BLACKBAUD, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited, condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis presents financial information denominated in millions of dollars which can lead to differences from rounding when compared to similar information contained in the unaudited, condensed consolidated financial statements and related notes which are primarily denominated in thousands of dollars.
Executive Summary
We are the world's leading cloud software company powering social good. Serving the entire social good community-nonprofits, higher education institutions, K-12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies and individual change agents-we connect and empower organizations 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 (CSR) and environmental, social and governance (ESG), school management, ticketing, grantmaking, financial management, payment processing and analytics. Serving the industry for more than four decades, we are a remote-first company headquartered inCharleston, South Carolina , with operations inthe United States ,Australia ,Canada ,Costa Rica and theUnited Kingdom . 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 transactional services; (iii) providing software maintenance and support services; (iv) providing Impact-as-a-Service™ digital educational content; and (v) providing professional services, including implementation, consulting, training, analytic and other services.
COVID-19 Impact
The economic impact of COVID-19 on the social good industry remains somewhat uncertain, although we are seeing signs of recovery in the industry. Our end markets continue to display resilience in the post-pandemic recovery with a digital-first mindset. InFebruary 2022 , theBlackbaud Institute released its annual Charitable Giving Report, which reported that overall giving in 2021 grew 9% with the percent of giving done online up significantly from pre-pandemic levels and holding steady in the low-teens. Nearly 30% of those online donations are being made on a mobile device, which we see as a long-term positive as we equip organizations to process mobile donations and optimize mobile user interfaces. If our existing and prospective customers remain cautious in their purchase decisions, our operating environment may continue to be challenging. Notwithstanding these conditions, we remain focused on continuing to execute our four-point strategy and strengthening our leadership position.
Four-Point Strategy
1 Expand Total Addressable Market
2 Lead with World Class Teams and Operations
3 Delight Customers with Innovative Cloud Solutions
4 Focus on Employees, Culture and ESG Initiatives
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1.Expand Total Addressable Market ("TAM")
InDecember 2021 , we doubled our TAM when we acquired EVERFI, an industry leader in global social impact technology. Adding EVERFI advances our position as a leader in the rapidly evolving ESG and CSR spaces and offers cross-selling and upselling opportunities through complementary product offerings with YourCause® solutions. Our TAM now stands at over$20 billion , and we remain active in the evaluation of opportunities to further expand our addressable market through acquisitions and internal product development.
2.Lead with World Class Teams and Operations
This strategy expands upon our previous strategies to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40 (see discussion of Non-GAAP Financial Measures below). We recently announced a series of strategic organizational updates to streamline our business operations and become even more customer centric. We created three new roles: Chief Operating Officer, Chief Commercial Officer and Executive Vice President of Corporations. We believe the appointments for these new roles will: ensure consistency in our approach to the customer experience; further streamline and simplify our go-to-market efforts to maximize our outcomes as a global company; and further align our YourCause and EVERFI offerings and continue our investment in being the partner of choice for corporations focused on social responsibility and impact. We also recently appointed a new member to our board of directors, who brings over 20 years of experience in technology and cybersecurity to our board.
3.Delight Customers with Innovative Cloud Solutions
We are excited about the role Blackbaud is playing in developing innovative solutions for our customers to diversify the way they receive and process donations. Recently, we announced the launch of Prospect Insights-a new software tool within Raiser's Edge NXT that automates in-app intelligence related to major giving likelihood and capacity, and then prescribes actions related to portfolio management and solicitation. Also, inJune 2022 , we held our annual developer conference focusing on the low-code movement and accessible technology with a high number of attendees. Feedback from the conference showed that a significant majority of attendees left feeling that Blackbaud empowers customers to improve usage and experience with our solutions.
4.Focus on Employees, Culture and ESG Initiatives
We recently announced that we achieved carbon neutrality for 2021. This is a goal we have been striving towards and our shift to a remote-first workforce enabled us to accelerate our timeline. Since 2019, Blackbaud has reduced its global real estate footprint by 50%, energy emissions to run office space by 63% and employee commute emissions by 75%. With a multi-pronged climate strategy, Blackbaud is focused on reducing emissions, using energy efficiently and investing in environmental projects for a more sustainable future. We shared more about our ESG strategy on our Corporate Social Responsibility website during the second quarter. Our mission driven culture has been in our DNA since inception and is very attractive in a competitive labor market. We continue to foster a diverse and inclusive environment focused on employee engagement and connectedness with our remote-first workforce strategy. We have a significant role to play in driving advances in the social good space, and we are proud of the strong corporate culture we have built and continue to cultivate in today's environment.
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Financial Summary
Total revenue ($M) Income from operations ($M)
YoY Growth (%) YoY Growth (%)
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Total revenue increased by$35.5 million and$73.4 million during the three and six months endedJune 30, 2022 , respectively, when compared to the same periods in 2021, driven largely by the following:
+ Growth in recurring revenue primarily related to:
•increases in contractual recurring revenue of $26.2 million and
respectively, related to the performance of our cloud
solutions, of which
million and $47.5 million , respectively, was attributable to EVERFI; partially
offset by decreases in maintenance revenue as customers migrate to our cloud
solutions; also offsetting the increases in contractual recurring revenue are
decreases related to fluctuations in foreign currency
exchange rates of
million and $1.1 million , respectively; and
•increases in transactional recurring revenue of $9.3 million and
respectively, primarily due to an increase in online charitable giving, the
continued shift toward virtual fundraising and, to a lesser extent, increased
transactional volume as our customer's constituents have begun to return to
in-person events; partially offset by decreases related to fluctuations in foreign
currency exchange rates of $1.8 million and $2.3 million , respectively.
+ Increases in one-time consulting revenue due primarily to our acquisition of
EVERFI, largely offset by a decrease in implementation and customization services,
in line with our multi-year strategic shift from a license-based and one-time
services business model to a cloud subscription business model. Our cloud
subscription offerings generally require lessimplementation and customization
services.
- Decreases in one-time analytics revenue as analytics are generally integrated in
our cloud solutions
We currently expect that fluctuations in foreign currency exchange rates will
have a significant negative impact on our total revenue for the full year 2022.
