PR Newswire | Jul 29, 2020 04:10PM EDT

07/29 15:10 CDT

Blackbaud Announces 2020 Second Quarter ResultsRecurring Revenue Grows 4%; Diluted Earnings Per Share Increases 60% Reflecting Pivot to Emphasize Profitability and Cash Flow CHARLESTON, S.C., July 29, 2020

CHARLESTON, S.C., July 29, 2020 /PRNewswire/ --Blackbaud (NASDAQ: BLKB), the world's leading cloud software company powering social good, today announced financial results for its second quarter ended June 30, 2020.

"We continue to prioritize the well-being of our employees as we think about the future of work at Blackbaud and building on our strong, customer-centric culture," said Mike Gianoni, Blackbaud's president and CEO. "Our customers are once more proving the often under-appreciated resilience of our market and finding creative ways to ensure they deliver on their missions despite the challenges presented by the current environment. This pandemic will be a catalyst for the industry to move even faster towards modern, purpose-built cloud solutions, and we remain very well positioned as a leader in this market and the best long-term partner for social good organizations. While we continue to be optimistic over the long-term opportunity, the uncertainty of today's environment is likely to put pressure on near-term revenue growth."

Second Quarter 2020 Results Compared to Second Quarter 2019 Results:

* Total GAAP revenue was $232.0 million, up 2.8%, with $216.3 million in GAAP recurring revenue, representing 93.2% of total GAAP revenue. GAAP recurring revenue was up 3.7%. * Total non-GAAP revenue was $232.0 million, up 2.5%, with $216.3 million in non-GAAP recurring revenue, representing 93.2% of total non-GAAP revenue. Non-GAAP recurring revenue was up 3.4%. * Non-GAAP organic recurring revenue increased 3.4%. * GAAP income from operations was $19.6 million, with GAAP operating margin of 8.4%, an increase of 240 basis points. * Non-GAAP income from operations was $54.5 million, with non-GAAP operating margin of 23.5%, an increase of 430 basis points. * GAAP net income was $11.8 million, with GAAP diluted earnings per share of $0.24, up $0.09 per share. * Non-GAAP net income was $41.0 million, with non-GAAP diluted earnings per share of $0.85, up $0.19 per share. * Non-GAAP free cash flow was $48.2 million, an increase of $10.2 million.

"We executed very well in the second quarter while remaining critically focused on the success of our customers and the health and economic stability of our employees," said Tony Boor, executive vice president and CFO. "The second quarter results clearly show the stability in our customer base, durability of the market we serve, as well as our ability to drive increased profitability and cash flow. The early actions taken to bolster our liquidity and increase related borrowing capacity generated a significant cost reduction for the quarter and are planned through the remainder of the year, with some of these temporary actions expected to reverse heading into 2021."

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

* Blackbaud announces technology innovations specifically designed to support the unique needs of social good organizations during COVID-19 * In its eighth annual Industry Review, Blackbaud showcased key learnings and trends in employee philanthropic behavior and companies' corporate social responsibility (CSR) programs * Higher education and healthcare institutions around the world are turning to Blackbaud solutions to power fundraisers for COVID-19 vaccines and lifesaving equipment * Blackbaud's workplace culture receives two national recognitions: Being named to Forbes' list of Best Employers for Women and Fast Company's Best Workplaces for Innovators list * Welcoming more than 5,000 registrants, Blackbaud's annual tech conference for K-12 private school leaders boasted record attendance, marquee keynote speakers and sessions focused on navigating school reopening and hybrid learning * Blackbaud's bbcon 2020 Virtual, the tech conference for a better world, will be held October 6-8 with re-imagined global format and free to all attendees. Registration is now open

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

Conference Call DetailsWhat: Blackbaud's 2020 Second Quarter Conference Call When: July 30, 2020 Time: 8:00 a.m. (Eastern Time)Live Call: 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 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 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) June 30, December 31, 2020 2019

Assets

Current assets:

Cash and cash equivalents $ 30,531 $ 31,810

Restricted cash due to customers 421,915 545,485

Accounts receivable, net of allowance of $9,025 and $5,529 at 129,675 88,868June 30, 2020 and December 31, 2019, respectively

Customer funds receivable 1,284 524

Prepaid expenses and other current assets 83,699 67,852

Total current assets 667,104 734,539

Property and equipment, net 36,539 35,546

Operating lease right-of-use assets 95,575 104,400

Software development costs, net 106,044 101,302

Goodwill 630,687 634,088

Intangible assets, net 292,187 317,895

Other assets 68,673 65,193

Total assets $ 1,896,809 $ 1,992,963

Liabilities and stockholders' equity

Current liabilities:

