Blackbaud, Inc. Announces Second Quarter 2012 Results

Blackbaud, Inc. (Nasdaq: BLKB), the leading global provider of software and services for nonprofits, today announced financial results for its second quarter ended June 30, 2012.

“Blackbaud delivered second quarter financial results that were consistent with our guidance for standalone Blackbaud and made significant progress on integrating the Convio acquisition, despite increased macroeconomic headwinds,” stated Marc Chardon, Chief Executive Officer for Blackbaud.

Chardon added, “Over the last few months, we have made significant progress integrating Convio’s employees and operations into Blackbaud. Market reception to our combination has been favorable, and we are excited to be in a unique position of delivering the industry’s leading CRM and online fundraising solutions from a single vendor. We believe that Blackbaud will increasingly be recognized as the vendor of choice to serve the multi-channel supporter engagement needs of nonprofit organizations.”

Second Quarter 2012 GAAP Financial Results: Consolidated

Blackbaud reported total revenue of $110.2 million for the second quarter of 2012, an increase of 17% compared to $93.8 million for the second quarter of 2011. GAAP loss from operations and net loss were $(1.9) million and $(2.3) million, respectively, compared with GAAP income from operations of $14.5 million and net income of $9.4 million, respectively, for the second quarter of 2011. Diluted loss per share was $(0.05) for the second quarter of 2012, compared with diluted earnings per share of $0.21 in the same period last year.

Second Quarter 2012 Non-GAAP Financial Results: Consolidated

Blackbaud reported total non-GAAP revenue of $113.7 million for the second quarter of 2012. Non-GAAP income from operations, which excludes write-down of Convio deferred revenue, stock-based compensation expense, amortization of intangibles arising from business combinations, acquisition and integration related expenses, impairment of cost method investment, write-off of prepaid proprietary software licenses and gain on sale of assets, was $19.3 million for the second quarter of 2012, compared to $19.9 million in the same period last year. Non-GAAP net income was $10.8 million for the second quarter of 2012, compared to $12.3 million in the same period last year. Non-GAAP diluted earnings per share were $0.24 for the second quarter of 2012, compared to $0.28 in the same period last year.

A reconciliation between GAAP and non-GAAP results has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Second Quarter 2012 Non-GAAP Financial Results: Blackbaud Standalone

On a standalone basis, Blackbaud generated total revenue of $99.6 million, an increase of 6% on a year-over-year basis and consistent with the company’s previously issued guidance range of $99 million to $102 million. Non-GAAP income from operations was $17.1 million for the second quarter of 2012. This compared to $19.9 million in the same period last year and was generally consistent with the company’s previously issued guidance range of $15.5 million to $17.0 million.

A reconciliation between Blackbaud’s standalone GAAP and non-GAAP results has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Tony Boor, Chief Financial Officer of Blackbaud, stated, “The second half of 2012 represents a transition period as we continue to take action on numerous plans to capitalize on the synergies between Blackbaud and Convio. The majority of the benefits we expect to realize as a result of our efforts, from both a growth and cost synergies perspective, are expected to occur during 2013 and beyond as a result of the longer than expected regulatory review process for the acquisition.”

Consolidated Balance Sheet and Cash Flow

The Company ended the second quarter with $21.2 million in cash, compared to $46.0 million at the end of the first quarter. The Company ended the second quarter with $259.6 million of debt, which reflects the drawing down of credit facility for the acquisition of Convio. The Company generated $10.9 million in cash flow from operations during the second quarter, returned $10.8 million to stockholders by way of dividend and invested $11.6 million in capital expenditures.

Dividend and Share Repurchase Program

Blackbaud announced today that its Board of Directors has approved a third quarter 2012 dividend of $0.12 per share payable on September 14, 2012, to stockholders of record on August 28, 2012. Additionally, as of June 30, 2012, $50.0 million remained available under the Company’s share repurchase program.

Conference Call Details

Blackbaud will host a conference call today, August 7, 2012, at 5:00 p.m. (Eastern Time) to discuss the Company's financial results, operations and related matters. To access this call, dial 877-407-3982 (domestic) or 201-493-6780 (international). A replay of this conference call will be available through August 14, 2012, at 877-870-5176 (domestic) or 858-384-5517 (international). The replay passcode is 397056. A live webcast of this conference call will be available on the "Investor Relations" page of the Company's website at www.blackbaud.com/investorrelations, and a replay will be archived on the website as well.

