UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended March 31, 2023 |
For the quarterly period ended September 30, 2017
or
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to . |
For the transition period from to .
Commission file number:000-50600
Blackbaud, Inc.
(Exact name of registrant as specified in its charter)
| | | | | |
| |
Delaware | 11-2617163 |
Delaware | 11-2617163 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2000 Daniel Island Drive65 Fairchild Street
Charleston, South Carolina 29492
(Address of principal executive offices, including zip code)
(843) 216-6200
(Registrant’s telephone number, including area code)
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| | |
Securities Registered Pursuant to Section 12(b) of the Act: |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered |
Common Stock, $0.001 Par Value | BLKB | Nasdaq Global Select Market |
Preferred Stock Purchase Rights | N/A | Nasdaq Global Select Market |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO ¨Yes☑No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES þ NO ¨Yes☑No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☑ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | |
Large accelerated filer þ
| Accelerated filer | ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
| Smaller reporting company | ¨ |
| Emerging growth company | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO þYes☐No☑
The number of shares of the registrant’s Common Stock outstanding as of October 23, 2017May 1, 2023 was 48,089,595.53,862,559.
TABLE OF CONTENTS
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ThirdFirst Quarter 20172023 Form 10-Q | | 1 |
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| | CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS |
This Quarterly Report on Form 10-Q, including the documents incorporated herein by reference, contains forward-looking statements that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These "forward-looking statements" are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements consist of, among other things, trend analyses, statements regarding future events, future financial performance, our anticipated growth, the effect of general economic and market conditions, our business strategy and our plan to build and grow our business, our operating results, our ability to successfully integrate acquired businesses and technologies, the effect of foreign currency exchange rate and interest rate fluctuations on our financial results, the impact of expensing stock-based compensation, the sufficiency of our capital resources, our ability to meet our ongoing debt and obligations as they become due, cybersecurity and data protection risks and related liabilities, and current or potential litigationlegal proceedings involving us, all of which are based on current expectations, estimates, and forecasts, and the beliefs and assumptions of our management. Words such as “believes,” “seeks,” “expects,” “may,” “might,” “should,” “intends,” “could,” “would,” “likely,” “will,” “targets,” “plans,” “anticipates,” “aims,” “projects,” “estimates” or any variations of such words and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Accordingly, they should not be viewed as assurances of future performance, and actual results may differ materially and adversely from those expressed in any forward-looking statements.
Important factors that could cause actual results to differ materially from our expectations expressed in forward-looking statements include, but are not limited to, those summarized under “Item“Part II, Item 1A. Risk factors” and elsewhere in this report, in our Annual Report on Form 10-K for the year ended December 31, 20162022 and in our other SEC filings.filings made with the United States Securities & Exchange Commission ("SEC"). Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statement, whether as a result of new information, future events or otherwise.
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2 | | ThirdFirst Quarter 20172023 Form 10-Q |
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| | PART I. FINANCIAL INFORMATION |
ITEM 1. FINANCIAL STATEMENTS
| | Blackbaud, Inc. Consolidated balance sheets (Unaudited) | |
Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited) | | Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited) |
(dollars in thousands) | September 30, 2017 |
| December 31, 2016 |
| (dollars in thousands) | March 31, 2023 | December 31, 2022 |
Assets | | Assets | |
Current assets: | | Current assets: | |
Cash and cash equivalents | $ | 17,050 |
| $ | 16,902 |
| Cash and cash equivalents | $ | 24,083 | | $ | 31,691 | |
Restricted cash due to customers | 139,095 |
| 353,771 |
| |
Accounts receivable, net of allowance of $4,540 and $3,291 at September 30, 2017 and December 31, 2016, respectively | 100,868 |
| 88,932 |
| |
Restricted cash | | Restricted cash | 364,071 | | 702,240 | |
Accounts receivable, net of allowance of $7,688 and $7,318 at March 31, 2023 and December 31, 2022, respectively | | Accounts receivable, net of allowance of $7,688 and $7,318 at March 31, 2023 and December 31, 2022, respectively | 100,253 | | 102,809 | |
Customer funds receivable | | Customer funds receivable | 2,136 | | 249 | |
Prepaid expenses and other current assets | 50,082 |
| 48,314 |
| Prepaid expenses and other current assets | 88,779 | | 81,654 | |
Total current assets | 307,095 |
| 507,919 |
| Total current assets | 579,322 | | 918,643 | |
Property and equipment, net | 43,903 |
| 50,269 |
| Property and equipment, net | 105,309 | | 107,426 | |
Software development costs, net | 48,618 |
| 37,582 |
| |
Operating lease right-of-use assets | | Operating lease right-of-use assets | 47,176 | | 45,899 | |
Software and content development costs, net | | Software and content development costs, net | 145,705 | | 141,023 | |
Goodwill | 472,776 |
| 438,240 |
| Goodwill | 1,051,652 | | 1,050,272 | |
Intangible assets, net | 252,713 |
| 253,676 |
| Intangible assets, net | 622,237 | | 635,136 | |
Other assets | 21,889 |
| 22,524 |
| Other assets | 87,947 | | 94,304 | |
Total assets | $ | 1,146,994 |
| $ | 1,310,210 |
| Total assets | $ | 2,639,348 | | $ | 2,992,703 | |
Liabilities and stockholders’ equity | | Liabilities and stockholders’ equity | |
Current liabilities: | | Current liabilities: | |
Trade accounts payable | $ | 17,830 |
| $ | 23,274 |
| Trade accounts payable | $ | 46,528 | | $ | 42,559 | |
Accrued expenses and other current liabilities | 45,650 |
| 54,196 |
| Accrued expenses and other current liabilities | 72,799 | | 86,002 | |
Due to customers | 139,095 |
| 353,771 |
| Due to customers | 364,397 | | 700,860 | |
Debt, current portion | 8,576 |
| 4,375 |
| Debt, current portion | 19,136 | | 18,802 | |
Deferred revenue, current portion | 277,008 |
| 244,500 |
| Deferred revenue, current portion | 361,003 | | 382,419 | |
Total current liabilities | 488,159 |
| 680,116 |
| Total current liabilities | 863,863 | | 1,230,642 | |
Debt, net of current portion | 329,380 |
| 338,018 |
| Debt, net of current portion | 858,912 | | 840,241 | |
Deferred tax liability | 39,352 |
| 29,558 |
| Deferred tax liability | 131,460 | | 125,759 | |
Deferred revenue, net of current portion | 5,412 |
| 6,440 |
| Deferred revenue, net of current portion | 6,956 | | 2,817 | |
Operating lease liabilities, net of current portion | | Operating lease liabilities, net of current portion | 45,190 | | 44,918 | |
Other liabilities | 7,799 |
| 8,533 |
| Other liabilities | 13,234 | | 4,294 | |
Total liabilities | 870,102 |
| 1,062,665 |
| Total liabilities | 1,919,615 | | 2,248,671 | |
Commitments and contingencies (see Note 10) |
| |
Commitments and contingencies (see Note 8) | | Commitments and contingencies (see Note 8) | |
Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock; 20,000,000 shares authorized, none outstanding | — |
| — |
| Preferred stock; 20,000,000 shares authorized, none outstanding | — | | — | |
Common stock, $0.001 par value; 180,000,000 shares authorized, 58,503,687 and 57,672,401 shares issued at September 30, 2017 and December 31, 2016, respectively | 59 |
| 58 |
| |
Common stock, $0.001 par value; 180,000,000 shares authorized, 69,154,863 and 67,814,044 shares issued at March 31, 2023 and December 31, 2022, respectively | | Common stock, $0.001 par value; 180,000,000 shares authorized, 69,154,863 and 67,814,044 shares issued at March 31, 2023 and December 31, 2022, respectively | 69 | | 68 | |
Additional paid-in capital | 341,476 |
| 310,452 |
| Additional paid-in capital | 1,105,189 | | 1,075,264 | |
Treasury stock, at cost; 10,426,122 and 10,166,801 shares at September 30, 2017 and December 31, 2016, respectively | (234,329 | ) | (215,237 | ) | |
Accumulated other comprehensive loss | (1,013 | ) | (457 | ) | |
Treasury stock, at cost; 15,278,827 and 14,745,230 shares at March 31, 2023 and December 31, 2022, respectively | | Treasury stock, at cost; 15,278,827 and 14,745,230 shares at March 31, 2023 and December 31, 2022, respectively | (568,277) | | (537,287) | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | 404 | | 8,938 | |
Retained earnings | 170,699 |
| 152,729 |
| Retained earnings | 182,348 | | 197,049 | |
Total stockholders’ equity | 276,892 |
| 247,545 |
| Total stockholders’ equity | 719,733 | | 744,032 | |
Total liabilities and stockholders’ equity | $ | 1,146,994 |
| $ | 1,310,210 |
| Total liabilities and stockholders’ equity | $ | 2,639,348 | | $ | 2,992,703 | |
| | |
The accompanying notes are an integral part of these consolidated financial statements. | |
The accompanying notes are an integral part of these condensed consolidated financial statements. | | The accompanying notes are an integral part of these condensed consolidated financial statements. |
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ThirdFirst Quarter 20172023 Form 10-Q | | 3 |
| Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | | Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Loss (Unaudited) |
| | | | | | | | | | | | Three months ended March 31, |
Blackbaud, Inc. Consolidated statements of comprehensive income (Unaudited) | |
(dollars in thousands, except per share amounts) | Three months ended September 30, | | | Nine months ended September 30, | | |
2017 |
| 2016 |
| | 2017 |
| 2016 |
| (dollars in thousands, except per share amounts) | | 2023 | 2022 |
Revenue | | | | Revenue | | |
Subscriptions | $ | 127,492 |
| $ | 105,440 |
| | $ | 370,923 |
| $ | 306,330 |
| |
Maintenance | 31,486 |
| 36,410 |
| | 98,184 |
| 111,019 |
| |
Services and other | 36,535 |
| 41,213 |
| | 102,222 |
| 115,161 |
| |
Recurring | | Recurring | | $ | 252,748 | | $ | 244,666 | |
One-time services and other | | One-time services and other | | 9,005 | | 12,458 | |
Total revenue | 195,513 |
| 183,063 |
| | 571,329 |
| 532,510 |
| Total revenue | | 261,753 | | 257,124 | |
Cost of revenue | | | | Cost of revenue | | |
Cost of subscriptions | 58,045 |
| 51,943 |
| | 170,336 |
| 153,772 |
| |
Cost of maintenance | 5,698 |
| 5,531 |
| | 17,551 |
| 16,547 |
| |
Cost of services and other | 23,262 |
| 25,843 |
| | 71,595 |
| 76,499 |
| |
Cost of recurring | | Cost of recurring | | 114,500 | | 112,174 | |
Cost of one-time services and other | | Cost of one-time services and other | | 8,612 | | 11,188 | |
Total cost of revenue | 87,005 |
| 83,317 |
| | 259,482 |
| 246,818 |
| Total cost of revenue | | 123,112 | | 123,362 | |
Gross profit | 108,508 |
| 99,746 |
| | 311,847 |
| 285,692 |
| Gross profit | | 138,641 | | 133,762 | |
Operating expenses | | | | Operating expenses | | |
Sales, marketing and customer success | 44,193 |
| 40,690 |
| | 129,394 |
| 115,707 |
| Sales, marketing and customer success | | 54,385 | | 55,216 | |
Research and development | 22,071 |
| 22,510 |
| | 67,647 |
| 67,973 |
| Research and development | | 40,591 | | 39,952 | |
General and administrative | 23,545 |
| 22,319 |
| | 67,350 |
| 62,089 |
| General and administrative | | 52,838 | | 43,762 | |
Amortization | 734 |
| 687 |
| | 2,164 |
| 2,147 |
| Amortization | | 774 | | 811 | |
| Total operating expenses | 90,543 |
| 86,206 |
| | 266,555 |
| 247,916 |
| Total operating expenses | | 148,588 | | 139,741 | |
Income from operations | 17,965 |
| 13,540 |
| | 45,292 |
| 37,776 |
| |
Loss from operations | | Loss from operations | | (9,947) | | (5,979) | |
Interest expense | (3,092 | ) | (2,641 | ) | | (8,685 | ) | (8,037 | ) | Interest expense | | (10,662) | | (7,599) | |
Other income (expense), net | 468 |
| (15 | ) | | 1,581 |
| (185 | ) | |
Income before provision for income taxes | 15,341 |
| 10,884 |
| | 38,188 |
| 29,554 |
| |
Income tax provision | 2,793 |
| 1,950 |
| | 2,964 |
| 5,323 |
| |
Net income | $ | 12,548 |
| $ | 8,934 |
| | $ | 35,224 |
| $ | 24,231 |
| |
Earnings per share | | | | |
Other income, net | | Other income, net | | 2,007 | | 1,121 | |
Loss before provision for income taxes | | Loss before provision for income taxes | | (18,602) | | (12,457) | |
Income tax benefit | | Income tax benefit | | (3,901) | | (2,050) | |
Net loss | | Net loss | | $ | (14,701) | | $ | (10,407) | |
Loss per share | | Loss per share | | |
Basic | $ | 0.27 |
| $ | 0.19 |
| | $ | 0.76 |
| $ | 0.53 |
| Basic | | $ | (0.28) | | $ | (0.20) | |
Diluted | $ | 0.26 |
| $ | 0.19 |
| | $ | 0.74 |
| $ | 0.51 |
| Diluted | | $ | (0.28) | | $ | (0.20) | |
Common shares and equivalents outstanding | | | | Common shares and equivalents outstanding | | |
Basic weighted average shares | 46,711,709 |
| 46,159,956 |
| | 46,627,213 |
| 46,078,306 |
| Basic weighted average shares | | 52,132,999 | | 51,199,717 | |
Diluted weighted average shares | 47,846,997 |
| 47,394,106 |
| | 47,679,103 |
| 47,268,469 |
| Diluted weighted average shares | | 52,132,999 | | 51,199,717 | |
Dividends per share | $ | 0.12 |
| $ | 0.12 |
| | $ | 0.36 |
| $ | 0.36 |
| |
Other comprehensive (loss) income | | | | Other comprehensive (loss) income | | |
Foreign currency translation adjustment | (188 | ) | 289 |
| | (467 | ) | 261 |
| Foreign currency translation adjustment | | $ | 2,158 | | $ | (2,132) | |
Unrealized (loss) gain on derivative instruments, net of tax | (267 | ) | 409 |
| | (89 | ) | (378 | ) | Unrealized (loss) gain on derivative instruments, net of tax | | (10,692) | | 10,905 | |
Total other comprehensive (loss) income | (455 | ) | 698 |
| | (556 | ) | (117 | ) | Total other comprehensive (loss) income | | (8,534) | | 8,773 | |
Comprehensive income | $ | 12,093 |
| $ | 9,632 |
| | $ | 34,668 |
| $ | 24,114 |
| |
Comprehensive loss | | Comprehensive loss | | $ | (23,235) | | $ | (1,634) | |
| | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. | |
The accompanying notes are an integral part of these condensed consolidated financial statements. | | The accompanying notes are an integral part of these condensed consolidated financial statements. |
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4 | | ThirdFirst Quarter 20172023 Form 10-Q |
| | Blackbaud, Inc. Consolidated statements of cash flows (Unaudited) | |
Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) | | Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) |
| Nine months ended September 30, | | | Three months ended March 31, |
(dollars in thousands) | 2017 |
| 2016 |
| (dollars in thousands) | 2023 | 2022 |
Cash flows from operating activities | | Cash flows from operating activities | |
Net income | $ | 35,224 |
| $ | 24,231 |
| |
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Net loss | | Net loss | $ | (14,701) | | $ | (10,407) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | Adjustments to reconcile net loss to net cash provided by operating activities: | |
Depreciation and amortization | 54,765 |
| 53,109 |
| Depreciation and amortization | 27,272 | | 25,545 | |
Provision for doubtful accounts and sales returns | 7,246 |
| 3,139 |
| |
Provision for credit losses and sales returns | | Provision for credit losses and sales returns | 1,522 | | 1,875 | |
Stock-based compensation expense | 31,055 |
| 25,005 |
| Stock-based compensation expense | 29,925 | | 27,860 | |
Deferred taxes | (2,511 | ) | (225 | ) | Deferred taxes | 9,245 | | (7,431) | |
Amortization of deferred financing costs and discount | 650 |
| 718 |
| Amortization of deferred financing costs and discount | 500 | | 645 | |
Other non-cash adjustments | 572 |
| (634 | ) | Other non-cash adjustments | (215) | | (150) | |
Changes in operating assets and liabilities, net of acquisition and disposal of businesses: | | Changes in operating assets and liabilities, net of acquisition and disposal of businesses: | |
Accounts receivable | (17,169 | ) | (9,288 | ) | Accounts receivable | 1,139 | | 9,010 | |
Prepaid expenses and other assets | 596 |
| (934 | ) | Prepaid expenses and other assets | (2,750) | | (2,067) | |
Trade accounts payable | (2,891 | ) | 267 |
| Trade accounts payable | 3,362 | | 15,919 | |
Accrued expenses and other liabilities | (9,522 | ) | (12,837 | ) | Accrued expenses and other liabilities | (15,931) | | (13,430) | |
Restricted cash due to customers | 214,244 |
| 119,291 |
| |
Due to customers | (214,244 | ) | (119,291 | ) | |
Deferred revenue | 25,370 |
| 17,593 |
| Deferred revenue | (17,562) | | (22,865) | |
Net cash provided by operating activities | 123,385 |
| 100,144 |
| Net cash provided by operating activities | 21,806 | | 24,504 | |
Cash flows from investing activities | | Cash flows from investing activities | |
Purchase of property and equipment | (8,417 | ) | (15,459 | ) | Purchase of property and equipment | (1,364) | | (4,266) | |
Capitalized software development costs | (20,605 | ) | (19,078 | ) | |
Purchase of net assets of acquired companies, net of cash acquired | (49,729 | ) | (3,377 | ) | |
Purchase of derivative instruments | (516 | ) | — |
| |
Proceeds from settlement of derivative instruments | 1,030 |
| — |
| |
Capitalized software and content development costs | | Capitalized software and content development costs | (13,967) | | (12,683) | |
Purchase of net assets of acquired companies, net of cash and restricted cash acquired | | Purchase of net assets of acquired companies, net of cash and restricted cash acquired | — | | (19,985) | |
| Net cash used in investing activities | (78,237 | ) | (37,914 | ) | Net cash used in investing activities | (15,331) | | (36,934) | |
Cash flows from financing activities | | Cash flows from financing activities | |
Proceeds from issuance of debt | 588,300 |
| 179,000 |
| Proceeds from issuance of debt | 92,600 | | 59,400 | |
Payments on debt | (594,144 | ) | (212,581 | ) | Payments on debt | (75,403) | | (33,765) | |
Debt issuance costs | (3,085 | ) | — |
| |
| Employee taxes paid for withheld shares upon equity award settlement | (19,092 | ) | (10,497 | ) | Employee taxes paid for withheld shares upon equity award settlement | (31,417) | | (34,674) | |
Proceeds from exercise of stock options | 14 |
| 10 |
| |
Dividend payments to stockholders | (17,299 | ) | (17,108 | ) | |
| Change in due to customers | | Change in due to customers | (337,159) | | (315,294) | |
Change in customer funds receivable | | Change in customer funds receivable | (1,859) | | (1,115) | |
| Net cash used in financing activities | (45,306 | ) | (61,176 | ) | Net cash used in financing activities | (353,238) | | (325,448) | |
Effect of exchange rate on cash and cash equivalents | 306 |
| 46 |
| |
Net increase in cash and cash equivalents | 148 |
| 1,100 |
| |
Cash and cash equivalents, beginning of period | 16,902 |
| 15,362 |
| |
Cash and cash equivalents, end of period | $ | 17,050 |
| $ | 16,462 |
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The accompanying notes are an integral part of these consolidated financial statements. | |
Effect of exchange rate on cash, cash equivalents and restricted cash | | Effect of exchange rate on cash, cash equivalents and restricted cash | 986 | | (504) | |
Net decrease in cash, cash equivalents and restricted cash | | Net decrease in cash, cash equivalents and restricted cash | (345,777) | | (338,382) | |
Cash, cash equivalents and restricted cash, beginning of period | | Cash, cash equivalents and restricted cash, beginning of period | 733,931 | | 651,762 | |
Cash, cash equivalents and restricted cash, end of period | | Cash, cash equivalents and restricted cash, end of period | $ | 388,154 | | $ | 313,380 | |
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown above in the condensed consolidated statements of cash flows:
| | | | | | | | |
(dollars in thousands) | March 31, 2023 | December 31, 2022 |
Cash and cash equivalents | $ | 24,083 | | $ | 31,691 | |
Restricted cash | 364,071 | | 702,240 | |
Total cash, cash equivalents and restricted cash in the statement of cash flows | $ | 388,154 | | $ | 733,931 | |
| | |
The accompanying notes are an integral part of these condensed consolidated financial statements. |
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First Quarter 2023 Form 10-Q | | 5 |
Blackbaud, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
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(dollars in thousands) | Common stock | Additional paid-in capital | Treasury stock | Accumulated other comprehensive income | Retained earnings | Total stockholders' equity |
Shares | Amount |
Balance at December 31, 2022 | 67,814,044 | | $ | 68 | | $ | 1,075,264 | | $ | (537,287) | | $ | 8,938 | | $ | 197,049 | | $ | 744,032 | |
Net loss | — | | — | | — | | — | | — | | (14,701) | | (14,701) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Vesting of restricted stock units | 954,147 | | — | | — | | — | | — | | — | | — | |
Employee taxes paid for 533,597 withheld shares upon equity award settlement | — | | — | | — | | (30,990) | | — | | — | | (30,990) | |
Stock-based compensation | — | | — | | 29,925 | | — | | — | | — | | 29,925 | |
Restricted stock grants | 427,941 | | 1 | | — | | — | | — | | — | | 1 | |
Restricted stock cancellations | (41,269) | | — | | — | | — | | — | | — | | — | |
Other comprehensive loss | — | | — | | — | | — | | (8,534) | | — | | (8,534) | |
Balance at March 31, 2023 | 69,154,863 | | $ | 69 | | $ | 1,105,189 | | $ | (568,277) | | $ | 404 | | $ | 182,348 | | $ | 719,733 | |
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(dollars in thousands) | Common stock | Additional paid-in capital | Treasury stock | Accumulated other comprehensive income | Retained earnings | Total stockholders' equity |
Shares | Amount |
Balance at December 31, 2021 | 66,165,666 | | $ | 66 | | $ | 968,927 | | $ | (500,911) | | $ | 6,522 | | $ | 242,456 | | $ | 717,060 | |
Net loss | — | | — | | — | | — | | — | | (10,407) | | (10,407) | |
Stock issuance costs related to purchase of EVERFI | — | | — | | (983) | | — | | — | | — | | (983) | |
Retirements of common stock(1) | (33,075) | | — | | (2,581) | | — | | — | | — | | (2,581) | |
| | | | | | | |
Vesting of restricted stock units | 976,312 | | — | | — | | — | | — | | — | | — | |
Employee taxes paid for 533,139 withheld shares upon equity award settlement | — | | — | | — | | (34,674) | | — | | — | | (34,674) | |
Stock-based compensation | — | | — | | 27,860 | | — | | — | | — | | 27,860 | |
Restricted stock grants | 580,209 | | 2 | | — | | — | | — | | — | | 2 | |
Restricted stock cancellations | (30,940) | | — | | — | | — | | — | | — | | — | |
Other comprehensive income | — | | — | | — | | — | | 8,773 | | — | | 8,773 | |
Balance at March 31, 2022 | 67,658,172 | | $ | 68 | | $ | 993,223 | | $ | (535,585) | | $ | 15,295 | | $ | 232,049 | | $ | 705,050 | |
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(1)Represents shares retired after determining certain EVERFI's selling shareholders would be paid in cash, rather than shares of our common stock.
| | |
Third Quarter 2017 Form 10-Q | | 5The accompanying notes are an integral part of these condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | | | | | | |
Blackbaud, Inc. Consolidated statement of stockholders' equity (Unaudited) |
(dollars in thousands) | Common stock | | Additional paid-in capital |
| Treasury stock |
| Accumulated other comprehensive loss |
| Retained earnings |
| Total stockholders' equity |
|
Shares |
| Amount |
|
Balance at December 31, 2016 | 57,672,401 |
| $ | 58 |
| $ | 310,452 |
| $ | (215,237 | ) | $ | (457 | ) | $ | 152,729 |
| $ | 247,545 |
|
Net income | — |
| — |
| — |
| — |
| — |
| 35,224 |
| 35,224 |
|
Payment of dividends | — |
| — |
| — |
| — |
| — |
| (17,299 | ) | (17,299 | ) |
Exercise of stock options and stock appreciation rights and vesting of restricted stock units | 349,713 |
| — |
| 14 |
| — |
| — |
| — |
| 14 |
|
Employee taxes paid for 259,321 withheld shares upon equity award settlement | — |
| — |
| — |
| (19,092 | ) | — |
| — |
| (19,092 | ) |
Stock-based compensation | — |
| — |
| 31,010 |
| — |
| — |
| 45 |
| 31,055 |
|
Restricted stock grants | 549,589 |
| 1 |
| — |
| — |
| — |
| — |
| 1 |
|
Restricted stock cancellations | (68,016 | ) | — |
| — |
| — |
| — |
| — |
| — |
|
Other comprehensive loss | — |
| — |
| — |
| — |
| (556 | ) | — |
| (556 | ) |
Balance at September 30, 2017 | 58,503,687 |
| $ | 59 |
| $ | 341,476 |
| $ | (234,329 | ) | $ | (1,013 | ) | $ | 170,699 |
| $ | 276,892 |
|
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. |
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6 | | ThirdFirst Quarter 20172023 Form 10-Q |
Blackbaud, Inc.
