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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 6, 2018

 
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Blackbaud, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation)
000-50600
 
11-2617163
(Commission File Number)
 
(IRS Employer ID Number)
 
 
 
2000 Daniel Island Drive, Charleston, South Carolina
 
29492
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (843) 216-6200
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨




Item 2.02. Results of Operations and Financial Condition.
On February 6, 2018, Blackbaud, Inc. issued a press release reporting unaudited financial results for the quarter and fiscal year ended December 31, 2017. A copy of this press release is attached hereto as Exhibit 99.1.
The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No.
 
Description
 
 
 
 
Press release dated February 6, 2018 reporting unaudited financial results for the quarter and fiscal year ended December 31, 2017.





SIGNATURES
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 hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
BLACKBAUD, INC.
 
 
 
 
 
 
 
Date:
February 6, 2018
 
 
/s/ Anthony W. Boor
 
 
 
 
 
Anthony W. Boor
 
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
(Principal Financial and Accounting Officer)
 




Exhibit
 
 
Exhibit 99.1
 
 
 
 
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PRESS RELEASE
 
 



Blackbaud Announces 2017 Fourth Quarter and Full Year Results
Fourth Quarter Recurring Revenue Grows 15% representing 84% of total revenue;
Achieves 2017 Financial Guidance Topping Free Cash Flow Estimate; Announces 2018 Financial Guidance
 
Charleston, S.C. (February 6, 2018) - Blackbaud (NASDAQ: BLKB), the world's leading cloud software company powering social good, today announced financial results for its fourth quarter and fiscal year ended December 31, 2017.

"This was a big year for Blackbaud; we furthered our strategic growth objectives, were named to Fortune's 56 'Companies Changing the World' list, climbed IDC’s ranking to the world's 24th largest cloud software vendor, and most importantly, accelerated the pace of innovation and drove outcomes for our growing base of over 40,000 customers," said Mike Gianoni, Blackbaud's president and CEO. "The business has never been stronger and our revenue is more predictable than ever with over 80% of revenue now recurring and growing in the double-digits annually. With the combined success of our results last year, our outlook for 2018, and the recent change in the federal tax law, we are awarding an equity grant of approximately $2,000 for each Blackbaud employee not currently receiving equity so that all employees are owners and can participate in the company's success."

Fourth Quarter 2017 Results Compared to Fourth Quarter 2016 Results:
•
Total GAAP revenue was $217.0 million, up 9.4%, with $181.9 million in GAAP recurring revenue, representing 83.8% of total GAAP revenue, and $151.9 million in GAAP subscription revenue, representing 70.0% of total GAAP revenue.
•
Total non-GAAP revenue was $218.8 million, up 10.3%, with $183.7 million in non-GAAP recurring revenue, representing 84.0% of total non-GAAP revenue, and $153.7 million in non-GAAP subscription revenue, representing 70.3% of total non-GAAP revenue.
•
Non-GAAP organic revenue increased 4.4%, non-GAAP organic recurring revenue increased 8.8%, and non-GAAP organic subscription revenue increased 16.2%.
•
GAAP income from operations decreased 22.0% to $18.7 million, with GAAP operating margin decreasing 350 basis points to 8.6%.
•
Non-GAAP income from operations increased 5.0% to $46.0 million, with non-GAAP operating margin decreasing 110 basis points to 21.0%.
•
GAAP net income increased 77.7% to $30.7 million, with GAAP diluted earnings per share of $0.64, up $0.28.
•
Non-GAAP net income increased 5.1% to $29.4 million, with non-GAAP diluted earnings per share of $0.61, up $0.02.
•
Non-GAAP free cash flow was $43.4 million, a decrease of $0.6 million.

"We achieved our 2017 full-year financial guidance, exceeding the mid-point of our estimates and topping the high-end of our free cash flow range, executed against our long-term aspirational goals, and as our 2018 full-year financial guidance shows, we're optimistic about the year ahead,” said Tony Boor, Blackbaud's executive vice president and CFO. “Our free cash flow improvement is particularly strong for a second consecutive year. We're updating our non-GAAP tax rate to correlate with our GAAP estimate, reducing our full-year tax rate from 32% in 2017 to 20% in 2018, which is primarily driven by the U.S. federal rate change. We're also adopting ASC606 in 2018 and expect the largest financial effect to be associated with the deferral of commissions expense, which will positively impact our profitability."

