Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BLKB > SEC Filings for BLKB > Form 10-Q on 4-Nov-2013All Recent SEC Filings

Show all filings for BLACKBAUD INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for BLACKBAUD INC


4-Nov-2013

Quarterly Report


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 consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current view with respect to future events and financial performance and are subject to risks and uncertainties, including those set forth under "Safe Harbor Cautionary Statement" at the beginning of this report and elsewhere in this report, that could cause actual results to differ materially from historical or anticipated results. Except as required by law, we do not intend, and undertake no obligation to revise or update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Executive summary
We provide cloud-based and on-premise software solutions and related services designed specifically for nonprofit organizations. Our products and services enable nonprofit organizations to increase donations, reduce fundraising costs, improve communications with constituents, manage their finances and optimize internal operations. We continue to make investments in our product portfolio and go-to-market organization to ensure we are properly positioned to benefit from shifts in the market, including demand for our subscription-based offerings. As of September 30, 2013, we had over 29,000 active customers distributed across multiple verticals within the nonprofit market including education, foundations, health and human services, religion, arts and cultural, public and societal benefits, environment and animal welfare, as well as international foreign affairs.
We derive revenue from charging for the use of our software products in a hosted environment, selling perpetual licenses and providing a broad offering of services, including consulting, training, installation and implementation services, as well as ongoing customer support and maintenance. Consulting, training and implementation are generally not essential to the functionality of our software products and are sold separately. Furthermore, we derive revenue from providing hosting services, performing donor prospect research engagements, selling lists of potential donors, and providing transaction processing services, benchmarking studies and data modeling services.

In August 2013, we announced that Anthony Boor, Senior Vice President and Chief Financial Officer of Blackbaud, had been named to the additional role of Interim President and Chief Executive Officer until a permanent CEO is appointed. Mr. Boor has continued to maintain his responsibilities as CFO. Our Board of Directors has a search underway for a permanent CEO.
We completed our acquisition of Convio in May 2012 for $335.7 million in consideration. We have included the results of operations of Convio in our consolidated results of operations from the date of acquisition, which impacts the comparability of our results of operations for the nine months ended September 30, 2013 and 2012. Because we have integrated a substantial amount of the Convio operations and have made product rationalization decisions, it is not possible to determine the revenue and operating costs attributable solely to the acquired business.
Overall, revenue for the three and nine months ended September 30, 2013 increased 4% and 13% when compared to the same periods in 2012, respectively. These increases were primarily the result of growth in demand for our online and hosted solutions, including Luminate Online, as our business continues to shift towards subscription-based offerings. An increase in the volume of transactions for which we process payments also contributed to the increase in subscription revenue. Services revenue increased during the nine months ended September 30, 2013 primarily due to growth in consulting service revenue, driven by the inclusion of Convio. License revenue decreased during the three and nine months ended September 30, 2013 when compared to the same periods in 2012 as a result of a smaller contribution of revenue from sales of our offerings under perpetual license arrangements as well as the continued shift in our business from perpetual license-based offerings to subscription-based offerings. Income from operations for the three and nine months ended September 30, 2013 increased by $11.8 million and $27.3 million when compared to the same periods in 2012, respectively. These increases in income from operations were primarily attributable to the inclusion of Convio's subscription-based offerings, which have historically yielded higher gross margins than our historical subscription-based offerings, an increase in demand for our online fundraising offerings and our payment processing services, which have also historically yielded higher gross margins than our other offerings and a reduction in costs from improved operational efficiencies as we integrated the Convio operations. Also contributing to the increases in income from operations for the three and nine months ended September 30, 2013 compared to the same periods in 2012 were net decreases of $2.0 million and $5.3 million, respectively, in costs associated with our acquisition of Convio related to transaction