Trade accounts payable $ 41,029 $ 47,676

Accrued expenses and other current liabilities 52,893 73,317

Due to customers 423,199 546,009

Debt, current portion 9,194 7,500

Deferred revenue, current portion 332,570 314,335

Total current liabilities 858,885 988,837

Debt, net of current portion 478,919 459,600

Deferred tax liability 45,108 44,594

Deferred revenue, net of current portion 4,626 1,802

Operating lease liabilities, net of current portion 86,586 95,624

Other liabilities 11,883 5,742

Total liabilities 1,486,007 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,60,901,100 and 60,206,091 shares issued at June 30, 2020 and 61 60December 31, 2019, respectively

Additional paid-in capital 491,450 457,804

Treasury stock, at cost; 11,332,912 and 11,066,354 shares at (311,661) (290,665)June 30, 2020 and December 31, 2019, respectively

Accumulated other comprehensive loss (14,476) (5,290)

Retained earnings 245,428 234,855

Total stockholders' equity 410,802 396,764

Total liabilities and stockholders' equity $ 1,896,809 $ 1,992,963

Blackbaud, Inc.Consolidated Statements of Comprehensive Income(Unaudited)

Three months ended Six months ended(dollars in thousands, except per share amounts) June 30, June 30,

2020 2019 2020 2019

Revenue

Recurring $ 216,260 $ 208,468 $ 421,127 $ 406,562

One-time services and other 15,731 17,166 34,485 34,902

Total revenue 231,991 225,634 455,612 441,464

Cost of revenue

Cost of recurring 91,370 86,657 180,921 171,368

Cost of one-time services and other 13,569 14,150 28,883 28,722

Total cost of revenue 104,939 100,807 209,804 200,090

Gross profit 127,052 124,827 245,808 241,374

Operating expenses

Sales, marketing and customer success 51,954 55,009 110,689 110,464

Research and development 24,895 25,902 49,872 54,363

General and administrative 29,842 28,543 55,697 55,660

Amortization 729 1,152 1,470 2,528

Restructuring 50 730 74 2,683

Total operating expenses 107,470 111,336 217,802 225,698

Income from operations 19,582 13,491 28,006 15,676

Interest expense (3,893) (5,799) (8,052) (11,122)

Other income, net 630 2,181 1,700 2,363

Income before provision for income taxes 16,319 9,873 21,654 6,917

Income tax provision 4,496 2,733 5,192 899

Net income $ 11,823 $ 7,140 $ 16,462 $ 6,018

Earnings per share

Basic $ 0.25 $ 0.15 $ 0.34 $ 0.13

Diluted $ 0.24 $ 0.15 $ 0.34 $ 0.13

Common shares and equivalents outstanding

Basic weighted average shares 48,239,928 47,714,621 48,138,125 47,622,740

Diluted weighted average shares 48,418,378 48,160,684 48,465,077 48,101,212

Other comprehensive loss

Foreign currency translation adjustment (887) (6,018) (6,615) (1,428)

Unrealized gain (loss) on derivative instruments, net of tax 551 (1,939) (2,571) (2,871)

Total other comprehensive loss (336) (7,957) (9,186) (4,299)

Comprehensive income (loss) $ 11,487 $ (817) $ 7,276 $ 1,719

Blackbaud, Inc.Consolidated Statements of Cash Flows(Unaudited)

Six months ended June 30,

(dollars in thousands) 2020 2019

Cash flows from operating activities

Net income $ 16,462 $ 6,018

Adjustments to reconcile net income to net cash provided by operatingactivities:

Depreciation and amortization 46,088 43,113

Provision for credit losses and sales returns 6,677 4,646

Stock-based compensation expense 33,713 28,755

Deferred taxes 1,945 465

Amortization of deferred financing costs and discount 376 376

Other non-cash adjustments 477 1,982

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

Accounts receivable (48,167) (45,071)

Prepaid expenses and other assets (7,068) (12,725)

Trade accounts payable (8,984) 216

Accrued expenses and other liabilities (26,520) (9,014)

Deferred revenue 22,489 26,328

Net cash provided by operating activities 37,488 45,089

Cash flows from investing activities

Purchase of property and equipment (5,887) (6,375)

Capitalized software development costs (21,679) (23,206)

Purchase of net assets of acquired companies, net of cash and restricted cash - (109,386)acquired

Other investing activities - 500

Net cash used in investing activities (27,566) (138,467)

Cash flows from financing activities

Proceeds from issuance of debt 202,100 329,100

Payments on debt (185,250) (155,150)

Employee taxes paid for withheld shares upon equity award settlement (20,996) (19,760)

Proceeds from exercise of stock options 4 6

Change in due to customers (121,612) (107,808)

Change in customer funds receivable (828) (3,741)

Dividend payments to stockholders (5,960) (11,802)

Net cash (used in) provided by financing activities (132,542) 30,845

Effect of exchange rate on cash, cash equivalents and restricted cash (2,229) (526)

Net decrease in cash, cash equivalents and restricted cash (124,849) (63,059)

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

Cash, cash equivalents and restricted cash, end of period $ 452,446 $ 386,787

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) June 30, December 31, 2020 2019

Cash and cash equivalents $ 30,531 $ 31,810

Restricted cash due to customers 421,915 545,485

Total cash, cash equivalents and restricted cash in the statement of cash flows $ 452,446 $ 577,295

