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Blackbaud Announces 2020 Third Quarter Results

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Delivers on Increased Profitability Driving 11% Year over Year Increase in Diluted Earnings Per Share

CHARLESTON, S.C., Oct. 28, 2020 /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, 2020.

"Our customers continue to navigate the challenges caused by the pandemic which will put pressure on our ability to drive near-term revenue growth in 2020 and 2021, thus we're executing our balanced strategy with a sharper focus on profitability," said Mike Gianoni, Blackbaud's president and CEO. "Digital transformation has shifted from a long-term strategy to a daily reality, as organizations across the market have adapted to new and distributed ways of working. We've had a singular focus on the social good sector for nearly 40 years, and we remain very well positioned as a leader in this market and the best long-term partner for social good organizations. I'm excited about the progress we're making to deliver unmatched innovation for our customers and enhance the future of work at Blackbaud for our employees."

Third Quarter 2020 Results Compared to Third Quarter 2019 Results:

  • Total GAAP revenue was $215.0 million, down 2.8%, with $200.1 million in GAAP recurring revenue, representing 93.1% of total GAAP revenue. GAAP recurring revenue was down 2.5%.

  • Total non-GAAP revenue was $215.0 million, down 2.9%, with $200.1 million in non-GAAP recurring revenue, representing 93.1% of total non-GAAP revenue. Non-GAAP recurring revenue was down 2.6%.

  • Non-GAAP organic recurring revenue decreased 2.6%.

  • GAAP income from operations was $10.1 million, with GAAP operating margin of 4.7%, an increase of 110 basis points.

  • Non-GAAP income from operations was $48.1 million, with non-GAAP operating margin of 22.4%, an increase of 590 basis points.

  • GAAP net income was $4.9 million, with GAAP diluted earnings per share of $0.10, up $0.01 per share.

  • Non-GAAP net income was $35.7 million, with non-GAAP diluted earnings per share of $0.73, up $0.17 per share.

  • Non-GAAP free cash flow was $41.4 million, a decrease of $21.1 million.

"Our third quarter results are indicative of our ability to drive a strong margin profile inclusive of near-term pressure on revenues and necessary investments in areas like engineering and security," said Tony Boor, executive vice president and CFO. "During the quarter we also completed the purchase of our Charleston headquarters, and we will continue to optimize our overall real estate footprint in the fourth quarter to align with our workforce strategy and the future of work at Blackbaud. There are significant opportunities in front of us and we are well positioned to continue making the critical investments necessary to ensure the long-term success of the business while remaining committed to driving increased shareholder value through profitability and earnings growth."

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.

Conference Call Details
What: Blackbaud's 2020 Third Quarter Conference Call
When: October 29, 2020
Time: 8:00 a.m. (Eastern Time)
Live Call: 1-877-407-3088 (US/Canada)
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, higher education institutions, K–12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies 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, Instagram 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 condition and results of operations. 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; the security of our data and that of our customers; uncertainty regarding the COVID-19 disruption; 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,
2020

December 31,
2019

Assets



Current assets:



Cash and cash equivalents

$

30,563


$

31,810


Restricted cash

203,660


545,485


Accounts receivable, net of allowance of $10,727 and $5,529 at September 30, 2020 and December 31, 2019, respectively

96,830


88,868


Customer funds receivable

4,901


524


Prepaid expenses and other current assets

76,761


67,852


Total current assets

412,715


734,539


Property and equipment, net

109,469


35,546


Operating lease right-of-use assets

30,218


104,400


Software development costs, net

108,891


101,302


Goodwill

632,840


634,088


Intangible assets, net

284,414


317,895


Other assets

72,617


65,193


Total assets

$

1,651,164


$

1,992,963


Liabilities and stockholders' equity



Current liabilities:



Trade accounts payable

$

31,775


$

47,676


Accrued expenses and other current liabilities

48,380


73,317


Due to customers

207,356


546,009


Debt, current portion

10,305


7,500


Deferred revenue, current portion

322,452


314,335


Total current liabilities

620,268


988,837


Debt, net of current portion

497,953


459,600


Deferred tax liability

46,989


44,594


Deferred revenue, net of current portion

5,803


1,802


Operating lease liabilities, net of current portion

25,706


95,624


Other liabilities

12,610


5,742


Total liabilities

1,209,329


1,596,199


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, 60,903,925 and 60,206,091 shares issued at September 30, 2020 and December 31, 2019, respectively

