BLACKBOARD INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

		For the quarterly period ended June 30, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number 000-50784

Blackboard Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		52-2081178
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1899 L Street, N.W. Washington D.C.		20036 (Zip Code)
(Address of Principal Executive Offices)

Registrant’s Telephone Number, Including Area Code:

(202) 463-4860

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ


Class		Outstanding at July 31, 2004

Common Stock, $0.01 par value		25,626,997

BLACKBOARD INC.

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2004

INDEX


		Page
		Number

PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements.
	Consolidated Balance Sheets as of December 31, 2003 and June 30, 2004 (unaudited).		1
	Unaudited Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2003 and 2004.		3
	Unaudited Consolidated Statements of Cash Flows for the Six Months ended June 30, 2003 and 2004.		4
	Notes to Unaudited Consolidated Financial Statements.		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		29
Item 4.	Controls and Procedures.		29
PART II. OTHER INFORMATION
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.		30
Item 4.	Submission of Matters to a Vote of Security Holders.		32
Item 6.	Exhibits and Reports on Form 8-K.		33
Signatures			34
Exhibit Index

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our” and “Blackboard” refer to Blackboard Inc. and its subsidiaries

PART I — FINANCIAL INFORMATION


Item 1.	*Consolidated Financial Statements*

BLACKBOARD INC.

CONSOLIDATED BALANCE SHEETS


			December 31,		June 30,
			2003		2004

					(Unaudited)

			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	30,456	$	71,715
	Accounts receivable, net of allowance for doubtful accounts of $1,018,000 and $746,000 at December 31, 2003 and June 30, 2004, respectively			22,870		36,501
	Inventories, net of allowance for obsolescence of $115,000 at December 31, 2003 and June 30, 2004			2,050		2,053
	Prepaid expenses and other current assets			711		1,203
	Deferred cost of revenues			3,846		4,429

		Total current assets		59,933		115,901
Property and equipment, net				7,683		8,787
Restricted cash				843		653
Goodwill				10,252		10,252
Intangible assets, net				4,343		2,584

Total assets			$	83,054	$	138,177


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
	Accounts payable		$	1,833	$	1,855
	Accrued expenses			9,900		11,060
	Line of credit			7,880		—
	Equipment note, current portion			949		769
	Note payable			2,000		1,000
	Deferred revenues, current portion			51,215		57,987

		Total current liabilities		73,777		72,671
Equipment note, noncurrent portion				735		412
Deferred rent				1,135		1,058
Deferred revenues, noncurrent portion				1,727		4,312

See notes to unaudited consolidated financial statements.

BLACKBOARD INC.

CONSOLIDATED BALANCE SHEETS — (Continued)


			December 31,			June 30,
			2003			2004

						(Unaudited)

			(In thousands)
Commitments and contingencies
Series A Convertible Preferred Stock, $0.01 par value; 1,174,484 shares authorized, issued and outstanding at December 31, 2003 and no shares authorized, issued or outstanding at June 30, 2004; liquidation preference of $876,000 at December 31, 2003			$	868		$	—
Series B Redeemable Convertible Preferred Stock, $0.01 par value; 5,025,935 shares authorized, issued and outstanding at December 31, 2003 and no shares authorized, issued or outstanding at June 30, 2004; liquidation preference of $4,403,000 at December 31, 2003				4,397			—
Series C Redeemable Convertible Preferred Stock, $0.01 par value; 6,220,049 shares authorized; 5,904,788 shares issued and outstanding at December 31, 2003 and no shares authorized, issued or outstanding at June 30, 2004; liquidation preference of $21,285,000 at December 31, 2003				21,256			—
Series D Redeemable Convertible Preferred Stock, $0.01 par value; 4,167,333 shares authorized; 3,451,707 shares issued and outstanding at December 31, 2003 and no shares authorized, issued or outstanding at June 30, 2004; liquidation preference of $41,248,000 at December 31, 2003				41,215			—
Series E Redeemable Convertible Preferred Stock, $0.01 par value; 13,000,000 shares authorized; 10,236,934 shares issued and outstanding at December 31, 2003 and no shares authorized, issued or outstanding at June 30, 2004; liquidation preference of $64,830,000 at December 31, 2003				58,227			—
Warrants to purchase Series E Redeemable Convertible Preferred Stock				4,334			—
Stockholders’ (deficit) equity:
	Preferred stock, $0.01 par value; no shares authorized, issued or outstanding at December 31, 2003; 5,000,000 shares authorized, and no shares issued or outstanding at June 30, 2004			—			—
	Common stock, $0.01 par value; 200,000,000 shares authorized; 5,536,396 and 25,621,934 shares issued and outstanding at December 31, 2003 and June 30, 2004, respectively			55			256
	Additional paid-in capital			8,020			190,499
	Deferred stock compensation			(35	)		(211	)
	Accumulated deficit			(132,657	)		(130,820	)

