Blackbaud, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Blackbaud provides cloud software, services, and payment solutions to nonprofit, education, healthcare, and other social-good organizations. Results are unaudited and cover one reportable segment. EVERFI, acquired on December 31, 2021, contributed to the quarter’s results.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $257.1 million | $219.2 million |
| Gross profit / margin | $133.8 million / 52.0% | $115.8 million / 52.8% |
| Operating income (loss) | $(6.0) million | $6.6 million |
| Net income (loss) | $(10.4) million | $(0.2) million |
| Operating cash flow | $24.5 million | $30.1 million |
| Capital expenditures and capitalized software | $16.9 million | $12.8 million |
| Non-GAAP free cash flow | $7.6 million | $17.3 million |
- Reported revenue increased 17.3%; recurring revenue rose 18.3% to $244.7 million. Organic revenue growth was 5.2% (5.6% constant currency), excluding acquisition-related revenue.
- Recurring revenue growth reflected $24.1 million of EVERFI contribution to contractual recurring revenue and higher transactional revenue, partly offset by declining maintenance revenue. EVERFI revenue was $27.0 million for the quarter.
- Gross margin declined 0.8 percentage points. Management cited higher recurring delivery costs, including compensation, payment transaction costs, hosting, and acquired intangible amortization.
- Operating results were pressured by higher compensation and contractor costs, investment in product development and security, and $7.2 million of net Security Incident-related expense. Non-GAAP operating income was $43.4 million versus $47.2 million; non-GAAP diluted EPS was $0.57 versus $0.68.
- Recurring-revenue customer retention was approximately 92% for the twelve months ended March 31, 2022, materially unchanged from full-year 2021.
Balance sheet, debt, and liquidity
- At March 31, cash and cash equivalents were $33.8 million; restricted cash was $279.6 million, mostly funds held for customers. Total debt was $985.7 million, including $922.0 million under the 2020 Credit Facility.
- Net leverage was 3.57x. Available borrowing capacity under the credit facility was $209.7 million, and the company reported compliance with debt covenants. The facility matures in October 2025.
- Working capital was negative $251.8 million. Current liabilities include customer funds payable and deferred revenue; restricted customer funds should be distinguished from cash available for general corporate use.
- Financing cash outflow was $325.4 million, largely reflecting a $315.3 million decrease in restricted cash due to customers and $34.7 million of employee tax payments on vested equity awards. Management expects available funding and operating cash flows to cover operations and obligations for at least the next 12 months.
- Remaining performance obligations were approximately $984 million; about 60% was expected to be recognized over the next 12 months. Deferred revenue declined seasonally to $355.7 million.
Outlook, risks, and unusual items
- Management provided no overall revenue or earnings guidance in the supplied filing text. It estimated 2022 interest expense of $30–$33 million and warned that rising rates could increase expense on variable-rate debt.
- The May 2020 ransomware incident remains a significant contingency. In Q1, related gross expense was $9.0 million, offset by $1.8 million of probable insurance recoveries; management said expected recoverable costs had exceeded the insurance limit. It expected $25–$35 million of 2022 net cash outlays for ongoing related legal fees.
- The company reported 19 putative consumer class actions, approximately 260 customer reimbursement requests and 400 reservations of rights to seek reimbursement, plus pending government inquiries or investigations involving U.S. and international authorities, including the SEC, FTC, and HHS. No loss-contingency liability was recorded because the possible loss or range could not be reasonably estimated.
- Management described signs of recovery in social-good markets but said customer purchasing caution and COVID-19-related uncertainty could continue to affect the business. Other risks include customer retention, cybersecurity and data protection, litigation and regulatory outcomes, foreign-exchange movements, and interest rates.
- The company amended its credit agreement in January 2022, including modifying leverage covenant terms. EVERFI was excluded from the quarter-end internal-control evaluation while integration work continued; management concluded disclosure controls were effective.
Investor facts to verify
- How much reported growth and recurring-revenue growth is attributable to EVERFI versus organic performance, and how integration affects margins.
- Whether recurring margin pressure and lower operating cash flow persist as investment and acquisition costs evolve.
- The extent of uninsured Security Incident costs, legal exposure, regulatory outcomes, and potential effects on customer retention and cash flow.
- Debt, leverage, borrowing availability, covenant headroom, and sensitivity of interest expense to rates.
- How much of restricted cash is customer-owned and unavailable for general corporate liquidity, and how seasonal deferred revenue and cash flows develop.