Company is on Track to Meet or Exceed Full Year 2022 Financial Guidance and Provides Early View of 2023 Outlook, Including Step-Level Margin Expansion
Charleston, S.C. (November 1, 2022) —Blackbaud (NASDAQ: BLKB), the world's leading cloud software company powering social good, today announced financial results for its third quarter, ended September 30, 2022.
"The strong financial performance in the quarter was driven by our continued advancement in product innovation, sales productivity and customer success programs," said Mike Gianoni, president and CEO, Blackbaud. "We now anticipate meeting or exceeding our 2022 financial guidance which increases our 28% Rule of 40 performance expectation to roughly 29% on a constant currency basis. We plan to carry that momentum into 2023, targeting the mid-30s on Rule of 40 at constant currency, through a combination of mid-single digit organic revenue growth and an adjusted EBITDA margin approaching 29% next year. We have high visibility into this step-level improvement over 2022 based on a combination of actions taken and initiatives in place that are well within our control to manage and execute. And, the multi-year nature of these initiatives provides future upside towards achieving Rule of 40 by the end of 2025."
Third Quarter 2022 Results Compared to Third Quarter 2021 Results
- GAAP total revenue was $261.3 million, up 13.0%, with $249.4 million in GAAP recurring revenue, up 14.1%.
- Non-GAAP organic recurring revenue increased 3.5%.
- GAAP loss from operations was $7.0 million, inclusive of security incident-related costs, net of insurance recoveries of $13.7 million, with GAAP operating margin of (2.7)%, a decrease of 780 basis points
- Non-GAAP income from operations was $49.8 million, with non-GAAP operating margin of 19.1%, a decrease of 270 basis points.
- GAAP net loss was $10.3 million, with GAAP diluted loss per share of $0.20, down $0.33 per share.
- Non-GAAP net income was $36.0 million, with non-GAAP diluted earnings per share of $0.69, down $0.09 per share.
- Non-GAAP adjusted EBITDA was $66.9 million, up $4.6 million, with non-GAAP adjusted EBITDA margin of 25.6%, a decrease of 140 basis points.
- GAAP net cash provided by operating activities was $108.0 million, an increase of $38.2 million.
- Non-GAAP adjusted free cash flow was $93.8 million, an increase of $35.2 million, with non-GAAP adjusted free cash flow margin of 35.9%, an increase of 1,050 basis points.
"We had a solid third quarter achieving 30% on Rule of 40 at constant currency," said Tony Boor, executive vice president and CFO, Blackbaud. "Our organic recurring revenue growth continued to trend in the mid-single digits supported by the strength in our customer renewal rates and growth in transactional revenue despite a tough year-over-year comparison. We generated $94 million of adjusted free cash flow in the quarter and $146 million year-to-date, which exceeds the midpoint of our full-year guidance range. This solid performance paired with very strong overall cash collections in the quarter, as well as the timing of those collections, resulted in the early achievement of guidance."
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 acquired Kilter, an activity-based engagement app, that will allow Blackbaud to expand activity-based peer-to-peer fundraising engagement, to support activity-based health and wellness initiatives for socially responsible companies, and to grow the ways individuals can connect with the causes they care about most through the activities they love.
- Blackbaud divested its Blackbaud FIMS™ and DonorCentral® NXT products to NPact, a Blackbaud channel partner and ISV Premier partner, which will allow the company to reduce complexity and focus on innovation within core products as it executes strategic growth plans.
- Blackbaud hosted its 23rd annual tech conference for good, bbcon. The conference brought together social good practitioners and their teams to connect with experts and peers and learn more about the innovation across the Blackbaud portfolio that is helping social good organizations raise more revenue, manage finances more efficiently, connect across their organizations, deliver grants effectively, create exceptional experiences for their community and more.
- Blackbaud announced the general availability of two fee-cover models, Complete Cover™ and donor cover, for Blackbaud Raiser’s Edge NXT® and eTapestry® forms in the U.S. and Canada that will help charitable organizations raise more with reduced processing costs associated with online gifts, and event and membership registrations.
- Blackbaud was named to Quartz’s ranking of the Best Companies for Remote Workers 2022 after officially transitioning to a remote-first workforce approach in November of 2021. Blackbaud is one of the top 20 large companies that made the list and is the largest company on the list.
- President and CEO Mike Gianoni's employment contract has been extended for an additional three years as Blackbaud continues to push forward on product innovation and customer outcomes to drive accelerated revenue growth and meaningful margin expansion over the next several years, as the company executes on its long-term goal of achieving the Rule of 40.
Visit www.blackbaud.com/newsroom for more information about Blackbaud’s recent highlights.
Blackbaud today reiterated its 2022 full year financial guidance:
- Non-GAAP revenue of $1.05 billion to $1.07 billion
- Non-GAAP adjusted EBITDA margin of 23.7% to 24.2%
- Non-GAAP earnings per share of $2.43 to $2.63
- Non-GAAP adjusted free cash flow of $140 million to $150 million
Included in its 2022 full year financial guidance are the following assumptions:
- Non-GAAP annualized effective tax rate is expected to be 20%
- Interest expense for the year is expected to be approximately $34 million to $37 million
- Fully diluted shares for the year are expected to be in the range of 52 million to 53.5 million
- Capital expenditures for the year are expected to be in the range of $60 million to $70 million, including approximately $50 million to $60 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"). For full year 2022, Blackbaud currently expects net cash outlays of $15 million to $25 million for ongoing legal fees related to the Security Incident. 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.
Conference Call Details
What: Blackbaud's 2022 Third Quarter Conference Call
When: November 2, 2022
Time: 8:00 a.m. (Eastern Time)
Live Call: 1-877-407-3088 (US/Canada)
Blackbaud (NASDAQ: BLKB) is the world’s leading cloud software company powering social good. Serving the entire social good community—nonprofits, higher education institutions, K–12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies and individual change agents—Blackbaud connects and empowers organizations to increase their impact through cloud software, services, expertise and data intelligence. The Blackbaud portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility (CSR) and environmental, social and governance (ESG), school management, ticketing, grantmaking, financial management, payment processing and analytics. Serving the industry for more than four decades, Blackbaud is a remote-first company headquartered in Charleston, South Carolina, with operations in the United States, Australia, Canada, Costa Rica and the United Kingdom. For more information, visit www.blackbaud.com, or follow us on Twitter, LinkedIn, Instagram, and Facebook.
Director, Investor Relations
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; uncertainty regarding the COVID-19 disruption; 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 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.