##### Table of Contents



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 March 31, 2010
 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.
  Delaware
    
    52-2081178(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)650 Massachusetts Avenue, N.W.Washington D.C.
    
    20001(Address of Principal Executive Offices)
    
    (Zip Code)
 (202) 463-4860
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
 Class
    
    Outstanding at April 30. 2010Common Stock, $0.01 par value
    
    34,138,946




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##### 



Blackboard Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2010
 INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsUnaudited Consolidated Balance Sheets as of December 31, 2009 and March 31, 2010
    
    
    1Unaudited Consolidated Statements of Operations for the Three Months Ended
March 31, 2009 and 2010
    
    
    2Unaudited Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2009 and 2010
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    23Item 6. Exhibits
    
    
    31Signature
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
  Throughout this Quarterly Report on Form 10-Q, the terms we, us, our and Blackboard refer
to Blackboard Inc. and its subsidiaries.
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Consolidated Financial Statements
 BLACKBOARD INC.
 
 UNAUDITED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share data)
 December 31,
    
    
    March 31,2009
    
    
    2010Current assets:Cash and cash equivalents
    
    $
    167,353
    
    
    $
    146,276Accounts receivable, net of allowance for doubtful accounts of $1,184 and $868, respectively
    
    
    69,098
    
    
    
    51,394Inventories
    
    
    1,557
    
    
    
    378Prepaid expenses and other current assets
    
    
    14,803
    
    
    
    14,477Deferred tax asset, current portion
    
    
    2,692
    
    
    
    Deferred cost of revenues
    
    
    7,664
    
    
    
    6,553Total current assets
    
    
    263,167
    
    
    
    219,078Deferred tax asset, noncurrent portion
    
    
    18,188
    
    
    
    18,800Investment in common stock warrant
    
    
    3,124
    
    
    
    3,124Restricted cash
    
    
    3,923
    
    
    
    3,896Property and equipment, net
    
    
    34,483
    
    
    
    33,044Other assets
    
    
    1,453
    
    
    
    1,180Goodwill
    
    
    329,287
    
    
    
    355,583Intangible assets, net
    
    
    71,309
    
    
    
    78,000Total assets
    
    $
    724,934
    
    
    $
    712,705Current liabilities:Accounts payable
    
    $
    2,360
    
    
    $
    2,192Accrued expenses
    
    
    28,264
    
    
    
    21,999Deferred rent, current portion
    
    
    1,021
    
    
    
    475Deferred tax liability, current portion
    
    
    
    
    
    
    478Deferred revenues, current portion
    
    
    186,702
    
    
    
    151,347Total current liabilities
    
    
    218,347
    
    
    
    176,491Convertible senior notes, net of debt discount of $8,823 and $7,294, respectively
    
    
    156,177
    
    
    
    157,706Deferred rent, noncurrent portion
    
    
    11,507
    
    
    
    11,879Deferred tax liability, noncurrent portion
    
    
    1,474
    
    
    
    1,694Deferred revenues, noncurrent portion
    
    
    5,957
    
    
    
    5,269Total liabilities
    
    
    393,462
    
    
    
    353,039Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value; 5,000,000 shares authorized, and no shares issued or
outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value; 200,000,000 shares authorized; 33,100,139 and 33,955,765
shares issued and outstanding, respectively
    
    
    331
    
    
    
    340Additional paid-in capital
    
    
    406,751
    
    
    
    429,900Accumulated deficit
    
    
    (75,610
    )
    
    
    (70,574
    )Total stockholders equity
    
    
    331,472
    
    
    
    359,666Total liabilities and stockholders equity
    
    $
    724,934
    
    
    $
    712,705
 See notes to unaudited consolidated financial statements.
 1




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BLACKBOARD INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share data)
 Three Months EndedMarch 31,2009
    
    
    2010Revenues:Product
    
    $
    80,126
    
    
    $
    93,730Professional services
    
    
    6,322
    
    
    