Notes to consolidated financial statementsCondensed Consolidated Financial Statements
(Unaudited)
We are the world’s leading cloud software companyprovider exclusively dedicated to powering social good.impact. Serving the entirenonprofit and education sectors, companies committed to social good community—nonprofits, foundations, corporations, education institutions, healthcare institutionsresponsibility and individual change agents—we connect and empower organizationsmakers, our essential software is built to increase theiraccelerate impact through software, services, expertise and data intelligence. Our portfolio is tailored to the unique needs of vertical markets, with solutions forin fundraising, and CRM, marketing, advocacy, peer-to-peer fundraising,nonprofit financial management, digital giving, grantmaking, corporate social responsibility school management, ticketing, grantmaking, financial management, payment processing, and analytics. Serving the industry for more than three decades,education management. A remote-first company, we are headquartered in Charleston, South Carolina and have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom. As of September 30, 2017, we had approximately 35,000 customers.Kingdom, supporting users in 100+ countries.
Unaudited condensed consolidated interim consolidated financial statements
The accompanying condensed consolidated interim consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to state fairly the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of stockholders’ equity, for the periods presented in accordance with accounting principles generally accepted in the United States ("U.S.") ("GAAP"). The consolidated balance sheet at December 31, 2016,2022 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the ninethree months ended September 30, 2017March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017,2023, or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations for interim reporting of the SEC. These condensed consolidated interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, and other forms filed with the SEC from time to time.
Reclassifications
Due to the insignificance of our revenue from "license fees and other," we have combined that revenue with our "services" revenue beginning in 2017. In order to provide comparability between periods presented, "services" and "license fees and other" have been combined within "services and other" in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period. Similarly, "cost of services" and "cost of license fees and other" have been combined within "cost of services and other" in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period.
Basis of consolidation
The condensed consolidated financial statements include the accounts of Blackbaud, Inc. and its wholly-ownedwholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Recently adopted accounting pronouncementsReportable segment
In May 2017,We report our operating results and financial information in one operating and reportable segment. Our chief operating decision maker uses consolidated financial information to make operating decisions, assess financial performance and allocate resources. Our chief operating decision maker is our chief executive officer.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) - Scopereported amounts of Modification Accounting ("ASU 2017-09"), which provides guidance about which changes toassets and liabilities and disclosure of contingent assets and liabilities at the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under ASU 2017-09, modification accounting is required only if the fair value, the vesting conditions, or the classificationdate of the award (as equityfinancial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, income taxes, business combinations, stock-based compensation, capitalization of software and content development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuation of derivative instruments, loss contingencies and insurance recoveries, among others. Changes in the facts or liability)circumstances underlying these estimates could result in material changes as a result of the change in terms or conditions. ASU 2017-09 is effective for all companies for annual and interim periods beginning after December 15, 2017, with early adoption permitted in any interim period for reporting periods for
actual results could materially differ from these estimates.
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ThirdFirst Quarter 20172023 Form 10-Q | | 7 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)Condensed Consolidated Financial Statements
(Unaudited)
Recently adopted accounting pronouncements
whichIn September 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations ("ASU 2022-04"). This update requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement, or financial statements have not been issued.statement presentation of supplier finance programs. We adopted ASU 2017-09 should be applied prospectively to an award modified2022-04 on or afterJanuary 1, 2023 and the adoption date. We early adopted ASU 2017-09 as of April 1, 2017. As this standard is prospective in nature, thedid not have a material impact toon our condensed consolidated financial statements will depend on the nature of our future award modifications.statements.
In January 2017, the FASBRecently issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business ("ASU 2017-01"), which provides a screen to determine when an integrated set of assets and activities is not a business. The screen requiresaccounting pronouncements
There are no recently issued accounting pronouncements that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted, and applied prospectively. We early adopted ASU 2017-01 as of July 1, 2017 and do notwe expect the standard to have a material impact on our consolidated financial statements.statements when adopted in the future.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment("ASU 2017-04"), which removes the requirementSummary of significant accounting policies
There have been no material changes to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We early adopted ASU 2017-04 as of July 1, 2017 for useour significant accounting policies described in our fourth quarter annual goodwill impairment testing and do not expectAnnual Report on Form 10-K for the standard to have a material impactyear ended December 31, 2022, filed with the SEC on our consolidated financial statements.February 24, 2023.
Recently issued accounting pronouncements
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash ("ASU 2016-18"), which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. We are currently evaluating the impact of this standard on our consolidated statements of cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 will require lessees to record most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current guidance. The updated guidance also eliminates certain real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. Classification will continue to affect amounts that lessors record on the balance sheet. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. Upon adoption, entities will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. We expect ASU 2016-02 will impact our consolidated financial statements and are currently evaluating the extent of the impact that implementation of this standard will have on adoption.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. ASU 2014-09 will be effective for us beginning in the first quarter of 2018 and we anticipate using the full retrospective transition method. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and related disclosures. As a result of our evaluation to date, we expect that ASU 2014-09 will generally result in the deferral of more costs to obtain a contract over a longer period using the expected period of benefit as compared with our current practice of using our average initial contract term. We also anticipate incremental disclosures, including, but not limited to, the opening and closing balances of contract assets and liabilities, revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period, and the aggregate amount of the transaction price allocated to remaining performance obligations at the end of each reporting period including when we expect to recognize that amount.
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| | |
8 | | Third Quarter 2017 Form 10-Q |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
AcademicWorks acquisition
On April 3, 2017, we acquired all of the outstanding shares of capital stock, including all voting equity interests, of AcademicWorks, Inc., a Texas corporation ("AcademicWorks"), pursuant to a stock purchase agreement. AcademicWorks is the market leader in scholarship management for higher education and K-12 institutions, foundations, and grant-making institutions. The acquisition extends our offerings for our higher education, K-12, and corporate and foundation customers. We acquired AcademicWorks for $52.1 million in cash, net of closing adjustments. We financed the acquisition through a draw down of a revolving credit loan under our then-existing credit facility. As a result of the acquisition, AcademicWorks has become a wholly-owned subsidiary of ours. The operating results of AcademicWorks have been included in our consolidated financial statements within our EMG and GMG reportable segments (as defined in Note 14 below) from the date of acquisition. During the three and nine months ended September 30, 2017, we incurred insignificant acquisition-related expenses associated with the acquisition of AcademicWorks, which were recorded in general and administrative expense.
The fair values assigned to the assets acquired and liabilities assumed in the table below are based on our best estimates and assumptions as of the reporting date and are considered preliminary pending finalization. The estimates and assumptions are subject to change as we obtain additional information during the measurement period, which may be up to one year from the acquisition date. The assets and liabilities, pending finalization, include the valuation of acquired finite-lived intangible assets as well as the assumed deferred revenue and deferred income tax balances.
|
| | | |
(in thousands) | Purchase price allocation |
|
Net working capital, excluding deferred revenue | $ | 2,949 |
|
Property and equipment | 290 |
|
Finite-lived intangible assets | 30,900 |
|
Deferred revenue | (3,950 | ) |
Deferred tax liability | (12,350 | ) |
Goodwill | 34,305 |
|
Total purchase price | $ | 52,144 |
|
The estimated fair value of accounts receivable acquired approximates the contractual value of $1.0 million. The estimated goodwill recognized is attributable primarily to the opportunities for expected synergies from combining operations and the assembled workforce of AcademicWorks, with $20.6 million and $13.7 million assigned to our EMG and GMG reportable segments, respectively. None of the goodwill arising in the acquisition is deductible for income tax purposes.
The AcademicWorks acquisition resulted in the identification of the following identifiable finite-lived intangible assets: |
| | | | |
| Intangible assets acquired |
| Weighted average amortization period |
AcademicWorks | (in thousands) |
| (in years) |
Acquired technology | $ | 22,500 |
| 9 |
Customer relationships | 8,000 |
| 15 |
Marketing assets | 320 |
| 2 |
Non-compete agreements | 80 |
| 3 |
Total intangible assets | $ | 30,900 |
| 10 |
The estimated fair values of the finite-lived intangible assets were based on variations of the income approach, which estimates fair value based upon the present value of cash flows that the assets are expected to generate, and which included the relief-from-royalty method, incremental cash flow method, including the comparative (with and without) method and multi-period excess earnings method, depending on the intangible asset being valued. The method of amortization of
|
| | |
Third Quarter 2017 Form 10-Q | | 9 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
identifiable finite-lived intangible assets is based on the expected pattern in which the estimated economic benefits of the respective assets are consumed or otherwise used up. Customer relationships and acquired technology are being amortized on an accelerated basis. Marketing assets and non-compete agreements are being amortized on a straight-line basis.
We determined that the impact of this acquisition was not material to our consolidated financial statements; therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.
|
|
4. Goodwill and Other Intangible Assets |
The change in goodwill for each reportable segment (as defined in Note 14 below) during the nine months ended September 30, 2017, consisted of the following:
|
| | | | | | | | | | | | |
(dollars in thousands) | EMG | GMG | IMG | Total |
Balance at December 31, 2016 | $ | 241,334 |
| $ | 192,238 |
| $ | 4,668 |
| $ | 438,240 |
|
Additions related to current year business combination(1) | 20,583 |
| 13,722 |
| — |
| 34,305 |
|
Adjustments related to prior year business combination(2) | (29 | ) | (58 | ) | (1 | ) | (88 | ) |
Effect of foreign currency translation | — |
| — |
| 319 |
| 319 |
|
Balance at September 30, 2017 | $ | 261,888 |
| $ | 205,902 |
| $ | 4,986 |
| $ | 472,776 |
|
| |
(1) | See Note 3 to these consolidated financial statements for details regarding our acquisition of AcademicWorks.
|
| |
(2) | The change in goodwill was related to a post-closing working capital adjustment associated with the prior year acquisition of Good+Geek, Inc. ("Attentive.ly"), as well as an immaterial measurement period adjustment. |
|
|
5. EarningsLoss Per Share |
We compute basic earningsloss per share by dividing net incomeloss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earningsloss per share is computed by dividing net incomeloss available to common stockholders by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Diluted earningsloss per share reflectreflects the assumed exercise, settlement and vesting of all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive. Potentially dilutive securities consist of shares issuable upon the exercise of stock options, settlement of stock appreciation rights and vesting of restricted stock awards and units.
|
| | |
10 | | Third Quarter 2017 Form 10-Q |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
potentially dilutive securities was anti-dilutive.
The following table sets forth the computation of basic and diluted earningsloss per share:
|
| | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in thousands, except per share amounts) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Numerator: | | | | | |
Net income | $ | 12,548 |
| $ | 8,934 |
| | $ | 35,224 |
| $ | 24,231 |
|
Denominator: | | | | | |
Weighted average common shares | 46,711,709 |
| 46,159,956 |
| | 46,627,213 |
| 46,078,306 |
|
Add effect of dilutive securities: | | | | | |
Stock-based awards | 1,135,288 |
| 1,234,150 |
| | 1,051,890 |
| 1,190,163 |
|
Weighted average common shares assuming dilution | 47,846,997 |
| 47,394,106 |
| | 47,679,103 |
| 47,268,469 |
|
Earnings per share: | | | | | |
Basic | $ | 0.27 |
| $ | 0.19 |
| | $ | 0.76 |
| $ | 0.53 |
|
Diluted | $ | 0.26 |
| $ | 0.19 |
| | $ | 0.74 |
| $ | 0.51 |
|
| | | | | |
Anti-dilutive shares excluded from calculations of diluted earnings per share | 1,719 |
| 1,723 |
| | 4,938 |
| 3,766 |
|
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands, except per share amounts) | | | | 2023 | 2022 |
Numerator: | | | | | |
Net loss | | | | $ | (14,701) | | $ | (10,407) | |
Denominator: | | | | | |
Weighted average common shares | | | | 52,132,999 | | 51,199,717 | |
Add effect of dilutive securities: | | | | | |
Stock-based awards | | | | — | | — | |
Weighted average common shares assuming dilution | | | | 52,132,999 | | 51,199,717 | |
Loss per share | | | | | |
Basic | | | | $ | (0.28) | | $ | (0.20) | |
Diluted | | | | $ | (0.28) | | $ | (0.20) | |
| | | | | |
Anti-dilutive shares excluded from calculations of diluted loss per share | | | | 1,638,453 | | 1,558,751 | |
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6.8 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | |
4. Fair Value Measurements |
We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
•Level 1 - Quoted prices for identical assets or liabilities in active markets;
•Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
•Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
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| | |
Third Quarter 2017 Form 10-Q | | 11 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
Recurring fair value measurements
Financial assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair value measurement using | | |
(dollars in thousands) | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Fair value as of March 31, 2023 | | | | | | | |
Financial assets: | | | | | | | |
Interest rate swaps | $ | — | | | $ | 26,514 | | | $ | — | | | $ | 26,514 | |
Foreign currency forward contracts | — | | | 96 | | | — | | | 96 | |
Total financial assets | $ | — | | | $ | 26,610 | | | $ | — | | | $ | 26,610 | |
| | | | | | | |
Fair value as of March 31, 2023 | | | | | | | |
Financial liabilities: | | | | | | | |
Interest rate swaps | $ | — | | | $ | 8,920 | | | $ | — | | | $ | 8,920 | |
Foreign currency forward contracts | — | | | 499 | | | — | | | 499 | |
Contingent consideration obligations | — | | | — | | | 2,710 | | | 2,710 | |
Total financial liabilities | $ | — | | | $ | 9,419 | | | $ | 2,710 | | | $ | 12,129 | |
| | | | | | | |
Fair value as of December 31, 2022 | | | | | | | |
Financial assets: | | | | | | | |
Interest rate swaps | $ | — | | | $ | 31,870 | | | $ | — | | | $ | 31,870 | |
Foreign currency forward contracts | — | | | 247 | | | — | | | 247 | |
Total financial assets | $ | — | | | $ | 32,117 | | | $ | — | | | $ | 32,117 | |
| | | | | | | |
Fair value as of December 31, 2022 | | | | | | | |
Financial liabilities: | | | | | | | |
| | | | | | | |
Foreign currency forward contracts | $ | — | | | $ | 323 | | | $ | — | | | $ | 323 | |
Contingent consideration obligations | — | | | — | | | 2,710 | | | 2,710 | |
Total financial liabilities | $ | — | | | $ | 323 | | | $ | 2,710 | | | $ | 3,033 | |
|
| | | | | | | | | | | | | | | |
| Fair value measurement using | | |
(dollars in thousands) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
Fair value as of September 30, 2017 | | | | | | | |
Financial assets: | | | | | | | |
Derivative instruments | $ | — |
| | $ | 223 |
| | $ | — |
| | $ | 223 |
|
Total financial assets | $ | — |
| | $ | 223 |
| | $ | — |
| | $ | 223 |
|
| | | | | | | |
Fair value as of September 30, 2017 | | | | | | | |
Financial liabilities: | | | | | | | |
Derivative instruments | $ | — |
| | $ | 369 |
| | $ | — |
| | $ | 369 |
|
Total financial liabilities | $ | — |
| | $ | 369 |
| | $ | — |
| | $ | 369 |
|
| | | | | | | |
Fair value as of December 31, 2016 | | | | | | | |
Financial assets: | | | | | | | |
Derivative instruments | $ | — |
| | $ | 206 |
| | $ | — |
| | $ | 206 |
|
Total financial assets | $ | — |
| | $ | 206 |
| | $ | — |
| | $ | 206 |
|
| | | | | | | |
Fair value as of December 31, 2016 | | | | | | | |
Financial liabilities: | | | | | | | |
Derivative instruments | $ | — |
| | $ | 163 |
| | $ | — |
| | $ | 163 |
|
Total financial liabilities | $ | — |
| | $ | 163 |
| | $ | — |
| | $ | 163 |
|
| | | | | | | | |
First Quarter 2023 Form 10-Q | | 9 |
Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Our derivative instruments within the scope of ASCAccounting Standards Codification ("ASC") 815, Derivatives and Hedging, are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate swaps as well asand foreign currency forward and option contracts. See Note 7 to these condensed consolidated financial statements for additional information about our derivative instruments.
The fair value of our interest rate swaps wasand foreign currency forward contracts are based on model-driven valuations using LIBORSecured Overnight Financing Rate ("SOFR") rates and foreign currency forward rates, respectively, which are observable at commonly quoted intervals. Accordingly, our interest rate swaps and foreign currency forward contracts are classified within Level 2 of the fair value hierarchy. Our financial contracts that were indexed to LIBOR were modified to reference SOFR during the three months ended September 30, 2022. These modifications did not have a significant financial impact.
Our foreign currency forwardContingent consideration obligations arise from business acquisitions. The fair values are based on discounted cash flow analyses reflecting a probability-weighted assessment approach derived from the likelihood of possible achievement of specified performance measures or events and option contracts are valued using standard calculations/models that use as their basis readily observable market parameters including, foreign currency exchange rates, volatilities,captures the contractual nature of the contingencies, commercial risk, and interest rates. Therefore,the time value of money. As the fair value measurements for our foreign currency forward and option contractscontingent consideration obligations contain significant unobservable inputs, they are classified within Level 23 of the fair value hierarchy.
We believe the carrying amounts of our cash and cash equivalents, restricted cash, due to customers, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at September 30, 2017March 31, 2023 and December 31, 2016,2022, due to the immediate or short-term maturity of these instruments.
We believe the carrying amount of our debt approximates its fair value at September 30, 2017March 31, 2023 and December 31, 2016,2022, as the debt bears interest rates that approximate market value. As LIBORSOFR rates are observable at commonly quoted intervals, our debt under the 2020 Credit Facility (as defined below) is classified within Level 2 of the fair value hierarchy. Our fixed rate debt is also classified within Level 2 of the fair value hierarchy.
We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the ninethree months ended September 30, 2017. Additionally, we did not hold any Level 3 assets or liabilities during the nine months ended September 30, 2017.
|
| | |
12 | | Third Quarter 2017 Form 10-Q |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
March 31, 2023.
Non-recurring fair value measurements
Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, goodwill and goodwill, whichoperating lease right-of-use ("ROU") assets. These assets are recognized at fair value during the period in which an acquisition is completed or at lease commencement, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for long-lived assets, intangible assets acquired and operating lease ROU assets, are based on Level 3 unobservable inputs. In the event of an impairment, we determine the fair value of thethese assets other than goodwill and intangible assets using a discounted cash flow approach, which contains significant unobservable inputs and, therefore, is considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate. For goodwill impairment testing, we estimate fair value using market-based methods including the use of market capitalization and consideration of a control premium.
There were no material non-recurring fair value adjustments to our long-lived assets, intangible assets, goodwill and goodwilloperating lease ROU assets during the ninethree months ended September 30, 2017, except for an insignificant business combination accounting adjustment to the initial fair value estimates of the Attentive.ly assets acquired and liabilities assumed at the acquisition date from updated information obtained during the measurement period. See Note 4 to these consolidated financial statements for additional details. The measurement period of a business combination may be up to one year from the acquisition date. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.March 31, 2023.
| | |
5. Consolidated Financial Statement Details |
Restricted cash
| | | | | | | | |
(dollars in thousands) | March 31, 2023 | December 31, 2022 |
Restricted cash due to customers | $ | 362,261 | | $ | 700,611 | |
| | |
Real estate escrow balances and other | 1,810 | | 1,629 | |
Total restricted cash | $ | 364,071 | | $ | 702,240 | |
|
| | | | | | | |
7. Consolidated Financial Statement Details10 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Prepaid expenses and other assets
| | | | | | | | |
(dollars in thousands) | March 31, 2023 | December 31, 2022 |
Costs of obtaining contracts(1)(2) | $ | 71,956 | | $ | 74,272 | |
Prepaid software maintenance and subscriptions(3) | 37,125 | | 34,766 | |
Derivative instruments | 26,610 | | 32,117 | |
Implementation costs for cloud computing arrangements, net(4)(5) | 9,993 | | 10,189 | |
Prepaid insurance | 9,962 | | 4,902 | |
Unbilled accounts receivable | 7,092 | | 5,775 | |
Taxes, prepaid and receivable | 1,728 | | 1,855 | |
Deferred tax assets | 1,152 | | 1,153 | |
Other assets | 11,108 | | 10,929 | |
Total prepaid expenses and other assets | 176,726 | | 175,958 | |
Less: Long-term portion | 87,947 | | 94,304 | |
Prepaid expenses and other current assets | $ | 88,779 | | $ | 81,654 | |
(1)Amortization expense from costs of obtaining contracts was $8.3 million and $8.5 million for the three months ended March 31, 2023 and 2022, respectively.
(2)The current portion of costs of obtaining contracts as of March 31, 2023 and December 31, 2022 was $28.5 million and $29.1 million, respectively.
(3)The current portion of prepaid software maintenance and subscriptions as of March 31, 2023 and December 31, 2022 was $32.6 million and $31.7 million, respectively.
(4)These costs primarily relate to the multi-year implementations of our new global enterprise resource planning and customer relationship management systems.
(5)Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended March 31, 2023 and 2022, respectively. Accumulated amortization for these costs was $5.7 million and $5.2 million as of March 31, 2023 and December 31, 2022, respectively.
Accrued expenses and other liabilities
| | | | | | | | |
(dollars in thousands) | March 31, 2023 | December 31, 2022 |
Accrued legal costs(1) | $ | 35,705 | | $ | 28,448 | |
Derivative instruments | 9,419 | | 323 | |
Customer credit balances | 7,990 | | 8,257 | |
Operating lease liabilities, current portion | 7,962 | | 7,723 | |
Accrued commissions and salaries | 5,407 | | 6,944 | |
Taxes payable | 3,580 | | 16,667 | |
Contingent consideration liability | 2,710 | | 2,710 | |
Accrued health care costs | 2,213 | | 2,467 | |
Accrued vacation costs | 2,019 | | 2,156 | |
Accrued transaction-based costs related to payments services | 1,882 | | 5,059 | |
| | |
| | |
Other liabilities | 7,146 | | 9,542 | |
Total accrued expenses and other liabilities | 86,033 | | 90,296 | |
Less: Long-term portion | 13,234 | | 4,294 | |
Accrued expenses and other current liabilities | $ | 72,799 | | $ | 86,002 | |
|
| | | | | | |
(dollars in thousands) | September 30, 2017 |
| December 31, 2016 |
|
Accrued bonuses | $ | 14,581 |
| $ | 19,217 |
|
Accrued commissions and salaries | 5,429 |
| 9,352 |
|
Lease incentive obligations | 4,780 |
| 5,604 |
|
Customer credit balances | 5,246 |
| 5,148 |
|
Deferred rent liabilities | 4,400 |
| 4,110 |
|
Taxes payable | 2,584 |
| 3,452 |
|
Unrecognized tax benefit | 3,609 |
| 3,295 |
|
Accrued subscriptions | 2,638 |
| 2,840 |
|
Accrued vacation costs | 2,626 |
| 2,214 |
|
Accrued health care costs | 2,479 |
| 1,495 |
|
Other liabilities | 5,077 |
| 6,002 |
|
Total accrued expenses and other liabilities | 53,449 |
| 62,729 |
|
Less: Long-term portion | 7,799 |
| 8,533 |
|
Accrued expenses and other current liabilities | $ | 45,650 |
| $ | 54,196 |
|
Other income (expense), net
|
| | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in thousands) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Components of Other Income (Expense), Net | | | | | |
Interest income | $ | 393 |
| $ | 224 |
| | $ | 771 |
| $ | 463 |
|
(Loss) gain on derivative instrument | (3 | ) | — |
| | 472 |
| — |
|
Loss on debt extinguishment | (137 | ) | — |
| | (299 | ) | — |
|
Other income (expense), net | 215 |
| (239 | ) | | 637 |
| (648 | ) |
Other income (expense), net | $ | 468 |
| $ | (15 | ) | | $ | 1,581 |
| $ | (185 | ) |
(1)All accrued legal costs are classified as current.
|
| | | | | | | |
ThirdFirst Quarter 20172023 Form 10-Q | | 1311 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)Condensed Consolidated Financial Statements
(Unaudited)
Other income, net
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands) | | | | 2023 | 2022 |
Interest income | | | | $ | 1,236 | | $ | 123 | |
Currency revaluation (losses) gains | | | | (245) | | 582 | |
Other income, net | | | | 1,016 | | 416 | |
Other income, net | | | | $ | 2,007 | | $ | 1,121 | |
| | | | | |
| | | | | |
The following table summarizes our debt balances and the related weighted average effective interest rates, which includes the effect of interest rate swap agreements.
| | | | | | | | | | | | | | | | | |
| Debt balance at | | Weighted average effective interest rate at |
(dollars in thousands) | March 31, 2023 | December 31, 2022 | | March 31, 2023 | December 31, 2022 |
Credit facility: | | | | | |
Revolving credit loans | $ | 199,400 | | $ | 177,800 | | | 5.47 | % | 5.18 | % |
Term loans | 619,688 | | 623,750 | | | 4.44 | % | 4.26 | % |
Real estate loans | 57,849 | | 58,189 | | | 5.22 | % | 5.22 | % |
Other debt | 3,632 | | 2,247 | | | 8.47 | % | 7.38 | % |
Total debt | 880,569 | | 861,986 | | | 4.74 | % | 4.52 | % |
Less: Unamortized discount and debt issuance costs | 2,521 | | 2,943 | | | | |
Less: Debt, current portion | 19,136 | | 18,802 | | | 6.99 | % | 6.45 | % |
Debt, net of current portion | $ | 858,912 | | $ | 840,241 | | | 4.69 | % | 4.48 | % |
|
| | | | | | | | | | | |
| Debt balance at | | | Weighted average effective interest rate at | |
(dollars in thousands) | September 30, 2017 |
| December 31, 2016 |
| | September 30, 2017 |
| December 31, 2016 |
|
Credit facility: | | | | | |
Revolving credit loans | $ | 39,900 |
| $ | 180,900 |
| | 3.38 | % | 2.36 | % |
Term loans | 298,125 |
| 162,969 |
| | 2.64 | % | 2.62 | % |
Other debt | 2,151 |
| — |
| | 4.50 | % | — | % |
Total debt | 340,176 |
| 343,869 |
| | 2.74 | % | 2.48 | % |
Less: Unamortized discount and debt issuance costs | 2,220 |
| 1,476 |
| | | |
Less: Debt, current portion | 8,576 |
| 4,375 |
| | 2.74 | % | 2.50 | % |
Debt, net of current portion | $ | 329,380 |
| $ | 338,018 |
| | 2.74 | % | 2.48 | % |
Financing for AcademicWorks acquisition
As discussed in Note 3 to these consolidated financial statements, on April 3, 2017 we acquired AcademicWorks for $52.1 million in cash, net of closing adjustments. We financed the acquisition through a draw down of a revolving credit loan under the 2014 Credit Facility (defined below).
