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      Blackbaud Announces 2016 Fourth Quarter and Full Year Results

      Fourth Quarter Revenue Growth of 12.8%; Non-GAAP Organic Revenue Growth of 11.3%; 
      Achieves 2016 Full Year Financial Guidance; Announces 2017 Full Year Financial Guidance

      Charleston, S.C. (February 8, 2017) – Blackbaud (NASDAQ: BLKB), the world’s leading cloud software company powering social good, today announced financial results for its fourth quarter and fiscal year ended December 31, 2016.

      “This was a banner year for Blackbaud in which we furthered our strategic growth objectives and strengthened the financial profile of the business,” said Mike Gianoni, Blackbaud president and CEO. “Our recurring revenue reached 80 percent of total revenue in the fourth quarter, which is a major milestone for us, and the highest in our company’s history. We made tremendous progress delivering new, innovative, cloud-based technology to the market that drove an increase in our mix of subscription-based recurring revenue, which adds additional stability and predictability to our already strong business.”

      Fourth Quarter 2016 Results Compared to Fourth Quarter 2015 Results:

      • Total GAAP revenue was $198.3 million, up 12.8%, with $158.6 million in GAAP recurring revenue, representing 80.0% of total revenue.
      • Total non-GAAP revenue was $198.3 million, up 11.3%, with $158.6 million in non-GAAP recurring revenue, representing 80.0% of total non-GAAP revenue.
      • Non-GAAP organic revenue increased 11.3% and non-GAAP organic recurring revenue increased 14.4%.
      • GAAP income from operations increased 133.9% to $24.0 million, with GAAP operating margin increasing 630 basis points to 12.1%.
      • Non-GAAP income from operations increased 35.9% to $43.8 million, with non-GAAP operating margin increasing 400 basis points to 22.1%.
      • GAAP net income increased 169.6% to $17.3 million, with GAAP diluted earnings per share up $0.22 to $0.36.
      • Non-GAAP net income increased 57.1% to $28.0 million, with non-GAAP diluted earnings per share up $0.21 to $0.59.
      • Cash flow from operations was $53.5 million, up from $39.7 million.

      “We’re doing something quite unique here at Blackbaud, in that we’ve accelerated revenue growth and improved profitability while transitioning our solution portfolio from on-premises to the cloud,” Gianoni added.

      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 our 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.

      Fourth Quarter 2016 Company Highlights:

      • Announced the general availability of SKY API™ for Raiser’s Edge NXT™ and Financial Edge NXT™ customers and partners, enabling them to customize, integrate or extend the functionality of their current solutions.
      • Provided sector leadership by releasing key reporting, trend data and commentary throughout #GivingTuesday 2016, including that online giving increased by 20%.
      • Added Apple Pay® to Blackbaud Merchant Services™ so customers can offer donors an easy, secure and private option for digital checkout – making several Blackbaud customers among the first wave of nonprofits to leverage Apple Pay for philanthropic giving.
      • Reported dramatic momentum in product innovation and customer response as the company continues to bring new capabilities to market through Altru®, its cultural management solution.
      • Saw strong momentum in end-of-year giving, as defined as the last three days of the year, including customers using Luminate Online – Blackbaud’s digital marketing solution – who experienced a 17% year-over-year growth in online fundraising.

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

      Full Year 2016 Results Compared to Full Year 2015 Results:

      • Total GAAP revenue was $730.8 million, up 14.6%, with $575.9 million in GAAP recurring revenue, representing 78.8% of total revenue.
      • Total non-GAAP revenue was $734.5 million, up 13.5%, with $579.6 million in non-GAAP recurring revenue, representing 78.9% of total non-GAAP revenue.
      • Non-GAAP organic revenue increased 9.2% and non-GAAP organic recurring revenue increased 11.5%.
      • GAAP income from operations increased 32.3% to $61.8 million, with GAAP operating margin increasing 120 basis points to 8.5%.
      • Non-GAAP income from operations increased 18.2% to $144.2 million, with non-GAAP operating margin increasing 80 basis points to 19.6%.
      • GAAP net income increased 61.9% to $41.5 million, with GAAP diluted earnings per share up $0.33 to $0.88.
      • Non-GAAP net income increased 30.2% to $90.7 million, with non-GAAP diluted earnings per share up $0.42 to $1.92.
      • Cash flow from operations was $153.6 million, up from $129.2 million.

