Blackbaud, Inc. — FY2023 Form 10-K
Business context and reporting period. Blackbaud provides cloud software, payment processing, and digital education content for nonprofits, education institutions, corporate social-impact programs, and related organizations. This filing covers the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter report. The company reported one operating and reportable segment.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $1,105.4 million | $1,058.1 million |
| Recurring revenue | $1,071.5 million; up 5.9% | $1,011.7 million |
| One-time services and other revenue | $33.9 million; down 26.9% | $46.4 million |
| GAAP gross profit / margin | $603.2 million / 54.6% | $552.7 million / 52.2% |
| GAAP operating income (loss) / margin | $44.7 million / 4.0% | $(28.5) million / (2.7)% |
| GAAP net income (loss) | $1.8 million | $(45.4) million |
| GAAP diluted EPS | $0.03 | $(0.88) |
| Cash from operations | $199.6 million | $203.9 million |
| Cash and cash equivalents | $31.3 million | $31.7 million |
| Total debt carrying amount | $779.7 million | $859.0 million |
Revenue increased 4.5% (4.9% on a constant-currency organic basis). Contractual recurring revenue grew $29.3 million and transactional recurring revenue grew $30.5 million; the latter benefited from pricing changes and higher volumes in tuition management, JustGiving, and merchant services. Lower maintenance revenue as customers moved to cloud products partly offset contractual growth.
Operating income improved by $73.2 million year over year. Management attributed the improvement to revenue growth and cost reductions, including lower compensation, contractor, and hosting costs; higher stock-based compensation and payment transaction costs partly offset those savings. GAAP net income remained modest, reflecting interest expense and a 2023 effective tax rate of 89.7%, which was affected by nondeductible Security Incident-related accruals and other items.
Non-GAAP measures provide a different view and should not be treated as GAAP results: non-GAAP operating income was $294.1 million versus $202.6 million; non-GAAP net income was $213.6 million versus $140.4 million; and non-GAAP diluted EPS was $3.98 versus $2.69. These measures exclude specified expenses, including stock-based compensation and Security Incident costs.
Cash from operations declined $4.3 million. Purchases of property and equipment plus capitalized software and content development totaled approximately $64.1 million. Company-defined non-GAAP free cash flow was $135.5 million, compared with $132.8 million. The balance sheet included $697.0 million of restricted cash held for customers; it is not available for general operations. Working capital was negative $267.4 million.
At year-end, debt under the 2020 Credit Facility was $720.6 million, with $384.5 million of available borrowing capacity. The company reported a 1.97-to-1.00 net leverage ratio and compliance with its debt covenants. The facility matures in October 2025. Total principal debt obligations were $781.1 million, including other debt; the filing’s debt figures differ by measure and should be read with their definitions.
Material changes versus FY2022
- Revenue grew, with recurring revenue up 5.9%; one-time services and other revenue fell 26.9% as Blackbaud shifted toward cloud, retained, and managed services.
- GAAP results moved from an operating loss and net loss to operating income and a small net profit. Non-GAAP operating margin rose to 26.6% from 19.1%.
- Cost initiatives included reducing headcount from about 3,600 in Q3 2022 to about 3,000 at year-end 2023, consolidating data centers, renegotiating vendor contracts, and reducing office space.
- Cash from operations was slightly lower, while debt carrying amount declined. Blackbaud resumed repurchases, buying $18.8 million of shares in 2023.
Outlook, risks, and unusual items
- Management expected revenue growth to accelerate in 2024 as pricing initiatives contribute for a full year, and expected the decline in non-strategic one-time services revenue to slow. These are expectations, not guarantees.
- Management expected 2024 interest expense of approximately $34–$38 million and capital expenditures, including capitalized software development, of approximately $65–$75 million. It expected $5–$10 million of net pretax expense and $8–$13 million of net cash outlays for ongoing Security Incident legal fees in 2024.
- The 2020 Security Incident remains a major contingency. In 2023, Blackbaud recorded $53.4 million of net pretax expense and had $78.0 million of net cash outlays related to it. It paid a $3.0 million SEC penalty and a $49.5 million multistate Attorneys General settlement; the insurance limit had already been exceeded in 2022.
- At December 31, 2023, the company had recorded about $1.5 million of Security Incident loss-contingency liabilities. Other customer and insurer claims, class actions, and investigations were not accrued because potential losses could not be reasonably estimated; additional losses could be material. The FTC proposed settlement was subject to public comment and finalization as of the filing.
- The multistate settlement requires cybersecurity program improvements through October 2030. The FTC proposed order would impose additional information-security, data-retention, assessment, and reporting obligations if finalized.
- Other key risks include cybersecurity and data privacy, customer renewals and charitable giving trends, competition, AI-related legal and operational uncertainty, variable interest rates, and refinancing or covenant risks around the 2025 credit facility maturity.
- In January 2024, the board expanded the repurchase authorization to $500 million. Repurchases remain subject to liquidity, market conditions, and credit-facility restrictions; the program may be suspended or discontinued.
Important facts for investors to verify
- Track outstanding Security Incident litigation, unresolved claims, the final status and compliance costs of the FTC order, and whether additional losses or cash payments are recorded.
- Assess whether pricing and three-year renewals support growth and retention; reported 2023 gross dollar retention was approximately 90%, slightly lower than 2022 including EVERFI.
- Monitor cash generation after capitalized development spending, available liquidity, debt paydown, interest costs, and the October 2025 credit facility maturity.
- Compare GAAP performance with non-GAAP results and review the adjustments, especially the substantial stock-based compensation and Security Incident exclusions.
- Check the pace and funding of share repurchases against liquidity needs, debt covenants, and competing investment priorities.