OREANDA-NEWS. August 02, 2016. Blackbaud (NASDAQ:BLKB), the world's leading cloud software company powering social good, today announced financial results for its second quarter ended June 30, 2016.

"Execution against our strategic plan is driving strong and balanced revenue growth across our portfolio,” said Mike Gianoni, Blackbaud's president and CEO. "Our next generation solutions are widening the gap between Blackbaud and the competition, positioning us well for future growth, and ultimately delivering greater value for our customers."

Second Quarter 2016 Results:

  • Total GAAP revenue was \\$180.2 million, up 15.3% from one year ago, with \\$141.5 million in GAAP recurring revenue, representing 78.5% of total revenue.
  • Total non-GAAP revenue was \\$182.0 million, up 14.7% from one year ago, with \\$143.3 million in non-GAAP recurring revenue, representing 78.7% of total non-GAAP revenue.
  • Non-GAAP organic revenue increased 9.4% and non-GAAP organic recurring revenue increased 11.5%.
  • GAAP income from operations decreased 1.8% to \\$14.2 million, with GAAP operating margin decreasing 140 basis points to 7.9%.
  • Non-GAAP income from operations increased 6.4% to \\$34.8 million, with non-GAAP operating margin decreasing 150 basis points to 19.1%.
  • GAAP net income increased 10.9% to \\$7.8 million, with GAAP diluted earnings per share up \\$0.02 to \\$0.17.
  • Non-GAAP net income increased 13.2% to \\$21.8 million, with non-GAAP diluted earnings per share up \\$0.05 to \\$0.46.
  • Cash flow from operations was \\$37.9 million, down from \\$43.3 million one year ago.

"We posted another strong quarter, and we're confident in our ability to achieve full year guidance which we've modified slightly for operating cash flow," said Tony Boor, Blackbaud's executive vice president and CFO. "Our current non-GAAP financial guidance accelerates organic revenue growth, improves profitability, and increases cash flow for the full year when compared to 2015."

Company Highlights:

  • Released SKY Reporting™ for Raisers Edge NXT™ customers by leveraging Blackbaud SKY™ capabilities
  • The acquisition of Attentive.ly accelerated Blackbaud's ability to integrate critical social media capabilities into its portfolio of solutions
  • Blackbaud opened a new Canadian office and training center in Toronto, Ontario
  • Released Blackbaud Success Assurance™ for Higher Education to bring a modern, end-to-end solution approach to higher education institutions
  • Named in Forbes' Annual Fast Tech 25 list as one of this year's fastest growing public tech companies, as well as Forbes' 2016 Most Innovative Growth Companies ranking

Dividend
Blackbaud announced today that its Board of Directors has declared a third quarter 2016 dividend of \\$0.12 per share payable on September 15, 2016 to stockholders of record on August 26, 2016.

Financial Outlook
Updated full year financial guidance.

  • Non-GAAP revenue of \\$725.0 million to \\$740.0 million
  • Non-GAAP income from operations of \\$141.0 million to \\$147.0 million
  • Non-GAAP operating margin of 19.4% to 19.9%
  • Non-GAAP diluted earnings per share of \\$1.90 to \\$1.98
  • Cash flow from operations of \\$135.0 million to \\$145.0 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 Fiscal 2016 Second Quarter Conference Call
When: August 2, 2016
Time: 8:00 a.m. (Eastern Time)
Live Call: 1-888-461-2018 (domestic) or 1-719-457-2712 (international); passcode 132904.
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, 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 relationship management, digital marketing, advocacy, accounting, payments, analytics, school management, grant management, corporate social responsibility, and volunteerism. Serving the industry for more than three decades, Blackbaud is headquartered in Charleston, South Carolina and has operations in the United States, Australia, Canada, Ireland, and the United Kingdom. For more information, visit www.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 our revenue and operating cash flow will continue to grow and that our operating margins will continue to improve, and expectations that we will achieve our projected 2016 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. 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 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 of non-GAAP organic revenue growth 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 non-GAAP organic revenue growth 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 non-GAAP organic revenue growth 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.

