our ability to scale, increase our selling footprint, and position us to drive future growth. We're planning to continue these heightened investments though the end of the year."

An explanation of all non-GAAP financial measures referenced in this press release 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/newsroom for more information about Blackbaud's recent highlights.

Dividend
Blackbaud announced today that its Board of Directors has declared a fourth quarter 2019 dividend of $0.12 per share payable on December 13, 2019 to stockholders of record on November 27, 2019.

Financial Outlook
Blackbaud today reaffirmed its 2019 full year financial guidance:

  • Non-GAAP revenue of $880 million to $910 million
  • Non-GAAP operating margin of 16.7% to 17.2%
  • Non-GAAP diluted earnings per share of $2.11 to $2.28
  • Non-GAAP free cash flow of $124 million to $134 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.

Adoption of New Lease Accounting Standard
On January 1, 2019, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASU 2016-02"), using the transition method that allowed us to initially apply the guidance at the adoption date of January 1, 2019 without adjusting comparative periods presented. ASU 2016-02 requires lessees to record most leases on their balance sheet but recognize expenses in the income statement in a manner similar to previous guidance. The impacts of adoption are reflected in Blackbaud's guidance and other financial information herein. We have provided more detailed information regarding the impact of our adoption of ASU 2016-02 in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 3, 2019.

Conference Call Details


What:

Blackbaud's 2019 Third Quarter Conference Call

When:

October 29, 2019

Time:

8:00 a.m. (Eastern Time)

Live Call: 

800-289-0459 (US/Canada); passcode 357233

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, companies, education institutions, healthcare organizations and individual change agents—Blackbaud connects and empowers organizations to increase their impact through cloud 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, Costa Rica and the United Kingdom. For more information, visit www.blackbaud.com, or follow us on Twitter, LinkedIn, and Facebook.

Investor Contact:

Media Contact:

Steve Hufford

media@blackbaud.com

Director of Investor Relations


843-654-2655


steve.hufford@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: the predictability of our financial results, expectations that our revenue will continue to grow, and expectations that we will achieve our projected 2019 full-year financial guidance. 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 uses non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth, in analyzing its operating performance. Blackbaud believes that these non-GAAP measures are useful to investors, as a supplement to GAAP measures, 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 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,
 2019


December 31,
 2018


Assets



Current assets:



Cash and cash equivalents

$

29,084


$

30,866


Restricted cash due to customers

243,056


418,980


Accounts receivable, net of allowance of $4,791 and $4,722 at September 30,
2019 and December 31, 2018, respectively

90,700


86,595


Customer funds receivable

7,784


1,753


Prepaid expenses and other current assets

75,321


59,788


Total current assets

445,945


597,982


Property and equipment, net

37,285


40,031


Operating lease right-of-use assets

110,840



Software development costs, net

94,055


75,099


Goodwill

630,644


545,213


Intangible assets, net

327,089


291,617


Other assets

64,154


65,363


Total assets

$

1,710,012


$

1,615,305


Liabilities and stockholders' equity



Current liabilities:



Trade accounts payable

$

34,169


$

34,538


Accrued expenses and other current liabilities

63,947


46,893


Due to customers

250,840


420,733


Debt, current portion

7,500


7,500


Deferred revenue, current portion

320,982


295,991


Total current liabilities

677,438


805,655


Debt, net of current portion

495,556


379,624


Deferred tax liability

47,237


44,291


Deferred revenue, net of current portion

2,014


2,564


Operating lease liabilities, net of current portion

100,133



Other liabilities

6,177


9,388


Total liabilities

1,328,555


1,241,522


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, 60,207,091
and 59,327,633 shares issued at September 30, 2019 and December 31,
2018, respectively

60


59


Additional paid-in capital

442,803


399,241


Treasury stock, at cost; 11,022,799 and 10,760,574 shares at September 30, 2019 and December 31, 2018, respectively

(287,163)


(266,884)


Accumulated other comprehensive loss

(13,665)


(5,110)


Retained earnings

239,422


246,477


Total stockholders' equity

381,457


373,783


Total liabilities and stockholders' equity

$

1,710,012


$

1,615,305


 

 

