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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, 2019

 
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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)
 
 
 
65 Fairchild Street, 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, 2019, Blackbaud, Inc. (the "Company") issued a press release reporting unaudited financial results for the quarter and fiscal year ended December 31, 2018. 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, 2019 reporting unaudited financial results for the quarter and fiscal year ended December 31, 2018.





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, 2019
 
 
/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 2018 Fourth Quarter and Full Year Results
Fourth Quarter Recurring Revenue Grows 5% Representing 90% of Total Revenue; Achieves Updated 2018 Financial Guidance Topping Profitability and Cash Estimates; Announces 2019 Financial Guidance

 
Charleston, S.C. (February 6, 2019) - Blackbaud (NASDAQ: BLKB), the world's leading cloud software company powering social good, today announced financial results for its fourth quarter and full year ended December 31, 2018.
    
"We had a solid finish to 2018 and we furthered our strategic initiatives to position the company for long-term success." said Mike Gianoni, Blackbaud's president and CEO. "We continued shifting the business towards a recurring revenue model, with our recurring revenue mix comprising 90% of total revenue in 2018. This was a banner year for Blackbaud innovation to digitally transform the markets we serve. The Blackbaud SKY platform has reached a level of maturity that enables us to bring new solutions to market like our entirely new Cloud Solution for Faith Based Communities, expanded Cloud Solution for Higher Education Institutions, and Nonprofit Resource Management, which is part of a joint initiative with Microsoft. And, we're rapidly advancing existing capabilities for our growing base of over 45,000 customers and millions of individual users worldwide."

Fourth Quarter 2018 Results Compared to Fourth Quarter 2017 Results:
•
Total GAAP revenue was $221.2 million, up 1.8%, with $199.9 million in GAAP recurring revenue, representing 90.4% of total GAAP revenue. GAAP recurring revenue was up 4.9%.
•
Total non-GAAP revenue was $221.8 million, up 1.2%, with $200.5 million in non-GAAP recurring revenue, representing 90.4% of total non-GAAP revenue. Non-GAAP recurring revenue was up 4.2%.
•
Non-GAAP organic recurring revenue increased 2.8%.
•
GAAP income from operations decreased 26.5% to $14.7 million, with GAAP operating margin decreasing 260 basis points to 6.6%.
•
Non-GAAP income from operations decreased 10.3% to $42.3 million, with non-GAAP operating margin decreasing 240 basis points to 19.1%.
•
GAAP net income decreased 74.5% to $9.3 million, with GAAP diluted earnings per share of $0.19, down $0.57.
•
Non-GAAP net income increased 3.5% to $31.3 million, with non-GAAP diluted earnings per share of $0.65, up $0.02.
•
Non-GAAP free cash flow was $50.7 million, an increase of 17.0%.

"Our fourth-quarter results allowed us to exceed the mid-point of our updated full year revenue guidance, and exceed the high-end of our updated ranges for both profitability and cash flow," said Tony Boor, Blackbaud's executive vice president and CFO. "In 2019, we expect the positive shift in revenue mix towards recurring revenue to continue, and from a profitability and cash flow perspective, 2019 is an investment year to further expand our selling footprint, drive cloud innovation for our customers, and ensure scalability in our business."

An explanation of all non-GAAP financial measures referenced in this press release is included below under the heading "Non-GAAP Financial Measures." A reconciliation of the company's non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.


 
 
 
 
 
 
 
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PRESS RELEASE
 
 

Recent Company Highlights:
•
The company introduced Blackbaud Purchase Cards and Expense Management in Blackbaud Financial Edge NXT®, helping social good organizations streamline financial processes and maximize mission delivery.
•
Blackbaud announced the results of a commissioned Total Economic Impact™ study conducted by Forrester Consulting, which examines the return on investment that arts and cultural organizations may experience by engaging Blackbaud Target Analytics.
•
Blackbaud announced the acquisition of YourCause™, a market leader in enterprise philanthropy, corporate social responsibility and employee engagement software, effective January 2, 2019.
•
Forbes recognized Blackbaud as one of America’s Best Employers for Diversity for the second consecutive year.
•
Blackbaud reported a new #GivingTuesday record, announcing that its systems processed more than $62.6 million from charitable organizations receiving donations in the United States on #GivingTuesday in the strongest year yet. Average gift sizes and mobile giving were up year over year, and online donations were also up again for the seventh year running.