Our latest projections suggest some softness in our full year 2022 bookings plan
for EVERFI, which has minimal impact on our full year 2022 revenues given the
ratable revenue recognition. We will be intently focused on closing the EVERFI
bookings gap during the remainder of 2022. Additionally, we currently expect
one-time services and other revenue to be relatively flat during 2022 when
compared to 2021, inclusive of incremental one-time revenue expected from
EVERFI.
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For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 46 .
Income from operations decreased by$13.0 million and$25.6 million during the three and six months endedJune 30, 2022 , respectively, when compared to the same periods in 2021, driven largely by the following: - Increases in compensation costs other than stock-based
compensation of
and $40.8 million , respectively, primarily due to increased employee headcount due to
our acquisition of EVERFI
- Increases in Security Incident-related expenses, net of
insurance, of
and $15.1 million , respectively. See "Security Incident update" below.
- Increases in third-party contractor costs of $7.0 million
and
respectively, and hosting costs of $1.9 million and $4.6 million, respectively,
primarily attributable to our acquisition of EVERFI and, to a lesser extent, our
continued migration of our cloud infrastructure to leading public cloud service
providers and investments in security
- Increases in transaction-based costs of $4.2 million and
related to the increase in the volume of transactions for which we process payments
- Increases in amortization of intangible assets from
business combinations of
million and $7.4 million , respectively, due to our acquisition of EVERFI
- Increases in infrastructure and building costs of $3.0 million and
respectively, primarily related to our acquisition of EVERFI and investments in
security tools
- A $2.3 million noncash impairment charge during the threeand six months ended
June 30, 2022 , against previously capitalized software
development costs that reduced
the carrying value of those assets to zero. The impairment charge resulted primarily
from our decision to end customer support for certain solutions
- Increases in acquisition and disposition-related costs of
million, respectively, primarily related to a $2.0 million noncash impairment of
certain insignificant intangible assets held for sale
- Increases in marketing costs of $1.8 million and $4.0 million, respectively,
primarily due to our acquisition of EVERFI
- Increases in travel costs of $1.7 million and $2.6 million, respectively, due to our
easing of restrictions on non-essential employee travel, which went into effect
during March 2020 in response to the COVID-19 pandemic
+ Increases in total revenue, as described above
+ Decreases in stock-based compensation expense of $2.7 million and
respectively, attributable to:
•A decrease in the grant date fair value of our annual equity awards granted to
employees during 2022 compared to 2021; and
•As a one-time response to COVID-19, replacement of our 2020 base salary merit
increases with one-year time-based equity awards, which vested and were recognized as
expense between May 1, 2020 and May 1, 2021 .
We are continuing to make critical investments in the business in areas such as
digital marketing, engineering, security, customer success and our continued
shift of cloud infrastructure to leading public cloud service providers. Our
profitability through the second quarter reflects the addition of EVERFI and
some of these incremental investments that were pushed from 2021 into 2022,
particularly in areas where we are increasing headcount.
We continuously seek opportunities to optimize our portfolio of solutions to
focus time and resources on innovation that will have the greatest impact for
our customers and the markets we serve, and drive the highest return on
investment. To that end, we will continue to simplify and rationalize our
portfolio through product sunsets and divestitures of non-core businesses and
technologies.
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Customer retention
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Our recurring revenue contracts are generally for a term of three years at contract inception with one to three-year renewals thereafter. We anticipate a continued decrease in maintenance contract renewals as we transition our solution portfolio and maintenance customers from a perpetual license-based model to a cloud subscription delivery model. In the long term, we also anticipate an increase in recurring subscription contract renewals as we continue focusing on innovation, quality and the integration of our cloud solutions, which we believe will provide value-adding capabilities to better address our customers' needs. Due primarily to these factors, we believe a recurring revenue customer retention measure that combines recurring subscription, maintenance and recurring service customer contracts provides a better representation of our customers' overall behavior. For the twelve months endedJune 30, 2022 , approximately 92% of our customers with recurring revenue contracts were retained. This customer retention rate is materially unchanged from our rate for the full year endedDecember 31, 2021 and reflects our continuing efforts to rationalize our portfolio of solutions and migrate customers from legacy solutions towards our next generation solutions.
Balance sheet and cash flow
At
During the six months endedJune 30, 2022 , we generated$81.8 million in cash from operations, had a net decrease in borrowings of$16.3 million , had aggregate cash outlays of$34.7 million for purchases of property and equipment and capitalized software and content development costs, and spent$19.0 million on the purchase of EVERFI solely due to the timing of the acquisition on the last day of 2021. Security Incident update As discussed in Note 10 to our unaudited, condensed consolidated financial statements included in this report, total costs related to the Security Incident that we expect will be recoverable has exceeded the limit of our insurance coverage. Accordingly, we expect that the Security Incident will continue to negatively impact our GAAP profitability and GAAP cash flow for the foreseeable future (see discussion regarding our non-GAAP financial measures beginning on page 36 ). For full year 2022, we currently expect net pre-tax expense of approximately$30 million to$35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. For full year 2022, we currently expect net cash outlays of approximately$15 million to$25 million for ongoing legal fees related to the Security Incident. We have not recorded a liability for a loss contingency related to the Security Incident as ofJune 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.
Results of Operations
Comparison of the three and six months ended
We have included the results of operations of EVERFI in our consolidated results of operations from the date of acquisition onDecember 31, 2022 . We determined that the EVERFI acquisition was not material to our consolidated financial statements; therefore, separate presentation of revenue and earnings since the acquisition date is not required.
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Revenue and Cost of Revenue
Recurring
Gross profit ($M)
Revenue ($M) Cost of revenue ($M) and gross margin (%)
YoY Growth (%) YoY Growth (%)
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Recurring revenue is comprised of fees for the use of our subscription-based
software solutions, which includes providing access to cloud solutions,
Impact-as-a-Service™ digital educational content, hosting services, payment
services, online training programs, subscription-based analytic services.
Recurring revenue also includes fees from maintenance services for our
on-premises solutions, services included in our renewable subscription
contracts, retained and managed services contracts that we expect to have a term
consistent with our cloud solution contracts, and variable transaction revenue
associated with the use of our solutions.