Table of Contents

Blackbaud, Inc.
Item 2. Management's discussion and analysis of financial condition and results
of operations (continued)

and integration costs and amortization of acquired intangibles as well as decreases of $0.3 million and $2.9 million, respectively, in costs related to strategic investments we made during 2012 for our business optimization efforts and the re-engineering of our accounting processes. These increases in income from operations were partially offset by $1.0 million and $2.1 million of incremental costs incurred during the three and nine months ended September 30, 2013, respectively, associated with our CEO search and CEO severance. At September 30, 2013, our cash and cash equivalents were $16.7 million and outstanding borrowings on our credit facility were $173.7 million. During the nine months ended September 30, 2013, we generated $78.0 million in cash flow from operations, paid $16.5 million in dividends, used $13.4 million to purchase computer equipment and software and reduced our debt balance by $41.8 million. During the three months ended September 30, 2013, we continued to experience growth in overall revenue primarily driven by the inclusion of Convio's product offerings and the growing demand for our subscription-based offerings. However, we continue to believe that the pace and impact of economic recovery on the nonprofit market remains uncertain. Notwithstanding these conditions, we plan to further increase our focus on subscription-based offerings as we execute on our key growth initiatives and strengthen our leadership position, while achieving our targeted level of profitability. In the near term, we anticipate there will continue to be a dilutive impact on our profitability as we invest in our product portfolio to meet demand for our subscription offerings and shift from a perpetual license-based model, with upfront revenue recognition to a subscription-based model, with recognition of revenue occurring ratably over the subscription term.
We also plan to continue to invest in our product, sales and marketing organizations and our back-office processes; the infrastructure that supports our subscription-based offerings and certain product development initiatives to achieve optimal scalability of our operations as we execute on our key growth initiatives.
Comparison of the three and nine months ended September 30, 2013 and 2012 Results of operations
We completed the acquisition of Convio on May 4, 2012. Because we have integrated a substantial amount of the Convio operations and have made product rationalization decisions, it is not possible to determine the revenue and operating costs attributable solely to the acquired business.
We have included the results of operations of Convio in our consolidated results of operations from the date of acquisition, which impacts the comparability of our results of operations for the nine months ended September 30, 2013 and 2012. We have noted in the discussion below, to the extent meaningful, the impact on the comparability of our consolidated results of operations due to the inclusion of Convio.
Revenue by segment
The table below compares revenue by segment for the three and nine months ended September 30, 2013, with the same periods in 2012.

                      Three months ended                                     Nine months ended
                           September 30,                                         September 30,
(in millions)          2013         2012       Change     % Change           2013         2012      Change     % Change
ECBU             $     49.3     $   46.2     $    3.1            7 %   $    143.2     $  121.7     $  21.5           18 %
GMBU                   55.8         54.7          1.1            2 %        164.7        148.2        16.5           11 %
IBU                    10.8         10.6          0.2            2 %         30.8         29.6         1.2            4 %
Target Analytics       12.0         11.0          1.0            9 %         30.2         27.9         2.3            8 %
Other                     -            -            -            - %            -            -           -            - %
Total revenue    $    127.9     $  122.5     $    5.4            4 %   $    368.9     $  327.4     $  41.5           13 %

The increases in revenue for ECBU and GMBU during the three and nine months ended September 30, 2013 when compared to the same periods in 2012 were primarily attributable to growth in subscriptions revenue as a result of the inclusion of Luminate Online, previously a Convio product, and an increase in the volume of transactions for which we process payments. Also contributing to the growth in GMBU revenue was the continued increase in demand for our online and hosted solutions as our


Table of Contents

Blackbaud, Inc.
Item 2. Management's discussion and analysis of financial condition and results
of operations (continued)

business shifts towards subscription-based offerings. Also contributing to the growth in ECBU revenue was an increase in revenue from our Blackbaud CRM hosting services.

IBU revenue increased during the three and nine months ended September 30, 2013 when compared to the same periods in 2012 primarily due to incremental subscriptions revenue. The growth in IBU subscriptions revenue was primarily attributable to an increase in demand for our online and hosted fundraising solutions including eTapestry, Everyday Hero and the Raiser's Edge. Also contributing to the increase in IBU subscriptions revenue was an increase in variable transaction fees associated with the use of our products to fundraise online.