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

Full-Year 2018 Results Compared to Full-Year 2017 Results:
•
Total GAAP revenue was $848.6 million, up 7.6%, with $762.2 million in GAAP recurring revenue, representing 89.8% of total GAAP revenue.
•
Total non-GAAP revenue was $851.0 million, up 7.6%, with $764.5 million in non-GAAP recurring revenue, representing 89.8% of total non-GAAP revenue. Non-GAAP recurring revenue was up 11.3%.
•
Non-GAAP organic recurring revenue increased 5.6%.
•
GAAP income from operations decreased 12.9% to $59.4 million, with GAAP operating margin decreasing 160 basis points to 7.0%.
•
Non-GAAP income from operations increased 2.3% to $170.5 million, with non-GAAP operating margin decreasing 110 basis points to 20.0%.
•
GAAP net income decreased 39.1% to $44.8 million, with GAAP diluted earnings per share down $0.61 to $0.93.
•
Non-GAAP net income increased 16.9% to $124.6 million, with non-GAAP diluted earnings per share up $0.36 to $2.59.
•
Non-GAAP free cash flow was $149.0 million, an increase of 8.2%.

Dividend
Blackbaud announced today that its Board of Directors has declared a first quarter 2019 dividend of $0.12 per share payable on March 15, 2019 to stockholders of record on February 27, 2019.

Financial Outlook
Blackbaud today announced its 2019 full year financial guidance, which includes the acquisition of YourCause:

•
Non-GAAP revenue of $880 million to $910 million
•
Non-GAAP operating margin of 16.7% to 17.2%
•
Non-GAAP diluted earnings per share of $2.11 to $2.28
•
Non-GAAP free cash flow of $124 million to $134 million


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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.

Reclassifications
Our revenue from "subscriptions" and "maintenance" and a portion of our "services and other" revenue have been combined within "recurring" revenue beginning in 2018. In order to provide comparability between periods presented, those amounts of revenue have been combined within "recurring" revenue in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period. Similarly, "cost of subscriptions" and "cost of maintenance" and a portion of "cost of services and other" have been combined within "cost of recurring" in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period. "Services and other" revenue has been renamed as "one-time services and other" and consists of revenue that did not meet the description of "recurring" revenue in the consolidated statements of comprehensive income. "Cost of services and other" has been renamed as "cost of one-time services and other" and consists of costs that did not meet the description of those related to "recurring" revenue in the consolidated statements of comprehensive income.

Adoption of New Revenue Accounting Standard
On January 1, 2018, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), using the full retrospective method of transition, which requires that the standard be applied to all periods presented. The impacts of adoption are reflected in the financial information herein. We have provided more detailed information regarding the impact of our adoption of ASU 2014-09 in a Form 8-K filed with the Securities and Exchange Commission on April 30, 2018. We have also made that information accessible via the Investor Relations section of our website.

Conference Call Details
What:    Blackbaud's Fourth Quarter and Full Year 2018 Conference Call
When:    February 7, 2019
Time:     8:00 a.m. (Eastern Time)
Live Call:     800-289-0462 (US/Canada); passcode 784893.
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, companies, education institutions, healthcare organizations and individual change agents—Blackbaud connects and empowers organizations to increase their impact through cloud software, services, expertise and data intelligence. The Blackbaud portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility, 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, or follow us on Twitter, LinkedIn, and Facebook.

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PRESS RELEASE
 
 

Investor Contact:
 
Media Contact:
 
Mark Furlong
 
Brian Kosoy
 
Director of Investor Relations
 
Director, External Affairs
 
843-654-2097
 
843-654-3004
 
mark.furlong@blackbaud.com
 
brian.kosoy@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 2019 full-year financial guidance. These statements involve a number of risks and uncertainties. Although Blackbaud attempts to be accurate in making these forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. In addition, other important factors that could cause results to differ materially include the following: management of integration of acquired companies; uncertainty regarding increased business and renewals from existing customers; a shifting revenue mix that may impact gross margin; continued success in sales growth; 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 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

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PRESS RELEASE
 
 

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.