    7,336Total revenues
    
    
    86,448
    
    
    
    101,066Operating expenses:Cost of product revenues, excludes $3,638 and $2,508 in
amortization of acquired technology included in
amortization of intangibles resulting from acquisitions
shown below, respectively (1)
    
    
    21,444
    
    
    
    24,534Cost of professional services revenues (1)
    
    
    4,767
    
    
    
    4,479Research and development (1)
    
    
    10,827
    
    
    
    12,205Sales and marketing (1)
    
    
    23,941
    
    
    
    25,315General and administrative (1)
    
    
    13,602
    
    
    
    14,705Amortization of intangibles resulting from acquisitions
    
    
    8,585
    
    
    
    8,978Total operating expenses
    
    
    83,166
    
    
    
    90,216Income from operations
    
    
    3,282
    
    
    
    10,850Other expense, net:Interest expense
    
    
    (2,891
    )
    
    
    (2,888
    )Interest income
    
    
    107
    
    
    
    21Other expense
    
    
    (558
    )
    
    
    (527
    )(Loss) income before benefit (provision) for income taxes
    
    
    (60
    )
    
    
    7,456Benefit (provision) for income taxes
    
    
    23
    
    
    
    (2,420
    )Net (loss) income
    
    $
    (37
    )
    
    $
    5,036Net (loss) income per common share:Basic
    
    $
    (0.00
    )
    
    $
    0.15Diluted
    
    $
    (0.00
    )
    
    $
    0.15Weighted average number of common shares:Basic
    
    
    31,503,578
    
    
    
    33,432,192Diluted
    
    
    31,503,578
    
    
    
    34,397,711(1) Includes the following amounts related to
stock-based compensation:Cost of product revenues
    
    $
    270
    
    
    $
    337Cost of professional services revenues
    
    
    90
    
    
    
    148Research and development
    
    
    227
    
    
    
    268Sales and marketing
    
    
    1,582
    
    
    
    1,868General and administrative
    
    
    1,818
    
    
    
    2,335
 See notes to unaudited consolidated financial statements.
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BLACKBOARD INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Three MonthsEnded March 31,2009
    
    
    2010Cash flows from operating activitiesNet (loss) income
    
    $
    (37
    )
    
    $
    5,036Adjustments to reconcile net (loss) income to net cash provided by (used
in) operating activities:Deferred tax benefit
    
    
    (1,856
    )
    
    
    (398
    )Excess tax benefit from stock-based compensation
    
    
    (182
    )
    
    
    (2,800
    )Amortization of debt discount
    
    
    1,555
    
    
    
    1,528Depreciation and amortization
    
    
    4,719
    
    
    
    4,629Amortization of intangibles resulting from acquisitions
    
    
    8,585
    
    
    
    8,978Change in allowance for doubtful accounts
    
    
    289
    
    
    
    (316
    )Stock-based compensation
    
    
    3,987
    
    
    
    4,956Changes in operating assets and liabilities, net of effect of acquisitions:Accounts receivable
    
    
    35,786
    
    
    
    18,488Inventories
    
    
    (178
    )
    
    
    1,178Prepaid expenses and other current assets
    
    
    (3,858
    )
    
    
    629Deferred cost of revenues
    
    
    1,344
    
    
    
    1,112Accounts payable
    
    
    73
    
    
    
    (1,628
    )Accrued expenses
    
    
    (6,914
    )
    
    
    (3,571
    )Deferred rent
    
    
    658
    
    
    
    (173
    )Deferred revenues
    
    
    (39,585
    )
    
    
    (38,877
    )Net cash provided by (used in) operating activities
    
    
    4,386
    
    
    
    (1,229
    )Cash flows from investing activitiesAcquisitions, net of cash acquired
    
    
    
    
    
    
    (34,912
    )Purchases of property and equipment
    
    
    (5,287
    )
    
    
    (3,165
    )Purchases of available-for-sale securities
    
    
    (6,586
    )
    