Target Analytics revenue growth during the three and nine months ended September 30, 2013 when compared to the same periods in 2012 was primarily the result of an increase in demand for our prospect research offerings and improved sales execution driven by our new sales leadership team. Operating results

License fees
                          Three months ended September 30,                                       Nine months ended September 30,
(in millions)               2013                      2012      Change     % Change                 2013                    2012      Change     % Change
License fees
revenue          $           3.8           $           4.5     $  (0.7 )        (16 )%   $          12.8         $          16.2     $  (3.4 )        (21 )%
Cost of license
fees                         0.5                       0.7        (0.2 )        (29 )%               1.9                     2.2        (0.3 )        (14 )%
License fees
gross profit     $           3.3           $           3.8     $  (0.5 )        (13 )%   $          10.9         $          14.0     $  (3.1 )        (22 )%
 License fees
gross margin                  87 %                      84 %                                          85 %                    86 %

We derive license fees revenue from the sale of our software products under a perpetual license agreement. During the three and nine months ended September 30, 2013, revenue from license fees decreased as a result of smaller contributions of revenue from our Blackbaud CRM, Education Edge and Raiser's Edge offerings when compared to the same periods in 2012. Our larger perpetual license transactions, such as those for Blackbaud CRM, have long sales cycles and their timing can result in significant period-to-period variations in revenue. Additionally, we continue to meet the demand of our emerging and mid-sized customers' that increasingly prefer subscription-based hosted applications instead of solutions offered under traditional on-premise perpetual license arrangements. Also contributing to the decreases in revenue from license fees was a change in presentation from gross to net for revenue and costs associated with certain third-party software arrangements that had changes in contractual terms effective January 2013. The net revenue attributable to these third-party software arrangements has been included in "Other revenue" for 2013. Cost of license fees is primarily comprised of third-party software royalties, variable reseller commissions, amortization of software development costs and amortization of intangibles from business combinations. The decrease in cost of license fees during the three and nine months ended September 30, 2013 when compared to the same periods in 2012 was primarily due to a decrease in third-party software royalties resulting from a change in presentation from gross to net for revenue and costs associated with certain third-party software arrangements that had changes in contractual terms effective January 2013. The increase in license fees gross margin for the three months ended September 30, 2013 when compared to the same period in 2012 was primarily due to the large reduction in third-party software royalties recorded in cost of license fees relative to the decrease in license fees revenue, which resulted from the change in presentation from gross to net for revenue and costs discussed above. License fees gross margin for the nine months ended September 30, 2013 when compared to the same period in 2012 remained relatively unchanged.


Table of Contents

                                Blackbaud, Inc.
Item 2. Management's discussion and analysis of financial condition and results
                           of operations (continued)


Subscriptions
                                                                                         Nine months ended September
                        Three months ended September 30,                                                         30,
(in millions)               2013                    2012       Change     % Change           2013               2012      Change     % Change
Subscriptions
revenue          $          52.0         $          47.4     $    4.6           10 %   $    151.8         $    113.4     $  38.4           34 %
Cost of
subscriptions               21.5                    19.6          1.9           10 %         63.5               49.2        14.3           29 %
Subscriptions
gross profit     $          30.5         $          27.8     $    2.7           10 %   $     88.3         $     64.2     $  24.1           38 %
 Subscriptions
gross margin                  59 %                    59 %                                     58 %               57 %

Revenue from subscriptions is primarily comprised of revenue from charging for the use of our software products, which includes providing access to hosted applications and hosting services, access to certain data services and our online subscription training offerings, as well as revenue from variable transaction fees associated with the use of our products to fundraise online. We continue to experience growth in sales of our hosted applications and hosting services as we meet the demand of our emerging and mid-sized customers that increasingly prefer subscription-based offerings.

