Blackboard's second quarter revenue was $43.6 million, an increase of 32 percent over the same period in 2005. Product revenue was $37.0 million, an increase of 26 percent over the $29.4 million of product revenue last year. Professional services revenue for the quarter was $6.6 million, which represents an increase of 78 percent over the second quarter of 2005. Net loss in the second quarter was $6.3 million, resulting in a net loss per basic and diluted share of ($0.23). Non-GAAP cash net loss, which excludes the amortization of acquired intangibles, stock-based compensation expense and the associated tax impact, was $828,000 resulting in a non-GAAP cash net loss per diluted share of ($0.03).

"We are very pleased with our second quarter and first half results for 2006. In the quarter, we continued to see strong adoption levels for enterprise products and professional services across all education markets," said Michael Chasen, President and CEO of Blackboard Inc.

Total revenue for the first six months ended June 30, 2006 was $81.3 million, an increase of 27 percent over the first six months of 2005. Net loss was $6.2 million for the first six months of 2006 compared to net income of $11.5 million for the first six months of 2005. Non-GAAP cash net income for the first six months of 2006, which excludes the amortization of acquired intangibles, stock-based compensation expense and the associated tax impact, was $1.3 million resulting in non-GAAP cash net income per diluted share of $0.05.

Investors should note that the Company's net loss and non-GAAP cash net loss continue to reflect the impact of the deferred revenue reductions related to purchase accounting adjustments and non-recurring integration costs, both relating to the WebCT, Inc. acquisition.

Integration Success Continues

Commenting on the ongoing integration of WebCT, Chasen stated, "We are now nearly six months into operating as a combined organization and integration is going very well. Demand for our products and services remains high and our non-recurring integration costs continue to be lower than expected. The entire Blackboard team continues to do a superb job."

Industry Adoption Continues Across the U.S. and Internationally

A few of Blackboard's new and expanded client relationships in the quarter included:

* U.S. Higher Education: Antelope Valley College, Bentley College, Bryant
University, Clarkson University, Eastern University, Hampden-Sydney
College, Lawson State Community College, McNeese State University,
Missouri Baptist University, Post University, Saint Xavier University,
Southern University at New Orleans, Tacoma Community College, Virginia
State University and others.

* International: Bishop Grosseteste College, ESSEC Business School,
Glasgow College of Nautical Studies, North Glasgow College, Novabase
eLearning, Otago Polytechnic, SIM University, York College, and others.

* K-12: Fauquier County Public Schools, Glenbrook High School District,
Higley Unified School District, Hutchinson Public Schools, Kentucky
Department of Education, Lee's Summit School District, North Carolina
Teacher Academy, Rochester Community Schools, Saddleback Valley Unified
School District and others.

Michael Beach Named CFO Effective September 1, 2006

Blackboard also announced today that Mike Beach will succeed Peter Repetti as the Company's chief financial officer effective September 1, 2006. As part of the planned transition process, Mr. Repetti will keep the title of CFO until September 1 while direct responsibilities are gradually assumed by Mr. Beach, and then will serve in an advisory capacity to ensure a seamless transition.

"While I will miss working with Pete on a daily basis, I am very pleased that Mike will be succeeding him as Blackboard's new CFO," commented Chasen. "Mike has worked closely with Pete and me over the past five years and has been instrumental in driving Blackboard's strategy and overall success as a public company."

Mr. Beach, currently vice president of finance and treasurer, has been with Blackboard since 2001 with responsibilities for accounting, corporate treasury, tax, and financial reporting functions. Mr. Beach has been an integral member of the Blackboard management team and played a lead role in Blackboard's initial public offering and the Company's recent acquisition of WebCT, Inc. Prior to joining the Company, Mr. Beach was a Senior Manager at Ernst & Young LLP where he provided accounting, audit, tax, acquisition due diligence and other services to several public and private clients. Mr. Beach has also served as Controller for GreenStone Industries, Inc. where he managed that company's accounting, tax and reporting functions.

Commenting on his planned departure, Mr. Repetti stated, "My five years at Blackboard have been very rewarding and my decision to leave has been a difficult one to make. I am pleased with all the things that we have accomplished including a successful public offering and the acquisition of WebCT, Inc. As our recent results reflect, Blackboard is performing well and on track for another excellent year."