		Total stockholders’ (deficit) equity		(124,617	)		59,724

		Total liabilities and stockholders’ (deficit) equity	$	83,054		$	138,177

See notes to unaudited consolidated financial statements

BLACKBOARD INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS



		Three Months Ended						Six Months Ended
		June 30,						June 30,

		2003			2004			2003			2004


		(In thousands, except share and per share amounts)
Revenues:
	Product	$	20,395		$	23,332		$	38,992		$	45,948
	Professional services		2,349			3,023			3,933			5,626

Total revenues			22,744			26,355			42,925			51,574
Operating expenses:
	Cost of product revenues, excludes amortization of acquired technology included in amortization of intangibles resulting from acquisitions shown below		5,697			5,957			10,908			12,017
	Cost of professional services revenues		1,585			2,073			2,899			3,626
	Research and development		2,744			3,636			5,453			6,890
	Sales and marketing		8,094			9,090			14,749			17,858
	General and administrative		4,231			3,360			8,738			6,785
	Amortization of intangibles resulting from acquisitions		1,445			879			2,868			1,759
	Stock-based compensation		28			28			201			111

Total operating expenses			23,824			25,023			45,816			49,046

(Loss) income from operations			(1,080	)		1,332			(2,891	)		2,528
Other income (expense), net:
	Interest expense		(141	)		(50	)		(293	)		(128	)
	Interest income		23			23			59			49

(Loss) income before provision for income taxes			(1,198	)		1,305			(3,125	)		2,449
Provision for income taxes			(207	)		(254	)		(314	)		(612	)

Net (loss) income			(1,405	)		1,051			(3,439	)		1,837
Dividends on and accretion of convertible preferred stock			(2,507	)		(3,749	)		(4,990	)		(6,344	)

Net loss attributable to common stockholders		$	(3,912	)	$	(2,698	)		(8,429	)		(4,507	)

Net loss attributable to common stockholders per common share — basic and diluted		$	(0.71	)	$	(0.37	)	$	(1.53	)	$	(0.71	)

Weighted average number of common shares — basic and diluted			5,510,372			7,202,017			5,506,836			6,374,493

See notes to unaudited consolidated financial statements

BLACKBOARD INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



			Six Months Ended
			June 30,

			2003			2004


			(In thousands)
Cash flows from operating activities
Net (loss) income			$	(3,439	)	$	1,837
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
	Depreciation and amortization			1,986			3,046
	Amortization of intangibles			2,868			1,759
	Change in allowance for doubtful accounts			358			(272	)
	Change in obsolescence reserve			(15	)		—
	Noncash stock compensation related to options issued to non-employees			—			69
	Noncash stock compensation for modification of options			21			—
	Noncash deferred stock amortization			40			42
	Changes in operating assets and liabilities, net of effect of acquisition:
		Accounts receivable		(7,492	)		(13,359	)
		Inventories		(126	)		(3	)
		Prepaid expenses and other current assets		2,076			(492	)
		Deferred cost of revenues		598			(583	)
		Accounts payable		2,965			22
		Accrued expenses		962			990
		Deferred rent		(27	)		(77	)
		Deferred revenues		3,350			9,357