    
    Payments for patent enforcement costs
    
    
    (41
    )
    
    
    Net cash used in investing activities
    
    
    (11,914
    )
    
    
    (38,077
    )Cash flows from financing activitiesReleases of letters of credit
    
    
    80
    
    
    
    27Excess tax benefits from stock-based compensation
    
    
    182
    
    
    
    2,800Proceeds from exercise of stock options
    
    
    1,684
    
    
    
    15,402Net cash provided by financing activities
    
    
    1,946
    
    
    
    18,229Net decrease in cash and cash equivalents
    
    
    (5,582
    )
    
    
    (21,077
    )Cash and cash equivalents at beginning of period
    
    
    141,746
    
    
    
    167,353Cash and cash equivalents at end of period
    
    $
    136,164
    
    
    $
    146,276
 See notes to unaudited consolidated financial statements.
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BLACKBOARD INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 For the Three Months Ended March 31, 2009 and 2010
 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 and Organization
  2. Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  Fair Value Measurements
     4




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Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableMarch 31,
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents(1)
    
    $
    97,765
    
    
    $
    97,765
    
    
    $
    
    
    
    $
    Investment in common stock
warrant
    
    
    3,124
    
    
    
    
    
    
    
    
    
    
    
    3,124Total assets
    
    $
    100,889
    
    
    $
    97,765
    
    
    $
    
    
    
    $
    3,124Liabilities:Convertible senior notes(2)
    
    $
    167,888
    
    
    $
    167,888
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Cash equivalents consist of money market funds with original maturity dates of less than
three months for which the fair value is based on quoted market prices.(2)
    
    The fair value of the Companys convertible senior notes is based on the quoted market price.    Investment in Common Stock Warrant
  5




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Revenue Recognition and Deferred Revenue
      Blackboard Transact Blackboard Transact
    6




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Cost of Revenues and Deferred Cost of Revenues
 Blackboard Connect
  Basic and Diluted Net (Loss) Income per Common Share
   Three Months EndedMarch 31,2009
    
    
    2010(Unaudited)(In thousands, except share and per share amounts)Net (loss) income
    
    $
    (37
    )
    
    $
    5,036Weighted average shares outstanding, basic
    
    
    31,503,578
    
    
    
    33,432,192Dilutive effect of:Stock options and restricted stock units related
to the issuance of common stock
    
    
    
    
    
    
    965,519Weighted average shares outstanding, diluted
    
    
    31,503,578
    
    
    
    34,397,711Basic net (loss) income per common share
    
    $
    (0.00
    )
    
    $
    0.15Diluted net (loss) income per common share
    
    $
    (0.00
    )
    
    $
    0.15
  Comprehensive Net (Loss) Income
  7




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Recent Accounting Pronouncements
  3. Mergers and Acquisitions
 Saf-T-Net, Inc. Merger
    Preliminary Purchase Price Allocation
  Cash and cash equivalents
    
    $
    238Accounts receivable
    
    
    468Prepaid expenses and other current assets
    
    
    30Property and equipment
    
    
    14Accounts payable
    
    
    (1,459
    )Other accrued liabilities
    
    
    (586
    )Deferred tax liabilities, net
    
    
    (3,176
    )Deferred revenue
    
    
    (2,835
    )Net tangible liabilities acquired
    
    
    (7,306
    )Definite-lived intangible assets acquired
    
    
    15,680Goodwill
    
    
    26,296Total estimated purchase price
    
    $
    34,670
   8




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Deferred Revenue
  9




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Pro Forma Financial Information
   Three Months Ended March 31,2009
    
    
    2010(In thousands, except per share amounts)(Unaudited)Total revenues
    
    $
    94,345
    
    
    $
    103,734Net income
    
    $
    1,079
    
    
    $
    4,448Basic net income per common share
    
    $
    0.03
    
    
    $
    0.13Diluted net income per common share
    
    $
    0.03
    
    
    $
    0.13
 ANGEL Learning, Inc. Merger
  4. Stock-Based Compensation
 Stock Incentive Plans
   10




