

56		2016 Form 10-K

~~Index to Financial Statements~~Blackbaud, Inc.

~~Item 7. Management’s discussion and analysis of financial condition and results of operations (continued)~~



Revenue Recognition
Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
See Note 2 to our consolidated financial statements in this report for a complete discussion of our revenue recognition policies. We recognize revenue when all of the following conditions are met: (1) Persuasive evidence of an arrangement exists; (2) The solutions or services have been delivered; (3) The fee is fixed or determinable; and (4) Collection of the resulting receivable is probable. To the extent that our customers are billed for our solutions and services in advance of meeting each of the conditions above, we record such amounts in deferred revenue.	Our revenue recognition accounting methodology contains uncertainties because it requires us to make significant estimates and assumptions, and to apply judgment. For example, for arrangements that have multiple elements and include software licenses, we must exercise judgment and use estimates in order to (1) allocate the total price among the various elements we must deliver; (2) determine whether undelivered services are essential to the functionality of the delivered solutions and services; (3) determine whether vendor specific objective evidence ("VSOE") of fair value exists for each undelivered element; and (4) determine whether and when each element has been delivered. For arrangements that have multiple elements and do not include software licenses, we must exercise judgment and use estimates in order to (1) determine whether and when each element has been delivered; (2) determine the fair value of each element using the selling price hierarchy of VSOE of fair value if available, third-party evidence ("TPE") if VSOE is not available, and best estimate of selling price ("BESP") if neither VSOE nor TPE is available; and (3) allocate the total price among the various elements based on the relative selling price method. In addition, we exercise judgment in certain transactions when determining whether we should recognize revenue based on the gross amount billed to a customer (as a principle) or the net amount retained (as an agent). These judgments are based on the predominant weighting of factors identified in accounting guidance.	If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of revenue or deferred revenue that we report in a particular period.

Determining whether and when these criteria have been met can require significant judgment and estimates. We deem acceptance of an agreement to be evidence of an arrangement. Delivery of our services occurs when the services have been performed. Delivery of our products occurs when the product is shipped or transmitted, and title and risk of loss have transferred to the customers. Our typical agreements do not include customer acceptance provisions; however, if acceptance provisions are provided, delivery is deemed to occur upon acceptance. We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms. Payment terms greater than 90 days are considered to be beyond our customary payment terms. Collection is deemed probable if we expect that the customer will be able to pay amounts under the arrangement as they become due. If we determine that collection is not probable, we defer revenue recognition until collection. Revenue is recognized net of sales returns and allowances.

~~We follow guidance provided in ASC 605-45,~~ ~~Principal Agent Considerations~~, which states that determining whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors should be considered in the evaluation.



Business Combinations
Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
We allocate the purchase price of an acquired business to its identifiable assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values. The excess of the purchase price over the amount allocated to the assets acquired and liabilities assumed, if any, is recorded as goodwill. We use available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of long-lived and identifiable intangible assets, and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain new information about facts and circumstances that existed as of the closing date.	Our purchase price allocation methodology contains uncertainties because it requires us to make significant estimates and assumptions, and to apply judgment to estimate the fair value of assets acquired and liabilities assumed, especially with respect to long-lived and intangible assets. Management estimates the fair value of assets acquired and liabilities assumed based on quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Critical estimates in valuing intangible assets include, but are not limited to, estimates about: future expected cash flows from customer contracts and relationships, proprietary technology and non-compete agreements; the acquired company's brand awareness and market position, the market awareness of the acquired company's branded technology solutions and services, assumptions about the period of time the brands will continue to be valuable; as well as expected costs to develop any in-process research and development into commercially viable solutions and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.	If actual results are materially different than the assumptions we used to determine fair value of the assets acquired and liabilities assumed through a business combination as well as the estimated useful lives of the acquired intangible assets, it is possible that adjustments to the carrying values of such assets and liabilities will have a material impact on our financial position and results of operations. See Note 3 to our consolidated financial statements in this report for information regarding our significant acquisitions.

~~Subscriptions~~

We provide hosting services to customers who have purchased perpetual rights to certain of our software products (“hosting services”). Revenue from hosting services, as well as data enrichment services, data management services and online training programs, is recognized ratably beginning on the activation date over the term of the agreement, which generally ranges from one to three years. Any related set-up fees are recognized ratably over the estimated period that the customer benefits from the related hosting service. The estimated period of benefit is evaluated on an annual basis using historical customer retention information by product or service.

We make certain of our software products available for use in hosted application arrangements without licensing perpetual rights to the software (“hosted applications”). Revenue from hosted applications is recognized ratably beginning on the activation date over the term of the agreement, which generally ranges from one to three years. Any revenue related to upfront activation or set-up fees is deferred and recognized ratably over the estimated period that the customer benefits from the related hosted application. Direct and incremental costs related to upfront activation or set-up activities for hosted applications are capitalized until the hosted application is deployed and in use, and then expensed ratably over the estimated period that the customer benefits from the related hosted application.

For arrangements that have multiple elements and do not include software licenses, we allocate arrangement consideration at the inception of the arrangement to those elements that qualify as separate units of accounting. The arrangement consideration is allocated to the separate units of accounting based on relative selling price method in accordance with the selling price hierarchy, which includes: (i) vendor specific objective evidence (“VSOE”) of fair value if available; (ii) third-party evidence (“TPE”) if VSOE is not available; and (iii) best estimate of selling price (“BESP”) if neither VSOE nor TPE is available. In general, we use VSOE to allocate the selling price to subscription and service deliverables.

We offer certain payment processing services with the assistance of third-party vendors. In general, when we are the principal in a transaction based on the predominant weighting of factors identified in ASC 605-45, we record the revenue and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross amount billed to the customer and record the net amount as revenue.

Revenue from transaction processing services is recognized when the service is provided and the amounts are determinable. Revenue directly associated with processing donations for customers are included in subscriptions revenue.



2016 Form 10-K		57

Table of Contents

~~Index to Financial Statements~~Blackbaud, Inc.

~~Item 7. Management’s discussion and analysis of financial condition and results of operations (continued)~~



Income Taxes
Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
We make estimates and judgments in accounting for income taxes. Our income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. We measure and recognize uncertain tax positions. To recognize uncertain tax positions, we must first determine if it is more likely than not that the position will be sustained upon audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We make estimates in determining tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial reporting purposes. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized.	The calculation of our income tax provision requires estimates due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. Our effective income tax rate is also affected by changes in the geographic distribution of our earnings or losses, changes in tax law in jurisdictions where we conduct business. Significant judgment is required in the identification and measurement of uncertain tax positions. Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. In assessing the adequacy of a recorded valuation allowance significant judgment is required. We consider all positive and negative evidence and a variety of factors including the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning strategies.	Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is made. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax asset in the future in excess of its net carrying value, then an adjustment to the deferred tax asset valuation allowance is made to increase income tax expense, thereby reducing net income in the period such determination was made.

~~License fees~~

We sell perpetual software licenses with maintenance, varying levels of professional services and, in certain instances, with hosting services. We allocate revenue to each of the elements in these arrangements using the residual method under which we first allocate revenue to the undelivered elements, typically the non-software license components, based on VSOE of fair value of the various elements. We determine VSOE of fair value of the various elements using different methods. VSOE of fair value for maintenance services associated with software licenses is based upon renewal rates stated in the agreements with customers, which demonstrate a consistent relationship of maintenance pricing as a percentage of the contractual license fee. VSOE of fair value of professional services and other products and services is based on the average selling price of these same products and services to other customers when sold on a stand-alone basis. Any remaining revenue is allocated to the delivered elements, which is normally the software license in the arrangement. In general, revenue is recognized for software licenses upon delivery to our customers.