Unaudited calculations of non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth for the three and six months ended June 30, 2016, as well as unaudited reconciliations of those non-GAAP measures to their most directly comparable GAAP measures, are as follows:

    
(dollars in thousands)Three months ended
 June 30,
  Six months ended
 June 30,
 
2016
 2015
  2016
 2015
 
GAAP revenue\\$180,191 \\$156,259  \\$349,447 \\$303,252 
GAAP revenue growth15.3%  15.2% 
Add: Non-GAAP acquisition-related revenue (1)1,853 10,395  3,639 22,736 
Less: Revenue from divested businesses (2)— (191) — (586)
Total Non-GAAP adjustments1,853 10,204  3,639 22,150 
Non-GAAP revenue (3)\\$182,044 \\$166,463  \\$353,086 \\$325,402 
Non-GAAP organic revenue growth9.4%  8.5% 
      
Non-GAAP revenue (3)\\$182,044 \\$166,463  \\$353,086 \\$325,402 
Foreign currency impact on Non-GAAP revenue (4)887 —  2,414 — 
Non-GAAP revenue on constant currency basis (4)\\$182,931 \\$166,463  \\$355,500 \\$325,402 
Non-GAAP organic revenue growth on constant currency basis9.9%  9.2% 
      
GAAP subscriptions revenue\\$104,039 \\$80,009  \\$200,890 \\$152,522 
GAAP maintenance revenue\\$37,449 \\$38,627  74,609 77,523 
GAAP recurring revenue\\$141,488 \\$118,636  \\$275,499 \\$230,045 
GAAP recurring revenue growth19.3%  19.8% 
Add: Non-GAAP acquisition-related revenue (1)1,844 10,046  3,625 21,948 
Less: Revenue from divested businesses (2)— (133) — (378)
Total Non-GAAP adjustments1,844 9,913  3,625 21,570 
Non-GAAP recurring revenue\\$143,332 \\$128,549  \\$279,124 \\$251,615 
Non-GAAP organic recurring revenue growth11.5%  10.9% 

(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) For businesses divested in the prior fiscal year, non-GAAP organic revenue growth excludes the prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested business within the results of the combined company for the same period of time in both the prior and current periods.
(3) Non-GAAP revenue for the prior year periods presented herein will 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.
(4) 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.

Additional details of Blackbaud's methodology for calculating non-GAAP organic revenue growth and non-GAAP organic revenue growth on a constant currency basis can be found on Blackbaud's investor relations page.

As previously disclosed, beginning in 2016, Blackbaud now applies a non-GAAP effective tax rate of 32.0% in its calculation of the tax impact on non-GAAP adjustments, which impacts the tax impact related to non-GAAP adjustments, non-GAAP net income and non-GAAP diluted earnings per share measures. The non-GAAP effective tax rate utilized will be reviewed annually to determine whether it remains appropriate in consideration of Blackbaud's financial results including its periodic effective tax rate calculated in accordance with GAAP, its operating environment and related tax legislation in effect and other factors deemed necessary. All 2015 measures of the tax impact related to non-GAAP adjustments, non-GAAP net income and non-GAAP diluted earnings per share included in this news release are calculated under Blackbaud's historical non-GAAP effective tax rate of 39.0%.

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)June 30,
 2016
 December 31,
 2015
 
Assets  
Current assets:  
Cash and cash equivalents\\$15,263 \\$15,362 
Restricted cash due to customers195,034 255,038 
Accounts receivable, net of allowance of \\$4,386 and \\$4,943 at June 30, 2016 and December 31, 2015, respectively107,749 80,046 
Prepaid expenses and other current assets53,797 48,666 
Total current assets371,843 399,112 
Property and equipment, net54,144 52,651 
Software development costs, net27,793 19,551 
Goodwill436,012 436,449 
Intangible assets, net273,445 294,672 
Other assets21,847 20,901 
Total assets\\$1,185,084 \\$1,223,336 
Liabilities and stockholders’ equity  
Current liabilities:  
Trade accounts payable\\$27,817 \\$19,208 
Accrued expenses and other current liabilities44,739 57,461 
Due to customers195,034 255,038 
Debt, current portion4,375 4,375 
Deferred revenue, current portion250,449 230,216 
Total current liabilities522,414 566,298 
Debt, net of current portion398,865 403,712 
Deferred tax liability27,823 27,996 
Deferred revenue, net of current portion6,212 7,119 
Other liabilities8,102 7,623 
Total liabilities963,416 1,012,748 
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, 57,543,656 and 56,873,817 shares issued at June 30, 2016 and December 31, 2015, respectively58 57 
Additional paid-in capital294,810 276,340 
Treasury stock, at cost; 10,048,472 and 9,903,071 shares at June 30, 2016 and December 31, 2015, respectively(207,898)(199,861)
Accumulated other comprehensive loss(1,640)(825)
Retained earnings136,338 134,877 
Total stockholders’ equity221,668 210,588 
Total liabilities and stockholders’ equity\\$1,185,084 \\$1,223,336 
       