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##### Table of Contents



Stock Options
  Number of
    
    
    Weighted Average
    
    
    AggregateShares
    
    
    Price/Share
    
    
    Intrinsic ValueExercisable at December 31, 2009
    
    
    2,141,431
    
    
    $
    28.01Outstanding at December 31, 2009
    
    
    4,607,782
    
    
    $
    29.83Granted
    
    
    731,000
    
    
    $
    38.72Exercised
    
    
    (727,284
    )
    
    $
    22.52
    
    
    $
    14,273Cancelled
    
    
    (22,970
    )
    
    $
    31.90Outstanding at March 31, 2010
    
    
    4,588,528
    
    
    $
    32.40
    
    
    $
    42,774Exercisable at March 31, 2010
    
    
    1,832,282
    
    
    $
    30.61
    
    
    $
    20,337
   Three Months Ended March 31,2009
    
    
    2010Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    47.5
    %
    
    
    45.1
    %Risk-free interest rate
    
    
    1.6
    %
    
    
    2.3
    %Expected life of options
    
    4.9 years
    
    4.7 yearsForfeiture rate
    
    
    14.4
    %
    
    
    12.3
    %
 Dividend yield
 Expected volatility
 Risk-free interest rate
 Expected life of the options
 Forfeiture rate
 11




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##### Table of Contents



Restricted Stock and Restricted Stock Units
    Number of
    
    
    Weighted Average
    
    
    AggregateShares
    
    
    Fair Value/Share
    
    
    Intrinsic ValueUnvested at December 31, 2009
    
    
    500,250
    
    
    $
    34.67Granted
    
    
    161,300
    
    
    
    38.28Vested and issued
    
    
    (60,812
    )
    
    
    28.92Cancelled
    
    
    Unvested at March 31, 2010
    
    
    600,738
    
    
    $
    36.20
    
    
    $
    25,027
 5. Inventories
  December 31,
    
    
    March 31,2009
    
    
    2010(in thousands)Raw materials
    
    $
    611
    
    
    $
    262Work-in-process
    
    
    261
    
    
    
    45Finished goods
    
    
    685
    
    
    
    71Total inventories
    
    $
    1,557
    
    
    $
    378
 6. Goodwill and Intangible Assets
  December 31,
    
    
    March 31,
    
    
    Weighted-Average2009
    
    
    2010
    
    
    Amortization Period(In thousands)
    
    

    (In years)Goodwill
    
    $
    329,287
    
    
    $
    355,583Acquired technology
    
    $
    68,955
    
    
    $
    71,276
    
    
    
    2.9Accumulated amortization
    
    
    (59,849
    )
    
    
    (62,357
    )Acquired technology, net
    
    
    9,106
    
    
    
    8,919Contracts and customer lists
    
    
    130,675
    
    
    
    143,355
    
    
    
    5.2Accumulated amortization
    
    
    (69,388
    )
    
    
    (75,620
    )Contracts and customer lists, net
    
    
    61,287
    
    
    
    67,735Trademarks and domain names
    
    
    1,976
    
    
    
    2,656
    
    
    
    2.5Accumulated amortization
    
    
    (1,105
    )
    
    
    (1,343
    )Trademarks and domain names, net.
    
    
    871
    
    
    
    1,313Patents and related costs
    
    
    101
    
    
    
    101
    
    
    
    2.0Accumulated amortization
    
    
    (56
    )
    
    
    (68
    )Patents and related costs, net
    
    
    45
    
    
    
    33Intangible assets, net
    
    $
    71,309
    
    
    $
    78,000
 12




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7. Notes Payable
       8. Commitments and Contingencies
  13