61


60


Additional paid-in capital

512,269


457,804


Treasury stock, at cost; 11,337,486 and 11,066,354 shares at September 30, 2020 and December 31, 2019, respectively

(311,951)


(290,665)


Accumulated other comprehensive loss

(8,872)


(5,290)


Retained earnings

250,328


234,855


Total stockholders' equity

441,835


396,764


Total liabilities and stockholders' equity

$

1,651,164


$

1,992,963


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,

2020

2019


2020

2019

Revenue






Recurring

$

200,102


$

205,227



$

621,229


$

611,789


One-time services and other

14,899


15,893



49,384


50,795


Total revenue

215,001


221,120



670,613


662,584


Cost of revenue






Cost of recurring

84,251


87,645



265,172


259,013


Cost of one-time services and other

14,434


14,152



43,317


42,874


Total cost of revenue

98,685


101,797



308,489


301,887


Gross profit

116,316


119,323



362,124


360,697


Operating expenses






Sales, marketing and customer success

48,460


55,499



159,149


165,963


Research and development

22,783


25,941



72,655


80,304


General and administrative

34,132


28,897



89,829


84,557


Amortization

749


703



2,219


3,231


Restructuring

105


400



179


3,083


Total operating expenses

106,229


111,440



324,031


337,138


Income from operations

10,087


7,883



38,093


23,559


Interest expense

(3,997)


(5,111)



(12,049)


(16,233)


Other income, net

542


2,158



2,242


4,521


Income before provision for income taxes

6,632


4,930



28,286


11,847


Income tax provision

1,756


364



6,948


1,263


Net income

$

4,876


$

4,566



$

21,338


$

10,584


Earnings per share






Basic

$

0.10


$

0.10



$

0.44


$

0.22


Diluted

$

0.10


$

0.09



$

0.44


$

0.22


Common shares and equivalents outstanding






Basic weighted average shares

48,271,139


47,757,769



48,182,799


47,668,235


Diluted weighted average shares

48,859,707


48,464,529



48,582,068


48,223,712


Other comprehensive income (loss)






Foreign currency translation adjustment

4,661


(3,893)



(1,954)


(5,321)


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

943


(363)



(1,628)


(3,234)


Total other comprehensive income (loss)

5,604


(4,256)



(3,582)


(8,555)


Comprehensive income

$

10,480


$

310



$

17,756


$

2,029


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



Nine months ended
September 30,

(dollars in thousands)

2020

2019

Cash flows from operating activities



Net income

$

21,338


$

10,584


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



Depreciation and amortization

68,755


63,998


Provision for credit losses and sales returns

10,156


6,192


Stock-based compensation expense

54,556


43,621


Deferred taxes

1,879


(75)


Amortization of deferred financing costs and discount

569


564


Other non-cash adjustments

2,203


2,047


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



Accounts receivable

(18,319)


(6,375)


Prepaid expenses and other assets

4,292


(5,129)


Trade accounts payable

(17,203)


(74)


Accrued expenses and other liabilities

(31,595)


(13,592)


Deferred revenue

12,534


20,363


Net cash provided by operating activities

109,165


122,124


Cash flows from investing activities



Purchase of property and equipment

(25,836)


(9,597)


Capitalized software development costs

(32,028)


(34,513)


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


(109,353)


Other investing activities


500


Net cash used in investing activities

(57,864)


(152,963)


Cash flows from financing activities



Proceeds from issuance of debt

267,400


371,200


Payments on debt

(290,999)


(255,625)


Debt issuance costs

(593)



Employee taxes paid for withheld shares upon equity award settlement

(21,286)


(20,279)


Proceeds from exercise of stock options

4


7


Change in due to customers

(337,821)


(215,942)


Change in customer funds receivable

(4,495)


(6,283)


Dividend payments to stockholders

(5,960)


(17,705)


Net cash used in financing activities

(393,750)


(144,627)


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

(623)


(2,240)


Net decrease in cash, cash equivalents and restricted cash

(343,072)


(177,706)