About Blackbaud

Serving the nonprofit and education sectors for 30 years, Blackbaud (NASDAQ: BLKB) combines technology and expertise to help organizations achieve their missions. Blackbaud works with more than 27,000 customers in over 60 countries that support higher education, healthcare, human services, arts and culture, faith, the environment, independent K-12 education, animal welfare and other charitable causes. The Company offers a full spectrum of cloud-based and on-premise software solutions and related services for organizations of all sizes including: fundraising, eMarketing, social media, advocacy, constituent relationship management (CRM), analytics, financial management and vertical-specific solutions. Using Blackbaud technology, these organizations raise more than $100 billion each year. Recognized as a top company by Forbes, InformationWeek, and Software Magazine and honored by Best Places to Work. Blackbaud is headquartered in Charleston, South Carolina and has operations in the United States, Australia, Canada, Mexico, the Netherlands 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: market acceptance of Blackbaud’s acquisition of Convio and the resulting unique product offering position; Blackbaud’s ability to achieve its synergy targets and the timing of the benefits. These statements involve a number of risks and uncertainties; Blackbaud’s ability to serve the multi-channel supporter engagement needs of nonprofit organizations; and macroeconomic trends and their effects on Blackbaud and nonprofits. 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 and other risks associated with acquisitions; general economic risks; uncertainty regarding increased business and renewals from existing customers; continued success in sales growth; risks associated with successful implementation of multiple integrated software products; the ability to attract and retain key personnel; risks related to our dividend policy and share repurchase program, including potential limitations on our ability to grow and the possibility that we might discontinue payment of dividends; risks relating to restrictions imposed by the credit facility; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organizations; technological changes that make our products and services less competitive; 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 consolidated non-GAAP revenue, consolidated non-GAAP income from operations, consolidated non-GAAP net income, consolidated non-GAAP diluted earnings per share, and Blackbaud standalone non-GAAP income from operations. 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 the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial results with other companies in Blackbaud's industry, many of which present similar non-GAAP financial measures to investors. As noted, the non-GAAP financial results discussed above exclude: a write-down of Convio deferred revenue, stock-based compensation expense; costs associated with amortization of intangibles arising from business combinations; a write-off of prepaid proprietary software licenses; acquisition and integration related expenses; a charge associated with impairment of cost method investment; and, a gain in connection with the sale of assets. We use these measures and believe them useful to investors because they provide additional insight in comparing results from period to period.

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. As previously mentioned, a reconciliation of our 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.

 
Blackbaud, Inc.
Consolidated balance sheets
(Unaudited)
         
June 30, December 31,
(in thousands, except share amounts)           2012       2011  
 
Assets
Current assets:
Cash and cash equivalents $ 21,192 $ 52,520
Donor restricted cash 18,314 40,205

Accounts receivable, net of allowance of $4,208 and $3,913 at June 30, 2012 and December 31, 2011, respectively
89,208 62,656
Prepaid expenses and other current assets 44,229 31,016
Deferred tax asset, current portion   1,959       1,551  
Total current assets 174,902 187,948
Property and equipment, net 43,980 34,397
Deferred tax asset 774 29,376
Goodwill 262,568 90,122
Intangible assets, net 177,747 44,660
Other assets   8,458       6,087  
 
Total assets $ 668,429     $ 392,590  
 
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 17,594 $ 13,464
Accrued expenses and other current liabilities 37,506 32,707
Donations payable 18,314 40,205
Debt, current portion 165,000 -
Deferred revenue, current portion   175,076       153,665  
Total current liabilities 413,490 240,041
Long-term debt, net of current portion 94,600 -
Deferred tax liability 1,348 -
Deferred revenue, net of current portion 9,177 9,772
Other liabilities   3,137       2,775  
 
Total liabilities   521,752       252,588  
 
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, 54,240,408 and 53,959,532 shares issued at June 30, 2012 and December 31, 2011, respectively
54 54
Additional paid-in capital 194,254 175,401

Treasury stock, at cost; 9,065,862 and 9,019,824 shares at June 30, 2012 and December 31, 2011, respectively
(167,646 ) (166,226 )
Accumulated other comprehensive loss (1,601 ) (1,148 )
Retained earnings   121,616       131,921  
 
Total stockholders' equity   146,677       140,002  
 
Total liabilities and stockholders' equity $ 668,429     $ 392,590  
 
 
Blackbaud, Inc.
Consolidated statements of comprehensive income
(Unaudited)
             
 
Three months ended June 30, Six months ended June 30,
(in thousands, except share and per share amounts)           2012       2011     2012       2011  
Revenue
License fees $ 4,521 $ 5,097 $ 11,689 $ 9,648
Subscriptions 37,923 25,885 65,985 49,802
Services 31,790 28,332 55,748 53,311
Maintenance 33,880 32,610 67,446 64,443
Other revenue   2,076       1,858     4,028       3,206  
 
Total revenue   110,190       93,782     204,896       180,410  
 
Cost of revenue
Cost of license fees 821 1,062 1,434 1,782
Cost of subscriptions 16,561 10,473 29,535 19,635
Cost of services 25,299 20,307 45,341 39,181
Cost of maintenance 6,178 6,035 12,155 12,286
Cost of other revenue   1,646       1,411     3,115       2,545  
 