Long-lived and Intangible Assets including Goodwill
Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
We review our long-lived and identifiable intangible assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. If such events or changes in circumstances occur, we use the undiscounted cash flow method to determine whether the asset is impaired. To the extent that the carrying value of the asset exceeds the undiscounted cash flows over the estimated remaining life of the asset, we measure the impairment using discounted cash flows. Goodwill is assigned to our three reporting units, which are defined as our three operating segments (see Note 7 to our consolidated financial statements in this report). We test goodwill for impairment annually during our fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. In general, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. To the extent the qualitative factors indicate that the fair value is likely less than the carrying amount, we compare the fair value of the reporting unit with its carrying amount. We estimate fair value for each reporting unit based on projected future cash flows discounted using our weighted average cost of capital. If the carrying amount exceeds its fair value, impairment is indicated. If an impairment is indicated, the impairment loss is measured as the excess of the recorded goodwill over its fair value.	We use significant judgment in assessing qualitative factors to determine whether events and circumstances indicate that it is more than 50% likely that an indefinite-lived intangible asset is impaired. When measuring impairment of an asset using discounted cash flows, we make assumptions and apply judgment in estimating future cash flows and asset fair values, including annual revenue growth rates, a terminal year growth rate and selecting a discount rate that reflects the risk inherent in future cash flows. When the optional qualitative assessment of goodwill impairment is performed, significant judgment is required in the assessment of qualitative factors including but not limited to an evaluation of macroeconomic conditions as they relate to our business, industry and market trends, as well as the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. A number of significant assumptions and estimates are involved in estimating the fair value of each reporting unit, including revenue growth rates, operating margins, capital spending, discount rate, and working capital changes. Additionally, we make certain judgments and assumptions in allocating assets and liabilities to determine the carrying values for each of our reporting units.	We have not made any material changes in the accounting methodology we use to assess impairment loss during the years ended December 31, 2016, 2015 and 2014. No impairments to our long-lived and intangible assets including goodwill occurred during the year ended December 31, 2016. During the year ended December 31, 2015, we recorded insignificant impairment charges against previously capitalized software development costs. During the year ended December 31, 2014, we recorded impairment charges of $1.6 million against certain previously capitalized software development costs. The charges reduced the carrying value of those costs to zero. The impairment charges resulted from obtaining software solutions through the acquisitions of Smart Tuition in 2015 and WhippleHill in 2014 and determining that it was no longer probable that certain computer software that was being developed would be placed into service. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to assess impairment losses. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could materially adversely impact our consolidated financial position and results of operations.

When a software license is sold with software customization services, generally the services are to provide the customer assistance in creating special reports and other enhancements that will improve operational efficiency and/or help to support business process improvements. These services are generally not essential to the functionality of the software and the related revenues are recognized either as the services are delivered or upon completion. However, when software customization services are considered essential to the functionality of the software, we recognize revenue for both the software license and the services using the percentage-of-completion method.

~~Services~~

We generally bill consulting, installation and implementation services based on hourly rates plus reimbursable travel-related expenses. Revenue is recognized for these services over the period the services are delivered.

We recognize analytic services revenue from donor prospect research engagements, the sale of lists of potential donors, benchmarking studies and data modeling service engagements upon delivery. In arrangements where we provide customers the right to updates to the lists during the contract period, revenue is recognized ratably over the contract period.

We sell training at a fixed rate for each specific class at a per attendee price or at a packaged price for several attendees, and recognize the related revenue upon the customer attending and completing training. Additionally, we sell fixed-rate programs, which permit customers to attend unlimited training over a specified contract period, typically one year, subject to certain restrictions, and revenue in those cases is recognized ratably over the contract period.

~~Maintenance~~

We recognize revenue from maintenance services ratably over the contract term, typically one year. Maintenance contracts are at rates that vary according to the level of the maintenance program associated with the software product and are generally renewable annually. Maintenance contracts may also include the right to unspecified product upgrades on an if-and-when available basis. Certain support services are sold in prepaid units of time and recognized as revenue upon their usage.

~~Deferred revenue~~

~~To the extent that our customers are billed for the above described services in advance of delivery, we record such amounts in deferred revenue.~~



58		2016 Form 10-K

Table of Contents

~~Index to Financial Statements~~Blackbaud, Inc.

~~Item 7. Management’s~~

Recently Issued Accounting Pronouncements

For a discussion ~~and analysis of financial condition and results of operations (continued)~~

~~Valuation of long-lived and intangible assets and goodwill~~

We review identifiable intangible and other long-lived assets for impairment when events change or circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the extent or manner in which the business or asset acquired is used or significant adverse change in the business climate or a change in circumstancesimpact that indicates it is more likely than not that a long-lived asset will be sold or otherwise disposed of before the end of its previously estimated useful life. If such events or changes in circumstances occur, we use the undiscounted cash flow methodrecently issued accounting pronouncements are expected to determine whether the asset is impaired. Cash flows would include the estimated terminal value of the asset and exclude any interest charges. To the extent that the carrying value of the asset exceeds the undiscounted cash flows over the estimated remaining life of the asset, we measure the impairment using discounted cash flows. The discount rate utilized would be basedhave on our best estimate of our risks and required investment returns at the time the impairment assessment is made. During the year ended December 31, 2014, we recorded impairment charges of $1.6 million against certain previously capitalized software development costs which reduced the carrying value of certain previously capitalized software development costs to zero. The impairment charges resulted from obtaining software products through the acquisition of WhippleHill and determining that it was no longer probable that certain computer software that was being developed would be placed into service.

~~Goodwill is assigned to our four reporting units, which are defined as our four operating segments (see~~ Note 18 to our consolidated financial statements). We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Significant judgment is required in the assessment of qualitative factors including but not limited to an evaluation of macroeconomic conditions as they relate to our business, industry and market trends, as well as the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. To the extent the qualitative factors indicate that the fair value is likely less than the carrying amount, we compare the fair value of the reporting unit with its carrying amount.

We estimate fair value for each reporting unit based on projected future cash flows discounted using our weighted average cost of capital. A number of significant assumptions and estimates are involved in estimating the fair value of each reporting unit, including revenue growth rates, operating margins, capital spending, discount rate, and working capital changes. Additionally, we make certain judgments and assumptions in allocating assets and liabilities to determine the carrying values for each of our reporting units. We believe the assumptions we use in estimating fair value of our reporting units are reasonable, but are also unpredictable and inherently uncertain. Actual future results may differ from those estimates.

If the carrying amount exceeds its fair value, impairment is indicated. If an impairment is indicated, the impairment is measured as the excess of the recorded goodwill over its fair value, which could materially adversely impact our consolidated financial position and results of ~~operations. The 2014 annual impairment test of our goodwill indicated there was no impairment.~~

~~Income taxes~~

We make estimates and judgments in accounting for income taxes. The calculation of income tax provision requires estimates due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. To the extent actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is made.

We make estimates in determining tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of a recorded valuation allowance significant judgment is required. We consider all positive and negative evidence and a variety of factors including the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning strategies. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax assetoperations when adopted in the future, ~~in excess~~see Note 2 of ~~its net carrying value, then an adjustment to the deferred tax asset valuation allowance is made to increase income tax expense, thereby reducing net income in the period such determination was made.~~

~~Table of Contents~~

~~Index to Financial Statements~~

~~Item 7. Management’s discussion and analysis of financial condition and results of operations (continued)~~

We measure and recognize uncertain tax positions. To recognize such positions we must first determine if it is more likely than not that the position will be sustained upon audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Significant judgment is required in the identification and measurement of uncertain tax positions.

~~Business combinations~~

We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values. Goodwill as of the acquisition date represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible and intangible assets acquired and liabilities assumed. This allocation and valuation require management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, estimates about: future expected cash flows from customer contracts, proprietary technology and non-compete agreements; the acquired company's brand awareness and market position, assumptions about the period of time the brand will continue to be valuable; as well as expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

~~Recently adopted accounting pronouncements~~

~~Effective January 1, 2014, we adopted Accounting Standards Update (“ASU”) 2013-11,~~ ~~Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists~~. Under ASU 2013-11, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward or a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The adoption of ASU 2013-11 did not have a material impact on our consolidated financial ~~statements.~~

~~Recently issued accounting pronouncements~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for entities to use~~statements in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in GAAP when it becomes effective. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is not permitted. An entity should apply ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized as an adjustment to the opening balance of retained earnings at the date of initial application. We expect the adoption of ASU 2014-09 will impact our consolidated financial statements. We are currently evaluating implementation methods and the extent of the impact that implementation of this ~~standard will have upon adoption.~~

~~Table of Contents~~

report.

~~Index to Financial Statements~~

~~Item~~ITEM 7A. ~~Quantitative and qualitative disclosures about market risk~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have market rate sensitivity for interest rates and foreign currency exchange rates.

