Blackboard Asks: "Recession? What Recession?"

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Correct me if I'm wrong. Recessions are supposed to be bad for business, right?

Well, apparently not. Or at least, not if you're Blackboard (Nasdaq: BBBB). The educational software provider and Google (Nasdaq: GOOG) partner defied the downturn in tax revenues, the soaring costs of public education, and the general anemic economics of this jobless recovery, turning in a real eraser-clapper of a quarter last night:

• Sales soared 18% to $98.4 million.
• GAAP profits more than quadrupled to $0.13 per share.
• Operating cash flow leapt 26% in the third quarter.

Combined with similarly strong cash flows earlier this year, and admirable restraint on the capital expenditures front, this brings Blackboard to a whopping $73.9 million in free cash flow produced so far this year -- more than 120% more cash than had poured through the doors by this time last year. If Blackboard can maintain this pace, we could easily be looking at $98.5 million in free cash flow by year's end.

Not so fast, Tex
Or at least, that's what my calculator tells me as I crunch Blackboard's run rate. Management, in contrast, is not quite so optimistic -- positing cash flow of only $95 million to $105 million by year's end. Assuming that's all it manages to do, and subtracting likely capital expenditures from this range, we're more likely to see Blackboard generate free cash flow in the neighborhood of $79 million. That's a tidy sum, but still only a 16-times multiple to free cash flow (and for a company growing revenue at 18% in the middle of a recession). But not the absolute, scream-your-head-off-and-run-around-the-classroom bargain that Blackboard's run rate would suggest.

So ... is it a buy or not?
You already know my answer to that -- I own the stock, for goodness sakes. And yes, I aim to buy more based on these numbers ... and this news.

Already a popular company (it recently "friended" Microsoft (Nasdaq: MSFT) via Facebook), Blackboard is only getting more so. Its latest rundown of "new and expanded client relationships" included a few names you'd expect to see signing with an online education specialist -- Grand Canyon Education (Nasdaq: LOPE) and Capella Education (Nasdaq: CPLA) for example. But some of the other listed relationships seemed more apt to be on a client list for General Dynamics (NYSE: GD) or Lockheed Martin (NYSE: LMT). I'm talking the CIA here, folks. The Defense Language Institute. The "Joint Special Operations University."

Commandos with bookbags?
Yes, indeedy. Blackboard is making some unusual -- and it seems, unusually profitable -- friends lately, Fools. My advice: Make sure you're one of them.