PR Newswire | Oct 28, 2020 04:11PM EDT

10/28 15:10 CDT

Blackbaud Announces 2020 Third Quarter ResultsDelivers on Increased Profitability Driving 11% Year over Year Increase in Diluted Earnings Per Share CHARLESTON, S.C., Oct. 28, 2020

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

* Virtual Prayer Wall released through Blackbaud Church Management to meet churches' needs as they transitioned their congregations to remote environments. * Blackbaud completes purchase of headquarters building and property in Charleston, SC providing additional strategic flexibility with significant future cost savings expected. * Blackbaud appoints Michael Boulware Moore as Diversity and Inclusion Executive, first leader completely dedicated to diversity and inclusion for the company. * For the second consecutive year, CEO Mike Gianoni named a Top 50 SaaS CEO. * Blackbaud hosts record attendance at first-ever virtual, global bbcon, welcoming over 38,000 individuals from over 70 countries, the equivalent to well over a decade of historic attendance levels. * Blackbaud report reveals COVID-19 is reshaping K-12 parent expectations for the long term.

Visit www.blackbaud.com/newsroom for more information about Blackbaud's recent highlights.

Conference Call DetailsWhat: 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 BlackbaudBlackbaud (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 onTwitter, 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 StatementsExcept 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.

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

Non-GAAP Financial MeasuresBlackbaud 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, December 31, 2020 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 96,830 88,868September 30, 2020 and December 31, 2019, respectively

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 61 60and December 31, 2019, respectively

Additional paid-in capital 512,269 457,804

Treasury stock, at cost; 11,337,486 and 11,066,354 shares at (311,951) (290,665)September 30, 2020 and December 31, 2019, respectively

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)

Three months ended Nine months ended(dollars in thousands, except per share amounts) September 30, 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 providedby 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 ofacquisition 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 - (109,353)and restricted cash acquired

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 (21,286) (20,279)settlement

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 (623) (2,240)restricted cash

Net decrease in cash, cash equivalents and restricted (343,072) (177,706)cash

Cash, cash equivalents and restricted cash, beginning of 577,295 449,846period

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:

September December (dollars in thousands) 30, 31, 2020 2019

Cash and cash equivalents $30,563 $31,810

Restricted cash 203,660 545,485

Total cash, cash equivalents and restricted cash in the$234,223$577,295statement of cash flows

Blackbaud, Inc.Reconciliation of GAAP to Non-GAAP Financial Measures(Unaudited)

Three months ended Nine months ended(dollars in thousands, except per share amounts) September 30, 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)

Three months ended Nine months ended(dollars in thousands) September 30, 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 %

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(1) 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.

Non-GAAP organic revenue for the prior year periods presented herein may(2) 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.

To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to(3) 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.

Nine months ended (dollars in thousands) 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.