Cost of recurring revenue is primarily comprised of compensation costs for
customer support and production IT personnel, hosting and data center costs,
third-party contractor expenses, third-party royalty and data expenses,
allocated depreciation, facilities and IT support costs, amortization of
intangible assets from business combinations, amortization of software
development costs, transaction-based costs related to payments services
including remittances of amounts due to third-parties and other costs incurred
in providing support and recurring services to our customers.
Our customers continue to prefer cloud subscription offerings with integrated
analytics, training and payment services. Recurring subscription contracts are
typically for a term of three years at contract inception with one to three-year
renewals thereafter. We intend to continue focusing on innovation, quality and
integration of our cloud solutions, which we believe will drive future revenue
growth.
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Recurring revenue increased by $35.5 million , or 16.4%, and $73.4 million , or
17.3%, during the three and six months ended June 30, 2022 , respectively, when
compared to the same periods in 2021, driven primarily by the following:
+ Increases in contractual recurring revenue of
respectively, related to the performance of our cloud
solutions, of which
million and $47.5 million , respectively, was attributable to EVERFI; partially
offset by decreases in maintenance revenue as customers migrate to our cloud
solutions; also offsetting the increases in contractual recurring revenue are
decreases related to fluctuations in foreign currency
exchange rates of
million and $1.1 million , respectively
+ Increases in transactional recurring revenue of
respectively, primarily due to an increase in online charitable giving, the
continued shift toward virtual fundraising and, to a lesser extent, increased
transactional volume as our customer's constituents have begun to return to
in-person events; partially offset by decreases related to fluctuations in foreign
currency exchange rates of $1.8 million and $2.3 million , respectively
For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 46 .
Cost of recurring revenue increased by
+ Increases in compensation costs of
primarily related to an increase in headcount due to our acquisition of EVERFI, and
a continued shift in resources historically supporting one-time services and other
towards recurring revenue
+ Increases in transaction-based costs of
respectively, related to the increase in the volume of transactions for which we
process payments
+ Increases in amortization of intangible assets from business combinations of
million and $7.1 million , respectively, due to our acquisition of EVERFI
+ Increases in third-party contractor and hosting costs of
million, respectively, as we continue to migrate our cloud infrastructure to
leading public cloud service providers and make investments in security; currently,
we expect our cloud infrastructure migration efforts and increased level of
security investments to continue through 2024
+ Increases in overhead allocations of
related to the increased headcount discussed above
+ Increases in amortization of software development costs of
million, respectively
Recurring gross margin decreased by 1.8% and 2.3% for the three and six months
ended June 30, 2022 , respectively, when compared to the same periods in 2021,
primarily due to the increase in cost of recurring revenue outpacing the
increase in recurring revenue.
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One-time services and other
Gross profit ($M)
Revenue ($M) Cost of revenue ($M) and gross margin (%)
YoY Growth (%) YoY Growth (%)
[[Image Removed: blkb-20220630_g15.jpg]][[Image Removed: blkb-20220630_g16.jpg]][[Image Removed: blkb-20220630_g17.jpg]] [[Image Removed: blkb-20220630_g18.jpg]][[Image Removed: blkb-20220630_g19.jpg]][[Image Removed: blkb-20220630_g20.jpg]] One-time services and other revenue is comprised of fees for one-time consulting, analytic and onsite training services, fees for retained and managed services contracts that we do not expect to have a term consistent with our cloud solution contracts, revenue from the sale of our software sold under perpetual license arrangements, and third-party software referral fees.
Cost of one-time services and other is primarily comprised of compensation costs for professional services and onsite training personnel, other costs incurred in providing onsite customer training, third-party contractor expenses, data expense incurred to perform one-time analytic services, third-party software royalties, allocated depreciation, facilities and IT support costs and amortization of intangible assets from business combinations. One-time services and other revenue decreased insignificantly, during the three and six months endedJune 30, 2022 , when compared to the same periods in 2021, driven primarily by the following:
+ Increases in one-time consulting revenue of
respectively, primarily attributable to EVERFI, largely offset by less revenue
from implementation and customization services, in line with our multi-year
strategic shift from a license-based and one-time services business model to a
cloud subscription business model. Our cloud subscription offerings generally
require less implementation and customization services.
- Decreases in one-time analytics revenue of
respectively, as analytics are generally integrated in our cloud solutions
Cost of one-time services and other decreased by$2.5 million , or 18.4%, and$5.8 million , or 20.8%, during the three and six months endedJune 30, 2022 , respectively, when compared to the same periods in 2021, driven primarily by the following:
- Decreases in compensation costs of
due to a continued shift in resources historically supporting one-time services and
other towards recurring revenue as well as a decrease in professional services
headcount
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One-time services and other gross margin increased by 19.9% and 23.4% during the
three and six months ended June 30, 2022 , respectively, when compared to the
same periods in 2021, primarily due to the significant reductions in
compensation costs discussed above.
Operating Expenses
Sales, marketing and Research and General and
customer success ($M) development ($M) administrative ($M)
Percentages indicate expenses as a percentage of total revenue
[[Image Removed: blkb-20220630_g21.jpg]][[Image Removed: blkb-20220630_g22.jpg]][[Image Removed: blkb-20220630_g23.jpg]] [[Image Removed: blkb-20220630_g24.jpg]][[Image Removed: blkb-20220630_g25.jpg]][[Image Removed: blkb-20220630_g26.jpg]] Sales, marketing and customer success
Sales, marketing and customer success expense includes compensation costs, variable sales commissions, travel-related expenses, advertising and marketing materials, public relations costs, variable reseller commissions and allocated depreciation, facilities and IT support costs. We see a large market opportunity in the long-term and will continue to make investments to drive sales effectiveness. We have also implemented software tools to enhance our digital footprint and drive lead generation. The enhancements we are making in our go-to-market approach are expected to significantly reduce our average customer acquisition cost per customer as well as the related payback period while increasing sales velocity.
Sales, marketing and customer success expense increased by
+ Increases in compensation costs of
primarily related to increased employee headcount due to our acquisition of EVERFI
+ Increases in advertising costs of
primarily due to our acquisition of EVERFI
+ Increases in travel costs of
restrictions on non-essential employee travel, which went into effect during March
2020 in response to the COVID-19 pandemic
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Research and development
Research and development expense includes compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support costs.