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,


2019


2018



2019


2018


Revenue






Recurring

$

205,227


$

188,656



$

611,789


$

562,251


One-time services and other

15,893


20,876



50,795


65,137


Total revenue

221,120


209,532



662,584


627,388


Cost of revenue






Cost of recurring

87,645


76,535



259,013


221,964


Cost of one-time services and other

14,152


18,702



42,874


56,482


Total cost of revenue

101,797


95,237



301,887


278,446


Gross profit

119,323


114,295



360,697


348,942


Operating expenses






Sales, marketing and customer success

55,499


49,077



165,963


143,047


Research and development

25,941


24,218



80,304


75,473


General and administrative

28,897


24,894



84,557


78,392


Amortization

703


1,237



3,231


3,707


Restructuring

400


(914)



3,083


3,585


Total operating expenses

111,440


98,512



337,138


304,204


Income from operations

7,883


15,783



23,559


44,738


Interest expense

(5,111)


(4,140)



(16,233)


(11,960)


Other income (expense), net

2,158


(147)



4,521


359


Income before provision for income taxes

4,930


11,496



11,847


33,137


Income tax provision (benefit)

364


332



1,263


(2,370)


Net income

$

4,566


$

11,164



$

10,584


$

35,507


Earnings per share






Basic

$

0.10


$

0.24



$

0.22


$

0.75


Diluted

$

0.09


$

0.23



$

0.22


$

0.74


Common shares and equivalents outstanding






Basic weighted average shares

47,757,769


47,279,591



47,668,235


47,174,903


Diluted weighted average shares

48,464,529


48,160,146



48,223,712


48,074,698


Other comprehensive (loss) income






Foreign currency translation adjustment

(3,893)


1,047



(5,321)


(1,333)


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

(363)


566



(3,234)


2,410


Total other comprehensive (loss) income

(4,256)


1,613



(8,555)


1,077


Comprehensive income

$

310


$

12,777



$

2,029


$

36,584


 

 

Blackbaud, Inc.

Consolidated statements of cash flows

(Unaudited)





Nine months ended
 September 30,



(dollars in thousands)

2019


2018



Cash flows from operating activities




Net income

$

10,584



$

35,507



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




Depreciation and amortization

63,998


59,993



Provision for doubtful accounts and sales returns

6,192


4,760



Stock-based compensation expense

43,621


35,683



Deferred taxes

(75)


1,430



Amortization of deferred financing costs and discount

564


564



Other non-cash adjustments

2,047


(2,085)



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




Accounts receivable

(6,375)


(4,480)



Prepaid expenses and other assets

(5,129)


(12,372)



Trade accounts payable

(74)


(134)



Accrued expenses and other liabilities

(13,592)


(6,923)



Deferred revenue

20,363


25,888



Net cash provided by operating activities

122,124


137,831



Cash flows from investing activities




Purchase of property and equipment

(9,597)


(12,910)



Capitalized software development costs

(34,513)


(26,629)



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

(109,353)


(45,315)



Other investing activities

500




Net cash used in investing activities

(152,963)


(84,854)



Cash flows from financing activities




Proceeds from issuance of debt

371,200


219,900



Payments on debt

(255,625)


(233,225)



Employee taxes paid for withheld shares upon equity award settlement

(20,279)


(27,398)



Proceeds from exercise of stock options

7


11



Change in due to customers

(215,942)


(425,218)



Change in customer funds receivable

(6,283)


(4,371)



Dividend payments to stockholders

(17,705)


(17,484)



Net cash used in financing activities

(144,627)


(487,785)



Effect of exchange rate on cash, cash equivalents and restricted cash

(2,240)


(285)



Net decrease in cash, cash equivalents and restricted cash

(177,706)


(435,093)



Cash, cash equivalents and restricted cash, beginning of period

449,846


640,174



Cash, cash equivalents and restricted cash, end of period

$

272,140


$

205,081











The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown above in the consolidated statements of cash flows:

(dollars in thousands)

September 30,
 2019


December 31,
 2018


Cash and cash equivalents

$

29,084


$

30,866


Restricted cash due to customers

243,056


418,980


Total cash, cash equivalents and restricted cash in the statement of cash flows

$

272,140


$

449,846


 

 