2017 refinancing
We were previously party to a $325.0 million five-year2020 credit facility entered into during February 2014. The credit facility included: a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans (the “2014 Revolving Facility”) and a term loan facility (the “2014 Term Loan”), together, (the “2014 Credit Facility”).
In June 2017,October 2020, we entered into a five-year $700.0$900.0 million senior credit facility (the “2017"2020 Credit Facility”Facility"). The 2017 Credit Facility includes a $400.0 million revolving credit facility (the “2017 Revolving Facility”) and a $300.0 million term loan facility (the “2017 Term Loan”). Upon closing we drew $300.0 million on a term loan and $110.0 million in revolving credit loans, which was used to repay all amounts outstanding under the 2014 Credit Facility, fees and expenses incurred in connection with the 2017 Credit Facility, and for other general corporate purposes.
Certain lenders of the 2014 Term Loan participated in the 2017 Term Loan and the change in the present value of our future cash flows to these lenders under the 2014 Term Loan and under the 2017 Term Loan was less than 10%. Accordingly, we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2014 Term Loan did not participate in the 2017 Term Loan. Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment. Certain lenders of the 2014 Revolving Facility participated in the 2017 Revolving Facility and provided increased borrowing capacities. Accordingly, we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2014 Revolving Facility did not participate in the 2017 Revolving Facility. Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment.
We recorded an insignificant loss on debt extinguishment related to the write-off of debt discount and deferred financing costs for the portions of the 2014 Credit Facility considered to be extinguished. This loss was recognized in the consolidated statements of comprehensive income within other income (expense), net.
In connection with our entry into the 2017 Credit Facility, we paid $3.1 million in financing costs, of which $1.0 million was capitalized in other assets and, together with a portion of the unamortized deferred financing costs from the 2014 Credit Facility and prior facilities, are being amortized into interest expense ratably over the term of the new facility. As of September 30, 2017, deferred financing costs totaling $1.3 million were included in other assets on our consolidated balance sheets. As of DecemberAt March 31, 2016, deferred financing costs included in other assets on our consolidated balance sheets were insignificant. We recorded aggregate financing costs of $1.8 million as a direct deduction from the carrying
|
| | |
14 | | Third Quarter 2017 Form 10-Q |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
amount of our debt liability, which related to debt discount (fees paid to lenders) and debt issuance costs for the 2017 Term Loan.
Summary of the 2017 Credit Facility
The 2017 Revolving Facility includes (i) a $50.0 million sublimit available for the issuance of standby letters of credit, (ii) a $50.0 million sublimit available for swingline loans, and (iii) a $100.0 million sublimit available for multicurrency borrowings.
The 2017 Credit Facility is secured by the stock and limited liability company interests of certain of our subsidiaries and any of our material domestic subsidiaries.
Amounts borrowed under the dollar tranche revolving credit loans and term loan under the 2017 Credit Facility bear interest at a rate per annum equal to, at our option, (a) a base rate equal to the highest of (i) the prime rate announced by Bank of America, N.A., (ii) the Federal Funds Rate plus 0.50% and (iii) the Eurocurrency Rate (which varies depending on the currency in which the loan is denominated) plus 1.00% (the “Base Rate”), in addition to a margin of 0.00% to 0.75%, or (b) Eurocurrency Rate plus a margin of 1.00% to 1.75%.
We also pay a quarterly commitment fee on the unused portion of the 2017 Revolving Facility from 0.15% to 0.25% per annum, depending on our net leverage ratio. At September 30, 2017, the commitment fee was 0.20%.
The term loan under the 2017 Credit Facility requires periodic principal payments. The balance of the term loan and any amounts drawn on the revolving credit loans are due upon maturity of the 2017 Credit Facility in June 2022. We evaluate the classification of our debt as current or non-current based on the required annual maturities of the 2017 Credit Facility.
The 2017 Credit Facility includes financial covenants related to the net leverage ratio and interest coverage ratio, as well as restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. At September 30, 2017,2023, we were in compliance with our debt covenants under the 20172020 Credit Facility.
Real estate loans
The 2017 Credit Facility also includes an option to request increases inIn August 2020, we completed the revolving commitments and/or request additional term loans in an aggregatepurchase of our global headquarters facility. As part of the purchase price, we assumed the seller’s obligations under two senior secured notes with a then-aggregate outstanding principal amount of up to $200.0$61.1 million plus an amount, if any, such that(collectively, the Net Leverage Ratio shall be no greater than 3.00 to 1.00.
“Real Estate Loans”). At March 31, 2023, we were in compliance with our debt covenants under the Real Estate Loans.
Other debt
In September 2017,From time to time, we enteredenter into a two-year $2.2 million agreement to finance our purchasethird-party financing agreements for purchases of software licenses and related services. The agreement is a non-interest bearing noteservices for our internal use. Generally, the agreements are non-interest-bearing notes requiring annual payments, with the first payment due in November 2017.payments. Interest associated with the notenotes is imputed at the rate we would incur for amounts borrowed under our then-existing credit facility at the 2017 Credit Facility.
Asinception of September 30, 2017, the required annual maturities related to the 2017 Credit Facility and other debt were as follows: |
| | | |
Years ending December 31, (dollars in thousands) | Annual maturities |
|
2017 - remaining | $ | 2,950 |
|
2018 | 8,576 |
|
2019 | 7,500 |
|
2020 | 7,500 |
|
2021 | 7,500 |
|
Thereafter | 306,150 |
|
Total required maturities | $ | 340,176 |
|
notes.
|
| | | | | | | |
Third12 | | First Quarter 20172023 Form 10-Q | | 15 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes our currently effective supplier financing agreements as of March 31, 2023:
| | | | | | | | | | | | | | |
(dollars in thousands) | Term in Months | Number of Annual Payments | First Annual Payment Due | Original Loan Value |
Effective dates of agreements (1): | | | | |
December 2022 | 39 | 3 | | January 2023 | $ | 1,710 | |
January 2023 | 36 | 3 | | April 2023 | 2,491 | |
| | | | |
| | | | |
(1)Represent noncash investing and financing transactions during the periods indicated as we purchased software and services by assuming directly related liabilities.
The changes in supplier financing obligations during the three months ended March 31, 2023, consisted of the following:
|
| | | | |
9. Derivative Instruments(dollars in thousands) | Total |
Balance at December 31, 2022 | $ | 2,247 | |
Additions | 2,491 | |
Settlements | (1,106) | |
Balance at March 31, 2023 | $ | 3,632 | |
Cash flow hedges
| | |
7. Derivative Instruments |
We generally use derivative instruments to manage our variable interest rate and foreign currency exchange risk. InWe currently have derivatives classified as cash flow hedges and net investment hedges. We do not enter into any derivatives for trading or speculative purposes.
All of our derivative instruments are governed by International Swap Dealers Association, Inc. master agreements with our counterparties. As of March 2014,31, 2023 and December 31, 2022, we have presented the fair value of our derivative instruments at the gross amounts in the condensed consolidated balance sheet as the gross fair values of our derivative instruments equaled their net fair values.
Cash flow hedges
We have entered into an interest rate swap agreement (the "March 2014 Swap Agreement"),agreements, which effectively convertsconvert portions of our variable rate debt under our credit facilitythe 2020 Credit Facility to a fixed rate for the term of the swap agreement. The initial notional valueagreements. We designated each of the March 2014 Swap Agreement was $125.0 million with an effective date beginning in March 2014. In March 2017, the notional value of the March 2014 Swap Agreement decreased to $75.0 million for the remaining term through February 2018. We designated the March 2014 Swap Agreementinterest rate swaps as a cash flow hedgehedges at the inception of the contract.contracts. As of March 31, 2023 and December 31, 2022, the aggregate notional values of the interest rate swaps were $935.0 million and $435.0 million, respectively. All of the contracts have maturities on or before October 2028.
In October 2015, weWe have entered into an additional interestforeign currency forward contracts to hedge revenues denominated in the Canadian Dollar ("CAD") against changes in the exchange rate swap agreement (the "October 2015 Swap Agreement"), which effectively converts portions of our variable rate debt under our credit facility to a fixed rate forwith the termUnited States Dollar ("USD"). We designated each of the October 2015 Swap Agreement. The notional value of the October 2015 Swap Agreement was $75.0 million with an effective date beginning in October 2015 and maturing in February 2018. We designated the October 2015 Swap Agreementforwards as a cash flow hedgehedges at the inception of the contract.
In July 2017, we entered into an additional interest rate swap agreement (the "July 2017 Swap Agreement"), which effectively converts portionscontracts. As of our variable rate debt under our credit facility to a fixed rate forMarch 31, 2023 and December 31, 2022, the term of the swap agreement. Theaggregate notional value of the July 2017 Swap Agreement was $150.0 million with an effective date beginning in July 2017 through July 2021. We designated the July 2017 Swap Agreement as a cash flow hedge at the inception of the contract.
Undesignated contracts
In June 2017, we entered into a foreign currency option contract to hedge our exposure to currency fluctuations in connection with our acquisition of JustGiving because the purchase price was denominated in British Pounds. The notional value of the instrument was £100.0 million with an effective date beginning in June 2017 and maturing in September 2017. We settled the foreign currency option contract in September 2017. We did not designate the foreign currency option contract as a cash flow hedge for accounting purposes since it involved a business combination. As such, changes in the fair value of this derivative are recognized currently in earnings. The insignificant premium paid for this option and the $1.0 million in proceeds from the settlement are shown within cash flows from investing activities in our consolidated statements of cash flows.
As the closing date of our acquisition of JustGiving extended beyond the settlement datevalues of the foreign currency option contract,forward contracts designated as cash flow hedges that we entered into a foreign currency forward contractheld to buy USD in September 2017 with settlement in October 2017. The notional valueexchange for Canadian Dollars were $27.7 million CAD and $22.6 million CAD, respectively. All of the instrument was £103.5 million. We did not designate the foreign currency forward contract as a cash flow hedge for accounting purposes since it involved a business combination. As such, changes in the fair valuecontracts have maturities of this derivative are recognized currently in earnings.
12 months or less.
|
| | | | | | | |
16First Quarter 2023 Form 10-Q | | Third Quarter 2017 Form 10-Q13 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)Condensed Consolidated Financial Statements
(Unaudited)
Net investment hedges
We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds ("GBP") into USD. We designated each of these foreign currency forward contracts as net investment hedges at the inception of the contracts. As of March 31, 2023 and December 31, 2022, we had £14.0 million and £11.2 million, respectively, of foreign currency forward contracts designated as net investment hedges to reduce the volatility of the U.S. dollar value of a portion of our GBP-denominated investments.
The fair values of our derivative instruments were as follows as of:
|
| | | | | | | | | | | | | | | |
| | Asset Derivatives | | | Liability Derivatives |
(dollars in thousands) | Balance sheet location | September 30, 2017 |
| December 31, 2016 |
| | Balance sheet location | September 30, 2017 |
| December 31, 2016 |
|
Derivative instruments designated as hedging instruments: | | | | | | | |
Interest rate swaps, current portion | Prepaid expenses and other current assets | $ | 223 |
| $ | — |
| | Accrued expenses and other current liabilities | $ | — |
| $ | — |
|
Interest rate swaps, long-term portion | Other assets | — |
| 206 |
| | Other liabilities | 328 |
| 163 |
|
Total derivative instruments designated as hedging instruments | | $ | 223 |
| $ | 206 |
| | | $ | 328 |
| $ | 163 |
|
| | | | | | | |
Derivative instruments not designated as hedging instruments: | |
| | | | | |
Foreign currency forward contracts | Prepaid expenses and other current assets | $ | — |
| $ | — |
| | Accrued expenses and other current liabilities | $ | 41 |
| $ | — |
|
Total derivative instruments not designated as hedging instruments | | $ | — |
| $ | — |
| | | $ | 41 |
| $ | — |
|
|
| | | | | | |
Total derivative instruments | | $ | 223 |
| $ | 206 |
| | | $ | 369 |
| $ | 163 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Asset derivatives | | | Liability derivatives |
(dollars in thousands) | Balance sheet location | March 31, 2023 | December 31, 2022 | | Balance sheet location | March 31, 2023 | December 31, 2022 |
Derivative instruments designated as hedging instruments: | | | | | | | |
Foreign currency forward contracts, current portion | Prepaid expenses and other current assets | $ | 96 | | $ | 247 | | | Accrued expenses and other current liabilities | $ | 499 | | $ | 323 | |
Interest rate swaps, long-term | Other assets | 26,514 | | 31,870 | | | Other liabilities | 8,920 | | — | |
Total derivative instruments designated as hedging instruments | | $ | 26,610 | | $ | 32,117 | | | | $ | 9,419 | | $ | 323 | |
The effects of derivative instruments in cash flow and net investment hedging relationships were as follows: | | | | Gain (loss) recognized in accumulated other comprehensive income as of | Location of gain (loss) reclassified from accumulated other comprehensive income into loss | | Gain (loss) reclassified from accumulated other comprehensive income into loss |
(dollars in thousands) | | (dollars in thousands) | March 31, 2023 | | Three months ended March 31, 2023 |
Cash Flow Hedges | | Cash Flow Hedges | | | |
Interest rate swaps | | Interest rate swaps | $ | 17,594 | | Interest expense | | $ | 4,499 | |
Foreign currency forward contracts | | Foreign currency forward contracts | $ | 14 | | Revenue | | $ | 125 | |
Net Investment Hedges | | Net Investment Hedges | | | |
Foreign currency forward contracts | | Foreign currency forward contracts | $ | (417) | | | | $ | — | |
| | | | March 31, 2022 | | | Three months ended March 31, 2022 |
Cash Flow Hedges | | Cash Flow Hedges | | | |
Interest rate swaps | | Interest rate swaps | $ | 21,947 | | Interest expense | | $ | (358) | |
| | | Gain (loss) recognized in accumulated other comprehensive loss as of |
| Location of gain (loss) reclassified from accumulated other comprehensive loss into income | Gain (loss) reclassified from accumulated other comprehensive loss into income | | |
(dollars in thousands) | September 30, 2017 |
| Three months ended September 30, 2017 |
| | Nine months ended September 30, 2017 |
| |
Interest rate swaps | $ | (105 | ) | Interest expense | $ | (88 | ) | | $ | (192 | ) | |
| | | | | | |
| September 30, 2016 |
| | Three months ended September 30, 2016 |
| | Nine months ended September 30, 2016 |
| |
Interest rate swaps | $ | (654 | ) | Interest expense | $ | (265 | ) | | $ | (875 | ) | |
Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit. ChangesExcluding net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) isand related tax effects are reclassified from accumulated other comprehensive income (loss) to current earnings. For net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to translation adjustment, a component of accumulated other comprehensive income (loss), and recognized in earnings only when the hedged GBP investment is liquidated. The estimated accumulated other comprehensive income as of September 30, 2017March 31, 2023 that is expected to be reclassified into earnings within the next twelve months is insignificant.
| | | | | | | | |
14 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
$18.6 million. There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the ninethree months ended September 30, 2017March 31, 2023 and 2016.2022. See Note 1310 to these condensed consolidated financial statements for a summary of the changes in accumulated other comprehensive income (loss) by component. We classify cash flows related to derivative instruments as operating activities in the condensed consolidated statements of cash flows.
|
| | |
Third Quarter 2017 Form 10-Q | | 178. Commitments and Contingencies |
Leases
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
WeMarch 31, 2023, we did not have any undesignated derivative instruments during 2016. operating leases that had not yet commenced.
The effectsfollowing table summarizes the components of undesignated derivative instruments during the three and nine months ended September 30, 2017our lease expense:
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands) | | | | 2023 | 2022 |
Operating lease cost(1) | | | | $ | 2,385 | | $ | 2,532 | |
Variable lease cost | | | | 432 | | 437 | |
Sublease income | | | | (811) | | (431) | |
Net lease cost | | | | $ | 2,006 | | $ | 2,538 | |
(1)Includes short-term lease costs, which were as follows: |
| | | | | | | | |
| Location of gain (loss) recognized in income on derivative | Gain (loss) recognized in income | |
(dollars in thousands) | Three months ended September 30, 2017 |
| | Nine months ended September 30, 2017 |
|
Foreign currency option contracts | Other income (expense), net | $ | 38 |
| | $ | 513 |
|
Foreign currency forward contracts | Other income (expense), net | $ | (41 | ) | | $ | (41 | ) |
Total (loss) gain(1) | | $ | (3 | ) | | $ | 472 |
|
| |
(1) | The individual amounts for each year may not sum to total gain (loss) due to rounding. |
|
|
10. Commitments and Contingencies |
Leases
Total rent expense was $3.8 million and $3.1 million for the three months ended September 30, 2017 and 2016, respectively, and $11.9 million and $8.6 million for the nine months ended September 30, 2017 and 2016, respectively. The quarterly South Carolina state incentive payments we received as a result of locating our headquarters facility in Berkeley County, South Carolina, ended in the fourth quarter of 2016. These amounts were recorded as a reduction of rent expense upon receipt and were insignificant during the three months ended September 30, 2016 and $2.2 million during the nine months ended September 30, 2016.immaterial.
Other commitments
The term loans under the 20172020 Credit Facility require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the 20172020 Credit Facility in June 2022.October 2025. The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038.
We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of September 30, 2017,March 31, 2023, the remaining aggregate minimum purchase commitment under these arrangements was approximately $51.9$280.7 million through 2021.2027.
Solution and service indemnifications
In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our solutions or services. If we determine that it is probable that a loss has been incurred related to solution or service indemnifications, any such loss that could be reasonably estimated would be recognized. We have not identified any losses and, accordingly, we have not recorded a liability related tothat might be covered by these indemnifications.
Legal proceedings
We are subject to legal proceedings and claims that arise in the ordinary course of business.business, as well as certain other non-ordinary course proceedings, claims and investigations, as described below. We make a provision for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated. TheseIf only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material. If such a loss or range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency provisions are reviewed at least quarterly and adjustedadjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed in this note, we have determined asWe recognize insurance recoveries, if any, when they are probable of September 30, 2017, that no provision for liability nor disclosure is required relatedreceipt. All associated costs due to any claim against us because (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.
Allthird-party service providers and consultants, including legal costs associated with litigationfees, are expensed as incurred. Litigation is
| | | | | | | | |
First Quarter 2023 Form 10-Q | | 15 |
Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Legal proceedings are inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending or threatened against us.us and intend to defend ourselves vigorously against all claims asserted. It is possible nevertheless, that our consolidated financial position, results of operations or cash flows could be materially negatively affected in any particular period by an unfavorable resolution of one or more of such legal proceedings.
Security incident
As previously disclosed, we are subject to risks and uncertainties as a result of a ransomware attack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment (the "Security Incident"). Based on the nature of the Security Incident, our research and third party (including law enforcement) investigation, we do not believe that any data went beyond the cybercriminal, has been misused, or has been disseminated or otherwise made available publicly. Our investigation into the Security Incident by our cybersecurity team and third-party forensic advisors remains ongoing.
As a result of the Security Incident, we are currently subject to certain legal proceedings, claims and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, inquiries and investigations in the future that might result in adverse judgments, settlements, fines, penalties or investigations.other resolution. To limit our exposure to losses related to claims against us, including data breaches such as the Security Incident, we maintain $50 million of insurance above a $250 thousand deductible payable by us. As noted below, this coverage has reduced our financial exposure related to the Security Incident.
We recorded expenses and offsetting probable insurance recoveries related to the Security Incident as follows:
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands) | | | | 2023 | 2022 |
Gross expense | | | | $ | 17,783 | | $ | 9,005 | |
Offsetting probable insurance recoveries | | | | — | | (1,804) | |
Net expense | | | | $ | 17,783 | | $ | 7,201 | |
The following summarizes our cumulative expenses, insurance recoveries recognized and insurance recoveries paid as of:
| | | | | | | | |
(dollars in thousands) | March 31, 2023 | December 31, 2022 |
Cumulative gross expense | $ | 125,788 | | $ | 108,005 | |
Cumulative offsetting insurance recoveries recognized | (50,000) | | (50,000) | |
Cumulative net expense | $ | 75,788 | | $ | 58,005 | |
| | |
Cumulative offsetting insurance recoveries paid | $ | (50,000) | | $ | (50,000) | |
Recorded expenses have consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlement of the previously disclosed SEC investigation (as discussed below), settlements of customer claims and accruals for certain loss contingencies. Not included in the expenses discussed above were costs associated with enhancements to our cybersecurity program. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our consolidated statements of comprehensive loss and as operating activities on our consolidated statements of cash flows. Total costs related to the Security Incident exceeded the limit of our insurance coverage during the first quarter of 2022. We expect to continue to experience significant expenses related to our response to the Security Incident, resolution of legal proceedings, claims and investigations, including those discussed below, and our efforts to further enhance our cybersecurity measures. For the three months ended March 31, 2023, we incurred net pre-tax expense of $17.8 million related to the Security Incident, which included $7.6 million for ongoing legal fees and an additional accrual for loss contingencies of $10.2 million. During the three months ended March 31, 2023, we had net cash outlays of $9.2 million related to the Security Incident, which included ongoing legal fees and the $3.0 million civil penalty paid related to the SEC settlement (as discussed below). In line with our policy, legal fees are expensed as incurred. For full year 2023, we currently expect net pre-tax expense of approximately $20.0 million to $30.0 million and net cash outlays of approximately
| | | | | | | | |
16 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
$25.0 million to $35.0 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.
As of March 31, 2023, we have recorded approximately $30.2 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate in accordance with our loss contingency procedures described above. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.
There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of March 31, 2023 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.
Customer claims. To date, we have received approximately 260 specific requests for reimbursement of expenses, approximately 205 (or 79%) have been fully resolved and closed. We have also received approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, which we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us, and certain insurance companies have filed subrogation claims in court. Customer and insurer subrogation claims generally seek reimbursement of their costs and expenses associated with notifying their own customers of the Security Incident and taking steps to assure that personal information has not been compromised as a result of the Security Incident. Our review of customer and subrogation claims includes analyzing individual customer contracts into which we have entered, the specific claims made and applicable law.
Customer constituent class actions. Presently, we are a defendant in 19 putative consumer class action cases [17 in U.S. federal courts (which have been consolidated under multi district litigation to a single federal court) and 2 in Canadian courts] alleging harm from the Security Incident. The plaintiffs in these cases, who purport to represent various classes of individual constituents of our customers, generally claim to have been harmed by alleged actions and/or omissions by us in connection with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees and other related relief.
Lawsuits that are putative class actions require a plaintiff to satisfy a number of procedural requirements before proceeding to trial. These requirements include, among others, demonstration to a court that the law proscribes in some manner our activities, the making of factual allegations sufficient to suggest that our activities exceeded the limits of the law and a determination by the court—known as class certification—that the law permits a group of individuals to pursue the case together as a class. If these procedural requirements are not met, the lawsuit cannot proceed as a class action and the plaintiff may lose the financial incentive to proceed with the case. We are currently engaged in court proceedings to determine whether this will proceed as a class action. Frequently, a court’s determination as to these procedural requirements is subject to appeal to a higher court. As a result of these uncertainties, we may be unable to determine the probability of loss until, or after, a court has finally determined that a plaintiff has satisfied the applicable class action procedural requirements.
Furthermore, for putative class actions, it is often not possible to reasonably estimate the possible loss or a range of loss amounts, even where we have determined that a loss is reasonably possible. Generally, class actions involve a large number of people and raise complex legal and factual issues that result in uncertainty as to their outcome and, ultimately, making it difficult for us to estimate the amount of damages that a plaintiff might successfully prove. This analysis is further complicated by the fact that the plaintiffs lack contractual privity with us.
| | | | | | | | |
First Quarter 2023 Form 10-Q | | 17 |
Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Governmental investigations. To date, we have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 49 state Attorneys General and the District of Columbia, a separate Civil Investigative Demand from the office of the Indiana Attorney General and a separate Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident. We have been in discussions, directly with certain Attorneys General or indirectly through an executive committee of the multi-state group of Attorneys General, about potential resolution of issues arising from these investigations. Although we are hopeful that we can resolve these matters on acceptable terms, there is no assurance that we will be able to do so on terms acceptable to us and to any or all such states.
We also are subject to the following pending governmental actions:
•an investigation by the U.S. Federal Trade Commission;
•an investigation by the U.S. Department of Health and Human Services;
•an investigation by the Office of the Australian Information Commissioner; and
•an investigation by the Office of the Privacy Commissioner of Canada.
As previously disclosed, on March 9, 2023, the Company reached a settlement with the SEC in connection with the Security Incident. This settlement fully resolves the previously disclosed SEC investigation of the Security Incident and is further described in an SEC cease-and-desist order (the “SEC Order”). Under the terms of the SEC Order, the Company has agreed to cease-and-desist from committing or causing any violations or any future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended (the “Securities Act”), and Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 12b-20, 13a-13 and 13a-15(a) thereunder. No other violations of the securities laws are alleged in the SEC Order. As part of the SEC Order, the Company also agreed to pay, and has paid, a civil penalty in the amount of $3.0 million. The Company consented to the entry of the SEC Order without admitting or denying the findings of the SEC Order, other than with respect to the SEC’s jurisdiction over the Company and the subject matter of the SEC Order. The SEC Order describing the settlement was furnished as Exhibit 99.1 and the SEC’s press release announcing this resolution is furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2023.
On September 28, 2021, the Information Commissioner’s Office in the United Kingdom under the U.K. Data Protection Act 2018 (the "ICO") notified us that it has closed its investigation of the Security Incident. Based on its investigation and having considered our actions before, during and after the Security Incident, the ICO issued our European subsidiary a reprimand in accordance with Article 58(2)(b) of the U.K. General Data Protection Regulation ("U.K. GDPR") due to our non-compliance, in the ICO's view, with the requirements set out in Article 32 of the U.K. GDPR regarding the processing of personal data. The ICO did not impose a penalty related to the Security Incident, nor did it impose any requirements for further action by us.
