In terms of the Blackboard Learning System-Basic product, the company had 886 licenses.
The total number of licenses, including Basic licenses at the end of the quarter was 7,213. In terms of the managed hosting business, Blackboard finished the quarter with 571 hosted clients which is a 16% increase over last year. The renewal rate for the quarter was in line with where Blackboard ended 2007 at 92% and the company expects that the renewal rate will remain strong throughout the remainder of 2008.
The third quarter is typically the weakest quarter from a net license perspective due to the concentration of renewals.
Blackboard expects that this trend will continue. The company finished the quarter with an annualized contract value of $262 million which represents an annual increase of 29% measured on a pro forma basis including the Blackboard Connect formerly known as the NTI Group in both periods. This is significant growth and was due to a continued trend by clients to engage in larger, multi-licensed deals and by the closing of a few statewide wins.
The total headcount at the end of the second quarter was 1,080 people and was comprised of the following:
- 251 people in sales,
- 88 in marketing and business development,
- 234 in product development,
- 202 in support, managed hosting and production,
- 137 in professional services
- 168 in operations.
As Blackboard has success with larger more complex deals, they will generally result in higher upfront commission, service and support costs.
Based on the company’s model, revenue recognitions maybe delayed several months or even quarters until the system is launched. Therefore Blackboard incurs expense before getting the benefit of revenue. While these large wins are long-term positives for the business, investors should note that the company expects that these higher costs will impact the second half of the year.
In terms of professional services, Blackboard experienced some challenges in the second quarter which resulted in reduced revenues of approximately $1 million.
This was primarily due to a delay in the release of the latest version of the Blackboard Transaction System. The company has subsequently released the latest version of the product and is beginning implementation.
Additionally, the company will also be performing services with a value of approximately $1 million under the New Mexico deal, but not recognized any material revenue until 2009. As a consequence of these two factors, service revenue for the remainder of the year will be flat over the same period in 2007. Blackboard has reflected both, the increased expenses associated with the large deals as well as the variability around professional service revenues and margins and the company’s updated guidance.
Revenues for the second quarter of 2008 were 75.5 million, up 27% from the same quarter last year.
- Product revenues for the quarter were $68.4 million representing an increase of 31% over the same quarter last year.
- Professional service revenues for the quarter were $7.2 million, which represents an increase of 1% over the prior year.
Overall revenue came in line with the previous guidance. The company was able to achieve this even with the absence of approximately $1 million in revenue that was pushed due to the delayed release of the latest version of the Blackboard Transaction System. In terms of revenue characterization, the company also breaks out revenue by the nature of the revenue streams, which include ratable recurring, ratable non-recurring and other revenues.
Ratable recurring revenues increased 34% to $59.6 million as compared to $44.6 million in the same quarter last year.
- Ratable non-recurring revenues increased 16% to $6.6 million as compared to $5.7 million in the same quarter last year.
- Other revenues increased 2% to $9.3 million as compared to $9.1 million in the same quarter last year.
Gross profit, excluding stock-based compensation and the amortization of acquired intangibles, was $52.7 million as compared to $43.6 million a year ago, representing an increase of 21%.
- For the quarter, the gross margin was 70%, which was slightly lower than the company’s expectation, due to the lower than expected service revenues in the quarter.
- Total operating expenses, excluding the cost of revenue, stock-based compensation and the amortization of acquired intangibles, were $38.4 million, representing an increase of 30% as compared to $29.5 million in the same quarter last year.
Sales and marketing expenses were slightly higher due to the commissions and sales expenses related to the large deals, which closed at the end of the quarter.
- Additionally, the company benefited from $3.3 million of operating income resulting from the payment of the Desire2Learn patent infringement award.
- For the quarter, the company incurred stock based compensation expenses $3.8 million and amortization of acquired intangibles of $9.7 million.
- Other income was $3.8 million in the second quarter, benefiting from a gain on an investment in a small private company which we marked to market based on the valuation of their initial round of financing.
Net income was $1 million in the quarter, resulting in net income per diluted share of $0.03.
Adding back the amortization required intangibles and the associated tax impact results in non-GAAP adjusted net income of $6.9 million or non-GAAP adjusted net income of $0.22 per diluted share.
|