Cash, cash equivalents and restricted cash, beginning of period

577,295


449,846


Cash, cash equivalents and restricted cash, end of period

$

234,223


$

272,140


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,
2020

December 31,
2019

Cash and cash equivalents

$

30,563


$

31,810


Restricted cash

203,660


545,485


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

$

234,223


$

577,295


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,

2020

2019


2020

2019

GAAP Revenue

$

215,001


$

221,120



$

670,613


$

662,584


Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down


259




1,691


Non-GAAP revenue

$

215,001


$

221,379



$

670,613


$

664,275








GAAP gross profit

$

116,316


$

119,323



$

362,124


$

360,697


GAAP gross margin

54.1

%

54.0

%


54.0

%

54.4

%

Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down


259




1,691


Add: Stock-based compensation expense

3,688


784



7,123


2,549


Add: Amortization of intangibles from business combinations

9,219


11,225



29,835


33,970


Add: Employee severance


19



813


1,134


Subtotal

12,907


12,287



37,771


39,344


Non-GAAP gross profit

$

129,223


$

131,610



$

399,895


$

400,041


Non-GAAP gross margin

60.1

%

59.5

%


59.6

%

60.2

%







GAAP income from operations

$

10,087


$

7,883



$

38,093


$

23,559


GAAP operating margin

4.7

%

3.6

%


5.7

%

3.6

%

Non-GAAP adjustments:






Add: Acquisition-related deferred revenue write-down


259




1,691


Add: Stock-based compensation expense

20,843


14,866



54,556


43,621


Add: Amortization of intangibles from business combinations

9,968


11,928



32,054


37,201


Add: Employee severance

232


48



4,593


3,660


Add: Acquisition-related integration costs

(15)


1,024



(118)


2,206


Add: Acquisition-related expenses

64


220



288


1,030


Add: Restructuring and other real estate activities

6,943


400



7,017


3,083


Subtotal

38,035


28,745



98,390


92,492


Non-GAAP income from operations

$

48,122


$

36,628



$

136,483


$

116,051


Non-GAAP operating margin

22.4

%

16.5

%


20.4

%

17.5

%







GAAP income before provision for income taxes

$

6,632


$

4,930



$

28,286


$

11,847


GAAP net income

$

4,876


$

4,566



$

21,338


$

10,584








Shares used in computing GAAP diluted earnings per share

48,859,707


48,464,529



48,582,068


48,223,712


GAAP diluted earnings per share

$

0.10


$

0.09



$

0.44


$

0.22








Non-GAAP adjustments:






Add: GAAP income tax provision

1,756


364



6,948


1,263


Add: Total non-GAAP adjustments affecting income from operations

38,035


28,745



98,390


92,492


Non-GAAP income before provision for income taxes

44,667


33,675



126,676


104,339


Assumed non-GAAP income tax provision(1)

8,933


6,735



$

25,335


$

20,868


Non-GAAP net income

$

35,734


$

26,940



$

101,341


$

83,471








Shares used in computing non-GAAP diluted earnings per share

48,859,707


48,464,529



48,582,068


48,223,712


Non-GAAP diluted earnings per share

$

0.73


$

0.56



$

2.09


$

1.73




(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,

2020

2019


2020

2019

GAAP revenue

$

215,001


$

221,120



$

670,613


$

662,584


GAAP revenue growth

(2.8)

%



1.2

%


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


259




1,691


Non-GAAP organic revenue(2)

$

215,001


$

221,379



$

670,613


$

664,275


Non-GAAP organic revenue growth

(2.9)

%



1.0

%








Non-GAAP organic revenue(2)

$

215,001


$

221,379



$

670,613


$

664,275


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

(796)




1,522



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

$

214,205


$

221,379



$

672,135


$

664,275


Non-GAAP organic revenue growth on constant currency basis

(3.2)

%



1.2

%








GAAP recurring revenue

$

200,102


$

205,227



$

621,229


$

611,789


GAAP recurring revenue growth

(2.5)

%



1.5

%


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


259




1,691


Non-GAAP organic recurring revenue

$

200,102


$

205,486



$

621,229


$

613,480


Non-GAAP organic recurring revenue growth

(2.6)

%



1.3

%




(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 Australian Dollar, British Pound, Canadian Dollar and EURO.

(dollars in thousands)

Nine months ended
September 30,

2020

2019

GAAP net cash provided by operating activities

$

109,165


$

122,124


Less: purchase of property and equipment

(25,836)


(9,597)


Less: capitalized software development costs

(32,028)


(34,513)


Non-GAAP free cash flow

$

51,301


$

78,014


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SOURCE Blackbaud, Inc.