Total cost of revenue   50,505       39,288     91,580       75,429  
 
Gross profit   59,685       54,494     113,316       104,981  
 
Operating expenses
Sales and marketing 24,223 19,058 44,600 38,336
Research and development 14,856 11,527 28,160 23,493
General and administrative 21,753 9,176 36,254 18,378
Impairment of cost method investment 200 - 200 -
Amortization   530       246     727       479  
 
Total operating expenses   61,562       40,007     109,941       80,686  
 
Income (loss) from operations (1,877 ) 14,487 3,375 24,295
Interest income 33 45 80 78
Interest expense (1,462 ) (60 ) (1,653 ) (84 )
Other (expense) income, net   (140 )     216     (448 )     285  
 
Income (loss) before provision for income taxes (3,446 ) 14,688 1,354 24,574
Income tax provision (benefit)   (1,175 )     5,326     866       7,919  
 
Net income (loss) $ (2,271 )   $ 9,362   $ 488     $ 16,655  
 
Earnings (loss) per share
Basic $ (0.05 ) $ 0.22 $ 0.01 $ 0.38
Diluted $ (0.05 ) $ 0.21 $ 0.01 $ 0.38
 
Common shares and equivalents outstanding
Basic weighted average shares 44,112,905 43,447,007 44,023,650 43,399,874
Diluted weighted average shares 44,112,905 44,098,046 44,659,678 44,004,712
 
Dividends per share $ 0.12 $ 0.12 $ 0.24 $ 0.24
 
 
Other comprehensive income (loss)
Foreign currency translation adjustment (168 ) (87 ) 111 169
Unrealized loss on derivative instruments, net of tax   (564 )     -     (564 )     -  
Comprehensive income (loss) $ (3,003 )   $ 9,275   $ 35     $ 16,824  
 
 
Blackbaud, Inc.
Consolidated statements of cash flows
(Unaudited)
         
Six months ended June 30,
(in thousands)           2012       2011  
 
Cash flows from operating activities
Net income $ 488 $ 16,655
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,223 8,170
Provision for doubtful accounts and sales returns 2,511 2,366
Stock-based compensation expense 9,624 7,325
Excess tax benefits from stock-based compensation (340 ) (226 )
Deferred taxes 464 3,188
Impairment of cost method investment 200 -
Gain on sale of assets - (549 )
Other non-cash adjustments 177 (68 )
Changes in operating assets and liabilities, net of acquisition of businesses:
Accounts receivable (16,135 ) (10,580 )
Prepaid expenses and other assets (7,268 ) 3,602
Trade accounts payable 643 1,355
Accrued expenses and other liabilities (4,692 ) (2,132 )
Donor restricted cash 21,868 5,540
Donations payable (21,868 ) (5,540 )
Deferred revenue   13,054       9,246  
Net cash provided by operating activities   10,949       38,352  
Cash flows from investing activities
Purchase of property and equipment (11,568 ) (7,703 )
Purchase of net assets of acquired companies, net of cash acquired (280,095 ) (16,475 )
Capitalized software development costs (235 ) (506 )
Proceeds from sale of assets   -       719  
Net cash used in investing activities   (291,898 )     (23,965 )
Cash flows from financing activities
Proceeds from issuance of debt 312,000 -
Payments on debt (52,400 ) -
Payments of deferred financing costs (2,440 ) (767 )
Proceeds from exercise of stock options 2,984 1,925
Excess tax benefits from stock-based compensation 340 226
Dividend payments to stockholders (10,830 ) (10,686 )
Payments on capital lease obligations   -       (25 )
Net cash provided by (used in) financing activities   249,654       (9,327 )
Effect of exchange rate on cash and cash equivalents   (33 )     363  
Net increase (decrease) in cash and cash equivalents (31,328 ) 5,423
Cash and cash equivalents, beginning of period   52,520       28,004  
Cash and cash equivalents, end of period $ 21,192     $ 33,427  
 
 
Blackbaud, Inc.
Reconciliation of GAAP to Non-GAAP financial measures
(Unaudited)
         
 
 
 
Three months ended June 30, Six months ended June 30,
(in thousands, except per share amounts)           2012     2011     2012     2011  
 
GAAP revenue $ 110,190 $ 93,782 $ 204,896 $ 180,410
 
Non-GAAP adjustments:
Add back: Convio deferred revenue writedown   3,468     -     3,468     -  
Total Non-GAAP adjustments 3,468 - 3,468 -
 
Non-GAAP revenue $ 113,658   $ 93,782   $ 208,364   $ 180,410  
 
 
GAAP gross profit $ 59,685 $ 54,494 $ 113,316 $ 104,981
 
Non-GAAP adjustments:
Add: Convio deferred revenue writedown 3,468 - 3,468 -
Add: Stock-based compensation expense 899 810 1,683 1,611
Add: Amortization of intangibles from business combinations 3,567 1,636 5,346 3,259
Add: Write-off of prepaid proprietary software licenses   350     -     350     -  
Total Non-GAAP adjustments 8,284 2,446 10,847 4,870
 