On September 24, 2021, we received notice from the Spanish Data Protection Authority that it has concluded its investigation of the Security Incident, pursuant to which our European subsidiary paid a penalty of €60,000 in relation to the alleged late notification of two Spanish data controllers regarding the Security Incident.
On January 15, 2021, we were notified by the Data Protection Commission of Ireland that it has concluded its investigation of the Security Incident without taking any action against us.
We continue to cooperate with all ongoing investigations, which include various requests for documents, policies, narratives and communications, as well as requests to interview or depose various Company-related personnel. As noted above, each of these separate governmental investigations could result in adverse judgments, settlements, fines, penalties or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.
| | | | | | | | |
18 | | ThirdFirst Quarter 20172023 Form 10-Q |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)Condensed Consolidated Financial Statements
(Unaudited)
Our income tax provisionbenefit and effective income tax rates, including the effects of period-specific events, were:
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands) | | | | 2023 | 2022 |
Income tax benefit | | | | $ | (3,901) | | $ | (2,050) | |
Effective income tax rate | | | | 21.0 | % | 16.5 | % |
|
| | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in thousands) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Income tax provision | $ | 2,793 |
| $ | 1,950 |
| | $ | 2,964 |
| $ | 5,323 |
|
Effective income tax rate | 18.2 | % | 17.9 | % | | 7.8 | % | 18.0 | % |
During the three months ended March 31, 2022, we utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, Income Taxes—Interim Reporting, to calculate our interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that, at this time, the use of this discrete method is no longer more appropriate than the annual effective tax rate method.OurThe increase in our effective income tax rate duringfor the three months ended September 30, 2017 remained relatively unchangedMarch 31, 2023 when compared to the same period in 2016. The decrease in our effective2022 was primarily attributable to unfavorable impact of non-deductible Security Incident accruals, lower foreign-derived intangible income deduction and an increase to the UK corporate tax rate during the nine months ended September 30, 2017, when compared to the same period in 2016, was primarily due to a $9.0 million discrete taxoffset against benefit to expense relating to stock-based compensation items, as compared to a $4.3 million discrete tax benefit for the same period in 2016. The increase in the discrete tax benefit for the nine months ended September 30, 2017, as compared to the same period in 2016, was attributable to an increase in the market price for shares of our common stock, as reported by the NASDAQ Stock Market LLC ("NASDAQ"), as well as an increase in the number of stock awards that vested and were exercised. Most of our equity awards are granted during our first quarter and vest in subsequent years during the same quarter.valuation allowance reduction.
|
| |
12. Stock-based Compensation10. Stockholders' Equity |
Stock-based compensation expense is allocated to cost of revenue and operating expenses on the consolidated statements ofChanges in accumulated other comprehensive income based on where(loss) by component
The changes in accumulated other comprehensive income (loss) by component, consisted of the associated employee’s compensation is recorded. The following table summarizes stock-based compensation expense:following:
|
| | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in thousands) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Included in cost of revenue: | | | | | |
Cost of subscriptions | $ | 331 |
| $ | 318 |
| | $ | 963 |
| $ | 904 |
|
Cost of maintenance | 103 |
| 137 |
| | 294 |
| 391 |
|
Cost of services and other | 500 |
| 461 |
| | 1,418 |
| 1,308 |
|
Total included in cost of revenue | 934 |
| 916 |
| | 2,675 |
| 2,603 |
|
Included in operating expenses: | | | | | |
Sales, marketing and customer success | 1,686 |
| 1,055 |
| | 4,906 |
| 2,972 |
|
Research and development | 2,093 |
| 1,674 |
| | 5,877 |
| 4,874 |
|
General and administrative | 6,213 |
| 5,173 |
| | 17,597 |
| 14,556 |
|
Total included in operating expenses | 9,992 |
| 7,902 |
| | 28,380 |
| 22,402 |
|
Total stock-based compensation expense | $ | 10,926 |
| $ | 8,818 |
| | $ | 31,055 |
| $ | 25,005 |
|
| | | | | | | | | | | |
| | | Three months ended March 31, |
(in thousands) | | | | 2023 | 2022 |
Accumulated other comprehensive income, beginning of period | | | | $ | 8,938 | | $ | 6,522 | |
By component: | | | | | |
Gains and losses on cash flow hedges: | | | | | |
Accumulated other comprehensive income balance, beginning of period | | | | $ | 23,833 | | $ | 5,257 | |
Other comprehensive (loss) income before reclassifications, net of tax effects of $2,566 and $(3,789) | | | | (7,289) | | 10,641 | |
Amounts reclassified from accumulated other comprehensive (loss) income | | | | (4,624) | | 358 | |
Tax expense (benefit) included in provision for income taxes | | | | 1,221 | | (94) | |
Total amounts reclassified from accumulated other comprehensive (loss) income | | | | (3,403) | | 264 | |
Net current-period other comprehensive (loss) income | | | | (10,692) | | 10,905 | |
Accumulated other comprehensive income balance, end of period | | | | $ | 13,141 | | $ | 16,162 | |
Foreign currency translation adjustment: | | | | | |
Accumulated other comprehensive (loss) income balance, beginning of period | | | | $ | (14,895) | | $ | 1,265 | |
Translation adjustment | | | | 2,158 | | (2,132) | |
Accumulated other comprehensive loss balance, end of period | | | | (12,737) | | (867) | |
Accumulated other comprehensive income, end of period | | | | $ | 404 | | $ | 15,295 | |
|
| | | | | | | |
ThirdFirst Quarter 20172023 Form 10-Q | | 19 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)Condensed Consolidated Financial Statements
(Unaudited)
|
| |
13. Stockholders' Equity11. Revenue Recognition |
DividendsTransaction price allocated to the remaining performance obligations
As of March 31, 2023, approximately $1.1 billion of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 60% of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
We applied the practical expedient in ASC 606-10-50-14 and have excluded the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less (one-time services); and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (transactional revenue).
Contract balances
Our Boardcontract assets as of Directors has adoptedMarch 31, 2023 and December 31, 2022 were insignificant. Our closing balances of deferred revenue were as follows:
| | | | | | | | |
(in thousands) | March 31, 2023 | December 31, 2022 |
Total deferred revenue | $ | 367,959 | | $ | 385,236 | |
The decrease in deferred revenue during the three months ended March 31, 2023 was primarily due to a dividend policy, which provides forseasonal decrease in customer contract renewals. Historically, due to the distribution to stockholderstiming of a portioncustomer budget cycles, we have an increase in customer contract renewals at or near the beginning of cash generated by us thatour third quarter. Generally, our lowest balance of deferred revenue during the year is in excessat the end of operational needs and capital expenditures.our first quarter. The 2017 Credit Facility limits the amount of dividends payable and certain state laws restrictrevenue recognized during the three months ended March 31, 2023 that was included in the deferred revenue balance at the beginning of the period was approximately $162 million. The amount of dividends distributed.revenue recognized during the three months ended March 31, 2023 from performance obligations satisfied in prior periods was insignificant.
In February 2017,Disaggregation of revenue
We sell our
Board of Directors approved an annual dividend rate of $0.48 per sharecloud solutions and related services in three primary geographical markets: to
be madecustomers in
quarterly payments. Dividend payments are not guaranteedthe United States, to customers in the United Kingdom and
our Board of Directors may decide,to customers located in
its absolute discretion, at any time and for any reason, not to declare and pay further dividends.other countries. The following table
provides information with respect to quarterly dividendspresents our revenue by geographic area based on the address of
$0.12 per share paid on common stock during the nine months ended September 30, 2017.our customers: |
| | | | | | |
Declaration Date | Dividend per Share |
| Record Date | | Payable Date |
February 8, 2017 | $ | 0.12 |
| February 28 | | March 15 |
May 1, 2017 | $ | 0.12 |
| May 26 | | June 15 |
July 31, 2017 | $ | 0.12 |
| August 28 | | September 15 |
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands) | | | | 2023 | 2022 |
United States | | | | $ | 221,669 | | $ | 214,394 | |
United Kingdom | | | | 26,048 | | 27,660 | |
Other countries | | | | 14,036 | | 15,070 | |
Total revenue | | | | $ | 261,753 | | $ | 257,124 | |
On October 25, 2017, our Board of Directors declared a fourth quarter dividend of $0.12 per share payable on December 15, 2017 to stockholders of record on November 28, 2017.
Changes in accumulated other comprehensive loss by component
The changes in accumulated other comprehensive loss by component, consisted of the following: |
| | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in thousands) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Accumulated other comprehensive loss, beginning of period | $ | (558 | ) | $ | (1,640 | ) | | $ | (457 | ) | $ | (825 | ) |
By component: | | | | | |
Gains and losses on cash flow hedges: | | | | | |
Accumulated other comprehensive income (loss) balance, beginning of period | $ | 203 |
| $ | (806 | ) | | $ | 25 |
| $ | (19 | ) |
Other comprehensive (loss) income before reclassifications, net of tax effects of $209, $(161), $135 and $589 | (320 | ) | 248 |
| | (205 | ) | (909 | ) |
Amounts reclassified from accumulated other comprehensive loss to interest expense | 88 |
| 265 |
| | 192 |
| 875 |
|
Tax benefit included in provision for income taxes | (35 | ) | (104 | ) | | (76 | ) | (344 | ) |
Total amounts reclassified from accumulated other comprehensive loss | 53 |
| 161 |
| | 116 |
| 531 |
|
Net current-period other comprehensive (loss) income | (267 | ) | 409 |
| | (89 | ) | (378 | ) |
Accumulated other comprehensive loss balance, end of period | $ | (64 | ) | $ | (397 | ) | | $ | (64 | ) | $ | (397 | ) |
Foreign currency translation adjustment: | | | | | |
Accumulated other comprehensive loss balance, beginning of period | $ | (761 | ) | $ | (834 | ) | | $ | (482 | ) | $ | (806 | ) |
Translation adjustments | (188 | ) | 289 |
| | (467 | ) | 261 |
|
Accumulated other comprehensive loss balance, end of period | (949 | ) | (545 | ) | | (949 | ) | (545 | ) |
Accumulated other comprehensive loss, end of period | $ | (1,013 | ) | $ | (942 | ) | | $ | (1,013 | ) | $ | (942 | ) |
|
| | | | | | | |
20 | | ThirdFirst Quarter 20172023 Form 10-Q |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)Condensed Consolidated Financial Statements
(Unaudited)
During the firstthird quarter of 2017,2022, we changed the namesreorganized our market groups. The Social Sector and Corporate Sector market groups comprised our go-to-market organizations as of our reportable segments. However, there was no change in the determination of our reportable segments or our reporting units at that time. As of September 30, 2017, our reportable segments were the General Markets Group ("GMG"), the Emerging Markets Group ("EMG"), and the International Markets Group ("IMG").March 31, 2023. The following is a description of each reportable segment:market group as of that date:
•The GMG is generally focusedSocial Sector market group focuses on sales to all emergingcustomers and mid-sized prospects in the social sector, such as nonprofits, foundations, education institutions, healthcare organizations and customers in North America;other not-for-profit entities globally, and includes JustGiving; and
•The EMG is generally focusedCorporate Sector market group focuses on sales to all large and/or strategiccustomers and prospects in the corporate sector globally, and customers in North America;includes EVERFI and YourCause.
The IMG is focused on marketing, sales, delivery and supportfollowing table presents our revenue by market group:
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands) | | | | 2023 | 2022(1) |
| | | | | |
| | | | | |
| | | | | |
Social Sector | | | | $ | 224,897 | | $ | 219,995 | |
Corporate Sector | | | | 36,856 | | 37,129 | |
| | | | | |
Total revenue | | | | $ | 261,753 | | $ | 257,124 | |
(1)Due to all prospects and customers outside of North America.
Our chief operating decision maker isthe market group change discussed above, we have recast our chief executive officer ("CEO"). Currently, our CEO reviews financial information presented on an operating segment basisrevenue by market group for the purposes of making certain operating decisions and assessing financial performance. The CEO uses internal financial reports that provide segment revenues and operating income, as adjusted, which excludes stock-based compensation expense, amortization expense, depreciation expense, research and development expense and certain corporate sales, marketing, general and administrative expenses. Segment operating income, as adjusted, includes direct, controllable costs relatedthree months ended March 31, 2022 to present them on a consistent basis with the sale of our solutions and services, and our customer success program.current year.
The CEO does not review any segment balance sheet information. Summarized reportable segment financial results, were as follows:following table presents our recurring revenue by type:
|
| | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in thousands) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
Revenue by segment: | | | | | |
GMG | $ | 102,838 |
| $ | 97,621 |
| | $ | 296,954 |
| $ | 279,543 |
|
EMG | 81,836 |
| 74,351 |
| | 243,713 |
| 220,887 |
|
IMG | 10,846 |
| 11,030 |
| | 30,632 |
| 31,926 |
|
Other(1) | (7 | ) | 61 |
| | 30 |
| 154 |
|
Total revenue | $ | 195,513 |
| $ | 183,063 |
| | $ | 571,329 |
| $ | 532,510 |
|
Segment operating income, as adjusted(2): | | | | | |
GMG | $ | 49,971 |
| $ | 46,540 |
| | $ | 143,658 |
| $ | 134,408 |
|
EMG | 44,375 |
| 38,696 |
| | 130,887 |
| 113,186 |
|
IMG | 2,888 |
| 1,064 |
| | 7,084 |
| 3,126 |
|
Other(1) | (58 | ) | (157 | ) | | (113 | ) | (109 | ) |
| 97,176 |
| 86,143 |
| | 281,516 |
| 250,611 |
|
Less: | | | | | |
Corporate unallocated costs(3) | (57,575 | ) | (53,236 | ) | | (173,102 | ) | (156,013 | ) |
Stock-based compensation costs | (10,926 | ) | (8,818 | ) | | (31,055 | ) | (25,005 | ) |
Amortization expense | (10,710 | ) | (10,549 | ) | | (32,067 | ) | (31,817 | ) |
Interest expense | (3,092 | ) | (2,641 | ) | | (8,685 | ) | (8,037 | ) |
Other income (expense), net | 468 |
| (15 | ) | | 1,581 |
| (185 | ) |
Income before provision for income taxes | $ | 15,341 |
| $ | 10,884 |
| | $ | 38,188 |
| $ | 29,554 |
|
| |
(1) | Other includes revenue and the related costs from the sale of solutions and services not directly attributable to a reportable segment. |
| |
(2) | Segment operating income, as adjusted, includes direct, controllable costs related to the sale of our solutions and service, and our customer success program. |
| |
(3) | Corporate unallocated costs include research and development, depreciation expense, and certain corporate sales, marketing, general and administrative expenses. |
| | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in thousands) | | | | 2023 | 2022 |
Contractual recurring | | | | $ | 177,603 | | $ | 174,531 | |
Transactional recurring | | | | 75,145 | | 70,135 | |
Total recurring revenue | | | | $ | 252,748 | | $ | 244,666 | |
| | | | | |
| | | | | |
|
| | | | | | | |
ThirdFirst Quarter 20172023 Form 10-Q | | 21 |
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
(Unaudited)
In light of the ongoing and anticipated increasing centralization of our operations, including without limitation marketing, customer support, customer success and professional services, we are evaluating whether changes may need to be made to our internal reporting structure to better support and assess the operations of our business going forward. If changes are made, we will assess the resulting effect on our reportable segments, operating segments and reporting units, if any.
JustGiving acquisition
On October 2, 2017, Blackbaud Global Limited (“Blackbaud Global”), a United Kingdom limited liability company and wholly-owned subsidiary of ours, acquired the entire issued share capital, including all voting equity interests, of Giving Limited, a United Kingdom private limited company doing business as “JustGiving” for an aggregate purchase price of £95.0 million, or approximately $127.4 million, in cash, subject to certain adjustments set forth in the stock purchase agreement. JustGiving is a market leading social platform for giving, and the acquisition is expected to enhance our capabilities to serve both individual donors and nonprofits, expanding the peer-to-peer fundraising capabilities we offer today. As a result of the acquisition, JustGiving has become a wholly-owned subsidiary of ours. We will include the operating results of JustGiving as well as the net assets acquired and liabilities assumed in our consolidated financial statements from the date of acquisition. During the three and nine months ended September 30, 2017, we incurred acquisition-related expenses associated with the acquisition of JustGiving of $0.7 million and $2.2 million, respectively, which are recorded in general and administrative expense. Due to the timing of the transaction, the initial accounting for this acquisition, including the measurement of assets acquired, liabilities assumed and goodwill, is not complete and is pending detailed analyses of the facts and circumstances that existed as of the October 2, 2017 acquisition date.
On October 2, 2017, we borrowed $138.7 million pursuant to a revolving credit loan under the 2017 Credit Facility to finance the acquisition of JustGiving. Following the borrowing, approximately $178.6 million was outstanding under the revolving credit loans with approximately $169.8 million of available borrowing capacity under the 2017 Credit Facility.
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| | |
22 | | Third Quarter 2017 Form 10-Q |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited, condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis presents financial information denominated in millions of dollars which can lead to differences from rounding when compared to similar information contained in the unaudited, condensed consolidated financial statements and related notes which are primarily denominated in thousands of dollars.
We are the world’s leading cloud software companyprovider exclusively dedicated to powering social good.impact. Serving the entirenonprofit and education sectors, companies committed to social good community—nonprofits, foundations, corporations, education institutions, healthcare institutionsresponsibility and individual change agents—we connect and empower organizationsmakers, our essential software is built to increase theiraccelerate impact through software, services, expertise, and data intelligence. Our portfolio is tailored to the unique needs of vertical markets, with solutions forin fundraising, and CRM, marketing, advocacy, peer-to-peer fundraising,nonprofit financial management, digital giving, grantmaking, corporate social responsibility school management, ticketing, grantmaking, financial management, payment processing, and analytics. Serving the industry for more than three decades,education management. A remote-first company, we are headquartered in Charleston, South Carolina and have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom. As of September 30, 2017, we had approximately 35,000 customers.Kingdom, supporting users in 100+ countries.
Our revenue is primarily generated from the following sources: (i) charging for the use of our software solutions in cloud-basedcloud and hosted environments; (ii) providing transactionpayment and payment processingtransactional services; (iii) providing software maintenance and support services; (iv) providing Impact-as-a-Service™ digital educational content; and (v) providing professional services, including implementation, consulting, training, consulting, analytic and other services;services.
Update on Five Key Operational Initiatives
| | | | | | | | | | | | | | |
| 1 | | Product Innovation | |
| | | | |
| 2 | | Bookings Growth and Acceleration | |
| | | | |
| 3 | | Transactional Revenue Optimization | |
| | | | |
| 4 | | Modernized Approach to Pricing and Multi-Year Customer Contracts | |
| | | | |
| 5 | | Keen Attention to Cost Management | |
1.Product Innovation
We support our customers by replacing their aging, mission-critical systems of record and (iv) providing software maintenanceadding advanced digital services. We continuously seek ways to add substantial value for our customers and support services.their constituents by investing in both organic innovation and ecosystem enablement through partnerships and acquisitions. These new capabilities and partnerships strengthen our offers and create new opportunities for our customers to deliver on their missions. For example, with the availability of SKY API endpoints for Blackbaud CRM and Blackbaud Altru, we are enabling customers to leverage applications in the Blackbaud Marketplace to integrate complementary point solutions with our partners.
DuringWe have expanded strategic partnerships to unlock even more value for our customers with partners like Almabase and SwipeTrack's XTrulink. We recently announced an expanded partnership with Almabase to provide a modern solution for advancement teams to unlock higher education and K-12 school alumni engagement and better fundraising by creating integrations that enable secure movement of constituent, gift and event data between systems, without friction. Additionally, we have partnered with SwipeTrack Solutions to create an integration between Blackbaud Altru and Blackbaud Merchant Services to modernize the patron digital experience and back office operations at arts and cultural organizations.
We also recently announced a new feature for general availability with Blackbaud TeamRaiser, Good Move. Good Move leverages Kilter, which we acquired last year, and helps charitable organizations raise more with mobile-first, gamified activity tracking and peer-to-peer fundraising.
| | | | | | | | |
22 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
2.Bookings Growth and Acceleration
We drove strong bookings performance in the first quarter, up significantly versus last year, led by our corporate sector (YourCause and EVERFI solutions) which more than doubled its bookings over the first quarter of 2022. We signed several notable large enterprise contracts during the first quarter, which speaks to the resilience of the end markets we serve and the focus we have placed on driving further improvements in sales productivity. Productivity per sales representative (defined as new sales bookings for the period divided by the number of sales representatives) has improved over 30% versus last year. There can be volatility quarter-to-quarter on bookings. However, the strong start in the first quarter with the most in-year revenue impact positions us well.
3.Transactional Revenue Optimization and Expansion
Transactional revenue, which is about one-third of total revenue, has proven to be resilient so far in 2023 following the lower average donation sizes we experienced during the fourth quarter of 2022. The rate changes that we announced on Blackbaud Merchant Services in the U.S. in late 2022 began to take effect during the first quarter. Our Blackbaud Tuition Management and JustGiving platforms continue to perform well against plan. And as we look ahead, our teams are hard at work to drive innovation across our payments solutions that are a win-win for both our customers and Blackbaud. We have already introduced our two fee cover models, and we are also looking at ways to optimize our payments solutions to drive a better donor experience.
4.Modernized Approach to Pricing and Multi-Year Contracts
We deeply value the relationships we have with our customers, many of whom have been with us for decades. Our solutions add considerable value for our customers and raise billions of dollars annually to fuel social impact, and we continue to innovate on our suite of products to generate incremental value. Last summer, we put in place an updated pricing policy primarily for our social sector customers that directly reflects the value we provide to them, is in-line with the broader market and reflects the inflationary pressures that all businesses are facing. In November 2022, we started notifying customers with a March 2023 contract renewal that we would be making two important contract changes. First, we are offering 3-year contract renewal terms as our standard, replacing one-year renewal terms. This process was already being implemented outside of the pricing changes. Second, we are implementing a more significant rate increase on the 1-year renewal option versus the 3-year renewal option. And third, the 3-year renewal option includes annual rate increases that will compound. Our 3-year renewal options did not historically include annual compounding rate increases.
Through April 2023, we have renewed over 25% of the customers that are up for renewal in our 2023 cohort. The close day-to-day management of renewals, the mix of 3-year and 1-year contracts, and the impact of pricing are progressing very well, and we expect more impact from the compounding effect of these rate increases over time as we layer in future year contract renewals and annual rate increases. For example, over 50% of our planned 2023 revenue will renew in a little over 3 years and approximately 35% of that renewable base is expected to renew this year. These contracts are renewing every day and create revenue growth that we expect to accelerate with each successive quarter this year. We expect that to lead to an even greater impact in 2024, 2025 and beyond as we begin to see the full-year impact of the rate increases compound annually. Approximately 30% of the renewable base is up for renewal in 2024 and more than 20% in 2025. The adoption of 3-year renewals as a standard are expected to have an added benefit of higher retention which provides greater revenue assurance and predictability. Looking even further ahead, the cycle starts fresh in 2026 as the 2023 signed contracts will begin to renew. We expect that this will be a sustainable and meaningful revenue growth stream for us.
5.Keen Attention to Cost Management
We closed four legacy data centers during 2022, and we plan to close more this year. We renegotiated key vendor contracts including Microsoft Azure and AWS and made the difficult decision to further reduce our staff in the first quarter. Because we have organized to achieve much better scale efficiencies, we now have reduced our headcount by approximately 14% since the third quarter of 2017, we continued2022. Our goal is to execute onrun the business at about this headcount level for the foreseeable future, such that our four-pointrevenue growth strategy targeted towill better drive an extended period of quality enhancement, solution and service innovation and increasing operating efficiency and financial performance:margin acceleration.
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1.First Quarter 2023 Form 10-Q | Deliver Integrated | 23 |
Blackbaud, Inc.
(Unaudited)
Financial Summary
| | | | | | | | |
Total revenue ($M) | | Loss from operations ($M) |
YoY Growth (%) | | YoY Growth (%) |
Total revenue increased by $4.6 million during the three months ended March 31, 2023, when compared to the same period in 2022, driven largely by the following:
| | | | | | | | | | | |
| + | | Growth in recurring revenue primarily related to: •increase in transactional recurring revenue of $5.0 million primarily due to increases in volume for our Blackbaud Tuition Management and Open SolutionsJustGiving solutions and positive results related to a pricing initiative we implemented at the beginning of 2023; the increase in transactional recurring revenue was partially offset by a decrease related to fluctuations in foreign currency exchange rates of $1.7 million, respectively •increase in contractual recurring revenue of $3.1 million related to the performance of our cloud solutions; partially offset by a decrease in maintenance revenue as customers migrate to our cloud solutions and a decrease related to fluctuations in foreign currency exchange rates of $0.8 million |
| - | | Decreases in one-time service and other revenue primarily related to: •decrease in one-time consulting revenue due primarily due to less revenue from implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model. Our cloud subscription offerings generally require less implementation and customization services •decreases in one-time analytics revenue as analytics are generally integrated in our cloud solutions |
For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 41. We have a number of multi-year pricing initiatives underway, some to bring our pricing in line with the market while others are model changes that are expected to drive greater revenue for both us and our customers. As a result, we expect to see an acceleration in growth in the second half of 2023 when compared to the first half of the year as we begin to see the full-year effect of some of these pricing initiatives.