An explanation of all non-GAAP financial measures referenced in this press release, including Blackbaud's definition of non-GAAP free cash flow, is included below under the heading "Non-GAAP Financial Measures." A reconciliation of the

 
 
 
 
 
 
 
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PRESS RELEASE
 
 

company's non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Recent Company Highlights:
•
Blackbaud announced it will integrate its cloud fundraising and engagement solutions with Facebook fundraising solutions.
•
Blackbaud, whose systems process a majority of the online donations made in the United States on #GivingTuesday, processed more than $61 million from over 7,000 organizations receiving donations on November 28, 2017.
•
Blackbaud announced that Catherine Cook LaCour has been named Chief Marketing Officer, overseeing global marketing and the Blackbaud Institute for Philanthropic Impact™.
•
Blackbaud completed the acquisition of U.K.-based JustGiving™, whose online social giving platform has played a powerful role in the growth of peer-to-peer fundraising.
•
Forbes named Blackbaud a leading employer for diversity: America's Best Employers for Diversity 2018. 
Visit www.blackbaud.com/press-room for more information about Blackbaud’s recent highlights.

Full-Year 2017 Results Compared to Full-Year 2016 Results:
•
Total GAAP revenue was $788.3 million, up 7.9%, with $651.0 million in GAAP recurring revenue, representing 82.6% of total GAAP revenue, and $522.9 million in GAAP subscription revenue, representing 66.3% of total GAAP revenue.
•
Total non-GAAP revenue was $790.8 million, up 7.7%, with $653.4 million in non-GAAP recurring revenue, representing 82.6% of total non-GAAP revenue, and $525.2 million in non-GAAP subscription revenue, representing 66.4% of total non-GAAP revenue.
•
Non-GAAP organic revenue increased 5.4% and non-GAAP organic recurring revenue increased 10.1%, and non-GAAP organic subscription revenue increased 17.9%.
•
GAAP income from operations increased 3.6% to $64.0 million, with GAAP operating margin decreasing 40 basis points to 8.1%.
•
Non-GAAP income from operations increased 12.7% to $162.5 million, with non-GAAP operating margin increasing 100 basis points to 20.6%.
•
GAAP net income increased 58.8% to $65.9 million, with GAAP diluted earnings per share up $0.50 to $1.38.
•
Non-GAAP net income increased 14.4% to $103.7 million, with non-GAAP diluted earnings per share up $0.25 to $2.17.
•
Non-GAAP free cash flow was $137.7 million, an increase of $28.2 million.

Dividend
Blackbaud announced today that its Board of Directors has declared a first quarter 2018 dividend of $0.12 per share payable on March 15, 2018 to stockholders of record on February 28, 2018.

Financial Outlook
Blackbaud today announced its 2018 full year financial guidance, which includes anticipated impacts from adopting ASU 2014-09, Revenue from Contracts with Customers (Topic 606), in the first quarter of 2018:

•
Non-GAAP revenue of $870 million to $890 million
•
Non-GAAP operating margin of 20.6% to 21.0%
•
Non-GAAP diluted earnings per share of $2.75 to $2.88
•
Non-GAAP free cash flow of $165 million to $175 million


2
 
 
 
 
 
 
 
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PRESS RELEASE
 
 

Blackbaud has not reconciled forward-looking full-year non-GAAP financial measures contained in this news release to their most directly comparable GAAP measures, as permitted by Item 10(e)(1)(i)(B) of Regulation S-K. Such reconciliations would require unreasonable efforts at this time to estimate and quantify with a reasonable degree of certainty various necessary GAAP components, including for example those related to compensation, acquisition transactions and integration, tax items or others that may arise during the year. These components and other factors could materially impact the amount of the future directly comparable GAAP measures, which may differ significantly from their non-GAAP counterparts.

Adoption of Statement of Cash Flow Presentation Accounting Standard
During the three months ended December 31, 2017 we early adopted ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash, 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. We retrospectively applied the changes in presentation to the statements of cash flows and no longer classify changes in restricted cash due to customers and due to customers as operating activities. Instead, changes in due to customers are now classified as financing activities. The impacts of adoption are reflected in the financial information herein. Future financial information presented in accordance with ASU 2016-18 will also include immaterial adjustments to reflect certain prior period errors. We will provide more detailed information regarding the impact of the early adoption of ASU 2016-18 in our annual report on Form 10-K for the year ended December 31, 2017.

