Blackbaud Announces 2018 Second Quarter Results

Second Quarter Recurring Revenue Grows 16% Representing 90% of Total Revenue; Reaffirms 2018 Full Year Financial Guidance

CHARLESTON, S.C., July 30, 2018 /PRNewswire/ -- Blackbaud (NASDAQ: BLKB), the world's leading cloud software company powering social good, today announced financial results for its second quarter ended June 30, 2018.

"We've continued moving the business toward a subscriptions-based revenue model with our mix of recurring revenue now standing at 90 percent of total, a new all-time high for us," said Mike Gianoni, Blackbaud's president and CEO. "We announced our Cloud Solution for Faith Communities with the introduction of Blackbaud Church Management(TM) which is a massive market for us and a tremendous opportunity to deliver integrated, end-to-end cloud capabilities through a single, connected experience. Our Cloud Solution for Faith Communities takes full advantage of the rapid innovation, modern user experience and enhanced capabilities made possible by our Blackbaud SKY® platform. No one in the industry has taken this approach with a modern platform and customers are lining up to be a part of our early adopter program."

Second Quarter 2018 Results Compared to Second Quarter 2017 Results:

    --  Total GAAP revenue was $213.7 million, up 11.5%, with $192.7 million in
        GAAP recurring revenue, representing 90.2% of total GAAP revenue. GAAP
        recurring revenue was up 15.8%.

    --  Total non-GAAP revenue was $214.6 million, up 11.8%, with $193.6 million
        in non-GAAP recurring revenue, representing 90.2% of total non-GAAP
        revenue. Non-GAAP recurring revenue was up 16.2%.

    --  Non-GAAP organic revenue increased 4.8% and non-GAAP organic recurring
        revenue increased 8.0%.

    --  GAAP income from operations decreased 31.2% to $11.4 million, with GAAP
        operating margin decreasing 330 basis points to 5.3%.

    --  Non-GAAP income from operations increased 11.9% to $45.2 million, with
        non-GAAP operating margin increasing 10 basis points to 21.1%.

    --  GAAP net income decreased 40.2% to $6.6 million, with GAAP diluted
        earnings per share of $0.14, down $0.09.

    --  Non-GAAP net income increased 28.8% to $33.0 million, with non-GAAP
        diluted earnings per share of $0.69, up $0.15.
    --  Non-GAAP free cash flow was $41.6 million, an increase of $9.8 million.

"We've been diligently executing a workplace strategy to better align our organizational objectives with our geographically diverse workforce in the second quarter," said Tony Boor, Blackbaud's executive vice president and CFO. "We moved into our new state-of-the-art world headquarters in Charleston, SC, and continued upgrading and expanding our satellite office locations to be more centrally located for employees and closer to customers. We expect to incur near-term before tax restructuring charges from $6 to $8 million through 2019 with future expected annual before-tax savings of between $3 and $4 million beginning in 2020. We've also seen solid gains in our sales productivity and plan to ramp sales hiring heading into the second-half of 2018 with the expectation that we won't see material top-line return on these investments until 2019 and more fully in 2020."

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.

Recent Company Highlights:

    --  Blackbaud announced the general availability of the Blackbaud
        TeamRaiser® integration with Facebook Fundraisers.
    --  Blackbaud launched the Cloud Solution for Faith Communities with the
        introduction of Blackbaud Church Management(TM).
    --  Blackbaud was named to the Forbes America's Best Employers for Women
        2018 list.
    --  The company released new innovative benchmarking capabilities in
        Raiser's Edge NXT(TM), its flagship cloud fundraising and relationship
        management solution.
    --  The company reported strong satisfaction rates of Blackbaud CRM(TM)
        among higher education institutions seeking to power their advancement
        needs, expand campus-wide collaboration and develop the infrastructure
        needed to support future growth.
    --  Blackbaud unveiled its new world headquarters during a ribbon-cutting
        ceremony, just over two years since the company announced plans for its
        construction in 2016.
    --  Blackbaud released results of a commissioned Total Economic Impact(TM)
        study conducted by Forrester Consulting, examining the return on
        investment that schools may experience by deploying The Cloud Solution
        for K-12 Schools.
    --  Susan Connors was named president and general manager of Blackbaud's
        Managed Services business, which provides expertise through a range of
        operational services to help customers scale their impact with
        measurable outcomes and increased efficiency.
    --  Blackbaud announced the acquisition of Reeher, the industry leader in
        fundraising performance management for higher education.
    --  Blackbaud announced that the company will open an office in San José,
        Costa Rica, its latest international expansion and first presence in
        Latin America.

Visit www.blackbaud.com/press-room for more information about Blackbaud's recent highlights.

Dividend
Blackbaud announced today that its Board of Directors has declared a third quarter 2018 dividend of $0.12 per share payable on September 14, 2018 to stockholders of record on August 28, 2018.

Financial Outlook
Blackbaud today reaffirmed its 2018 full year financial guidance:

    --  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

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 2018 Second Quarter
                                  Conference Call

    When:                        July 31, 2018

    Time:                        8:00 a.m. (Eastern Time)

    Live Call:                    800-289-0462 (US/Canada);
                                  passcode 367579.

    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.


    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 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 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.


                                                                                            Blackbaud, Inc.

                                                                                      Consolidated balance sheets

                                                                                              (Unaudited)


    (dollars in thousands)                                                                                         June 30, December 31,
                                                                                                                       2018          2017

    Assets

    Current assets:

    Cash and cash equivalents                                                                                                    $29,194     $29,830

    Restricted cash due to customers                                                                                295,463       610,344

    Accounts receivable, net of allowance of $5,501 and $5,141 at June 30, 2018 and                                 130,509        95,679
    December 31, 2017, respectively

    Customer funds receivable                                                                                         5,528         1,536

    Prepaid expenses and other current assets                                                                        75,816        61,978

    Total current assets                                                                                            536,510       799,367

    Property and equipment, net                                                                                      44,531        42,243

    Software development costs, net                                                                                  62,023        54,098

    Goodwill                                                                                                        547,312       530,249

    Intangible assets, net                                                                                          317,220       314,651

    Other assets                                                                                                     64,089        57,238
                                                                                                                     ------        ------

    Total assets                                                                                                              $1,571,685  $1,797,846

    Liabilities and stockholders' equity

    Current liabilities:

    Trade accounts payable                                                                                                       $31,141     $24,693

    Accrued expenses and other current liabilities                                                                   46,182        54,399

    Due to customers                                                                                                300,991       611,880

    Debt, current portion                                                                                             8,576         8,576

    Deferred revenue, current portion                                                                               306,365       275,063
                                                                                                                    -------       -------

    Total current liabilities                                                                                       693,255       974,611

    Debt, net of current portion                                                                                    471,236       429,648

    Deferred tax liability                                                                                           48,055        48,023

    Deferred revenue, net of current portion                                                                          3,442         3,643

    Other liabilities                                                                                                 7,474         5,632

    Total liabilities                                                                                             1,223,462     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, 59,301,209                                            59            59
    and 58,551,761 shares issued at June 30, 2018 and December 31, 2017, respectively

    Additional paid-in capital                                                                                      375,949       351,042

    Treasury stock, at cost; 10,735,926 and 10,475,794 shares at June 30, 2018 and                                (264,383)    (239,199)
    December 31, 2017, respectively

    Accumulated other comprehensive loss                                                                            (1,011)        (642)

    Retained earnings                                                                                               237,609       225,029

    Total stockholders' equity                                                                                      348,223       336,289
                                                                                                                    -------       -------

    Total liabilities and stockholders' equity                                                                                $1,571,685  $1,797,846
    ------------------------------------------                                                                                ----------  ----------


                                                                                 Blackbaud, Inc.

                                                                 Consolidated statements of comprehensive income

                                                                                   (Unaudited)


    (dollars in thousands, except per share amounts)                                                             Three months ended 

     June                         Six months ended
                                                                                                                                  30,                                  June 30,


                                                                                                        2018          2017                  2018       2017

    Revenue

    Recurring                                                                                                                  $192,749           $166,389                           $373,595 $326,436

    One-time services and other                                                                                     20,923        25,200             44,261     50,225

    Total revenue                                                                                                  213,672       191,589            417,856    376,661

    Cost of revenue

    Cost of recurring                                                                                               76,350        66,178            145,429    130,053

    Cost of one-time services and other                                                                             18,822        20,817             37,780     42,424

    Total cost of revenue                                                                                           95,172        86,995            183,209    172,477
                                                                                                                    ------        ------            -------    -------

