Blackbaud Announces 2023 Third Quarter Results
Revenue Growth Accelerating; Operating Discipline Contributes to Another Quarter of Margin Expansion; Rule of 40 Target Achieved Earlier than Expected
Charleston, S.C. (October 31, 2023) — Blackbaud (NASDAQ: BLKB), the leading provider of software for powering social impact, today announced financial results for its third quarter ended September 30, 2023.
“We produced very strong results in the third quarter,” said Mike Gianoni, president and CEO, Blackbaud. “Further margin expansion and accelerating revenue growth enabled us to exceed the Rule of 40 a quarter earlier than expected. We are well positioned to build on our momentum in 2024 and are excited about the significant profitable growth and substantial value creation we can achieve through the continued execution of our five-point operating plan.”
Third Quarter 2023 Results Compared to Third Quarter 2022 Results:
- GAAP total revenue was $277.6 million, up 6.2%, with $269.0 million in GAAP recurring revenue, up 7.9%. GAAP recurring revenue was 97% of total revenue.
- Non-GAAP organic recurring revenue increased 8.3%.
- GAAP income from operations was $22.0 million, inclusive of security incident-related costs of $4.1 million, with GAAP operating margin of 7.9%, an increase of 1,060 basis points.
- Non-GAAP income from operations was $79.6 million, with non-GAAP operating margin of 28.7%, an increase of 960 basis points.
- GAAP net income was $9.0 million, with GAAP diluted earnings per share of $0.17, up $0.37 per share.
- Non-GAAP net income was $60.5 million, with non-GAAP diluted earnings per share of $1.12, up $0.43 per share.
- Non-GAAP adjusted EBITDA was $97.1 million, up $30.2 million, with non-GAAP adjusted EBITDA margin of 35.0%, an increase of 940 basis points.
- GAAP net cash provided by operating activities was $128.0 million, an increase of $20.0 million.
- Non-GAAP free cash flow was $110.6 million, an increase of $21.2 million, with non-GAAP free cash flow margin of 39.8%, an increase of 560 basis points.
- Non-GAAP adjusted free cash flow was $117.9 million, an increase of $24.1 million, with non-GAAP adjusted free cash flow margin of 42.5%, an increase of 660 basis points.
“The third quarter represented an inflection point for revenue growth, with organic revenues growing 6.6% and even faster organic recurring revenue growth of 8.3%,” said Tony Boor, executive vice president and CFO, Blackbaud. “Through our cost management initiatives, we also continued to strengthen profitability, with an adjusted EBITDA margin of 35.0%, a more than nine-point improvement year over year. Additionally, we generated $118 million of adjusted free cash flow in the quarter and are on track to meet or exceed the high end of our annual guidance range for adjusted free cash flow.”
An explanation of all non-GAAP financial measures referenced in this press release, including the Rule of 40, is included below under the heading “Non-GAAP Financial Measures.” A reconciliation of the company’s non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.
Recent Company Highlights
- Blackbaud appointed Todd Lant as Chief Customer Officer. Lant, a 20-year Blackbaud veteran, will lead the global customer success team to drive customer value and outcomes.
- At bbcon 2023, Blackbaud announced a major wave of technology innovation, with product enhancements focused on more seamless integration, built-in artificial intelligence and increased flexibility.
- Blackbaud announced the development of Impact Edge™, the first AI-powered social impact reporting and storytelling solution for companies that will enable corporate social impact professionals to use quantitative and qualitative data to rapidly articulate their impact to their organization’s most important stakeholders.
- Blackbaud added generative AI capabilities to JustGiving® to revolutionize fundraising by helping individuals create compelling fundraising pages in a matter of seconds to raise more money for the causes they care about.
- Blackbaud further strengthened its offerings in peer-to-peer fundraising with the next evolution of Good Move™, its activity-tracking mobile app.
- Blackbaud customers helped support the people of Hawaii in the wake of catastrophic wildfires by raising funds and providing disaster relief. This included the Hawai’i Community Foundation’s Maui Strong Fund, which saw a 500% increase in donations in three weeks alone, enabling the foundation to distribute millions in grants to nearly 60 partners on the ground providing immediate relief to Maui communities.
Visit www.blackbaud.com/newsroom for more information about Blackbaud’s recent highlights.
Blackbaud today reiterated its 2023 full year financial guidance:
- Non-GAAP revenue of $1.095 billion to $1.125 billion
- Non-GAAP adjusted EBITDA margin of 30.5% to 31.5%
- Non-GAAP earnings per share of $3.63 to $3.94
- Non-GAAP adjusted free cash flow of $190 million to $210 million
Included in its 2023 full year financial guidance are the following assumptions:
- Non-GAAP annualized effective tax rate is expected to be approximately 20%
- Interest expense for the year is expected to be approximately $37 million to $41 million
- Fully diluted shares for the year are expected to be approximately 53 million to 54 million
- Capital expenditures for the year are expected to be approximately $65 million to $75 million, including approximately $55 million to $65 million of capitalized software and content development costs
Blackbaud has not reconciled forward-looking full-year non-GAAP financial measures contained in this news release to their most directly comparable GAAP measures, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliations would require unreasonable efforts at this time to estimate and quantify with a reasonable degree of certainty various necessary GAAP components, including for example those related to compensation, acquisition transactions and integration, tax items or others that may arise during the year. These components and other factors could materially impact the amount of the future directly comparable GAAP measures, which may differ significantly from their non-GAAP counterparts.