Conference Call Details
What:    Blackbaud's 2017 Fourth Quarter Conference Call
When:    February 7, 2018
Time:     8:00 a.m. (Eastern Time)
Live Call:     800-289-0462 (US/Canada); passcode 492095.
Webcast:    Blackbaud's Investor Relations Webpage

About Blackbaud
Blackbaud (NASDAQ: BLKB) is the world’s leading cloud software company powering social good. Serving the entire social good community—nonprofits, foundations, corporations, education institutions, healthcare institutions and individual change agents—Blackbaud connects and empowers organizations to increase their impact through software, services, expertise, and data intelligence. The Blackbaud portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility, school management, ticketing, grantmaking, financial management, payment processing, and analytics. Serving the industry for more than three decades, Blackbaud is headquartered in Charleston, South Carolina and has operations in the United States, Australia, Canada and the United Kingdom. For more information, visit www.blackbaud.com.
Investor Contact:
 
Media Contact:
 
Mark Furlong
 
Nicole McGougan
 
Director of Investor Relations
 
Public Relations Manager
 
843-654-2097
 
843-654-3307
 
mark.furlong@blackbaud.com
 
nicole.mcgougan@blackbaud.com
 

Forward-Looking Statements
Except for historical information, all of the statements, expectations, and assumptions contained in this news release are forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding: the predictability of our financial results, expectations that our revenue will continue to grow, and expectations that we will achieve our projected 2018 full-year financial guidance. These statements involve a number of risks and uncertainties. Although Blackbaud attempts to be accurate in making

3
 
 
 
 
 
 
 
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PRESS RELEASE
 
 

these forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. In addition, other important factors that could cause results to differ materially include the following: management of integration of acquired companies; uncertainty regarding increased business and renewals from existing customers; a shifting revenue mix that may impact gross margin; continued success in sales growth; risks related to our dividend policy and stock repurchase program, including the possibility that we might discontinue payment of dividends; and the other risk factors set forth from time to time in the SEC filings for Blackbaud, copies of which are available free of charge at the SEC’s website at www.sec.gov or upon request from Blackbaud's investor relations department. Blackbaud assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Trademarks
All Blackbaud product names appearing herein are trademarks or registered trademarks of Blackbaud, Inc.

Non-GAAP Financial Measures
Blackbaud has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP revenue, non-GAAP recurring 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 share. Blackbaud has acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, Blackbaud recorded write-downs of deferred revenue to fair value, which resulted in lower recognized revenue. Both on a quarterly and year-to-date basis, the revenue for the acquired businesses is deferred and typically recognized over a one-year period, so Blackbaud's GAAP revenues for the one-year period after the acquisitions will not reflect the full amount of revenues that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP measures described above reverse the acquisition-related deferred revenue write-downs so that the full amount of revenue booked by the acquired companies is included, which Blackbaud believes provides a more accurate representation of a revenue run-rate in a given period. In addition to reversing write-downs of acquisition-related deferred revenue, non-GAAP financial measures discussed above exclude the impact of certain items that Blackbaud believes are not directly related to its performance in any particular period, but are for its long-term benefit over multiple periods.

In addition, Blackbaud uses 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, in analyzing its operating performance. Blackbaud believes that these non-GAAP measures are useful to investors, as a supplement to GAAP measures, for evaluating the periodic growth of its business on a consistent basis. Each of these measures excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, each of these measures reflects presentation of full-year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, 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. In addition, each of these measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. Blackbaud believes this presentation provides a more comparable representation of its current business’ organic revenue growth and revenue run-rate.

Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.

