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 September 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
(Address of Principal Executive Offices)		(Zip Code)

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 þ No o

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 October 31. 2004

Common Stock, $0.01 par value		25,769,064

Blackboard Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2004

INDEX


PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of December 31, 2003 and September 30, 2004 (Unaudited)	1
	Unaudited Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 2003 and 2004	3
	Unaudited Consolidated Statements of Cash Flows for the Nine Months ended September 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	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	32
Signature		33

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,		September 30,
			2003		2004

					(Unaudited)

			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	30,456	$	86,346
	Accounts receivable, net of allowance for doubtful accounts of $1,018,000 and $1,204,000 at December 31, 2003 and September 30, 2004, respectively			22,870		25,489
	Inventories, net of allowance for obsolescence of $115,000 and $132,000 at December 31, 2003 and September 30, 2004, respectively			2,050		2,122
	Prepaid expenses and other current assets			711		1,370
	Deferred cost of revenues			3,846		5,505

		Total current assets		59,933		120,832
Property and equipment, net				7,683		9,542
Restricted cash				843		653
Goodwill				10,252		10,252
Intangible assets, net				4,343		1,704

Total assets			$	83,054	$	142,983


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
	Accounts payable		$	1,833	$	1,414
	Accrued expenses			9,900		9,122
	Line of credit			7,880		—
	Equipment note, current portion			949		662
	Note payable			2,000		—
	Deferred revenues, current portion			51,215		63,447

		Total current liabilities		73,777		74,645
Equipment note, noncurrent portion				735		312
Deferred rent				1,135		1,116
Deferred revenues, noncurrent portion				1,727		3,552

See notes to unaudited consolidated financial statements.

BLACKBOARD INC.

CONSOLIDATED BALANCE SHEETS — (Continued)


		December 31,			September 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 September 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 September, 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 September 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 September 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 September 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 September 30, 2004		—			—
	Common stock, $0.01 par value; 200,000,000 shares authorized; 5,536,396 and 25,765,423 shares issued and outstanding at December 31, 2003 and September 30, 2004, respectively		55			258
	Additional paid-in capital		8,020			190,665
	Deferred stock compensation		(35	)		(226	)
	Accumulated deficit		(132,657	)		(127,339	)

Total stockholders’ (deficit) equity			(124,617	)		63,358

Total liabilities and stockholders’ (deficit) equity		$	83,054		$	142,983

See notes to unaudited consolidated financial statements.

BLACKBOARD INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS



		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2004			2003			2004


		(In thousands, except share and per share amounts)
Revenues:
	Product	$	22,206		$	25,468		$	61,199		$	71,416
	Professional services		3,364			4,308			7,296			9,934

Total revenues			25,570			29,776			68,495			81,350
Operating expenses:
	Cost of product revenues, excludes amortization of acquired technology included in amortization of intangibles resulting from acquisitions shown below		6,528			6,813			17,436			18,830
	Cost of professional services revenues		2,186			2,378			5,085			6,004
	Research and development		2,980			3,537			8,433			10,427
	Sales and marketing		7,633			9,074			22,382			26,932
	General and administrative		3,677			3,957			12,415			10,742
	Amortization of intangibles resulting from acquisitions		1,445			879			4,313			2,638
	Stock-based compensation		105			44			306			155

Total operating expenses			24,554			26,682			70,370			75,728

Income (loss) from operations			1,016			3,094			(1,875	)		5,622
Other income (expense), net:
	Interest expense		(146	)		(27	)		(439	)		(155	)
	Interest income		21			163			80			212

Income (loss) before (provision) benefit for income taxes			891			3,230			(2,234	)		5,679
(Provision) benefit for income taxes			(300	)		250			(614	)		(362	)

Net income (loss)			591			3,480			(2,848	)		5,317
Dividends on and accretion of convertible preferred stock			(2,531	)		—			(7,521	)		(6,344	)

Net (loss) income attributable to common stockholders		$	(1,940	)	$	3,480		$	(10,369	)	$	(1,027	)

Net (loss) income attributable to common stockholders per common share:
Basic		$	(0.35	)	$	0.14		$	(1.88	)	$	(0.08	)

Diluted		$	(0.35	)	$	0.12		$	(1.88	)	$	(0.08	)

Weighted average number of common shares:
Basic			5,519,638			25,683,200			5,511,009			12,868,696

Diluted			5,519,638			27,906,730			5,511,009			12,868,696

See notes to unaudited consolidated financial statements.

BLACKBOARD INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



			Nine Months Ended
			September 30,

			2003			2004


			(In thousands)
Cash flows from operating activities
Net (loss) income			$	(2,848	)	$	5,317
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
	Depreciation and amortization			2,997			4,669
	Amortization of intangibles			4,313			2,638
	Change in allowance for doubtful accounts			155			186
	Change in obsolescence reserve			85			17
	Noncash stock compensation related to options issued to nonemployees			—			69
	Noncash stock compensation for modification of options			21			—
	Noncash deferred stock amortization			56			86
	Changes in operating assets and liabilities, net of effect of acquisition:
		Accounts receivable		(10,204	)		(2,805	)
		Inventories		(205	)		(89	)
		Prepaid expenses and other current assets		2,661			(659	)
		Deferred cost of revenues		(238	)		(1,659	)
		Accounts payable		1,404			(419	)
		Accrued expenses		863			(950	)
		Deferred rent		(117	)		(19	)
		Deferred revenues		10,341			14,057

Net cash provided by operating activities				9,284			20,439
Cash flows from investing activities
Purchase of property and equipment				(3,472	)		(6,356	)
Acquisition of business, net of cash acquired				(4,500	)		—

Net cash used in investing activities				(7,972	)		(6,356	)
Cash flows from financing activities
Proceeds from equipment notes				1,540			—
Payments on equipment notes				(1,062	)		(710	)
Proceeds from line of credit				5,380			—
Payments on line of credit				(4,750	)		(7,880	)
Payments on note payable				(1,000	)		(2,000	)
Proceeds from issuance of common stock, net of issuance costs				—			50,896
Proceeds from exercise of Series E Warrants				—			248
Release of letters of credit				210			190
Proceeds from exercise of stock options				140			1,063

Net cash provided by financing activities				458			41,807

Net increase in cash and cash equivalents				1,770			55,890
Cash and cash equivalents at beginning of period				20,372			30,456

Cash and cash equivalents at end of period			$	22,142		$	86,346

See notes to unaudited consolidated financial statements.

BLACKBOARD INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months and Nine Months Ended September 30, 2003 and 2004

In these Notes to Unaudited Consolidated Financial Statements, the terms the “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 Community System™ (formerly known as 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 nine months ended September 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) Income Attributable to Common Stockholders per Common Share*

Basic net (loss) income attributable to common stockholders per common share excludes dilution for potential common stock issuances and is computed by dividing net (loss) income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net (loss) income attributable to common stockholders per common share reflects the potential dilution that could occur

BLACKBOARD INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

if securities or other contracts to issue common stock were exercised or converted into common stock. Mandatorily redeemable convertible preferred stock, stock options and warrants were not considered in the computation of diluted net (loss) income attributable to common stockholders per common share for the three and nine months ended September 30, 2003 and the nine months ended September 30, 2004 as their effect is anti-dilutive.

The following schedule presents the calculation of basic and diluted net (loss) income attributable to common stockholders per common share:

Three Months Ended

Nine Months Ended