In order to provide a meaningful basis for comparison, Blackbaud uses non-GAAP adjusted free cash flow in analyzing its operating performance. Non-GAAP adjusted free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software and content development, capital expenditures for property and equipment, plus cash outflows, net of insurance, related to the previously disclosed Security Incident discovered in May 2020 (the “Security Incident”). Total costs related to the Security Incident exceeded the limit of our insurance coverage during the first quarter of 2022. For full year 2023, Blackbaud currently expects net cash outlays of $25 million to $35 million for ongoing legal fees related to the Security Incident. For full year 2024, we currently expect a significant decrease in net pre-tax expense related to the Security Incident for ongoing legal fees. In line with the company’s policy, all associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred. Please refer to the section below titled “Non-GAAP Financial Measures” for more information on Blackbaud’s use of non-GAAP financial measures.
Stock Repurchase Program
As of September 30, 2023, Blackbaud had approximately $250 million remaining under its common stock repurchase program that was authorized in December 2021.
Conference Call Details
What: Blackbaud’s 2023 Third Quarter Conference Call
When: November 1, 2023
Time: 8:00 a.m. (Eastern Time)
Live Call: 1-877-407-3088 (US/Canada)
Blackbaud (NASDAQ: BLKB) is the leading software provider exclusively dedicated to powering social impact. Serving the nonprofit and education sectors, companies committed to social responsibility and individual change makers, Blackbaud’s essential software is built to accelerate impact in fundraising, nonprofit financial management, digital giving, grantmaking, corporate social responsibility and education management. With millions of users and over $100 billion raised, granted or managed through Blackbaud platforms every year, Blackbaud’s solutions are unleashing the potential of the people and organizations who change the world. Blackbaud has been named to Newsweek’s list of America’s Most Responsible Companies, Quartz’s list of Best Companies for Remote Workers, and Forbes’ list of America’s Best Employers. A remote-first company, Blackbaud has operations in the United States, Australia, Canada, Costa Rica and the United Kingdom, supporting users in 100+ countries. Learn more at www.blackbaud.com or follow us on X/Twitter, LinkedIn, Instagram and Facebook.
Except for historical information, all of the statements, expectations, and assumptions contained in this news release are forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding the predictability of our financial condition and results of operations. These statements involve a number of risks and uncertainties. Although Blackbaud attempts to be accurate in making these forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. In addition, other important factors that could cause results to differ materially include the following: management of integration of acquired companies; uncertainty regarding increased business and renewals from existing customers; a shifting revenue mix that may impact gross margin; continued success in sales growth; cybersecurity and data protection risks and related liabilities; potential litigation involving us; and the other risk factors set forth from time to time in the SEC filings for Blackbaud, copies of which are available free of charge at the SEC’s website at www.sec.gov or upon request from Blackbaud’s investor relations department. Blackbaud assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
All Blackbaud product names appearing herein are trademarks or registered trademarks of Blackbaud, Inc.
Non-GAAP Financial Measures
Blackbaud has provided in this release financial information that has not been prepared in accordance with GAAP. Blackbaud uses non-GAAP financial measures internally in analyzing its operational performance. Accordingly, Blackbaud believes these non-GAAP measures are useful to investors, as a supplement to GAAP measures, in evaluating its ongoing operational performance and trends and in comparing its financial results from period-to-period with other companies in Blackbaud’s industry, many of which present similar non-GAAP financial measures to investors. However, these non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies.
The non-GAAP financial measures discussed above exclude the impact of certain transactions that Blackbaud believes are not directly related to its operating performance in any particular period, but are for its long-term benefit over multiple periods. Blackbaud believes these non-GAAP financial measures reflect its ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in its business.
While Blackbaud believes these non-GAAP measures provide useful supplemental information, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures.
Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software and content development, and capital expenditures for property and equipment. In addition, and in order to provide a meaningful basis for comparison, Blackbaud now uses non-GAAP adjusted free cash flow in analyzing its operating performance. Non-GAAP adjusted free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software and content development, and capital expenditures for property and equipment, plus cash outflows, net of insurance, related to the Security Incident. Blackbaud believes non-GAAP free cash flow and non-GAAP adjusted free cash flow provide useful measures of the company’s operating performance. Non-GAAP adjusted free cash flow is not intended to represent and should not be viewed as the amount of residual cash flow available for discretionary expenditures.
In addition, Blackbaud uses non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis, non-GAAP organic recurring revenue growth and non-GAAP organic recurring revenue growth on a constant currency basis, in analyzing its operating performance. Blackbaud believes that these non-GAAP measures are useful to investors, as a supplement to GAAP measures, for evaluating the periodic growth of its business on a consistent basis. Each of these measures excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, each of these measures reflects presentation of full-year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period. In addition, each of these measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. Blackbaud believes this presentation provides a more comparable representation of its current business’ organic revenue growth and revenue run-rate.
Rule of 40 is defined as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. Non-GAAP adjusted EBITDA is defined as GAAP net income plus interest, net; income tax provision (benefit); depreciation; amortization of intangible assets from business combinations; amortization of software and content development costs; stock-based compensation; employee severance; acquisition and disposition-related costs; restructuring and other real estate activities; costs, net of insurance, related to the Security Incident; and impairment of capitalized software development costs.