Blackbaud, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Blackbaud provides cloud software, payment processing, data and related services to nonprofits, education, healthcare and other social-impact organizations. It reported one operating and reportable segment.
Financial results and liquidity
| Metric | 2022 | Prior comparable period |
|---|---|---|
| Revenue | $1,058.1 million | $927.7 million; up 14.1% |
| Organic revenue growth, non-GAAP | 2.7%; 3.9% constant currency | Acquisition-adjusted comparison |
| Recurring revenue | $1,011.7 million; up 14.9% | $880.9 million |
| Organic recurring revenue growth, non-GAAP | 4.0%; 5.2% constant currency | Acquisition-adjusted comparison |
| GAAP gross profit / margin | $552.7 million / 52.2% | $484.5 million / 52.2% |
| GAAP operating income (loss) | $(28.5) million | $24.9 million |
| GAAP net income (loss) / diluted EPS | $(45.4) million / $(0.88) | $5.7 million / $0.12 |
| Cash from operations | $203.9 million | $213.7 million |
| Non-GAAP free cash flow | $132.8 million | $161.5 million |
| Non-GAAP adjusted free cash flow | $153.7 million | $168.2 million |
Recurring revenue growth reflected cloud performance, including $96.2 million attributable to EVERFI, and higher transactional volumes and pricing. Cost growth and expenses tied to the Security Incident contributed to the swing from operating profit to loss. Non-GAAP adjusted EBITDA was $262.6 million, with a 24.8% margin; the company’s Rule of 40 measure was 27.5%. These are non-GAAP measures and should be considered alongside GAAP results.
At year-end, cash and cash equivalents were $31.7 million; a further $702.2 million was restricted cash, principally customer funds, and not available for general operations. Total debt carrying value was $859.0 million, including $799.1 million under the credit facility; total debt principal was $862.0 million. Available credit capacity was $319.8 million. Net leverage was 3.22x, within the 4.00x covenant limit, and the company reported covenant compliance. Working capital was negative $312.0 million, influenced by customer funds held and amounts due to customers.
Deferred revenue was $385.2 million, up 1.7%. Remaining performance obligations were approximately $1.0 billion, with about 60% expected to be recognized over the next 12 months. Customer gross dollar retention was approximately 91%, unchanged year over year; retention of customers with recurring revenue contracts was about 91%, versus 93% in 2021.
Material changes and notable items
- EVERFI, acquired at the end of 2021 for approximately $742.8 million, expanded the corporate social responsibility, ESG and education offerings. Its inclusion materially contributed to reported growth; management said 2022 EVERFI bookings were below expectations and cited post-acquisition employee attrition.
- Recurring revenue rose 14.9%, while non-GAAP organic recurring revenue grew 4.0%. One-time services and other revenue was $46.4 million, down 1.1%.
- Operating income declined by $53.4 million. Higher compensation, acquisition-related costs, hosting and contractor costs, amortization, transaction costs and Security Incident expenses were significant contributors.
- Net Security Incident expense was $55.7 million in 2022, after probable insurance recoveries; insurance coverage had been exhausted. Operating cash flow fell 4.6%, and non-GAAP free cash flow fell 17.8%.
- Blackbaud acquired Kilter in August 2022 for approximately $2.9 million, with up to $3.0 million of contingent consideration. It sold FIMS and DonorCentral NXT in September for approximately $6.4 million.
- The company recorded a $2.3 million impairment of capitalized software costs after deciding to end customer support for certain solutions, alongside other smaller asset impairments. Goodwill was not impaired.
Outlook, risks and contingencies
Management did not provide specific full-year 2023 revenue or earnings guidance in the provided filing text. It expects financial performance to improve sequentially during 2023, with meaningful improvement beginning in the second quarter and faster growth in the second half as pricing initiatives take effect. It expects one-time services revenue to decline significantly as customers migrate to cloud subscriptions and EVERFI revenue shifts toward recurring models. Workforce reductions and other cost actions are expected to reduce 2023 pre-tax costs; management said total headcount would be reduced by approximately 14% from the third quarter of 2022, while cybersecurity and innovation investment continues.
- For 2023, management estimated capital expenditures, including capitalized software development, of $65–75 million and interest expense of $40–44 million, with exposure to rising variable rates.
- For ongoing Security Incident legal fees in 2023, management estimated net pre-tax expense of $20–30 million and net cash outlays of $25–35 million. Approximately $23.0 million of loss-contingency liabilities were accrued at year-end; additional losses could materially exceed that amount, but the company could not estimate the possible additional loss.
- The May 2020 ransomware incident remains subject to customer claims, 19 putative consumer class actions and governmental investigations. Potential judgments, settlements, fines or penalties, and related effects on customer confidence and costs, remain uncertain.
- Other key risks include competition, customer renewals and charitable giving trends, cybersecurity and data protection, payment-processing disruption, acquisition integration, debt and covenant obligations, and possible goodwill or intangible-asset impairment.
The company stated that available funding and anticipated operating cash flows should cover operations, planned capital expenditures and debt obligations for at least the next 12 months. Independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether organic growth, retention and EVERFI bookings improve as pricing changes and sales staffing initiatives take effect.
- The amount and timing of further Security Incident costs, insurance limitations, accrued liabilities and outcomes of litigation and investigations.
- Cash generation and debt reduction, including the availability of credit, covenant headroom and sensitivity to interest rates.
- Whether cost reductions improve GAAP profitability without impairing customer support, sales execution, cybersecurity or product innovation.
- The basis for treating restricted cash as unavailable for operations and the implications of negative working capital and contractual commitments.