We continue to make investments to delight our customers with innovative and secure cloud solutions. Research and development expenses increased by$8.1 million , or 26.8%, and$18.9 million or 31.8%, during the three and six months endedJune 30, 2022 , respectively, when compared to the same periods in 2021, primarily driven by the following:
+ Increases in compensation costs of
primarily related to increased employee headcount due to our acquisition of EVERFI,
and to a lesser extent, our increased hiring of engineers
+ Increases in third-party contractor costs of
respectively, primarily due to our acquisition of EVERFI and, to a lesser extent, an
increase in our use of third-party software developers
+ Increases in overhead allocation costs of
primarily related to increased headcount discussed above
- Increases in development costs of
were required to be capitalized under GAAP, of which $3.1 million and
attributable to EVERFI software and content
Not included in research and development expense for the three months ended
June 30, 2022 and 2021 were $14.8 million and $10.4 million , respectively, and
for the six months ended June 30, 2022 and 2021 were $28.5 million and $19.5
million , respectively, of qualifying costs associated with software and content
development activities that are required to be capitalized under GAAP, such as
those for our cloud solutions, as well as development costs associated with
acquired companies. Qualifying capitalized development costs associated with our
cloud solutions are subsequently amortized to cost of subscriptions revenue over
the related assets' estimated useful life, which generally range from three to
seven years.
General and administrative
General and administrative expense consists primarily of compensation costs for
general corporate functions, including senior management, finance, accounting,
legal, human resources and corporate development, third-party professional fees,
insurance, allocated depreciation, facilities and IT support costs,
acquisition-related expenses and other administrative expenses.
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General and administrative expense increased by $15.4 million or 48.1%, and
$28.6 million , or 45.6%, during the three and six months ended June 30, 2022 ,
respectively, when compared to the same periods in 2021, primarily driven by the
following:
+ Increases in Security Incident-related expenses, net of insurance, of
and $15.1 million , respectively, consisting primarily of legal fees, as total costs
related to the Security Incident that we expect will be recoverable has exceeded the
limit of our insurance coverage.
+ A
June 30, 2022 against previously capitalized software
development costs that reduced
the carrying value of those assets to zero. The impairment charge resulted primarily
from our decision to end customer support for certain solutions
+ Increases in acquisition and disposition-related costs of
million, respectively, primarily related to a $2.0 million noncash impairment of
certain insignificant intangible assets held for sale
+ Increases in compensation costs of
primarily related to increased employee headcount due to our acquisition of EVERFI
+ Increases in third-party contractor costs of
respectively
+ Increases in rent expense of
related to leases assumed from our acquisition of EVERFI
+ Increases in travel costs of
restrictions on non-essential employee travel, which went into effect during March
2020 in response to the COVID-19 pandemic
- Increases in allocated corporate IT costs of
respectively, primarily related to investments in security tools. Depreciation,
facilities and IT support costs are pooled and recorded to general and administrative
expense and allocated to other lines of our condensed statements of comprehensive
income based on headcount.
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Interest Expense
Interest expense ($M)
Percentages indicate expenses as a percentage of total revenue
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The increases in interest expense in dollars and as a percentage of total
revenue during the three and six months ended June 30, 2022 , when compared to
the same period in 2021, were primarily due to the new borrowings used to
finance our acquisition of EVERFI. We currently expect interest expense for the
full year 2022 to be approximately $34 million million to $37 million although
our interest expense in connection with the variable rate portion of our
outstanding debt could increase in a rising interest rate environment. See Note
9 to our condensed consolidated financial statements in this report for more
information regarding our derivative instruments, which we use to manage our
variable interest rate risk, and Item 3. Quantitative and Qualitative
Disclosures about Market Risk: Interest Rate Risk (below) for more information
about our variable interest rate exposure and related risk.
Deferred Revenue
The table below compares the components of deferred revenue from our consolidated balance sheets:
June 30, December 31,
(dollars in millions) 2022 2021 Change
Deferred revenue(1) $ 416.3 $ 378.7 9.9 %
Less: Long-term portion 3.5 4.2 (16.5) %
Current portion(1) $ 412.7 $ 374.5 10.2 %
(1)The individual amounts for each year may not sum to deferred revenue or current portion of deferred revenue due to rounding.
To the extent that our customers are billed for our solutions and services in advance of delivery, we record such amounts in deferred revenue. Our recurring revenue contracts are generally for a term of three years at contract inception, billed annually in advance, and non-cancelable. We have been for several years successfully shifting our legacy customer base away from annual renewals and moving them onto multi-year renewal contracts. We generally invoice our customers with recurring revenue contracts in annual cycles 30 days prior to the end of each one-year period. The increase in deferred revenue during the six months endedJune 30, 2022 was primarily due to a seasonal increase in customer contract renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter.
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Income Taxes
Income tax (benefit) provision ($M)
Percentages indicate effective income tax rates
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For the six months endedJune 30, 2022 , we have utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, Income Taxes-Interim Reporting, to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as our as our full-year forecasted pre-tax income, relative to our forecasted permanent differences, has the potential to distort our estimated annual effective tax rate. The increase in our effective income tax rate for the three months endedJune 30, 2022 when compared to the same period in 2021 was primarily due to 2022 tax benefit attributable to foreign-derived intangible income ("FDII") deduction not generated in the prior year. Furthermore, the 2021 effective tax rate was positively impacted by benefit attributable to stock-based compensation, partially offset against expense attributable to an income tax rate increase enacted during the period. The decrease in our effective income tax rate for the six months endedJune 30, 2022 when compared to the same period in 2021 was primarily attributable to 2022 tax benefit attributable to FDII deduction not generated in the prior year. Furthermore, the 2022 effective tax rate was negatively impacted by tax expense attributable to stock-based compensation against pre-tax loss for the period. The 2021 effective tax rate was positively impacted by benefit attributable to stock-based compensation, partially offset against expense attributable to an income tax rate increase enacted during the period.
Non-GAAP Financial Measures
The operating results analyzed below are presented on a non-GAAP basis. We use non-GAAP financial measures internally in analyzing our operational performance. Accordingly, we believe these non-GAAP measures are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. While we believe these non-GAAP measures provide useful supplemental information, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. The non-GAAP financial measures discussed below exclude the impact of certain transactions because we believe they are not directly related to our operating performance in any particular period, but are for our long-term benefit over multiple periods. We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.