We expect that the one-time services and other revenue will continue to significantly decrease during 2023 compared to 2022 driven by our continued migration to the cloud in our core business.
| | | | | | | | |
24 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
Income from operations decreased by $4.0 million during the three months ended March 31, 2023, when compared to the same period in 2022, driven largely by the following:
| | | | | | | | | | | |
| - | | Increase in Security Incident-related expenses of $10.6 million. See "Security Incident update" below. |
| - | | Increase in stock-based compensation expense of $2.1 million primarily due to 2022 performance-based equity award adjustments, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023 |
| - | | Increase in transaction-based costs of $2.1 million related to the increase in the Cloudvolume of transactions for which we process payments and, to a lesser extent, increases in vendor rates |
| - | | Increase in third-party software costs of $1.9 million primarily related to a higher number of licenses needed and also price increases |
| - | | Net decrease of $0.9 million due to an increase in amortization of capitalized software and content development costs, partially offset by an increase in software and content development costs that were required to be capitalized under the internal-use software guidance |
| + | | Decrease in compensation costs other than stock-based compensation of $7.7 million, partially offset by a corresponding increase in severance costs of $4.3 million due to our targeted workforce reductions discussed above |
| + | | Increase in total revenue, as described above |
| + | | Decrease in hosting and data center costs of $2.1 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future |
| + | | Decrease in third-party contractor costs of $1.9 million primarily due to a decrease in our use of third-party software developers |
| + | | Decrease in advertising costs of $0.9 million |
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We continueare continuing to transitionmake critical investments in the business in areas such as digital marketing, innovation, cybersecurity, customer success and our businesscontinued shift of cloud infrastructure to predominantly serve customers through a subscription-basedleading public cloud delivery model, enabling lowerservice providers. Our profitability during the first quarter reflects some of these incremental investments. In 2023, we expect our financial performance to improve with each successive quarter, starting with meaningful improvement in the second quarter as our pricing and cost of entry, greater scalability and lower total cost of ownership to our customers. initiatives take hold.
We continuecontinuously seek opportunities to optimize our portfolio of solutions to focus time and integrate powerful capabilities — such as built in data, analytics, artificial intelligence, payment processing and tailored user-specific experiences — to bring even greater value and performance to our customers.
The Blackbaud SKY™ cloud platform is allowing us to innovate at a more rapid pace, including delivering enhanced integrated analytics capabilitiesresources on innovation that surface directly in our customers’ software through SKY AI and SKY Analytics—components of our broader Intelligence for Good approach that combines AI, analytics, one ofwill have the industry’s most robust data sets and expertise to drive powerful insightsgreatest impact for our customers. These embedded, cloud-delivered insights provide high impact, workflow-integrated intelligencecustomers and the markets we serve, and drive the highest return on investment. To that drives fundraising, advocacy, event participation and other purpose driven constituent interactions.
At our annual user conference, bbcon, we announced a joint-partnership with Microsoft to couple together Microsoft's horizontal solutions with our industry-leading vertical solutions. We now intend to fully power Blackbaud SKY in the Microsoft Azure environment, andend, we will become a Cloud Solution Provider Partner for the Microsoft platform.continue to simplify and rationalize our portfolio through product sunsets and divestitures of non-core businesses and technologies.
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Third Quarter 2017 Form 10-Q | | 23 |
| |
2. | Drive Sales Effectiveness |
We continue to invest in a world-class sales organization to accelerate revenue growth and penetrate our large and expanding total addressable market ("TAM"), which is currently estimated to be over $7.0 billion. During the first three quarters of 2017, we created a new Senior Vice President of Global Sales position to lead this effort across the organization and we have focused on enabling our expanding sales teams with training, processes, and tools to improve effectiveness and drive revenue growth. The further development of our customer success program is allowing our sales teams to focus on closing sales rather than account management. The move to selling pre-integrated solution suites instead of individual point-solutions continues to be successful, and we have furthered our go-to-market shift with a concentrated sales focus by sub-vertical, including K-12 private schools, foundations, corporations, arts & cultural, higher education and healthcare.
| |
3. | Expand TAM into Near Adjacencies through Acquisitions and Product Investments |
We continue to evaluate compelling opportunities to acquire companies, technologies and/or services. We are guided by our acquisition criteria for considering attractive assets that expand our TAM, provide entry into new and near adjacencies, accelerate our shift to the cloud, accelerate revenue growth, are accretive to margins and present synergistic opportunities.
During the third quarter, we launched Blackbaud Labs as a means to incubate new ideas and foster our strong culture of innovation and creativity within Blackbaud, with the sole focus of bringing new capabilities to market organically. We previously announced the promotion of our new Senior Vice President of Corporate Strategy and Business Development, who led the effort for many of our acquisitions, including AcademicWorks in April 2017 and, most recently, JustGiving.
AcademicWorks is the market leader in scholarship management for higher education and K-12 institutions, foundations, and grant-making institutions. Their cloud platform enables students to apply for all awards at an institution using one intuitive and streamlined process, while offering schools and awarding institutions a common platform for improved awarding, reporting, compliance, communication and stewardship of those awards. Additional details regarding our acquisition of AcademicWorks are provided in Note 3 to our consolidated financial statements in this report. During the third quarter, we focused on integrating AcademicWorks' solutions and operations as well as cross-selling.
In October 2017, we closed our acquisition of the United Kingdom-based online fundraising services provider JustGiving, whose online social giving platform has played a powerful role in the growth of peer-to-peer fundraising. The acquisition enhances our capability to serve both individual donors and nonprofits, expanding the peer-to-peer fundraising capabilities we currently offer today through TeamRaiser and everydayhero, which are used by leading nonprofit organizations to connect their causes to the individuals who support them. JustGiving also adds personal crowdfunding to our portfolio, which is an offering we did not previously provide and a fast growing segment of charitable giving. Additional details regarding our acquisition of JustGiving are provided below and in Note 15 to our consolidated financial statements in this report.
Both AcademicWorks and JustGiving meet the acquisition criteria discussed above. We remain active in the evaluation of acquisition opportunities to broaden our portfolio, provide better integrated solutions for our customers, differentiate ourselves from the competition and improve our financial performance.
| |
4. | Improve Operating Efficiency |
We are also focused on operational efficiency to deliver improved profitability. Our organizational model has evolved in recent years allowing us to gain efficiency and consistency in how we execute. We have centralized our operations, including marketing, product management, finance, customer support, customer success and professional services. In 2014, we set a long-term aspirational goal to improve operating margins annually, and increase our non-GAAP operating margins by at least 300 basis points on a constant currency basis from our 2014 baseline of 17.5%, by the end of 2017. Since setting that goal, we have improved margins annually, inclusive of heightened investments to drive future growth and in the midst of migrating our customer base to the cloud. We expect to deliver on our goal, and we see future opportunity ahead to further improve profitability through the infrastructure investments we have made in our back office for scale, focus on operational excellence, and achieving our productivity initiatives.
We have included the results of operations of AcademicWorks in our consolidated results of operations from the date of acquisition. We determined that the AcademicWorks acquisition was not a material business combination; therefore, revenue and earnings since the acquisition date are not required or presented.
|
Gross dollar retention | | |
24 | | Third Quarter 2017 Form 10-Q |
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Total revenue | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Total revenue | $ | 195.5 |
| $ | 183.1 |
| 6.8 | % | | $ | 571.3 |
| $ | 532.5 |
| 7.3 | % |
The increases in total revenue duringA key factor to our overall success is the threerenewal and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily driven by growth in subscriptions revenue as our business model continues to shift towards providing predominantly cloud-based subscription solutions. Subscriptions revenue also grew as a result of increases in the number of customers and the volume of transactions for which we process payments. Services and other revenue as well as maintenance revenue declined during the three and nine months ended September 30, 2017 from our continued shift in focus towards selling cloud-based subscription solutions. In general, our NXT and other cloud-based solutions require less implementation services, which we expect to continue to negatively impact services and other revenue over time. In addition, we have also used promotions and discounts for our consulting services as incentives to accelerate the migrationexpansion of our existing customer base from on-premises solutions towardsubscription agreements with our cloud-based subscriptions. In the near-term, the transition to subscription-based solutions also negatively impacts total revenue growth, as time-based revenue from subscription arrangements is deferred and recognized ratably over the subscription period, typically three yearscustomers. Management uses gross dollar retention in analyzing our success at contract inception, whereas on-premises license revenue from arrangements that include perpetual licenses is recognized up-front.
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Income from operations | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Income from operations | $ | 18.0 |
| $ | 13.5 |
| 32.7 | % | | $ | 45.3 |
| $ | 37.8 |
| 19.9 | % |
Income from operations increased during the three and nine months ended September 30, 2017, when compared to the same periods in 2016. The positive impact of growth in total revenue driven by subscriptions as discussed above was partially offset primarily by investments we are making in our sales organization and customer success program and, to a lesser extent, increases in stock based compensation expense of $2.1 million and $6.1 million, respectively, rent expense of $0.7 million and $3.3 million, respectively, and net increases in acquisition-related expenses and integration costs of $0.8 million and $2.8 million, respectively. An increase of $2.5 million in employee severance costs during the nine months ended September 30, 2017 also negatively impacted income from operations. The increase in rent expense was primarily driven by the end in the fourth quarter of 2016 of the South Carolina state incentive payments we received as a result of locating our headquarters facility in Berkeley County, South Carolina. These amounts were recorded as a reduction of rent expense upon receipt. Also contributing to the increase in rent expense were new operating leases for equipment that we have historically purchased.
Customer retention
Subscription contracts are typically for a term of three years at contract inception with one to three year renewals thereafter. Over time, we anticipate a decrease in maintenance contract renewals as we transition our solution portfolio and maintenance customers from a perpetual license-based model to a cloud-based subscription delivery model. We also anticipate an increase in subscription contract renewals as we continue focusing on innovation, quality and the integration of our subscription solutions which we believe will provide value-adding capabilities to better address our customers' needs. Due primarily to these factors, we believe a recurring revenue customer retention measure that combines subscription and maintenance customer contracts provides an accurate representation of our customers' overall behavior. For the year ended September 30, 2017, approximately 93% ofdelighting our customers with innovative and cloud solutions. Gross dollar retention is defined as contracted annual recurring subscription or maintenance contracts were retained.revenue ("CARR") divided by beginning CARR with a measurement period of twelve months. For the twelve months ended March 31, 2023, our gross dollar retention was approximately 90%. This customergross dollar retention rate is relatively unchanged from our rate for the full year 2016.
ended December 31, 2022. We are continually investing in innovation, which we believe will increase gross dollar retention over the long-term.
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ThirdFirst Quarter 20172023 Form 10-Q | | 25 |
Blackbaud, Inc.
(Unaudited)
Although some customer attrition is normal, our new contract pricing and renewal model (as described above on page 24) does not appear to have impacted customer attrition to date.
Balance sheet and cash flow
At September 30, 2017,March 31, 2023, our cash and cash equivalents were $17.1$24.1 million and outstanding borrowingsthe carrying amount of our debt under the 20172020 Credit Facility were $340.2was $817.1 million. Our net leverage ratio was 2.99 to 1.00.
During the ninethree months ended September 30, 2017,March 31, 2023, we generated $123.4$21.8 million in cash flow from operations, reduced ourhad a net increase in borrowings by $5.8of $17.2 million, inclusive of the incremental borrowings needed to finance the acquisition of AcademicWorks, returned $17.3 million to stockholders by way of dividends and had aggregate cash outlays of $29.0$15.3 million for purchases of property and equipment and capitalized software and content development costs.
Recent development - JustGiving acquisition
On October 2, 2017, we acquired the entire issued share capital of JustGiving for an aggregate purchase price of £95.0 million, or approximately $127.4 million,Security Incident update
As discussed in cash, subjectNote 8 to certain adjustments set forth in the stock purchase agreement. We financed the acquisition through borrowings under the 2017 Credit Facility. As a result of the acquisition, JustGiving has become a wholly-owned subsidiary of ours. We will include the operating results of JustGiving as well as the net assets acquired and liabilities assumed in our unaudited, condensed consolidated financial statements from the date of acquisition. Dueincluded in this report, total costs related to the timingSecurity Incident exceeded the limit of our insurance coverage in the first quarter of 2022. Accordingly, the Security Incident has negatively impacted, and we expect it to continue for the foreseeable future to negatively impact, our GAAP profitability and GAAP cash flow (see discussion regarding non-GAAP adjusted free cash flow on page 36). For the three months ended March 31, 2023, we incurred net pre-tax expense of $17.8 million related to the Security Incident, which included $7.6 million for ongoing legal fees and an additional accrual for loss contingencies of $10.2 million. During the three months ended March 31, 2023, we had net cash outlays of $9.2 million related to the Security Incident, which included ongoing legal fees and the $3.0 million civil penalty paid related to the SEC settlement (as discussed in Note 8). In line with our policy, legal fees are expensed as incurred. For full year 2023, we currently expect net pre-tax expense of approximately $20.0 million to $30.0 million and net cash outlays of approximately $25.0 million to $35.0 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below. As of March 31, 2023, we have recorded approximately $30.2 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate in accordance with our loss contingency procedures described in Note 8. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the transaction,amounts accrued, but we are unable at this time to reasonably estimate the initial accounting for this acquisition,possible additional loss.
There are other Security Incident-related matters, including the measurement of assets acquired, liabilities assumedcustomer claims, customer constituent class actions and goodwill, is not complete and is pending detailed analyses of the facts and circumstances that existed as of the October 2, 2017 acquisition date.
Comparison of the three and nine months ended September 30, 2017 and 2016
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Revenue by segment | | | | | | |
| Three months ended September 30, | |
| Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
GMG | $ | 102.8 |
| $ | 97.6 |
| 5.3 | % | | $ | 297.0 |
| $ | 279.5 |
| 6.2 | % |
EMG | 81.8 |
| 74.4 |
| 10.1 | % | | 243.7 |
| 220.9 |
| 10.3 | % |
IMG | 10.8 |
| 11.0 |
| (1.7 | )% | | 30.6 |
| 31.9 |
| (4.1 | )% |
Total revenue(1) | $ | 195.5 |
| $ | 183.1 |
| 6.8 | % | | $ | 571.3 |
| $ | 532.5 |
| 7.3 | % |
| |
(1) | The individual amounts for each year may not sum to total revenue due to rounding. |
|
| | | | | | | | | | | | | | | | | |
GMG | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
GMG revenue | $ | 102.8 |
| $ | 97.6 |
| 5.3 | % | | $ | 297.0 |
| $ | 279.5 |
| 6.2 | % |
% of total revenue | 52.6 | % | 53.3 | % | | | 52.0 | % | 52.5 | % | |
The increases in GMG revenue during the three and nine months ended September 30, 2017 when compared to the same periods in 2016 were attributable to growth in subscriptions revenue, partially offset by declines in maintenance revenue and, to a lesser extent, services and other revenue. The growth in GMG subscriptions revenue was primarily due to increases in demand across our portfolio of cloud-based solutions. To a much lesser extent, GMG subscriptions revenue growth was also driven by increases in the number of customers and the volume of transactionsgovernmental investigations, for which we process payments. We expect thathave not recorded a liability for a loss contingency as of March 31, 2023 because we are unable at this time to reasonably estimate the ongoing shiftpossible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services will continue to negatively impact both services and other revenue and maintenance revenue over time.
results of operations, cash flows or financial condition.
|
| | | | | | | |
26 | | ThirdFirst Quarter 20172023 Form 10-Q |
|
| | | | | | | | | | | | | | | | | |
EMG | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
EMG revenue | $ | 81.8 |
| $ | 74.4 |
| 10.1 | % | | $ | 243.7 |
| $ | 220.9 |
| 10.3 | % |
% of total revenue | 41.9 | % | 40.6 | % | | | 42.7 | % | 41.5 | % | |
The increases in EMG revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily attributable to growth in subscriptions revenue, partially offset by decreases in services and other revenue and, to a lesser extent, maintenance revenue. The growth in EMG subscriptions was driven primarily by increases in demand for our cloud-based solutions, as well as an increase in the number of customers and the volume of transactions for which we process payments. We are increasingly selling our Blackbaud CRM solution as a subscription offering, which has resulted in less license fees revenue during the three and nine months ended, September 30, 2017, when compared to the same periods in 2016. We expect that the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services will continue to negatively impact both services and other revenue and maintenance revenue over time.
|
| | | | | | | | | | | | | | | | | |
IMG | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
IMG revenue | $ | 10.8 |
| $ | 11.0 |
| (1.7 | )% | | $ | 30.6 |
| $ | 31.9 |
| (4.1 | )% |
% of total revenue | 5.5 | % | 6.0 | % | | | 5.4 | % | 6.0 | % | |
The decreases in IMG revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily related to reductions in services and other revenue and maintenance revenue, partially offset by increases in subscriptions revenue. The increases in IMG subscriptions revenue during the three and nine months ended September 30, 2017 were primarily due to increased demand for our cloud-based solutions and, to a much lesser extent, increases in the volume of transactions for which we process payments. The fluctuation in foreign currency exchange rates had an insignificant impact on IMG revenue during the three months ended September 30, 2017 and negatively impacted IMG revenue during the nine months ended September 30, 2017 by approximately $0.8 million. Further explanation of this impact is included below under the caption "Foreign Currency Exchange Rates". We expect that the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services will continue to negatively impact both services and other revenue and maintenance revenue over time.
|
| | |
Third Quarter 2017 Form 10-Q | | 27Results of Operations |
Comparison of the three months ended March 31, 2023 and 2022
Blackbaud, Inc.
Operating results
|
| | | | | | | | | | | | | | | | | |
Subscriptions | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Subscriptions revenue | $ | 127.5 |
| $ | 105.4 |
| 20.9 | % | | $ | 370.9 |
| $ | 306.3 |
| 21.1 | % |
Cost of subscriptions | 58.0 |
| 51.9 |
| 11.7 | % | | 170.3 |
| 153.8 |
| 10.8 | % |
Subscriptions gross profit(1) | $ | 69.4 |
| $ | 53.5 |
| 29.8 | % | | $ | 200.6 |
| $ | 152.6 |
| 31.5 | % |
Subscriptions gross margin | 54.5 | % | 50.7 | % | | | 54.1 | % | 49.8 | % | |
| | | | | | | | | | | | | | |
(1)Recurring | The individual amounts for each year may not sum to subscriptions | | | |
Revenue ($M) | | Cost of revenue ($M) | | Gross profit ($M) and gross profit due to rounding.margin (%) |
YoY Growth (%) | | YoY Growth (%) | | |
Recurring revenue is comprised of revenue from chargingfees for the use of our subscription-based software solutions, which includes providing access to cloud-basedcloud solutions, andImpact-as-a-Service™ digital educational content, hosting services, accesspayment services, online training programs and subscription-based analytic services. Recurring revenue also includes fees from maintenance services for our on-premises solutions, services included in our renewable subscription contracts, retained and managed services contracts that we expect to certain data serviceshave a term consistent with our cloud solution contracts, and our online subscription training offerings, revenue from payment processing services, as well as variable transaction revenue associated with the use of our solutions.
We continue to experience growth in sales of our cloud-based solutions and hosting services as we meet the demand of our customers that increasingly prefer cloud-based subscription offerings, including existing customers that are migrating from on-premises solutions to our cloud-based solutions. In addition, we have experienced growth in our payment processing services from the continued shift to online giving, further integration of these services to our existing solution portfolio and the sale of these services to new and existing customers. Recurring subscriptions contracts are typically for a term of three years at contract inception with one to three year renewals thereafter. We intend to continue focusing on innovation, quality and integration of our subscription solutions, which we believe will drive subscriptions revenue growth.
Cost of subscriptionsrecurring revenue is primarily comprised of compensation costs for customer support and production IT personnel, hosting and data center costs, third-party contractor expenses, third-party royalty and data expenses, hosting expenses, allocated depreciation, facilities and IT support costs, amortization of intangible assets from business combinations, amortization of software development costs, transaction-based costs related to payments services including remittances of amounts due to third-parties and other costs incurred in providing support and recurring services to our customers.
The increases in subscriptions revenue during the threeOur customers continue to prefer cloud subscription offerings with integrated analytics, training and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily due to strong demand across our cloud-based solution portfolio, and, to a much lesser extent, increases in the number of customers and the volume of transactions for which we process payments.
The increases in cost of subscriptions during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily due to increases in transaction-based costs related to our payments services of $4.7 million and $12.4 million, respectively and increases in the cost of third-party technology embedded in certain of ourpayment services. Recurring subscription solutions of $1.5 million and $4.8 million. Partially offsetting the increase in cost of subscriptions during the nine months ended September 30, 2017 was a decrease in third-party contractor expenses of $1.5 million.
The increases in subscriptions gross margin for the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily the result of the positive economics of shifting customers to our next generation cloud-based solutions as growth in subscriptions revenue outpaced the growth in related costs. The results of AcademicWorks did not significantly impact our subscriptions gross margins for the three and nine months ended September 30, 2017.
|
| | |
28 | | Third Quarter 2017 Form 10-Q |
|
| | | | | | | | | | | | | | | | | |
Maintenance | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Maintenance revenue | $ | 31.5 |
| $ | 36.4 |
| (13.5 | )% | | $ | 98.2 |
| $ | 111.0 |
| (11.6 | )% |
Cost of maintenance | 5.7 |
| 5.5 |
| 3.0 | % | | 17.6 |
| 16.5 |
| 6.1 | % |
Maintenance gross profit(1) | $ | 25.8 |
| $ | 30.9 |
| (16.5 | )% | | $ | 80.6 |
| $ | 94.5 |
| (14.6 | )% |
Maintenance gross margin | 81.9 | % | 84.8 | % | | | 82.1 | % | 85.1 | % | |
| |
(1) | The individual amounts for each year may not sum to maintenance gross profit due to rounding. |
Maintenance revenue is comprised of annual fees derived from maintenance contracts associated with new software licenses and annual renewals of existing maintenance contracts. These contracts provide customers with updates, enhancements and certain upgrades to our software solutions and online, telephone and email support. Maintenance contracts are typically renewedfor a term of three years at contract inception. We have been for several years successfully shifting our legacy customer base away from annual renewals and moving them onto multi-year renewal contracts. We intend to continue focusing on an annual basis.innovation, quality and integration of our cloud solutions, which we believe will drive future revenue growth.
Cost of maintenance is primarily comprised of compensation costs for customer support personnel, third-party contractor expenses, third-party royalty costs, allocated depreciation, facilities and IT support costs, amortization of intangible assets from business combinations, amortization of software development costs and other costs incurred in providing support and services to our customers.
The decreases in maintenanceRecurring revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily comprised of (i) reductions in maintenance from contracts that were migrated to a cloud-based subscriptionincreased by $8.1 million, or not renewed and reductions in contracts with existing customers of $9.2 million and $25.7 million, respectively; partially offset by (ii) incremental maintenance from new customers associated with new license contracts and increases in contracts with existing customers of $4.3 million and $12.1 million, respectively; and (iii) insignificant amounts of incremental maintenance from contractual inflationary rate adjustments.
Cost of maintenance3.3%, during the three months ended September 30, 2017 remained relatively unchangedMarch 31, 2023, when compared to the same period in 2016. 2022, driven primarily by the following:
| | | | | | | | | | | |
| + | | Increase in transactional recurring revenue of $5.0 million primarily due to increases in volume for our Blackbaud Tuition Management and JustGiving solutions and positive results related to a pricing initiative we implemented at the beginning of 2023; the increase in transactional recurring revenue was partially offset by a decrease related to fluctuations in foreign currency exchange rates of $1.7 million |
| | | |
| + | | Increase in contractual recurring revenue of $3.1 million related to the performance of our cloud solutions; partially offset by a decrease in maintenance revenue as customers migrate to our cloud solutions; also offsetting the increase in contractual recurring revenue was a decrease related to fluctuations in foreign currency exchange rates of $0.8 million |
| | | | | | | | |
First Quarter 2023 Form 10-Q | | 27 |
Blackbaud, Inc.
(Unaudited)
For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 41. Cost of maintenancerecurring revenue increased by $2.3 million, or 2.1%, during the ninethree months ended September 30, 2017,March 31, 2023, when compared to the same period in 2016,2022, driven primarily as a result of an increase in compensation costs of $1.0 million, driven by a refinement in the method in which we allocate customer support costs between cost of maintenance and cost of subscriptions.following:
Maintenance | | | | | | | | | | | |
| + | | Increase in transaction-based costs of $2.1 million related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates |
| + | | Increase in third-party software costs of $1.6 million primarily related to a higher number of licenses needed and also price increases |
| + | | Increase in amortization of software development costs of $1.3 million due to our continued investments in the innovation and security of our solutions |
| + | | Increase in amortization of intangible assets from business combinations of $0.6 million primarily due to our acquisition of EVERFI |
| - | | Decrease in compensation costs of $2.1 million primarily related to our targeted workforce reductions during the fourth quarter of 2022 and the first quarter of 2023, partially offset by a corresponding increase in severance costs of $0.4 million |
| - | | Decrease in hosting and data center costs of $2.1 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Recurring gross margin decreased duringincreased by 50 basis points for the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periodsperiod in 2016,2022, primarily due to the increase in maintenance customer support costs combined withrecurring revenue outpacing the declineincrease in maintenance revenue as discussed above.cost of recurring revenue.
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| | | | | | | | | | | | | |
Third Quarter 2017 Form 10-QOne-time services and other | | 29 |
|
| | | | | | | | | | | | | | | | | |
Services and other | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Services and other revenue | $ | 36.5 |
| $ | 41.2 |
| (11.4 | )% | | $ | 102.2 |
| $ | 115.2 |
| (11.2 | )% |
Cost of services and other | 23.3 |
| 25.8 |
| (10.0 | )% | | 71.6 |
| 76.5 |
| (6.4 | )% |
Services and other gross profit(1) | $ | 13.3 |
| $ | 15.4 |
| (13.6 | )% | | $ | 30.6 |
| $ | 38.7 |
| (20.8 | )% |
Services and other gross margin | 36.3 | % | 37.3 | % | | | 30.0 | % | 33.6 | % | |
| |
(1)Revenue ($M) | The individual amounts for each year may not sum to services | Cost of revenue ($M) | | Gross profit ($M) and other gross profit due to rounding.margin (%) |
YoY Growth (%) | | YoY Growth (%) | | |
One-time services and other revenue includesis comprised of fees for one-time consulting, implementation, training, analytic and installationonsite training services, as well asfees for retained and managed services contracts that we do not expect to have a term consistent with our cloud solution contracts, revenue from the sale of our software sold under perpetual license arrangements, fees from user conferences and third-party software referral fees. Consulting, implementation and installation services involve converting data from a customer’s existing system, system configuration, process re-engineering and assistance in file set up. Analytic services are comprised of donor prospect research, sales of lists of potential donors, benchmarking studies and data modeling services. These analytic services involve the assessment of current and prospective donor information of the customer and are performed using our proprietary analytical tools. The end product is intended to enable organizations to more effectively target their fundraising activities.
