August 5, 2004

Blackbaud's 1st report upbeat

Kyle Stock  /  Post and Courier

Software maker has better-than-expected quarterly earnings after going public

In its first financial announcement as a publicly traded company, Daniel Island-based software maker Blackbaud Inc. reported better-than-expected earnings Wednesday for the quarter ended June 30.

The company posted $5.3 million in net income compared with a $246,000 loss in the second quarter of 2003. Revenue for the three-month period jumped from $29.8 million to $35.6 million, an 18.9 percent increase.

Blackbaud executives said new products and successful efforts to win contracts with bigger organizations boosted results beyond expectations. "Obviously, we were quite pleased with this performance, especially in light of what investors were telling us was one of the worst quarters for software companies in a couple of years," Robert Sywolski, Blackbaud's chief executive officer, said in a conference call.

Blackbaud sells software to help nonprofits operate and win donations more efficiently. Unlike most software companies, Blackbaud derives most of its revenue from training clients and servicing its products.

In the most recent quarter, 77 percent of sales came from add-on services and subscriptions. Blackbaud also benefited from efforts to do more business with big nonprofits – organizations that are willing to spend between $25,000 and $100,000 to organize vast databases and optimize fundraising.

The company's sales and marketing costs jumped 33.2 percent in the second quarter, but it won sizable new accounts at the same time, including a big contract with Mission of Mercy, a Colorado Springs-based nonprofit that garnered $11.2 million in 2002 to help poverty-stricken children.

For the first half of the year, Blackbaud's net income swung to $9.3 million from a $297,000 loss in the first six months of 2003. Revenue was up 17 percent for the period. In announcing the results, Blackbaud executives would not answer questions from reporters or analysts, citing a federally mandated quiet period following its July 21 initial public offering. Yet Blackbaud used Wednesday's announcements to detail its business for potential investors. Underwriters could get only $8 per share for the company's IPO, $2 to $4 less than hoped for. Some analysts believe the stock isundervalued.

Sywolski pointed out that Blackbaud leads the nonprofit software market with 12,500 clients, and noted its 30 percent operating margins and rising sales. "Although it may be a bit of a generalization, it is fair to say that nonprofits are well behind the for-profit sector in terms of technology," he said. "There seems to be plenty of headroom in this market." U

nderwriters of the Blackbaud IPO, including JP Morgan and Bank of America Securities, exercised their right to buy an additional 1.2 million shares at $8 Wednesday. Blackbaud's stock dropped 4.12 percent to $9.55 on the Nasdaq Wednesday. The shares hit their highest point yet Tuesday, closing at $10.15. The company will give revenue and earnings forecasts for the rest of the year in another conference call Aug. 17, once the quiet period is over.