36 [[Image Removed: blkb-20220630_g2.jpg]] Second Quarter 2022 Form 10-Q
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Blackbaud, Inc.
(Unaudited)
Three months ended Six months ended
June 30, June 30,
(dollars in millions, except per share amounts) 2022 2021 Change 2022 2021 Change
GAAP Revenue $ 264.9 $ 229.4 15.5 % $ 522.1 $ 448.6 16.4 %
GAAP gross profit $ 139.3 $ 121.4 14.8 % $ 273.1 $ 237.2 15.1 %
GAAP gross margin 52.6 % 52.9 % 52.3 % 52.9 %
Non-GAAP adjustments:
Add: Stock-based compensation expense 3.8 5.2 (28.1) % 7.9 10.6 (25.3) %
Add: Amortization of intangibles from business
combinations 12.4 8.9 39.7 % 24.9 18.0 38.2 %
Add: Employee severance 0.4 - 2,440.0 % 0.4 - 2,440.0 %
Subtotal(1) 16.5 14.1 17.1 % 33.2 28.6 16.0 %
Non-GAAP gross profit(1) $ 155.9 $ 135.5 15.0 % $ 306.3 $ 265.8 15.2 %
Non-GAAP gross margin 58.8 % 59.1 % 58.7 % 59.2 %
GAAP income (loss) from operations $ 0.1 $ 13.0 (99.6) % $ (5.9) $ 19.7 (130.1) %
GAAP operating margin - % 5.7 % (1.1) % 4.4 %
Non-GAAP adjustments:
Add: Stock-based compensation expense 27.9 30.5 (8.8) % 55.7 60.6 (8.0) %
Add: Amortization of intangibles from business
combinations 13.2 9.4 39.8 % 26.5 19.1 38.6 %
Add: Employee severance 0.5 0.5 2.4 % 0.5 1.4 (68.0) %
Add: Acquisition and disposition-related costs(2) 2.3 0.1 3,481.3 % 3.2 - 10,380.6 %
Add: Restructuring and other real estate activities - 0.1 (100.0) % 0.1 - 914.3 %
Add: Security Incident-related costs, net of
insurance(3) 8.3 0.5 1,676.2 % 15.5 0.5 3,201.3 %
Add: Impairment of capitalized software development
costs 2.3 - 100.0 % 2.3 - 100.0 %
Subtotal(1) 54.4 41.1 32.4 % 103.8 81.6 27.2 %
Non-GAAP income from operations(1) $ 54.5 $ 54.1 0.6 % $ 97.9 $ 101.3 (3.4) %
Non-GAAP operating margin 20.6 % 23.6 % 18.8 % 22.6 %
GAAP (loss) income before provision for income
taxes $ (5.8) $ 8.5 (168.3) % $ (18.2) $ 9.0 (302.8) %
GAAP net (loss) income $ (3.4) $ 6.7 (150.8) % $ (13.8) $ 6.6 (310.6) %
Shares used in computing GAAP diluted (loss)
earnings per share 51,660,739 48,444,874 6.6 % 51,431,501 48,444,658 6.2 %
GAAP diluted (loss) earnings per share $ (0.07) $ 0.14 (150.0) % $ (0.27) $ 0.14 (292.9) %
Non-GAAP adjustments:
Add: GAAP income tax (benefit) provision (2.4) 1.7 (235.6) % (4.4) 2.4 (281.8) %
Add: Total non-GAAP adjustments affecting income
from operations 54.4 41.1 32.4 % 103.8 81.6 27.2 %
Non-GAAP income before provision for income taxes 48.6 49.6 (1.9) % 85.6 90.6 (5.6) % Assumed non-GAAP income tax provision(4) 9.7 9.9 (1.9) % 17.1 18.1 (5.6) % Non-GAAP net income(1)$ 38.9 $ 39.7 (1.9) %$ 68.5 $ 72.5 (5.6) %
Shares used in computing non-GAAP diluted earnings per share
51,985,530 48,444,874 7.3 % 51,954,151 48,444,658 7.2 %
Non-GAAP diluted earnings per share $ 0.75 $ 0.82 (8.5) % $ 1.32 $ 1.50 (12.0) %
(1)The individual amounts for each year may not sum to non-GAAP gross profit, subtotal, non-GAAP income from operations or non-GAAP net income due to rounding. (2)Includes a$2.0 million noncash impairment of intangible assets held for sale during the three and six months endedJune 30, 2022 . (3)Includes Security Incident-related costs incurred during the three and six months endedJune 30, 2022 of$8.4 million and$17.4 million , respectively, net of probable insurance recoveries during the same periods of$0.1 million and$1.9 million , respectively, and during the three and six months endedJune 30, 2021 of$11.7 million and$24.5 million , respectively, net of probable insurance recoveries during the same periods of$11.2 million and$24.0 million , respectively. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year 2022, we currently expect net pre-tax expense of approximately$30 million to$35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. For full year 2022, we currently expect net cash outlays of approximately$15 million to$25 million for ongoing legal fees related to the Security Incident. We have not recorded a liability for a
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Blackbaud, Inc. (Unaudited) loss contingency related to the Security Incident as ofJune 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss. (4)We apply a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.
38 [[Image Removed: blkb-20220630_g2.jpg]] Second Quarter 2022 Form 10-Q
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Blackbaud, Inc.
(Unaudited)
Non-GAAP organic revenue growth
In addition, we use non-GAAP organic revenue growth, non-GAAP organic revenue
growth on a constant currency basis and non-GAAP organic recurring revenue
growth, in analyzing our operating performance. We believe that these non-GAAP
measures are useful to investors, as a supplement to GAAP measures, for
evaluating the periodic growth of our business on a consistent basis. Each of
these measures of non-GAAP organic revenue growth excludes incremental
acquisition-related revenue attributable to companies acquired in the current
fiscal year. For companies, if any, acquired in the immediately preceding fiscal
year, each of these non-GAAP organic revenue growth measures reflects
presentation of full year incremental non-GAAP revenue derived from such
companies as if they were combined throughout the prior period. In addition,
each of these non-GAAP organic revenue growth measures excludes prior period
revenue associated with divested businesses. The exclusion of the prior period
revenue is to present the results of the divested businesses within the results
of the combined company for the same period of time in both the prior and
current periods. We believe this presentation provides a more comparable
representation of our current business' organic revenue growth and revenue
run-rate.
