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Author: TMFConnor One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 199  
Subject: Blackboard Q1 2010 Results Date: 5/6/2010 1:13 PM
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Blackboard announced some great earnings after the bell yesterday by beatings its estimates and raising 2010 guidance. Shares are currently up about 3 percent today.

Despite the stellar results, my favorite part of the conference call from a long-term perspective was the discussion on open source solutions. Analyst Terrell Tillman asked, “You guys mentioned several wins or a number of wins more so than I’ve typically heard in the past, where the incumbent solution was open source. I mean, that’s supposed to be free, so why did they move for something that is supposed to be free to your commercial products?

Michael Chase responded, “Yes. Look, certainly, institutions, as they look to figure out what their e-Learning strategies are, some institutions look at open source and say, ‘Hey, that might be something that’s free, a place where I can save money.’ And I think that what they determined at the end of the day is it actually can cost more from a total cost of ownership perspective, with the additional developer that you might have to hire to run the product, not having a third-party vendor support to really be there to help you with implementations or longer-term student, faculty, and administrative support and then lastly, just the gap that exists from a feature and functionality perspective. So, we’ve actually seen now a couple of clients that either had in the past a more heavily considered open source or even moved to open source actually now coming back to Blackboard and really starting to take advantage of the new Blackboard Learn technology that we’ve released, and the high quality of service and support that we can provide.“

In my mind, open-source solutions are the biggest threat to Blackboard’s long-term success, so this was a particularly encouraging sign that Blackboard is staying on top of the curve, and providing an attractive value-proposition for schools, even when compared to free open source solutions. After all, if you can sell a product that you can get for free elsewhere, you know you are doing something right.

Now, to the results:

The company posted a first-quarter net profit of $5 million, or 15 cents a share. It posted a net loss of $37,000, and broke even on a per share basis, a year ago.

Excluding items, the company reported a profit of 42 cents per share, which beat the average estimates by $0.02.
Revenue rose 17 percent to $101.1 million. Products revenue jumped 17 percent to $93.7 million.

Q2 Guidance
• Revenue of $104.2 million to $108.2 million;
• GAAP net income of $2.6 million to $4.9 million,
• GAAP net income per diluted share of $0.07 to $0.14, which is based on an estimated 35.1 million diluted shares and an estimated effective tax rate of approximately 33.0 percent;
• Non-GAAP adjusted net income of $11.9 to $14.3 million, which excludes the amortization of acquisition-related intangible assets, stock-based compensation expense, and non-cash interest expense, all net of taxes; and
• Non-GAAP adjusted net income per diluted share of $0.34 to $0.41 based on an estimated 35.1 million diluted shares and an estimated effective tax rate of approximately 38.0 percent.
Full Year Guidance
• Revenue of $433.4 to $445.4 million;
• GAAP net income of $22.7 to $29.7 million,
• GAAP net income per diluted share of $0.64 to $0.84, which is based on an estimated 35.2 million diluted shares and an estimated effective tax rate of approximately 33.0 percent;
• Free cash flow from operations (cash flow from operations less purchases of property and equipment) of $80.0 to $90.0 million.

Some of the other highlights (in addition to expanding their customer base)

-Blackboard completed its acquisition of privately-held Saf-T-Net, Inc., provider of AlertNow, a leading messaging and mass notification solution. The acquisition was completed March 19, 2010 for $34.9 million in net cash, including transaction costs.
• Blackboard announced plans for Blackboard Mobile Learn™, an application that will bring two-way teaching and learning to mobile devices, creating an interactive mobile learning experience for students and teachers on the go.
• Blackboard announced a partnership with Sprint Corporation to offer Blackboard Mobile Learn™ to users of Sprint devices at no additional cost to institutions.
• Blackboard announced the launch of Blackboard Pay™, an open-loop prepaid card program that lets educational institutions simplify the disbursement of financial aid credit balances -- as well as student payroll -- while cutting costs for institutions and lowering student fees.

It was a great quarter for Blackboard. While open source is a serious threat that needs to be watched, the company is making the right moves and the long-term picture seems bright.

TMFConnor
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