Blackbaud Announces 2018 Third Quarter Results

CHARLESTON, S.C., Oct. 29, 2018 /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, 2018.

"We are driving digital transformation in each of the industry segments we serve through the delivery of innovative new cloud software technology, which has expanded the addressable markets for Blackbaud," said Mike Gianoni, Blackbaud's president and CEO. "Earlier this month, we hosted our largest-ever bbcon, the premier annual tech gathering for social good, and our attendees were ecstatic about our pace of innovation and new announcements. Over the last quarter, we've introduced an entirely new Cloud Solution for Faith Communities with the introduction of Blackbaud Church Management™. We announced our Cloud Solution for Higher Education and the introduction of a new Education Management portfolio, along with the addition of stewardship management and guided fundraising; enabling institutions to build a connected campus and manage the entire student lifecycle. And, we took another major step forward in our partnership with Microsoft with an Integrated Cloud Initiative for Nonprofits™, a joint initiative to accelerate cloud innovation in areas that address critical market needs across the mission lifecycle of nonprofits."

Third Quarter 2018 Results Compared to Third Quarter 2017 Results:

• Total GAAP revenue was $209.5 million, up 7.8%, with $188.7 million in GAAP recurring revenue, representing 90.0% of total GAAP revenue. GAAP recurring revenue was up 12.6%.
• Total non-GAAP revenue was $210.1 million, up 7.9%, with $189.2 million in non-GAAP recurring revenue, representing 90.1% of total non-GAAP revenue. Non-GAAP recurring revenue was up 12.8%.
• Non-GAAP organic revenue increased 1.2% and non-GAAP organic recurring revenue increased 4.9%.
• GAAP income from operations decreased 14.3% to $15.8 million, with GAAP operating margin decreasing 200 basis points to 7.5%.
• Non-GAAP income from operations decreased 6.4% to $39.7 million, with non-GAAP operating margin decreasing 290 basis points to 18.9%.
• GAAP net income decreased 12.9% to $11.2 million, with GAAP diluted earnings per share of $0.23, down $0.04.
• Non-GAAP net income increased 4.4% to $28.4 million, with non-GAAP diluted earnings per share of $0.59, up $0.02.
• Non-GAAP free cash flow was $57.8 million, a decrease of $1.3 million.

"We've been executing a new and more aggressive program to ramp hiring for sales and sales support roles in the third quarter," said Tony Boor, Blackbaud's executive vice president and CFO. "There is a considerable opportunity for Blackbaud to better cover this large market and further improve our sales effectiveness. We're well underway in the hiring program with the expectation that we will begin to see material top-line return on these investments in late 2019 and more fully in 2020."

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 released its inaugural Social Responsibility Report, providing an overview of the company's global social responsibility, governance and ethical practices.
• Blackbaud and Microsoft expanded their partnership with an Integrated Cloud Initiative for Nonprofits™ and the introduction of jointly-developed Nonprofit Resource Management.
• The company announced the Cloud Solution for Higher Education with the introduction of a new Education Management portfolio and the addition of stewardship management and guided fundraising tailored for higher education.
• The company wrapped a successful bbcon 2018, the premier tech gathering for social good, and announced a new partnership with Points of Light.
• AnitaB.org recognized Blackbaud as one of the 2018 Top Companies for Women Technologists.
• Blackbaud was included in IDC's "Worldwide Software as a Service and Cloud Software Market Shares, 2017: A Year of Expanding Platforms" report, ranking No. 24 for the second straight year on IDC's list of "Top 100 Cloud Software Vendors by Revenue" and climbing two spots to No. 18 on IDC's list of "Top 20 Worldwide SaaS Applications Revenue by Vendor."
• Blackbaud reported that a Nucleus Research ROI Case Study of StarCare Specialty Health System found that by deploying Financial Edge NXT®, organizations can improve financial transparency, save time and effectively manage their programs.
• Blackbaud announced the results of a commissioned Total Economic Impact™ study conducted by Forrester Consulting, which examines the return on investment that a healthcare organization (Inova Health Foundation) may experience by deploying currently using Blackbaud Raiser's Edge NXT™ and Grateful Patient Solution.