As previously disclosed, beginning in 2018, Blackbaud applies a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share. The non-GAAP tax rate 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 2017 measures of non-GAAP net income and non-GAAP diluted earnings per share included in this news release are calculated under Blackbaud's historical non-GAAP effective tax rate of 32.0%.

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 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,
2018

December 31,
2017

Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
30,866

$
29,830

Restricted cash due to customers
418,980

610,344

Accounts receivable, net of allowance of $4,722 and $5,141 at December 31, 2018 and December 31, 2017, respectively
86,595

95,679

Customer funds receivable
1,753

1,536

Prepaid expenses and other current assets
59,788

61,978

Total current assets
597,982

799,367

Property and equipment, net
40,031

42,243

Software development costs, net
75,099

54,098

Goodwill
545,213

530,249

Intangible assets, net
291,617

314,651

Other assets
65,363

57,238

Total assets
$
1,615,305

$
1,797,846

Liabilities and stockholders’ equity
 
 
Current liabilities:
 
 
Trade accounts payable
$
34,538

$
24,693

Accrued expenses and other current liabilities
46,893

54,399

Due to customers
420,733

611,880

Debt, current portion
7,500

8,576

Deferred revenue, current portion
295,991

275,063

Total current liabilities
805,655

974,611

Debt, net of current portion
379,624

429,648

Deferred tax liability
44,291

48,023

Deferred revenue, net of current portion
2,564

3,643

Other liabilities
9,388

5,632

Total liabilities
1,241,522

1,461,557

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, 59,327,633 and 58,551,761 shares issued at December 31, 2018 and December 31, 2017, respectively
59

59

Additional paid-in capital
399,241

351,042

Treasury stock, at cost; 10,760,574 and 10,475,794 shares at December 31, 2018 and December 31, 2017, respectively
(266,884
)
(239,199
)
Accumulated other comprehensive loss
(5,110
)
(642
)
Retained earnings
246,477

225,029

Total stockholders’ equity
373,783

336,289

Total liabilities and stockholders’ equity
$
1,615,305

$
1,797,846




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,
 
2018

2017

 
2018

2017

Revenue
 
 
 
 
 
Recurring
$
199,930

$
190,641

 
$
762,181

$
684,583

One-time services and other
21,288

26,761

 
86,425

103,904

Total revenue
221,218

217,402

 
848,606

788,487

Cost of revenue
 
 
 
 
 
Cost of recurring
83,517

80,839

 
305,481

277,639

Cost of one-time services and other
19,779

21,583

 
76,261

84,265

Total cost of revenue
103,296

102,422

 
381,742

361,904

Gross profit
117,922

114,980

 
466,864

426,583

Operating expenses
 
 
 
 
 
Sales, marketing and customer success
49,801

43,336

 
192,848

169,559

Research and development
23,338

22,264

 
98,811

89,911

General and administrative
27,962

27,520

 
106,354

94,870

Amortization
1,137

1,107

 
4,844

3,271

Restructuring
1,005

794

 
4,590

794

Total operating expenses
103,243

95,021

 
407,447

358,405

Income from operations
14,679

19,959

 
59,417

68,178

Interest expense
(3,938
)
(3,412
)
 
(15,898
)
(12,097
)
Other income, net
744

679

 
1,103

2,260

Income before provision for income taxes
11,485

17,226

 
44,622

58,341

Income tax provision (benefit)
2,151

(19,412
)
 
(219
)
(15,292
)
Net income
$
9,334

$
36,638

 
$
44,841

$
73,633

Earnings per share
 
 
 
 
 
Basic
$
0.20

$
0.78

 
$
0.95

$
1.58

Diluted
$
0.19

$
0.76

 
$
0.93

$
1.54

Common shares and equivalents outstanding
 
 
 
 
 
Basic weighted average shares
47,300,931

46,794,744

 
47,206,669

46,669,440

Diluted weighted average shares
48,025,617

48,014,250

 
48,045,084

47,775,702

Dividends per share
$
0.12

$
0.12

 
$
0.48

$
0.48

Other comprehensive (loss) income
 
 
 
 
 
Foreign currency translation adjustment
(3,885
)
(484
)
 
(5,218
)
(789
)
Unrealized (loss) gain on derivative instruments, net of tax
(1,827
)
840