      “I’m pleased to report that we achieved our 2016 full year financial guidance across all fronts,” said Tony Boor, Blackbaud’s executive vice president and CFO. “Our strong performance in 2016 resulted in accelerated organic revenue growth, improved profitability, and increased cash flow when compared to 2015. It’s worth highlighting that we were able to make additional incremental investments back into the company for future growth, while still meeting aggressive guidance targets. We have a very positive outlook heading into 2017, with full year financial guidance implying strong growth, and achievement of our long-term aspirational goals that we introduced in 2014. These financial goals, which were aimed at improving revenue growth, profitability, and cash generation, were truly aspirational for Blackbaud at the time. Consistent and successful execution against our strategic objectives has positioned us well to meet these aspirational goals in 2017.”

      Dividend
      Blackbaud announced today that its Board of Directors has declared a first quarter 2017 dividend of $0.12 per share payable on March 15, 2017 to stockholders of record on February 28, 2017.

      Financial Outlook
      Blackbaud today announced its 2017 full year financial guidance.

      • Non-GAAP revenue of $775 million to $795 million
      • Non-GAAP income from operations of $155 million to $163 million
      • Non-GAAP operating margin of 20.0% to 20.5%
      • Non-GAAP diluted earnings per share of $2.06 to $2.18
      • Free cash flow of $120 million to $130 million

      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.

      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.

      Long Term Aspirational Goals
      Blackbaud today announced that it expects to achieve its long-term aspirational goals introduced in 2014 based on 2017 financial outlook.

      • Non-GAAP organic revenue growth of 6% to 10% annually, adjusted for constant currency
      • Non-GAAP operating margin of 20.5% to 23.5% exiting 2017, adjusted for 2014 constant currency
      • Aggregate cash flow from operations of $500 million to $550 million from 2014 to 2017

      Adoption of New Share-based Compensation Expense Accounting Standard
      As previously disclosed, during the three months ended September 30, 2016 we early adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting, which addresses, among other items, the accounting for income taxes and forfeitures, and cash flow presentation of share-based compensation. Under ASU 2016-09, excess tax benefits generated upon the settlement or exercise of stock awards are no longer recognized as additional paid-in capital but are instead recognized as a reduction to income tax expense. This change in accounting for income taxes was effective for us on a prospective basis as of the beginning of the 2016 fiscal year. Cash flows related to excess tax benefits are required to be presented as an operating activity rather than a financing activity. In addition, all cash tax payments made on an employee’s behalf for shares withheld upon vesting or settlement are required to be presented as a financing activity. We adopted all amendments related to cash flow presentation on a retrospective basis, which resulted in a $14.9 million increase in net cash provided by operating activities and a $14.9 million decrease in net cash provided by financing activities for the year ended December 31, 2015. We will provide more detailed information regarding the impact of the early adoption of ASU 2016-09 in our annual report on Form 10-K for the year ended December 31, 2016.

      Conference Call Details
      What:           Blackbaud’s Fiscal 2016 Fourth Quarter Conference Call
      When:          February 9, 2017
      Time:           8:00 a.m. (Eastern Time)
      Live Call:    1-800-310-6649 (domestic) or 1-719-325-2137 (international); passcode 421503.
      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, corporations, education institutions, and individual change agents—Blackbaud connects and empowers organizations to increase their impact through software, services, expertise, and data intelligence. The Blackbaud portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and relationship management, digital marketing, advocacy, accounting, payments, analytics, school management, grant management, corporate social responsibility, and volunteerism. Serving the industry for more than three decades, Blackbaud is headquartered in Charleston, South Carolina and has operations in the United States, Australia, Canada, Ireland, and the United Kingdom. For more information, visit www.blackbaud.com.

      Investor Contact: Media Contact:
      Mark Furlong Nicole McGougan
      Director of Investor Relations Blackbaud Public Relations
      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: expectations that our revenue and operating cash flow will continue to grow and that our operating margins will continue to improve, and expectations that we will achieve our projected 2017 full year financial guidance and long-term aspirational goals. 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 discusses non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth, which it believes provides useful information for evaluating the periodic growth of its business on a consistent basis. Each of these measures of non-GAAP organic revenue growth 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 non-GAAP organic revenue growth 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 non-GAAP organic revenue growth 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.

      As previously disclosed, beginning in 2016, Blackbaud now applies a non-GAAP effective tax rate of 32.0% in its determination of non-GAAP net income, which represents the GAAP effective tax rate, excluding the discrete tax effect of stock-based compensation. The non-GAAP effective tax rate utilized 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 2015 measures of the tax impact related to non-GAAP adjustments, 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 39.0%.

      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 the 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.



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