Blackboard's third quarter revenue was $50.4 million, an increase of 40 percent over the same period in 2005. The increase in revenue was driven by, continued growth in Blackboard's annual licensing of enterprise level products to clients including clients resulting from the acquisition of WebCT, Inc., which closed on February 28, 2006.

Product revenue was $43.4 million, an increase of 39 percent over the $31.3 million of product revenue last year. Professional services revenue for the quarter was $6.9 million, which represents an increase of 50 percent over the same period in 2005. Net loss in the third quarter was $4.8 million, resulting in a net loss per basic and diluted share of $0.17. Non-GAAP cash net income, which excludes the amortization of acquired intangibles, stock- based compensation expense and the associated tax impact, was $522,000 resulting in a non-GAAP cash net income per diluted share of $0.02.

"We are pleased with our financial results, made possible by clients around the world selecting Blackboard products and services to manage their most mission-critical online education activities," said Michael Chasen, Chief Executive Officer for Blackboard. "During the quarter, we realized strong revenue and earnings performance and generated operating cash-flow in excess of $24 million."

Total revenue for the nine months ended September 30, 2006 was $131.6 million, an increase of 32 percent over the same period in 2005. Net loss was $10.9 million for the first nine months of 2006 compared to net income of $18.7 million over the same period in 2005. Non-GAAP cash net income for the first nine months of 2006, which excludes the amortization of acquired intangibles, stock-based compensation expense and the associated tax impact, was $1.8 million resulting in non-GAAP cash net income per diluted share of $0.06.

Investors should note that the Company's 2006 net loss and non-GAAP cash net income reflect the negative impact of the deferred revenue reductions related to purchase accounting adjustments and non-recurring integration costs, both relating to the WebCT, Inc. acquisition.

Strong Client Adoption and Retention Continues

Commenting on client adoption, Chasen added "During the third quarter we continued to experience steady adoption of products by existing and new clients. Additionally, our client retention rate remained strong during our busiest renewal quarter of the year."

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

* U.S. Higher Education: Claflin University, College of DuPage, College of
Westchester, Dallas County Community College District, Dominican
University of California, Montcalm Community College, Ohio Wesleyan
University, Ozarks Technical Community College, Pearl River Community
College, Southern Methodist University, University of North Carolina at
Chapel Hill and others.

* International: Freie Universitaet Berlin, International School of
Brussels, King Khalid University, Liverpool John Moores University,
Metropolitan Institute of TAFE, Prince Mohammed University, Universitaet
Potsdam, University of Bedfordshire, University of East Anglia,
University of Strathclyde, Westminster Kingsway College and others.

* K-12: Albuquerque Public Schools, Atlanta Public Schools, Bishop O'Dowd
High School, Chesterfield County School District, Deer Valley Unified
School District, Henry County Public Schools, Littleton Public Schools,
Pennsylvania Virtual Charter School, Pope John XXIII Regional High
School, Spokane Public Schools, The Bishop Strachan School and others.

Highlights from the Third Quarter

* Blackboard launched the latest version of its client support site,
Behind the Blackboard(TM). The new site features a variety of tools so
that members of the academic community can better manage their e-
Learning infrastructure and access up-to-the-minute resources and
information about Blackboard products and services.

* Blackboard held the Fourth Annual Blackboard Building Blocks Developers
Conference. The annual event highlights academic and commercial
developers working to extend Blackboard's e-Learning platform by using
the Blackboard Building Blocks(R) technology.

* Blackboard released a new customized e-Learning product for K-12
institutions, the Blackboard K-12 Starter Edition(TM). This new
solution is a hosted package featuring a variety of resources for K-12
districts in the early stages of establishing an e-Learning strategy.

Financial Guidance for the Fourth Quarter of 2006:

* Revenue of $49.4 to $50.4 million;

* Stock-based compensation expense of $2.7 million;

* Amortization of acquired intangibles of $5.4 million;

* Net loss of ($800,000) to ($400,000), resulting in net loss per basic
share of ($0.03) to ($0.02), which is based on an estimated 28.3 million
basic shares and an effective tax rate of 30 percent; and

* Non-GAAP cash net income, which excludes amortization of acquired
intangibles, stock-based compensation expense, and the associated tax
impact, of $4.3 to $4.7 million, resulting in non-GAAP cash net income
per diluted share of $0.15 to $0.16 based on an estimated 29.1 million
diluted shares and an effective tax rate of 39.5 percent.

Financial Guidance for the Full Year 2006:

* Revenue of $181.1 to $182.1 million;

* Stock-based compensation expense of $8.8 million;

* Amortization of acquired intangibles of $18.1 million;

* Net loss of ($11.8) to ($11.4) million, resulting in net loss per basic
share of ($0.42) to ($0.41), which is based on an estimated 28 million
basic shares and an effective tax rate of 30 percent; and

* Non-GAAP cash net income, which excludes amortization of acquired
intangibles, stock-based compensation expense, and the associated tax
impact, of $6.2 to $6.6 million, resulting in non-GAAP cash net income
per diluted share of $0.21 to $0.23 based on an estimated 28.9 million
diluted shares and an effective tax rate of 39.5 percent.

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 August 9, 2006, as well as other filings with the Securities and Exchange Commission when assessing the Company's financial condition and results of operations.

Nine Months Ended
September 30,
---------------------------
2005 2006
--------- ---------
(in thousands)
Cash flows from operating activities
Net income (loss) $18,742 $(10,938)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Deferred income tax benefit - (6,078)
Excess tax benefits from stock-based
compensation - (248)
Amortization of debt discount - 940
Depreciation and amortization 5,003 6,572
Amortization of intangibles
resulting from acquisitions 200 12,591
Change in allowance for doubtful accounts (24) (143)
Noncash stock-based compensation 55 6,038
Changes in operating assets and
liabilities:
Accounts receivable (11,490) (30,712)
Inventories (59) (637)
Prepaid expenses and other current
assets (586) 496
Deferred cost of revenues (1,959) (1,745)
Accounts payable 111 (575)
Accrued expenses 797 (4,883)
Deferred rent (221) (142)
Deferred revenues 12,797 40,048
--------- ---------
Net cash provided by operating activities 23,366 10,584

Cash flows from investing activities
Acquisition of WebCT, Inc., net of
cash acquired - (154,628)
Purchase of property and equipment (6,696) (8,188)
Purchase of held-to-maturity
securities (27,230) -
Sale of held-to-maturity securities 5,750 23,546
Purchase of available-for-sale
securities (21,900) -
Sale of available-for-sale
securities 25,600 39,056
--------- ---------
Net cash used in investing activities (24,476) (100,214)

Cash flows from financing activities
Payments on equipment notes (424) -
Proceeds from revolving credit facility - 10,000
Payments on revolving credit facility - (10,000)
Proceeds from term loan - 57,522
Payments on term loan - (15,450)
Release of letter of credit - 1,517
Excess tax benefits from stock-based
compensation - 248
Proceeds from exercise of stock options 8,222 6,943
--------- ---------
Net cash provided by financing
activities 7,798 50,780
--------- ---------
Net increase (decrease) in cash and
cash equivalents 6,688 (38,850)
Cash and cash equivalents at beginning
of period 78,149 75,895
--------- ---------
Cash and cash equivalents at end of
period $84,837 $37,045
========= =========

SOURCE: Blackboard Inc.