 
583

751

Total other comprehensive (loss) income
(5,712
)
356

 
(4,635
)
(38
)
Comprehensive income
$
3,622

$
36,994

 
$
40,206

$
73,595


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


 
Years ended 
 December 31,
 
(dollars in thousands)
2018

2017

Cash flows from operating activities
 
 
Net income
$
44,841

$
73,633

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
79,566

73,948

Provision for doubtful accounts and sales returns
6,890

11,686

Stock-based compensation expense
48,274

40,631

Deferred taxes
(619
)
(17,814
)
Amortization of deferred financing costs and discount
752

838

Other non-cash adjustments
(1,912
)
504

Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
 
 
Accounts receivable
2,166

(15,821
)
Prepaid expenses and other assets
(5,217
)
(9,550
)
Trade accounts payable
9,487

1,024

Accrued expenses and other liabilities
(2,027
)
(4,973
)
Deferred revenue
19,184

22,184

Net cash provided by operating activities
201,385

176,290

Cash flows from investing activities
 
 
Purchase of property and equipment
(14,719
)
(10,208
)
Capitalized software development costs
(37,629
)
(28,345
)
Purchase of net assets of acquired companies, net of cash and restricted cash acquired
(44,943
)
(146,789
)
Purchase of derivative instruments
—

(568
)
Proceeds from settlement of derivative instruments
—

1,030

Other investing activities
(500
)
—

Net cash used in investing activities
(97,791
)
(184,880
)
Cash flows from financing activities
 
 
Proceeds from issuance of debt
270,900

774,500

Payments on debt
(322,476
)
(679,119
)
Debt issuance costs
—

(3,085
)
Employee taxes paid for withheld shares upon equity award settlement
(27,685
)
(23,962
)
Proceeds from exercise of stock options
11

15

Change in due to customers
(188,502
)
226,717

Change in customer funds receivable
(844
)
6,644

Dividend payments to stockholders
(23,312
)
(23,069
)
Net cash provided by (used in) financing activities
(291,908
)
278,641

Effect of exchange rate on cash, cash equivalents, and restricted cash
(2,014
)
(550
)
Net (decrease) increase in cash, cash equivalents, and restricted cash
(190,328
)
269,501

Cash, cash equivalents, and restricted cash, beginning of year
640,174

370,673

Cash, cash equivalents, and restricted cash, end of year
$
449,846

$
640,174

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,
2018

December 31,
2017

Cash and cash equivalents
$
30,866

$
29,830

Restricted cash due to customers
418,980

610,344

Total cash, cash equivalents and restricted cash in the statement of cash flows
$
449,846

$
640,174


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,
 
2018

2017

 
2018

2017

GAAP Revenue
$
221,218

$
217,402

 
$
848,606

$
788,487

Non-GAAP adjustments:
 
 
 
 
 
Add: Acquisition-related deferred revenue write-down
571

1,799

 
2,409

2,496

Non-GAAP revenue
$
221,789

$
219,201

 
$
851,015

$
790,983

 
 
 
 
 
 
GAAP gross profit
$
117,922

$
114,980

 
$
466,864

$
426,583

GAAP gross margin
53.3
%
52.9
%
 
55.0
%
54.1
%
Non-GAAP adjustments:
 
 
 
 
 
Add: Acquisition-related deferred revenue write-down
571

1,799

 
2,409

2,496

Add: Stock-based compensation expense
1,232

795

 
5,242

3,470

Add: Amortization of intangibles from business combinations
10,545

10,196

 
42,233

40,099

Add: Employee severance
52

21

 
918

994

Add: Acquisition-related integration costs
—

—

 
25

86

Subtotal
12,400

12,811

 
50,827

47,145

Non-GAAP gross profit
$
130,322

$
127,791

 
$
517,691

$
473,728

Non-GAAP gross margin
58.8
%
58.3
%
 
60.8
%
59.9
%
 
 
 
 
 
 
GAAP income from operations
$
14,679

$
19,959

 
$
59,417

$
68,178

GAAP operating margin
6.6
%
9.2
%
 
7.0
%
8.6
%
Non-GAAP adjustments:
 
 
 
 
 
