Business Context and Reporting Period
Company: Blackbaud, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Blackbaud is a leading global provider of software and related services designed specifically for nonprofit organizations. As of September 30, 2009, the company served approximately 22,000 active customers across various verticals including education, health, and human services. The company derives revenue from perpetual software licenses, hosted subscription services, professional services, and maintenance contracts.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Revenue | $79,205 | $230,361 |
| Gross Profit | $48,664 | $139,046 |
| Income from Operations | $13,883 | $32,486 |
| Net Income | $9,828 | $20,488 |
| Diluted EPS | $0.22 | $0.47 |
| Cash and Cash Equivalents (Sep 30, 2009) | $22,238 | |
| Outstanding Debt (Credit Facility) | $17,500 | |
| Operating Cash Flow (9 Months) | $60,355 |
Material Changes vs. Prior Period
- Revenue Trends: Total revenue decreased 1% ($0.9 million) in the third quarter compared to 2008 but increased 4% ($8.4 million) for the nine-month period. This growth was driven by a 61% increase in subscription revenue and a 9% increase in maintenance revenue, offset by declines in license fees (-30%) and services (-13%) due to economic headwinds and customer purchasing delays.
- Profitability: Income from operations increased 21% ($2.4 million) in the third quarter due to expense management. However, for the nine-month period, operating income decreased 13% ($4.9 million) primarily due to increased stock-based compensation, amortization from acquisitions, and higher R&D expenses.
- Acquisitions: The company acquired RLC Customer Centric Technology B.V. in April 2009 for approximately $2.4 million. The inclusion of Kintera (acquired July 2008) contributed $16.1 million to revenue for the first nine months of 2009.
- Debt Reduction: The company repaid $41.5 million of borrowings under its credit facility during the first nine months of 2009, reducing outstanding debt to $17.5 million.
Guidance, Outlook, and Risks
- Outlook: Management expects the operating environment to remain challenging through the rest of 2009 due to economic uncertainty affecting nonprofit spending. The company plans to focus on expanding market share, selectively investing in growth initiatives, and controlling operating costs to maintain targeted profitability.
- Dividends: The Board declared a fourth-quarter dividend of $0.10 per share, payable December 15, 2009. The annual dividend rate for 2009 is $0.40 per share.
- Risks and Contingencies:
- Economic Conditions: Continued pressure on nonprofit spending may delay purchasing decisions for perpetual licenses and services.
- Acquisition Integration: Risks associated with integrating Kintera and RLC, including management of growth and cultural alignment.
- Tax Positions: The company has $1.2 million in unrecognized tax benefits, with potential decreases possible within the next twelve months due to state nexus issues.
- Foreign Currency: Approximately 12% of revenue is derived from outside the U.S.; a stronger U.S. dollar resulted in a decrease in reported revenues for the period.
Investor Verification Checklist
- Recurring Revenue Mix: Verify the sustainability of the 25% growth in recurring revenue (maintenance and subscriptions) which now represents approximately 61% of total revenue.
- License Fee Decline: Assess the long-term impact of the 30% year-over-year decline in perpetual license fees and the shift toward subscription models.
- Debt Servicing: Confirm the company's ability to maintain liquidity given the $17.5 million outstanding debt and the commitment to pay $13.2 million in dividends for the nine-month period.
- Stock-Based Compensation: Review the $9.1 million stock-based compensation expense for the nine months and its impact on future operating margins.
- Acquisition Performance: Monitor the performance of the RLC acquisition and the integration of Kintera to ensure they meet revenue and EBITDA targets.