Blackbaud, Inc. — FY 2011 Form 10-K
Business and period: Blackbaud provides software and related services to nonprofit organizations. This filing covers the fiscal year ended December 31, 2011; comparisons are with FY 2010 unless noted. At year-end, the company served approximately 26,000 active customers in 60 countries.
Financial performance
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Revenue | $370.9 million | $326.6 million | +14% |
| Gross profit / margin | $213.7 million / 57.6% | $194.4 million / 59.5% | Margin down 1.9 points |
| Operating income / margin | $50.9 million / 13.6% | $46.0 million / 14.0% | Income +11% |
| Net income | $33.2 million | $29.2 million | +14% |
| Diluted EPS | $0.75 | $0.67 | +$0.08 |
| Cash from operations | $85.5 million | $56.0 million | +$29.5 million |
- Revenue mix shifted toward recurring offerings: subscriptions rose 23% to $103.5 million and services rose 24% to $108.8 million. Maintenance increased 5% to $130.6 million. License revenue fell 18% to $19.5 million.
- Subscriptions and maintenance together represented 63% of FY 2011 revenue. Subscription gross margin declined to 59% from 63%, reflecting investment in hosting capacity and infrastructure; services margin improved to 27% from 24%.
- Cash and cash equivalents were $52.5 million at year-end, up from $28.0 million. The company reported no credit-facility borrowings at December 31, 2011. It used $41.7 million in investing cash flow, including $23.4 million for acquisitions and $18.2 million for property and equipment, and paid $21.4 million in dividends.
- Working capital was negative $52.1 million. The balance sheet included $40.2 million of donor-restricted cash matched by $40.2 million of donations payable; deferred revenue totaled $163.4 million.
- Annual dividends were $0.48 per share in 2011. The board approved a $0.48 annual rate for 2012, subject to board discretion and credit-agreement restrictions.
Changes and unusual items
- Growth reflected higher demand for hosted and online fundraising offerings and consulting related to Blackbaud CRM. Management said customers increasingly preferred subscription-based hosted solutions over perpetual licenses, a trend it expected to continue.
- Operating income grew more slowly than revenue, in part because of investment in subscription infrastructure. The reported results also included a $1.8 million impairment of a cost-method investment and a $0.5 million gain on asset sales.
- In the fourth quarter, revenue was $95.0 million versus revised fourth-quarter 2010 revenue of $85.8 million; net income was $6.4 million versus $7.2 million. The filing reports that 2010 quarterly results were revised.
- During the fourth quarter of 2011, the company revised prior-period financial statements for errors principally involving revenue recognition, income taxes and capitalization of software development costs. It said the errors were not material to individual prior periods; revised comparative figures are presented in the filing.
Outlook, risks and contingencies
- Management expected 2012 to remain challenging as nonprofit customers stayed cautious with spending. It planned to pursue growth initiatives, invest in subscription infrastructure and seek targeted profitability; the filing provides no specific FY 2012 revenue or earnings guidance.
- Blackbaud agreed in January 2012 to acquire Convio for $16.00 per share, an enterprise value of approximately $275 million. Completion remained subject to closing conditions, including regulatory review. Management anticipated the deal would be accretive to combined non-GAAP EPS in the first full calendar year after completion, based on preliminary synergy estimates; this was not assured.
- In February 2012, the company amended its credit facility to $325 million, with a five-year term, and expected to use borrowings to partially fund the Convio acquisition. The company warned that increased debt could constrain flexibility, raise interest costs and limit dividends, repurchases or other acquisitions.
- Key risks include economic pressure on nonprofit donations and purchasing, lengthy sales and implementation cycles, dependence on major products and renewals, lower margins in subscriptions and services, service interruptions or data-security and privacy failures, competition, acquisition integration, and deferred-tax-asset realization. The company disclosed $63.9 million in future minimum operating lease commitments and approximately $8.1 million of minimum third-party purchase commitments through 2013.
- Management and the auditor reported effective internal control over financial reporting as of December 31, 2011. The company said ordinary-course legal matters were not expected to have a material adverse effect.
Investor verification priorities
- Review the revised prior-period and quarterly figures, including the nature and effects of the revenue-recognition, tax and software-cost corrections.
- Track Convio closing status, actual financing and resulting leverage, interest expense, covenant headroom and realized synergies.
- Assess whether recurring-revenue growth can offset declining license revenue without further deterioration in gross and operating margins.
- Monitor customer renewals, deferred revenue, implementation costs and collection trends, particularly as subscription and hosted offerings expand.
- Confirm the sustainability of dividends and liquidity after acquisition funding, capital investment and other cash commitments.