Business Context and Reporting Period
Company: Blackbaud, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2008
Business Overview: Blackbaud is the leading global provider of software and related services for nonprofit organizations. As of March 31, 2008, the company served approximately 19,000 active customers across verticals including education, health, and human services. The company generates revenue through perpetual software licenses, hosted applications (subscriptions), maintenance, and professional services.
Key Financial Metrics
| Metric (in thousands) | Q1 2008 | Q1 2007 |
|---|---|---|
| Total Revenue | $69,436 | $55,145 |
| Gross Profit | $42,693 | $35,250 |
| Gross Margin | 61.5% | 63.9% |
| Operating Income | $11,254 | $9,278 |
| Net Income | $7,043 | $5,756 |
| Diluted EPS | $0.16 | $0.13 |
| Operating Cash Flow | $14,378 | $7,547 |
| Cash and Equivalents (End of Period) | $12,142 | $15,982 |
| Short-term Debt | $11,500 | $0 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 26% ($14.3 million) year-over-year. This was driven by a 29% increase in Services revenue, an 83% increase in Subscriptions revenue (largely due to the eTapestry acquisition), and a 19% increase in License fees.
- Profitability: Net income rose 22% to $7.0 million. Operating income increased 21% to $11.3 million.
- Acquisition Impact: Approximately $2.3 million of the revenue increase was attributable to the inclusion of eTapestry (acquired August 2007). The company also paid $2.3 million in contingent consideration for the 2007 Target Companies acquisition, which increased goodwill.
- Debt and Liquidity: The company borrowed $11.5 million under its revolving credit facility during the quarter, resulting in $11.5 million of short-term debt outstanding as of March 31, 2008, compared to zero in the prior year. Cash and cash equivalents decreased by $2.6 million primarily due to stock repurchases and dividend payments.
- Stock Repurchases: The company repurchased 920,745 shares for approximately $19.8 million during the quarter.
Guidance, Outlook, and Risks
- Dividends: The Board increased the annual dividend from $0.34 to $0.40 per share. A Q2 dividend of $0.10 per share was declared in May 2008.
- Stock Repurchase Program: As of March 31, 2008, $18.3 million remained available under the existing program. In May 2008, the Board approved a new program authorizing up to $40 million in repurchases.
- Outlook: Management expects Research and Development expenses as a percentage of revenue to increase in 2008 compared to 2007. The company believes current cash flows and credit facilities are adequate for foreseeable operations.
- Risks and Contingencies:
- Acquisition Integration: Risks associated with integrating eTapestry and Target Companies.
- Contingent Consideration: Up to $1.5 million remains payable for eTapestry performance; a final payment of $0.6 million for the Campagne acquisition was made in April 2008.
- Tax Uncertainty: The company has $0.6 million in unrecognized tax benefits, with a reasonably possible decrease of $0.5 million in the next 12 months due to state nexus issues.
- Foreign Currency: Approximately 15% of revenue is from outside the U.S., exposing the company to exchange rate fluctuations.
Investor Verification Checklist
- Debt Utilization: Verify the terms and interest rates of the $11.5 million drawn from the $75 million revolving credit facility.
- Acquisition Synergies: Monitor the performance of eTapestry to ensure it meets the criteria for the remaining $1.5 million contingent payment.
- Stock Buyback Impact: Assess the impact of the aggressive $19.8 million share repurchase on liquidity and future capital allocation.
- Revenue Mix: Track the sustainability of the 83% growth in subscription revenue, which is heavily influenced by the eTapestry acquisition.
- Tax Position: Review the resolution of state income tax reviews that could reduce unrecognized tax benefits by up to $0.5 million.