~~Interest rate risk~~

Interest Rate Risk

Our variable rate debt is our primary financial instrument with market risk exposure for changing interest rates. We manage our variable rate interest rate risk through a combination of short-term and long-term borrowings and the use of derivative instruments entered into for hedging purposes. Due to the nature of our debt, the materiality of the fair values of the derivative instruments and the highly liquid, short-term nature and level of our cash and cash equivalents as of December 31, ~~2014,~~2016, we believe there is no material risk of exposure to changing interest rates for those positions. There were no significant changes in how we manage interest rate risk between December 31, ~~2013~~2015 and December 31, ~~2014.~~2016.

~~Foreign currency risk~~

Foreign Currency Risk

For a discussion of our exposure to foreign currency exchange rate fluctuations, see “Management’s discussion and analysis of financial ~~conditions~~condition and results of operations — Foreign ~~currency exchange rates”~~Currency Exchange Rates” in Item 7 in this report.

~~Item~~ITEM 8. ~~Financial statements and supplementary data~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~The following financial statements are filed as part of this Annual Report on Form 10-K:~~

BLACKBAUD, INC.

Index to consolidated financial statements



	Page No.

Report of independent registered public accounting firm	6160

Consolidated balance sheets as of December 31, ~~2014~~2016 and ~~2013~~2015	6261

Consolidated statements of comprehensive income for the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014	6362

Consolidated statements of cash flows for the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014	6463

Consolidated statements of stockholders’ equity for the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014	6564

Notes to consolidated financial statements	6665

~~Table of Contents~~



2016 Form 10-K		59

~~Index to Financial Statements~~

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Blackbaud, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, of cash flows, and of stockholders’ equity present fairly, in all material respects, the financial position of Blackbaud, Inc. and its subsidiaries at December 31, ~~2014~~2016 and ~~2013,~~2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2014~~2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2014,~~2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for stock compensation in 2016.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s report on internal control over financial reporting in Item 9A, management has excluded MicroEdge from its assessment of internal control over financial reporting as of December 31, 2014 because it was acquired by the Company in a purchase business combination during 2014. We have also excluded MicroEdge from our audit of internal control over financial reporting. MicroEdge is a wholly-owned subsidiary whose total assets and total revenues represent 2.0% and 1.0%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014.

/S/ PRICEWATERHOUSECOOPERS LLP

Charlotte, North Carolina

February ~~25, 2015~~22, 2017



60		2016 Form 10-K

Blackbaud, Inc.

Consolidated balance sheets


(in thousands, except share amounts)	December 31, 2014			December 31, 2013
(dollars in thousands)							December 31, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	14,735		$	11,889		$	16,902		$	15,362
Donor restricted cash	140,709			107,362
Accounts receivable, net of allowance of $4,539 and $5,613 at December 31, 2014 and 2013, respectively	77,523			66,969
Restricted cash due to customers							353,771			255,038
Accounts receivable, net of allowance of $3,291 and $4,943 at December 31, 2016 and December 31, 2015, respectively							88,932			80,046
Prepaid expenses and other current assets	40,392			30,115			48,314			48,666
Deferred tax asset, current portion	14,423			13,434
Total current assets	287,782			229,769			507,919			399,112
Property and equipment, net	50,402			49,550			50,269			52,651
Software development costs, net							37,582			19,551
Goodwill	349,008			264,599			438,240			436,449
Intangible assets, net	229,307			143,441			253,676			294,672
Other assets	26,684			19,251			22,524			20,901
Total assets	$	943,183		$	706,610		$	1,310,210		$	1,223,336
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	11,436		$	10,244		$	23,274		$	19,208
Accrued expenses and other current liabilities	52,201			40,443			54,196			57,461
Donations payable	140,709			107,362
Due to customers							353,771			255,038
Debt, current portion	4,375			17,158			4,375			4,375
Deferred revenue, current portion	212,283			181,475			244,500			230,216
Total current liabilities	421,004			356,682			680,116			566,298
Debt, net of current portion	276,196			135,750			338,018			403,712
Deferred tax liability	43,639			36,880			29,558			27,996
Deferred revenue, net of current portion	8,991			9,099			6,440			7,119
Other liabilities	7,437			6,655			8,533			7,623
Total liabilities	757,267			545,066			1,062,665			1,012,748
Commitments and contingencies (see Note 13)
Commitments and contingencies (see Note 11)
Stockholders’ equity:
Preferred stock; 20,000,000 shares authorized, none outstanding	—			—			—			—
Common stock, $0.001 par value; 180,000,000 shares authorized, 56,048,135 and 55,699,817 shares issued at December 31, 2014 and 2013, respectively	56			56
Common stock, $0.001 par value; 180,000,000 shares authorized, 57,672,401 and 56,873,817 shares issued at December 31, 2016 and December 31, 2015, respectively							58			57
Additional paid-in capital	245,674			220,763			310,452			276,340
Treasury stock, at cost; 9,740,054 and 9,573,102 shares at December 31, 2014 and 2013, respectively	(190,440		)	(183,288		)
Treasury stock, at cost; 10,166,801 and 9,903,071 shares at December 31, 2016 and December 31, 2015, respectively							(215,237		)	(199,861		)
Accumulated other comprehensive loss	(1,032		)	(1,385		)	(457		)	(825		)
Retained earnings	131,658			125,398			152,729			134,877
Total stockholders’ equity	185,916			161,544			247,545			210,588
Total liabilities and stockholders’ equity	$	943,183		$	706,610		$	1,310,210		$	1,223,336

The accompanying notes are an integral part of these consolidated financial statements.							The accompanying notes are an integral part of these consolidated financial statements.

~~The accompanying notes are an integral part of these consolidated financial statements.~~



2016 Form 10-K		61

Blackbaud, Inc.

Consolidated statements of comprehensive income

(in thousands, except share and per share amounts) Years ended December 31,
2014
2013
2012
Revenue
License fees $ 16,216
$ 16,715
$ 20,551
Subscriptions 263,435
212,656
162,102
Services 128,371
126,548
119,626
Maintenance 147,418
138,745
136,101
Other revenue 8,981
9,153
9,039
Total revenue 564,421
503,817
447,419
Cost of revenue
Cost of license fees 1,818
2,763
2,993
Cost of subscriptions 133,221
93,649
68,773
Cost of services 106,506
104,005
97,208
Cost of maintenance 25,448
25,741
26,001
Cost of other revenue 6,445
6,505
7,485
Total cost of revenue 273,438
232,663
202,460
Gross profit 290,983
271,154
244,959
Operating expenses
Sales and marketing 107,360
97,614
95,218
Research and development 77,179
65,645
64,692
General and administrative 58,277
50,320
63,133
Restructuring —
3,494
175
Amortization 1,803
2,539
2,106
Impairment of cost method investment —
—
200
Total operating expenses 244,619
219,612
225,524
Income from operations 46,364
51,542
19,435
Interest income 59
67
146
Interest expense (6,011 ) (5,818 ) (5,864 )
Loss on debt extinguishment and termination of derivative instruments (996 ) —
—
Other expense, net (182 ) (462 ) (392 )
Income before provision for income taxes 39,234
45,329
13,325
Income tax provision 10,944
14,857
6,742
Net income $ 28,290
$ 30,472
$ 6,583
Earnings per share
Basic $ 0.63
$ 0.68
$ 0.15
Diluted $ 0.62
$ 0.67
$ 0.15
Common shares and equivalents outstanding
Basic weighted average shares 45,215,138
44,684,812
44,145,535
Diluted weighted average shares 45,799,874
45,421,140
44,691,845
Dividends per share $ 0.48
$ 0.48
$ 0.48

Other comprehensive income (loss)
Foreign currency translation adjustment 261
53
(34 )
Unrealized gain (loss) on derivative instruments, net of tax 92
535
(791 )
Total other comprehensive income (loss) 353
588
(825 )
Comprehensive income $ 28,643
$ 31,060
$ 5,758

~~The accompanying notes are an integral part of these consolidated financial statements.~~



(dollars in thousands, except per share amounts)	Years ended December 31,
	2016			2015			2014
Revenue
Subscriptions	$	428,987		$	331,759		$	263,435
Maintenance	146,946			153,801			147,418
Services	139,690			132,978			128,371
License fees and other	15,192			19,402			25,197
Total revenue	730,815			637,940			564,421
Cost of revenue
Cost of subscriptions	213,883			167,341			133,221
Cost of maintenance	22,094			27,066			25,448
Cost of services	96,488			102,815			106,506
Cost of license fees and other	6,755			7,409			8,263
Total cost of revenue	339,220			304,631			273,438
Gross profit	391,595			333,309			290,983
Operating expenses
Sales, marketing and customer success	155,754			123,646			107,360
Research and development	89,870			84,636			77,179
General and administrative	81,331			76,084			58,277
Amortization	2,840			2,231			1,803
Total operating expenses	329,795			286,597			244,619
Income from operations	61,800			46,712			46,364
Interest expense	(10,583		)	(8,073		)	(6,011		)
Other expense, net	(291		)	(1,687		)	(1,119		)
Income before provision for income taxes	50,926			36,952			39,234
Income tax provision	9,411			11,303			10,944
Net income	$	41,515		$	25,649		$	28,290
Earnings per share
Basic	$	0.90		$	0.56		$	0.63
Diluted	$	0.88		$	0.55		$	0.62
Common shares and equivalents outstanding
Basic weighted average shares	46,132,389			45,623,854			45,215,138
Diluted weighted average shares	47,316,538			46,498,704			45,799,874
Dividends per share	$	0.48		$	0.48		$	0.48
Other comprehensive income
Foreign currency translation adjustment	324			62			261
Unrealized gain on derivative instruments, net of tax	44			145			92
Total other comprehensive income	368			207			353
Comprehensive income	$	41,883		$	25,856		$	28,643

The accompanying notes are an integral part of these consolidated financial statements.



