- The Washington Times - Monday, August 14, 2006

The educational software market continues to grow, and so does the bottom line of Blackboard Inc., the D.C. provider of products for schools and universities.

The company last week announced second-quarter revenue of $43.6 million, a 32 percent jump from last year’s $33 million.

Blackboard, nearly six months after acquiring its largest competitor, WebCT Inc., for $178 million, reported a net loss of $6.3 million (23 cents per diluted share) compared with earnings of $6.1 million (21 cents) a year ago.

Despite the short-term earnings disruption, the cost of the integration has been less than the company predicted. On June 22, the company raised its guidance and estimated $4 million in acquisition-related costs for the second quarter and $13.5 million for the year.

Last week, Blackboard reported integration costs of $3.7 million for the quarter and changed its guidance again to $12.8 million for the year.

“We had another excellent quarter,” Michael Chasen, president and chief executive officer, told investors during a conference call last week. “Overall, I’m very satisfied with our integration process.”

Shares of Blackboard rose 14 cents yesterday to close at $28.90 on the Nasdaq Global Select Market.

Analysts say Blackboard, which now controls about 75 percent of the domestic market thanks to the WebCT acquisition, continues to benefit from the trend toward software in the classroom — or replacing the classroom, for that matter.

“It’s a good growth company,” said Kirsten Edwards, an analyst with ThinkEquity Partners LLC in San Francisco, which has no business relationship with Blackboard.

Ms. Edwards said she rates the stock as a “buy” because the company’s primary growth strategy — selling more expensive and functional software upgrades to existing clients — is “fairly low-risk.”

“As long as the industry trends continue, there will be more use of online learning on campus,” she said. “So long as that is true, the switching costs are high enough for the universities … they’d rather just stick with their current vendor.”

During the second quarter, Blackboard had a software-license renewal rate of more than 90 percent. It added 136 new licenses but total license growth reflected WebCT customers and climbed 52 percent to 4,802 from 3,149 a year ago. Total contract value was $148 million, or an average of $30,800 per license.

Ms. Edwards cited the overseas market and domestic K-12 schools as areas where Blackboard should focus on expanding its influence. However, she noted that the K-12 market is tougher to penetrate than postsecondary institutions.

“Decision-makers are very different from district to district, budgets are different and commitment to online learning varies,” she said. “It’s a more difficult way to grow for the long run.”

During the company’s conference call, Mr. Chasen announced that Chief Financial Officer Peter Repetti was stepping down and will be replaced with Michael Beach, the company’s current vice president of finance, effective Sept. 1.

In a research note, Merrill Lynch analyst Kash Rangan called Mr. Repetti’s departure “sudden, following just six months after the WebCT acquisition.”

Ms. Edwards agreed that the timing is less than ideal.

“I didn’t like to see it happen, but I think the key risk right now is on the operational side in integrating the two businesses and not on the financials,” she said, noting that Mr. Beach has been with the company for five years. “He has a pretty good framework; I think the risk is mitigated.”

For the third quarter, the company expects a net loss of $5.4 million to $5 million on revenue between $48.4 and $49.3 million.

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