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

Three months ended Six months ended(dollars in thousands, except per share amounts) June 30, June 30,

2020 2019 2020 2019

GAAP Revenue $ 231,991 $ 225,634 $ 455,612 $ 441,464

Non-GAAP adjustments:

Add: Acquisition-related deferred revenue write-down - 716 - 1,432

Non-GAAP revenue $ 231,991 $ 226,350 $ 455,612 $ 442,896

GAAP gross profit $ 127,052 $ 124,827 $ 245,808 $ 241,374

GAAP gross margin 54.8 % 55.3 % 54.0 % 54.7 %

Non-GAAP adjustments:

Add: Acquisition-related deferred revenue write-down - 716 - 1,432

Add: Stock-based compensation expense 2,570 791 3,435 1,765

Add: Amortization of intangibles from business combinations 9,686 11,329 20,616 22,745

Add: Employee severance 781 (4) 813 1,115

Subtotal 13,037 12,832 24,864 27,057

Non-GAAP gross profit $ 140,089 $ 137,659 $ 270,672 $ 268,431

Non-GAAP gross margin 60.4 % 60.8 % 59.4 % 60.6 %

GAAP income from operations $ 19,582 $ 13,491 $ 28,006 $ 15,676

GAAP operating margin 8.4 % 6.0 % 6.1 % 3.6 %

Non-GAAP adjustments:

Add: Acquisition-related deferred revenue write-down - 716 - 1,432

Add: Stock-based compensation expense 20,133 15,029 33,713 28,755

Add: Amortization of intangibles from business combinations 10,415 12,481 22,086 25,273

Add: Employee severance 4,264 191 4,361 3,612

Add: Acquisition-related integration costs (71) 464 (103) 1,182

Add: Acquisition-related expenses 85 365 224 810

Add: Restructuring costs 50 730 74 2,683

Subtotal 34,876 29,976 60,355 63,747

Non-GAAP income from operations $ 54,458 $ 43,467 $ 88,361 $ 79,423

Non-GAAP operating margin 23.5 % 19.2 % 19.4 % 17.9 %

GAAP income before provision for income taxes $ 16,319 $ 9,873 $ 21,654 $ 6,917

GAAP net income $ 11,823 $ 7,140 $ 16,462 $ 6,018

Shares used in computing GAAP diluted earnings per share 48,418,378 48,160,684 48,465,077 48,101,212

GAAP diluted earnings per share $ 0.24 $ 0.15 $ 0.34 $ 0.13

Non-GAAP adjustments:

Add: GAAP income tax provision 4,496 2,733 5,192 899

Add: Total non-GAAP adjustments affecting income from operations 34,876 29,976 60,355 63,747

Non-GAAP income before provision for income taxes 51,195 39,849 82,009 70,664

Assumed non-GAAP income tax provision^(1) 10,239 7,970 $ 16,402 $ 14,133

Non-GAAP net income $ 40,956 $ 31,879 $ 65,607 $ 56,531

Shares used in computing non-GAAP diluted earnings per share 48,418,378 48,160,684 48,465,077 48,101,212

Non-GAAP diluted earnings per share $ 0.85 $ 0.66 $ 1.35 $ 1.18

(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 Six months ended(dollars in thousands) June 30, June 30,

2020 2019 2020 2019

GAAP revenue $ 231,991 $ 225,634 $ 455,612 $ 441,464

GAAP revenue growth 2.8 % 3.2 %

Add: Non-GAAP acquisition-related revenue^(1) - 716 - 1,432

Non-GAAP organic revenue^(2) $ 231,991 $ 226,350 $ 455,612 $ 442,896

Non-GAAP organic revenue growth 2.5 % 2.9 %

Non-GAAP organic revenue^(2) $ 231,991 $ 226,350 $ 455,612 $ 442,896

Foreign currency impact on non-GAAP organic revenue^(3) 2,008 - 2,318 -

Non-GAAP organic revenue on constant currency basis^(3) $ 233,999 $ 226,350 $ 457,930 $ 442,896

Non-GAAP organic revenue growth on constant currency basis 3.4 % 3.4 %

GAAP recurring revenue $ 216,260 $ 208,468 $ 421,127 $ 406,562

GAAP recurring revenue growth 3.7 % 3.6 %

Add: Non-GAAP acquisition-related revenue^(1) - 716 - 1,432

Non-GAAP organic recurring revenue $ 216,260 $ 209,184 $ 421,127 $ 407,994

Non-GAAP organic recurring revenue growth 3.4 % 3.2 %

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 (3)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.

Six months ended(dollars in thousands) June 30,

2020 2019

GAAP net cash provided by operating activities $ 37,488 $ 45,089

Less: purchase of property and equipment (5,887) (6,375)

Less: capitalized software development costs (21,679) (23,206)

Non-GAAP free cash flow $ 9,922 $ 15,508

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SOURCE Blackbaud