Summary
Blackbaud reported second-quarter GAAP revenue of $271.0 million, up 2.3% from the prior-year quarter. Non-GAAP organic recurring revenue rose 4.4%. Gross profit was $149.6 million, up 7.4%, and gross margin expanded to 55.2% from 52.6%. GAAP income from operations was $0.3 million, a figure that included $26.8 million in security incident-related costs. Net income was $2.1 million, or $0.04 per diluted share, compared with a net loss of $3.4 million in the prior-year quarter. That swing to profit reversed a loss of $0.07 per diluted share a year earlier. Year-to-date revenue was $532.8 million, up 2.1%. Year-to-date net loss was $12.6 million, or $0.24 per diluted share, an improvement from the $13.8 million loss, or $0.27 per share, in the first half of 2022.
Non-GAAP results showed much stronger profitability. Non-GAAP income from operations was $74.1 million, with a non-GAAP operating margin of 27.4%, up 680 basis points. Non-GAAP adjusted EBITDA was $88.8 million, and its margin was 32.8%, an increase of 620 basis points. Non-GAAP net income was $52.6 million, and non-GAAP diluted earnings per share was $0.98, up $0.23. The company continued to benefit from cost reductions. It has reduced headcount significantly since the third quarter of 2022 and renegotiated key vendor contracts including Microsoft Azure and AWS. GAAP operating margin was flat at 0.1% for the quarter, while the year-to-date operating margin was negative 1.8%, down 0.7 percentage points. GAAP operating cash flow was $53.2 million for the quarter, down 7.1%, and $75.0 million year to date, down 8.3%. Capital expenditures were $1.4 million for the quarter, down 56.5%, and $2.8 million year to date, down 63.0%. Non-GAAP adjusted free cash flow was $43.6 million for the quarter, a decrease of $0.3 million, with a margin of 16.1%.
Operational progress centered on the company's five-point operating plan. Blackbaud is moving customers to three-year renewal terms as standard, replacing one-year terms, and implementing rate increases. Through July 2023, nearly 70% of 2023 contracts eligible for renewal rate increases had already renewed. Gross dollar retention was approximately 90% for the twelve months ended June 30, 2023. Transactional revenue, about one-third of total revenue, has been resilient. A rate increase on Blackbaud Merchant Services in the U.S. took effect on August 1, 2023. The company also launched new AI capabilities under its Intelligence for Good strategy. JustGiving surpassed 6 billion in donations through the platform. Guidance for the full year 2023 was reiterated: non-GAAP revenue of $1.095 billion to $1.125 billion, 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. Assumptions include a non-GAAP annualized effective tax rate of approximately 20%, interest expense of approximately $37 million to $41 million, fully diluted shares of approximately 53 million to 54 million, and capital expenditures of approximately $65 million to $75 million, including approximately $55 million to $65 million of capitalized software and content development costs.
