REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Blackbaud, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Blackbaud, Inc. and its subsidiaries (the "Company") as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Acquisition of YourCause Holdings, LLC - Valuation of Acquired Technology and Customer Relationships
As described in Notes 2 and 3 to the consolidated financial statements, on January 2, 2019, the Company acquired YourCause Holdings, LLC for an aggregate purchase price of $157.7 million, which resulted in $47.8 million of acquired technology and $25.9 million of customer relationships being recorded. Management estimated the fair value of acquired technology using the relief-from-royalty method and estimated the fair value of customer relationships using the multi-period excess earnings method. Critical estimates in management's valuation of intangible assets include, but are not limited to, estimates about expected future cash flows from customers, including revenue and operating expenses; royalty and customer attrition rates; proprietary technology obsolescence curve; the acquired company's brand awareness and market position, the market awareness of the acquired company's branded technology solutions and services; assumptions about the period of time the brand will continue to be valuable; as well as expected costs to develop any in-process research and development into commercially viable solutions and estimated cash flows from the projects when completed, and discount rates.
The principal considerations for our determination that performing procedures relating to the valuation of intangible assets from the acquisition of YourCause Holdings, LLC is a critical audit matter are (i) there was significant auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the acquired technology and customer relationships due to the significant amount of judgment by management when developing these estimates, (ii) significant audit effort was required in assessing the significant assumptions, including future revenue and operating expenses, royalty and customer attrition rates, proprietary technology obsolescence curves, and the discount rate, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired technology and customer relationships, as well as controls over development of significant assumptions related to the valuation of these intangible assets, including future revenue and operating expenses, royalty and customer attrition rates, proprietary technology obsolescence curves, and the discount rate. These procedures also included, among others, (i) reading the purchase agreement; (ii) testing management’s process for estimating the fair value of the acquired technology and customer relationships, and (iii) testing management’s cash flow projections used to estimate the fair value of the intangible assets. Testing management’s process included evaluating the appropriateness of the valuation methods and the reasonableness of significant assumptions, including future revenue and operating expenses, royalty and customer attrition rates, proprietary technology obsolescence curves, and discount rate. Evaluating the reasonableness of the future revenue and operating expenses and the customer attrition rate involved considering past performance of the acquired business, as well as economic and industry forecasts. Evaluating the reasonableness of the proprietary technology obsolescence curves and
royalty rates involved evaluating the consistency of these assumptions to external market and industry data. Evaluating the discount rate involved assessing the cost of capital of comparable benchmark rates and other industry factors. Professionals with specialized skill and knowledge were used to assist in evaluating significant assumptions, including the royalty and customer attrition rates, proprietary technology obsolescence curves and the discount rate.
Revenue recognition - Contracts with Multiple Performance Obligations
As described in Note 2 to the consolidated financial statements, the Company has some contracts with customers that contain multiple performance obligations. For these contracts, management accounts for individual performance obligations separately if they are distinct. As described by management, management exercises judgment and uses estimates in order to (1) determine whether performance obligations are distinct and should be accounted for separately; (2) determine the standalone selling price of each performance obligation; (3) allocate the transaction price among the various performance obligations on a relative standalone selling price basis; and (4) determine whether revenue for each performance obligation should be recognized at a point in time or over time. For the year ended December 31, 2019, the Company’s total revenue was $900.4 million.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically contracts with multiple performance obligations, is a critical audit matter are there was significant judgment by management in identifying, evaluating and accounting for performance obligations in contracts with multiple performance obligations, which led to significant auditor judgment and effort in performing procedures to evaluate whether contracts with multiple performance obligations were appropriately identified, evaluated and accounted for by management.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the identification, evaluation and accounting for contracts with multiple performance obligations. These procedures also included, among others, testing management’s process for identifying, evaluating and accounting for performance obligations. This included, (i) examining revenue arrangements on a test basis, including evaluating the terms and conditions of the arrangements and testing the identification, evaluation and accounting of the performance obligations, (ii) testing the allocation of the transaction price between performance obligations based on the estimated standalone selling prices on a test basis, (iii) performing procedures to test the completeness and accuracy of the data used to determine stand-alone selling price, and (iv) evaluating the reasonableness of the approach used to determine stand-alone selling price.
/S/ PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
February 20, 2020
We have served as the Company's auditor since 2000.
Blackbaud, Inc.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
Assets
|
|
|
Current assets:
|
|
|
Cash and cash equivalents
|
$
|
31,810
|
|
$
|
30,866
|
|
Restricted cash due to customers
|
545,485
|
|
418,980
|
|
Accounts receivable, net of allowance of $5,529 and $4,722 at December 31, 2019 and December 31, 2018, respectively
|
88,868
|
|
86,595
|
|
Customer funds receivable
|
524
|
|
1,753
|
|
Prepaid expenses and other current assets
|
67,852
|
|
59,788
|
|
Total current assets
|
734,539
|
|
597,982
|
|
Property and equipment, net
|
35,546
|
|
40,031
|
|
Operating lease right-of-use assets
|
104,400
|
|
—
|
|
Software development costs, net
|
101,302
|
|
75,099
|
|
Goodwill
|
634,088
|
|
545,213
|
|
Intangible assets, net
|
317,895
|
|
291,617
|
|
Other assets
|
65,193
|
|
65,363
|
|
Total assets
|
$
|
1,992,963
|
|
$
|
1,615,305
|
|
Liabilities and stockholders’ equity
|
|
|
Current liabilities:
|
|
|
Trade accounts payable
|
$
|
47,676
|
|
$
|
34,538
|
|
Accrued expenses and other current liabilities
|
73,317
|
|
46,893
|
|
Due to customers
|
546,009
|
|
420,733
|
|
Debt, current portion
|
7,500
|
|
7,500
|
|
Deferred revenue, current portion
|
314,335
|
|
295,991
|
|
Total current liabilities
|
988,837
|
|
805,655
|
|
Debt, net of current portion
|
459,600
|
|
379,624
|
|
Deferred tax liability
|
44,594
|
|
44,291
|
|
Deferred revenue, net of current portion
|
1,802
|
|
2,564
|
|
Operating lease liabilities, net of current portion
|
95,624
|
|
—
|
|
Other liabilities
|
5,742
|
|
9,388
|
|
Total liabilities
|
1,596,199
|
|
1,241,522
|
|
Commitments and contingencies (see Note 11)
|
|
|
Stockholders’ equity:
|
|
|
Preferred stock; 20,000,000 shares authorized, none outstanding
|
—
|
|
—
|
|
Common stock, $0.001 par value; 180,000,000 shares authorized, 60,206,091 and 59,327,633 shares issued at December 31, 2019 and December 31, 2018, respectively
|
60
|
|
59
|
|
Additional paid-in capital
|
457,804
|
|
399,241
|
|
Treasury stock, at cost; 11,066,354 and 10,760,574 shares at December 31, 2019 and December 31, 2018, respectively
|
(290,665
|
)
|
(266,884
|
)
|
Accumulated other comprehensive loss
|
(5,290
|
)
|
(5,110
|
)
|
Retained earnings
|
234,855
|
|
246,477
|
|
Total stockholders’ equity
|
396,764
|
|
373,783
|
|
Total liabilities and stockholders’ equity
|
$
|
1,992,963
|
|
$
|
1,615,305
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Blackbaud, Inc.
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts)
|
Years ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
Revenue
|
|
|
|
Recurring
|
$
|
831,609
|
|
$
|
762,181
|
|
$
|
684,583
|
|
One-time services and other
|
68,814
|
|
86,425
|
|
103,904
|
|
Total revenue
|
900,423
|
|
848,606
|
|
788,487
|
|
Cost of revenue
|
|
|
|
Cost of recurring
|
357,988
|
|
305,481
|
|
277,639
|
|
Cost of one-time services and other
|
60,436
|
|
76,261
|
|
84,265
|
|
Total cost of revenue
|
418,424
|
|
381,742
|
|
361,904
|
|
Gross profit
|
481,999
|
|
466,864
|
|
426,583
|
|
Operating expenses
|
|
|
|
Sales, marketing and customer success
|
224,152
|
|
192,848
|
|
169,559
|
|
Research and development
|
106,164
|
|
98,811
|
|
89,911
|
|
General and administrative
|
113,414
|
|
106,354
|
|
94,870
|
|
Amortization
|
5,316
|
|
4,844
|
|
3,271
|
|
Restructuring
|
5,808
|
|
4,590
|
|
794
|
|
Total operating expenses
|
454,854
|
|
407,447
|
|
358,405
|
|
Income from operations
|
27,145
|
|
59,417
|
|
68,178
|
|
Interest expense
|
(20,618
|
)
|
(15,898
|
)
|
(12,097
|
)
|
Other income, net
|
4,058
|
|
1,103
|
|
2,260
|
|
Income before provision for income taxes
|
10,585
|
|
44,622
|
|
58,341
|
|
Income tax benefit
|
(1,323
|
)
|
(219
|
)
|
(15,292
|
)
|
Net income
|
$
|
11,908
|
|
$
|
44,841
|
|
$
|
73,633
|
|
Earnings per share
|
|
|
|
Basic
|
$
|
0.25
|
|
$
|
0.95
|
|
$
|
1.58
|
|
Diluted
|
$
|
0.25
|
|
$
|
0.93
|
|
$
|
1.54
|
|
Common shares and equivalents outstanding
|
|
|
|
Basic weighted average shares
|
47,695,383
|
|
47,206,669
|
|
46,669,440
|
|
Diluted weighted average shares
|
48,312,271
|
|
48,045,084
|
|
47,775,702
|
|
Other comprehensive loss
|
|
|
|
Foreign currency translation adjustment
|
2,641
|
|
(5,218
|
)
|
(789
|
)
|
Unrealized (loss) gain on derivative instruments, net of tax
|
(2,821
|
)
|
583
|
|
751
|
|
Total other comprehensive loss
|
(180
|
)
|
(4,635
|
)
|
(38
|
)
|
Comprehensive income
|
$
|
11,728
|
|
$
|
40,206
|
|
$
|
73,595
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Blackbaud, Inc.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
Net income
|
$
|
11,908
|
|
$
|
44,841
|
|
$
|
73,633
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
85,693
|
|
79,566
|
|
73,948
|
|
Provision for doubtful accounts and sales returns
|
8,725
|
|
6,890
|
|
11,686
|
|
Stock-based compensation expense
|
58,633
|
|
48,274
|
|
40,631
|
|
Deferred taxes
|
(3,600
|
)
|
(619
|
)
|
(17,814
|
)
|
Amortization of deferred financing costs and discount
|
752
|
|
752
|
|
838
|
|
Other non-cash adjustments
|
4,906
|
|
(1,912
|
)
|
504
|
|
Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
|
|
|
|
Accounts receivable
|
(6,569
|
)
|
2,166
|
|
(15,821
|
)
|
Prepaid expenses and other assets
|
6,383
|
|
(5,217
|
)
|
(9,550
|
)
|
Trade accounts payable
|
12,900
|
|
9,487
|
|
1,024
|
|
Accrued expenses and other liabilities
|
(9,718
|
)
|
(2,027
|
)
|
(4,973
|
)
|
Deferred revenue
|
12,464
|
|
19,184
|
|
22,184
|
|
Net cash provided by operating activities
|
182,477
|
|
201,385
|
|
176,290
|
|
Cash flows from investing activities
|
|
|
|
Purchase of property and equipment
|
(11,492
|
)
|
(14,719
|
)
|
(10,208
|
)
|
Capitalized software development costs
|
(46,874
|
)
|
(37,629
|
)
|
(28,345
|
)
|
Purchase of net assets of acquired companies, net of cash and restricted cash acquired
|
(109,353
|
)
|
(44,943
|
)
|
(146,789
|
)
|
Purchase of derivative instruments
|
—
|
|
—
|
|
(568
|
)
|
Proceeds from settlement of derivative instruments
|
—
|
|
—
|
|
1,030
|
|
Other investing activities
|
500
|
|
(500
|
)
|
—
|
|
Net cash used in investing activities
|
(167,219
|
)
|
(97,791
|
)
|
(184,880
|
)
|
Cash flows from financing activities
|
|
|
|
Proceeds from issuance of debt
|
424,000
|
|
270,900
|
|
774,500
|
|
Payments on debt
|
(344,500
|
)
|
(322,476
|
)
|
(679,119
|
)
|
Debt issuance costs
|
—
|
|
—
|
|
(3,085
|
)
|
Employee taxes paid for withheld shares upon equity award settlement
|
(23,781
|
)
|
(27,685
|
)
|
(23,962
|
)
|
Proceeds from exercise of stock options
|
7
|
|
11
|
|
15
|
|
Change in due to customers
|
77,793
|
|
(188,502
|
)
|
226,717
|
|
Change in customer funds receivable
|
1,301
|
|
(844
|
)
|
6,644
|
|
Dividend payments to stockholders
|
(23,607
|
)
|
(23,312
|
)
|
(23,069
|
)
|
Net cash provided by (used in) financing activities
|
111,213
|
|
(291,908
|
)
|
278,641
|
|
Effect of exchange rate on cash, cash equivalents and restricted cash
|
978
|
|
(2,014
|
)
|
(550
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
127,449
|
|
(190,328
|
)
|
269,501
|
|
Cash, cash equivalents and restricted cash, beginning of year
|
449,846
|
|
640,174
|
|
370,673
|
|
Cash, cash equivalents and restricted cash, end of year
|
$
|
577,295
|
|
$
|
449,846
|
|
$
|
640,174
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
Cash (paid) received during the year for:
|
|
|
|
Interest
|
(19,926
|
)
|
(15,261
|
)
|
(10,614
|
)
|
Taxes, net of refunds
|
(383
|
)
|
7,138
|
|
(5,613
|
)
|
Non-cash investing and financing activities:
|
|
|
|
Purchase of equipment and other assets included in accounts payable
|
(794
|
)
|
(882
|
)
|
(1,546
|
)
|
Acquired restricted cash liabilities due to customers
|
46,838
|
|
—
|
|
31,644
|
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the 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)
|
December 31,
2019
|
|
December 31,
2018
|
|
Cash and cash equivalents
|
$
|
31,810
|
|
$
|
30,866
|
|
Restricted cash due to customers
|
545,485
|
|
418,980
|
|
Total cash, cash equivalents and restricted cash in the statement of cash flows
|
$
|
577,295
|
|
$
|
449,846
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Blackbaud, Inc.
Consolidated Statements of Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Common stock
|
|
Additional
paid-in
capital
|
|
Treasury
stock
|
|
Accumulated
other
comprehensive
loss
|
|
Retained
earnings
|
|
Total stockholders' equity
|
|
Shares
|
|
Amount
|
|
Balance at December 31, 2016
|
57,672,401
|
|
$
|
58
|
|
$
|
310,452
|
|
$
|
(215,237
|
)
|
$
|
(604
|
)
|
$
|
174,409
|
|
$
|
269,078
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
73,633
|
|
73,633
|
|
Payment of dividends ($0.48 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(23,069
|
)
|
(23,069
|
)
|
Exercise of stock options and stock appreciation rights and vesting of restricted stock units
|
390,291
|
|
—
|
|
15
|
|
—
|
|
—
|
|
—
|
|
15
|
|
Employee taxes paid for 308,993 withheld shares upon equity award settlement
|
—
|
|
—
|
|
—
|
|
(23,962
|
)
|
—
|
|
—
|
|
(23,962
|
)
|
Stock-based compensation
|
—
|
|
—
|
|
40,575
|
|
—
|
|
—
|
|
56
|
|
40,631
|
|
Restricted stock grants
|
570,208
|
|
1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
Restricted stock cancellations
|
(81,139
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(38
|
)
|
—
|
|
(38
|
)
|
Balance at December 31, 2017
|
58,551,761
|
|
$
|
59
|
|
$
|
351,042
|
|
$
|
(239,199
|
)
|
$
|
(642
|
)
|
$
|
225,029
|
|
$
|
336,289
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
44,841
|
|
44,841
|
|
Payment of dividends ($0.48 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(23,312
|
)
|
(23,312
|
)
|
Exercise of stock options and stock appreciation rights and vesting of restricted stock units
|
349,248
|
|
—
|
|
11
|
|
—
|
|
—
|
|
—
|
|
11
|
|
Employee taxes paid for 284,780 withheld shares upon equity award settlement
|
—
|
|
—
|
|
—
|
|
(27,685
|
)
|
—
|
|
—
|
|
(27,685
|
)
|
Stock-based compensation
|
—
|
|
—
|
|
48,188
|
|
—
|
|
—
|
|
86
|
|
48,274
|
|
Restricted stock grants
|
541,786
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Restricted stock cancellations
|
(115,162
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,635
|
)
|
—
|
|
(4,635
|
)
|
Reclassification upon adoption of ASU 2018-02(1)
|
—
|
|
—
|
|
—
|
|
—
|
|
167
|
|
(167
|
)
|
—
|
|
Balance at December 31, 2018
|
59,327,633
|
|
$
|
59
|
|
$
|
399,241
|
|
$
|
(266,884
|
)
|
$
|
(5,110
|
)
|
$
|
246,477
|
|
$
|
373,783
|
|
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
11,908
|
|
11,908
|
|
Payment of dividends ($0.48 per share)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(23,607
|
)
|
(23,607
|
)
|
Exercise of stock options and stock appreciation rights and vesting of restricted stock units
|
267,455
|
|
—
|
|
7
|
|
—
|
|
—
|
|
—
|
|
7
|
|
Employee taxes paid for 305,780 withheld shares upon equity award settlement
|
—
|
|
—
|
|
—
|
|
(23,781
|
)
|
—
|
|
—
|
|
(23,781
|
)
|
Stock-based compensation
|
—
|
|
—
|
|
58,556
|
|
—
|
|
—
|
|
77
|
|
58,633
|
|
Restricted stock grants
|
723,868
|
|
1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
Restricted stock cancellations
|
(112,865
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(180
|
)
|
—
|
|
(180
|
)
|
Balance at December 31, 2019
|
60,206,091
|
|
$
|
60
|
|
$
|
457,804
|
|
$
|
(290,665
|
)
|
$
|
(5,290
|
)
|
$
|
234,855
|
|
$
|
396,764
|
|
(1) Refer to the discussion of recently adopted accounting pronouncements in Note 2 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on February 20, 2019.
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements
We are 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—we connect and empower organizations and individuals to increase their impact through cloud software, services, expertise and data intelligence. Our 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, we are headquartered in Charleston, South Carolina and have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom. As of December 31, 2019, we had over 45,000 global customers.
Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
Basis of consolidation
The consolidated financial statements include the accounts of Blackbaud, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets , income taxes, business combinations, stock-based compensation, capitalization of software development costs, our allowances for sales returns and doubtful accounts, costs of obtaining contracts, valuation of derivative instruments and loss contingencies, among others. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could materially differ from these estimates.
Recently adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires lessees to record most leases on their balance sheet but recognize expenses in the income statement in a manner similar to previous guidance. The way in which entities classify leases determines how to recognize lease-related revenue and expense.
We adopted ASU 2016-02 as of January 1, 2019 using the transition method that allowed us to initially apply the guidance at the adoption date of January 1, 2019 without adjusting comparative periods presented. We elected to use the package of practical expedients that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any existing leases. We did not elect to use the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment. Additionally, we elected not to apply the recognition requirements of the new lease accounting standard to short-term leases. Adopting ASU 2016-02 had a material impact on our consolidated balance sheet as of January 1, 2019, as we recognized $121.6 million of lease liabilities and $113.4 million of right-of-use ("ROU") assets for those leases classified as operating leases.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Recently issued accounting pronouncements
There are no recently issued accounting pronouncements that are expected to have a material impact on our financial position or results of operations when adopted in the future.
Summary of significant accounting policies
Revenue recognition
Our revenue is primarily generated from the following sources: (i) charging for the use of our software solutions in cloud and hosted environments; (ii) providing payment and transaction services; (iii) providing software maintenance and support services; and (iv) providing professional services, including implementation, consulting, training, analytic and other services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
We determine revenue recognition through the following steps:
•Identification of the contract, or contracts, with a customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when, or as, we satisfy a performance obligation.
Recurring
Recurring revenue represents stand-ready performance obligations in which we are making our solutions or services available to our customers continuously over time or the value of the contract renews. Therefore, recurring revenue is generally recognized over time on a ratable basis over the contract term, beginning on the date that the solution or service is made available to the customer. Our recurring revenue contracts are generally for a term of 3 years at contract inception with 1 to 3-year renewals thereafter, billed annually in advance and non-cancelable.
Recurring revenue is comprised of fees for the use of our subscription-based software solutions, which includes providing access to cloud solutions, hosting services, online training programs, subscription-based analytic services, such as donor acquisitions and data enrichment, and payment services. Recurring revenue also includes fees from maintenance services for our on-premises solutions, services included in our renewable subscription contracts, subscription-based contracts for professional services and variable transaction revenue associated with the use of our solutions.
Our payment services are offered with the assistance of third-party vendors. In general, when we are the principal in a transaction based on the factors identified in ASC 606-10-55-36 through 55-40, we record the revenue and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount billed to the customer) and record the net amount as revenue. For payment and transaction services, we have the right to invoice the customer in an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount billable to the customer in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18.
One-time services and other
One-time services and other revenue primarily consists of fees for one-time consulting, analytic and onsite training services.
We generally bill consulting services based on hourly rates plus reimbursable travel-related expenses. Fixed price consulting engagements are generally billed as milestones towards completion are reached. Revenue for all consulting services is recognized over time as the services are performed.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
We generally recognize analytic services revenue from donor prospect research engagements, the sale of lists of potential donors, data enrichment engagements and benchmarking studies at a point in time (upon delivery).
In certain cases, we sell training at a fixed rate for each specific class at a per attendee price or at a packaged price for several attendees, and recognize the related revenue upon the customer attending and completing training.
Contracts with multiple performance obligations
Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of our solutions and services are typically estimated based on observable transactions when the solutions or services are sold on a standalone basis.
Costs of obtaining contracts, contract assets and deferred revenue
We pay sales commissions at the time contracts with customers are signed or shortly thereafter, depending on the size and duration of the sales contract. Sales commissions and related fringe benefits earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized in a manner that aligns with the expected period of benefit, which we have determined to be 5 years. We determined the period of benefit by taking into consideration our customer contracts, including renewals, retention, our technology and other factors. We do not generally pay commissions for contract renewals. The related amortization expense is included in sales, marketing and customer success expense in our consolidated statements of comprehensive income.
A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must satisfy additional performance obligations in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Our contract assets are recorded within prepaid expenses and other current assets on our consolidated balance sheets. To the extent that our customers are billed for our solutions and services in advance of us satisfying the related performance obligations, we record such amounts in deferred revenue.
Fair value measurements
We measure certain financial assets and liabilities at fair value on a recurring basis, including derivative instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An active market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
|
|
•
|
Level 1 - Quoted prices for identical assets or liabilities in active markets;
|
|
|
•
|
Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
|
|
|
•
|
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
|
Our financial assets and liabilities are classified in their entirety within the hierarchy based on the lowest level of input that is significant to fair value measurement. Changes to a financial asset's or liability's level within the fair value hierarchy are determined as of the end of a reporting period. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Derivative instruments
We generally use derivative instruments to manage interest rate risk. We view derivative instruments as risk management tools and do not use them for trading or speculative purposes. Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.
We record all derivative instruments on our consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Ineffective portions of the changes in the fair value of cash flow hedges are recognized currently in earnings. See Note 10 of these consolidated financial statements for further discussion of our derivative instruments.
Sales taxes
We present sales taxes and other taxes collected from customers and remitted to governmental authorities on a net basis and, as such, exclude them from revenues.
Cash and cash equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less and cash items in transit to be cash equivalents.
Restricted cash due to customers; Customer funds receivable; Due to customers
Restricted cash due to customers consists of monies collected by us and payable to our customers, net of the associated transaction fees earned. Monies associated with amounts due to customers are segregated in separate bank accounts and used exclusively for the payment of amounts due to customers. This usage restriction is either legally or internally imposed and reflects our intention with regard to such deposits. Customer funds receivable consists of monies we expect to collect and remit to our customers.
Concentration of credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted cash due to customers and accounts receivable. Our cash and cash equivalents and restricted cash due to customers are placed with high credit-quality financial institutions. Our accounts receivable is derived from sales to customers who primarily operate in the nonprofit sector. With respect to accounts receivable, we perform ongoing evaluations of our customers and maintain an allowance for doubtful accounts based on historical experience and our expectations of future credit losses. As of and for the years ended December 31, 2019, 2018 and 2017, there were no significant concentrations with respect to our consolidated revenues or accounts receivable.
Property and equipment
We record property and equipment assets at cost and depreciate them over their estimated useful lives using the straight-line method. Leasehold improvements are depreciated over the lesser of the term of the lease or the estimated useful life of the asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. Repair and maintenance costs are expensed as incurred.
Construction-in-progress primarily related to purchases of facilities and information technology assets which had not been placed in service at the respective balance sheet dates. We transfer these assets to the applicable property and equipment category on the date they are placed in service. There was no capitalized interest applicable to construction-in-progress for the years ended December 31, 2019, 2018 and 2017.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Business combinations
We include the operating results of acquired companies as well as the net assets acquired and liabilities assumed in our consolidated financial statements from the date of acquisition. We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values. Goodwill as of the acquisition date represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible and intangible assets acquired and liabilities assumed. This allocation and valuation require management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to, estimates about: expected future cash flows from customers, including revenue and operating expenses; royalty and customer attrition rates; proprietary technology obsolescence curve; the acquired company's brand awareness and market position, the market awareness of the acquired company's branded technology solutions and services; assumptions about the period of time the brand will continue to be valuable; as well as expected costs to develop any in-process research and development into commercially viable solutions and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable, and unanticipated events and changes in circumstances may occur.
Goodwill
Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by us in a business combination. Goodwill is not amortized, but tested annually for impairment on the first day of our fourth quarter, or more frequently if indicators of potential impairment arise.
Accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis to determine whether it is necessary to perform the quantitative impairment test. Significant judgment is required in the assessment of qualitative factors, including but not limited to an evaluation of macroeconomic conditions as they relate to our business, industry and market trends, as well as the overall future financial performance of identified reporting units and future opportunities in the markets in which we operate.
The quantitative impairment test compares the fair values of identified reporting units with their respective carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Based on our current internal reporting structure, we currently have one operating segment, one reportable segment, and one reporting unit. In each of 2019, 2018 and 2017, we performed the quantitative impairment test which indicated that the estimated fair values of the identified reporting units significantly exceeded their respective carrying values. There was no impairment of goodwill during 2019, 2018 or 2017.
Intangible assets other than goodwill
We amortize finite-lived intangible assets over their estimated useful lives as follows.
|
|
|
|
|
Basis of amortization
|
Amortization
period
(in years)
|
Customer relationships
|
Straight-line and accelerated(1)
|
8-17
|
Marketing assets
|
Straight-line
|
2-15
|
Acquired software and technology
|
Straight-line and accelerated(1)
|
5-14
|
Non-compete agreements
|
Straight-line
|
1-5
|
|
|
(1)
|
Certain of the customer relationships and acquired software and technology assets are amortized on an accelerated basis.
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
We write off the gross carrying amount and accumulated amortization balances for all fully amortized intangible assets. We evaluate the estimated useful lives and the potential for impairment of finite and indefinite-lived intangible assets on an annual basis or more frequently if events or circumstances indicate revised estimates of useful lives may be appropriate or that the carrying amount may be impaired. If the carrying amount of a finite-lived intangible asset is no longer recoverable based upon the undiscounted cash flows of the asset, the amount of impairment is the difference between the carrying amount and the fair value of the asset. Substantially all of our intangible assets were acquired in business combinations. See Note 6 to these consolidated financial statements for a discussion of our impairment of certain acquired intangible assets during 2019. There was no impairment of acquired intangible assets during 2018 or 2017.
Impairment of long-lived assets
We review long-lived assets for impairment when events change or circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the extent or manner in which the business or asset acquired is used or significant adverse change in the business climate. If such events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether the asset is impaired. See Note 6 to these consolidated financial statements for a discussion of our impairment of certain long-lived assets during 2019. No impairment of long-lived assets occurred in 2018 or 2017.
Deferred financing costs
Deferred financing costs included in other assets represent the direct third-party costs of entering into the revolving (line-of-credit) portion of our credit facility in June 2017 and portions of the unamortized deferred financing costs from prior facilities. These costs are amortized ratably over the term of the credit facility as interest expense.
Stock-based compensation
We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the requisite service period, which is the vesting period. We determine the fair value of stock options and stock appreciation rights using a Black-Scholes option pricing model, which requires us to use significant judgment to make estimates regarding the life of the award, volatility of our stock price, the risk-free interest rate and the dividend yield of our stock over the life of the award. We determine the fair value of awards that contain market conditions using a Monte Carlo simulation model. Changes to these estimates would result in different fair values of awards.
We recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, we recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award is reversed in the period that the award is forfeited. Income tax benefits resulting from the vesting and exercise of stock-based compensation awards are recognized in the period the unit or award is vested or option or right is exercised.
Income taxes
We make estimates and judgments in accounting for income taxes. The calculation of the income tax provision requires estimates due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. To the extent actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is made.
We make estimates in determining tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of a recorded valuation allowance significant judgment is required. We consider all positive and negative evidence and a variety of factors including the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning strategies. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax asset in the future in excess of its net carrying value, then an adjustment to the deferred tax asset valuation allowance is made to increase income tax expense, thereby reducing net income in the period such determination was made.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
We measure and recognize uncertain tax positions. To recognize such positions, we must first determine if it is more likely than not that the position will be sustained upon audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Significant judgment is required in the identification and measurement of uncertain tax positions.
Foreign currency
Net assets recorded in a foreign currency are translated at the exchange rate on the balance sheet date. Revenue and expense items are translated using an average of monthly exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive income.
Gains and losses resulting from foreign currency transactions denominated in currency other than the functional currency are recorded at the approximate rate of exchange at the transaction date in other income, net. For the year ended December 31, 2019, we recorded a net foreign currency loss that was insignificant. For the year ended December 31, 2018, we recorded a net foreign currency loss of $0.9 million. For the year ended December 31, 2017, we recorded net foreign currency gain of $1.1 million.
Research and development
Research and development costs are expensed as incurred except as noted below under Software development costs. These costs include compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to researching and developing new solutions, upgrading and enhancing existing solutions, and allocated depreciation, facilities and IT support costs.
Software development costs
We incur certain costs associated with the development of internal-use software, which are primarily related to activities performed to develop our cloud solutions. Internal and external costs incurred in the preliminary project stage of internal-use software development are expensed as incurred. Once the software being developed has reached the application development stage, qualifying internal costs including payroll and payroll-related costs of employees who are directly associated with and devote time to the software project as well as external direct costs of materials and services are capitalized. Capitalization ceases at the point at which the developed software is substantially complete and ready for its intended use, which is typically upon completion of all substantial testing. Qualifying costs capitalized during the application development stage include those related to specific upgrades and enhancements when it is probable that those costs incurred will result in additional functionality. Overhead costs, including general and administrative costs, as well as maintenance, training and all other costs associated with post-implementation stage activities are expensed as incurred. In addition, internal costs that cannot be reasonably separated between maintenance and relatively minor upgrades and enhancements are expensed as incurred.
Qualifying capitalized software development costs are amortized on a straight-line basis over the software asset's estimated useful life, which is generally 3 to 7 years. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairment charges related to capitalized software development costs during the years ended December 31, 2019, 2018, and 2017. We write off the gross carrying amount and accumulated amortization balances for all fully amortized software development cost assets.
Sales returns and allowance for doubtful accounts
We maintain a reserve for returns and credits which is estimated based on several factors including historical experience, known credits yet to be issued, the aging of customer accounts and the nature of service level commitments. A considerable amount of judgment is required in assessing these factors. Provisions for sales returns and credits are charged against the related revenue items.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Accounts receivable are recorded at original invoice amounts less an allowance for doubtful accounts, an amount we estimate to be sufficient to provide adequate protection against losses resulting from extending credit to our customers. In judging the adequacy of the allowance for doubtful accounts, we consider multiple factors including historical bad debt experience, the general economic environment and the aging of our receivables. A considerable amount of judgment is required in assessing these factors and if any receivables were to deteriorate, an additional provision for doubtful accounts could be required. Accounts are written off after all means of collection are exhausted and recovery is considered remote. Provisions for doubtful accounts are recorded in general and administrative expense.
Below is a summary of the changes in our allowance for sales returns.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
(in thousands)
|
Balance at
beginning of year
|
|
Provision/
adjustment
|
|
Write-off
|
|
Balance at
end of year
|
|
2019
|
$
|
3,377
|
|
$
|
6,232
|
|
$
|
(5,963
|
)
|
$
|
3,646
|
|
2018
|
4,400
|
|
4,952
|
|
(5,975
|
)
|
3,377
|
|
2017
|
2,704
|
|
10,511
|
|
(8,815
|
)
|
4,400
|
|
Below is a summary of the changes in our allowance for doubtful accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
(in thousands)
|
Balance at
beginning of year
|
|
Provision/
adjustment
|
|
Write-off
|
|
Balance at
end of year
|
|
2019
|
$
|
1,345
|
|
$
|
2,476
|
|
$
|
(1,938
|
)
|
$
|
1,883
|
|
2018
|
741
|
|
2,446
|
|
(1,842
|
)
|
1,345
|
|
2017
|
587
|
|
1,148
|
|
(994
|
)
|
741
|
|
Advertising costs
We expense advertising costs as incurred, which were $3.1 million, $4.0 million and $2.4 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Restructuring costs
Restructuring costs include charges for the costs of exit or disposal activities. The liability for costs associated with exit or disposal activities is measured initially at fair value and only recognized when the liability is incurred. For details of our restructuring activities, see Note 19 of these consolidated financial statements.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, accrued expense and other current liabilities, and operating lease liabilities, net of current portion in our consolidated balance sheet as of December 31, 2019.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in determining the present value of lease payments. Our incremental borrowing rate is based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any initial direct costs and lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments related to our operating leases is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. We do not recognize short-term leases (those that, at the commencement date, have a lease term of 12 months or less) on our consolidated balance sheets. Variable lease payments, which are primarily comprised of common-area maintenance, utilities and real estate taxes that are passed on from the lessor in proportion to the space leased by us, are recognized in operating expenses in the period in which the obligation for those payments is incurred.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Contingencies
We are subject to the possibility of various loss contingencies in the normal course of business. We record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and the estimation of damages are difficult to ascertain. These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions that have been deemed reasonable by us. Although we believe we have substantial defenses in these matters, we could incur judgments or enter into settlements of claims that could have a material adverse effect on our consolidated financial position, results of operations or cash flows in any particular period.
Earnings per share
We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Diluted earnings per share reflect the assumed exercise, settlement and vesting of all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive. Potentially dilutive securities consist of shares issuable upon the exercise of stock options and stock appreciation rights and vesting of restricted stock awards and units.
2019 Acquisitions
YourCause
On January 2, 2019, we acquired all of the outstanding equity securities, including all voting equity interests, of YourCause Holdings, LLC, a Delaware limited liability company ("YourCause"), pursuant to a purchase agreement and plan of merger. The acquisition expands our footprint in corporate social responsibility and employee engagement and enhances our position as a leader in providing solutions to both nonprofit organizations and for-profit companies committed to addressing social issues. We acquired the equity securities for an aggregate purchase price of $157.7 million in cash, net of closing adjustments. The purchase price and related expenses were funded primarily through borrowings under the 2017 Credit Facility (as defined below). As a result of the acquisition, YourCause has become a wholly owned subsidiary of ours. The operating results of YourCause have been included in our consolidated financial statements from the date of acquisition. During the year ended December 31, 2019, we incurred insignificant acquisition-related expenses associated with the acquisition, which were recorded in general and administrative expense.
The fair values assigned to the assets acquired and liabilities assumed in the table below are based on our best estimates and assumptions as of the reporting date. We finalized the purchase price allocation of YourCause, including the valuation of assets acquired and liabilities assumed, during the fourth quarter of 2019.
|
|
|
|
|
(in thousands)
|
Purchase price allocation
|
|
Net working capital, excluding deferred revenue
|
$
|
3,711
|
|
Other long-term assets
|
2,574
|
|
Identifiable intangible assets
|
74,690
|
|
Deferred tax liability
|
(4,660
|
)
|
Deferred revenue
|
(4,300
|
)
|
Other long-term liabilities
|
(1,650
|
)
|
Goodwill
|
87,350
|
|
Total purchase price
|
$
|
157,715
|
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The estimated fair value of accounts receivable acquired approximates the contractual value of $4.2 million and $54.6 million of the goodwill arising in the acquisition is deductible for income tax purposes. The estimated goodwill recognized is attributable primarily to the opportunities for expected synergies from combining the operations and assembled workforce of YourCause. During the year ended December 31, 2019, we recorded insignificant measurement period adjustments to the estimated fair value of the YourCause assets acquired and liabilities assumed following the receipt of new information. The adjustments resulted in an increase to net working capital, excluding deferred revenue, with the corresponding offset to goodwill.
The YourCause acquisition resulted in the identification of the following identifiable intangible assets:
|
|
|
|
|
|
|
|
|
Weighted average amortization period
|
Intangible assets acquired
|
|
YourCause
|
Valuation Method
|
(in years)
|
(in thousands)
|
|
Acquired technology
|
Relief-from-Royalty
|
12
|
$
|
47,800
|
|
Customer relationships
|
Multi-period Excess Earnings
|
15
|
25,900
|
|
Marketing assets
|
Relief-from-Royalty
|
2
|
830
|
|
Non-compete agreements
|
Comparative (With and Without)
|
0
|
160
|
|
Total intangible assets
|
|
13
|
$
|
74,690
|
|
The method of amortization of identifiable finite-lived intangible assets is based on the expected pattern in which the estimated economic benefits of the respective assets are consumed or otherwise used up. Customer relationships and acquired technology assets are being amortized on an accelerated basis. Marketing assets are being amortized on a straight-line basis. The non-compete agreements were fully amortized as of March 31, 2019, based on the insignificance of the acquired assets.
We determined that the impact of this acquisition was not material to our consolidated financial statements; therefore, separate presentation of revenue and earnings since the acquisition date and pro forma information are not required nor included herein.
2018 Acquisitions
Reeher
On April 30, 2018, we acquired all of the outstanding equity securities, including all voting equity interests, of Reeher LLC, a Minnesota limited liability company (“Reeher”), pursuant to a securities purchase agreement. The acquisition expands our fundraising performance management capabilities and is intended to drive more effective fundraising and greater social good outcomes for our customers. We acquired the equity securities for an aggregate purchase price of $41.2 million in cash, net of closing adjustments. The purchase price and related expenses were funded primarily through borrowings under the 2017 Credit Facility (as defined in Note 9 of these consolidated financial statements). As a result of the acquisition, Reeher has become a wholly owned subsidiary of ours. We finalized the purchase price allocation of Reeher, including the valuation of assets acquired and liabilities assumed, during the second quarter of 2019. All measurement period adjustments were insignificant. We determined that the impact of this acquisition was not material to our consolidated financial statements; therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.
2017 Acquisitions
JustGiving
On October 2, 2017, Blackbaud Global Limited (“Blackbaud Global”), a U.K. limited liability company and wholly owned subsidiary of ours, acquired the entire issued share capital, including all voting equity interests, of Giving Limited, a U.K. private limited company doing business as “JustGiving” for an aggregate purchase price, including certain post-closing adjustments set forth in the related stock purchase agreement, of £102.4 million, or approximately $137.2 million, in cash. JustGiving is a market leading social platform for giving, and the acquisition is expected to enhance our capabilities to
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
serve both individual donors and nonprofits, expanding the peer-to-peer fundraising capabilities we offer today. As a result of the acquisition, JustGiving has become a wholly owned subsidiary of ours. We financed the acquisition of JustGiving through cash on hand and borrowings of $138.7 million under the 2017 Credit Facility. We finalized the purchase price allocation of JustGiving, including the valuation of assets acquired and liabilities assumed, during the fourth quarter of 2018. All measurement period adjustments were insignificant. We determined that the impact of this acquisition was not material to our consolidated financial statements; therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.
AcademicWorks
On April 3, 2017, we acquired all of the outstanding shares of capital stock, including all voting equity interests, of AcademicWorks, Inc., a Texas corporation ("AcademicWorks"), pursuant to a stock purchase agreement. AcademicWorks is the market leader in scholarship management for higher education and K-12 institutions, foundations, and grant-making institutions. The acquisition extends our offerings for our higher education, K-12, and corporate and foundation customers. We acquired AcademicWorks for $52.1 million in cash, net of closing adjustments. We financed the acquisition through a drawdown of a revolving credit loan under our then-existing credit facility. As a result of the acquisition, AcademicWorks has become a wholly owned subsidiary of ours. We finalized the purchase price allocation of AcademicWorks, including the valuation of assets acquired and liabilities assumed, during the first quarter of 2018. All measurement period adjustments were insignificant. We determined that the impact of this acquisition was not material to our consolidated financial statements; therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.
|
|
4. Goodwill and Other Intangible Assets
|
The change in our goodwill during 2019 consisted of the following:
|
|
|
|
|
(dollars in thousands)
|
Total
|
|
Balance at December 31, 2018
|
$
|
545,213
|
|
Additions related to current year business combinations
|
87,350
|
|
Effect of foreign currency translation
|
1,525
|
|
Balance at December 31, 2019
|
$
|
634,088
|
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
We have recorded intangible assets acquired in various business combinations based on their fair values at the date of acquisition. The table below sets forth the balances of each class of intangible asset and related amortization as of:
|
|
|
|
|
|
|
|
|
December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
Finite-lived gross carrying amount
|
|
|
Customer relationships
|
$
|
286,951
|
|
$
|
280,309
|
|
Marketing assets
|
34,246
|
|
48,484
|
|
Acquired software and technology
|
233,094
|
|
211,654
|
|
Non-compete agreements
|
2,200
|
|
2,499
|
|
Database
|
—
|
|
4,275
|
|
Total finite-lived gross carrying amount
|
556,491
|
|
547,221
|
|
Accumulated amortization
|
|
|
Customer relationships
|
(118,031
|
)
|
(116,648
|
)
|
Marketing assets
|
(3,648
|
)
|
(16,395
|
)
|
Acquired software and technology
|
(115,048
|
)
|
(118,268
|
)
|
Non-compete agreements
|
(1,869
|
)
|
(1,618
|
)
|
Database
|
—
|
|
(4,275
|
)
|
Total accumulated amortization
|
(238,596
|
)
|
(257,204
|
)
|
Indefinite-lived gross carrying amount
|
|
|
Marketing assets
|
—
|
|
1,600
|
|
Intangible assets, net
|
$
|
317,895
|
|
$
|
291,617
|
|
During the year ended December 31, 2019, changes to the gross carrying amounts of intangible asset classes were primarily related to our business acquisitions as described in Note 3 of these financial statements, write-offs of fully amortized intangible assets, and the effect of foreign currency translation.
During the year ended December 31, 2019, we also recorded an impairment charge of $0.9 million against an acquired marketing asset that reduced the carrying value of the asset to zero. The impairment charge resulted from our decision during the year to rebrand the solution to which the asset related. This impairment charge was recorded as amortization on our consolidated statements of comprehensive income.
Amortization expense
Amortization expense related to finite-lived intangible assets acquired in business combinations is allocated to cost of revenue on the consolidated statements of comprehensive income based on the revenue stream to which the asset contributes, except for marketing assets and non-compete agreements, for which the associated amortization expense is included in operating expenses.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The following table summarizes amortization expense of our finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Included in cost of revenue:
|
|
|
|
Cost of recurring
|
$
|
42,565
|
|
$
|
39,877
|
|
$
|
37,557
|
|
Cost of one-time services and other
|
2,204
|
|
2,356
|
|
2,542
|
|
Total included in cost of revenue
|
44,769
|
|
42,233
|
|
40,099
|
|
Included in operating expenses
|
5,316
|
|
4,844
|
|
3,271
|
|
Total amortization of intangibles from business combinations
|
$
|
50,085
|
|
$
|
47,077
|
|
$
|
43,370
|
|
The following table outlines the estimated future amortization expense for each of the next five years for our finite-lived intangible assets as of December 31, 2019:
|
|
|
|
|
Years ending December 31,
(dollars in thousands)
|
Amortization
expense
|
|
2020
|
$
|
41,544
|
|
2021
|
37,010
|
|
2022
|
34,671
|
|
2023
|
33,665
|
|
2024
|
33,150
|
|
Total
|
$
|
180,040
|
|
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(dollars in thousands, except per share amounts)
|
2019
|
|
2018
|
|
2017
|
|
Numerator:
|
|
|
|
Net income
|
$
|
11,908
|
|
$
|
44,841
|
|
$
|
73,633
|
|
Denominator:
|
|
|
|
Weighted average common shares
|
47,695,383
|
|
47,206,669
|
|
46,669,440
|
|
Add effect of dilutive securities:
|
|
|
|
Stock-based awards
|
616,888
|
|
838,415
|
|
1,106,262
|
|
Weighted average common shares assuming dilution
|
48,312,271
|
|
48,045,084
|
|
47,775,702
|
|
Earnings per share:
|
|
|
|
Basic
|
$
|
0.25
|
|
$
|
0.95
|
|
$
|
1.58
|
|
Diluted
|
$
|
0.25
|
|
$
|
0.93
|
|
$
|
1.54
|
|
|
|
|
|
Anti-dilutive shares excluded from calculations of diluted earnings per share
|
241,336
|
|
48,881
|
|
4,634
|
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
|
|
6. Fair Value Measurements
|
Recurring fair value measurements
Assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using
|
|
|
(dollars in thousands)
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair value as of December 31, 2019
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Derivative instruments
|
$
|
—
|
|
|
$
|
1,757
|
|
|
$
|
—
|
|
|
$
|
1,757
|
|
Total financial liabilities
|
$
|
—
|
|
|
$
|
1,757
|
|
|
$
|
—
|
|
|
$
|
1,757
|
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2018
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
Derivative instruments
|
$
|
—
|
|
|
$
|
2,260
|
|
|
$
|
—
|
|
|
$
|
2,260
|
|
Total financial assets
|
$
|
—
|
|
|
$
|
2,260
|
|
|
$
|
—
|
|
|
$
|
2,260
|
|
|
|
|
|
|
|
|
|
Fair value as of December 31, 2018
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Derivative instruments
|
$
|
—
|
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
186
|
|
Total financial liabilities
|
$
|
—
|
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
186
|
|
Our derivative instruments within the scope of Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate swaps.
The fair value of our interest rate swaps was based on model-driven valuations using LIBOR rates, which are observable at commonly quoted intervals. Accordingly, our interest rate swaps are classified within Level 2 of the fair value hierarchy.
We believe the carrying amounts of our cash and cash equivalents, restricted cash due to customers, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at December 31, 2019 and December 31, 2018, due to the immediate or short-term maturity of these instruments.
We believe the carrying amount of our debt approximates its fair value at December 31, 2019 and December 31, 2018, as the debt bears interest rates that approximate market value. As LIBOR rates are observable at commonly quoted intervals, our debt is classified within Level 2 of the fair value hierarchy.
We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the years ended December 31, 2019, 2018 and 2017. Additionally, we did not hold any Level 3 assets or liabilities during the years ended December 31, 2019, 2018 and 2017.
Non-recurring fair value measurements
Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived, intangible assets, goodwill and operating lease ROU assets, which are recognized at fair value during the period in which an acquisition is completed or at lease commencement, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for long-lived assets, intangible assets acquired and operating lease ROU assets, are based on Level 3 unobservable inputs. In the event of an impairment, we determine the fair value of these assets other than goodwill using a discounted cash flow approach, which contains
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
significant unobservable inputs and, therefore, is considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate. For goodwill impairment testing, we estimate fair value using market-based methods including the use of market capitalization and consideration of a control premium.
During the year ended December 31, 2019, we recorded impairment charges of $3.8 million against our operating lease ROU assets, $1.4 million against certain property and equipment assets and $0.9 million against certain finite-lived intangible assets. See Notes 11, 7 and 4, respectively, to these consolidated financial statements for additional details.
There were no other non-recurring fair value adjustments during 2019, 2018 and 2017 except for certain business combination accounting adjustments to the initial fair value estimates of the assets acquired and liabilities assumed at the acquisition date from updated estimates and assumptions during the measurement period. See Note 3 and Note 4 to these consolidated financial statements for additional details. The measurement period may be up to one year from the acquisition date. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.
|
|
7. Property and Equipment and Software Development Costs
|
Property and equipment
Property and equipment consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
|
Estimated
useful life
(years)
|
|
December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
Equipment
|
3 - 5
|
|
$
|
4,512
|
|
$
|
4,243
|
|
Computer hardware
|
1 - 5
|
|
67,045
|
|
75,060
|
|
Computer software
|
1 - 5
|
|
35,726
|
|
34,294
|
|
Construction in progress
|
—
|
|
213
|
|
233
|
|
Furniture and fixtures
|
1 - 7
|
|
7,823
|
|
7,004
|
|
Leasehold improvements
|
Lesser of lease term or estimated useful life
|
|
24,295
|
|
26,795
|
|
Total property and equipment
|
|
139,614
|
|
147,629
|
|
Less: accumulated depreciation
|
|
(104,068
|
)
|
(107,598
|
)
|
Property and equipment, net
|
|
$
|
35,546
|
|
$
|
40,031
|
|
Depreciation expense was $15.0 million, $15.9 million and $17.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
During the year ended December 31, 2019, we recorded impairment charges of $1.4 million against certain property and equipment assets that reduced the carrying value of the assets to zero. These impairment charges resulted primarily from our facilities optimization restructuring as we wrote-off facilities-related fixed assets that we would no longer use. See Note 19 to these consolidated financial statements for additional details regarding our facilities optimization restructuring.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Software development costs
Software development costs consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
Estimated
useful life
(years)
|
December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
Software development costs
|
3 - 7
|
$
|
139,014
|
|
$
|
121,983
|
|
Less: accumulated amortization
|
|
(37,712
|
)
|
(46,884
|
)
|
Software development costs, net
|
|
$
|
101,302
|
|
$
|
75,099
|
|
During the year ended December 31, 2019, changes to the gross carrying amount of software development costs were primarily related to qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance such as those for our cloud solutions, write-offs of fully amortized assets, and the effect of foreign currency translation.
Amortization expense related to software development costs was $21.0 million, $16.6 million and $12.8 million for the years ended December 31, 2019, 2018 and 2017, respectively, and is included primarily in cost of recurring.
|
|
8. Consolidated Financial Statement Details
|
Prepaid expenses and other assets
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
Costs of obtaining contracts(1)(2)
|
$
|
90,764
|
|
$
|
85,590
|
|
Prepaid software maintenance and subscriptions
|
24,678
|
|
21,134
|
|
Unbilled accounts receivable
|
6,233
|
|
4,161
|
|
Prepaid insurance
|
1,585
|
|
1,087
|
|
Taxes, prepaid and receivable
|
849
|
|
2,055
|
|
Security deposits
|
885
|
|
1,020
|
|
Other assets
|
8,051
|
|
10,104
|
|
Total prepaid expenses and other assets
|
133,045
|
|
125,151
|
|
Less: Long-term portion
|
65,193
|
|
65,363
|
|
Prepaid expenses and other current assets
|
$
|
67,852
|
|
$
|
59,788
|
|
|
|
(1)
|
Amortization expense from costs of obtaining contracts was $38.1 million, $35.7 million and $35.8 million for the years ended December 31, 2019, 2018 and 2017, respectively, and is included in sales, marketing and customer success expense in our consolidated statements of comprehensive income.
|
|
|
(2)
|
The current portion of costs of obtaining contracts as of December 31, 2019 and 2018 was $33.0 million and $31.7 million, respectively.
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Accrued expenses and other liabilities
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
Operating lease liabilities, current portion(1)
|
$
|
19,784
|
|
$
|
—
|
|
Accrued bonuses
|
$
|
24,617
|
|
$
|
14,868
|
|
Accrued commissions and salaries
|
6,980
|
|
9,934
|
|
Taxes payable
|
6,835
|
|
6,204
|
|
Customer credit balances
|
4,505
|
|
4,076
|
|
Unrecognized tax benefit
|
3,758
|
|
2,719
|
|
Accrued vacation costs
|
2,232
|
|
2,352
|
|
Accrued health care costs
|
2,399
|
|
1,497
|
|
Other liabilities
|
7,949
|
|
14,631
|
|
Total accrued expenses and other liabilities
|
79,059
|
|
56,281
|
|
Less: Long-term portion
|
5,742
|
|
9,388
|
|
Accrued expenses and other current liabilities
|
$
|
73,317
|
|
$
|
46,893
|
|
|
|
(1)
|
Upon adoption of ASU 2016-02 at January 1, 2019, we recognized lease liabilities for our operating leases. See Note 2 of these consolidated financial statements for details.
|
Deferred revenue
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
Recurring
|
$
|
302,751
|
|
$
|
286,960
|
|
One-time services and other
|
13,386
|
|
11,595
|
|
Total deferred revenue
|
316,137
|
|
298,555
|
|
Less: Long-term portion
|
1,802
|
|
2,564
|
|
Deferred revenue, current portion
|
$
|
314,335
|
|
$
|
295,991
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Interest income
|
$
|
2,802
|
|
$
|
2,008
|
|
$
|
993
|
|
Gain on derivative instrument
|
—
|
|
—
|
|
462
|
|
Loss on debt extinguishment
|
—
|
|
—
|
|
(299
|
)
|
Other income (expense), net
|
1,256
|
|
(905
|
)
|
1,104
|
|
Other income, net
|
$
|
4,058
|
|
$
|
1,103
|
|
$
|
2,260
|
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The following table summarizes our debt balances and the related weighted average effective interest rates, which includes the effect of interest rate swap agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt balance at
|
|
|
Weighted average
effective interest rate at
|
|
(dollars in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
|
December 31,
2019
|
|
December 31,
2018
|
|
Credit facility:
|
|
|
|
|
|
Revolving credit loans
|
$
|
187,000
|
|
$
|
100,000
|
|
|
3.11
|
%
|
4.13
|
%
|
Term loans
|
281,250
|
|
288,750
|
|
|
3.22
|
%
|
3.44
|
%
|
Total debt
|
468,250
|
|
388,750
|
|
|
3.18
|
%
|
3.61
|
%
|
Less: Unamortized discount and debt issuance costs
|
1,150
|
|
1,626
|
|
|
|
|
Less: Debt, current portion
|
7,500
|
|
7,500
|
|
|
3.05
|
%
|
3.77
|
%
|
Debt, net of current portion
|
$
|
459,600
|
|
$
|
379,624
|
|
|
3.18
|
%
|
3.61
|
%
|
2017 refinancing
We were previously party to a $325.0 million 5-year credit facility entered into during February 2014. The credit facility included: a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans (the “2014 Revolving Facility”) and a delayed draw term loan (the “2014 Term Loan”) together, (the “2014 Credit Facility”).
In June 2017, we entered into a 5-year $700.0 million senior credit facility (the “2017 Credit Facility”). The 2017 Credit Facility includes a $400.0 million revolving credit facility (the “2017 Revolving Facility”) and a $300.0 million term loan facility (the “2017 Term Loan”). Upon closing we drew $300.0 million on a term loan and $110.0 million in revolving credit loans, which was used to repay all amounts outstanding under the 2014 Credit Facility, fees and expenses incurred in connection with the 2017 Credit Facility, and for other general corporate purposes.
Certain lenders of the 2014 Term Loan participated in the 2017 Term Loan and the change in the present value of our future cash flows to these lenders under the 2014 Term Loan and under the 2017 Term Loan was less than 10%. Accordingly, we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2014 Term Loan did not participate in the 2017 Term Loan. Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment. Certain lenders of the 2014 Revolving Facility participated in the 2017 Revolving Facility and provided increased borrowing capacities. Accordingly, we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2014 Revolving Facility did not participate in the 2017 Revolving Facility. Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment.
In 2017, we recorded an insignificant loss on debt extinguishment related to the write-off of debt discount and deferred financing costs for the portions of the 2014 Credit Facility considered to be extinguished. This loss was recognized in the consolidated statements of comprehensive income within other income (expense), net.
In connection with our entry into the 2017 Credit Facility, we paid $3.1 million in financing costs, of which $1.0 million were capitalized in other assets and, together with a portion of the unamortized deferred financing costs from the 2014 Credit Facility and prior facilities, are being amortized into interest expense ratably over the term of the new facility. As of December 31, 2019 and 2018, deferred financing costs totaling $0.6 million and $0.9 million, respectively, were included in other assets on our consolidated balance sheets. We recorded aggregate financing costs of $1.8 million as a direct deduction from the carrying amount of our debt liability, which related to debt discount (fees paid to lenders) and debt issuance costs for the 2017 Term Loan.
Summary of the 2017 Credit Facility
The 2017 Revolving Facility includes (i) a $50.0 million sublimit available for the issuance of standby letters of credit, (ii) a $50.0 million sublimit available for swingline loans, and (iii) a $100.0 million sublimit available for multicurrency borrowings.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The 2017 Credit Facility is secured by the stock and limited liability company interests of certain of our subsidiaries and any of our material domestic subsidiaries.
Amounts borrowed under the dollar tranche revolving credit loans and term loan under the 2017 Credit Facility bear interest at a rate per annum equal to, at our option, (a) a base rate equal to the highest of (i) the prime rate announced by Bank of America, N.A., (ii) the Federal Funds Rate plus 0.50% and (iii) the Eurocurrency Rate (which varies depending on the currency in which the loan is denominated) plus 1.00% (the “Base Rate”), in addition to a margin of 0.00% to 0.75%, or (b) Eurocurrency Rate plus a margin of 1.00% to 1.75%.
We also pay a quarterly commitment fee on the unused portion of the 2017 Revolving Facility from 0.15% to 0.25% per annum, depending on our net leverage ratio. At December 31, 2019, the commitment fee was 0.20%.
The term loan under the 2017 Credit Facility requires periodic principal payments. The balance of the term loan and any amounts drawn on the revolving credit loans are due upon maturity of the 2017 Credit Facility in June 2022. We evaluate the classification of our debt as current or non-current based on the required annual maturities of the 2017 Credit Facility.
The 2017 Credit Facility includes financial covenants related to the net leverage ratio and interest coverage ratio, as well as restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. At December 31, 2019, we were in compliance with our debt covenants under the 2017 Credit Facility.
The 2017 Credit Facility also includes an option to request increases in the revolving commitments and/or request additional term loans in an aggregate principal amount of up to $200.0 million plus an amount, if any, such that the Net Leverage Ratio shall be no greater than 3.00 to 1.00. At December 31, 2019, our available borrowing capacity under the 2017 Credit Facility was $209.6 million.
Financing for 2019 acquisition
On January 2, 2019, we acquired YourCause for $157.7 million in cash, net of closing adjustments. We financed the acquisition with a revolving credit loan under the 2017 Credit Facility.
Other debt
In December 2019, we entered into a 4-year $2.2 million agreement to finance our purchase of software and related services for our internal use. The agreement is a non-interest-bearing note requiring four equal annual payments, with the first payment due in January 2020. Interest associated with the note will be imputed at the rate we would incur for amounts borrowed under the 2017 Credit Facility. As of December 31, 2019, there were no amounts outstanding under the agreement.
As of December 31, 2019, the required annual maturities related to the 2017 Credit Facility were as follows:
|
|
|
|
|
Years ending December 31,
(dollars in thousands)
|
Annual
maturities
|
|
2020
|
$
|
7,500
|
|
2021
|
7,500
|
|
2022
|
453,250
|
|
2023
|
—
|
|
2024
|
—
|
|
Thereafter
|
—
|
|
Total required maturities
|
$
|
468,250
|
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
|
|
10. Derivative Instruments
|
Cash flow hedges
We generally use derivative instruments to manage our variable interest rate risk. In July 2017, we entered into an interest rate swap agreement (the "July 2017 Swap Agreement"), which effectively converts portions of our variable rate debt under our credit facility to a fixed rate for the term of the July 2017 Swap Agreement. The notional value of the July 2017 Swap Agreement was $150.0 million with an effective date beginning in July 2017 through July 2021. We designated the July 2017 Swap Agreement as a cash flow hedge at the inception of the contract.
In February 2018, we entered into an additional interest rate swap agreement (the "February 2018 Swap Agreement"), which effectively converts portions of our variable rate debt under our credit facility to a fixed rate for the term of the February 2018 Swap Agreement. The notional value of the February 2018 Swap Agreement was $50.0 million with an effective date beginning in February 2018 through June 2021. We designated the February 2018 Swap Agreement as a cash flow hedge at the inception of the contract.
In June 2019, we entered into an additional interest rate swap agreement (the "June 2019 Swap Agreement"), which effectively converts portions of our variable rate debt under the 2017 Credit Facility to a fixed rate for the term of the June 2019 Swap Agreement. The notional value of the June 2019 Swap Agreement was $75.0 million with an effective date beginning in June 2019 through June 2021. We designated the June 2019 Swap Agreement as a cash flow hedge at the inception of the contract.
Undesignated contracts
In June 2017, we entered into a foreign currency option contract to hedge our exposure to currency fluctuations in connection with our acquisition of JustGiving because the purchase price was denominated in British Pounds. The notional value of the instrument was £100.0 million with an effective date beginning in June 2017 and maturing in September 2017. We settled the foreign currency option contract in September 2017. We did not designate the foreign currency option contract as a cash flow hedge for accounting purposes since it involved a business combination. As such, changes in the fair value of this derivative were recognized in earnings. The insignificant premium paid for this option and the $1.0 million in proceeds from the settlement are shown within cash flows from investing activities in our consolidated statements of cash flows.
As the closing date of our acquisition of JustGiving extended beyond the settlement date of the foreign currency option contract, we entered into a foreign currency forward contract in September 2017 with settlement in October 2017. The notional value of the instrument was £103.5 million. We did not designate the foreign currency forward contract as a cash flow hedge for accounting purposes since it involved a business combination. As such, changes in the fair value of this derivative were recognized in earnings. The insignificant premium paid for this forward contract is shown within cash flows from investing activities in our consolidated statements of cash flows.
The fair values of our derivative instruments were as follows as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
(dollars in thousands)
|
Balance sheet location
|
December 31,
2019
|
|
December 31,
2018
|
|
|
Balance sheet location
|
December 31,
2019
|
|
December 31,
2018
|
|
Derivative instruments designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate swaps, current portion
|
Prepaid expenses
and other current assets
|
$
|
—
|
|
$
|
—
|
|
|
Accrued expenses
and other current liabilities
|
$
|
—
|
|
$
|
—
|
|
Interest rate swaps, long-term portion
|
Other assets
|
—
|
|
2,260
|
|
|
Other liabilities
|
1,757
|
|
186
|
|
Total derivative instruments designated as hedging instruments
|
|
$
|
—
|
|
$
|
2,260
|
|
|
|
$
|
1,757
|
|
$
|
186
|
|
We did not have any undesignated derivative instruments as of December 31, 2019 and 2018.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The effects of derivative instruments in cash flow hedging relationships were as follows:
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized
in accumulated other
comprehensive
loss as of
|
|
Location
of gain (loss)
reclassified from
accumulated other
comprehensive
loss into income
|
Gain (loss) reclassified from accumulated
other comprehensive loss into income
|
|
(dollars in thousands)
|
December 31,
2019
|
|
Year ended
December 31, 2019
|
|
Interest rate swaps
|
$
|
(1,757
|
)
|
Interest expense
|
$
|
573
|
|
|
|
|
|
|
December 31,
2018
|
|
|
Year ended
December 31, 2018
|
|
Interest rate swaps
|
$
|
2,074
|
|
Interest expense
|
$
|
118
|
|
|
|
|
|
|
December 31,
2017
|
|
|
Year ended
December 31, 2017
|
|
Interest rate swaps
|
$
|
1,283
|
|
Interest expense
|
$
|
(293
|
)
|
Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit. Changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) is reclassified from accumulated other comprehensive income (loss) to current earnings. The estimated accumulated other comprehensive income as of December 31, 2019 that is expected to be reclassified into earnings within the next twelve months is $1.0 million. There were no ineffective portions of our interest rate swap derivatives during the years ended December 31, 2019, 2018 and 2017. See Note 14 to these consolidated financial statements for a summary of the changes in accumulated other comprehensive income (loss) by component.
We did not have any undesignated derivative instruments during 2019 and 2018. The effects of undesignated derivative instruments during 2017 were as follows:
|
|
|
|
|
|
|
Location of gain (loss)
recognized in income on derivative
|
Gain (loss) recognized in income
|
|
(dollars in thousands)
|
Year ended
December 31, 2017
|
|
Foreign currency option contracts
|
Other income (expense), net
|
$
|
513
|
|
Foreign currency forward contracts
|
Other income (expense), net
|
$
|
(51
|
)
|
Total gain
|
|
$
|
462
|
|
|
|
11. Commitments and Contingencies
|
Leases
We have operating leases for corporate offices, subleased offices and certain equipment and furniture. Our leases have remaining lease terms of less than 1 year to 19 years, some of which include options to extend the leases for up to 5 years. We do not have lease agreements with residual value guarantees, sale leaseback terms or material restrictive covenants.
In May 2016, we entered into a lease agreement for our Global Headquarters Facility in Charleston, South Carolina. There are two phases for construction of the Global Headquarters Facility. Phase One included a building with approximately 172,000 rentable square feet, which we began using in April 2018. The lease agreement also grants us a Phase Two option to request that the landlord construct and lease to us a second office building and related improvements. The lease agreement expires in April 2038 and provides for 4 renewal periods of 5 years each at a base rent equal to the then prevailing market rate for comparable buildings.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
We continue to lease our former headquarters facility, now called our Customer Operations Center, in Charleston, South Carolina. The lease expires in October 2023 and has 2 renewal options of 5 years each. We also have a lease for office space in Austin, Texas which expires in September 2023 and has 2 renewal options of 5 years each.
For each of the leases discussed above, we have not included the renewal options in the lease terms for calculating the lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time.
As of December 31, 2019, we had an additional operating lease for equipment that had not yet commenced with future rent payments of $0.8 million. This operating lease commenced on January 1, 2020 with a lease term of 3 years.
The components of lease expense for the year ended December 31, 2019, were as follows:
|
|
|
|
|
|
Year ended
December 31,
|
|
(dollars in thousands)
|
2019
|
|
Operating lease cost(1)
|
$
|
27,519
|
|
Variable lease cost
|
4,035
|
|
Sublease income
|
(3,189
|
)
|
Net lease cost
|
$
|
28,365
|
|
|
|
(1)
|
Includes short-term lease costs, which were immaterial.
|
During the twelve months ended December 31, 2019, we recorded $3.8 million in impairments of operating lease ROU assets associated with certain leased office spaces we ceased using as part of our facilities optimization restructuring. These impairments, which were based on our estimates about our inability to sublease the office spaces, were recorded as restructuring expense on our consolidated statements of comprehensive income. See Note 19 to these consolidated financial statements for additional details regarding our facilities optimization restructuring.
Total rent expense as determined under ASC 840 was $22.2 million and $17.1 million for the years ended December 31, 2018 and 2017, respectively.
Maturities of our operating lease liabilities as of December 31, 2019 were as follows:
|
|
|
|
|
Years ending December 31,
(dollars in thousands)
|
Operating leases(1)
|
|
2020
|
$
|
25,999
|
|
2021
|
21,840
|
|
2022
|
17,187
|
|
2023
|
14,651
|
|
2024
|
7,790
|
|
Thereafter
|
74,168
|
|
Total lease payments
|
161,635
|
|
Less: Amount representing interest
|
46,227
|
|
Present value of future payments
|
$
|
115,408
|
|
|
|
(1)
|
Our maturities of our operating lease liabilities do not include payments related to Phase Two of our New Headquarters Facility, as that option had not been exercised as of December 31, 2019.
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
As determined under ASC 840, the future minimum lease payments related to lease agreements with a remaining noncancelable term in excess of one year, net of related sublease commitments and lease incentives, as of December 31, 2018 were as follows:
|
|
|
|
|
Years ending December 31,
(dollars in thousands)
|
Operating leases
|
|
2019
|
$
|
20,808
|
|
2020
|
20,274
|
|
2021
|
16,924
|
|
2022
|
14,391
|
|
2023
|
12,923
|
|
Thereafter
|
81,755
|
|
Total minimum lease payments
|
$
|
167,075
|
|
Our ROU assets and lease liabilities are included in the following line items in our consolidated balance sheet:
|
|
|
|
|
(dollars in thousands)
|
December 31,
2019
|
|
Operating leases
|
|
Operating lease right-of-use assets
|
$
|
104,400
|
|
|
|
Accrued expenses and other current liabilities
|
$
|
19,784
|
|
Operating lease liabilities, net of current portion
|
95,624
|
|
Total operating lease liabilities
|
$
|
115,408
|
|
As of December 31, 2019, the weighted average remaining lease terms and discount rates were as follows:
|
|
|
|
(dollars in thousands)
|
December 31,
2019
|
|
Operating leases
|
|
Weighted average remaining lease term (years)
|
12.5
|
|
Weighted average discount rate
|
5.96
|
%
|
Supplemental cash flow information related to leases during the year ended December 31, 2019, was as follows:
|
|
|
|
|
|
Year ended
December 31,
|
|
(dollars in thousands)
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
24,569
|
|
Right-of-use assets obtained in exchange for lease obligations (non-cash):
|
|
Operating leases
|
102,245
|
|
Other commitments
As discussed in Note 9 to these consolidated financial statements, the term loans under the 2017 Credit Facility require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the 2017 Credit Facility in June 2022.
We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
us. As of December 31, 2019, the remaining aggregate minimum purchase commitment under these arrangements was approximately $91.7 million through 2023.
Solution and service indemnifications
In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our solutions or services. If we determine that it is probable that a loss has been incurred related to solution or service indemnifications, any such loss that could be reasonably estimated would be recognized. We have not identified any losses and, accordingly, we have not recorded a liability related to these indemnifications.
Guarantees and indemnification obligations
We enter into agreements in the ordinary course of business with, among others, customers, creditors, vendors and service providers. Pursuant to certain of these agreements we have agreed to indemnify the other party for certain matters, such as property damage, personal injury, acts or omissions of ours, or our employees, agents or representatives, or third-party claims alleging that the activities of its contractual partner pursuant to the contract infringe a patent, trademark or copyright of such third party.
Legal proceedings
We are subject to legal proceedings and claims that arise in the ordinary course of business. We make a provision for a loss contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed in this note, we have determined as of December 31, 2019, that no provision for liability nor disclosure is required related to any claim against us because (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.
All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against us. It is possible, nevertheless, that our consolidated financial position, results of operations or cash flows could be negatively affected in any particular period by an unfavorable resolution of one or more of such proceedings, claims or investigations.
We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including Canada, the U.K., Australia, Ireland and Costa Rica. We are generally subject to U.S. federal income tax examination for calendar tax years 2016 through 2019 as well as state and foreign income tax examinations for various years depending on statutes of limitations of those jurisdictions. We are currently under U.S. federal income tax examination for the calendar year 2016.
In December 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time U.S. Federal transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
The Tax Act eliminates the exceptions for performance-based compensation and CFO compensation from the calculation under Section 162(m) of the Internal Revenue Code. A transition rule allows for the grandfathering of performance-based compensation pursuant to a written binding contract in effect as of November 2, 2017.
The Tax Act also includes the Global Intangible Low-Tax Income ("GILTI") provision, a new mechanism for taxing certain foreign profits, the Base Erosion Anti-Abuse Tax, a minimum tax on payments to related parties, and the Foreign-Derived Intangible Income ("FDII") provision, a tax incentive to earn income abroad.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The following summarizes the components of income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Current taxes:
|
|
|
|
U.S. Federal
|
$
|
1,534
|
|
$
|
(1,088
|
)
|
$
|
2,565
|
|
U.S. State and local
|
613
|
|
1,182
|
|
(144
|
)
|
International
|
130
|
|
306
|
|
101
|
|
Total current taxes
|
2,277
|
|
400
|
|
2,522
|
|
Deferred taxes:
|
|
|
|
U.S. Federal
|
(1,724
|
)
|
659
|
|
(17,128
|
)
|
U.S. State and local
|
(2,235
|
)
|
45
|
|
398
|
|
International
|
359
|
|
(1,323
|
)
|
(1,084
|
)
|
Total deferred taxes
|
(3,600
|
)
|
(619
|
)
|
(17,814
|
)
|
Total income tax benefit
|
$
|
(1,323
|
)
|
$
|
(219
|
)
|
$
|
(15,292
|
)
|
The following summarizes the components of income before provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
|
U.S.
|
$
|
5,149
|
|
$
|
47,532
|
|
$
|
58,547
|
|
International
|
5,436
|
|
(2,910
|
)
|
(206
|
)
|
Income before provision for income taxes
|
$
|
10,585
|
|
$
|
44,622
|
|
$
|
58,341
|
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
A reconciliation between the effect of applying the federal statutory rate and the effective income tax rate used to calculate our income tax provision (benefit) is as follows:
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Federal statutory rate
|
21.0
|
%
|
21.0
|
%
|
35.0
|
%
|
Effect of:
|
|
|
|
State income taxes, net of federal benefit
|
(1.7
|
)
|
4.1
|
|
1.8
|
|
Change in federal income tax rate applied to deferred tax balances
|
—
|
|
—
|
|
(43.1
|
)
|
Change in state income tax rate applied to deferred tax balances
|
(3.1
|
)
|
(0.4
|
)
|
—
|
|
Unrecognized tax benefit
|
4.4
|
|
(2.6
|
)
|
1.5
|
|
State credits, net of federal benefit
|
(15.4
|
)
|
(1.9
|
)
|
(1.4
|
)
|
Change in valuation reserve (primarily state credit reserves)
|
3.7
|
|
0.4
|
|
(1.0
|
)
|
Federal credits generated
|
(37.6
|
)
|
(10.4
|
)
|
(5.8
|
)
|
Foreign tax rate
|
(6.3
|
)
|
0.4
|
|
0.2
|
|
Acquisition costs
|
0.5
|
|
—
|
|
2.2
|
|
Section 162(m) limitation
|
30.8
|
|
4.2
|
|
2.5
|
|
Stock-based compensation
|
(20.2
|
)
|
(17.4
|
)
|
(18.9
|
)
|
GILTI inclusion
|
5.9
|
|
—
|
|
—
|
|
FDII benefit
|
(1.5
|
)
|
(0.7
|
)
|
—
|
|
Nondeductible meals, entertainment and transportation
|
11.3
|
|
2.6
|
|
0.8
|
|
Other
|
(4.3
|
)
|
0.2
|
|
—
|
|
Income tax benefit effective rate
|
(12.5
|
)%
|
(0.5
|
)%
|
(26.2
|
)%
|
The decrease in our effective income tax rate in 2019, when compared to 2018, was primarily due to the heightened impact of research credit generation net of Section 162(m) nondeductible compensation. Furthermore, the 2019 effective tax rate was favorably impacted by other state tax credits net of an overall increase to uncertain tax positions. Lastly, the effective tax rate was negatively impacted by GILTI, net of FDII benefit, resulting from an increase in non-US earnings. The reduced base further magnified the impact of other nondeductible items.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The significant components of our deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
Deferred tax assets relating to:
|
|
|
Federal and state and foreign net operating loss carryforwards
|
$
|
9,203
|
|
$
|
11,021
|
|
Federal, state and foreign tax credits
|
24,435
|
|
18,936
|
|
Operating leases
|
35,620
|
|
—
|
|
Intangible assets
|
1,560
|
|
1,041
|
|
Stock-based compensation
|
11,717
|
|
11,462
|
|
Accrued bonuses
|
1,713
|
|
973
|
|
Deferred revenue
|
682
|
|
854
|
|
Allowance for doubtful accounts
|
1,374
|
|
1,242
|
|
Other
|
7,487
|
|
5,607
|
|
Total deferred tax assets
|
93,791
|
|
51,136
|
|
Deferred tax liabilities relating to:
|
|
|
Intangible assets
|
(46,569
|
)
|
(43,700
|
)
|
Operating leases
|
(32,888
|
)
|
—
|
|
Fixed assets
|
(4,446
|
)
|
(4,444
|
)
|
Costs of obtaining contracts
|
(21,128
|
)
|
(19,573
|
)
|
Capitalized software development costs
|
(26,107
|
)
|
(19,469
|
)
|
Other
|
(315
|
)
|
(926
|
)
|
Total deferred tax liabilities
|
(131,453
|
)
|
(88,112
|
)
|
Valuation allowance
|
(6,453
|
)
|
(6,855
|
)
|
Net deferred tax liability
|
$
|
(44,115
|
)
|
$
|
(43,831
|
)
|
As of December 31, 2019, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $21.4 million, $19.3 million and $23.8 million, respectively. The federal and state net operating loss carryforwards are subject to various Internal Revenue Code limitations and applicable state tax laws. If not utilized, the federal net operating loss carryforwards will begin to expire in 2028 and the state net operating loss carryforwards will expire over various periods beginning in 2020. Our foreign net operating loss carryforwards have an unlimited carryforward period. As of December 31, 2019, our foreign tax credit carryforwards for income tax purposes were insignificant. Our federal tax credit carryforwards for income tax purposes were approximately $9.8 million. Our state tax credit carryforwards for income tax purposes were approximately $16.0 million, net of federal benefit. If not utilized, the federal tax credit carryforwards will begin to expire in 2036 and the state tax credit carryforwards will begin to expire in 2020. A portion of the foreign and state net operating loss carryforwards and state credit carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use such carryforwards.
The following table illustrates the change in our deferred tax asset valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
Balance
at beginning
of year
|
|
Acquisition-
related
change
|
|
Charges to
expense
|
|
Balance at
end of
year
|
|
(dollars in thousands)
|
2019
|
$
|
6,855
|
|
$
|
—
|
|
$
|
(402
|
)
|
$
|
6,453
|
|
2018
|
7,205
|
|
16
|
|
(366
|
)
|
6,855
|
|
2017
|
6,994
|
|
—
|
|
211
|
|
7,205
|
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Balance at December 31, 2018
|
$
|
3,704
|
|
$
|
5,160
|
|
$
|
3,145
|
|
Increases from prior period positions
|
1,183
|
|
104
|
|
1,860
|
|
Decreases in prior year positions
|
(385
|
)
|
(413
|
)
|
(238
|
)
|
Increases from current period positions
|
456
|
|
58
|
|
404
|
|
Lapse of statute of limitations
|
(612
|
)
|
(1,205
|
)
|
(11
|
)
|
Balance at December 31, 2019
|
$
|
4,346
|
|
$
|
3,704
|
|
$
|
5,160
|
|
The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $3.9 million at December 31, 2019. Certain prior period amounts relating to our 2014 acquisitions are covered under indemnification agreements and, therefore, we have recorded a corresponding indemnification asset. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2019 and December 31, 2018 was $1.0 million and $0.7 million, respectively. The total amount of interest and penalties included in the consolidated statements of comprehensive income as an increase or decrease in income tax expense for 2019, 2018 and 2017 was insignificant.
We have taken federal and state tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits might decrease within the next twelve months. This possible decrease could result from the expiration of statutes of limitations. The reasonably possible decrease at December 31, 2019 was $1.4 million.
For our undistributed earnings of foreign subsidiaries, which we do not consider to be significant, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States. Accordingly, we have not provided for U.S. state income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries. If some or all of such earnings were to be remitted, the amount of taxes payable would be insignificant.
|
|
13. Stock-based Compensation
|
Employee stock-based compensation plans
Under the 2016 Equity and Incentive Compensation Plan (the "2016 Equity Plan"), we may grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards and cash incentive awards to employees, directors and consultants. We maintain other stock-based compensation plans including the 2008 Equity Incentive Plan (the “2008 Equity Plan”), under which no additional grants may be made.
In connection with the acquisition of Convio in May 2012, we maintain the Convio, Inc. 1999 Stock Option/Stock Issuance Plan, as amended (the “Convio 1999 Plan”) and Convio, Inc. 2009 Stock Incentive Plan, as amended (the “Convio 2009 Plan”), which we assumed upon the acquisition of Convio. Our Compensation Committee of the Board of Directors administers all of these plans and the stock-based awards are granted under terms determined by them.
The total number of authorized stock-based awards available under our plans was 7,558,625 as of December 31, 2019. We issue common stock from our pool of authorized stock upon exercise of stock options and stock appreciation rights, vesting of restricted stock units or upon granting of restricted stock.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Historically, we have issued four types of awards under these plans: restricted stock awards, restricted stock units, stock appreciation rights and stock options. The following table sets forth the number of awards outstanding for each award type as of:
|
|
|
|
|
|
|
Outstanding at December 31,
|
|
Award type
|
2019
|
|
2018
|
|
Restricted stock awards
|
1,316,764
|
|
1,263,510
|
|
Restricted stock units
|
501,487
|
|
459,673
|
|
Stock appreciation rights
|
—
|
|
60,871
|
|
Stock options
|
206
|
|
836
|
|
The majority of the stock-based awards granted under these plans have a 10-year contractual term. Stock appreciation rights (“SARs”) have contractual lives of 7 years. Awards granted to our executive officers and certain members of management are subject to accelerated vesting upon a change in control as defined in the employees’ retention agreement.
Expense recognition
We recognize compensation expense associated with stock options and awards with performance or market based vesting conditions on an accelerated basis over the requisite service period of the individual grantees, which generally equals the vesting period. We recognize compensation expense associated with restricted stock awards and SARs on a straight-line basis over the requisite service period of the individual grantees, which generally equals the vesting period. We recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, we recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award is reversed in the period that the award is forfeited.
Stock-based compensation expense is allocated to cost of revenue and operating expenses on the consolidated statements of comprehensive income based on where the associated employee’s compensation is recorded. The following table summarizes stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Included in cost of revenue:
|
|
|
|
Cost of recurring
|
$
|
1,879
|
|
$
|
2,464
|
|
$
|
1,627
|
|
Cost of one-time services and other
|
1,487
|
|
2,778
|
|
1,843
|
|
Total included in cost of revenue
|
3,366
|
|
5,242
|
|
3,470
|
|
Included in operating expenses:
|
|
|
|
Sales, marketing and customer success
|
11,203
|
|
9,285
|
|
6,381
|
|
Research and development
|
11,115
|
|
9,048
|
|
7,765
|
|
General and administrative
|
32,949
|
|
24,699
|
|
23,015
|
|
Total included in operating expenses
|
55,267
|
|
43,032
|
|
37,161
|
|
Total stock-based compensation expense
|
$
|
58,633
|
|
$
|
48,274
|
|
$
|
40,631
|
|
The total amount of compensation cost related to unvested awards not recognized was $88.0 million at December 31, 2019. It is expected that this amount will be recognized over a weighted average period of 1.7 years.
Restricted stock awards
We have granted shares of common stock subject to certain restrictions under the 2016 Equity Plan and the 2008 Equity Plan. Restricted stock awards granted to employees vest in equal annual installments generally over 4 years from the grant date subject to the recipient’s continued employment with us. Restricted stock awards granted to non-employee directors
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
vest after one year from the date of grant or, if earlier, immediately prior to the next annual election of directors, provided the non-employee director is serving as a director at that time. The fair market value of the stock at the time of the grant is amortized on a straight-line basis to expense over the period of vesting. Recipients of restricted stock awards have the right to vote such shares and receive dividends.
The following table summarizes our unvested restricted stock awards as of December 31, 2019, and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
Restricted
stock awards
|
|
Weighted
average
grant-date
fair value
|
|
|
Weighted
average
remaining
contractual
term
(in years)
|
Aggregate
intrinsic value(1)
(in thousands)
|
|
Unvested at January 1, 2019
|
1,263,510
|
|
$
|
75.46
|
|
|
|
|
Granted
|
723,868
|
|
78.39
|
|
|
|
|
Vested
|
(557,749
|
)
|
67.26
|
|
|
|
|
Forfeited
|
(112,865
|
)
|
80.27
|
|
|
|
|
Unvested at December 31, 2019
|
1,316,764
|
|
79.92
|
|
|
8.4
|
$
|
104,814
|
|
|
|
(1)
|
The intrinsic value is calculated as the market value as of the end of the fiscal period.
|
The total fair value of restricted stock awards that vested during the years ended December 31, 2019, 2018 and 2017 was $37.5 million, $24.2 million and $19.4 million, respectively. The weighted average grant-date fair value of restricted stock awards granted during the years ended December 31, 2018 and 2017 was $94.51 and $74.08, respectively.
Restricted stock units
We have also granted restricted stock units subject to certain restrictions under the 2016 Equity Plan and the 2008 Equity Plan. Restricted stock units granted to employees vest in equal annual installments generally over 3 years from the grant date subject to the recipient’s continued employment with us. We have also granted restricted stock units for which vesting is subject to meeting certain performance and/or market conditions. Restricted stock units granted with a market condition had a fair market value assigned at the grant date based on the use of a Monte Carlo simulation model. The fair market value of the stock at the time of the grant is amortized to expense on a straight-line basis over the period of vesting except for awards with market or performance conditions, which are amortized on an accelerated basis over the period of vesting.
The following table summarizes our unvested restricted stock units as of December 31, 2019, and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
Restricted
stock units
|
|
Weighted
average
grant-date
fair value
|
|
|
Weighted
average
remaining
contractual
term
(in years)
|
Aggregate
intrinsic value(1)
(in thousands)
|
|
Unvested at January 1, 2019
|
459,673
|
|
$
|
79.78
|
|
|
|
|
Granted
|
302,719
|
|
77.90
|
|
|
|
|
Forfeited
|
(7,201
|
)
|
85.63
|
|
|
|
|
Vested
|
(253,704
|
)
|
75.68
|
|
|
|
|
Unvested at December 31, 2019
|
501,487
|
|
80.49
|
|
|
8.5
|
$
|
39,918
|
|
|
|
(1)
|
The intrinsic value is calculated as the market value as of the end of the fiscal period.
|
The total fair value of restricted stock units that vested during the years ended December 31, 2019, 2018 and 2017 was $19.2 million, $13.7 million, and $9.4 million, respectively. The weighted average grant date fair value of restricted stock units granted for the years ended December 31, 2018 and 2017 was $95.59 and $72.19, respectively.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Stock appreciation rights
SARs granted to employees were settled in stock at the time of exercise and vested in equal annual installments generally over 4 years from the date of grant subject to the recipient’s continued employment with us. The number of shares issued upon the exercise of the SARs was calculated as the difference between the share price of our stock on the date of exercise and the date of grant multiplied by the number of SARs divided by the share price on the exercise date.
There have been no new SARs granted since 2013 and all SARs previously granted were fully vested as of December 31, 2017. During the year ended December 31, 2019, 60,871 SARs were exercised, which had a weighted average exercise price of $22.24. The total intrinsic value of SARs exercised during the years ended December 31, 2019, 2018 and 2017 was $3.6 million, $12.4 million, and $14.2 million, respectively. The total fair value of SARs that vested during the year ended December 31, 2017 was insignificant. SARs granted with a market condition had a fair market value assigned at the grant date based on the use of a Monte Carlo simulation model. All other SARs granted had a fair market value assigned at the grant date based on the use of the Black-Scholes option pricing model.
Stock options
There have been no new stock option awards granted since 2005 and all outstanding stock options were fully vested as of December 31, 2010. The total intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was insignificant. All outstanding stock options granted had a fair market value assigned at the grant date based on the use of the Black-Scholes option pricing model.
Preferred stock
Our Board of Directors may fix the relative rights and preferences of each series of preferred stock in a resolution of the Board of Directors.
Dividends
Our Board of Directors has adopted a dividend policy, which provides for the distribution to stockholders a portion of cash generated by us that is in excess of operational needs and capital expenditures. The 2017 Credit Facility limits the amount of dividends payable and certain state laws restrict the amount of dividends distributed.
The following table provides information with respect to quarterly dividends paid on common stock during the year ended December 31, 2019.
|
|
|
|
|
|
|
|
Declaration Date
|
Dividend
per Share
|
|
Record Date
|
|
Payable Date
|
February 6, 2019
|
$
|
0.12
|
|
February 27
|
|
March 15
|
April 30, 2019
|
0.12
|
|
May 28
|
|
June 14
|
July 30, 2019
|
0.12
|
|
August 28
|
|
September 13
|
October 28, 2019
|
0.12
|
|
November 27
|
|
December 13
|
On February 10, 2020, our Board of Directors declared a first quarter 2020 dividend of $0.12 per share payable on March 13, 2020 to stockholders of record on February 28, 2020.
Stock repurchase program
In August 2010, our Board of Directors approved a stock repurchase program that authorized us to purchase up to $50.0 million of our outstanding shares of common stock. The program does not have an expiration date. The shares can be purchased from time to time on the open market or in privately negotiated transactions depending upon market conditions
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
and other factors. Under the 2017 Credit Facility, we also have restrictions on our ability to repurchase shares of our common stock.
We account for purchases of treasury stock under the cost method. The remaining amount available to purchase stock under the stock repurchase program was $50.0 million as of December 31, 2019.
Changes in accumulated other comprehensive loss by component
The changes in accumulated other comprehensive loss by component, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Accumulated other comprehensive loss, beginning of period
|
$
|
(5,110
|
)
|
$
|
(642
|
)
|
$
|
(604
|
)
|
By component:
|
|
|
|
Gains and losses on cash flow hedges:
|
|
|
|
Accumulated other comprehensive income (loss) balance, beginning of period
|
$
|
1,498
|
|
$
|
748
|
|
$
|
(3
|
)
|
Other comprehensive (loss) income before reclassifications, net of tax effects of $860, $(239) and $(374)
|
(2,399
|
)
|
670
|
|
574
|
|
Amounts reclassified from accumulated other comprehensive (loss) income to interest expense
|
(573
|
)
|
(118
|
)
|
293
|
|
Tax benefit included in provision for income taxes
|
151
|
|
31
|
|
(116
|
)
|
Total amounts reclassified from accumulated other comprehensive (loss) income
|
(422
|
)
|
(87
|
)
|
177
|
|
Net current-period other comprehensive (loss) income
|
(2,821
|
)
|
583
|
|
751
|
|
Reclassification upon adoption of ASU 2018-02
|
—
|
|
167
|
|
—
|
|
Accumulated other comprehensive (loss) income balance, end of period
|
$
|
(1,323
|
)
|
$
|
1,498
|
|
$
|
748
|
|
Foreign currency translation adjustment:
|
|
|
|
Accumulated other comprehensive loss balance, beginning of period
|
$
|
(6,608
|
)
|
$
|
(1,390
|
)
|
$
|
(601
|
)
|
Translation adjustments
|
2,641
|
|
(5,218
|
)
|
(789
|
)
|
Accumulated other comprehensive loss balance, end of period
|
(3,967
|
)
|
(6,608
|
)
|
(1,390
|
)
|
Accumulated other comprehensive loss, end of period
|
$
|
(5,290
|
)
|
$
|
(5,110
|
)
|
$
|
(642
|
)
|
|
|
15. Defined Contribution Plan
|
We have a defined contribution 401(k) plan (the "401K Plan") covering substantially all employees. Employees were able to contribute between 1% and 75% of their salaries in 2019, 2018 and 2017. We match 50% of qualified employees’ contributions up to 6% of their salary. The 401K Plan also provides for additional employer contributions to be made at our discretion. Total matching contributions to the 401K Plan for the years ended December 31, 2019, 2018 and 2017 were $8.7 million, $8.1 million and $7.1 million, respectively. There were no discretionary contributions by us to the 401K Plan in 2019, 2018 and 2017.
Our chief operating decision maker is our chief executive officer ("CEO"). Our chief operating decision maker uses consolidated financial information to make operating decisions, assess financial performance and allocate resources. We have one operating segment and one reportable segment.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The following table presents long-lived assets by geographic region based on the location of the assets.
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|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
United States
|
$
|
32,606
|
|
$
|
37,015
|
|
Other countries
|
2,940
|
|
3,016
|
|
Total property and equipment
|
$
|
35,546
|
|
$
|
40,031
|
|
See Note 17 to these consolidated financial statements for information about our revenues by geographic region.
Transaction price allocated to the remaining performance obligations
As of December 31, 2019, approximately $816 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 60% of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
We applied the practical expedient in ASC 606-10-50-14 and have excluded the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less (one-time services); and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (payment services and usage).
We also applied the practical expedient in ASC 606-10-65-1-(f)(3), whereby the transaction price allocated to the remaining performance obligations, or an explanation of when we expect to recognize that amount as revenue for all reporting periods presented before the date of the initial application, is not disclosed.
Contract balances
Our contract assets as of December 31, 2019 and December 31, 2018 were insignificant. Our opening and closing balances of deferred revenue were as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
Total deferred revenue
|
$
|
316,137
|
|
$
|
298,555
|
|
The increase in deferred revenue during the year ended December 31, 2019 was primarily due to new subscription sales of our cloud solutions. Our acquisition of YourCause on January 2, 2019 also modestly contributed to the increase in deferred revenue since December 31, 2018. We also sold more subscription-based contracts for retained professional services. The amount of revenue recognized during the year ended December 31, 2019 that was included in the deferred revenue balance at the beginning of the period was approximately $290 million. The amount of revenue recognized during the year ended December 31, 2019 from performance obligations satisfied in prior periods was insignificant.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
Disaggregation of revenue
We sell our cloud solutions and related services in two primary geographical markets: to customers in the United States, and to customers located outside of the United States. The following table presents our revenue by geographic area based on the address of our customers:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018
|
|
2017
|
|
United States
|
$
|
775,308
|
|
$
|
727,366
|
|
$
|
706,904
|
|
Other countries
|
125,115
|
|
121,240
|
|
81,583
|
|
Total revenue
|
$
|
900,423
|
|
$
|
848,606
|
|
$
|
788,487
|
|
The General Markets Group ("GMG"), the Enterprise Markets Group ("EMG"), and the International Markets Group ("IMG") comprise our go-to-market organizations. The following is a description of each market group as of December 31, 2019:
|
|
•
|
The GMG focuses on sales to all K-12 private schools, faith communities and arts and cultural organizations, as well as emerging and mid-sized prospects in the U.S.;
|
|
|
•
|
The EMG focuses on sales to all healthcare and higher education institutions, corporations and foundations, as well as large and/or strategic prospects in the U.S.; and
|
|
|
•
|
The IMG focuses on sales to all prospects and customers outside of the U.S.
|
The following table presents our revenue by market group:
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
(dollars in thousands)
|
2019
|
|
2018(2)
|
|
2017(2)
|
|
GMG
|
$
|
378,384
|
|
$
|
362,585
|
|
$
|
353,166
|
|
EMG(1)
|
392,258
|
|
360,873
|
|
352,034
|
|
IMG
|
126,511
|
|
123,522
|
|
83,217
|
|
Other
|
3,270
|
|
1,626
|
|
70
|
|
Total revenue
|
$
|
900,423
|
|
$
|
848,606
|
|
$
|
788,487
|
|
|
|
(1)
|
The operating results of YourCause have been included in EMG from the date of acquisition. See Note 3 to these consolidated financial statements for details regarding this acquisition.
|
|
|
(2)
|
Beginning in the first quarter of 2019, all of our Canadian operations are included in IMG. We have recast our revenue by market group for the twelve months ended December 31, 2018 and 2017, to present them on a consistent basis with the current year.
|
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
|
|
18. Quarterly Results (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
December 31,
2019
|
|
September 30,
2019
|
|
June 30,
2019
|
|
March 31,
2019
|
|
Total revenue
|
$
|
237,839
|
|
$
|
221,120
|
|
$
|
225,634
|
|
$
|
215,830
|
|
Gross profit
|
121,302
|
|
119,323
|
|
124,827
|
|
116,547
|
|
Income from operations
|
3,586
|
|
7,883
|
|
13,491
|
|
2,185
|
|
Income before provision for income taxes
|
(1,262
|
)
|
4,930
|
|
9,873
|
|
(2,956
|
)
|
Net income
|
1,324
|
|
4,566
|
|
7,140
|
|
(1,122
|
)
|
Earnings per share
|
|
|
|
|
Basic
|
$
|
0.03
|
|
$
|
0.10
|
|
$
|
0.15
|
|
$
|
(0.02
|
)
|
Diluted
|
0.03
|
|
0.09
|
|
0.15
|
|
(0.02
|
)
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
December 31,
2018
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
Total revenue
|
$
|
221,218
|
|
$
|
209,532
|
|
$
|
213,672
|
|
$
|
204,184
|
|
Gross profit
|
117,922
|
|
114,295
|
|
118,500
|
|
116,147
|
|
Income from operations
|
14,679
|
|
15,783
|
|
11,374
|
|
17,581
|
|
Income before provision for income taxes
|
11,485
|
|
11,496
|
|
7,417
|
|
14,224
|
|
Net income
|
9,334
|
|
11,164
|
|
6,592
|
|
17,751
|
|
Earnings per share
|
|
|
|
|
Basic
|
$
|
0.20
|
|
$
|
0.24
|
|
$
|
0.14
|
|
$
|
0.38
|
|
Diluted
|
0.19
|
|
0.23
|
|
0.14
|
|
0.37
|
|
Note: The individual amounts for each quarter may not sum to full year totals due to rounding.
The results of operations of acquired companies are included in the consolidated results of operations from the date of their respective acquisition. See Note 3 of these consolidated financial statements for details related to our business acquisitions.
During 2017, in an effort to further our organizational objectives, including improved operating efficiency, customer outcomes and employee satisfaction, we initiated a multi-year plan to consolidate and relocate some of our existing offices to modern and more collaborative workspaces with short-term financial commitments. These workspaces are also more centrally located for our employees and closer to our customers and prospects. Restructuring costs incurred prior to our adoption of ASU 2016-02 on January 1, 2019 consisted primarily of costs to terminate lease agreements, contractual lease payments, net of estimated sublease income, upon vacating space as part of the plan, as well as insignificant costs to relocate affected employees and write-off facilities-related fixed assets that we would no longer use.
Upon adoption of ASU 2016-02 at January 1, 2019, we reduced our operating lease ROU assets recognized at transition by the carrying amounts of the restructuring liabilities for certain leased office spaces that we ceased using prior to December 31, 2018. See additional details below.
Restructuring costs incurred during the year ended December 31, 2019 consisted primarily of operating lease ROU asset impairment costs and, to a lesser extent, lease payments for offices we have ceased using and write-offs of facilities-related fixed assets that we will no longer use. See Notes 11 and 6 to these consolidated financial statements for additional details regarding these impairment costs and fixed asset write-offs.
As of December 31, 2019, we have substantially completed our facilities optimization restructuring plan. Any remaining restructuring costs related to these activities are expected to be insignificant.
Blackbaud, Inc.
Notes to Consolidated Financial Statements (continued)
The following table summarizes our facilities optimization restructuring costs as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative costs incurred as of
|
|
|
Costs incurred during the
year ended(1)
|
|
|
Cumulative costs incurred as of
|
|
(in thousands)
|
December 31, 2018
|
|
|
December 31, 2019
|
|
By component:
|
|
|
|
|
|
Contract termination costs
|
$
|
4,176
|
|
|
$
|
4,906
|
|
|
$
|
9,082
|
|
Other costs
|
1,208
|
|
|
902
|
|
|
2,110
|
|
Total
|
$
|
5,384
|
|
|
$
|
5,808
|
|
|
$
|
11,192
|
|
|
|
(1)
|
Includes $3.8 million of operating lease ROU asset impairment costs.
|
The change in our liability related to our facilities optimization restructuring during the twelve months ended December 31, 2019, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued at
|
|
|
Increases for incurred costs(1)
|
|
|
Written off
upon adoption
of ASU 2016-02(2)
|
|
|
Costs paid
|
|
|
Accrued at
|
|
(in thousands)
|
December 31, 2018
|
|
|
|
|
|
December 31, 2019
|
|
By component:
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
$
|
1,865
|
|
|
$
|
4,906
|
|
|
$
|
(1,656
|
)
|
|
$
|
(5,115
|
)
|
|
$
|
—
|
|
Other costs
|
50
|
|
|
902
|
|
|
—
|
|
|
(952
|
)
|
|
—
|
|
Total
|
$
|
1,915
|
|
|
$
|
5,808
|
|
|
$
|
(1,656
|
)
|
|
$
|
(6,067
|
)
|
|
$
|
—
|
|
|
|
(1)
|
Includes $3.8 million of operating lease ROU asset impairment costs.
|
|
|
(2)
|
Upon adoption of ASU 2016-02 at January 1, 2019, we reduced our operating lease ROU assets recognized at transition by the carrying amounts of the restructuring liabilities for certain leased office spaces that we ceased using prior to December 31, 2018.
|