Three months ended Six months ended
June 30, June 30,
(dollars in millions) 2022 2021 2022 2021
GAAP revenue $ 264.9 $ 229.4 $ 522.1 $ 448.6
GAAP revenue growth 15.5 % 16.4 %
Add: Non-GAAP acquisition-related revenue(1) - 25.8 - 51.1
Non-GAAP organic revenue(2) $ 264.9 $ 255.3 $ 522.1 $ 499.7
Non-GAAP organic revenue growth 3.8 % 4.5 %
Non-GAAP organic revenue(2) $ 264.9 $ 255.3 $ 522.1 $ 499.7
Foreign currency impact on Non-GAAP organic revenue(3) 2.9 - 3.8 -
Non-GAAP organic revenue on constant currency basis(3) $ 267.8 $ 255.3 $ 525.9 $ 499.7
Non-GAAP organic revenue growth on constant currency
basis 4.9 % 5.2 %
GAAP recurring revenue $ 252.5 $ 217.0 $ 497.2 $ 423.7
GAAP recurring revenue growth 16.4 % 17.3 %
Add: Non-GAAP acquisition-related revenue(1) - 23.2 - 45.9
Non-GAAP organic recurring revenue $ 252.5 $ 240.1 $ 497.2 $ 469.7
Non-GAAP organic recurring revenue growth 5.1 % 5.9 %
(1)Non-GAAP acquisition-related revenue excludes incremental acquisition-related
revenue calculated in accordance with GAAP that is attributable to companies
acquired in the current fiscal year. For companies acquired in the immediately
preceding fiscal year, non-GAAP acquisition-related revenue reflects
presentation of full-year incremental non-GAAP revenue derived from such
companies, as if they were combined throughout the prior period.
(2)Non-GAAP organic revenue for the prior year periods presented herein will not
agree to non-GAAP organic revenue presented in the respective prior period
quarterly financial information solely due to the manner in which non-GAAP
organic revenue growth is calculated.
(3)To determine non-GAAP organic revenue growth on a constant currency basis,
revenues from entities reporting in foreign currencies were translated to U.S.
Dollars using the comparable prior period's quarterly weighted average foreign
currency exchange rates. The primary foreign currencies creating the impact are
the Australian Dollar, British Pound, Canadian Dollar and EURO.
Second Quarter 2022 Form 10-Q [[Image Removed: blkb-20220630_g2.jpg]] 39
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Blackbaud, Inc.
(Unaudited)
Rule of 40
We previously defined Rule of 40 as non-GAAP organic revenue growth plus
non-GAAP adjusted EBITDA margin. Non-GAAP adjusted EBITDA is defined as GAAP net
income plus interest, net; income tax provision (benefit); depreciation;
amortization of intangible assets from business combinations; amortization of
software and content development costs; stock-based compensation; employee
severance; acquisition and disposition-related costs; restructuring and other
real estate activities; Security Incident-related costs, net of insurance; and
impairment of capitalized software development costs. Beginning in the fiscal
quarter ended June 30, 2022 , we now also include in non-GAAP adjusted EBITDA
impairment of capitalized software development costs because we believe it is
not directly related to our operating performance in any particular period.
Three months ended Six months ended
June 30, June 30,
(dollars in millions) 2022 2021 Change 2022 2021 Change
GAAP net (loss) income $ (3.4) $ 6.7 (150.8) % $ (13.8) $ 6.6 (310.6) %
Non-GAAP adjustments:
Add: Interest, net 8.9 5.0 78.1 % 16.3 9.9 64.4 %Add: GAAP income tax (benefit) provision (2.4) 1.7
(235.6) % (4.4) 2.4 (281.8) % Add: Depreciation 3.6 3.1 14.2 % 7.1 6.4 12.2 % Add: Amortization of intangibles from business combinations 13.2 9.4 39.8 % 26.5 19.1 38.6 % Add: Amortization of software and content development costs(1) 9.5 8.1 16.9 % 18.7 16.1 16.5 % Subtotal(2) 32.8 27.4 19.5 % 64.3 53.9 19.2 % Non-GAAP EBITDA(2)$ 29.4 $ 34.2 (14.1) %$ 50.5 $ 60.5 (16.6) % Non-GAAP EBITDA margin 11.1 % 9.7 % Non-GAAP adjustments: Add: Stock-based compensation expense 27.9 30.5 (8.8) % 55.7 60.6 (8.0) % Add: Employee severance 0.5 0.5 2.4 % 0.5 1.4 (68.0) % Add: Acquisition and disposition-related costs(3) 2.3 0.1 3,481.3 % 3.2 - 10,380.6 % Add: Restructuring and other real estate activities - 0.1 (100.0) % 0.1 - 914.3 % Add: Security Incident-related costs, net of insurance(3) 8.3 0.5 1,676.2 % 15.5 0.5 3,201.3 % Add: Impairment of capitalized software development costs 2.3 - 100.0 % 2.3 - 100.0 % Subtotal(2) 41.2 31.7 30.2 % 77.3 62.5 23.7 % Non-GAAP Adjusted EBITDA(2)$ 70.6 $ 65.8 7.2 %$ 127.8 $ 123.0 3.9 % Non-GAAP Adjusted EBITDA margin 26.6 % 24.5 % Rule of 40(4) 30.4 % 29.0 % Non-GAAP adjusted EBITDA 70.6 65.8 7.2 % 127.8 123.0 3.9 % Foreign currency impact on Non-GAAP adjusted EBITDA(5) 1.7 (1.7) (195.7) % 2.2 (2.2) (196.5) % Non-GAAP adjusted EBITDA on constant currency basis(5)$ 72.2 $ 64.1 12.7 %$ 129.9 $ 120.8 7.6 % Non-GAAP adjusted EBITDA margin on constant currency basis 27.0 % 24.7 % Rule of 40 on constant currency basis(6) 31.9 % 29.9 % (1)Includes amortization expense related to software development costs and amortization expense from capitalized cloud computing implementation costs. (2)The individual amounts for each year may not sum to subtotal, non-GAAP EBITDA or non-GAAP adjusted EBITDA due to rounding. (3)See additional details in the reconciliation of GAAP to Non-GAAP operating income above. (4)Measured by non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. See Non-GAAP organic revenue growth table above. (5)To determine non-GAAP adjusted EBITDA on a constant currency basis, non-GAAP adjusted EBITDA from entities reporting in foreign currencies were translated toU.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Australian Dollar, British Pound, Canadian Dollar and EURO. (6)Measured by non-GAAP organic revenue growth on constant currency basis plus non-GAAP adjusted EBITDA margin on constant currency basis. 40 [[Image Removed: blkb-20220630_g2.jpg]] Second Quarter 2022 Form 10-Q
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Blackbaud, Inc.