Risks remain substantial. The Security Incident continues to weigh on results. Blackbaud recorded $26.8 million in net pre-tax expenses related to the incident in the second quarter and $44.6 million year to date. As of June 30, 2023, it had recorded approximately $50.0 million in aggregate liabilities for loss contingencies, and it expects full-year 2023 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. Foreign currency reduced total revenue by $3.7 million and income from operations by $0.6 million in the first six months of 2023, and the company expects a significant negative impact on full-year 2023 revenue from currency fluctuations. One-time services and other revenue continued to decline as the business shifts to cloud subscriptions. The company expects $6.0 million to $8.0 million in pre-tax costs in the third quarter of 2023 from a Washington, DC office sublease impairment. Net leverage was 2.67 to 1.00 against a covenant of 4.00 to 1.00, and the company targets a reduction to 2 to 1. Deferred revenue was $438.2 million, up 5.3% from the prior-year quarter. Blackbaud did not repurchase any shares in the quarter or the first half, leaving $250.0 million available under its repurchase program.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $271.0M | $261.8M | +3.5% | $264.9M | +2.3% |
| Gross profit | $149.6M | $138.6M | +7.9% | $139.3M | +7.4% |
| Gross margin | 55.2% | 53.0% | +2.2 pp | 52.6% | +2.6 pp |
| Research & development | $36.1M | $40.6M | -11.0% | $38.3M | -5.7% |
| Sales & marketing | $53.2M | $54.4M | -2.2% | $52.7M | +0.9% |
| General & administrative | $59.1M | $52.8M | +11.9% | $47.4M | +24.8% |
| Total operating expenses | $149.3M | $148.6M | +0.5% | $139.3M | +7.2% |
| Operating income (loss) | $294.0K | -$9.9M | +103.0% | $54.0K | +444.4% |
| Operating margin | 0.1% | -3.8% | +3.9 pp | 0.0% | +0.1 pp |
| Net income (loss) | $2.1M | -$14.7M | +114.3% | -$3.4M | +161.5% |
| Net margin | 0.8% | -5.6% | +6.4 pp | -1.3% | +2.1 pp |
| Diluted EPS | $0.04 | -$0.28 | +$0.32 | -$0.07 | +$0.11 |
Risks
The 2020 Security Incident continues to have material adverse effects; as of June 30, 2023 the company recorded approximately $50.0 million in aggregate loss contingency liabilities and is a defendant in 19 putative consumer class actions, with civil investigative demands from 49 state Attorneys General and the District of Columbia plus a separate California Attorney General demand. Full-year 2023 net pre-tax expense is expected to be $20 to $30 million and net cash outlays $25 to $35 million, with insurance coverage exhausted in the first quarter of 2022.
Pending governmental actions or investigations by the SEC (settled March 9, 2023 with a $3.0 million civil penalty), FTC, HHS, Office of the Australian Information Commissioner and Office of the Privacy Commissioner of Canada, plus multi-state civil investigative demands. Certain authorities are seeking undertakings, injunctive relief, consent decrees or other penalties that could materially increase data security costs or require operational changes.
Newly added risk factors describe anti-takeover effects of the Stockholder Rights Agreement (poison pill expiring October 2, 2023, with a $313.00 exercise price and a 20% ownership trigger), a classified board, authorized preferred stock, and officer change-in-control compensation arrangements that may delay or prevent an acquisition or depress the market price of common stock.
Interest expense increased during the three and six months ended June 30, 2023 primarily due to an increase in weighted average effective interest rates; full-year 2023 interest expense is expected to be approximately $37 to $41 million, and the variable rate portion of outstanding debt could increase further in a rising interest rate environment.
MD&A quantifies the impact: for the six months ended June 30, 2023, foreign currency exchange rate fluctuations reduced total revenue by $3.7 million and income from operations by $0.6 million, and the company expects fluctuations in foreign currency exchange rates to have a significant negative impact on total revenue for the full year 2023.
MD&A relies on multi-year pricing initiatives, 3-year contract renewals as the standard, and expected acceleration in growth in the second half of 2023 versus the first half; failure of these initiatives to materialize could impair revenue growth. Gross dollar retention was approximately 90% for the twelve months ended June 30, 2023.
Entry into a sublease for a portion of the closed Washington, DC office triggered an impairment indicator; the company expects to incur pre-tax costs between $6.0 million and $8.0 million in the third quarter of 2023 for noncash impairment charges against certain operating lease right-of-use assets and property and equipment.
SaaS KPIs
All quarters →Non-GAAP Adjusted EBITDA Margin
Non-GAAP Operating Margin
Non-GAAP Organic Recurring Revenue Growth
Rule of 40
Non-GAAP Adjusted Free Cash Flow Margin
Non-GAAP Adjusted EBITDA
Non-GAAP Adjusted Free Cash Flow
Non-GAAP organic recurring revenue growth on constant currency basis
Rule of 40 on constant currency basis
Summary, forecast, risks and KPIs are extracted from BLACKBAUD INC's SEC filings for Q2 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.