Company Raises Financial Guidance

Third Quarter of 2006:

* Revenue of $48.3 to $49.3 million;

* Stock-based compensation expense of $2.6 million;

* Amortization of acquired intangibles of $5.4 million;

* Net loss of ($5.4) to ($5.0) million, resulting in net loss per basic
share of ($0.19) to ($0.18), which is based on an estimated 28.1 million
basic shares and an effective tax rate of 31 percent; and

* Non-GAAP cash net income, which excludes amortization of acquired
intangibles, stock-based compensation expense, and the associated tax
impact, of $200,000 to $500,000, resulting in non-GAAP cash net income
per diluted share of $0.01 to $0.02 based on an estimated 29.1 million
diluted shares and an effective tax rate of 39.5 percent.

Full Year 2006:

* Revenue of $178.3 to $180.3 million;

* Stock-based compensation expense of $9.1 million;

* Amortization of acquired intangibles of $18.1 million;

* Net loss of ($12.5) to ($11.7) million, resulting in net loss per basic
share of ($0.44) to ($0.41), which is based on an estimated 28.3 million
basic shares and an effective tax rate of 31 percent; and

* Non-GAAP cash net income, which excludes amortization of acquired
intangibles, stock-based compensation expense, and the associated tax
impact, of $5.7 to $6.4 million, resulting in non-GAAP cash net income
per diluted share of $0.20 to $0.22 based on an estimated 29.3 million
diluted shares and an effective tax rate of 39.5 percent.

Conference Call

Blackboard will broadcast its second quarter conference call live over the Internet today beginning at 5:00 p.m. Eastern time. Interested parties can access the Webcast through the Investor Relations section of the Company's Web site at http://investor.blackboard.com. Please access the Web site at least 15 minutes prior to the start of the call to register, download and install any necessary software.

A replay of the call will be available via telephone from 7:00 p.m. Eastern (4:00 p.m. Pacific) on August 8, 2006 until 8:00 p.m. Eastern time (5:00 p.m. Pacific time) on August 15, 2006. To listen to the replay, participants in the U.S. and Canada should dial 888-286-8010, and international participants should dial 617-801-6888. The conference ID for the replay is 43918020.

Use of Non-GAAP Financial Measures

This release includes information about the Company's non-GAAP cash net income and non-GAAP cash net income per share which are non-GAAP financial measures. Management believes that both measures, which exclude amortization of acquired intangibles, stock-based compensation expense, and the associated tax impact, provide additional useful information to investors regarding the Company's ongoing financial condition and results of operations and aspects of current operating performance which can be effectively managed. Since the Company has historically reported these non-GAAP results to the investment community, management also believes the inclusion of these non-GAAP financial measures provides consistency in its financial reporting and facilitates investors' understanding of the Company's historic operating trends by providing an additional basis for comparisons to prior periods. In addition, the Company's internal reporting, including information provided to the Company's Audit Committee and Board of Directors, contains non-GAAP cash net income and non-GAAP cash net income per share. The Company has also adopted internal compensation metrics that are determined on a basis that excludes amortization of acquired intangibles, stock-based compensation expense, and the associated tax impact.

A material limitation associated with the use of the above non-GAAP financial measures is that they have no standardized measurement prescribed by GAAP and may not be comparable with similar non-GAAP financial measures used by other companies. The Company compensates for these limitations by providing full disclosure of each non-GAAP financial measure and a reconciliation to the most directly comparable GAAP financial measure which investors can use to appropriately consider each financial measure determined under GAAP as well as on the adjusted non-GAAP basis. However, the non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. In addition to the information contained in this release, investors should also review information contained in the Company's Form 10-Q dated May 10, 2006, as well as other filings with the Securities and Exchange Commission when assessing the Company's financial condition and results of operations.