Add: Acquisition-related deferred revenue write-down
571

1,799

 
2,409

2,496

Add: Stock-based compensation expense
12,591

9,576

 
48,274

40,631

Add: Amortization of intangibles from business combinations
11,682

11,303

 
47,077

43,370

Add: Employee severance
533

1,351

 
2,246

4,345

Add: Acquisition-related integration costs
300

353

 
3,683

966

Add: Acquisition-related expenses
972

2,063

 
2,846

5,914

Add: Restructuring costs
1,005

794

 
4,590

794

Subtotal
27,654

27,239

 
111,125

98,516

Non-GAAP income from operations
$
42,333

$
47,198

 
$
170,542

$
166,694

Non-GAAP operating margin
19.1
%
21.5
%
 
20.0
%
21.1
%
 
 
 
 
 
 
GAAP income before provision for income taxes
$
11,485

$
17,226

 
$
44,622

$
58,341

GAAP net income
$
9,334

$
36,638

 
$
44,841

$
73,633

 
 
 
 
 
 
Shares used in computing GAAP diluted earnings per share
48,025,617

48,014,250

 
48,045,084

47,775,702

GAAP diluted earnings per share
$
0.19

$
0.76

 
$
0.93

$
1.54

 
 
 
 
 
 
Non-GAAP adjustments:
 
 
 
 
 
Add: GAAP income tax provision (benefit)
2,151

(19,412
)
 
(219
)
(15,292
)
Add: Total non-GAAP adjustments affecting income from operations
27,654

27,239

 
111,125

98,516

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

10

 
—

(462
)
Add: Loss on debt extinguishment
—

—

 
—

299

Non-GAAP income before provision for income taxes
39,139

44,475

 
155,747

156,694

Assumed non-GAAP income tax provision(1)
7,828

14,232

 
$
31,149

$
50,142

Non-GAAP net income
$
31,311

$
30,243

 
$
124,598

$
106,552

 
 
 
 
 
 
Shares used in computing non-GAAP diluted earnings per share
48,025,617

48,014,250

 
48,045,084

47,775,702

Non-GAAP diluted earnings per share
$
0.65

$
0.63

 
$
2.59

$
2.23

(1)
Beginning in 2018, Blackbaud applies a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share. The 2017 measures of non-GAAP net income and non-GAAP diluted earnings per share are calculated under Blackbaud's historical non-GAAP effective tax rate of 32.0%.

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,
 
2018

2017

 
2018

2017

GAAP revenue
$
221,218

$
217,402

 
$
848,606

$
788,487

GAAP revenue growth
1.8
%
 
 
7.6
%
 
(Less) Add: Non-GAAP acquisition-related revenue (1)
(2,117
)
1,799

 
(4,911
)
32,832

Total Non-GAAP adjustments
(2,117
)
1,799

 
(4,911
)
32,832

Non-GAAP organic revenue (2)
$
219,101

$
219,201

 
$
843,695

$
821,319

Non-GAAP organic revenue growth
—
%
 
 
2.7
%
 
 
 
 
 
 
 
Non-GAAP organic revenue (2)
$
219,101

$
219,201

 
$
843,695

$
821,319

Foreign currency impact on non-GAAP organic revenue (3)
1,057

—

 
(2,402
)
—

Non-GAAP organic revenue on constant currency basis (3)
$
220,158

$
219,201

 
$
841,293

$
821,319

Non-GAAP organic revenue growth on constant currency basis
0.4
%
 
 
2.4
%
 
 
 
 
 
 
 
GAAP recurring revenue
$
199,930

$
190,641

 
$
762,181

$
684,583

GAAP recurring revenue growth
4.9
%
 
 
11.3
%
 
(Less) Add: Non-GAAP acquisition-related revenue (1)
(2,116
)
1,754

 
(4,782
)
32,503

Total Non-GAAP adjustments
(2,116
)
1,754

 
(4,782
)
32,503

Non-GAAP organic recurring revenue
$
197,814

$
192,395

 
$
757,399

$
717,086

Non-GAAP organic recurring revenue growth
2.8
%
 
 
5.6
%
 
(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 organic revenue for the prior year periods presented herein may not agree to non-GAAP organic 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,
 
2018

2017

GAAP net cash provided by operating activities
$
201,385

$
176,290

Less: purchase of property and equipment
(14,719
)
(10,208
)
Less: capitalized software development costs
(37,629
)
(28,345
)
Non-GAAP free cash flow
$
149,037

$
137,737



10