Cost of one-time services and other is primarily comprised of compensation costs for professional services and onsite training personnel, third-party contractor expenses,other costs incurred in providing onsite customer training, third-party contractor expenses, data expense incurred to perform one-time analytic services, third-party software royalties, variable reseller commissions, costs of user conferences, allocated depreciation, facilities and IT support costs and amortization of intangible assets from business combinations.
| | | | | | | | |
28 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
One-time services and other revenue decreased by $3.5 million, or 27.7%, during the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periods in 2016,2022, driven primarily due to decreases in consulting revenue and, to a lesser extent, declines in analytics revenue and license fees revenue. We expect thatby the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services, will continue to negatively impact services and other revenue over time. We have also used promotions and discounts for our consulting services as incentives to accelerate the migration of our existing customer base from on-premises solutions toward our cloud-based subscriptions. The maturation of our Blackbaud Enterprise CRM solution is lessening the extent of implementation services required for that solution. In addition, we are increasingly selling our Blackbaud CRM solution as a subscription offering, which has resulted in less license fees revenue.following:
| | | | | | | | | | | |
| - | | Decrease in one-time consulting revenue of $3.0 million primarily due to less revenue from implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model. Our cloud subscription offerings generally require less implementation and customization services. |
| - | | Decrease in one-time analytics revenue of $0.8 million as analytics are generally integrated in our cloud solutions |
| | | |
Cost of one-time services and other decreased by $2.6 million, or 23.0%, during the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periodsperiod in 2016,2022, driven primarily due to decreases in compensation costs of $1.4 million and $2.5 million, respectively, which is in line withby the ongoing shift in our go-to-market strategy as discussed above.following:
Services | | | | | | | | | | | |
| - | | Decrease in compensation costs of $2.5 million primarily related to our targeted workforce reductions discussed above and a continued shift in resources historically supporting one-time services and other towards recurring revenue |
| | | |
| | | |
| | | |
| | | |
| | | |
One-time services and other gross margin decreased by 580 basis points during the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periodsperiod in 2016,2022, primarily due to the declines in consulting, analytics and license fees revenue coupled with the slightly more modest reductions in costsdecrease of one-time services and other.other revenue outpacing the decrease compensation costs discussed above.
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| | | | | | | | | | | | | |
30Sales, marketing and customer success ($M) | | Third Quarter 2017 Form 10-QResearch and development ($M) | | General and administrative ($M) |
Percentages indicate expenses as a percentage of total revenue |
Operating expenses
|
| | | | | | | | | | | | | | | | | |
Sales, marketing and customer success | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Sales, marketing and customer success expense | $ | 44.2 |
| $ | 40.7 |
| 8.6 | % | | $ | 129.4 |
| $ | 115.7 |
| 11.8 | % |
% of total revenue | 22.6 | % | 22.2 | % | | | 22.6 | % | 21.7 | % | |
Sales, marketing and customer successSales, marketing and customer success expense includes compensation costs, variable sales commissions, travel-related expenses, sales commissions, advertising and marketing materials, public relations costs, variable reseller commissions and allocated depreciation, facilities and IT support costs.
We see a large market opportunity in the long-term and will continue to make investments to drive sales effectiveness, which is a component ofeffectiveness. We have also implemented software tools to enhance our four-point growth strategy to accelerate revenue growth. Wedigital footprint and drive lead generation. The enhancements we are also investingmaking in our go-to-market approach are expected to significantly reduce our average customer success organization to driveacquisition cost per customer loyalty, retention, and referrals. The increase inas well as the related payback period while increasing sales velocity.
Sales, marketing and customer success expense in dollars and as a percentage of total revenuedecreased by $0.8 million, or 1.5%, during the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periodsperiod in 2016, were primarily due to increases in compensation costs of $3.3 million and $10.5 million, respectively. Also contributing to the increase in sales, marketing and customer success expense for the nine months ended September 30, 2017 was an increase in commission expense of $1.8 million. Compensation costs increased primarily due to incremental headcount associated with the increase in direct sales, marketing, and customer success efforts of our growing operations. The increase in commission expense was2022, primarily driven by a refinement in the period over which we recognize deferred commission to expense.following:
|
| | | | | | | | | | | | | | | | | |
Research and development | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017(1) |
| 2016(1) |
| Change |
| | 2017(2) |
| 2016(2) |
| Change |
|
Research and development expense | $ | 22.1 |
| $ | 22.5 |
| (2.0 | )% | | $ | 67.6 |
| $ | 68.0 |
| (0.5 | )% |
% of total revenue | 11.3 | % | 12.3 | % | | | 11.8 | % | 12.8 | % | |
| | | | | | | | | | | |
(1) | - | | Decrease in advertising costs of $0.9 million |
| + | | Not includedNet increase in researchthe following costs primarily due to our targeted workforce reductions discussed above:
•Increase in severance costs of $1.6 million; •Decrease in compensation costs of $0.9 million; and development •Decrease in commissions expense for the three months ended September 30, 2017 and 2016 were $7.0of $0.6 million and $6.9 million, respectively, of qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance such as those related to development of our next generation cloud-based solutions. Qualifying capitalized software development costs associated with our cloud-based solutions are subsequently amortized to cost of subscriptions revenue over the related asset's estimated useful life, which generally range from three to seven years. |
| | | | | | | | |
First Quarter 2023 Form 10-Q | Not included in research and development expense for the nine months endedSeptember 30, 2017 and 2016 were $20.6 million and $18.9 million, respectively, of qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance. | 29 |
Blackbaud, Inc.
(Unaudited)
Research and development
Research and development expense includes compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support costs.
We continue to make investments to deliver integrateddelight our customers with innovative and open solutions in thesecure cloud which is a component of our four-point growth strategy to accelerate revenue growth.solutions. Research and development expense remained relatively unchangedexpenses increased by $0.6 million or 1.6%, during the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periodsperiod in 2016. During2022, primarily driven by the ninefollowing:
| | | | | | | | | | | |
| + | | Increase in severance costs of $1.1 million primarily due to our targeted workforce reductions discussed above |
| + | | Increase in stock-based compensation of $1.1 million primarily due to new grants related to 2022 performance-based equity award adjustments, partially offset by the targeted workforce reductions discussed above |
| - | | Decrease in third-party contractor costs of $1.1 million primarily due to a decrease in our use of third-party software developers |
| | | |
| | | |
| | | |
| | | |
Not included in research and development expense for the three months ended September 30, 2017, an increase in compensation costsMarch 31, 2023 and 2022 were $14.2 million and $13.8 million, respectively, of $1.4 million associated with our addition of specialized engineering resources to help drive our solution development efforts was offset primarily by an increase in the amount of software development costs that were capitalized of $1.7 million. As discussed above, the increases in the amounts capitalized were a result of incurring more qualifying costs associated with software and content development activities that are required to be capitalized under the internal-use software guidance. We expect that the amount of softwareGAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized will continue to increase modestly in the near-term as we make investments in innovation, quality and the integration of our solutions, which we believe will drive long-term revenue growth.
Research and development expense decreased as a percentage of total revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, primarily due to productivity gains, which have allowed us to scale our business. The increases in the amounts of software development costs capitalized as discussed above also contributedassociated with our cloud solutions are subsequently amortized to cost of subscriptions revenue over the decreases in researchrelated assets' estimated useful life, which generally range from three to seven years.
General and development expense as a percentage of total revenue.
|
| | |
Third Quarter 2017 Form 10-Q | | 31 |
|
| | | | | | | | | | | | | | | | | |
General and administrative | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
General and administrative expense | $ | 23.5 |
| $ | 22.3 |
| 5.5 | % | | $ | 67.4 |
| $ | 62.1 |
| 8.5 | % |
% of total revenue | 12.0 | % | 12.2 | % | | | 11.8 | % | 11.7 | % | |
administrativeGeneral and administrative expense consists primarily of compensation costs for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development, third-party professional fees, insurance, allocated depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses.
The increases in generalGeneral and administrative expense increased by $9.1 million, or 20.7%, during the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periodsperiod in 2016, were primarily due to increases in rent expense of $0.7 million and $3.3 million, respectively, and net increases in acquisition-related expenses and integration costs of $0.8 million and $2.8 million, respectively. An increase of $2.5 million in employee severance costs during the nine months ended September 30, 2017 also drove up general and administrative expense. The increases in rent expense were2022, primarily driven by the endfollowing:
| | | | | | | | | | | |
| + | | Increase in Security Incident-related expenses of $10.6 million. See "Security Incident update" on page 26 |
| + | | Increase in severance costs of $0.8 million, partially offset by a corresponding decrease in compensation costs of $0.6 million due to our targeted workforce reductions discussed above |
| - | | Decrease in third-party contractor costs of $0.6 million |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | |
30 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
Interest Expense
| | | | | | | | |
Interest expense ($M) | | |
Percentages indicate expenses as a percentage of total revenue | | |
The increase in the fourth quarter of 2016 of the South Carolina state incentive payments we received as a result of locating our headquarters facilityinterest expense in Berkeley County, South Carolina. These amounts were recorded as a reduction of rent expense upon receipt. Also contributing to the increases in rent expense were new operating leases for equipment that we have historically purchased.
Generaldollars and administrative expense as a percentage of total revenue remained relatively unchanged during the three and nine months ended September 30, 2017,March 31, 2023, when compared to the same periodsperiod in 2016.
|
| | | | | | | | | | | | | | | | | |
Interest expense | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Interest expense | $ | 3.1 |
| $ | 2.6 |
| 17.1 | % | | $ | 8.7 |
| $ | 8.0 |
| 8.1 | % |
% of total revenue | 1.6 | % | 1.4 | % | | | 1.5 | % | 1.5 | % | |
Interest expense increased during the three and nine months ended September 30, 2017, when compared to the same periods in 2016,2022, was primarily due to modest increasesan increase in our weighted average effective interest rates. Also contributing to the increase in interest expense during the nine months ended September 30, 2017 was the required immediate expense recognition for certain debt issuance costs when we refinanced our credit facility in June 2017. In the near term, weWe currently expect interest expense as well asfor the full year 2023 to be approximately $37 million to $41 million although our interest expense as a percentage of revenue to increase as a resultin connection with the variable rate portion of our acquisition of JustGiving.outstanding debt could increase in a rising interest rate environment. See Note 7 to our condensed consolidated financial statements in this report for more information regarding our derivative instruments, which we use to manage our variable interest rate risk, and Item 3. Quantitative and Qualitative Disclosures about Market Risk: Interest Rate Risk (below) for more information about our variable interest rate exposure and related risk.
|
| | |
32 | | Third Quarter 2017 Form 10-Q |
Deferred revenueRevenue
The table below compares the components of deferred revenue from our consolidated balance sheets:
| | | | | | | | | | | |
(dollars in millions) | March 31, 2023 | December 31, 2022 | Change |
Deferred revenue(1) | $ | 368.0 | | $ | 385.2 | | (4.5) | % |
Less: Long-term portion | 7.0 | | 2.8 | | 146.9 | % |
Current portion(1) | $ | 361.0 | | $ | 382.4 | | (5.6) | % |
|
| | | | | | | | | | |
(dollars in millions) | Timing of recognition | September 30, 2017 |
| Change |
| | December 31, 2016 |
|
Subscriptions | Over the period billed in advance, generally one year | $ | 179.9 |
| 24.4 | % | | $ | 144.6 |
|
Maintenance | Over the period billed in advance, generally one year | 68.5 |
| (10.8 | )% | | 76.8 |
|
Services and other | As services are delivered | 34.0 |
| 15.2 | % | | 29.5 |
|
Total deferred revenue(1) | | 282.4 |
| 12.5 | % | | 250.9 |
|
Less: Long-term portion | | 5.4 |
| (16.0 | )% | | 6.4 |
|
Current portion(1) | | $ | 277.0 |
| 13.3 | % | | $ | 244.5 |
|
(1)The individual amounts for each year may not sum to deferred revenue or current portion of deferred revenue due to rounding. | |
(1) | The individual amounts for each year may not sum to total deferred revenue or current portion of deferred revenue due to rounding. |
To the extent that our customers are billed for our solutions and services in advance of delivery, we record such amounts in deferred revenue. Our recurring revenue contracts are generally for a term of three years at contract inception, billed annually in advance, and non-cancelable. We have been for several years successfully shifting our legacy customer base away from annual renewals and moving them onto multi-year renewal contracts. We generally invoice our subscription and maintenance customers with recurring revenue contracts in annual cycles 30 days prior to the end of the contract term. Deferredeach one-year period.
The decrease in deferred revenue from subscriptions increased during the ninethree months ended September 30, 2017,March 31, 2023 was primarily due to an increase in subscription sales, as well as a seasonal increasedecrease in subscription customer contract renewals.renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals inat or near the beginning of our second quarterthird quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter.
| | | | | | | | |
First Quarter 2023 Form 10-Q | | 31 |
Blackbaud, Inc.
(Unaudited)
Income Taxes
| | | | | | | | |
Income tax benefit ($M) | | |
Percentages indicate effective income tax rates | | |
For the three months ended March 31, 2022, we utilized the discrete effective tax rate method, as comparedallowed by ASC 740-270-30-18, Income Taxes—Interim Reporting, to our fourth quarter. calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that, at this time, the use of this discrete method is no longer more appropriate than the annual effective tax rate method.
The increase in deferred revenue from services and other during the nine months ended September 30, 2017 was primarily the result of an increase in training sales and related billings. A seasonal increase in advance registration billings associated with ourbbcon user conference, which occurs each year in October, also contributed to the increase in deferred revenue from services and other. The decrease in deferred revenue attributable to maintenance during the nine months ended September 30, 2017 was primarily due to the continuing shift in our go-to-market strategy towards cloud-based subscription offerings, which do not require maintenance contracts.
We have acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, we recorded write-downs of deferred revenue from customer arrangements predating the acquisition to fair value, which resulted in lower recorded deferred revenue as of the acquisition date than the actual amounts paid in advance for solutions and services under those customer arrangements. Therefore, our deferred revenue after an acquisition will not reflect the full amount of deferred revenue that would have been reported if the acquired deferred revenue was not written down to fair value. Further explanation of this impact is included below under the caption "Non-GAAP financial measures".
|
| | | | | | | | | | | | | | | | | |
Income tax provision | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
Income tax provision | $ | 2.8 |
| $ | 2.0 |
| 43.2 | % | | $ | 3.0 |
| $ | 5.3 |
| (44.3 | )% |
Effective income tax rate | 18.2 | % | 17.9 | % | | | 7.8 | % | 18.0 | % | |
Our effective income tax rate duringfor the three months ended September 30, 2017 remained relatively unchangedMarch 31, 2023 when compared to the same period in 2016. The decrease in our effective2022 was primarily attributable to unfavorable impact of non-deductible Security Incident accruals, lower foreign-derived intangible income deduction and increase to the UK corporate tax rate during the nine months ended September 30, 2017, when compared to the same period in 2016, was primarily due to a $9.0 million discrete taxoffset against benefit to expense relating to stock-based compensation items, as compared to a $4.3 million discrete tax benefit for the same period in 2016. The increase in the discrete tax benefit for the nine months ended September 30, 2017, as compared to the same period in 2016, was attributable to an increase in the market price for shares of our common stock, as reported by NASDAQ, as well as an increase in the number of stock awards that vested and were exercised. Most of our equity awards are granted during our first quarter and vest in subsequent years during the same quarter.valuation allowance reduction.
|
| | |
Third Quarter 2017 Form 10-Q | | 33 |
Non-GAAP financial measuresFinancial Measures
The operating results analyzed below are presented on a non-GAAP basis. We use non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP diluted earnings per sharefinancial measures internally in analyzing our operational performance. Accordingly, we believe these non-GAAP measures are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. While we believe 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. In addition, 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.
We have acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, we recorded write-downs of deferred revenue under arrangements predating the acquisition to fair value, which resulted in lower recognized revenue than the contributed purchase price until the related obligations to provide services under such arrangements are fulfilled. Therefore, our GAAP revenues after the acquisitions will not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP measures described below reverse the acquisition-related deferred revenue write-downs so that the full amount of revenue booked by the acquired companies is included, which we believe provides a more accurate representation of a revenue run-rate in a given period and, therefore, will provide more meaningful comparative results in future periods.
The non-GAAP financial measures discussed below exclude the impact of certain transactions because we believe they are not directly related to our operating performance in any particular period, but are for our long-term benefit over multiple periods. We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.
|
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
GAAP Revenue | $ | 195.5 |
| $ | 183.1 |
| 6.8 | % | | $ | 571.3 |
| $ | 532.5 |
| 7.3 | % |
Non-GAAP adjustments: | | | | | | | |
Add: Acquisition-related deferred revenue write-down | 0.3 |
| — |
| 100.0 | % | | 0.7 |
| 3.6 |
| (80.8 | )% |
Non-GAAP revenue(1) | $ | 195.9 |
| $ | 183.1 |
| 7.0 | % | | $ | 572.0 |
| $ | 536.1 |
| 6.7 | % |
| | | | | | | |
GAAP gross profit | $ | 108.5 |
| $ | 99.7 |
| 8.8 | % | | $ | 311.8 |
| $ | 285.7 |
| 9.2 | % |
GAAP gross margin | 55.5 | % | 54.5 | % | | | 54.6 | % | 53.7 | % | |
Non-GAAP adjustments: | | | | | | | |
Add: Acquisition-related deferred revenue write-down | 0.3 |
| — |
| 100.0 | % | | 0.7 |
| 3.6 |
| (80.8 | )% |
Add: Stock-based compensation expense | 0.9 |
| 0.9 |
| 2.0 | % | | 2.7 |
| 2.6 |
| 2.8 | % |
Add: Amortization of intangibles from business combinations | 10.0 |
| 9.9 |
| 1.2 | % | | 29.9 |
| 29.7 |
| 0.8 | % |
Add: Employee severance | — |
| — |
| (100.0 | )% | | 1.0 |
| 0.2 |
| 508.1 | % |
Add: Acquisition-related integration costs | — |
| — |
| — | % | | 0.1 |
| — |
| 100.0 | % |
Subtotal(1) | 11.3 |
| 10.8 |
| 4.3 | % | | 34.3 |
| 36.1 |
| (4.8 | )% |
Non-GAAP gross profit(1) | $ | 119.8 |
| $ | 110.5 |
| 8.3 | % | | $ | 346.2 |
| $ | 321.8 |
| 7.6 | % |
Non-GAAP gross margin | 61.1 | % | 60.4 | % | | | 60.5 | % | 60.0 | % | |
| | | | | | | | |
(1)32 | The individual amounts for each year may not sum to non-GAAP revenue, subtotal or non-GAAP gross profit due to rounding. | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in millions, except per share amounts) | | | | | 2023 | 2022 | Change |
GAAP Revenue | | | | | $ | 261.8 | | $ | 257.1 | | 1.8 | % |
| | | | | | | |
GAAP gross profit | | | | | $ | 138.6 | | $ | 133.8 | | 3.6 | % |
GAAP gross margin | | | | | 53.0 | % | 52.0 | % | |
Non-GAAP adjustments: | | | | | | | |
Add: Stock-based compensation expense | | | | | 4.0 | | 4.1 | | (4.7) | % |
Add: Amortization of intangibles from business combinations | | | | | 13.1 | | 12.5 | | 5.0 | % |
Add: Employee severance | | | | | 0.7 | | — | | 100.0 | % |
| | | | | | | |
Subtotal(1) | | | | | 17.8 | | 16.6 | | 7.0 | % |
Non-GAAP gross profit(1) | | | | | $ | 156.4 | | $ | 150.4 | | 4.0 | % |
Non-GAAP gross margin | | | | | 59.8 | % | 58.5 | % | |
| | | | | | | |
GAAP loss from operations | | | | | $ | (9.9) | | $ | (6.0) | | 66.4 | % |
GAAP operating margin | | | | | (3.8) | % | (2.3) | % | |
Non-GAAP adjustments: | | | | | | | |
Add: Stock-based compensation expense | | | | | 29.9 | | 27.9 | | 7.4 | % |
Add: Amortization of intangibles from business combinations | | | | | 13.9 | | 13.3 | | 4.4 | % |
Add: Employee severance | | | | | 4.3 | | — | | 100.0 | % |
Add: Acquisition and disposition-related costs | | | | | 0.6 | | 1.0 | | (35.3) | % |
Add: Restructuring and other real estate activities | | | | | — | | 0.1 | | (100.0) | % |
Add: Security Incident-related costs, net of insurance(2) | | | | | 17.8 | | 7.2 | | 147.0 | % |
| | | | | | | |
Subtotal(1) | | | | | 66.5 | | 49.4 | | 34.7 | % |
Non-GAAP income from operations(1) | | | | | $ | 56.6 | | $ | 43.4 | | 30.4 | % |
Non-GAAP operating margin | | | | | 21.6 | % | 16.9 | % | |
| | | | | | | |
GAAP loss before provision for income taxes | | | | | $ | (18.6) | | $ | (12.5) | | 49.3 | % |
GAAP net loss | | | | | $ | (14.7) | | $ | (10.4) | | 41.3 | % |
Shares used in computing GAAP diluted loss per share | | | | | 52,132,999 | | 51,199,717 | | 1.8 | % |
GAAP diluted loss per share | | | | | $ | (0.28) | | $ | (0.20) | | 40.0 | % |
Non-GAAP adjustments: | | | | | | | |
Less: GAAP income tax benefit | | | | | (3.9) | | (2.1) | | 90.3 | % |
Add: Total non-GAAP adjustments affecting income from operations | | | | | 66.5 | | 49.4 | | 34.7 | % |
| | | | | | | |
| | | | | | | |
Non-GAAP income before provision for income taxes | | | | | 47.9 | | 36.9 | | 29.8 | % |
Assumed non-GAAP income tax provision(3) | | | | | 9.6 | | 7.4 | | 29.8 | % |
Non-GAAP net income(1) | | | | | $ | 38.3 | | $ | 29.5 | | 29.8 | % |
| | | | | | | |
Shares used in computing non-GAAP diluted earnings per share | | | | | 53,171,410 | | 52,076,858 | | 2.1 | % |
Non-GAAP diluted earnings per share | | | | | $ | 0.72 | | $ | 0.57 | | 26.3 | % |
(1)The individual amounts for each year may not sum to subtotal, non-GAAP gross profit, non-GAAP income from operations, non-GAAP income before provision for income taxes or non-GAAP net income due to rounding.
(2)Includes Security Incident-related costs incurred during the three months ended March 31, 2023 of $17.8 million, which includes approximately $10.2 million in recorded liabilities for loss contingencies, net of insurance recoveries during the same period of $0.0 million and during the three months ended March 31, 2022 of $9.0 million, net of insurance recoveries during the same period of $1.8 million. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims and accruals for certain loss contingencies. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year 2023, we currently expect net pre-tax expense of approximately $20 million to $30 million and net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below. In line with our policy, legal fees are expensed as incurred. As of March 31, 2023, we have recorded approximately $30.2 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss. There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of March 31, 2023 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.
(3)We apply a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.
|
| | | | | | | |
34First Quarter 2023 Form 10-Q | | Third Quarter 2017 Form 10-Q33 |
Blackbaud, Inc.
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | Nine months ended September 30, | |
(dollars in millions, except per share amounts) | 2017 |
| 2016 |
| Change |
| | 2017 |
| 2016 |
| Change |
|
GAAP income from operations | $ | 18.0 |
| $ | 13.5 |
| 32.7 | % | | $ | 45.3 |
| $ | 37.8 |
| 19.9 | % |
GAAP operating margin | 9.2 | % | 7.4 | % | | | 7.9 | % | 7.1 | % | |
Non-GAAP adjustments: | | | | | | | |
Add: Acquisition-related deferred revenue write-down | 0.3 |
| — |
| 100.0 | % | | 0.7 |
| 3.6 |
| (80.8 | )% |
Add: Stock-based compensation expense | 10.9 |
| 8.8 |
| 23.9 | % | | 31.1 |
| 25.0 |
| 24.2 | % |
Add: Amortization of intangibles from business combinations | 10.7 |
| 10.5 |
| 1.5 | % | | 32.1 |
| 31.8 |
| 0.8 | % |
Add: Employee severance | 0.1 |
| 0.1 |
| 77.8 | % | | 3.0 |
| 0.5 |
| 533.0 | % |
Add: Acquisition-related integration costs | 0.4 |
| 0.9 |
| (58.2 | )% | | 0.6 |
| 1.4 |
| (56.8 | )% |
Add: Acquisition-related expenses | 1.5 |
| 0.2 |
| 899.3 | % | | 3.9 |
| 0.3 |
| 1,353.2 | % |
Subtotal(1) | 24.0 |
| 20.5 |
| 17.1 | % | | 71.3 |
| 62.6 |
| 13.8 | % |
Non-GAAP income from operations(1) | $ | 42.0 |
| $ | 34.0 |
| 23.3 | % | | $ | 116.6 |
| $ | 100.4 |
| 16.1 | % |
Non-GAAP operating margin | 21.4 | % | 18.6 | % | | | 20.4 | % | 18.7 | % | |
| | | | | | | |
GAAP net income | $ | 12.5 |
| $ | 8.9 |
| 40.5 | % | | $ | 35.2 |
| $ | 24.2 |
| 45.4 | % |
Shares used in computing GAAP diluted earnings per share | 47,846,997 |
| 47,394,106 |
| 1.0 | % | | 47,679,103 |
| 47,268,469 |
| 0.9 | % |
GAAP diluted earnings per share | $ | 0.26 |
| $ | 0.19 |
| 36.8 | % | | $ | 0.74 |
| $ | 0.51 |
| 45.1 | % |
Non-GAAP adjustments: | | | | | | | |
Add: Total Non-GAAP adjustments affecting income from operations | 24.0 |
| 20.5 |
| 17.1 | % | | 71.3 |
| 62.6 |
| 13.8 | % |
Add (less): Loss (gain) on derivative instrument | — |
| — |
| 100.0 | % | | (0.5 | ) | — |
| 100.0 | % |
Add: Loss on debt extinguishment | 0.1 |
| — |
| 100.0 | % | | 0.3 |
| — |
| 100.0 | % |
Less: Tax impact related to Non-GAAP adjustments(2) | (9.8 | ) | (8.1 | ) | 21.6 | % | | (32.0 | ) | (24.2 | ) | 32.4 | % |
Non-GAAP net income(1) | $ | 26.9 |
| $ | 21.3 |
| 25.8 | % | | $ | 74.3 |
| $ | 62.7 |
| 18.6 | % |
| | | | | | | |
Shares used in computing Non-GAAP diluted earnings per share | 47,846,997 |
| 47,394,106 |
| 1.0 | % | | 47,679,103 |
| 47,268,469 |
| 0.9 | % |
Non-GAAP diluted earnings per share | $ | 0.56 |
| $ | 0.45 |
| 24.4 | % | | $ | 1.56 |
| $ | 1.33 |
| 17.3 | % |
| |
(1) | The individual amounts for each year may not sum to subtotal, non-GAAP income from operations or non-GAAP net income due to rounding. |
| |
(2) | We apply a non-GAAP effective tax rate of 32.0% in our determination of non-GAAP net income, which represents the GAAP effective tax rate, excluding the discrete tax effect of stock-based compensation. |
The increases in non-GAAP income from operations during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily due to growth in subscriptions revenue, partially offset by investments we are making in our sales organization and customer success program and, to a lesser extent, increases in rent expense, which are discussed above.