BLACKBOARD INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
2005 2006 2005 2006
----------- ----------- ----------- -----------
Revenues:
Product $ 29,353 $ 36,987 $ 57,040 $ 70,161
Professional services 3,696 6,593 6,951 11,127
----------- ----------- ----------- -----------
Total revenues 33,049 43,580 63,991 81,288
Operating expenses:
Cost of product revenues,
excludes $2,800 and
$3,733 in amortization
of acquired technology
included in amortization
of intangibles resulting
from acquisitions shown
below for the three and
six months ended June
30, 2006, respectively
(1) 7,095 10,027 14,311 17,993
Cost of professional
services revenues (1) 2,552 4,285 4,766 7,676
Research and development
(1) 3,307 7,273 6,505 12,157
Sales and marketing (1) 9,462 15,093 17,946 27,242
General and
administrative (1) 4,809 9,801 9,432 17,401
Amortization of
intangibles resulting
from acquisitions 66 5,377 134 7,214
----------- ----------- ----------- -----------
Total operating expenses 27,291 51,856 53,094 89,683
----------- ----------- ----------- -----------
Income (loss) from
operations 5,758 (8,276) 10,897 (8,395)
Other income (expense):
Interest expense (12) (1,318) (30) (1,896)
Interest income 524 392 1,007 1,633
Other income (expense) - 179 - (147)
----------- ----------- ----------- -----------
Income (loss) before
(provision) benefit for
income taxes 6,270 (9,023) 11,874 (8,805)
(Provision) benefit for
income taxes (207) 2,712 (401) 2,642
----------- ----------- ----------- -----------
Net income (loss) 6,063 (6,311) 11,473 (6,163)
=========== =========== =========== ===========
Net income (loss) per
common share:
Basic $ 0.23 $ (0.23) $ 0.44 $ (0.22)
=========== =========== =========== ===========
Diluted $ 0.21 $ (0.23) $ 0.41 $ (0.22)
=========== =========== =========== ===========
Weighted average number
of common shares:
Basic 26,516,106 27,776,658 26,303,114 27,678,634
=========== =========== =========== ===========
Diluted 28,201,336 27,776,658 27,930,823 27,678,634
=========== =========== =========== ===========

(1) Includes the following
amounts related to stock-
based compensation:
Cost of product revenues $ - $ 129 $ - $ 164
Cost of professional
services revenues - 251 - 369
Research and development - 154 - 276
Sales and marketing - 933 - 1,340
General and administrative 18 811 36 1,628

Reconciliation of income (loss) before (provision) benefit for income taxes to non-GAAP cash net income (loss) (2):

Income (loss) before
(provision) benefit for
income taxes $ 6,270 $ (9,023) $ 11,874 $ (8,805)
Add: Amortization of
intangibles resulting
from acquisitions 66 5,377 134 7,214
Add: Stock-based
compensation 18 2,278 36 3,777
Adjusted (provision)
benefit for income taxes
(3) (210) 540 (409) (863)
----------- ----------- ----------- -----------
Non-GAAP cash net income
(loss) 6,144 (828) 11,635 1,323
=========== =========== =========== ===========
Non-GAAP cash net income
(loss) per common share
- diluted $ 0.22 $ (0.03) $ 0.42 $ 0.05
=========== =========== =========== ===========
Adjusted weighted average
number of common
shares - diluted 28,201,336 28,873,764 27,930,823 28,836,779
=========== =========== =========== ===========

(2) Non-GAAP cash net income (loss) and non-GAAP cash net income (loss)
per share are non-GAAP financial measures and have no standardized
measurement prescribed by GAAP. Management believes that both measures
provide additional useful information to investors regarding the
Company's ongoing financial condition and results of operations and
since the Company has historically reported these non-GAAP results
they provide an additional basis for comparisons to prior periods. The
non-GAAP financial measures may not be comparable with similar non-
GAAP financial measures used by other companies and should not be
considered in isolation from, or as a substitute for, financial
information prepared in accordance with GAAP. The Company provides the
above reconciliation to the most directly comparable GAAP financial
measure to allow investors to appropriately consider each non-GAAP
financial measure.

(3) Adjusted (provision) benefit for income taxes is applied at an
effective rate of approximately 3.3% and 39.5% for the three months
ended June 30, 2005 and 2006, respectively, and approximately 3.4% and
39.5% for the six months ended June 30, 2005 and 2006, respectively.