62		2016 Form 10-K

Blackbaud, Inc.

Consolidated statements of cash flows


	Years ended December 31,									Years ended December 31,
(in thousands)	2014			2013			2012
(dollars in thousands)										2016			2015			2014
Cash flows from operating activities
Net income	$	28,290		$	30,472		$	6,583		$	41,515		$	25,649		$	28,290
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	45,417			43,164			32,241			70,491			55,997			45,417
Provision for doubtful accounts and sales returns	5,248			5,403			9,591			3,730			6,825			5,248
Stock-based compensation expense	17,345			16,910			19,240			32,638			25,246			17,345
Excess tax benefits from stock based compensation	(7,455		)	—			(81		)
Deferred taxes	3,050			13,873			7,585			3,033			3,165			3,050
Loss on sale of business										—			1,976			—
Impairment of capitalized software development costs	1,626			—			—			—			239			1,626
Loss on debt extinguishment and termination of derivative instruments	996			—			—			—			—			996
Amortization of deferred financing costs and discount	734			613			678			958			899			734
Impairment of cost method investment	—			—			200
Other non-cash adjustments	1,163			1,261			(293		)	(864		)	(197		)	1,163
Changes in operating assets and liabilities, net of acquisition of businesses:
Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
Accounts receivable	(5,750		)	3,161			(9,397		)	(13,196		)	(7,593		)	(5,750		)
Prepaid expenses and other assets	(8,464		)	2,977			(8,817		)	(2,478		)	(10,979		)	(8,464		)
Trade accounts payable	(948		)	(218		)	(1,363		)	3,689			6,133			(948		)
Accrued expenses and other liabilities	4,014			(17,055		)	(388		)	(751		)	9,255			11,166
Donor restricted cash	(33,510		)	(39,801		)	(27,990		)
Donations payable	33,510			39,801			27,990
Restricted cash due to customers										(96,000		)	(34,279		)	(33,510		)
Due to customers										96,000			34,279			33,510
Deferred revenue	17,011			6,683			12,912			14,863			12,612			17,011
Net cash provided by operating activities	102,277			107,244			68,691			153,628			129,227			116,884
Cash flows from investing activities
Purchase of property and equipment	(13,911		)	(20,086		)	(20,557		)	(17,694		)	(18,633		)	(13,911		)
Purchase of net assets of acquired companies, net of cash acquired	(188,918		)	(876		)	(280,687		)
Capitalized software development costs	(8,535		)	(3,197		)	(1,245		)	(26,359		)	(15,481		)	(8,535		)
Purchase of net assets of acquired companies, net of cash										(3,377		)	(188,072		)	(188,918		)
Net cash used in sale of business										—			(521		)	—
Net cash used in investing activities	(211,364		)	(24,159		)	(302,489		)	(47,430		)	(222,707		)	(211,364		)
Cash flows from financing activities
Proceeds from issuance of debt	365,100			103,008			315,000			227,200			312,300			365,100
Payments on debt	(235,589		)	(165,600		)	(99,500		)	(293,575		)	(184,475		)	(235,589		)
Debt issuance costs	(3,003		)	—			(2,440		)	—			(429		)	(3,003		)
Employee taxes paid for withheld shares upon equity award settlement										(15,376		)	(9,421		)	(7,152		)
Proceeds from exercise of stock options	188			385			3,146			16			32			188
Excess tax benefits from stock based compensation	7,455			—			81
Dividend payments to stockholders	(22,107		)	(22,081		)	(21,731		)	(22,811		)	(22,508		)	(22,107		)
Net cash provided by (used in) financing activities	112,044			(84,288		)	194,556
Net cash (used in) provided by financing activities										(104,546		)	95,499			97,437
Effect of exchange rate on cash and cash equivalents	(111		)	(399		)	213			(112		)	(1,392		)	(111		)
Net increase (decrease) in cash and cash equivalents	2,846			(1,602		)	(39,029		)
Net increase in cash and cash equivalents										1,540			627			2,846
Cash and cash equivalents, beginning of year	11,889			13,491			52,520			15,362			14,735			11,889
Cash and cash equivalents, end of year	$	14,735		$	11,889		$	13,491		$	16,902		$	15,362		$	14,735

Supplemental disclosure of cash flow information
Cash (paid) received during the year for:
Interest	$	(4,894	)	$	(5,108	)	$	(5,098	)	(9,608		)	(7,208		)	(4,894		)
Taxes, net of refunds	$	(9,581	)	$	4,132		$	(3,456	)	(1,340		)	(4,795		)	(9,581		)
Purchase of equipment and other assets included in accounts payable	$	(3,300	)	$	(1,557	)	$	(4,641	)	(3,155		)	(3,204		)	(3,300		)

The accompanying notes are an integral part of these consolidated financial statements.										The accompanying notes are an integral part of these consolidated financial statements.

~~The accompanying notes are an integral part of these consolidated financial statements.~~



2016 Form 10-K		63

Blackbaud, Inc.