Blackbaud, Inc.
Consolidated statements of comprehensive income
(Unaudited)
    
(dollars in thousands, except per share amounts)Three months ended
 June 30,
  Six months ended
 June 30,
 
2016
 2015
  2016
 2015
 
Revenue     
Subscriptions\\$104,039 \\$80,009  \\$200,890 \\$152,522 
Maintenance37,449 38,627  74,609 77,523 
Services35,419 33,667  67,833 64,973 
License fees and other3,284 3,956  6,115 8,234 
Total revenue180,191 156,259  349,447 303,252 
Cost of revenue     
Cost of subscriptions52,142 39,400  101,814 75,578 
Cost of maintenance5,685 6,969  11,008 14,471 
Cost of services24,696 25,915  49,015 52,886 
Cost of license fees and other1,020 1,146  1,622 2,307 
Total cost of revenue83,543 73,430  163,459 145,242 
Gross profit96,648 82,829  185,988 158,010 
Operating expenses     
Sales, marketing and customer success39,308 29,723  74,922 58,285 
Research and development22,578 20,166  45,357 41,442 
General and administrative19,857 17,955  39,613 34,798 
Amortization708 524  1,460 1,012 
Total operating expenses82,451 68,368  161,352 135,537 
Income from operations14,197 14,461  24,636 22,473 
Interest expense(2,721)(1,873) (5,396)(3,559)
Other expense, net(65)(1,274) (170)(1,561)
Income before provision for income taxes11,411 11,314  19,070 17,353 
Income tax provision3,598 4,272  6,262 6,026 
Net income\\$7,813 \\$7,042  \\$12,808 \\$11,327 
Earnings per share     
Basic\\$0.17 \\$0.15  \\$0.28 \\$0.25 
Diluted\\$0.17 \\$0.15  \\$0.27 \\$0.24 
Common shares and equivalents outstanding     
Basic weighted average shares 46,083,055  45,579,345   46,047,788  45,554,645 
Diluted weighted average shares 46,927,626  46,402,707   46,865,218  46,289,440 
Dividends per share\\$0.12 \\$0.12  \\$0.24 \\$0.24 
Other comprehensive (loss) income     
Foreign currency translation adjustment(431)(196) (28)(522)
Unrealized (loss) gain on derivative instruments, net of tax(118)97  (787)(372)
Total other comprehensive loss(549)(99) (815)(894)
Comprehensive income\\$7,264 \\$6,943  \\$11,993 \\$10,433 
              
Blackbaud, Inc.
Consolidated statements of cash flows
(Unaudited)
  
 Six months ended
 June 30,
 
(dollars in thousands)2016
 2015
 
Cash flows from operating activities  
Net income\\$12,808 \\$11,327 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization35,549 27,272 
Provision for doubtful accounts and sales returns2,264 2,934 
Stock-based compensation expense15,787 11,413 
Excess tax benefits from exercise and vesting of stock-based compensation(2,729)(954)
Deferred taxes(129)(801)
Loss on sale of business— 1,976 
Amortization of deferred financing costs and discount478 420 
Other non-cash adjustments(429)289 
Changes in operating assets and liabilities, net of acquisition and disposal of businesses:  
Accounts receivable(30,097)(13,355)
Prepaid expenses and other assets(6,011)(2,102)
Trade accounts payable8,857 5,235 
Accrued expenses and other liabilities(18,019)(9,882)
Restricted cash due to customers62,038 78,718 
Due to customers(62,038)(78,718)
Deferred revenue19,658 13,792 
Net cash provided by operating activities37,987 47,564 
Cash flows from investing activities  
Purchase of property and equipment(12,569)(7,014)
Capitalized software development costs(12,168)(6,982)
Purchase of net assets of acquired companies, net of cash530 — 
Net cash used in sale of business— (521)
Net cash used in investing activities(24,207)(14,517)
Cash flows from financing activities  
Proceeds from issuance of debt120,900 70,100 
Payments on debt(126,088)(93,388)
Proceeds from exercise of stock options5 18 
Excess tax benefits from exercise and vesting of stock-based compensation2,729 954 
Dividend payments to stockholders(11,398)(11,255)
Net cash used in financing activities(13,852)(33,571)
Effect of exchange rate on cash and cash equivalents(27)(984)
Net decrease in cash and cash equivalents(99)(1,508)
Cash and cash equivalents, beginning of period15,362 14,735 
Cash and cash equivalents, end of period\\$15,263 \\$13,227 
       
Blackbaud, Inc.
Reconciliation of GAAP to non-GAAP financial measures
(Unaudited)
    
