Software as a service giant Blackbaud reported increases in total revenue and in organic growth during the first quarter of 2023 but showed a generally accepted accounting principles (GAAP) loss of $9.9 million, as the 2020 data breach continues to cause headaches.
Total revenue of $262 million for the quarter represented organic growth of 2.3%, and when adjusted for $3 million of negative foreign exchange impacts, organic growth at constant currency was 3.4%.
On an earnings call with investors this morning, Blackbaud President and CEO Mike Gianoni said the firm is raising financial guidance for the year. “We now anticipate organic revenue growth at constant currency of roughly 5.5%, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin at constant currency of 31%, and a Rule of 40 at constant currency of 36.5%, up 750 basis points versus 2022.”
The Rule of 40 is a principle that a software company’s combined revenue growth rate and profit margin should equal or exceed 40%. SaaS companies above 40% are generating profit at a rate that’s sustainable, whereas companies below 40% might face cash flow or liquidity issues.
According to Gianoni, “we expect to exit 2023 at an organic revenue growth rate in the high-single digits and Rule of 40 performance to cross the 40% line in the fourth quarter, well ahead of our prior target of 2025. And looking ahead to 2024, we expect continued revenue growth and margin expansion that supports a sustained Rule of 40 for the full year.”
Gianoni and Tony Boor, Blackaud’s executive vice president and CFO, presented the results during a pre-market open conference call with analysts. They cited increased product sales and bookings during the first quarter when compared to initial projections and to the first quarter of 2022. There was a 14% reduction in force. Blackbaud closed four data centers last year and will close two more this year.
Blackbaud is incentivizing customers to move from one-year contracts to three-year deals, with cost increases in years two and three. According to Gianoni, previous three-year deals did not have cost increases in years two and three. This is allowing for stronger multi-year revenue projections, he said.
Blackbaud also raised the price on payment system transactions on donations, which makes up roughly one-third of Blackbaud’s revenue. Its tuition management system and its events driven JustGiving platform have also had strong gains, according to Gianoni.
Interest expense for the year is expected to be approximately $37 million to $41 million and capital expenditures for the year are expected to be in the range of approximately $65 million to $75 million. The firm’s debt to equity ratio is roughly 115%.
Among the datapoints for the first quarter were:
* GAAP total revenue was $261.8 million, up 1.8%, with $252.7 million in GAAP recurring revenue, up 3.3%.
* Non-GAAP organic recurring revenue increased 3.8%.
* GAAP loss from operations was $9.9 million, inclusive of security incident-related costs of $17.8 million, with GAAP operating margin of negative 3.8%, a decrease of 150 basis points.
* Non-GAAP income from operations was $56.6 million, with non-GAAP operating margin of 21.6%, an increase of 470 basis points.
* GAAP net loss was $14.7 million, with GAAP diluted loss per share of 28 cents, down 8 cents per share.
* Non-GAAP net income was $38.3 million, with non-GAAP diluted earnings per share of $0.72, up $0.15 per share.
* Non-GAAP adjusted EBITDA was $71.3 million, up $14.1 million, with non-GAAP adjusted EBITDA margin of 27.2%, an increase of 500 basis points.
* GAAP net cash provided by operating activities was $21.8 million, a decrease of $2.7 million.
* Non-GAAP adjusted free cash flow was $15.7 million, an increase of $7.3 million, with non-GAAP adjusted free cash flow margin of 6%, an increase of 270 basis points.
The “security incident” refers to the 2020 data breach that impacted users worldwide. Blackbaud recently settled with the Securities and Exchange Commission for $3 million. The firm projects between $25 and $35 million in legal fees through the year due to legal issues caused by the breach.
Blackbaud shares are traded on NASDAQ with the symbol BLKB. The stock’s 52-week low was $43.54 and the high was $69.76. It closed Tuesday at $67.51, down $1.19 per share. It opened after the earnings call at $69 per share.
The stock price is up 14.7% year to date, boosted most recently by several takeover offers, including a $4 billion, $71-per-share offer from Clearlake Capital Group, Blackbaud’s largest shareholder. All of the attempts were rejected by Blackbaud’s board.
Here is a link to financial data …. https://bit.ly/3AP1yET