Consolidated statements of stockholders' equity


(in thousands, except share amounts)	Common stock				Additional paid-in capital			Treasury stock			Accumulated other comprehensive loss			Retained earnings			Total stockholders' equity
	Shares		Amount
Balance at December 31, 2011	53,959,532		$	54	$	175,401		$	(166,226	)	$	(1,148	)	$	131,921		$	140,002
Net income	—		—		—			—			—			6,583			6,583
Payment of dividends	—		—		—			—			—			(21,731		)	(21,731		)
Exercise of stock options, stock appreciation rights and restricted stock units	355,180		—		3,146			—			—			—			3,146
Surrender of 189,547 shares upon restricted stock vesting and exercise of stock appreciation rights	—		—		—			(4,672		)	—			—			(4,672		)
Tax impact of exercise of equity-based compensation	—		—		81			—			—			—			81
Stock-based compensation	—		—		19,151			—			—			89			19,240
Equity-based awards assumed in business combination	—		—		5,859			—			—			—			5,859
Restricted stock grants	687,652		1		—			—			—			—			1
Restricted stock cancellations	(142,760	)	—		—			—			—			—			—
Other comprehensive loss	—		—		—			—			(825		)	—			(825		)
Balance at December 31, 2012	54,859,604		$	55	$	203,638		$	(170,898	)	$	(1,973	)	$	116,862		$	147,684
Net income	—		—		—			—			—			30,472			30,472
Payment of dividends	—		—		—			—			—			(22,081		)	(22,081		)
Exercise of stock options, stock appreciation rights and restricted stock units	609,500		—		385			—			—			—			385
Surrender of 363,731 shares upon vesting of restricted stock and restricted stock units and exercise of stock appreciation rights	—		—		—			(12,390		)	—			—			(12,390		)
Tax impact of exercise of equity-based compensation	—		—		(25		)	—			—			—			(25		)
Stock-based compensation	—		—		16,765			—			—			145			16,910
Restricted stock grants	458,462		1		—			—			—			—			1
Restricted stock cancellations	(227,749	)	—		—			—			—			—			—
Other comprehensive loss	—		—		—			—			588			—			588
(dollars in thousands)																				Common stock				Additional paid-in capital		Treasury stock			Accumulated other comprehensive loss			Retained earnings			Total stockholders' equity
																				Shares		Amount
Balance at December 31, 2013	55,699,817		$	56	$	220,763		$	(183,288	)	$	(1,385	)	$	125,398		$	161,544		55,699,817		$	56	$	220,763	$	(183,288	)	$	(1,385	)	$	125,398		$	161,544
Net income	—		—		—			—			—			28,290			28,290			—		—		—		—			—			28,290			28,290
Payment of dividends	—		—		—			—			—			(22,107		)	(22,107		)	—		—		—		—			—			(22,107		)	(22,107		)
Exercise of stock options, stock appreciation rights and restricted stock units	186,473		—		188			—			—			—			188
Surrender of 166,952 shares upon vesting of restricted stock and restricted stock units and exercise of stock appreciation rights	—		—		—			(7,152		)	—			—			(7,152		)
Tax impact of exercise of equity-based compensation	—		—		7,455			—			—			—			7,455
Exercise of stock options and stock appreciation rights and vesting of restricted stock units																				186,473		—		188		—			—			—			188
Employee taxes paid for 166,952 withheld shares upon equity award settlement																				—		—		—		(7,152		)	—			—			(7,152		)
Excess tax benefits from exercise and vesting of stock-based compensation																				—		—		7,455		—			—			—			7,455
Stock-based compensation	—		—		17,268			—			—			77			17,345			—		—		17,268		—			—			77			17,345
Restricted stock grants	248,567		—		—			—			—			—			—			248,567		—		—		—			—			—			—
Restricted stock cancellations	(86,722	)	—		—			—			—			—			—			(86,722	)	—		—		—			—			—			—
Other comprehensive income	—		—		—			—			353			—			353			—		—		—		—			353			—			353
Balance at December 31, 2014	56,048,135		$	56	$	245,674		$	(190,440	)	$	(1,032	)	$	131,658		$	185,916		56,048,135		$	56	$	245,674	$	(190,440	)	$	(1,032	)	$	131,658		$	185,916
Net income																				—		—		—		—			—			25,649			25,649
Payment of dividends																				—		—		—		—			—			(22,508		)	(22,508		)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units																				202,078		—		32		—			—			—			32
Employee taxes paid for 163,017 withheld shares upon equity award settlement																				—		—		—		(9,421		)	—			—			(9,421		)
Excess tax benefits from exercise and vesting of stock-based compensation																				—		—		5,466		—			—			—			5,466
Stock-based compensation																				—		—		25,168		—			—			78			25,246
Restricted stock grants																				736,252		1		—		—			—			—			1
Restricted stock cancellations																				(112,648	)	—		—		—			—			—			—
Other comprehensive income																				—		—		—		—			207			—			207
Balance at December 31, 2015																				56,873,817		$	57	$	276,340	$	(199,861	)	$	(825	)	$	134,877		$	210,588
Cumulative effect of a change in accounting principle⁽¹⁾																				—		—		1,540		—			—			(934		)	606
Net income																				—		—		—		—			—			41,515			41,515
Payment of dividends																				—		—		—		—			—			(22,811		)	(22,811		)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units																				341,418		—		16		—			—			—			16
Employee taxes paid for 263,730 withheld shares upon equity award settlement																				—		—		—		(15,376		)	—			—			(15,376		)
Stock-based compensation																				—		—		32,556		—			—			82			32,638
Restricted stock grants																				574,309		1		—		—			—			—			1
Restricted stock cancellations																				(117,143	)	—		—		—			—			—			—
Other comprehensive income																				—		—		—		—			368			—			368
Balance at December 31, 2016																				57,672,401		$	58	$	310,452	$	(215,237	)	$	(457	)	$	152,729		$	247,545
(1) Includes the impact of early adopting ASU 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Refer to the discussion of recently adopted accounting pronouncements in Note 2 to these consolidated financial statements for additional details.																				(1) Includes the impact of early adopting ASU 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Refer to the discussion of recently adopted accounting pronouncements in Note 2 to these consolidated financial statements for additional details.

The accompanying notes are an integral part of these consolidated financial statements.																				The accompanying notes are an integral part of these consolidated financial statements.

~~The accompanying notes are an integral part of these consolidated financial statements.~~



64		2016 Form 10-K

Table of Contents

~~Index to Financial Statements~~

Blackbaud, Inc.

Notes to consolidated financial statements

~~1. Organization~~

1. Organization

We ~~provide~~are the world’s leading cloud software company powering social good. Serving the entire social good community—nonprofits, foundations, corporations, education institutions, and individual change agents—we connect and empower organizations to increase their impact through software, services, ~~for~~expertise, and data intelligence. Our portfolio is tailored to the ~~nonprofit, charitable giving and education communities. Our offerings include a full spectrum~~unique needs of ~~cloud-based and on-premise~~vertical markets, with solutions ~~and related services~~ for ~~organizations of all sizes, including nonprofit~~ fundraising and relationship management, digital marketing, advocacy, accounting, payments, ~~and~~ analytics, ~~as well as~~school management, grant management, corporate social responsibility ~~education~~ and ~~other solutions.~~volunteerism. Serving the industry for more than three decades, we are headquartered in Charleston, South Carolina and have operations in the United States, Australia, Canada, Ireland and the United Kingdom. As of December 31, ~~2014,~~2016, we had ~~more than~~ ~~30,000~~ ~~active customers including nonprofits, K12 private and higher education institutions, healthcare organizations, foundations and other charitable giving entities, and corporations.~~approximately 35,000 customers.

~~2. Summary of significant accounting policies~~

2. Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

Basis of consolidation

The consolidated financial statements include the accounts of Blackbaud, Inc. and its wholly-owned subsidiaries. All ~~significant~~ intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and ~~assumptions. These estimates and~~ assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets ~~and~~including goodwill, income taxes, business combinations, stock-based compensation, ~~the provision for income taxes,~~ capitalization of software development costs, our ~~allowance~~allowances for sales returns and doubtful accounts, deferred sales commissions and professional services costs, valuation of derivative instruments ~~accounting for business combinations~~ and loss contingencies. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could materially differ from these estimates.

Revenue recognition

Our revenue is primarily generated from the following sources: (i) charging for the use of our software ~~products~~solutions in acloud-based and hosted ~~environment;~~environments; (ii) providing software maintenance and support services; (iii) providing professional services including implementation, training, consulting, analytic, hosting and other services; (iv) providing transaction and ~~(iv)~~payment processing services; and (v) selling perpetual licenses of our software ~~products.~~solutions.

We ~~recognize~~commence revenue recognition when all of the following conditions are met:

•Persuasive evidence of an arrangement exists;

•The ~~products~~solutions or services have been ~~delivered;~~or are being provided to the customer;

•The fee is fixed or determinable; and

•Collection of the resulting receivable is probable.

~~Table of Contents~~

~~Index to Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes to consolidated financial statements (continued)~~

Determining whether and when these criteria have been met can require significant judgment and estimates. We deem acceptance of ~~an agreement~~a contract to be evidence of an arrangement. Delivery of our services occurs when the services have been



2016 Form 10-K		65

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

performed. Delivery of our ~~products~~solutions occurs when the ~~product~~solution is shipped or ~~transmitted, and title and risk of loss have transferred~~made available to the customers. Our typical ~~agreements~~arrangements do not include customer acceptance provisions; however, if acceptance provisions are provided, delivery is deemed to occur upon acceptance. We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms. Payment terms greater than 90 days are considered to be beyond our customary payment terms. Collection is deemed probable if we expect that the customer will be able to pay amounts under the arrangement as they become due. If we determine that collection is not probable, we defer revenue recognition until collection. Revenue is recognized net of actual and estimated sales returns and allowances.

We follow guidance provided in ASC 605-45, Principal Agent Considerations, which states that determining whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors should be considered in the evaluation.

Subscriptions

We provide ~~hosting services~~software solutions to customers ~~who have purchased~~which are available for use in cloud-based subscription arrangements without licensing perpetual rights to ~~certain of our~~the software ~~products~~ (“~~hosting services”~~cloud-based solutions”). Revenue from ~~hosting services, as well as data enrichment services, data management services and online training programs,~~cloud-based solutions is recognized ratably beginning on the activation date over the term of the agreement, which generally ranges from one to three ~~years~~years. Any revenue related to upfront activation or set-up fees is deferred and recognized ratably over the estimated period that the customer benefits from the related cloud-based solution. Direct and incremental costs related to upfront activation or set-up activities for cloud-based solutions are capitalized until the cloud-based solution is deployed and in use, and then expensed ratably over the estimated period that the customer benefits from the related cloud-based solution.