Net cash provided by operating activities				4,125			2,336
Cash flows from investing activities
Purchase of property and equipment				(2,136	)		(3,980	)
Acquisition of business, net of cash acquired				(4,500	)		—

Net cash used in investing activities				(6,636	)		(3,980	)
Cash flows from financing activities
Proceeds from equipment notes				1,209			—
Payments on equipment notes				(647	)		(503	)
Proceeds from line of credit				2,630			—
Payments on line of credit				(2,000	)		(7,880	)
Payments on note payable				—			(1,000	)
Proceeds from issuance of common stock, net of issuance costs				—			50,896
Proceeds from exercise of Series D Warrants				—			248
Release of letters of credit				210			190
Proceeds from exercise of stock options				26			952

Net cash provided by financing activities				1,428			42,903

Net (decrease) increase in cash and cash equivalents				(1,083	)		41,259
Cash and cash equivalents at beginning of period				20,372			30,456

Cash and cash equivalents at end of period			$	19,289		$	71,715

See notes to unaudited consolidated financial statements.

BLACKBOARD INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months and Six Months Ended June 30, 2004 and 2003

In these Notes to Unaudited Consolidated Financial Statements, the terms “Company” and “Blackboard” refer to Blackboard Inc. and its subsidiaries.

1. Nature of Business

Blackboard Inc. is an enterprise software company for the education markets. The Company’s suites of products include the following five products: Blackboard Learning System™, Blackboard Portal System™, Blackboard Content System™, Blackboard Transaction System™ and Blackboard One™.

2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2002 and 2003 and for each of the three years in the period ended December 31, 2003 included in the Company’s Prospectus dated June 17, 2004 filed with the Securities and Exchange Commission on June 18, 2004.

On April 23, 2004, the Company effected a one-for-two reverse stock split of all common stock outstanding. On May 26, 2004, the Company effected a one-for-1.0594947 reverse stock split of all common stock outstanding. The accompanying consolidated financial statements give retroactive effect to the reverse stock splits for all periods presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification

Certain amounts in the prior periods’ consolidated financial statements have been reclassified to conform to the current period presentation.

Basic and Diluted Net Loss Attributable to Common Stockholders Per Common Share

Basic net loss attributable to common stockholders per common share excludes dilution for potential common stock issuances and is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Mandatorily

BLACKBOARD INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

redeemable convertible preferred stock, stock options and warrants were not considered in the computation of diluted net loss attributable to common stockholders per common share for the three and six months ended June 30, 2003 and 2004 as their effect is anti-dilutive.

Comprehensive Net (Loss) Income

Comprehensive net (loss) income includes net (loss) income, combined with unrealized gains and losses not included in earnings and reflected as a separate component of stockholders’ (deficit) equity. There were no differences between net (loss) income and comprehensive net (loss) income for the three and six months ended June 30, 2003 and 2004.

3. Stock-Based Compensation

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of SFAS No. 123”, allows companies to account for stock-based compensation using either the provisions of SFAS 123 or the provisions of Accounting Principles Bulletin No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), but requires pro forma disclosure in the notes to the financial statements as if the measurement provisions of SFAS 123 had been adopted. The Company accounts for its stock-based employee compensation in accordance with APB No. 25. Stock-based compensation related to options granted to non-employees is accounted for using the fair value method in accordance with the SFAS 123 and Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

The following table illustrates the effect of net loss attributable to common stockholders and net loss attributable to common stockholders per common share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based compensation.

Three Months Ended

Six Months Ended

June 30, 2004

June 30,

2003

2004

2003

2004

(Unaudited)

(In thousands, except per share amounts)

Pro forma net loss attributable to common stockholders: