Blackbaud Projects $1B In Revenue, Millions In Breach Costs
Blackbaud Projects $1B In Revenue, Millions In Breach Costs

Blackbaud estimates ongoing legal fees related to a 2020 data breach that spawned class action lawsuits to be $25 million to $35 million in 2022 after costs exceed the limits of its insurance by the first quarter of the year.

The Charleston, S.C.-based fundraising technology firm announced financial results after markets closed on Tuesday for its fourth quarter and for the full year ending Dec. 31, 2021. The stock (BLKB) closed Tuesday at $61.69 per share on NASDAQ and opened lower today at $60.33 per share. That’s $26.63 per share off its 52-week high of $86.96 – about 30%.

The company expects to exceed the limits of its insurance in Q1, Tony Boor, executive vice president and chief financial officer, said during an earnings call with analysts this morning. As of Dec. 31, Blackbaud has not recorded a loss contingency related to the data breach “as it is unable to reasonably estimate the possible amount or range of such loss.” In line with the company’s policy, all associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred.

The year-end acquisition of EVERFI is expected to add $120 million to revenue to push the company over the $1-billion mark in 2022.

GAAP total revenue for 2021 was $927.7 million, up 1.6%, with $880.9 million in GAAP recurring revenue, up 3.5%. Non-GAAP organic recurring revenue increased 3.5%. Non-GAAP income from operations was $200.8 million, with non-GAAP operating margin of 21.6%, an increase of 30 basis points (0.3%).

For 2022, Blackbaud estimates:

— Non-GAAP revenue of $1.075 billion to $1.095 billion, which includes about $120 million of expected EVERFI non-GAAP revenue.

— Non-GAAP adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 24% to 24.5%, including about $13 million of expected EVERFI non-GAAP adjusted EBITDA.

— Non-GAAP earnings per share of $2.63 to $2.82.

Capital expenditures for the year are expected to be between $60 million and $70 million, including about $45 million to $55 million of capitalized software development costs.

Blackbaud shuttered most of its offices in 2022, shifting to a primarily remote workforce, and keeping its Charleston, S.C. headquarters for on-demand office and meeting space, and team building exercises. The move eliminated about $12 million in expenses in Q4, Boor said.

The company will start closing data centers in 2022 “for the first time since I’ve been here,” Boor said, and moving to third-party cloud services. That will have a positive impact on margins over several years starting in 2023, he said.

President and CEO Mike Gianoni described 2021 as a turning point for both the market and the company. “We’re carrying a lot of momentum into 2022 and we just layered on a tremendous acquisition in EVERFI,” he said in a statement released after markets closed on Tuesday. “Our plan to progress up the Rule of 40 by balancing sustainable mid-to-high single-digit organic revenue growth and meaningful margin expansion over the next few years is a winning combination for Blackbaud and our shareholders.”

The Rule of 40 is the idea that a software as a service (SaaS) company’s combined growth rate and profit margin should be greater than 40%.

The mid-point of financial guidance for this year calls for total revenue growth of about 17%, a significant acceleration in organic revenue growth to about 5%, and nearly 30% on a Rule of 40 basis which is roughly 250 basis points (0.25%) of improvement year over year at constant currency, he added.

The continued acceleration of contractual recurring revenue and another strong transactional revenue performance drove Q4 recurring revenue growth of 4%, according to Boor.

“This is a great indication of what’s achievable going forward as we continue to execute against the ten growth drivers outlined as part of our investor session this time last year,” he said. Boor said they anticipate the majority of full year organic revenue growth in 2022 to come from:

— Accelerated contractual recurring revenue growth;

— Continued strength in transaction revenues; and,

— Leveling off of one-time services revenue after several years of strategically shifting away from one-time services.

“Our profitability and free cash flow well exceeded our initial expectations in 2021,” Boor said. “The timing of some anticipated spend pushed from 2021 to 2022 in areas like innovation, customer success, security and cloud infrastructure and a higher velocity sales motion, but we’re well positioned to drive substantial margin expansion beyond 2022.”

The $750-million cash deal for EVERFI announced in January doubles Blackbaud’s total addressable market (TAM) to more than $20 billion and presents substantial cross-sell opportunities with YourCause. It’s expected to significantly contribute to total revenue growth in 2022 and pull forwards the timeline to achieve long-term financial goals. The EVERFI acquisition is approximately $450 million in cash and $300 million in common stock, roughly 3.8 million shares.

During the fourth quarter, Blackbaud repurchased 138,785 shares of its common stock at a cost of $10.1 million. In December, the board of directors reauthorized and replenished the existing share repurchase program to $250 million.