We provide hosting services to customers who have purchased perpetual rights to certain of our software solutions (“hosting services”). Revenue from hosting services, online training programs as well as subscription-based analytic services such as data enrichment and data management services, is recognized ratably beginning on the activation date over the term of the agreement, which generally ranges from one to three years. Any related set-up fees are recognized ratably over the estimated period that the customer benefits from the related hosting service. The estimated period of benefit is evaluated on an annual basis using historical customer retention information by ~~product~~solution or service.

We make certain of our software products available for use in hosted application arrangements without licensing perpetual rights to the software (“hosted applications”). Revenue from hosted applications is recognized ratably beginning on the activation date over the term of the agreement, which generally ranges from ~~one~~ to ~~three years~~. Any revenue related to upfront activation or set-up fees is deferred and recognized ratably over the estimated period that the customer benefits from the related hosted application. Direct and incremental costs related to upfront activation or set-up activities for hosted applications are capitalized until the hosted application is deployed and in use, and then expensed ratably over the estimated period that the customer benefits from the related hosted application.

Maintenance

We recognize revenue from maintenance services ratably over the term of the arrangement, generally one year at contract inception with annual renewals thereafter. Maintenance contracts are at rates that vary according to the level of the maintenance program associated with the software solution and are generally renewable annually. Maintenance contracts may also include the right to unspecified solution upgrades on an if-and-when available basis. Certain incremental support services are sold in prepaid units of time and recognized as revenue upon their usage.



66		2016 Form 10-K

Table of Contents

~~Index to Financial Statements~~

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

Services

We recognize analytic services revenue from donor prospect research engagements, the sale of lists of potential donors, benchmarking studies and data modeling service engagements upon delivery. In arrangements where we provide customers the right to updated information during the contract period, revenue is recognized ratably over the contract period.

We sell fixed-rate programs, which permit customers to attend unlimited training over a specified contract period, typically one year, subject to certain restrictions, and revenue in those cases is recognized ratably over the contract period. Additionally, we sell training at a fixed rate for each specific class at a per attendee price or at a packaged price for several attendees, and recognize the related revenue upon the customer attending and completing training.

License fees

We sell perpetual software licenses with maintenance, varying levels of professional services and, in certain instances, with hosting services. We allocate revenue to each of the elements in these arrangements using the residual method under which we first allocate revenue to the undelivered elements, typically the non-software license components, based on VSOE of fair value of the various elements. We determine VSOE of fair value of the various elements using different methods. VSOE of fair value for maintenance services associated with software licenses is based upon renewal rates stated in the ~~agreements~~arrangements with customers, which demonstrate a consistent relationship of maintenance pricing as a percentage of the contractual license fee. VSOE of fair value of professional services and other ~~products~~solutions and services is based on the average selling price of these same ~~products~~solutions and services to other customers when sold on a stand-alone basis. Any remaining revenue is allocated to the delivered elements, which is normally the software license in the arrangement. In general, revenue is recognized for software licenses upon delivery to our customers.

~~Services~~

~~Maintenance~~

~~We recognize revenue from maintenance services ratably over the contract term, typically~~ ~~one year~~. Maintenance contracts are at rates that vary according to the level of the maintenance program associated with the software product and are generally renewable annually. Maintenance contracts may also include the right to unspecified product upgrades on an if-and-when available basis. Certain support services are sold in prepaid units of time and recognized as revenue upon their usage.

Deferred revenue

To the extent that our customers are billed for the above described solutions and services in advance of delivery, we record such amounts in deferred revenue. Generally, our subscription and maintenance customers are billed one year in advance.

~~Table of Contents~~

~~Index to Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes to consolidated financial statements (continued)~~

Fair value measurements

We measure certain financial assets and liabilities at fair value on a recurring basis, including derivative instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An active market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 - Quoted prices for identical assets or liabilities in active markets;

Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.



2016 Form 10-K		67

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

Our financial assets and liabilities are classified in their entirety within the hierarchy based on the lowest level of input that is significant to fair value measurement. Changes to a financial asset's or liability's level within the fair value hierarchy are determined as of the end of a reporting period. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Derivative instruments

We use derivative instruments to manage interest rate risk. We view derivative instruments as risk management tools and do not use them for trading or speculative purposes. Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.

We record all derivative instruments on our consolidated balance sheets at fair value. ~~If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized currently in earnings.~~ If the derivative is designated as a cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Ineffective portions of the changes in the fair value of cash flow hedges are recognized currently in earnings. See Note 1210 of these consolidated financial statements for further discussion of our derivative instruments.

~~Reimbursable travel expense~~

~~We expense reimbursable travel costs as incurred and include them in cost of other revenue. The reimbursement of these costs by our customers is included in other revenue.~~

Sales taxes

We present sales taxes and other taxes collected from customers and remitted to governmental authorities on a net basis and, as such, exclude them from revenues.

Shipping and handling

We expense shipping and handling costs as incurred and include them in cost of license fees and other revenue. The reimbursement of these costs by our customers is included in license fees and other revenue.

Cash and cash equivalents

We consider all highly liquid investments purchased with aan original maturity of three months or less and cash items in transit to be cash equivalents.

~~Table of Contents~~

~~Index~~Restricted cash due to ~~Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes~~customers; Due to ~~consolidated financial statements (continued)~~

~~Donor restricted cash and donations payable~~customers

Restricted cash due to customers consists of ~~donations~~monies collected by us and payable to our customers, net of the associated transaction fees earned. Monies associated with ~~donations payable~~amounts due to customers are segregated in a separate bank account and used exclusively for the payment of ~~donations payable.~~amounts due to customers. This usage restriction is either legally or internally imposed and reflects our intention with regard to such deposits.

Concentration of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, ~~donor~~ restricted cash due to customers and accounts receivable. Our cash and cash equivalents and ~~donor~~ restricted cash due to customers are placed with high credit-quality financial institutions. Our accounts receivable ~~are~~is derived from sales to customers who primarily operate in the nonprofit sector. With respect to accounts receivable, we perform ongoing evaluations of our customers and maintain an allowance for doubtful accounts based on historical experience and our expectations of future losses. As of and for the years ended December 31, ~~2014,~~ ~~2013~~2016, 2015 and ~~2012~~,2014, there were no significant concentrations with respect to our consolidated revenues or accounts receivable.

Property and equipment

We record property and equipment assets at cost and depreciate them over their estimated useful lives using the straight-line method. ~~Property and equipment subject to capital leases~~Leasehold improvements are depreciated over the lesser of the term of the lease or the estimated useful life



68		2016 Form 10-K

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

of the asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to ~~income.~~earnings. Repair and maintenance costs are expensed as incurred.

Construction-in-progress represents purchases of computer software and hardware associated with new internal system implementation projects which had not been placed in service at the respective balance sheet dates. We transferred these assets to the applicable property category on the date they are placed in service. There was no capitalized interest applicable to construction-in-progress for the years ended December 31, ~~2014~~2016, 2015 and ~~2013~~.2014.

Business combinations

Critical estimates in valuing intangible assets include, but are not limited to, estimates about: future expected cash flows from customer contracts, proprietary technology and non-compete agreements; the acquired company's brand awareness and market position, assumptions about the period of time the brand will continue to be valuable; as well as expected costs to develop ~~the~~any in-process research and development into commercially viable ~~products~~solutions and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and ~~unpredictable. Assumptions may be incomplete or inaccurate,~~unpredictable, and unanticipated events and changes in circumstances may occur.

~~Table of Contents~~

~~Index to Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes to consolidated financial statements (continued)~~

Goodwill

Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by us in a business combination. Goodwill is allocated to reporting units and tested annually for impairment. Our reporting units are our ~~four~~three reportable segments as described in Note 1816 of these consolidated financial statements. We will also test goodwill for impairment between annual impairment tests if indicators of potential impairment exist. WeThe quantitative impairment test is a two-step process that first compares the fair values of the reporting units with their respective carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, a potential impairment is indicated, and we then perform the second step to determine the amount of any impairment loss by comparing the implied fair value of the affected reporting unit's goodwill with the carrying amount of its goodwill. If the carrying amount of the affected reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to that excess. In each of 2016 and 2015, we performed the quantitative impairment test which indicated that the estimated fair values of the reporting units significantly exceeded their respective carrying values; therefore, the second step of the impairment test was not required to be performed.