Non-GAAP organic revenue growth
In addition, we discussuse non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis non-GAAP organic subscriptions revenue growth and non-GAAP organic recurring revenue growth, which wein analyzing our operating performance. We believe providesthat these non-GAAP measures are useful informationto investors, as a supplement to GAAP measures, for evaluating the periodic growth of our business on a consistent basis. Each of these measures of non-GAAP organic revenue growth excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, each of these non-GAAP organic revenue growth measures reflects presentation of full year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, and it includes the non-GAAP revenue attributable to those companies, as if there were no acquisition-related write-downs of acquired deferred revenue to fair value as required by GAAP.period. In addition, each of these non-GAAP organic revenue growth 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. We believe this presentation provides a more comparable representation of our current business’ organic revenue growth and revenue run-rate.
| | | | | | | | | | | |
(dollars in millions) | | | Three months ended March 31, |
| | | 2023 | 2022 |
GAAP revenue | | | | $ | 261.8 | | $ | 257.1 | |
GAAP revenue growth | | | | 1.8 | % | |
| | | | | |
Less: Non-GAAP revenue from divested businesses(1) | | | | — | | (1.3) | |
| | | | | |
Non-GAAP organic revenue(2) | | | | $ | 261.8 | | $ | 255.8 | |
Non-GAAP organic revenue growth | | | | 2.3 | % | |
| | | | | |
Non-GAAP organic revenue(2) | | | | $ | 261.8 | | $ | 255.8 | |
Foreign currency impact on Non-GAAP organic revenue(3) | | | | 2.7 | | — | |
Non-GAAP organic revenue on constant currency basis(3) | | | | $ | 264.4 | | $ | 255.8 | |
Non-GAAP organic revenue growth on constant currency basis | | | | 3.4 | % | |
| | | | | |
GAAP recurring revenue | | | | $ | 252.7 | | $ | 244.7 | |
GAAP recurring revenue growth | | | | 3.3 | % | |
| | | | | |
Less: Non-GAAP recurring revenue from divested businesses(1) | | | | — | | (1.3) | |
| | | | | |
Non-GAAP organic recurring revenue(2) | | | | $ | 252.7 | | $ | 243.4 | |
Non-GAAP organic recurring revenue growth | | | | 3.8 | % | |
| | | | | |
Non-GAAP organic recurring revenue(2) | | | | $ | 252.7 | | $ | 243.4 | |
Foreign currency impact on non-GAAP organic recurring revenue(3) | | | | 2.5 | | — | |
Non-GAAP organic recurring revenue on constant currency basis(3) | | | | $ | 255.2 | | $ | 243.4 | |
Non-GAAP organic recurring revenue growth on constant currency basis | | | | 4.9 | % | |
(1)Non-GAAP revenue from divested businesses excludes revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested business with the results of the combined company for the same period of time in both the prior and current periods.
(2)Non-GAAP organic revenue and non-GAAP organic recurring revenue for the prior year periods presented herein may not agree to non-GAAP organic revenue and non-GAAP organic recurring revenue presented in the respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth and non-GAAP organic recurring revenue growth are calculated.
(3)To determine non-GAAP organic revenue growth and non-GAAP organic recurring revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Australian Dollar, British Pound, Canadian Dollar and EURO.
|
| | | | | | | |
Third34 | | First Quarter 20172023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
Rule of 40
We previously defined Rule of 40 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; Security Incident-related costs, net of insurance; and impairment of capitalized software development costs. Beginning in the fiscal quarter ended June 30, 2022, we now also include in non-GAAP adjusted EBITDA impairment of capitalized software development costs because we believe it is not directly related to our operating performance in any particular period.
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(dollars in millions) | | | | | 2023 | 2022 | Change |
GAAP net loss | | | | | $ | (14.7) | | $ | (10.4) | | 41.3 | % |
Non-GAAP adjustments: | | | | | | | |
Add: Interest, net | | | | | 9.4 | | 7.5 | | 26.1 | % |
Less: GAAP income tax benefit | | | | | (3.9) | | (2.1) | | 90.3 | % |
Add: Depreciation | | | | | 3.3 | | 3.5 | | (5.7) | % |
Add: Amortization of intangibles from business combinations | | | | | 13.9 | | 13.3 | | 4.4 | % |
Add: Amortization of software and content development costs(1) | | | | | 10.6 | | 9.2 | | 14.7 | % |
Subtotal(2) | | | | | 33.4 | | 31.5 | | 5.8 | % |
Non-GAAP EBITDA(2) | | | | | $ | 18.7 | | $ | 21.1 | | (11.6) | % |
Non-GAAP EBITDA margin | | | | | 7.1 | % | | |
| | | | | | | |
Non-GAAP adjustments: | | | | | | | |
Add: Stock-based compensation expense | | | | | 29.9 | | 27.9 | | 7.4 | % |
Add: Employee severance | | | | | 4.3 | | — | | 100.0 | % |
Add: Acquisition and disposition-related costs(3) | | | | | 0.6 | | 1.0 | | (35.3) | % |
Add: Restructuring and other real estate activities | | | | | — | | 0.1 | | (100.0) | % |
Add: Security Incident-related costs, net of insurance(3) | | | | | 17.8 | | 7.2 | | 147.0 | % |
| | | | | | | |
Subtotal(2) | | | | | 52.6 | | 36.1 | | 45.9 | % |
Non-GAAP Adjusted EBITDA(2) | | | | | $ | 71.3 | | $ | 57.2 | | 24.7 | % |
Non-GAAP Adjusted EBITDA margin | | | | | 27.2 | % | | |
| | | | | | | |
Rule of 40(4) | | | | | 29.5 | % | | |
| | | | | | | |
Non-GAAP adjusted EBITDA | | | | | 71.3 | | 57.2 | | 24.7 | % |
Foreign currency impact on Non-GAAP adjusted EBITDA(5) | | | | | 1.3 | | 0.5 | | 158.9 | % |
Non-GAAP adjusted EBITDA on constant currency basis(5) | | | | | $ | 72.6 | | $ | 57.7 | | 25.8 | % |
Non-GAAP adjusted EBITDA margin on constant currency basis | | | | | 27.5 | % | | |
| | | | | | | |
Rule of 40 on constant currency basis(6) | | | | | 30.9 | % | | |
(1)Includes amortization expense related to software development costs and amortization expense from capitalized cloud computing implementation costs.
(2)The individual amounts for each year may not sum to subtotal, non-GAAP EBITDA, non-GAAP adjusted EBITDA or non-GAAP adjusted EBITDA on a constant currency basis due to rounding.
(3)See additional details in the reconciliation of GAAP to Non-GAAP operating income above.
(4)Measured by non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. See Non-GAAP organic revenue growth table above.
(5)To determine non-GAAP adjusted EBITDA on a constant currency basis, non-GAAP adjusted EBITDA from entities reporting in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Australian Dollar, British Pound, Canadian Dollar and EURO.
(6)Measured by non-GAAP organic revenue growth on constant currency basis plus non-GAAP adjusted EBITDA margin on constant currency basis. See Non-GAAP organic revenue growth table above.
| | | | | | | | |
First Quarter 2023 Form 10-Q | | 35 |
|
| | | | | | | | | | | | | |
(dollars in millions) | Three months ended September 30, | | | Nine months ended September 30, | |
2017 |
| 2016 |
| | 2017 |
| 2016 |
|
GAAP revenue | $ | 195.5 |
| $ | 183.1 |
| | $ | 571.3 |
| $ | 532.5 |
|
GAAP revenue growth | 6.8 | % | | | 7.3 | % | |
(Less) Add: Non-GAAP acquisition-related revenue (1) | (2.1 | ) | — |
| | (4.0 | ) | 3.6 |
|
Total Non-GAAP adjustments | (2.1 | ) | — |
| | (4.0 | ) | 3.6 |
|
Non-GAAP revenue | $ | 193.4 |
| $ | 183.1 |
| | $ | 567.3 |
| $ | 536.1 |
|
Non-GAAP organic revenue growth | 5.6 | % | | | 5.8 | % | |
| | | | | |
Non-GAAP revenue (2) | $ | 193.4 |
| $ | 183.1 |
| | $ | 567.3 |
| $ | 536.1 |
|
Foreign currency impact on Non-GAAP organic revenue (3) | (0.5 | ) | — |
| | 0.8 |
| — |
|
Non-GAAP revenue on constant currency basis (3) | $ | 192.9 |
| $ | 183.1 |
| | $ | 568.1 |
| $ | 536.1 |
|
Non-GAAP organic revenue growth on constant currency basis | 5.4 | % | | | 6.0 | % | |
| | | | | |
GAAP subscriptions revenue | $ | 127.5 |
| $ | 105.4 |
| | $ | 370.9 |
| $ | 306.3 |
|
GAAP subscriptions revenue growth | 20.9 | % | | | 21.1 | % | |
(Less) Add: Non-GAAP acquisition-related revenue (1) | (2.0 | ) | — |
| | (3.7 | ) | 3.5 |
|
Total Non-GAAP adjustments | (2.0 | ) | — |
| | (3.7 | ) | 3.5 |
|
Non-GAAP organic subscriptions revenue | $ | 125.5 |
| $ | 105.4 |
| | $ | 367.2 |
| $ | 309.9 |
|
Non-GAAP organic subscriptions revenue growth | 19.0 | % | | | 18.5 | % | |
| | | | | |
GAAP subscriptions revenue | $ | 127.5 |
| $ | 105.4 |
| | $ | 370.9 |
| $ | 306.3 |
|
GAAP maintenance revenue | $ | 31.5 |
| $ | 36.4 |
| | 98.2 |
| 111.0 |
|
GAAP recurring revenue | $ | 159.0 |
| $ | 141.9 |
| | 469.1 |
| 417.3 |
|
GAAP recurring revenue growth | 12.1 | % | | | 12.4 | % | |
(Less) Add: Non-GAAP acquisition-related revenue (1) | (2.0 | ) | — |
| | (3.7 | ) | 3.6 |
|
Total Non-GAAP adjustments | (2.0 | ) | — |
| | (3.7 | ) | 3.6 |
|
Non-GAAP recurring revenue | $ | 157.0 |
| $ | 141.9 |
| | $ | 465.4 |
| $ | 421.0 |
|
Non-GAAP organic recurring revenue growth | 10.7 | % | | | 10.5 | % | |
Non-GAAP free cash flow and non-GAAP adjusted free cash flow | |
(1) | Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to companies acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period, and it includes the non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those companies. |
| |
(2) | Non-GAAP revenue for the prior year periods presented herein may not agree to non-GAAP revenue presented in the respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth is calculated. |
| |
(3) | To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Canadian Dollar, EURO, British Pound and Australian Dollar. |
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. 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.
We believe non-GAAP free cash flow and non-GAAP adjusted free cash flow provides 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.
| | | | | | | | | | | |
| Three months ended March 31, |
(dollars in millions) | 2023 | 2022 | Change |
GAAP net cash provided by operating activities | $ | 21.8 | | $ | 24.5 | | (11.0) | % |
Less: purchase of property and equipment | (1.4) | | (4.3) | | (68.0) | % |
Less: capitalized software and content development costs | (14.0) | | (12.7) | | 10.1 | % |
Non-GAAP free cash flow(1) | $ | 6.5 | | $ | 7.6 | | (14.3) | % |
Add: Security Incident-related cash flows, net of insurance | 9.2 | | 0.8 | | 1,020.7 | % |
Non-GAAP adjusted free cash flow(1) | $ | 15.7 | | $ | 8.4 | | 87.4 | % |
(1)The individual amounts for each year may not sum to non-GAAP free cash flow or non-GAAP adjusted free cash flow due to rounding.
Seasonality
Our revenues normally fluctuate as a result of certain seasonal variations in our business. Our transactionfirst quarter has historically been the seasonal low for bookings, with the second and fourth quarters historically being seasonally higher, and our bookings tend to be back-end loaded within individual quarters given our quarterly quota plans. Transactional revenue is non-contractual and less predictable given the susceptibility to certain drivers such as timing and number of events and marketing campaigns, as well as fluctuations in donation volumes and tuition payments. Our transactional revenue has historically been at its lowest in the first quarter due to the timing of customer fundraising initiatives and events. Our revenue from payment processing services hasWe have historically increasedexperienced seasonal highs during the fourth quarter due to year-end giving.giving campaigns and during the second quarter when a large number of events are held. Our revenue from professional services has historically been lower in the first quarter when many of those services commence and in the fourth quarter due to the holiday season. As a result of these and other factors, our total revenue has historically been lower in the first quarter than in the remainder of our fiscal year, with the third and fourth quartersquarter historically achieving the highest total revenues.revenue. Our expenses, however,other than transaction-based costs related to our payments services, do not vary significantly as a result of these factors, but do fluctuate on a quarterly basis due to varying timing of expenditures.
Our cash flow from operations normally fluctuates quarterly due to the combination of the timing of customer contract renewals including renewals associated with customers of acquired companies, delivery of professional services and occurrence of customer events, the payment of bonuses, as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our first quarter, combined with the payment of bonuses from the prior year in our first quarter,certain annual vendor contracts, our cash flow from operations has been lowest in
|
| | |
36 | | Third Quarter 2017 Form 10-Q |
our first quarter, and duequarter. Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has generally been lower in our second quarter as compared to our third and fourth quarters. Partially, offsetting these favorable drivers of cash flow from operations in our third and fourth quarters are merit-basedbase salary merit increases, which are generally effectiveoccur in April each year.July. In addition, deferred revenues can vary on a seasonal basis fordue to the same reasons. These patterns may change as a resulttiming of the continued shift to online giving, growth in volume of transactions for which we process payments,customer contract renewals and student enrollments or as a result of acquisitions, new market opportunities, new solution introductions or other factors.significant acquisitions. Our cash flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards.
These patterns may change as a result of the continued shift to online giving, growth in volume of transactions for which we process payments, large dollar customer bookings and contract renewals, or as a result of acquisitions, new market opportunities, new solution introductions or other factors. |
| | | | | | | |
36 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
| | |
Liquidity and Capital Resources |
The following table presents selected financial information about our financial position:
| | (dollars in millions) | September 30, 2017 |
| Change |
| | December 31, 2016 |
| (dollars in millions) | March 31, 2023 | December 31, 2022 | Change |
Cash and cash equivalents | $ | 17.1 |
| 0.9 | % | | $ | 16.9 |
| Cash and cash equivalents | $ | 24.1 | | $ | 31.7 | | (24.0) | % |
Property and equipment, net | 43.9 |
| (12.7 | )% | | 50.3 |
| Property and equipment, net | 105.3 | | 107.4 | | (2.0) | % |
Software development costs, net | 48.6 |
| 29.4 | % | | 37.6 |
| |
Software and content development costs, net | | Software and content development costs, net | 145.7 | | 141.0 | | 3.3 | % |
Total carrying value of debt | 338.0 |
| (1.3 | )% | | 342.4 |
| Total carrying value of debt | 878.0 | | 859.0 | | 2.2 | % |
Working capital | (181.1 | ) | (5.1 | )% | | (172.2 | ) | Working capital | (284.5) | | (312.0) | | 8.8 | % |
Working capital excluding deferred revenue | 95.9 |
| 32.7 | % | | 72.3 |
| |
The following table presents selected financial information about our cash flows:
| | | Nine months ended September 30, | | | Three months ended March 31, |
(dollars in millions) | 2017 |
| Change |
| | 2016 |
| (dollars in millions) | 2023 | 2022 | Change |
Net cash provided by operating activities | $ | 123.4 |
| 23.2 | % | | $ | 100.1 |
| Net cash provided by operating activities | $ | 21.8 | | $ | 24.5 | | (11.0) | % |
Net cash used in investing activities | (78.2 | ) | 106.4 | % | | (37.9 | ) | Net cash used in investing activities | (15.3) | | (36.9) | | (58.5) | % |
Net cash used in financing activities | (45.3 | ) | (25.9 | )% | | (61.2 | ) | Net cash used in financing activities | (353.2) | | (325.4) | | 8.5 | % |
Our principal sources of liquidity are our operating cash flow, funds available under the 20172020 Credit Facility and cash on hand. Our operating cash flow depends on continued customer renewal of our subscription and maintenance and support arrangements, and market acceptance of our solutions and services.services, the volume and size of transactions for which we process payments and our customers' ability to pay. Based on current estimates of revenue and expenses, we believe that the currently available sources of funds and anticipated cash flows from operations will be adequate for at least the next twelve months to finance our operations, fund anticipated capital expenditures and meet our debt obligationsobligations. We also believe that we will be able to continue to meet our long-term cash requirements due to our anticipated cash flow from operations, solid financial position and pay dividends. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, notability to declare and pay further dividends and/or repurchase our common stock.access capital from financial markets. To the extent we undertake future material acquisitions or investments or unanticipated capital or operating expenditures, including in connection with the Security Incident, we may require additional capital. In that context, we regularly evaluate opportunities to enhance our capital structure, including through potential debt or equity issuances. In the near term, we are committed to reducing our net leverage to our target level of 2 to 1.
As a well-known seasoned issuer, we filed an automatic shelf registration statement for an undetermined amount of debt and equity securities with the SEC on January 14, 2022. Under this universal shelf registration statement we may offer and sell, from time to time, debt securities, common stock, preferred stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Subject to certain conditions, this registration statement will be effective through January 13, 2024.
At September 30, 2017,March 31, 2023, our total cash and cash equivalents balance included approximately $7.5$14.1 million of cash that was held by operations outside the U.S. While these funds may not be needed to fund our U.S. operations for at least the next twelve months, if we need these funds, we may be required to accrue and pay taxes to repatriate the funds. We currently do not intend nor anticipate a need to repatriate our cash held outside the U.S.
| | | | | | | | |
First Quarter 2023 Form 10-Q | | 37 |
Blackbaud, Inc.
(Unaudited)
Operating cash flowCash Flow
Net cash provided by operating activities of $123.4 million increased by $23.2 million during the nine months ended September 30, 2017, when compared to the same period in 2016, primarily due to an increase in net income adjusted for non-cash expenses, and an increase in cash flow from operations associated with working capital. Throughout both periods, ourOur cash flows from operations wereare derived principally from: (i) our earnings from on-going operations prior to non-cash
|
| | |
Third Quarter 2017 Form 10-Q | | 37 |
expenses such as depreciation, amortization, stock-based compensation, deferred taxes, amortization of deferred financing costs and debt discount and adjustments to our provision for credit losses and sales returns and allowances;returns; and (ii) changes in our working capital.
Working capital changes are composed of changes in accounts receivable, prepaid expenses and other assets, trade accounts payable, accrued expenses and other liabilities, and deferred revenue. Cash
Net cash provided by operating activities decreased by $2.7 million during the three months ended March 31, 2023, when compared to the same period in 2022, primarily due to a $15.6 million increase in net income adjusted for non-cash expenses and a $18.3 million decrease in cash flow from operations associated with working capital.
The decrease in cash flow from operations associated with working capital increased $1.6 million during the ninethree months ended September 30, 2017,March 31, 2023, when compared to the same period in 2016,2022, was primarily due to to:
•a decrease in bonus payments partially offset bytaxes payable; and
•fluctuations in the timing of vendor payments.
Security Incident update
As discussed in Note 8 to our unaudited, condensed consolidated financial statements included in this report, total costs related to the Security Incident exceeded the limit of our insurance coverage in the first quarter of 2022. Accordingly, the Security Incident has negatively impacted, and we expect it to continue for the foreseeable future to negatively impact, our GAAP profitability and GAAP cash flow (see discussion regarding non-GAAP adjusted free cash flow on page 36). For full year 2023, we currently expect net pre-tax expense of approximately $20 million to $30 million and net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below. As of March 31, 2023, we have recorded approximately $30.2 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate in accordance with our loss contingency procedures described in Note 8. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.
There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of March 31, 2023 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an increase inadverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash taxes paid.flows or financial condition.
Investing cash flowCash Flow
Net cash used in investing activities of $78.2$15.3 million increaseddecreased by $40.3$21.6 million during the ninethree months ended September 30, 2017,March 31, 2023, when compared to the same period in 2016.2022.
During the ninethree months ended September 30, 2017,March 31, 2022, we used net cash of $49.7$20.0 million for our acquisition of EVERFI comprised of (i) $17.4 million that had not been paid by EVERFI to its former option holders as of December 31, 2021, solely due to the timing of the acquisition on the last day of AcademicWorks compared2021; and (ii) $2.6 million that was paid to $3.4a number of EVERFI's selling shareholders after determining they would be paid in cash, rather than shares of our common stock.
During the three months ended March 31, 2023, we used $14.0 million for software and content development costs, which was up $1.3 million from cash spent on investments in acquired companies during the same period in 2016. We used $20.6 million for software development costs, which was up $1.5 million from cash spent in the same period in 2016. The increase in cash outlays for software development costs was primarily driven by development activities related to our next generation cloud-based solutions, and development activities for Blackbaud SKY, our new modern cloud platform.
2022. We also spent $8.4$1.4 million of cash for purchases of property and equipment during the ninethree months ended September 30, 2017,March 31, 2023, which was down $7.0a decrease of $2.9 million from cash spent duringwhen compared to the same period in 2016. The decrease in cash outlays for property and equipment was primarily driven by a shift toward leasing certain equipment that we have historically purchased. Cash outlays for operating leases are presented in operating cash flows.2022.
| | | | | | | | |
38 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
Financing cash flowCash Flow
During the ninethree months ended September 30, 2017,March 31, 2023, we had a net decreaseincrease in borrowings of $5.8 million, even with the incremental borrowings needed to finance our acquisition of AcademicWorks. We also paid $3.1 million in financing costs as a result of refinancing our credit facility.$17.2 million.
We paid $19.1$31.4 million to satisfy tax obligations of employees upon settlement or exercise of equity awards during the ninethree months ended September 30, 2017March 31, 2023 compared to $10.5$34.7 million during the same period in 2016.2022. The amount of taxes paid by us on the behalf of employees related to the settlement or exercise of equity awards varies from period to period based upon the timing of grants and vesting, employee exercise decisions, as well as the market price for shares of our common stock at the time of settlement. Due to a change in the timing of our annual equity award grants, mostMost of our equity awards nowcurrently vest in our first quarter. In addition,
During the three months ended March 31, 2023, cash flow from financing activities associated with changes in restricted cash due to customers decreased $337.2 million, compared to a decrease of $315.3 million during the ninesame period in 2022. This line in the statement of cash flows represents the change in the amount of restricted cash held and payable by us to customers from one period to the next.
Stock repurchase program
In December 2021, our Board of Directors reauthorized and replenished our stock repurchase program that authorizes us to purchase up to $250.0 million of our outstanding shares of common stock. The program does not have an expiration date. Under the stock repurchase program, we are authorized to repurchase shares from time to time in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The timing and amount of repurchases depends on several factors, including market and business conditions, the trading price of our common stock and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. During the three months ended September 30, 2017,March 31, 2023, we paid dividendsdid not purchase any shares. The remaining amount available to purchase stock under the stock repurchase program was $250.0 million as of $17.3 million, which was relatively consistent withMarch 31, 2023. While we are committed to reducing our net leverage to our 2 to 1 target level in the comparable periodnear term, as we gain visibility into the timing and magnitude of 2016.probable costs related to the Security Incident over time, we expect to resume stock repurchases.
2017
2020 Credit Facility
As discussed above, in June 2017,Historically, we entered into the 2017 Credit Facility. Upon closing, we drew $300.0 million on a term loan and $110.0 million in revolving credit loans, which was used to repay all amounts outstanding under our previous credit facility and for other general corporate purposes.
We have drawn on our credit facility from time to time to help us meet financial needs, such asprimarily due to the seasonality of our cash flows from operations and financing for business acquisitions. At September 30, 2017,March 31, 2023, our available borrowing capacity under the 20172020 Credit Facility was $356.2$298.2 million. The 20172020 Credit Facility matures in June 2022.October 2025.
At September 30, 2017,March 31, 2023, the carrying amount of our debt under the 20172020 Credit Facility was $335.8$817.1 million. Our average daily borrowings during the three and nine months ended September 30, 2017March 31, 2023 were $355.4 million and $368.5 million, respectively.$806.3 million.