Beginning in 2018, Blackbaud intends to update the non-GAAP tax rate it applies when calculating non-GAAP net income and non-GAAP diluted earnings per share in future periods. Since the first quarter of 2016, for the purposes of determining non-GAAP net income, Blackbaud has utilized a non-GAAP tax rate of 32.0% in its calculation of the tax impact related

4
 
 
 
 
 
 
 
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PRESS RELEASE
 
 

to non-GAAP adjustments. Blackbaud intends to adjust this rate to 20.0% to better reflect its periodic effective tax rate calculated in accordance with GAAP and its current expectations related to the Tax Cuts and Jobs Act, which was enacted into law on December 22, 2017 and, among other items, reduces the federal tax rate for corporations from 35.0% to 21.0% beginning in 2018. The non-GAAP tax rate utilized in future periods will be reviewed annually to determine whether it remains appropriate in consideration of Blackbaud's financial results including its periodic effective tax rate calculated in accordance with GAAP, its operating environment and related tax legislation in effect and other factors deemed necessary. All fourth quarter and full year 2017 measures of the tax impact related to non-GAAP net income and non-GAAP diluted earnings per share included in this news release are calculated under Blackbaud's historical methodology.

Blackbaud uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Blackbaud's ongoing operational performance. Blackbaud believes that these non-GAAP financial measures reflect the Blackbaud's ongoing business in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business. In addition, Blackbaud believes that the use of these non-GAAP financial measures provides additional information for investors to use in evaluating ongoing operating results and trends and in comparing its financial results from period-to-period with other companies in Blackbaud's industry, many of which present similar non-GAAP financial measures to investors. However, these non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to differences in the exact method of calculation between companies. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures.

5
Blackbaud, Inc.
Consolidated balance sheets
(Unaudited)


(dollars in thousands)
December 31,
2017

December 31,
2016

Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
29,830

$
16,902

Restricted cash due to customers
610,344

353,771

Accounts receivable, net of allowance of $5,141 and $3,291 at December 31, 2017 and December 31, 2016, respectively
96,293

88,932

Customer funds receivable
1,536

—

Prepaid expenses and other current assets
56,099

48,314

Total current assets
794,102

507,919

Property and equipment, net
42,243

50,269

Software development costs, net
54,098

37,582

Goodwill
530,249

438,240

Intangible assets, net
314,651

253,676

Other assets
24,083

22,524

Total assets
$
1,759,426

$
1,310,210

Liabilities and stockholders’ equity
 
 
Current liabilities:
 
 
Trade accounts payable
$
24,693

$
23,274

Accrued expenses and other current liabilities
54,399

54,196

Due to customers
611,880

353,771

Debt, current portion
8,576

4,375

Deferred revenue, current portion
276,456

244,500

Total current liabilities
976,004

680,116

Debt, net of current portion
429,648

338,018

Deferred tax liability
37,597

29,558

Deferred revenue, net of current portion
3,643

6,440

Other liabilities
5,632

8,533

Total liabilities
1,452,524

1,062,665

Commitments and contingencies
 
 
Stockholders’ equity:
 
 
Preferred stock; 20,000,000 shares authorized, none outstanding
—

—

Common stock, $0.001 par value; 180,000,000 shares authorized, 58,551,761 and 57,672,401 shares issued at December 31, 2017 and December 31, 2016, respectively
59

58

Additional paid-in capital
351,042

310,452

Treasury stock, at cost; 10,475,794 and 10,166,801 shares at December 31, 2017 and December 31, 2016, respectively
(239,199
)
(215,237
)
Accumulated other comprehensive loss
(649
)
(457
)
Retained earnings
195,649

152,729

Total stockholders’ equity
306,902

247,545

Total liabilities and stockholders’ equity
$
1,759,426

$
1,310,210




6
Blackbaud, Inc.
Consolidated statements of comprehensive income
(Unaudited)


(dollars in thousands, except per share amounts)
Three months ended 
 December 31,
 
 
Years ended 
 December 31,
 
2017

2016

 
2017

2016

Revenue
 
 
 
 
 
Subscriptions
$
151,942

$
122,657

 
$
522,865

$
428,987

Maintenance
29,982

35,927

 
128,166

146,946

Services and other
35,053

39,721

 
137,275

154,882

Total revenue
216,977

198,305

 
788,306

730,815

Cost of revenue
 
 
 
 
 
Cost of subscriptions
72,404

60,111

 
242,740

213,883

Cost of maintenance
5,422

5,547

 
22,973

22,094

Cost of services and other
24,596

26,744

 
96,191

103,243

Total cost of revenue
102,422

92,402

 
361,904

339,220

Gross profit
114,555

105,903

 
426,402

391,595

Operating expenses
 
 
 
 
 
Sales, marketing and customer success
44,131

40,047

 
173,525

155,754

Research and development
22,264

21,897

 
89,911

89,870

General and administrative
27,520

19,242

 
94,870

81,331

Amortization
1,107

693

 
3,271

2,840

Restructuring
794

—

 
794

—

Total operating expenses
95,816

81,879

 
362,371

329,795

Income from operations
18,739

24,024

 
64,031

61,800

Interest expense
(3,412
)
(2,546
)
 
(12,097
)
(10,583
)
Other income (expense), net
679

(106
)
 
2,260

(291
)
Income before provision for income taxes
16,006

21,372

 
54,194

50,926

Income tax (benefit) provision
(14,703
)
4,088

 
(11,739
)
9,411

Net income
$
30,709

$
17,284

 
$
65,933

$
41,515

Earnings per share
 
 
 
 
 
Basic
$
0.66

$
0.37

 
$
1.41

$
0.90

Diluted
$
0.64

$
0.36

 
$
1.38

$
0.88

Common shares and equivalents outstanding
 
 
 
 
 
Basic weighted average shares
46,794,744

46,272,031

 
46,669,440

46,132,389

Diluted weighted average shares
48,014,250

47,436,116

 
47,775,702

47,316,538

Dividends per share
$
0.12

$
0.12

 
$
0.48

$
0.48

Other comprehensive income (loss)
 
 
 
 
 
Foreign currency translation adjustment
(476
)
63

 
(943
)
324

Unrealized gain on derivative instruments, net of tax
840

422

 
751

44

Total other comprehensive income (loss)
364

485

 
(192
)
368

Comprehensive income
$
31,073

$
17,769

 
$
65,741

$
41,883


7
Blackbaud, Inc.
Consolidated statements of cash flows
(Unaudited)


 
Years ended 
 December 31,
 
(dollars in thousands)
2017

2016

Cash flows from operating activities
 
 
Net income
$
65,933

$
41,515

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
73,948

70,491

Provision for doubtful accounts and sales returns
11,686

3,730

Stock-based compensation expense
40,631

32,638

Deferred taxes
(14,328
)
3,033

Amortization of deferred financing costs and discount
838

958

Other non-cash adjustments
504

(864
)
Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
 
 
Accounts receivable
(15,750
)
(13,196
)
Prepaid expenses and other assets
(6,149
)
(2,478
)
Trade accounts payable
1,024

3,689

Accrued expenses and other liabilities
(4,973
)
(751
)
Deferred revenue
22,926

14,863

Net cash provided by operating activities
176,290

153,628

Cash flows from investing activities
 
 
Purchase of property and equipment
(10,208
)
(17,694
)
Capitalized software development costs
(28,345
)
(26,359
)
Purchase of net assets of acquired companies, net of cash and restricted cash acquired
(146,789
)
(3,377
)
Purchase of derivative instruments
(568
)
—

Proceeds from settlement of derivative instruments
1,030

—

Net cash used in investing activities
(184,880
)
(47,430
)
Cash flows from financing activities
 
 
Proceeds from issuance of debt
774,500

227,200

Payments on debt
(679,119
)
(293,575
)
Debt issuance costs
(3,085
)
—

Employee taxes paid for withheld shares upon equity award settlement
(23,962
)
(15,376
)
Proceeds from exercise of stock options
15

16

Change in due to customers
226,717

96,000

Change in customer funds receivable
6,644

—

Dividend payments to stockholders
(23,069
)
(22,811
)
Net cash provided by (used in) financing activities
278,641

(8,546
)
Effect of exchange rate on cash, cash equivalents, and restricted cash
(550
)
2,622

Net increase in cash, cash equivalents, and restricted cash
269,501

100,274

Cash, cash equivalents, and restricted cash, beginning of year
370,673

270,399

Cash, cash equivalents, and restricted cash, end of year
$
640,174

$
370,673

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 consolidated statements of cash flows:
(dollars in thousands)
December 31,
2017

December 31,
2016

Cash and cash equivalents
$
29,830

$
16,902

Restricted cash due to customers
610,344

353,771

Total cash, cash equivalents and restricted cash in the statement of cash flows
640,174

370,673


8
Blackbaud, Inc.
Reconciliation of GAAP to non-GAAP financial measures
(Unaudited)

(dollars in thousands, except per share amounts)
Three months ended 
 December 31,
 