The increase in subscriptions revenue during the three and nine months ended September 30, 2013 when compared to the same periods in 2012 was primarily attributable to an increase in demand for our online fundraising offerings, including Luminate Online, previously a Convio product. Also contributing to the growth in subscriptions revenue was an increase in the volume of transactions for which we process payments.
Cost of subscriptions is primarily comprised of human resource costs, stock-based compensation expense, third-party royalty and data expenses, hosting expenses, allocated depreciation, facilities and IT support costs, amortization of intangibles from business combinations and other costs incurred in providing support and services to our customers. The increase in cost of subscriptions during the three and nine months ended September 30, 2013 when compared to the same periods in 2012 was primarily attributable to increases in amortization of intangibles from business combinations, hosting costs, human resource costs and allocated depreciation, facilities and IT support costs.
Amortization of intangibles from business combinations increased by $0.6 million and $6.2 million during the three and nine months ended September 30, 2013 when compared to the same periods in 2012, respectively. The increase in amortization expense during the three months ended September 30, 2013 when compared to the same period in 2012 was primarily the result of an adjustment to the purchase price allocation for Convio recorded during the three months ended September 30, 2012. The increase in amortization during the nine months ended September 30, 2013 when compared to the same period in 2012 was primarily due to the inclusion of Convio.
Hosting costs increased by $1.0 million and $2.9 million during the three and nine months ended September 30, 2013 when compared to the same periods in 2012, respectively. Human resource costs increased $0.5 million and $2.3 million during the three and nine months ended September 30, 2013 when compared to the same periods in 2012, respectively. Allocated depreciation, facilities and IT support costs increased by $0.4 million and $2.4 million, respectively, during the three and nine months ended September 30, 2013 when compared to the same periods in 2012. The increases in hosting costs, human resource costs and allocated depreciation, facilities and IT support costs during the three months ended September 30, 2013 when compared to the same period in 2012 were primarily a result of investments made to support anticipated growth in our subscription-based offerings. The increases in these costs during the nine months ended September 30, 2013 when compared to the same period in 2012 were primarily due to the inclusion of Convio.
Subscriptions gross margin for the three months ended September 30, 2013 when compared to the same period in 2012 remained relatively unchanged. The increase in subscriptions gross margin for the nine months ended September 30, 2013 when compared to the same period in 2012 was primarily a result of the inclusion of Convio's subscription-based offerings for the full nine month period in 2013 compared to only five months in 2012, which have historically yielded higher gross margins than our historical subscription-based offerings. Also contributing to the increase in subscriptions gross margin was an increase in transaction revenue associated with our payment processing services, which have also historically yielded higher gross margins than our other offerings. Partially offsetting these increases in subscriptions gross margin were investments we have made to support anticipated growth in our subscription-based offerings.


Table of Contents

                                Blackbaud, Inc.
Item 2. Management's discussion and analysis of financial condition and results
                           of operations (continued)


Services
                        Three months ended September 30,                                        Nine months ended September 30,
(in millions)               2013                    2012       Change     % Change                 2013                    2012      Change     % Change
Services revenue $          35.4         $          34.5     $    0.9            3  %   $          95.6         $          90.2     $   5.4            6  %
Cost of services            26.1                    26.4         (0.3 )         (1 )%              78.0                    71.8         6.2            9  %
Services gross
profit           $           9.3         $           8.1     $    1.2           15  %   $          17.6         $          18.4     $  (0.8 )         (4 )%
 Services gross
margin                        26 %                    23 %                                           18 %                    20 %