BLACKBOARD INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, June 30,
2005 2006
----------- -----------
(unaudited)
(in thousands,
except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 75,895 $ 27,620
Short-term investments 62,602 -
Restricted cash 521 461
Accounts receivable, net 26,136 57,060
Inventories 1,806 2,851
Prepaid expenses and other current assets 2,116 3,914
Deferred tax asset, current portion 10,274 14,918
Deferred cost of revenues, current portion 5,797 6,959
----------- -----------
Total current assets 185,147 113,783

Deferred tax asset, noncurrent portion 12,023 11,701
Deferred cost of revenues, noncurrent portion 1,310 1,335
Deferred merger costs (WebCT, Inc.) 4,956 -
Property and equipment, net 9,940 13,226
Goodwill 10,252 102,725
Intangible assets, net 560 66,652
----------- -----------
Total assets $ 224,188 $ 309,422
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,833 $1,977
Accrued expenses 14,083 18,432
Term loan, current portion - 600
Deferred rent, current portion 347 417
Deferred revenues, current portion 74,975 94,082
----------- -----------
Total current liabilities 91,238 115,508

Term loan, noncurrent portion, net of debt
discount - 56,867
Deferred rent, noncurrent portion 426 315
Deferred revenues, noncurrent portion 2,199 4,171
Stockholders' equity:
Common stock, $0.01 par value 275 278
Additional paid-in capital 210,805 219,201
Accumulated deficit (80,755) (86,918)
----------- -----------
Total stockholders' equity 130,325 132,561
----------- -----------
Total liabilities and stockholders' equity $ 224,188 $ 309,422
=========== ===========



BLACKBOARD INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended
June 30,
-----------------------
2005 2006
--------- ---------
(in thousands)
Cash flows from operating activities
Net income (loss) $ 11,473 $ (6,163)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Deferred income tax benefit - (3,493)
Excess tax benefits from stock-based
compensation - (173)
Amortization of debt discount - 246
Depreciation and amortization 3,274 4,175
Amortization of intangibles resulting from
acquisitions 134 7,214
Change in allowance for doubtful accounts 225 (107)
Noncash stock-based compensation 36 3,777
Changes in operating assets and liabilities:
Accounts receivable (17,258) (26,448)
Inventories (513) (1,045)
Prepaid expenses and other current assets (640) (442)
Deferred cost of revenues (1,252) (1,187)
Accounts payable 697 (128)
Accrued expenses (34) (6,679)
Deferred rent (152) (41)
Deferred revenues 5,095 16,623
--------- ---------
Net cash provided by (used in) operating
activities 1,085 (13,871)

Cash flows from investing activities
Acquisition of WebCT, Inc., net of cash
acquired - (154,628)
Purchase of property and equipment (4,774) (5,741)
Purchase of held-to-maturity securities (21,159) -
Sale of held-to-maturity securities - 23,546
Purchase of available-for-sale securities (9,600) -
Sale of available-for-sale securities 9,950 39,056
--------- ---------
Net cash used in investing activities (25,583) (97,767)

Cash flows from financing activities
Payments on equipment notes (323) -
Proceeds from revolving credit facility - 10,000
Payments on revolving credit facility - (10,000)
Proceeds from term loan - 57,522
Payments on term loan - (300)
Release of letter of credit - 1,517
Excess tax benefits from stock-based
compensation - 173
Proceeds from exercise of stock options 5,559 4,451
--------- ---------
Net cash provided by financing activities 5,236 63,363
--------- ---------
Net decrease in cash and cash equivalents (19,262) (48,275)
Cash and cash equivalents at beginning of period 78,149 75,895
--------- ---------
Cash and cash equivalents at end of period $ 58,887 $ 27,620
========= =========

Any statements in this press release about future expectations, plans and prospects for Blackboard and other statements containing the words "believes," "anticipates," "plans," "expects," "will," and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including the factors discussed in the "Risk Factors" section of our Annual Report on Form 10-Q filed on May 10, 2006 with the SEC. In addition, the forward-looking statements included in this press release represent the Company's views as of August 8, 2006. The Company anticipates that subsequent events and developments will cause the Company's views to change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to August 8, 2006.

SOURCE: Blackboard Inc.