 
Years ended 
 December 31,
 
2017

2016

 
2017

2016

GAAP Revenue
$
216,977

$
198,305

 
$
788,306

$
730,815

Non-GAAP adjustments:
 
 
 
 
 
Add: Acquisition-related deferred revenue write-down
1,799

—

 
2,496

3,639

Non-GAAP revenue
$
218,776

$
198,305

 
$
790,802

$
734,454

 
 
 
 
 
 
GAAP gross profit
$
114,555

$
105,903

 
$
426,402

$
391,595

GAAP gross margin
52.8
%
53.4
%
 
54.1
%
53.6
%
Non-GAAP adjustments:
 
 
 
 
 
Add: Acquisition-related deferred revenue write-down
1,799

—

 
2,496

3,639

Add: Stock-based compensation expense
795

694

 
3,470

3,297

Add: Amortization of intangibles from business combinations
10,196

9,888

 
40,099

39,558

Add: Employee severance
21

222

 
994

382

Add: Acquisition-related integration costs
—

—

 
86

—

Subtotal
12,811

10,804

 
47,145

46,876

Non-GAAP gross profit
$
127,366

$
116,707

 
$
473,547

$
438,471

Non-GAAP gross margin
58.2
%
58.9
%
 
59.9
%
59.7
%
 
 
 
 
 
 
GAAP income from operations
$
18,739

$
24,024

 
$
64,031

$
61,800

GAAP operating margin
8.6
%
12.1
%
 
8.1
%
8.5
%
Non-GAAP adjustments:
 
 
 
 
 
Add: Acquisition-related deferred revenue write-down
1,799

—

 
2,496

3,639

Add: Stock-based compensation expense
9,576

7,633

 
40,631

32,638

Add: Amortization of intangibles from business combinations
11,303

10,581

 
43,370

42,398

Add: Employee severance
1,351

1,522

 
4,345

1,995

Add: Acquisition-related integration costs
353

—

 
966

1,419

Add: Acquisition-related expenses
2,063

36

 
5,914

301

Add: Restructuring costs
794

—

 
794

—

Subtotal
27,239

19,772

 
98,516

82,390

Non-GAAP income from operations
$
45,978

$
43,796

 
$
162,547

$
144,190

Non-GAAP operating margin
21.0
%
22.1
%
 
20.6
%
19.6
%
 
 
 
 
 
 
GAAP income before provision for income taxes
$
16,006

$
21,372

 
$
54,194

$
50,926

GAAP net income
$
30,709

$
17,284

 
$
65,933

$
41,515

 
 
 
 
 
 
Shares used in computing GAAP diluted earnings per share
48,014,250

47,436,116

 
47,775,702

47,316,538

GAAP diluted earnings per share
$
0.64

$
0.36

 
$
1.38

$
0.88

 
 
 
 
 
 
Non-GAAP adjustments:
 
 
 
 
 
Add: GAAP income tax (benefit) provision
(14,703
)
4,088

 
(11,739
)
9,411

Add: Total non-GAAP adjustments affecting income from operations
27,239

19,772

 
98,516

82,390

Add (less): Loss (gain) on derivative instrument
10

—

 
(462
)
—

Add: Loss on debt extinguishment
—

—

 
299

—

Non-GAAP income before provision for income taxes
43,255

41,144

 
152,547

133,316

Assumed non-GAAP income tax provision (32%)
13,841

13,166

 
$
48,815

$
42,661

Non-GAAP net income
$
29,414

$
27,978

 
$
103,732

$
90,655

 
 
 
 
 
 
Shares used in computing non-GAAP diluted earnings per share
48,014,250

47,436,116

 
47,775,702

47,316,538

Non-GAAP diluted earnings per share
$
0.61

$
0.59

 
$
2.17

$
1.92


9
Blackbaud, Inc.
Reconciliation of GAAP to Non-GAAP financial measures (continued)
(Unaudited)


(dollars in thousands)
Three months ended 
 December 31,
 
 
Years ended 
 December 31,
 
2017

2016

 
2017

2016

Detail of certain non-GAAP adjustments:
 
 
 
 
 
Stock-based compensation expense:
 
 
 
 
 
Included in cost of revenue:
 
 
 
 
 
