Blackbaud Announces 2023 First Quarter Results

Raises Full Year 2023 Financial Guidance; Accelerates Expectation for Achieving Rule of 40

CHARLESTON, S.C., May 3, 2023 /PRNewswire/ -- Blackbaud (NASDAQ:BLKB), the world's leading provider of software for powering social impact, today announced financial results for its first quarter ended March 31, 2023.

"2023 is off to a strong start," said Mike Gianoni, president and CEO, Blackbaud. "We have been executing on a thoughtful operating plan that is progressing faster than expected as a result of solid execution across our teams and deep relationships with our customers. Our operating plan focuses on five key drivers that will continue enhancing our top and bottom line through the year, leading us to raise our guidance across the board. At the midpoint of our revised full-year guidance, we now anticipate organic revenue growth at constant currency of roughly 5.5%, adjusted EBITDA margin at constant currency of 31%, and a Rule of 40 at constant currency of 36.5%, up 750 basis points versus 2022. With acceleration planned for each sequential quarter, we expect to exit 2023 at an organic revenue growth rate in the high-single digits and Rule of 40 performance to cross the 40% line in the fourth quarter, well ahead of our prior target of 2025. And looking ahead to 2024, we expect continued revenue growth and margin expansion that supports a sustained Rule of 40 for the full year."

First Quarter 2023 Results Compared to First Quarter 2022 Results:

• GAAP total revenue was $261.8 million, up 1.8%, with $252.7 million in GAAP recurring revenue, up 3.3%.
• Non-GAAP organic recurring revenue increased 3.8%.
• GAAP loss from operations was $9.9 million, inclusive of security incident-related costs of $17.8 million, with GAAP operating margin of (3.8)%, a decrease of 150 basis points.
• Non-GAAP income from operations was $56.6 million, with non-GAAP operating margin of 21.6%, an increase of 470 basis points.
• GAAP net loss was $14.7 million, with GAAP diluted loss per share of $0.28, down $0.08 per share.
• Non-GAAP net income was $38.3 million, with non-GAAP diluted earnings per share of $0.72, up $0.15 per share.
• Non-GAAP adjusted EBITDA was $71.3 million, up $14.1 million, with non-GAAP adjusted EBITDA margin of 27.2%, an increase of 500 basis points.
• GAAP net cash provided by operating activities was $21.8 million, a decrease of $2.7 million.
• Non-GAAP adjusted free cash flow was $15.7 million, an increase of $7.3 million, with non-GAAP adjusted free cash flow margin of 6.0%, an increase of 270 basis points.

"Strong first quarter results and our improved outlook underscore the strength of our business and opportunity to drive significant long-term value creation through continued execution of our operating plan," said Tony Boor, executive vice president and CFO, Blackbaud. "Total revenue of $262 million represented organic growth of 2.3%, and when adjusted for $3 million of negative foreign exchange impacts, organic growth at constant currency was 3.4%. Q1 bookings were ahead of initial expectations. Transactional revenue continued to grow versus a tough compare supported by our rate change implementation at the beginning of the year and elevated volumes. Additionally, we are seeing early benefits from our new contractual pricing approach with continued strength in renewal rates and more customers shifting to three-year contracts. Adjusted EBITDA margin of 27.5% at constant currency was a five-point improvement year over year. We expect step-level improvement from Q1 to Q2 supported by the sustainable cost actions that we have already taken."

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 announced the availability of SKY API^® endpoints for Blackbaud CRM^™ and Blackbaud Altru^® that will make it easier for customers to further expand and extend the capabilities of these solutions to meet their fundraising and constituent engagement goals.
• Blackbaud unveiled its new Blackbaud TeamRaiser^® activity-tracking feature, Good Move^™, designed to help charitable organizations energize their constituents and raise more with a mobile-first gamified activity-tracking and peer-to-peer fundraising experience. This new feature leverages Kilter acquired by Blackbaud in late 2022.
• Blackbaud announced expanded partnerships to add value for our customers and their constituents. Blackbaud is working with Almabase to provide a modern solution for advancement teams to unlock higher education and K-12 school engagement and enhanced fundraising. Blackbaud is also working with SwipeTrack Solutions to modernize the patron digital experience and back-office operations for Arts and Cultural organizations.
• Blackbaud received an IR Magazine award for Best ESG reporting in the small to mid-cap category.
• At the end of April, the company hosted its semi-annual Product Update Briefings, sharing the latest in product innovation.
• EVERFI along with Guardian announced the launch of "Minding Your Money: Skills for Life^™," a first-of-its-kind financial wellness curriculum that addresses the intersections of personal finances, relationships and health to help young people learn lasting financial habits before they enter adulthood.
• Blackbaud was named to Forbes America's Best Employers 2023 list for the sixth year in the midsize category, which included 1,000 companies - 500 large employers and 500 midsize employers - selected through an independent survey of approximately 45,000 American employees working for companies with more than 1,000 employees and spanning 25 industry sectors.

Visit www.blackbaud.com/newsroom for more information about Blackbaud's recent highlights.

Financial Outlook

Blackbaud today revised 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 in the range of approximately 53 million to 54 million
• Capital expenditures for the year are expected to be in the range of 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. 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.

About Blackbaud

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 $100 billion donated, granted and invested through its 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 Twitter, LinkedIn, Instagram, and Facebook.

Forward-Looking Statements

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.

Trademarks

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.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown above in the consolidated statements of cash flows:

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SOURCE Blackbaud