    Gross profit                                                                                                   118,500       104,594            234,647    204,184
                                                                                                                   -------       -------            -------    -------

    Operating expenses

    Sales, marketing and customer success                                                                           48,493        42,580             93,970     83,577

    Research and development                                                                                        25,297        22,870             51,255     45,576

    General and administrative                                                                                      28,447        21,882             53,498     43,805

    Amortization                                                                                                     1,201           739              2,470      1,430

    Restructuring                                                                                                    3,688             -             4,499          -
                                                                                                                     -----           ---

    Total operating expenses                                                                                       107,126        88,071            205,692    174,388
                                                                                                                   -------        ------            -------    -------

    Income from operations                                                                                          11,374        16,523             28,955     29,796
                                                                                                                    ------        ------             ------     ------

    Interest expense                                                                                               (4,303)      (3,216)           (7,820)   (5,593)

    Other income, net                                                                                                  346           827                506      1,113
                                                                                                                       ---           ---                ---      -----

    Income before provision for income taxes                                                                         7,417        14,134             21,641     25,316

    Income tax provision (benefit)                                                                                     825         3,105            (2,702)     1,145
                                                                                                                       ---         -----             ------      -----

    Net income                                                                                                                   $6,592            $11,029                            $24,343  $24,171
                                                                                                                                 ------            -------                            -------  -------

    Earnings per share

    Basic                                                                                                                         $0.14              $0.24                              $0.52    $0.52

    Diluted                                                                                                                       $0.14              $0.23                              $0.51    $0.51

    Common shares and equivalents outstanding

    Basic weighted average shares                                                                               47,222,657    46,662,481         47,121,692 46,584,263

    Diluted weighted average shares                                                                             48,053,094    47,691,340         48,030,547 47,586,893

    Dividends per share                                                                                                           $0.12              $0.12                              $0.24    $0.24

    Other comprehensive (loss) income

    Foreign currency translation adjustment                                                                        (8,817)        (349)           (2,380)     (197)

    Unrealized gain (loss) on derivative instruments, net of tax                                                       765           (4)             1,844        178
                                                                                                                       ---           ---              -----        ---

    Total other comprehensive loss                                                                                 (8,052)        (353)             (536)      (19)
                                                                                                                    ------          ----               ----        ---

    Comprehensive (loss) income                                                                                                $(1,460)           $10,676                            $23,807  $24,152
    ---------------------------                                                                                                 -------            -------                            -------  -------


                                                                                                               Blackbaud, Inc.

                                                                                                    Consolidated statements of cash flows

                                                                                                                 (Unaudited)


                                                                                                                                                                                                               Six months ended
                                                                                                                                                                                                                       June 30,

    (dollars in thousands)                                                                                                                                                                                    2018            2017

    Cash flows from operating activities

    Net income                                                                                                                                                                                                            $24,343                   $24,171

    Adjustments to reconcile net income to net cash provided by operating activities:

    Depreciation and amortization                                                                                                                                                                           39,847          36,481

    Provision for doubtful accounts and sales returns                                                                                                                                                        3,697           5,469

    Stock-based compensation expense                                                                                                                                                                        24,953          20,129

    Deferred taxes                                                                                                                                                                                           1,121         (1,524)

    Amortization of deferred financing costs and discount                                                                                                                                                      376             468

    Other non-cash adjustments                                                                                                                                                                               (419)          (540)

    Changes in operating assets and liabilities, net of acquisition and disposal of
    businesses:

    Accounts receivable                                                                                                                                                                                   (38,092)       (44,809)

    Prepaid expenses and other assets                                                                                                                                                                     (18,629)        (3,262)

    Trade accounts payable                                                                                                                                                                                   6,327         (3,951)

    Accrued expenses and other liabilities                                                                                                                                                                 (6,675)        (8,467)

    Deferred revenue                                                                                                                                                                                        29,545          30,386

    Net cash provided by operating activities                                                                                                                                                               66,394          54,551

    Cash flows from investing activities

    Purchase of property and equipment                                                                                                                                                                     (9,575)        (5,666)

    Capitalized software development costs                                                                                                                                                                (16,359)       (13,614)

    Purchase of net assets of acquired companies, net of cash and restricted cash acquired                                                                                                                (45,315)       (49,729)

    Purchase of derivative instruments                                                                                                                                                                           -          (516)

    Net cash used in investing activities                                                                                                                                                                 (71,249)       (69,525)

    Cash flows from financing activities

    Proceeds from issuance of debt                                                                                                                                                                         173,500         575,700

    Payments on debt                                                                                                                                                                                     (132,150)      (529,169)

    Debt issuance costs                                                                                                                                                                                          -        (3,085)

    Employee taxes paid for withheld shares upon equity award settlement                                                                                                                                  (25,184)       (16,644)

    Proceeds from exercise of stock options                                                                                                                                                                     11              14

    Change in due to customers                                                                                                                                                                           (309,189)       (85,581)

    Change in customer funds receivable                                                                                                                                                                    (4,391)              -

    Dividend payments to stockholders                                                                                                                                                                     (11,653)       (11,530)

    Net cash used in financing activities                                                                                                                                                                (309,056)       (70,295)

    Effect of exchange rate on cash, cash equivalents, and restricted cash                                                                                                                                 (1,606)          (196)

    Net decrease in cash, cash equivalents, and restricted cash                                                                                                                                          (315,517)       (85,465)

    Cash, cash equivalents, and restricted cash, beginning of period                                                                                                                                       640,174         370,673
                                                                                                                                                                                                           -------         -------

    Cash, cash equivalents, and restricted cash, end of period                                                                                                                                                           $324,657                  $285,208
    ----------------------------------------------------------                                                                                                                                                           --------                  --------


    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)                                                                                                                                                                                June 30,   December 31,
                                                                                                                                                                                                              2018            2017

    Cash and cash equivalents                                                                                                                                                                                             $29,194                   $29,830

    Restricted cash due to customers                                                                                                                                                                       295,463         610,344

    Total cash, cash equivalents and restricted cash in the statement of cash flows                                                                                                                        324,657         640,174
    -------------------------------------------------------------------------------                                                                                                                        -------         -------


                                                                                    Blackbaud, Inc.

                                                                 Reconciliation of GAAP to non-GAAP financial measures

                                                                                      (Unaudited)


    (dollars in thousands, except per share amounts)                                               Three months ended 

     June 30,         Six months ended 

     June 30,

                                                                                      2018          2017                      2018 2017

    GAAP Revenue                                                                                            $213,672                    $191,589                                    $417,856         $376,661

    Non-GAAP adjustments:

    Add: Acquisition-related deferred revenue write-down                                             919                       348                       1,267                  348

    Non-GAAP revenue                                                                                        $214,591                    $191,937                                    $419,123         $377,009
                                                                                                            --------                    --------                                    --------         --------


    GAAP gross profit                                                                                       $118,500                    $104,594                                    $234,647         $204,184

    GAAP gross margin                                                                              55.5%                    54.6%                      56.2%               54.2%

    Non-GAAP adjustments:

    Add: Acquisition-related deferred revenue write-down                                             919                       348                       1,267                  348

    Add: Stock-based compensation expense                                                          1,645                       950                       2,740                1,741

    Add: Amortization of intangibles from business combinations                                   10,677                    10,072                      21,063               19,927

    Add: Employee severance                                                                           12                        21                         587                  973

    Add: Acquisition-related integration costs                                                        25                         -                         25                   86

    Subtotal                                                                                      13,278                    11,391                      25,682               23,075

    Non-GAAP gross profit                                                                                   $131,778                    $115,985                                    $260,329         $227,259
                                                                                                            --------                    --------                                    --------         --------

    Non-GAAP gross margin                                                                          61.4%                    60.4%                      62.1%               60.3%


    GAAP income from operations                                                                              $11,374                     $16,523                                     $28,955          $29,796

    GAAP operating margin                                                                           5.3%                     8.6%                       6.9%                7.9%

    Non-GAAP adjustments:

    Add: Acquisition-related deferred revenue write-down                                             919                       348                       1,267                  348

    Add: Stock-based compensation expense                                                         13,861                    10,835                      24,953               20,129

    Add: Amortization of intangibles from business combinations                                   11,878                    10,811                      23,533               21,357

    Add: Employee severance                                                                          100                       120                       1,031                2,866

    Add: Acquisition-related integration costs                                                     2,194                         -                      2,627                  230

    Add: Acquisition-related expenses                                                              1,211                     1,762                       1,605                2,332

    Add: Restructuring costs                                                                       3,688                         -                      4,499                    -