(Unaudited)
Non-GAAP free cash flow and non-GAAP adjusted free cash flow
Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.
Non-GAAP adjusted free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development and capital expenditures for property and equipment, plus cash outflows, net of insurance, related to the Security Incident.
We believe non-GAAP free cash flow and non-GAAP adjusted free cash flow provides
useful measures of the company's operating performance. Non-GAAP adjusted free
cash flow is not intended to represent and should not be viewed as the amount of
residual cash flow available for discretionary expenditures.
Six months ended
June 30,
(dollars in millions) 2022 2021 Change
GAAP net cash provided by operating activities $ 81.8 $ 99.9 (18.2) %
Less: purchase of property and equipment (7.5) (6.1) 22.7 %
Less: capitalized software and content development costs (27.2) (19.9) 36.9 %
Non-GAAP free cash flow(1) $ 47.1 $ 73.9 (36.3) %
Add: Security Incident-related cash flows, net of insurance 5.2 3.8 36.1 %
Non-GAAP adjusted free cash flow(1) $ 52.2 $ 77.7 (32.8) %
(1)The individual amounts for each year may not sum to non-GAAP free cash flow or non-GAAP adjusted free cash flow due to rounding.
Seasonality
Our revenues normally fluctuate as a result of certain seasonal variations in our business. Our first quarter has historically been the seasonal low for bookings, with the second and fourth quarters historically being seasonally higher, and our bookings tend to be back-end loaded within individual quarters given our quarterly quota plans. Transactional revenue is non-contractual and less predictable given the susceptibility to certain drivers such as timing and number of events and marketing campaigns, as well as fluctuations in donation volumes and tuition payments. Our transactional revenue has historically been at its lowest in the first quarter due to the timing of customer fundraising initiatives and events. We have historically experienced seasonal highs during the fourth quarter due to year-end giving campaigns and during the second quarter when a large number of events are held. Our revenue from professional services has historically been lower in the first quarter when many of those services commence and in the fourth quarter due to the holiday season. As a result of these and other factors, our total revenue has historically been lower in the first quarter than in the remainder of our fiscal year, with the fourth quarter historically achieving the highest total revenue. Our expenses, other than transaction-based costs related to our payments services, do not vary significantly as a result of these factors, but do fluctuate on a quarterly basis due to varying timing of expenditures. Our cash flow from operations normally fluctuates quarterly due to the combination of the timing of customer contract renewals including renewals associated with customers of acquired companies, delivery of professional services and occurrence of customer events, as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our first quarter, combined with the payment of certain annual vendor contracts, our cash flow from operations has been lowest in our first quarter. Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has been lower in our second quarter as compared to our third and fourth quarters. Partially, offsetting these favorable drivers of cash flow from operations in our third and fourth quarters are base salary merit increases, which occur in July. In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract renewals and student enrollments. Our cash flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards. These patterns may change as a result of the continued shift to online giving, growth in volume of transactions for which we process payments, or as a result of acquisitions, new market opportunities, new solution introductions, the COVID-19 pandemic or other factors.
Second Quarter 2022 Form 10-Q [[Image Removed: blkb-20220630_g2.jpg]] 41
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Blackbaud, Inc.
(Unaudited)
Liquidity and Capital Resources
The following table presents selected financial information about our financial
position:
June 30, December 31,
(dollars in millions) 2022 2021 Change
Cash and cash equivalents $ 29.0 $ 55.1 (47.4) %
Property and equipment, net 111.9 111.4 0.4 %
Software and content development costs, net 130.3 121.4 7.4 %
Total carrying value of debt 939.8 956.2 (1.7) %
Working capital (267.3) (258.7) (3.4) %
The following table presents selected financial information about our cash flows:
Six months ended June 30,
(dollars in millions) 2022 2021 Change
Net cash provided by operating activities $ 81.8 $ 99.9 (18.2) %
Net cash used in investing activities (53.7) (26.0) 106.7 %
Net cash used in financing activities (194.1) (257.0) (24.5) %
Our principal sources of liquidity are our operating cash flow, funds available
under the 2020 Credit Facility and cash on hand. Our operating cash flow depends
on continued customer renewal of our subscription and maintenance arrangements,
market acceptance of our solutions and services and our customers' ability to
pay. Based on current estimates of revenue and expenses, we believe that the
currently available sources of funds and anticipated cash flows from operations
will be adequate for at least the next twelve months to finance our operations,
fund anticipated capital expenditures and meet our debt obligations. We also
believe that we will be able to continue to meet our long-term cash requirements
due to our anticipated cash flow from operations, solid financial position and
ability to access capital from financial markets. To the extent we undertake
future material acquisitions or, investments or unanticipated capital or
operating expenditures, including in connection with the Security Incident, we
may require additional capital. In that context, we regularly evaluate
opportunities to enhance our capital structure, including through potential debt
or equity issuances.
As a well-known seasoned issuer, we filed an automatic shelf registration
statement for an undetermined amount of debt and equity securities with the SEC
on January 14, 2022 . Under this universal shelf registration statement we may
offer and sell, from time to time, debt securities, common stock, preferred
stock, depositary shares, warrants, stock purchase contracts and stock purchase
units. Subject to certain conditions, this registration statement will be
effective through January 13, 2024 .
At June 30, 2022 , our total cash and cash equivalents balance included
approximately $17.4 million of cash that was held by operations outside the U.S.