The following is a summary of the financial covenants under our credit facility:
the 2020 Credit Facility: |
| | | | | | | |
Financial Covenantcovenant | Requirement | Ratio as of September 30, 2017March 31, 2023 |
Net Leverage Ratioleverage ratio(1) | ≤ 3.504.00 to 1.00 | 1.792.99 to 1.00 |
Interest Coverage Ratiocoverage ratio | ≥ 2.50 to 1.00 | 16.317.56 to 1.00 |
|
| | |
38 | | Third Quarter 2017 Form 10-Q |
the 2020 Credit Facility, the Net Leverage Ratio requirement may be increased by up to 0.50 provided we satisfy certain requirements, including a permitted business acquisition, and provided that the maximum Net Leverage Ratio shall not exceed 4.25 to 1.00.
Under the 20172020 Credit Facility, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (i) no default or event of default shall have occurred and be continuing under the 20172020 Credit Facility, and (ii) our pro forma net leverage ratio, as set forth in the 20172020 Credit Facility, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase. At September 30, 2017,March 31, 2023, we were in compliance with our debt covenants under the 20172020 Credit Facility. See Note 6 to our unaudited, condensed consolidated financial statements included in this report for additional information regarding the 2020 Credit Facility.
Commitments and contingencies
As of September 30, 2017, we had contractual obligations with future minimum commitments as follows: |
| | | | | | | | | | | | | | | |
| Payments due by period |
(in millions) | Total |
| Less than 1 year |
| 1-3 years |
| 3-5 years |
| More than 5 years |
|
Recorded contractual obligations: | | | | | |
Debt(1) | $ | 340.2 |
| $ | 8.6 |
| $ | 16.1 |
| $ | 315.5 |
| $ | — |
|
| | | | | |
Unrecorded contractual obligations: | | | | | |
Operating leases(2) | 190.4 |
| 20.2 |
| 40.0 |
| 33.1 |
| 97.1 |
|
Interest payments on debt(3) | 41.9 |
| 8.9 |
| 18.7 |
| 14.3 |
| — |
|
Purchase obligations(4) | 51.9 |
| 21.3 |
| 30.6 |
| — |
| — |
|
Total contractual obligations | $ | 624.4 |
| $ | 59.0 |
| $ | 105.4 |
| $ | 362.9 |
| $ | 97.1 |
|
| | | | | | | | |
(1)First Quarter 2023 Form 10-Q | Represents principal payments only, under the following assumptions: (i) that the amounts outstanding under the 2017 Credit Facility and our other debt at September 30, 2017 | 39 |
Blackbaud, Inc.
(Unaudited)
Commitments and Contingencies
| | | | | | | | | | | |
| Payments due by period |
(in millions) | Less than 1 year | More than 1 year | Total(1) |
Recorded contractual obligations: | | | |
Debt | $ | 19.1 | | $ | 861.4 | | $ | 880.6 | |
Operating leases | 10.2 | | 53.4 | | 63.5 | |
Interest payment on debt | — | | 8.9 | | 8.9 | |
Contingent consideration | 1.4 | | 1.4 | | 2.7 | |
Unrecorded contractual obligations: | | | |
Purchase obligations | 72.4 | | 208.3 | | 280.7 | |
Interest payments on debt | 41.6 | | 91.9 | | 133.6 | |
Total contractual obligations(1) | $ | 144.7 | | $ | 1,225.3 | | $ | 1,370.1 | |
(1)The individual amounts may not sum to the total due to rounding.
Debt
As of March 31, 2023, we had total remaining principal payments of $880.6 million. These payments represent principal payments only, under the following assumptions: (i) that the amounts outstanding under the 2020 Credit Facility, our real estate loans and our other debt at March 31, 2023 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the 2017 Revolving Facility for the purposes of determining minimum commitment amounts.
| |
(2) | Our commitments related to operating leases have not been reduced by incentive payments and reimbursement of leasehold improvements. |
| |
(3) | The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions described in (1) above. |
| |
(4) | We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. |
The term loan under the 2017 Credit Facility and our other debt require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity ofunder the 20172020 Credit Facility for the purposes of determining minimum commitment amounts. See Note 6 to our unaudited, condensed consolidated financial statements in June 2022.this report for more information.
Interest payments on debt
In addition to principal payments, as of March 31, 2023, we expect to pay interest expense over the life of our debt obligations of approximately $133.6 million. These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of March 31, 2023, which includes the effect of interest rate swap agreements. The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions on our remaining principal payments described above.
Operating leases
As of March 31, 2023, we had remaining operating lease payments of $63.5 million. These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest of $10.4 million. Our operating leases are generally for corporate offices, subleased offices and certain equipment and furniture. Given our remote-first workforce strategy and real estate footprint optimization efforts, as discussed above, we do not anticipate entering any new, material operating leases for offices for the foreseeable future. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.
Purchase obligations
As of March 31, 2023, we had remaining purchase obligations of $280.7 million. These purchase obligations are for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. Our purchase obligations are not recorded as liabilities on our consolidated balance sheets as of March 31, 2023, as we had not received the related services. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.
The total liability for uncertain tax positions as of September 30, 2017 and DecemberMarch 31, 2016,2023 was $3.4$3.3 million and $3.1 million, respectively.. Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of September 30, 2017 and DecemberMarch 31, 2016.
In February 2017, our Board of Directors approved our annual dividend rate of $0.48 per share to be made in quarterly payments. Dividends at this annual rate would aggregate to $23.0 million assuming 48.0 million shares of common stock are outstanding, although dividends are not guaranteed and our Board of Directors may decide, in its absolute discretion, to change or suspend dividend payments at any time for any reason. Our ability to continue to declare and pay dividends quarterly this year and beyond might be restricted by, among other things, the terms of the 2017 Credit Facility, general economic conditions and our ability to generate adequate operating cash flow.
On October 25, 2017, our Board of Directors declared a fourth quarter dividend of $0.12 per share payable on December 15, 2017 to stockholders of record on November 28, 2017.
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Off-Balance Sheet Arrangements |
As of September 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
2023.
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40 | | First Quarter 2023 Form 10-Q |
Blackbaud, Inc.
(Unaudited)
Contingent consideration
In connection with our acquisition of Kilter in August 2022, we may be required to pay up to a maximum of $3.0 million in additional cash consideration if, during the two-year period commencing January 1, 2023, Kilter meets certain application participation targets. As of March 31, 2023, a liability for the contingent consideration is recorded at its acquisition-date fair value of $2.7 million in other liabilities in our consolidated balance sheet.
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Third Quarter 2017 Form 10-Q | | 39 |
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Foreign Currency Exchange Rates |
Approximately 10%15% of our total revenue for the ninethree months ended September 30, 2017March 31, 2023 was generated from operations outside the United States.U.S. We do not have significant operations in countries in which the economy is considered to be highly inflationary. Our consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between foreign currencies and the U.S. dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. The accumulated currency translation adjustment, recorded within accumulated other comprehensive lossincome as a component of stockholders’ equity, was a loss of $0.9 million and $0.5$12.7 million as of September 30, 2017March 31, 2023 and a loss of $14.9 million as of December 31, 2016, respectively.2022. We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds into U.S. dollars.
The vast majority of our contracts are entered into by our U.S. or U.K. entities. The contracts entered into by the U.S. entity are almost always denominated in U.S. dollars or Canadian dollars, and contracts entered into by our U.K., Australian and Irish subsidiaries are generally denominated in British Pounds, Australian dollars and Euros, respectively. Historically, as the U.S. dollar weakened, foreign currency translation resulted in an increase in our revenues and expenses denominated in non-U.S. currencies. Conversely, as the U.S. dollar strengthened, foreign currency translation resulted in a decrease in our revenue and expenses denominated in non-U.S. currencies. During the ninethree months ended September 30, 2017,March 31, 2023, foreign translation resulted in an decreasedecreases in our revenues and expenses denominated in non-U.S. currencies. Though we have exposure to fluctuations in currency exchange rates, primarily those between the U.S. dollar and both the British Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operations or financial position. However, we currently expect that fluctuations in foreign currency exchange rates will have a significant negative impact on our total revenue for the full year 2023. For the ninethree months ended September 30, 2017,March 31, 2023, the fluctuation in foreign currency exchange rates had insignificant impacts onreduced our total revenue and our income from operations. For the nine months ended September 30, 2017, the fluctuation inoperations by $2.7 million and $0.3 million, respectively. We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian dollar against changes in the exchange rates decreased IMG revenue by approximately $0.8 million.rate with the U.S. dollar. We will continue monitoring such exposure and take action as appropriate. To determine the impacts on revenue (or income from operations) from fluctuations in currency exchange rates, current period revenues (or income from operations) from entities reporting in foreign currencies were translated into U.S. dollars using the comparable prior year period's weighted average foreign currency exchange rates. These impacts are non-GAAP financial information and are not in accordance with, or an alternative to, information prepared in accordance with GAAP.
In June and September 2017, we entered into a foreign currency option contract and a foreign currency forward contract, respectively, to hedge our exposure to currency fluctuations in connection with our acquisition of JustGiving, because the purchase price was denominated in British Pounds. See Note 9 of our consolidated financial statements in this report for additional information about these derivative instruments.
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. In addition, if inflationary pressures impact the rate of giving to our customers, there could be adverse impacts to our business, financial condition and results of operations.
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Critical Accounting Policies and Estimates |
There have been no significant changes in our critical accounting policies and estimates during the ninethree months ended September 30, 2017March 31, 2023 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022.
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Recently Issued Accounting Pronouncements |
For a discussion of the impact that recently issued accounting pronouncements are expected to have on our financial position and results of operations when adopted in the future, see Note 2 ofto our unaudited, condensed consolidated financial statements in this report.
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40 | | ThirdFirst Quarter 20172023 Form 10-Q | | 41 |
Blackbaud, Inc.
(Unaudited)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have market rate sensitivity for interest rates and foreign currency exchange rates.
Our variable rate debt is our primary financial instrument with market risk exposure for changing interest rates. We manage our variable rate interest rate risk through a combination of short-term and long-term borrowings and the use of derivative instruments entered into for hedging purposes. Our interest rate exposure includes SOFR rates. The Financial Conduct Authority in the U.K. has stated that it plans to phase out all tenors of LIBOR by June 2023, therefore, we modified our financial contracts that were indexed to LIBOR to reference SOFR during 2022. These modifications did not have a significant financial impact. Due to the nature of our debt, the materiality of the fair values of the derivative instruments and the highly liquid, short-term nature and level of our cash and cash equivalents as of September 30, 2017,March 31, 2023, we believe there is no materialthat the risk of exposure to changing interest rates for those positions.positions is immaterial. There were no significant changes in how we manage interest rate risk between December 31, 20162022 and September 30, 2017.
For a discussion of our exposure to foreign currency exchange rate fluctuations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Foreign Currency Exchange Rates” in this report.
ITEM 4. CONTROLS AND PROCEDURES
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Evaluation of Disclosure Controls and Procedures |
Disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e) and 15d-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) pursuant to Securities Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to provide the reasonable assurance discussed above.
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Changes in Internal Control Over Financial Reporting |
No changechanges in internal control over financial reporting occurred during the most recent fiscal quarter ended September 30, 2017March 31, 2023 with respect to our operations, which hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
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Third42 | | First Quarter 20172023 Form 10-Q | | 41 |
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| | PART II. OTHER INFORMATION |
ITEM 1. LEGAL PROCEEDINGS For a discussion of our legal proceedings, see Note 8 to our unaudited, condensed consolidated financial statements in this report.
ITEM 1A. RISK FACTORS
Our operations and financial resultsWe are subject to various risks and uncertainties, including those described in Part I,supplementing Item IA, "Risk factors"1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, as filed with the Securities and Exchange Commission on February 24, 2023 (the “Annual Report”). The following risk factors should be read in conjunction with the risk factors set forth in that Annual Report.
The Security Incident has had, and may continue to have, numerous adverse effects on our business, results of operations, financial condition and cash flows.
As previously disclosed, on July 16, 2020, we contacted certain customers to inform them about the Security Incident, including that in May 2020 we discovered and stopped a ransomware attack. Prior to our successfully preventing the cybercriminal from blocking our system access and fully encrypting files, and ultimately expelling them from our system with no significant disruption to our operations, the cybercriminal removed a copy of a subset of data from our self-hosted environment. Based on the nature of the incident, our research and third party (including law enforcement) investigation we believe that no data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly. However, our investigation into the Security Incident remains ongoing and may provide additional information.
To date, we have received approximately 260 customer reimbursement requests and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, which we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us, and certain insurance companies have filed subrogation claims in court. Customer and insurer subrogation claims generally seek reimbursement of their costs and expenses associated with notifying their own customers of the Security Incident and taking steps to assure that personal information has not been compromised as a result of the Security Incident. In addition, presently, we are a defendant in 19 putative consumer class action cases [17 in U.S. federal courts (which have been consolidated under multi district litigation to a single federal court) and 2 in Canadian courts] alleging harm from the Security Incident. The plaintiffs in these cases, who generally purport to represent various classes of individual constituents of our customers, generally claim to have been harmed by alleged actions and/or omissions by us in connection with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief. To date, we also have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 49 state Attorneys General and the District of Columbia and a separate Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident. In addition, we are subject to pending governmental actions or investigations by the U.S. Federal Trade Commission, the U.S. Department of Health and Human Services, the Office of the Australian Information Commissioner and the Office of the Privacy Commissioner of Canada.
On March 9, 2023, the Company reached a settlement with the SEC in connection with the Security Incident. This settlement fully resolves the previously disclosed SEC investigation of the Security Incident and is further described in the SEC Order. Under the terms of the SEC Order, the Company agreed to cease-and-desist from committing or causing any violations or any future violations of Sections 17(a)(2) and (3) of the Securities Act and Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-13 and 13a-15(a) thereunder. As part of the SEC Order, the Company also agreed to pay, and has paid, a civil penalty in the amount of $3.0 million.
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First Quarter 2023 Form 10-Q | | 43 |
See Note 8 to our unaudited, condensed consolidated financial statements included in this report for a more detailed description of the Security Incident and related matters.
We may be named as a party in additional lawsuits, other claims may be asserted by or on behalf of our customers or their constituents, and we may be subject to additional governmental inquires, requests or investigations. Responding to and resolving these current and any future lawsuits, claims and/or investigations could result in material remedial and other expenses that will not be covered by insurance. For example, we have recorded approximately $30.2 million in aggregate liabilities for loss contingencies related to the Security Incident that we believe we can reasonably estimate as of March 31, 2023. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued. Certain governmental authorities are seeking to impose undertakings, injunctive relief, consent decrees, or other civil or criminal penalties, which could, among other things, materially increase our data security costs or otherwise require us to alter how we operate our business. Although we intend to defend ourselves vigorously against the claims asserted against us, we cannot predict the potential outcomes, cost and expenses associated with current and any future claims, lawsuits, inquiries and investigations.
In addition, any legislative or regulatory changes adopted in reaction to the Security Incident or other companies’ data breaches could require us to make modifications to the operation of our business that could have an adverse effect and/or increase or accelerate our compliance costs.
Significant management time and Company resources have been, and are expected to continue to be, devoted to the Security Incident. For example, for the three months ended March 31, 2023, we incurred net pre-tax expense of $17.8 million related to the Security Incident, which included $7.6 million for ongoing legal fees and an additional accrual for loss contingencies of $10.2 million. During the three months ended March 31, 2023, we had net cash outlays of $9.2 million related to the Security Incident, which included ongoing legal fees and the $3.0 million civil penalty paid related to the SEC settlement (as discussed in Note 8). For full year 2023, we currently expect net pre-tax expense of approximately $20.0 million to $30.0 million and net cash outlays of approximately $25.0 million to $35.0 million for ongoing legal fees related to the Security Incident. Although we carry insurance against certain losses related to the Security Incident, we exceeded the limit of that insurance coverage in the first quarter of 2022. As a result, we will be responsible for all expenses or other losses (including penalties, fines or other judgments) or all types of claims that may arise in connection with the Security Incident, which could materially and adversely affect our liquidity and results of operations. (See Note 8 to our unaudited, condensed consolidated financial statements included in this report.) If any such fines or penalties were great enough that we could not pay them through funds generated from operating activities and/or cause a default under the 2020 Credit Facility, we may be forced to renegotiate or obtain a waiver under the 2020 Credit Facility and/or seek additional debt or equity financing. Such renegotiation or financing may not be available on acceptable terms, or at all. In these circumstances, if we were unable to obtain sufficient financing, we may not be able to meet our obligations as they come due.
In addition, publicity or developments related to the Security Incident could in the future have a range of other adverse effects on our business or prospects, including causing or contributing to loss of customer confidence, reduced customer demand, reduced customer retention, strategic growth opportunities, and associated retention and recruiting difficulties, some or all of which could be material.
Adverse developments affecting the financial services industry, including events or risks involving liquidity, defaults or non-performance by financial institutions, could have a material adverse effect on our business, financial condition or results of operations,operations.
Financial services market conditions and changing circumstances, some of which may be beyond our control, could impair our ability to access our existing cash, flows,cash equivalents and investments and to timely pay key vendors and others. For example, on March 10, 2023, Silicon Valley Bank (SVB), where we maintain certain accounts and cash deposits, was placed into receivership with the tradingFederal Deposit Insurance Corporation (FDIC), which resulted in all funds held at SVB being temporarily inaccessible by SVB’s customers, including Blackbaud. As of March 13, 2023, access to our cash and cash equivalents at SVB was fully restored. Although our cash balances at SVB are insignificant and we do not expect further developments at SVB to have a material impact on our cash and cash equivalents, if other banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC.
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44 | | First Quarter 2023 Form 10-Q |
Although we seek to minimize our exposure to third-party losses of our cash and cash equivalents, we hold cash balances in several large financial institutions significantly in excess of FDIC insurance limits. Notwithstanding their large size and historical stability, these financial institutions are subject to risk or failure. In addition, we also maintain cash deposits in foreign banks, some of which are not insured or are partially insured by government agencies. Any delay in our ability to access our cash, cash equivalents and investments (or the loss of some or all of such funds) or to timely pay key vendors and others could have a material adverse effect on our business, financial condition or results of operations.
If one of our payment processing partners were to experience a significant disruption or fail, it could temporarily interrupt our ability to provide payment services to our customers, which could negatively impact our business, financial condition or results of operations.
In addition, concerns or rumors regarding the U.S. or international financial systems in general could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all. Any decline in available funding or access to our cash and liquidity resources could, among other things, adversely impact our ability to meet our operating expenses, financial obligations or other obligations, result in breaches of our contractual obligations or result in violations of federal, state and foreign laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our our business, financial condition or results of operations.
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Legal and Compliance Risks |
Provisions in our organizational documents, our Stockholder Rights Agreement (as described below, the "Rights Agreement"), certain officer compensation arrangements and Delaware law may delay or prevent an acquisition or change of control of our Company that could be deemed beneficial to our stockholders.
Certain provisions in our organizational documents, the Rights Agreement, compensation arrangements with our officers and Delaware law (as summarized below) may have the effect of delaying, deferring, discouraging or preventing an acquisition or change in control of the Company or a change in our management. This includes tender offers for our common stock, proxy contests or other takeover attempts. These anti-takeover effects may discourage transactions that might result in the payment of a premium over the market price for shares of our common stock. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our stock. Therecommon stock if they are viewed as discouraging takeover attempts in the future.
Certificate of Incorporation and Bylaw provisions. The Board of Directors is divided into three classes of directors, as nearly equal in number as possible, with each class serving a staggered term of three years. The classification of directors will have been no material changesthe effect of making it more difficult and time-consuming for stockholders to change the composition of the Board of Directors, could discourage a third-party from making a tender offer or otherwise attempting to obtain control of the Company and may maintain the incumbency of the Board of Directors.
Our Bylaws contain an advance notice procedure for stockholders proposals to be brought before a meeting of stockholders, including any proposed nominations of persons for election to the Board of Directors. The Bylaws may have the effect of precluding the conduct of business at a meeting if the proper procedures are not followed and may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company.
The Board of Directors has the authority to issue up to an aggregate of 20,000,000 shares of preferred stock in one or more classes or series and to determine, with respect to any such class or series, the designations, powers, preferences and rights of such class or series, and the qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences, and the number of shares constituting any class or series or the designation of such class or series, without further vote or action by the stockholders. This preferred stock, including the Series A Preferred Stock described below, could have terms that may discourage a potential acquirer from making, without first negotiating with the Board of Directors, an acquisition attempt through which such acquirer may be able to change the composition of the Board of Directors, including a tender offer or other takeover attempt.
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First Quarter 2023 Form 10-Q | | 45 |
The Board of Directors possesses the authority to call and hold emergency special meetings of the Board of Directors with less than forty-eight hours’ notice. This power to hold an emergency special meeting of the Board of Directors on short notice could discourage a potential acquirer from launching a bid to acquire majority ownership of the Company, a proxy solicitation in order to replace the current Board of Directors, or otherwise attempting to obtain control of the Company.
Stockholder Rights Agreement. On October 7, 2022, the Company declared a dividend of one preferred share purchase right for each of the Company’s issued and outstanding shares of Common Stock. The description and terms of these Rights are set forth in the Stockholder Rights Agreement, dated as of October 7, 2022 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC (the “Rights Agent”). Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from us one one-thousandth of a share of the Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) at a price of $313.00, subject to certain adjustments (as adjusted from time to time, the “Exercise Price”). Under the Rights Agreement, the Rights will become exercisable if an entity, person or group acquires beneficial ownership of 20% or more of the outstanding Common Stock in a transaction not approved by the Board of Directors. In the event that the Rights become exercisable due to the ownership threshold being crossed, each Right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase additional shares of Common Stock having a then-current market value of twice the Exercise Price, which would likely make any takeover or change of control attempt by such entity, person or group prohibitively expensive. Subject to the terms of the Rights Agreement, the Rights will expire on October 2, 2023. Additional information regarding the Rights Agreement is contained in a Form 8-K filed with the SEC on October 11, 2022.
Officer Compensation Arrangements. We have entered into an employment agreement with our risk factors sinceChief Executive Officer and retention agreements with certain of our Annual Report on Form 10-Kofficers, which provide that, upon the occurrence of a change in control of us and either the termination of their employment without cause (as defined) or their resignation for good reason (as defined), such persons would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of compensation and accelerated vesting of certain equity stock awards paid in accordance with the year ended December 31, 2016.terms and conditions of the respective agreement). Such provisions could significantly increase the costs to a third-party acquirer and/or deter such third-party from acquiring us.
Delaware anti-takeover law. We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation, such as the Company, from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless certain criteria are met. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or is an affiliate or associate of the corporation, and within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock.
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46 | | First Quarter 2023 Form 10-Q |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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Issuer Purchases of Equity Securities |
The following table provides information about shares of common stock acquired or repurchased during the three months ended September 30, 2017. All of these acquisitions were ofMarch 31, 2023 under the stock repurchase program then in effect, as well as common stock withheld by us to satisfy the minimum tax obligations of employees due upon exercisevesting of restricted stock appreciation rightsawards and units.
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Period | Total number of shares purchased(1) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs(2) | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands) |
Beginning balance, January 1, 2023 | | | | | | | $ | 250,000 | |
January 1, 2023 through January 31, 2023 | — | | | $ | — | | | — | | | 250,000 | |
February 1, 2023 through February 28, 2023 | 533,597 | | | 58.08 | | | — | | | 250,000 | |
March 1, 2023 through March 31, 2023 | — | | | — | | | — | | | 250,000 | |
Total | 533,597 | | | $ | 58.08 | | | — | | | $ | 250,000 | |
(1)Includes 533,597 shares in February withheld by us to satisfy the minimum tax obligations of employees due upon vesting of restricted stock awards and units. The level of this acquisition activity varies from period to period based upon the timing of award grants and vesting as well as employee exercise decisions.vesting.
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Period | Total number of shares purchased |
| | Average price paid per share |
| | Total number of shares purchased as part of publicly announced plans or programs(1) |
| | Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands) |
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Beginning balance, July 1, 2017 | | | | | | | $ | 50,000 |
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July 1, 2017 through July 31, 2017 | — |
| | $ | — |
| | — |
| | 50,000 |
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August 1, 2017 through August 31, 2017 | 24,710 |
| | 86.24 |
| | — |
| | 50,000 |
|
September 1, 2017 through September 30, 2017 | 3,644 |
| | 87.00 |
| | — |
| | 50,000 |
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Total | 28,354 |
| | $ | 86.34 |
| | — |
| | $ | 50,000 |
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(1) | In August 2010, our Board of Directors approved a stock repurchase program that authorized us to purchase up to $50.0 million of our outstanding shares of common stock. We have not made any repurchases under the program to date, and the program does not have an expiration date. |
(2)In December 2021, our Board of Directors reauthorized and replenished our stock repurchase program to authorize us to purchase up to $250.0 million of our outstanding shares of common stock. The program does not have an expiration date.
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42 | | ThirdFirst Quarter 20172023 Form 10-Q | | 47 |
ITEM 6. EXHIBITS
The exhibits listed below are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q: |
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Exhibit Number | | Description of Document | | Filed Herewith | | Form | | Exhibit Number | | Filing Date |
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101.INS*101.INS | | Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL Document. | | X | | | | | | |
101.SCH*101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | X | | | | | | |
101.CAL*101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | X | | | | | | |
101.DEF*101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | X | | | | | | |
101.LAB*101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | X | | | | | | |
101.PRE*101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | X | | | | | | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | X | | | | | | |
* Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to liability of that Section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, except as shall be expressly set forth by specific reference in such filing.
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Third48 | | First Quarter 20172023 Form 10-Q | | 43 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | BLACKBAUD, INC. |
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Date: | May 4, 2023 | BLACKBAUD, INC. |
By: | | | |
Date: | November 2, 2017 | By: | /s/ Michael P. Gianoni |
| | | Michael P. Gianoni |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
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Date: | November 2, 2017May 4, 2023 | By: | /s/ Anthony W. Boor |
| | | Anthony W. Boor |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
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44 | | ThirdFirst Quarter 20172023 Form 10-Q | | 49 |