Non-GAAP gross profit $ 67,969   $ 56,940   $ 124,163   $ 109,851  
 
Non-GAAP gross margin   60 %   61 %   60 %   61 %
 
GAAP income (loss) from operations $ (1,877 ) $ 14,487 $ 3,375 $ 24,295
 
Non-GAAP adjustments:
Add: Convio deferred revenue writedown 3,468 - 3,468 -
Add: Stock-based compensation expense 5,788 3,530 9,624 7,326
Add: Amortization of intangibles from business combinations 4,097 1,882 6,073 3,738
Add: Acquisition-related expenses 4,244 - 6,427 1,054
Add: Acquisition integration costs 3,029 - 3,029 -
Add: Write-off of prepaid proprietary software licenses 350 - 350 -
Add: Impairment of cost method investment 200 - 200 -
Less: Gain on sale of assets   -     -     -     (549 )
Total Non-GAAP adjustments 21,176 5,412 29,171 11,569
 
Non-GAAP income from operations $ 19,299   $ 19,899   $ 32,546   $ 35,864  
 
Non-GAAP operating margin   17 %   21 %   16 %   20 %
 
GAAP net income (loss) $ (2,271 ) $ 9,362 $ 488 $ 16,655
 
Non-GAAP adjustments:
Add: Total Non-GAAP adjustments affecting income from operations 21,176 5,412 29,171 11,569
Less: Tax impact related to Non-GAAP adjustments   (8,090 )   (2,514 )   (11,039 )   (6,178 )
 
Non-GAAP net income $ 10,815   $ 12,260   $ 18,620   $ 22,046  
 
 
 
 
Shares used in computing Non-GAAP diluted earnings per share   44,739     44,098     44,660     44,005  
 
Non-GAAP diluted earnings per share $ 0.24   $ 0.28   $ 0.42   $ 0.50  
 
Detail of Non-GAAP adjustments:
Stock-based compensation expense:
Cost of revenue
Cost of subscriptions $ 245 $ 225 $ 426 $ 327
Cost of services 565 447 1,057 904
Cost of maintenance   89     138     200     380  
Subtotal 899 810 1,683 1,611
Operating expenses
Sales and marketing 603 272 1,020 629
Research and development 847 671 1,498 1,514
General and administrative   3,439     1,777     5,423     3,572  
Subtotal   4,889     2,720     7,941     5,715  
Total stock-based compensation expense $ 5,788   $ 3,530   $ 9,624   $ 7,326  
 
Amortization of intangibles from business combinations
Cost of revenue
Cost of license fees $ 124 $ 156 $ 247 $ 321
Cost of subscriptions 2,706 816 3,688 1,617
Cost of services 468 391 879 778
Cost of maintenance 250 253 494 505
Cost of other revenue   19     20     38     38  
Subtotal 3,567 1,636 5,346 3,259
Operating expenses   530     246     727     479  
Total amortization of intangibles from business combinations $ 4,097   $ 1,882   $ 6,073   $ 3,738  
 
 
Blackbaud, Inc.
Standalone Blackbaud Reconciliation of GAAP to Non-GAAP financial measures
(Unaudited)
       
 
(in thousands, except per share amounts) Three months ended June 30, 2012
 
GAAP revenue $ 99,619  
 
GAAP gross profit $ 56,394
 
Non-GAAP adjustments:
Add: Stock-based compensation expense 899
Add: Amortization of intangibles from business combinations 1,784
Add: Write-off of prepaid proprietary software licenses   350  
Total Non-GAAP adjustments 3,033
 
Non-GAAP gross profit $ 59,427  
 
Non-GAAP gross margin   60 %
 
GAAP income from operations $ 2,461
 
Non-GAAP adjustments:
Add: Stock-based compensation expense 5,788
Add: Amortization of intangibles from business combinations 1,954
Add: Acquisition-related expenses 4,244
Add: Acquisition integration costs 2,134
Add: Write-off of prepaid proprietary software licenses 350
Add: Impairment of cost method investment   200  
Total Non-GAAP adjustments 14,670
 
Non-GAAP income from operations $ 17,131  
 
Non-GAAP operating margin   17 %
 
GAAP net loss $ (2,271 )
 
Non-GAAP adjustments:
Add: Total Non-GAAP adjustments affecting income from operations 14,670
Less: Tax impact related to Non-GAAP adjustments   (2,877 )
 
Non-GAAP net income $ 9,522  
 
 
 
 
Shares used in computing Non-GAAP diluted earnings per share   44,739  
 
Non-GAAP diluted earnings per share $ 0.21  

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