Cost of subscriptions
$
291

$
264

 
$
1,254

$
1,168

Cost of maintenance
79

117

 
373

508

Cost of services and other
425

313

 
1,843

1,621

Total included in cost of revenue
795

694

 
3,470

3,297

Included in operating expenses:
 
 
 
 
 
Sales, marketing and customer success
1,475

872

 
6,381

3,844

Research and development
1,888

1,593

 
7,765

6,467

General and administrative
5,418

4,474

 
23,015

19,030

Total included in operating expenses
8,781

6,939

 
37,161

29,341

Total stock-based compensation expense
$
9,576

$
7,633

 
$
40,631

$
32,638

 
 
 
 
 
 
Amortization of intangibles from business combinations:
 
 
 
 
 
Included in cost of revenue:
 
 
 
 
 
Cost of subscriptions
$
8,300

$
7,816

 
$
32,399

$
31,270

Cost of maintenance
1,287

1,331

 
5,158

5,327

Cost of services and other
609

741

 
2,542

2,961

Total included in cost of revenue
10,196

9,888

 
40,099

39,558

Included in operating expenses
1,107

693

 
3,271

2,840

Total amortization of intangibles from business combinations
$
11,303

$
10,581

 
$
43,370

$
42,398




10
Blackbaud, Inc.
Reconciliation of GAAP to Non-GAAP financial measures (continued)
(Unaudited)


(dollars in thousands)
Three months ended 
 December 31,
 
 
Years ended 
 December 31,
 
2017

2016

 
2017

2016

GAAP revenue
$
216,977

$
198,305

 
$
788,306

$
730,815

GAAP revenue growth
9.4
%
 
 
7.9
%
 
(Less) Add: Non-GAAP acquisition-related revenue (1)
(9,879
)
—

 
(13,927
)
3,639

Total Non-GAAP adjustments
(9,879
)
—

 
(13,927
)
3,639

Non-GAAP revenue (2)
$
207,098

$
198,305

 
$
774,379

$
734,454

Non-GAAP organic revenue growth
4.4
%
 
 
5.4
%
 
 
 
 
 
 
 
Non-GAAP revenue (2)
$
207,098

$
198,305

 
$
774,379

$
734,454

Foreign currency impact on non-GAAP revenue (3)
(814
)
—

 
(29
)
—

Non-GAAP revenue on constant currency basis (3)
$
206,284

$
198,305

 
$
774,350

$
734,454

Non-GAAP organic revenue growth on constant currency basis
4.0
%
 
 
5.4
%
 
 
 
 
 
 
 
GAAP subscriptions revenue
$
151,942

$
122,657

 
$
522,865

$
428,987

GAAP subscriptions revenue growth
23.9
%
 
 
21.9
%
 
(Less) Add: Non-GAAP acquisition-related revenue (1)
(9,368
)
—

 
(13,117
)
3,534

Total Non-GAAP adjustments
(9,368
)
—

 
(13,117
)
3,534

Non-GAAP organic subscriptions revenue
$
142,574

$
122,657

 
$
509,748

$
432,521

Non-GAAP organic subscriptions revenue growth
16.2
%
 
 
17.9
%
 
 
 
 
 
 
 
GAAP subscriptions revenue
$
151,942

$
122,657

 
$
522,865

$
428,987

GAAP maintenance revenue
$
29,982

$
35,927

 
128,166

146,946

GAAP recurring revenue
$
181,924

$
158,584

 
$
651,031

$
575,933

GAAP recurring revenue growth
14.7
%
 
 
13.0
%
 
(Less) Add: Non-GAAP acquisition-related revenue (1)
(9,368
)
—

 
(13,117
)
3,625

Total Non-GAAP adjustments
(9,368
)
—

 
(13,117
)
3,625

Non-GAAP recurring revenue
$
172,556

$
158,584

 
$
637,914

$
579,558

Non-GAAP organic recurring revenue growth
8.8
%
 
 
10.1
%
 
(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 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.

(dollars in thousands)
Years ended 
 December 31,
 
2017

2016

GAAP net cash provided by operating activities
$
176,290

$
153,628

Less: purchase of property and equipment
(10,208
)
(17,694
)
Less: capitalized software development costs
(28,345
)
(26,359
)
Non-GAAP free cash flow
$
137,737

$
109,575



11