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9. Quarterly Financial Information
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 This report contains forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words believes, anticipates, plans, expects, intends and
similar expressions are intended to identify forward-looking statements. The important factors
discussed under the caption Risk Factors, presented below, could cause actual results to differ
materially from those indicated by forward-looking statements made herein. We undertake no
obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
 General
    Blackboard Connect AlertNow Blackboard
Mobile. Blackboard Mobile
 Blackboard Learn tm Blackboard
Transact tm Blackboard Connect tm Blackboard
Mobile tm
 Blackboard Learn Blackboard Transact Blackboard Connect Blackboard Mobile Blackboard
Learn
    15




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Blackboard Connect
      Critical Accounting Policies and Estimates
   Revenue recognition.
 16




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Blackboard Transact Blackboard Transact
    Recent Accounting Pronouncements.
 17




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Important Factors Considered by Management
    
    
    Recurring revenues include those product revenues that recur each year assuming clients
renew their contracts. These revenues include revenues from the licensing of all of our
software products, hosting arrangements, subscription fees from customers accessing our
on-demand application services and enhanced support and maintenance contracts related to our
software products, including certain professional services performed by our professional
services groups.
    
    Non-recurring revenues include those product revenues that do not contractually recur.
These revenues include certain hardware components of our Blackboard Transactproducts,
certain third-party hardware and software sold to our clients in conjunction with our
software licenses, professional services, fees from our off-campus payment merchant program,
certain sales of licenses, as well as the supplies and commissions we earn from publishers
related to digital course supplement downloads.
    Results of Operations
  Three Months EndedMarch 31,2009
    
    
    2010Revenues:Product
    
    
    93
    %
    
    
    93
    %Professional services
    
    
    7
    
    
    
    7Total revenues
    
    
    100
    
    
    
    100Operating expenses:Cost of product revenues, excludes amortization of
acquired technology included in amortization of
intangibles resulting from acquisitions shown below
    
    
    25
    
    
    
    24Cost of professional services revenues
    
    
    5
    
    
    
    4Research and development
    
    
    13
    
    
    
    12Sales and marketing
    
    
    28
    
    
    
    25General and administrative
    
    
    15
    
    
    
    15Amortization of intangibles resulting from acquisitions
    
    
    10
    
    
    
    9Total operating expenses
    
    
    96
    
    
    
    89Income from operations
    
    
    4
    %
    
    
    11
    %
 18




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Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
   Three Months Ended March 31,2009
    
    
    

    2010Product
    
    
    Professional
    
    
    
    
    
    
    
    
    
    
    ProfessionalRevenues
    
    
    Services Revenues
    
    
    Total
    
    
    Product Revenues
    
    
    Services Revenues
    
    
    Total(Unaudited)(in millions)Recurring revenues
    
    $
    70.4
    
    
    $
    1.2
    
    
    $
    71.6
    
    
    $
    80.0
    
    
    $
    1.9
    
    
    $
    81.9Non-recurring revenues
    
    
    9.7
    
    
    
    5.1
    
    
    
    14.8
    
    
    
    13.7
    
    
    
    5.5
    
    
    
    19.2Total revenues
    
    $
    80.1
    
    
    $
    6.3
    
    
    $
    86.4
    
    
    $
    93.7
    
    
    $
    7.4
    
    
    $
    101.1
 Product revenues Blackboard Learn Blackboard Learn Blackboard Learn Blackboard Learn Blackboard Learn Blackboard Learn Blackboard Learn Blackboard Learn Blackboard
Learn Blackboard Transact Blackboard Transact
 Blackboard Learn
 Professional services revenues
 19




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##### Table of Contents



Cost of product revenues
  Cost of professional services revenues
 Research and development expenses
 Sales and marketing expenses
 General and administrative expenses
 Amortization of intangibles resulting from acquisitions.
 Net interest expense
 Other expense
 20




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Benefit (provision) for income taxes
 Liquidity and Capital Resources
 Changes in Cash and Cash Equivalents
     Notes Payable
    Working Capital Needs
  21




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Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   
 Item 4. Controls and Procedures.
 (a) Evaluation of Disclosure Controls and Procedures.
  (b) Changes in Internal Control over Financial Reporting.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  22




