Summary
Blackbaud reported GAAP revenue of $261.8 million for the first quarter of fiscal 2023, up 1.8% year over year, and GAAP gross profit of $138.6 million, up 3.6%. GAAP gross margin was 53.0%, up 0.9 percentage points. Profitability moved the other way. GAAP loss from operations widened to $9.9 million, and GAAP operating margin was negative 3.8%, down 1.5 percentage points. GAAP net loss widened 41.3% to $14.7 million, and GAAP diluted loss per share was $0.28, down $0.08.
The GAAP numbers carry a heavy Security Incident charge. The quarter included $17.8 million of Security Incident-related costs, made up of $7.6 million in ongoing legal fees and a $10.2 million accrual for loss contingencies. Strip that out and the picture flips. Non-GAAP income from operations was $56.6 million, with a non-GAAP operating margin of 21.6%, up 470 basis points. Non-GAAP net income was $38.3 million and non-GAAP diluted earnings per share was $0.72, up $0.15. Non-GAAP adjusted EBITDA reached $71.3 million, up $14.1 million, at a 27.2% margin, up 500 basis points.
Cash flow was softer. GAAP net cash provided by operating activities was $21.8 million, down $2.7 million, or 11.0%. Capital expenditures of $1.4 million fell 68.0%. Non-GAAP adjusted free cash flow was $15.7 million, up $7.3 million, at a 6.0% margin, up 270 basis points. Deferred revenue of $368.0 million was up 3.5% year over year; management ties the sequential decline to a seasonal drop in customer contract renewals. Cash and cash equivalents stood at $24.1 million, and the net leverage ratio was 2.99 to 1.00 against a covenant ceiling of 4.00 to 1.00.
Operating momentum looks better than the income statement suggests. Bookings came in ahead of initial expectations, with the corporate sector more than doubling its bookings over the prior-year quarter. Productivity per sales representative improved over 30% versus last year. Management cut headcount by approximately 14% since the third quarter of 2022 and plans to run at about that level. Gross dollar retention was approximately 90% for the twelve months ended March 31, 2023, relatively unchanged from the full year 2022. On pricing, over 25% of customers up for renewal in the 2023 cohort had renewed through April 2023, and three-year terms are now the standard renewal option.
Not everything is moving up. One-time services and other revenue fell 27.7%, and management expects that line to keep shrinking as customers shift to cloud subscriptions. Foreign currency reduced total revenue by $2.7 million and income from operations by $0.3 million in the quarter, and the company expects currency to be a significant negative drag on full-year 2023 total revenue.
Management raised its full-year 2023 guidance. The revised outlook calls for non-GAAP revenue of $1.095 billion to $1.125 billion, a non-GAAP adjusted EBITDA margin of 30.5% to 31.5%, non-GAAP earnings per share of $3.63 to $3.94, and non-GAAP adjusted free cash flow of $190 million to $210 million. Capital expenditures for the full year are expected at $65 million to $75 million, including $55 million to $65 million of capitalized software and content development costs. Interest expense is assumed at approximately $37 million to $41 million. At the midpoint, the company guides to organic revenue growth at constant currency of roughly 5.5% and a Rule of 40 of 36.5%, up 750 basis points versus 2022, with Rule of 40 crossing the 40% line in the fourth quarter, well ahead of its prior target of 2025.
Risk sits mostly with the Security Incident. Blackbaud has recorded approximately $30.2 million in aggregate liabilities for loss contingencies as of March 31, 2023, and says estimated or actual losses could be materially in excess of that amount. Other matters, including customer claims, customer constituent class actions and governmental investigations, carry no recorded liability because the company cannot estimate the possible loss. For full year 2023 it expects net pre-tax expense of approximately $20 million to $30 million and net cash outlays of approximately $25 million to $35 million for ongoing legal fees.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $261.8M | $274.8M | -4.7% | $257.1M | +1.8% |
| Gross profit | $138.6M | $139.3M | -0.5% | $133.8M | +3.6% |
| Gross margin | 53.0% | 50.7% | +2.3 pp | 52.0% | +0.9 pp |
| Research & development | $40.6M | $38.2M | +6.3% | $40.0M | +1.6% |
| Sales & marketing | $54.4M | $57.1M | -4.7% | $55.2M | -1.5% |
| General & administrative | $52.8M | $58.9M | -10.3% | $43.8M | +20.7% |
| Total operating expenses | $148.6M | $154.8M | -4.0% | $139.7M | +6.3% |
| Operating income (loss) | -$9.9M | -$15.5M | +36.0% | -$6.0M | -66.4% |
| Operating margin | -3.8% | -5.7% | +1.9 pp | -2.3% | -1.5 pp |
| Net income (loss) | -$14.7M | -$21.3M | +30.8% | -$10.4M | -41.3% |
| Net margin | -5.6% | -7.7% | +2.1 pp | -4.0% | -1.6 pp |
| Diluted EPS | -$0.28 | -$0.41 | +$0.13 | -$0.20 | -$0.08 |
Risks
The 2020 Security Incident continues to create legal, regulatory and financial exposure. As of March 31, 2023, Blackbaud recorded approximately $30.2 million in aggregate loss contingency liabilities, incurred $17.8 million in net pre-tax Security Incident expense in Q1 2023, and expects full year 2023 net pre-tax expense of $20.0 million to $30.0 million and net cash outlays of $25.0 million to $35.0 million; insurance coverage limits were exceeded in Q1 2022.