(dollars in thousands, except per share amounts)Three months ended
 June 30,
  Six months ended
 June 30,
 
2016
 2015
  2016
 2015
 
GAAP Revenue\\$180,191 \\$156,259  \\$349,447 \\$303,252 
Non-GAAP adjustments:     
Add: Acquisition-related deferred revenue write-down1,853 2,484  3,639 6,006 
Non-GAAP revenue\\$182,044 \\$158,743  \\$353,086 \\$309,258 
      
GAAP gross profit\\$96,648 \\$82,829  \\$185,988 \\$158,010 
GAAP gross margin53.6%53.0% 53.2%52.1%
Non-GAAP adjustments:     
Add: Acquisition-related deferred revenue write-down1,853 2,484  3,639 6,006 
Add: Stock-based compensation expense773 1,049  1,645 1,950 
Add: Amortization of intangibles from business combinations9,927 7,567  19,808 15,206 
Add: Employee severance78 343  142 939 
Subtotal12,631 11,443  25,234 24,101 
Non-GAAP gross profit\\$109,279 \\$94,272  \\$211,222 \\$182,111 
Non-GAAP gross margin60.0%59.4% 59.8%58.9%
      
GAAP income from operations\\$14,197 \\$14,461  \\$24,636 \\$22,473 
GAAP operating margin7.9%9.3% 7.0%7.4%
Non-GAAP adjustments:     
Add: Acquisition-related deferred revenue write-down1,853 2,484  3,639 6,006 
Add: Stock-based compensation expense7,871 6,311  15,787 11,413 
Add: Amortization of intangibles from business combinations10,635 8,091  21,268 16,218 
Add: Employee severance113 443  401 1,582 
Add: Acquisition-related integration costs119 187  502 671 
Add: Acquisition-related expenses— 715  113 788 
Subtotal20,591 18,231  41,710 36,678 
Non-GAAP income from operations\\$34,788 \\$32,692  \\$66,346 \\$59,151 
Non-GAAP operating margin19.1%20.6% 18.8%19.1%
      
GAAP net income\\$7,813 \\$7,042  \\$12,808 \\$11,327 
      
Shares used in computing GAAP diluted earnings per share 46,927,626  46,402,707   46,865,218  46,289,440 
GAAP diluted earnings per share\\$0.17 \\$0.15  \\$0.27 \\$0.24 
      
Non-GAAP adjustments:     
Add: Total Non-GAAP adjustments affecting loss from operations20,591 18,231  41,710 36,678 
Add: Loss on sale of business— 1,976  — 1,976 
Less: Tax impact related to Non-GAAP adjustments(6,643)(8,019) (13,187)(15,816)
Non-GAAP net income\\$21,761 \\$19,230  \\$41,331 \\$34,165 
      
Shares used in computing Non-GAAP diluted earnings per share 46,927,626  46,402,707   46,865,218  46,289,440 
Non-GAAP diluted earnings per share\\$0.46 \\$0.41  \\$0.88 \\$0.74 
              
Blackbaud, Inc.
Reconciliation of GAAP to Non-GAAP financial measures (continued)
(Unaudited)
    
(dollars in thousands)Three months ended
 June 30,
  Six months ended
 June 30,
 
2016
 2015
  2016
 2015
 
Detail of certain Non-GAAP adjustments:     
Stock-based compensation expense:     
Included in cost of revenue:     
Cost of subscriptions\\$290 \\$325  \\$571 \\$468 
Cost of maintenance123 85  246 246 
Cost of services360 639  828 1,236 
Total included in cost of revenue773 1,049  1,645 1,950 
Included in operating expenses:     
Sales, marketing and customer success921 804  1,822 1,506 
Research and development1,559 1,186  3,094 2,164 
General and administrative4,618 3,272  9,226 5,793 
Total included in operating expenses7,098 5,262  14,142 9,463 
Total stock-based compensation expense\\$7,871 \\$6,311  \\$15,787 \\$11,413 
      
Amortization of intangibles from business combinations:     
Included in cost of revenue:     
Cost of subscriptions\\$7,853 \\$5,767  \\$15,664 \\$11,539 
Cost of maintenance1,332 1,006  2,664 2,159 
Cost of services657 702  1,310 1,309 
Cost of license fees and other85 92  170 199 
Total included in cost of revenue9,927 7,567  19,808 15,206 
Included in operating expenses708 524  1,460 1,012 
Total amortization of intangibles from business combinations\\$10,635 \\$8,091  \\$21,268 \\$16,218