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##### Table of Contents



Item 1A. Risk Factors.
  Challenging economic conditions may adversely affect our business.
  We could lose revenues if there are changes in the spending policies or budget priorities for
government funding of colleges, universities, schools and other education providers.
  Our investments in product development and product acquisition may not be successful; if our
products do not gain market acceptance, our revenues may decrease and we may not realize a return
on such investments.
 Blackboard Learn Blackboard Learn
 Blackboard Connect AlertNow Blackboard Mobile Blackboard Connect AlertNow Blackboard Mobile
 We face intense and growing competition, which could result in price reductions, reduced operating
margins and loss of market share.
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Blackboard Learn Blackboard Transact Blackboard Connect
  If potential clients or competitors use open source software to develop products that are
competitive with our products and services, we may face decreased demand and pressure to reduce
the prices for our products.
  Our recent acquisition transactions present many risks, and we may not realize the financial and
strategic goals that were contemplated at the time of the transactions.
  
    
    we may not realize the anticipated financial benefits if we are unable to sell the
acquired products to our current or future customers, if a larger than predicted number of
customers decline to renew their contracts, or if the acquired contracts do not allow us
to recognize revenues on a timely basis;
    
    we may have difficulty incorporating the acquired technologies or products with our
existing product lines and maintaining uniform standards, controls, procedures and
policies;
    
    we may face contingencies related to product liability, intellectual property,
financial disclosures, and accounting practices or internal controls;
    
    we may have higher than anticipated costs in supporting and continuing development of
the acquired company products and in servicing new and existing clients of a company we
acquire;
    
    we may not be able to retain key employees from the companies we acquire;
    
    the increased size and complexity of the combined company after our acquisitions may
present operational challenges; and
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
    
    we may lose anticipated tax benefits or have additional legal or tax exposures.
 Our business strategy contemplates future business combinations and acquisitions which may be
difficult to integrate, disrupt our business, dilute stockholder value or divert management
attention.
     Our existing indebtedness could adversely affect our financial condition and we may not be able to
fulfill our debt obligations, including repayment of the Notes.
  
    
    upon conversion or redemption of the Notes, we will be required to repay the
principal amount of $165.0 million in cash;
    
    we will use a significant portion of our cash flow to pay interest on our outstanding
debt, limiting the amount available for working capital, capital expenditures and other
general corporate purposes;
    
    lenders may be unwilling to lend additional amounts to us for future working capital
needs, additional acquisitions or other purposes or may only be willing to provide funding
on terms we would consider unacceptable;
    
    if our cash flow were inadequate to make interest and principal payments on our debt,
we might have to refinance our indebtedness or issue additional equity or other securities
and may not be successful in those efforts or may not obtain terms favorable to us; and
    
    our ability to finance working capital needs and general corporate purposes for the
public and private markets, as well as the associated cost of funding, is dependent, in
part, on our credit ratings, which may be adversely affected if we experience declining
revenues.
  We may not be able to repurchase the Notes when required by the holders, including upon a defined
fundamental change or other specified dates at the option of the holder, or pay cash upon
conversion of the Notes.
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Conversion of the Notes may affect the market price of our common stock and may dilute the
ownership of existing stockholders.
  Our reported earnings per share may be more volatile because of the contingent conversion
provision of the Notes.
  Because most of our licenses are renewable on an annual basis, a reduction in our license renewal
rate could significantly reduce our revenues.
   Because we generally recognize revenues ratably over the term of our contract with a client,
downturns or upturns in sales will not be fully reflected in our operating results until future
periods.
  Our operating margins may suffer if our professional services revenues increase in proportion to
total revenues because our professional services revenues have lower gross margins.
  If our products contain errors, new product releases are delayed or our services are disrupted, we
could lose new sales and be subject to significant liability claims.
  