The Security Incident has prompted governmental actions and investigations, including Civil Investigative Demands from 49 state Attorneys General and the District of Columbia, a separate California Attorney General demand, and pending actions by the FTC, HHS, Australian Information Commissioner and Privacy Commissioner of Canada. The March 9, 2023 SEC settlement included a $3.0 million civil penalty and cease-and-desist obligations, and additional regulatory penalties or injunctive relief could increase compliance costs or alter operations.
Security Incident fines or penalties could exceed funds generated from operating activities or cause a default under the 2020 Credit Facility. If that occurs, Blackbaud may need to renegotiate, obtain a waiver, or seek additional debt or equity financing, which may not be available on acceptable terms or at all, and failure to obtain sufficient financing could impair its ability to meet obligations as they come due.
Adverse developments in the financial services industry could impair access to cash. Blackbaud's accounts at SVB were temporarily inaccessible during the March 2023 receivership, though access was restored by March 13, 2023 and balances at SVB were insignificant; the company holds cash at large institutions significantly in excess of FDIC insurance limits and at foreign banks that may be uninsured or partially insured.
If one of Blackbaud's payment processing partners were to experience a significant disruption or fail, it could temporarily interrupt the company's ability to provide payment services to customers. Transactional revenue was about one-third of total revenue, making a processing interruption a potential material negative effect on business, financial condition or results of operations.
Interest expense increased in Q1 2023 primarily due to higher weighted average effective interest rates. At March 31, 2023, debt under the 2020 Credit Facility was $817.1 million and the net leverage ratio was 2.99 to 1.00; the company expects full year 2023 interest expense of approximately $37 million to $41 million, and variable-rate debt could increase costs in a rising rate environment.
MD&A states that foreign currency exchange rate fluctuations reduced Q1 2023 total revenue by $2.7 million and income from operations by $0.3 million, and Blackbaud currently expects fluctuations in foreign currency exchange rates to have a significant negative impact on total revenue for full year 2023. Approximately 15% of Q1 2023 total revenue was generated from operations outside the U.S.
The Security Incident and related publicity could cause or contribute to loss of customer confidence, reduced customer demand, reduced retention and difficulties in retention and recruiting. Management also noted the new contract pricing and renewal model does not appear to have impacted customer attrition to date, but adverse developments could still affect renewal and expansion.
The Stockholder Rights Agreement, staggered board, preferred stock issuance authority, Delaware Section 203 and officer compensation arrangements may delay or prevent an acquisition or change of control. The Rights Agreement has a 20% beneficial ownership trigger, a $313.00 exercise price and expires on October 2, 2023, which could discourage takeover attempts and affect the market price of common stock.
SaaS KPIs
All quarters →Non-GAAP Adjusted EBITDA Margin
Non-GAAP Operating Margin
Non-GAAP Organic Recurring Revenue Growth
Rule of 40
Non-GAAP Organic Revenue Growth
Non-GAAP Adjusted Free Cash Flow Margin
Non-GAAP Free Cash Flow
Non-GAAP organic revenue growth on constant currency basis
GAAP Recurring Revenue
Non-GAAP Adjusted Free Cash Flow
Non-GAAP organic recurring revenue growth on constant currency basis
Rule of 40 on constant currency basis
Non-GAAP Adjusted EBITDA Margin on Constant Currency Basis
Non-GAAP Organic Recurring Revenue
GAAP recurring revenue growth
Summary, forecast, risks and KPIs are extracted from BLACKBAUD INC's SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.