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

Dividend
Blackbaud announced today that its Board of Directors has declared a fourth quarter 2018 dividend of $0.12 per share payable on December 14, 2018 to stockholders of record on November 28, 2018.

Financial Outlook
Blackbaud today reaffirmed its 2018 full year financial guidance as revised on October 8, 2018:

• Non-GAAP revenue of $844 million to $854 million
• Non-GAAP operating margin of 19.3% to 19.6%
• Non-GAAP diluted earnings per share of $2.46 to $2.52
• Non-GAAP free cash flow of $143 million to $147 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.

Reclassifications
Our revenue from "subscriptions" and "maintenance" and a portion of our "services and other" revenue have been combined within "recurring" revenue beginning in 2018. In order to provide comparability between periods presented, those amounts of revenue have been combined within "recurring" revenue in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period. Similarly, "cost of subscriptions" and "cost of maintenance" and a portion of "cost of services and other" have been combined within "cost of recurring" in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period. "Services and other" revenue has been renamed as "one-time services and other" and consists of revenue that did not meet the description of "recurring" revenue in the consolidated statements of comprehensive income. "Cost of services and other" has been renamed as "cost of one-time services and other" and consists of costs that did not meet the description of those related to "recurring" revenue in the consolidated statements of comprehensive income.

Adoption of New Revenue Accounting Standard
On January 1, 2018, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), using the full retrospective method of transition, which requires that the standard be applied to all periods presented. The impacts of adoption are reflected in the financial information herein. We have provided more detailed information regarding the impact of our adoption of ASU 2014-09 in a Form 8-K filed with the Securities and Exchange Commission on April 30, 2018. We have also made that information accessible via the Investor Relations section of our website.

About Blackbaud
Blackbaud (NASDAQ: BLKB) is the world's leading cloud software company powering social good. Serving the entire social good community—nonprofits, foundations, companies, education institutions, healthcare organizations 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 and the United Kingdom. For more information, visit www.blackbaud.com.

Investor Contact:
Mark Furlong
Director, Investor Relations
843.654.2097
[email protected]

Media Contact:
Brian Kosoy
Director, External Affairs
843.654.3004
[email protected]

Forward-Looking Statements
Except for historical information, all of the statements, expectations, and assumptions contained in this news release are forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding: the predictability of our financial results, expectations that our revenue will continue to grow, and expectations that we will achieve our projected 2018 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.

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

Non-GAAP Financial Measures
Blackbaud has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP revenue, non-GAAP recurring revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP diluted earnings per share. Blackbaud has acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, Blackbaud recorded write-downs of deferred revenue to fair value, which resulted in lower recognized revenue. Both on a quarterly and year-to-date basis, the revenue for the acquired businesses is deferred and typically recognized over a one-year period, so Blackbaud's GAAP revenues for the one-year period after the acquisitions will not reflect the full amount of revenues that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP measures described above reverse the acquisition-related deferred revenue write-downs so that the full amount of revenue booked by the acquired companies is included, which Blackbaud believes provides a more accurate representation of a revenue run-rate in a given period. In addition to reversing write-downs of acquisition-related deferred revenue, non-GAAP financial measures discussed above exclude the impact of certain items that Blackbaud believes are not directly related to its performance in any particular period, but are for its long-term benefit over multiple periods.

In addition, Blackbaud uses non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth, in analyzing its operating performance. Blackbaud believes that these non-GAAP measures are useful to investors, as a supplement to GAAP measures, for evaluating the periodic growth of its business on a consistent basis. Each of these measures excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, each of these measures reflects presentation of full-year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, and it includes the non-GAAP revenue attributable to those companies, as if there were no acquisition-related write-downs of acquired deferred revenue to fair value as required by GAAP. In addition, each of these measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. Blackbaud believes this presentation provides a more comparable representation of its current business' organic revenue growth and revenue run-rate.

Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.

As previously disclosed, beginning in 2018, Blackbaud applies a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share. The non-GAAP tax rate 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 2017 measures of 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 32.0%.

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 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.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown above in the consolidated statements of cash flows:

SOURCE Blackbaud

Related Links

http://www.blackbaud.com