    
    delays in or loss of market acceptance of our products;
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
    
    diversion of our resources;
    
    a lower rate of license renewals or upgrades;
    
    injury to our reputation; and
    
    increased service expenses or payment of damages.
  The length and unpredictability of the sales cycle for our software could delay new sales and
cause our revenues and cash flows for any given quarter to fail to meet our projections or market expectations.
  
    
    clients budgetary constraints and priorities;
    
    the timing of our clients budget cycles;
    
    the need by some clients for lengthy evaluations that often include both their
administrators and faculties; and
    
    the length and timing of clients approval processes.
  Our sales cycle with international postsecondary education providers and U.S. K-12 schools may be
longer than our historical U.S. postsecondary sales cycle, which could cause us to incur greater
costs and could reduce our operating margins.
  We may have exposure to greater than anticipated tax liabilities.
  Our ability to utilize our net operating loss carryforwards may be limited.
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The investment of our cash balances are subject to risks which may cause losses and affect the
liquidity of these investments.
  Our future success depends on our ability to continue to retain and attract qualified employees.
  If we do not maintain the compatibility of our products with third-party applications that our
clients use in conjunction with our products, demand for our products could decline.
  If we are unable to obtain sufficient quantities of the hardware products we sell in a timely
manner, our sales could decline.
 Blackboard Transact
 If we are unable to protect our proprietary technology and other rights, it will reduce our
ability to compete for business.
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If we are found to have infringed the proprietary rights of others, we could be required to
redesign our products, pay significant royalties or enter into license agreements with third
parties.
  
    
    be expensive and time consuming to defend;
    
    force us to stop licensing our products that incorporate the challenged intellectual
property;
    
    require us to redesign our products and reimburse certain costs to our clients;
    
    divert managements attention and other company resources; and
    
    require us to enter into royalty or licensing agreements in order to obtain the right
to use necessary technologies, which may not be available on terms acceptable to us, or at
all.
 The nature of our business and our reliance on intellectual property and other proprietary
information subjects us to the risks of litigation.
  Expansion of our business internationally will subject our business to additional economic and
operational risks that could increase our costs and make it difficult for us to operate
profitably.
  
    
    foreign currency fluctuations, which could result in reduced revenues and increased
operating expenses;
    
    potentially longer payment and sales cycles;
    
    difficulty in collecting accounts receivable;
    
    the effect of applicable foreign tax structures, including tax rates that may be
higher than tax rates in the United States or taxes that may be duplicative of those
imposed in the United States;
    
    tariffs and trade barriers;
    
    general economic and political conditions in each country;
    
    inadequate intellectual property protection in foreign countries;
    
    uncertainty regarding liability for information retrieved and replicated in foreign
countries;
    
    the difficulties and increased expenses of complying with a variety of foreign laws,
regulations and trade standards; and
    
    unexpected changes in regulatory requirements.
 Unauthorized disclosure of data, whether through breach of our computer systems or otherwise,
could expose us to protracted and costly litigation or cause us to lose clients.
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Operational failures in our network infrastructure could disrupt our remote hosting services,
could cause us to lose clients and sales to potential clients and could result in increased
expenses and reduced revenues.
  U.S. and foreign government regulation of our products and services could cause us to incur
significant expenses, and failure to comply with applicable regulations could make our business
less efficient or even impossible.
  We may be subject to state and federal financial services regulation, and any violation of any
present or future regulation could expose us to liability, force us to change our business
practices or force us to stop selling or modify our products and services.
 Blackboard Transact
 
    
    disclosure of consumer rights and our business policies and practices;
    
    restrictions on uses and disclosures of customer information;
    
    error resolution procedures;
    
    limitations on consumers liability for unauthorized account activity;
    
    data security requirements;
    
    government registration; and
    
    reporting and documentation requirements.
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Item 6. Exhibits.
  Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURE
  Blackboard Inc.Dated:  May 7, 2010
    By:
    /s/ John E. KinzerJohn E. KinzerChief Financial Officer
(On behalf of the registrant and as Principal
Financial Officer) 32