While these funds may not be needed to fund our U.S. operations for at least the
next twelve months, if we need these funds, we may be required to accrue and pay
taxes to repatriate the funds. We currently do not intend nor anticipate a need
to repatriate our cash held outside the U.S. Operating Cash Flow
Our cash flows from operations are derived principally from: (i) our earnings from on-going operations prior to non-cash expenses such as depreciation, amortization, stock-based compensation, deferred taxes, amortization of deferred financing costs and debt discount and adjustments to our provision for credit losses and sales returns; and (ii) changes in our working capital.
42 [[Image Removed: blkb-20220630_g2.jpg]] Second Quarter 2022 Form 10-Q
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Blackbaud, Inc.
(Unaudited)
Working capital changes are composed of changes in accounts receivable, prepaid
expenses and other assets, trade accounts payable, accrued expenses and other
liabilities, and deferred revenue.
Net cash provided by operating activities decreased by $18.1 million during the
six months ended June 30, 2022 , when compared to the same period in 2021,
primarily due to a $27.9 million decrease in net income adjusted for non-cash
expenses and a $9.8 million increase in cash flow from operations associated
with working capital.
The increase in cash flow from operations associated with working capital during
the six months ended June 30, 2022 , when compared to the same period in 2021,
was primarily due to:
•fluctuations in the timing of vendor payments; and
•an increase in taxes payable; partially offset by
•timing associated with customer contract renewal billings and the collection of those amounts; and
•payment of assumed EVERFI accrued bonuses and other payroll-related liabilities during the first quarter of 2022.
Security Incident update
As discussed in Note 10 to our unaudited, condensed consolidated financial statements included in this report, total costs related to the Security Incident that we expect will be recoverable has exceeded the limit of our insurance coverage. Accordingly, we expect that the Security Incident will continue to negatively impact our GAAP profitability and GAAP cash flow for the foreseeable future (see discussion regarding our non-GAAP financial measures beginning on page 36 ). For full year 2022, we currently expect net pre-tax expense of approximately$30 million to$35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. For full year 2022, we currently expect net cash outlays of approximately$15 million to$25 million for ongoing legal fees related to the Security Incident. We have not recorded a liability for a loss contingency related to the Security Incident as ofJune 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.
Investing Cash Flow
Net cash used in investing activities of
During the six months endedJune 30, 2022 , we used$19.0 million for our acquisition of EVERFI comprised primarily of (i)$17.4 million that had not been paid by EVERFI to its former option holders as ofDecember 31, 2021 , solely due to the timing of the acquisition on the last day of 2021; and (ii)$2.6 million that was paid to a number of EVERFI's selling shareholders after determining they would be paid in cash, rather than shares of our common stock. We used$27.2 million for software development costs, which was up$7.3 million from cash spent during the same period in 2021, primarily due to the inclusion of EVERFI's software and content development activities. We also spent$7.5 million of cash for purchases of property and equipment during the six months endedJune 30, 2022 , which was an increase of$1.4 million when compared to the same period in 2021. Financing Cash Flow
During the six months ended
We paid$35.6 million to satisfy tax obligations of employees upon settlement of equity awards during the six months endedJune 30, 2022 compared to$38.7 million during the same period in 2021. The amount of taxes paid by us on behalf of employees related to the settlement of equity awards varies from period to period based upon the timing of grants and vesting, as well as the market price for shares of our common stock at the time of settlement. Most of our equity awards currently vest in our first quarter. During the six months endedJune 30, 2022 , cash flow from financing activities associated with changes in restricted cash due to customers decreased$141.0 million , compared to a decrease of$170.1 million during the same period in 2021. This line in the statement of cash flows represents the change in the amount of restricted cash held and payable by us to customers from one period to the next.
Second Quarter 2022 Form 10-Q [[Image Removed: blkb-20220630_g2.jpg]] 43
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Blackbaud, Inc.
(Unaudited)
Stock repurchase program
In December 2021 , our Board of Directors reauthorized and replenished our stock
repurchase program that authorizes us to purchase up to $250.0 million of our
outstanding shares of common stock. The program does not have an expiration
date. Under the stock repurchase program, we are authorized to repurchase shares
from time to time in accordance with applicable laws both on the open market,
including under trading plans established pursuant to Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended, and in privately negotiated
transactions. The timing and amount of repurchases depends on several factors,
including market and business conditions, the trading price of our common stock
and the nature of other investment opportunities. The repurchase program may be
limited, suspended or discontinued at any time without prior notice. During the
three and six months ended June 30, 2022 , we did not purchase any shares. The
remaining amount available to purchase stock under the stock repurchase program
was $250.0 million as of June 30, 2022 .
2020 Credit Facility
Historically, we have drawn on our credit facility from time to time to help us meet financial needs, primarily due to the seasonality of our cash flows from operations and financing for business acquisitions. AtJune 30, 2022 , our available borrowing capacity under the 2020 Credit Facility was$245.2 million . The 2020 Credit Facility matures inOctober 2025 . AtJune 30, 2022 , the carrying amount of our debt under the 2020 Credit Facility was$880.9 million . Our average daily borrowings during the three and six months endedJune 30, 2022 were$917.3 million and$913.4 million , respectively. The following is a summary of the financial covenants under the 2020 Credit Facility: Financial covenant Requirement Ratio as of June 30, 2022 Net leverage ratio(1) ? 4.25 to 1.00 3.42 to 1.00 Interest coverage ratio ? 2.50 to 1.00 11.91 to 1.00
(1)Under the terms of the 2020 Credit Facility, the Net Leverage Ratio requirement may be increased by up to 0.50 provided we satisfy certain requirements, including a permitted business acquisition, and provided that the maximum Net Leverage Ratio shall not exceed 4.25 to 1.00.
Under the 2020 Credit Facility, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (i) no default or event of default shall have occurred and be continuing under the 2020 Credit Facility, and (ii) our pro forma net leverage ratio, as set forth in the 2020 Credit Facility, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase. AtJune 30, 2022 , we were in compliance with our debt covenants under the 2020 Credit Facility. See Note 8 to our unaudited, condensed consolidated financial statements included in this report for additional information regarding the 2020 Credit Facility.
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