In 2014, we performed the optional qualitative assessment of the goodwill assigned to each of our reporting units. When a qualitative assessment is performed, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Significant judgment is required in the assessment of qualitative factors including but not limited to an evaluation of macroeconomic conditions as they relate to our business, industry and market trends, as well as the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. To the extent the qualitative factors indicate that there is more than 50% likelihood that the fair value is less than the carrying amount, we compare the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, impairment is indicated and we will recognize an impairment loss in an amount equal to the difference. As a result of our 2014 qualitative ~~assessments~~assessment of goodwill assigned to each of our reporting units, we concluded it was not more likely than not that the fair value of each reporting unit was less than its carrying value, respectively.

There was no impairment of goodwill during ~~2014, 2013~~2016, 2015 or ~~2012.~~2014.



2016 Form 10-K		69

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

Intangible assets

We amortize finite-lived intangible assets over their estimated useful lives as follows.



		Basis of amortization	Amortization period (in years)
Customer relationships		Straight-line and accelerated⁽¹⁾	~~4-15~~8-17
Marketing assets		Straight-line	~~1-8~~3-9
Acquired software and technology	Straight-line and accelerated⁽²⁾	~~Straight-line~~	~~1-10~~5-10
Non-compete agreements		Straight-line	~~2-5~~3-5
Database		Straight-line	8


(1)	Certain of the customer relationships are amortized on an accelerated basis.


(2)	Certain of the acquired software and technology assets are amortized on an accelerated basis.

Indefinite-lived intangible assets consist of trade names. We evaluate the estimated useful lives and the potential for impairment of finite and indefinite-lived intangible assets on an annual basis, or more frequently if events or circumstances indicate revised estimates of useful lives may be appropriate or that the carrying amount may not be recoverable. If the carrying amount is no longer recoverable based upon the undiscounted cash flows of the asset, the amount of impairment is the difference between the carrying amount and the fair value of the asset. Substantially all of our intangible assets were acquired in business combinations. There was no impairment of acquired intangible assets during ~~2014, 2013~~2016, 2015 or ~~2012.~~

~~Cost method investments~~

Cost method investments consist of investments in privately held companies where we do not have the ability to exercise significant influence or have control over the investee. We record these investments at cost and periodically test them for other-than-temporary impairment. During the year ended December 31, 2012, we determined that our cost method investment had other-than-temporary impairment based on the projected liquidity of the investment. We used the income approach to determine the fair value of the investment in determining the impairment. An insignificant impairment loss was recorded in income from operations for the year ended December 31, 2012. There were no remaining cost method investments at December 31, 2014.

Deferred financing costs

Deferred financing costs included in other assets represent the direct third-party costs of entering into the revolving (line-of-credit) portion of our credit facility in February 2014 and portions of the unamortized deferred financing costs from prior facilities. These costs are amortized ratably over the term of the credit facility as interest ~~expense using the effective interest method.~~expense.

~~Table of Contents~~

~~Index to Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes to consolidated financial statements (continued)~~

Stock-based compensation

We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the requisite service period, which is the vesting period. We determine the fair value of stock options and stock appreciation rights using a Black-Scholes option pricing model, which requires us to use significant judgment to make estimates regarding the life of the award, volatility of our stock price, the risk-free interest rate and the dividend yield of our stock over the life of the award. We determine the fair value of awards that contain market conditions using a Monte Carlo simulation model. Changes to these estimates would result in different fair values of awards.

~~We estimate~~As discussed below, we now recognize the ~~number~~effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award is reversed in the period that ~~will be forfeited~~the award is forfeited. Income tax benefits resulting from the vesting and ~~recognize~~exercise of stock-based compensation awards are recognized in the period the unit or award is vested or option or right is exercised to the extent expense only for those awards that we expect will ultimately vest. Significant judgment is required in determining the adjustment to compensation expense for estimated forfeitures. Compensation expense in a period could be impacted, favorably or unfavorably, by differences between estimated and actual forfeitures.has been recognized.

Income taxes

We make estimates and judgments in accounting for income taxes. The calculation of the income tax provision requires estimates due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. To the extent actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is made.



70		2016 Form 10-K

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning strategies. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax asset in the future in excess of its net carrying value, then an adjustment to the deferred tax asset valuation allowance is made to increase income tax expense, thereby reducing net income in the period such determination was made.

We measure and recognize uncertain tax positions. To recognize such positions, we must first determine if it is more likely than not that the position will be sustained upon audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Significant judgment is required in the identification and measurement of uncertain tax positions.

Foreign currency

Net assets recorded in a foreign currency are translated at the exchange rate on the balance sheet date. Revenue and expense items are translated ~~at the~~using an average of monthly exchange ~~rate for the year.~~rates. The resulting translation adjustments are recorded in accumulated other comprehensive income.

Gains and losses resulting from foreign currency transactions denominated in currency other than the functional currency are recorded at the approximate rate of exchange at the transaction date in other expense, net. For ~~each of~~ the years ended December 31, ~~2014, 2013~~2016 and ~~2012~~,2014, we recorded insignificant net foreign currency losses. For the year ended December 31, 2015, we recorded an insignificant net foreign currency gain.

Research and development

Research and development costs are expensed as incurred. These costs include human resource costs, stock-based compensation expense, third-party contractor expenses, software development tools and certain other expenses related to researching and developing new ~~products,~~solutions, and allocated depreciation, facilities and IT support costs.

~~Table of Contents~~

~~Index to Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes to consolidated financial statements (continued)~~

Software development costs

We incur certain costs associated with the development of internal-use software, ~~and software developed~~which are primarily related to activities performed to develop our cloud-based ~~solutions, which are accounted for as internal-use software. The~~solutions. Internal and external costs incurred in the preliminary ~~stages~~project stage of internal-use software development are expensed as incurred. Once ~~an application~~the software being developed has reached the application development stage, qualifying internal costs including payroll and payroll-related costs of employees who are directly associated with and devote time to the software project as well as external direct costs ~~if direct~~of materials and ~~incremental,~~services are ~~capitalized until~~capitalized. Capitalization ceases at the point at which the developed software is substantially complete and ready for its intended ~~use. Capitalization ceases~~use, which is typically upon completion of all substantial testing. ~~We also capitalize~~Qualifying costs capitalized during the application development stage include those related to specific upgrades and enhancements when it is probable ~~the expenditures~~that those costs incurred will result in additional functionality. ~~Capitalized~~Overhead costs, ~~for internal-use software developed for our cloud-based solutions~~including general and administrative costs, as well as maintenance, training and all other costs associated with post-implementation stage activities are ~~recorded to other assets.~~expensed as incurred. In addition, internal costs that cannot be reasonably separated between maintenance and relatively minor upgrades and enhancements are expensed as incurred. Historically, we have also incurred and capitalized costs in connection with the development of certain of our software ~~products~~solutions licensed to customers on a perpetual basis, which are accounted for as costs of software to be sold, leased or otherwise marketed; however, costs capitalized related to those ~~products~~solutions were insignificant as of December 31, ~~2014~~2016 and ~~as of~~ ~~December 31, 2013. Capitalized~~2015.

Qualifying capitalized software development costs ~~for internal-use software related to business processes~~ are ~~recorded as part of computer software costs within property and equipment and were $0.6 million as of December 31, 2014 and insignificant as of~~ ~~December 31, 2013~~.

~~Internal-use software is~~ amortized on a straight line basis over ~~its~~the software asset's estimated useful life, which is generally three to seven years. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairment charges during the year ended December 31, 2016. During the year ended December 31, 2015, we recorded insignificant impairment charges against previously capitalized software development costs. During the year ended December 31, 2014, we recorded impairment charges of $1.6 million against certain previously capitalized software development costs. The charges reduced the carrying value of the certain previously capitalized software development costs to zero and are reflected in research and development expense. The impairment charges resulted from obtaining software ~~products~~solutions through the ~~acquisition~~acquisitions of Smart Tuition in 2015 and WhippleHill in 2014, respectively, and ~~determining~~our



2016 Form 10-K		71

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

determination that it was no longer probable that certain ~~computer~~internal-use software that was previously being developed would be placed into service. ~~There were no impairments during the years ended~~ ~~December 31, 2013~~ ~~or 2012.~~

~~At December 31, 2014 and~~ ~~2013, capitalized software development costs, net of accumulated amortization, were~~ ~~$8.9 million~~ ~~and~~ ~~$4.2 million, respectively. Amortization expense related to software development costs was~~ ~~$1.9 million~~ ~~and~~ ~~$1.0 million~~ ~~for the years ended December 31, 2014 and~~ ~~2013, respectively, and is included in both cost of license fees and cost of subscriptions. For the year ended~~ ~~December 31, 2012, amortization expense related to software development costs was insignificant.~~

Sales returns and allowance for doubtful accounts

We maintain a reserve for returns and credits which is estimated based on several factors including historical experience, known credits yet to be issued, the aging of customer accounts and the nature of service level commitments. A considerable amount of judgment is required in assessing these factors. Provisions for sales returns and credits are charged against the related revenue items.