We derive services revenue from consulting, installation, implementation, education and analytic services. Consulting, installation and implementation services involve converting data from a customer's existing system, assistance in file set up and system configuration, and/or process re-engineering. Education services involve customer training activities. Analytic services are comprised of donor prospect research, sales of lists of potential donors, benchmarking studies and data modeling services. These 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. We typically recognize services revenue upon delivery. We also recognize the direct and incremental costs associated with consulting services revenue as earned. However, we continue to expense indirect costs in the period the implementation services are provided. We recognize the revenue for upfront activation fees ratably over the estimated period the customer benefits from those services. The increase in services revenue during the three months ended September 30, 2013 when compared to the same period in 2012 was primarily attributable to an increase of $0.4 million in education services revenue in the 2013 period as well as the write down of $0.4 million of Convio's deferred revenue balance during the 2012 period. The increases in revenue were the result of higher demand for subscription-based training.
The increase in services revenue during the nine months ended September 30, 2013 when compared to the same period in 2012 was attributable to increases in consulting, analytic and education services revenue of $3.0 million, $1.1 and $1.3 million, respectively. Consulting services revenue increased primarily due to the inclusion of Convio for the full period in 2013 compared to only five months in 2012. Analytic services revenue increased primarily due to an increase in demand for our prospect research offerings and improved sales execution driven by our new sales leadership team. The volume of education services revenue increased due to higher demand for subscription-based training. Cost of services is primarily comprised of human resource costs, stock-based compensation expense, third-party contractor expenses, classroom rentals, costs incurred in providing customer training, data expense incurred to perform analytic services, allocated depreciation, facilities and IT support costs and amortization of intangibles from business combinations. The decrease in cost of services during the three months ended September 30, 2013 when compared to the same period in 2012 was primarily attributable to a decrease in human resource costs as a result of a reduction in headcount in connection with the realignment of our workforce, which began in January 2013 and improvements in organizational efficiencies from that realignment.
The increase in cost of services during the nine months ended September 30, 2013 when compared to the same period in 2012 was primarily attributable to an increase in human resource costs, amortization of intangibles from business combinations and allocated depreciation, facilities and IT support costs. Human resource costs increased $3.9 million primarily as a result of an increase in average headcount and merit-based salary increases. The increase in average headcount was primarily attributable to the inclusion of additional resources from Convio for the full period in 2013 compared to only five months in 2012. Allocated depreciation, facilities and IT support costs increased $1.2 million due to the inclusion of allocable costs from the Convio operations as well as investments we have made in our infrastructure to make our operations more scalable. Amortization of intangibles from business combinations increased $0.4 million due to the inclusion of Convio for the full period in 2013 compared to only five months in 2012.
Services gross margin increased for the three months ended September 30, 2013 when compared to the same period in 2012 primarily from increases in operational efficiencies. Services gross margin decreased for the nine months ended September 30, 2013 when compared to the same period in 2012 primarily due to increases in human resource costs and allocated costs outpacing the growth of services revenue. Since our acquisition of Convio in May 2012, we have made significant progress integrating operations and realizing gross margin synergies from the combination, which is reflected in the comparison of the three months ended September 30, 2013 to the 2012 period. While this trend is applicable to the nine months ended September


Table of Contents

                                Blackbaud, Inc.
Item 2. Management's discussion and analysis of financial condition and results
                           of operations (continued)


30, 2013, the impact is obscured by the inclusion in that period of nine months
of Convio operating results compared to only five months in the 2012 period.
Maintenance
                                                                                          Nine months ended September
                        Three months ended September 30,                                                          30,
(in millions)               2013                    2012       Change     % Change            2013               2012       Change     % Change
Maintenance
revenue          $          34.7         $          34.5     $    0.2            1  %   $    103.0         $    101.9     $    1.1            1 %
Cost of
maintenance                  6.7                     6.8         (0.1 )         (1 )%         19.1               18.9          0.2            1 %
Maintenance
gross profit     $          28.0         $          27.7     $    0.3            1  %   $     83.9         $     83.0     $    0.9            1 %
 Maintenance
gross margin                  81 %                    80 %                                      81 %               81 %

Revenue from maintenance is comprised of annual fees derived from maintenance contracts associated with new software licenses and annual renewals of existing . . .

  Add BLKB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BLKB - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.