Blackbaud, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report; selected Q4 results are noted below. Blackbaud provides cloud and on-premises software and services to nonprofits, educational institutions, foundations, and other philanthropic organizations, serving approximately 35,000 active customers.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $637.9 million | $564.4 million |
| Gross profit / gross margin | $333.3 million / 52.2% | $291.0 million / 51.6% |
| Operating income / operating margin | $46.7 million / 7.3% | $46.4 million / 8.2% |
| Net income | $25.6 million | $28.3 million |
| Diluted EPS | $0.55 | $0.62 |
| Cash from operations | $114.3 million | $102.3 million |
| Capital expenditures and capitalized software development | $34.1 million | $22.4 million |
| Debt, including current portion | $408.6 million carrying value | $280.6 million |
| Cash and cash equivalents | $15.4 million | $14.7 million |
- Subscriptions were 52.0% of revenue, up from 46.7% in 2014; maintenance was 24.1% and services 20.8%.
- Subscription revenue rose 26.0% to $331.8 million. Subscription gross margin was 49.6%, versus 49.4% in 2014. Services gross margin improved to 22.7% from 17.0%.
- GAAP net income declined 9.5% and diluted EPS declined 11.3%, despite 13.0% revenue growth. GAAP operating margin fell, while non-GAAP operating margin increased to 18.8% from 17.8%; non-GAAP diluted EPS rose to $1.50 from $1.27. These non-GAAP measures exclude specified items, including stock compensation, acquired-intangible amortization, acquisition costs and other adjustments.
- Working capital was negative $167.2 million, largely reflecting customer-related restricted cash and corresponding amounts due to customers; excluding deferred revenue, working capital was $63.0 million. Restricted cash of $255.0 million was matched by $255.0 million due to customers and is not ordinary available cash.
- Operating cash flow funded dividends of $22.5 million and part of investment needs. The company reported $103.7 million of available borrowing capacity under its credit facility at year-end and stated it expected available funds and operating cash flows to cover at least the next 12 months.
Material changes and unusual items
- Revenue increased 13.0%; management attributed growth principally to subscriptions, payment processing activity, and acquisitions. 2015 revenue included $31.9 million from MicroEdge and $8.5 million from Smart Tuition; WhippleHill also contributed. Foreign exchange reduced revenue by an estimated $9.6 million.
- Blackbaud acquired Smart Tuition in October 2015 for $187.8 million cash, primarily financed with a $186.0 million credit-facility draw. It also acquired WhippleHill and MicroEdge in 2014. Acquisition accounting, integration, and acquired deferred-revenue write-downs affect period comparability.
- Debt increased following the Smart Tuition acquisition; 2015 cash repayments were $184.5 million, while net borrowings increased $127.8 million. Year-end debt was due principally at the February 2019 facility maturity. The company was in compliance with its covenants; net leverage was 2.76x against a maximum of 3.50x.
- Income from operations was nearly flat. Higher stock-based compensation, acquired-intangible amortization, $3.2 million employee severance charges, acquisition-related expenses, and foreign exchange weighed on results. The sale of Dutch subsidiary RLC generated a $2.0 million loss.
- Q4 2015 revenue was $175.9 million, operating income $10.3 million, and net income $6.4 million; Q4 2014 figures were $152.8 million, $7.6 million, and $4.8 million, respectively.
Outlook, management commentary and risks
- Management is shifting the business toward integrated cloud subscriptions, with Raiser's Edge NXT and Financial Edge NXT launched in 2015. It expects the subscription transition to support longer-term growth but noted that ratable subscription recognition can weigh on near-term reported growth as upfront perpetual-license revenue declines.
- The three-year margin improvement plan targets a 300–600 basis-point improvement in non-GAAP operating margin, on a constant-currency basis, from the 2014 baseline of 17.5% by exit 2017. This is a target, not a guarantee. Management forecast 2016 capital expenditures, including capitalized software development, of $45–$50 million; no specific revenue or EPS guidance is provided in the filing text.
- Management approved an intended 2016 dividend rate of $0.48 per share, subject to board discretion, cash needs, law, and credit-facility restrictions. The company also cited a $50 million share-repurchase authorization, with no purchases made under the program to date.
- Principal disclosed risks include competition and customer renewal/retention, execution of cloud migration and achieving subscription scale, complex sales and implementation cycles, service interruptions and cybersecurity/privacy exposure, acquisition integration and goodwill/intangible impairment, leverage and covenant constraints, foreign-exchange exposure, and dependence on nonprofit giving and customer budgets.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. Smart Tuition was excluded from the year-end internal-control assessment because of its recent acquisition; it represented 5.5% of assets and 1.3% of revenue.
Important facts for investors to verify
- Whether subscription growth, renewals, payment processing volume, and customer retention (reported at approximately 94% for recurring subscription or maintenance customers) persist as legacy maintenance and perpetual-license revenue declines.
- Debt and liquidity calculations, including facility availability, repayment obligations, covenant headroom, interest-rate exposure, and the effect of acquisition financing.
- Progress against the 2017 non-GAAP margin target, including the reconciliation of exclusions to GAAP results and the impact of stock-based compensation and acquisition-related costs.
- Smart Tuition integration and final purchase-price allocation, acquired deferred-revenue adjustments, and future amortization and impairment exposure.
- Whether the stated 2016 capital spending and dividend plans remain compatible with operating cash generation and the credit facility’s restrictions.