Blackbaud(BLKB) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Blackbaud, Inc.'s unaudited condensed consolidated financial statements for Q1 2024, detailing financial position, performance, and cash flows, including a $5.2 million net income Q1 2024 vs Q1 2023 Financial Highlights | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Total Revenue | $279.3 | $261.8 | | Gross Profit | $153.0 | $138.6 | | Income (Loss) from Operations | $10.7 | $(9.9) | | Net Income (Loss) | $5.2 | $(14.7) | | Diluted EPS | $0.10 | $(0.28) | Balance Sheet Summary (as of March 31, 2024) | Account | Amount (in millions) | | :--- | :--- | | Total Assets | $2,549.1 | | Total Liabilities | $2,015.1 | | Total Stockholders' Equity | $534.1 | - In March 2024, the company divested its U.K.-based creative services business, EVERFI Limited, resulting in a recorded loss of $1.6 million[240] - The company repurchased 2,954,211 shares for $262.6 million during the quarter, with $259.7 million remaining available under the stock repurchase program as of March 31, 2024[184][308] - Subsequent to the quarter end, on April 30, 2024, the company refinanced its debt, entering into a new $1.5 billion credit facility, extending the maturity to 2029 and providing additional operational flexibility[376][81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a 6.7% YoY revenue increase to $279.3 million in Q1 2024, driven by recurring revenue growth and improved operating income Executive Summary This executive summary outlines Q1 2024 operational and financial results, highlighting innovation in AI, $17.5 million total revenue growth, and improved operating income - The company is accelerating innovation, focusing on generative AI and enhancing connectivity across its solution suite, with new AI capabilities released for Raiser's Edge NXT and JustGiving[181][353][7] - A modernized contract and pricing policy, initiated in 2022, is a key driver of revenue growth and is expected to impact approximately half of total company revenue in 2024[9][355] Q1 2024 vs Q1 2023 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $279.3M | $261.8M | +$17.5M | | Recurring Revenue | $271.5M | $252.7M | +$18.8M | | Income from Operations | $10.7M | $(9.9)M | +$20.7M | - Gross dollar retention for the twelve months ended March 31, 2024 was approximately 89%, slightly lower than the full year 2023 rate, primarily due to EVERFI[14] Results of Operations Q1 2024 saw total revenue increase 6.7% to $279.3 million, driven by recurring revenue growth and improved operating income due to reduced expenses Revenue by Type (Q1 2024 vs Q1 2023) | Revenue Type | Q1 2024 ($M) | Q1 2023 ($M) | YoY Growth | | :--- | :--- | :--- | :--- | | Recurring | $271.5 | $252.7 | +7.4% | | Contractual | $190.9 | $177.6 | +7.5% | | Transactional | $80.7 | $75.1 | +7.4% | | One-time services & other | $7.7 | $9.0 | -14.1% | | Total Revenue | $279.3 | $261.8 | +6.7% | - Sales, marketing and customer success expense decreased by $3.5 million (6.5%) due to lower commission expense and severance costs[54] - Research and development expenses increased by $2.2 million (5.4%), primarily due to higher compensation costs for security-related compliance resources[25] - General and administrative expense decreased by $5.1 million (9.6%), mainly driven by a $7.5 million reduction in Security Incident-related expenses[26] Non-GAAP Operating Results (Q1 2024 vs Q1 2023) | Metric | Q1 2024 ($M) | Q1 2023 ($M) | | :--- | :--- | :--- | | Non-GAAP Gross Profit | $171.5 | $156.4 | | Non-GAAP Income from Operations | $72.4 | $56.6 | | Non-GAAP Net Income | $49.5 | $38.3 | | Non-GAAP Diluted EPS | $0.93 | $0.72 | Liquidity and Capital Resources As of March 31, 2024, the company reported $26.4 million in cash, $1.04 billion in debt, and $64.6 million in operating cash flow, with significant stock repurchases and a post-quarter debt refinancing Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2024 ($M) | 2023 ($M) | | :--- | :--- | :--- | | Net cash provided by operating activities | $64.6 | $21.8 | | Net cash used in investing activities | $(14.5) | $(15.3) | | Net cash used in financing activities | $(394.6) | $(353.2) | - The company initiated a $200 million Accelerated Share Repurchase (ASR) transaction in March 2024, receiving an initial delivery of 2.1 million shares[76] - As of March 31, 2024, the company had total remaining principal debt payments of $1.0 billion and total contractual obligations of $1.46 billion[82][105] - On April 30, 2024, the company refinanced its debt, replacing its 2020 credit facility with a new $1.5 billion facility ($700 million revolving, $800 million term loan) maturing in 2029[81][393] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from interest rates on variable debt and foreign currency exchange rates, which are partially hedged with derivative instruments - The primary market risk is from changing interest rates on variable rate debt (SOFR-based), which is managed using derivative instruments like interest rate swaps[112][135] - The company has foreign currency exchange rate risk, primarily from the British Pound and Canadian Dollar, which is partially hedged with forward contracts[113][109] - For the three months ended March 31, 2024, foreign currency fluctuations increased total revenue by $0.9 million and income from operations by $0.3 million[109] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls over financial reporting - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[114] - There were no changes in internal control over financial reporting during the first quarter of 2024 that materially affected, or are likely to materially affect, internal controls[96] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 9 for a detailed discussion of legal proceedings, primarily related to the 2020 Security Incident, including customer claims and governmental investigations - For a comprehensive discussion of legal proceedings, the report directs readers to Note 9 of the unaudited, condensed consolidated financial statements[138] Item 1A. Risk Factors This section supplements risk factors, focusing on increased financial leverage, ongoing impacts of the 2020 Security Incident, and legal risks related to anti-takeover provisions - The company's leverage has significantly increased due to the EVERFI acquisition and borrowings for the March 2024 ASR Transaction, potentially impacting business and financial performance[140][118] - The 2020 Security Incident continues to have adverse effects, including ongoing legal fees, settlements, and investigations, incurring $10.3 million in net pre-tax expenses for Q1 2024[144][150] - The company has reached settlements with the SEC (March 2023) and a proposed consent order with the FTC (February 2024) regarding the Security Incident, requiring enhanced cybersecurity programs[123][124] - Anti-takeover provisions, such as a classified Board of Directors and Delaware law, may delay or prevent a change of control, though the Stockholder Rights Agreement was terminated on March 18, 2024[130][132][153] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's Q1 2024 stock repurchase activities, totaling 2,954,211 shares, with $259.7 million remaining available under the program Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased (under plan) | Average Price Paid per Share | Approx. Value Remaining under Plan ($ millions) | | :--- | :--- | :--- | :--- | | Jan 2024 | 273,907 | $83.56 | $499.4 | | Feb 2024 | 124,901 | $72.51 | $490.9 | | Mar 2024 | 2,555,403 | $90.46 | $259.7 | | Q1 Total | 2,954,211 | - | $259.7 | Item 5. Other Information This section details the significant debt refinancing on April 30, 2024, establishing a new $1.5 billion credit facility with extended maturity to 2029 and modified covenants - On April 30, 2024, the company refinanced its debt, entering into a new $1.5 billion credit agreement[469][454] - The new facilities include a $700 million revolving credit facility and an $800 million term loan facility, with a new maturity date of April 30, 2029[454]