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,


2019


2018



2019


2018


GAAP Revenue

$

221,120


$

209,532



$

662,584


$

627,388


Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down

259


571



1,691


1,838


Non-GAAP revenue

$

221,379


$

210,103



$

664,275


$

629,226








GAAP gross profit

$

119,323


$

114,295



$

360,697


$

348,942


GAAP gross margin

54.0

%

54.5

%


54.4

%

55.6

%

Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down

259


571



1,691


1,838


Add: Stock-based compensation expense

784


1,270



2,549


4,010


Add: Amortization of intangibles from business combinations

11,225


10,625



33,970


31,688


Add: Employee severance

19


279



1,134


866


Add: Acquisition-related integration costs





25


Subtotal

12,287


12,745



39,344


38,427


Non-GAAP gross profit

$

131,610


$

127,040



$

400,041


$

387,369


Non-GAAP gross margin

59.5

%

60.5

%


60.2

%

61.6

%







GAAP income from operations

$

7,883


$

15,783



$

23,559


$

44,738


GAAP operating margin

3.6

%

7.5

%


3.6

%

7.1

%

Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down

259


571



1,691


1,838


Add: Stock-based compensation expense

14,866


10,730



43,621


35,683


Add: Amortization of intangibles from business combinations

11,928


11,862



37,201


35,395


Add: Employee severance

48


682



3,660


1,713


Add: Acquisition-related integration costs

1,024


756



2,206


3,383


Add: Acquisition-related expenses

220


269



1,030


1,874


Add: Restructuring costs

400


(914)



3,083


3,585


Subtotal

28,745


23,956



92,492


83,471


Non-GAAP income from operations

$

36,628


$

39,739



$

116,051


$

128,209


Non-GAAP operating margin

16.5

%

18.9

%


17.5

%

20.4

%







GAAP income before provision for income taxes

$

4,930


$

11,496



$

11,847


$

33,137


GAAP net income

$

4,566


$

11,164



$

10,584


$

35,507








Shares used in computing GAAP diluted earnings per share

48,464,529


48,160,146



48,223,712


48,074,698


GAAP diluted earnings per share

$

0.09


$

0.23



$

0.22


$

0.74








Non-GAAP adjustments:






Add: GAAP income tax provision (benefit)

364


332



1,263


(2,370)


Add: Total non-GAAP adjustments affecting income from operations

28,745


23,956



92,492


83,471


Non-GAAP income before provision for income taxes

33,675


35,452



104,339


116,608


Assumed non-GAAP income tax provision(1)

6,735


7,090



$

20,868


$

23,322


Non-GAAP net income

$

26,940


$

28,362



$

83,471


$

93,286








Shares used in computing non-GAAP diluted earnings per
share

48,464,529


48,160,146



48,223,712


48,074,698


Non-GAAP diluted earnings per share

$

0.56


$

0.59



$

1.73


$

1.94
















(1)

Blackbaud applies a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.

 

 

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,


2019


2018



2019


2018


GAAP revenue

$

221,120


$

209,532



$

662,584


$

627,388


GAAP revenue growth

5.5

%



5.6

%


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

(5,250)


571



(14,194)


5,056


Non-GAAP organic revenue (2)

$

215,870


$

210,103



$

648,390


$

632,444


Non-GAAP organic revenue growth

2.7

%



2.5

%








Non-GAAP organic revenue (2)

$

215,870


$

210,103



$

648,390


$

632,444


Foreign currency impact on non-GAAP organic revenue (3)

1,457




5,413



Non-GAAP organic revenue on constant currency basis (3)

$

217,327


$

210,103



$

653,803


$

632,444


Non-GAAP organic revenue growth on constant currency basis

3.4

%



3.4

%








GAAP recurring revenue

$

205,227


$

188,656



$

611,789


$

562,251


GAAP recurring revenue growth

8.8

%



8.8

%


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

(5,490)


571



(13,963)


4,887


Non-GAAP organic recurring revenue

$

199,737


$

189,227



$

597,826


$

567,138


Non-GAAP organic recurring revenue growth

5.6

%



5.4

%




(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 organic revenue for the prior year periods presented herein may not agree to non-GAAP organic 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,


2019


2018


GAAP net cash provided by operating activities

$

122,124


$

137,831


Less: purchase of property and equipment

(9,597)


(12,910)


Less: capitalized software development costs

(34,513)


(26,629)


Non-GAAP free cash flow

$

78,014


$

98,292


 

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