    Subtotal                                                                                      33,851                    23,876                      59,515               47,262

    Non-GAAP income from operations                                                                          $45,225                     $40,399                                     $88,470          $77,058

    Non-GAAP operating margin                                                                      21.1%                    21.0%                      21.1%               20.4%


    GAAP income before provision for income taxes                                                             $7,417                     $14,134                                     $21,641          $25,316

    GAAP net income                                                                                           $6,592                     $11,029                                     $24,343          $24,171


    Shares used in computing GAAP diluted earnings per share                                  48,053,094                47,691,340                  48,030,547           47,586,893

    GAAP diluted earnings per share                                                                            $0.14                       $0.23                                       $0.51            $0.51


    Non-GAAP adjustments:

    Add: GAAP income tax provision (benefit)                                                         825                     3,105                     (2,702)               1,145

    Add: Total non-GAAP adjustments affecting income from                                         33,851                    23,876                      59,515               47,262
    operations

    Add (less): Loss (gain) on derivative instrument                                                   -                    (475)                          -               (475)

    Add: Loss on debt extinguishment                                                                   -                      162                           -                 162

    Non-GAAP income before provision for income taxes                                             41,268                    37,697                      81,156               72,265

    Assumed non-GAAP income tax provision(1)                                                       8,254                    12,063                               $16,232                     $23,125
                                                                                                   -----                    ------                               -------                     -------

    Non-GAAP net income                                                                                      $33,014                     $25,634                                     $64,924          $49,140
                                                                                                             -------                     -------                                     -------          -------


    Shares used in computing non-GAAP diluted earnings per share                              48,053,094                47,691,340                  48,030,547           47,586,893

    Non-GAAP diluted earnings per share                                                                        $0.69                       $0.54                                       $1.35            $1.03
    -----------------------------------                                                                        -----                       -----                                       -----            -----


    (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%.


                                                                                  Blackbaud, Inc.

                                                         Reconciliation of GAAP to Non-GAAP financial measures (continued)

                                                                                    (Unaudited)


    (dollars in thousands)                                                               Three months ended 

     June 30,         Six months ended 

     June 30,

                                                                            2018          2017                      2018   2017

    GAAP revenue                                                                                  $213,672                       $191,589                           $417,856 $376,661

    GAAP revenue growth                                                                  11.5%                                     10.9%

    (Less) Add: Non-GAAP acquisition-related revenue (1)                                 (769)                   11,603                       (421)          20,805

    Total Non-GAAP adjustments                                                           (769)                   11,603                       (421)          20,805

    Non-GAAP revenue (2)                                                                          $212,903                       $203,192                           $417,435 $397,466
                                                                                                  --------                       --------                           -------- --------

    Non-GAAP organic revenue growth                                                       4.8%                                      5.0%


    Non-GAAP revenue (2)                                                                          $212,903                       $203,192                           $417,435 $397,466

    Foreign currency impact on non-GAAP revenue (3)                                    (1,890)                        -                    (3,983)                -

    Non-GAAP revenue on constant currency basis (3)                                               $211,013                       $203,192                           $413,452 $397,466
                                                                                                  --------                       --------                           -------- --------

    Non-GAAP organic revenue growth on constant                                           3.8%                                      4.0%
    currency basis


    GAAP recurring revenue                                                                        $192,749                       $166,389                           $373,595 $326,436

    GAAP recurring revenue growth                                                        15.8%                                     14.4%

    (Less) Add: Non-GAAP acquisition-related revenue (1)                                 (650)                   11,558                       (347)          20,567

    Total Non-GAAP adjustments                                                           (650)                   11,558                       (347)          20,567

    Non-GAAP recurring revenue                                                                    $192,099                       $177,947                           $373,248 $347,003
                                                                                                  --------                       --------                           -------- --------

    Non-GAAP organic recurring revenue growth                                             8.0%                                      7.6%
    -----------------------------------------                                              ---                                        ---


    (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 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)                                 Six months ended 

     June 30,

                                                   2018     2017

    GAAP net cash provided by operating activities                  $66,394             $54,551

    Less: purchase of property and equipment             (9,575)                (5,666)

    Less: capitalized software development costs        (16,359)               (13,614)

    Non-GAAP free cash flow                                         $40,460             $35,271
    -----------------------                                         -------             -------

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SOURCE Blackbaud