Accounts receivable are recorded at original invoice amounts less an allowance for doubtful accounts, an amount we estimate to be sufficient to provide adequate protection against losses resulting from extending credit to our customers. In judging the adequacy of the allowance for doubtful accounts, we consider multiple factors including historical bad debt experience, the general economic environment ~~the need for specific customer reserves~~ and the aging of our receivables. A considerable amount of judgment is required in assessing these factors and if any receivables were to deteriorate, an additional provision for doubtful accounts could be required. Accounts are written off after all means of collection are exhausted and recovery is considered remote. Provisions for doubtful accounts are recorded in general and administrative expense.

Below is a summary of the changes in our allowance for sales returns.


Years ended December 31, (in thousands)	Balance at beginning of year		Provision/adjustment		Write-off			Balance at end of year		Balance at beginning of year		Provision/adjustment		Write-off			Balance at end of year
2016										$	4,431	$	3,060	$	(4,787	)	$	2,704
2015										4,185		5,834		(5,588		)	4,431
2014	$	5,158	$	4,407	$	(5,380	)	$	4,185	5,158		4,407		(5,380		)	4,185
2013	7,730		4,132		(6,704		)	5,158
2012	3,652		8,914		(4,836		)	7,730

~~Table of Contents~~

~~Index to Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes to consolidated financial statements (continued)~~

Below is a summary of the changes in our allowance for doubtful accounts.


Years ended December 31, (in thousands)	Balance at beginning of year		Provision/adjustment		Write-off			Balance at end of year		Balance at beginning of year		Provision/adjustment		Write-off			Balance at end of year
2016										$	512	$	499	$	(424	)	$	587
2015										354		699		(541		)	512
2014	$	455	$	777	$	(878	)	$	354	455		777		(878		)	354
2013	816		775		(1,136		)	455
2012	261		976		(421		)	816

Year ended December 31,
(in thousands) 2014
2013
2012
Included in cost of revenue:
Cost of license fees $ 349
$ 421
$ 485
Cost of subscriptions 20,239
18,578
11,969
Cost of services 2,910
2,528
1,992
Cost of maintenance 772
457
722
Cost of other revenue 75
75
75
Total included in cost of revenue 24,345
22,059
15,243
Included in operating expenses 1,803
2,539
2,106
Total $ 26,148
$ 24,598
$ 17,349



82		2016 Form 10-K

Table of Contents

~~Index to Financial Statements~~

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

The following table summarizes amortization expense of our finite-lived intangible assets:



	Years ended December 31,
(dollars in thousands)	2016		2015		2014
Included in cost of revenue:
Cost of subscriptions	$	31,270	$	23,075	$	20,239
Cost of maintenance	5,327		4,162		772
Cost of services	2,621		2,382		2,910
Cost of license fees and other	340		368		424
Total included in cost of revenue	39,558		29,987		24,345
Included in operating expenses	2,840		2,231		1,803
Total amortization of intangibles from business combinations	$	42,398	$	32,218	$	26,148

The following table outlines the estimated future amortization expense for each of the next five years for our finite-lived intangible assets as of December 31, ~~2014:~~2016:


Year ended December 31,	Amortization expense (in thousands)
2015	$	32,828
2016	35,282
Years ending December 31, (dollars in thousands)			Amortization expense
2017	32,760		$	41,711
2018	30,582		40,001
2019	27,430		36,541
2020			27,975
2021			21,062
Total	$	158,882	$	167,290

8. Consolidated Financial Statement Details

Prepaid expenses and other assets

~~Prepaid expenses and other assets consisted of the following as of:~~



(dollars in thousands)	December 31, 2016		December 31, 2015
Deferred sales commissions	$	37,459	$	30,141
Prepaid software maintenance	18,130		15,308
Taxes, prepaid and receivable	4,111		9,121
Deferred professional services costs	1,722		3,603
Deferred tax asset	2,379		2,869
Prepaid royalties	1,373		1,767
Other assets	5,664		6,758
Total prepaid expenses and other assets	70,838		69,567
Less: Long-term portion	22,524		20,901
Prepaid expenses and other current assets	$	48,314	$	48,666

(in thousands) December 31, 2014
December 31, 2013
Deferred sales commissions $ 22,630
$ 20,088
Prepaid software maintenance 9,480
6,875
Taxes, prepaid and receivable 8,991
1,112
Deferred professional services costs 5,753
7,445
Software development costs 8,914
4,172
Prepaid royalties 3,192
2,813
Other assets 8,116
6,861
Total prepaid expenses and other assets 67,076
49,366
Less: Long-term portion 26,684
19,251
Total prepaid expenses and other current assets $ 40,392
$ 30,115

~~9. Accrued expenses and other liabilities~~

~~Accrued expenses and other liabilities consisted of the following as of:~~

(in thousands) December 31, 2014
December 31, 2013
Taxes payable $ 4,285
$ 5,430
Accrued commissions and salaries 8,712
7,127
Accrued bonuses 19,480
9,258
Lease incentive obligations 4,099
2,636
Deferred rent liabilities 4,200
2,706
Customer credit balances 2,573
3,281
Accrued health care costs 2,707
2,459
Unrecognized tax benefit 3,791
3,698
Other liabilities 9,791
10,503
Total accrued expenses and other liabilities 59,638
47,098
Less: Long-term portion 7,437
6,655
Total accrued expenses and other current liabilities $ 52,201
$ 40,443



2016 Form 10-K		83

Table of Contents

~~Index to Financial Statements~~

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

~~10. Deferred revenue~~

~~Deferred revenue consisted of the following as of:~~

Accrued expenses and other liabilities

(in thousands) December 31, 2014
December 31, 2013
Maintenance $ 92,823
$ 85,219
Subscriptions 98,225
72,480
Services 29,457
32,153
License fees and other 769
722
Total deferred revenue 221,274
190,574
Less: Deferred revenue, net of current portion 8,991
9,099
Deferred revenue, current portion $ 212,283
$ 181,475



(dollars in thousands)	December 31, 2016		December 31, 2015
Accrued bonuses	$	19,217	$	24,591
Accrued commissions and salaries	9,352		8,391
Taxes payable	3,452		3,923
Deferred rent liabilities	4,110		4,070
Lease incentive obligations	5,604		4,734
Unrecognized tax benefit	3,295		3,147
Customer credit balances	5,148		3,515
Accrued vacation costs	2,214		2,446
Accrued health care costs	1,495		2,356
Other liabilities	8,842		7,911
Total accrued expenses and other liabilities	62,729		65,084
Less: Long-term portion	8,533		7,623
Accrued expenses and other current liabilities	$	54,196	$	57,461

Deferred revenue



(dollars in thousands)	December 31, 2016		December 31, 2015
Subscriptions	$	144,606	$	122,524
Maintenance	76,803		85,901
Services	29,039		28,517
License fees and other	492		393
Total deferred revenue	250,940		237,335
Less: Long-term portion	6,440		7,119
Deferred revenue, current portion	$	244,500	$	230,216

Other expense, net



	Years ended December 31,
(dollars in thousands)	2016			2015			2014
Interest income	$	581		$	155		$	59
Loss on sale of business	—			(1,976		)	—
Loss on debt extinguishment and termination of derivative instruments⁽¹⁾	—			—			(996		)
Other (expense) income, net	(872		)	134			(182		)
Other expense, net	$	(291	)	$	(1,687	)	$	(1,119	)


(1)	See Notes 9 and 10 to these consolidated financial statements for details of the loss on debt extinguishment and termination of derivative instruments.



84		2016 Form 10-K

~~11.~~

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

9. Debt

The following table summarizes our debt balances and the related weighted average effective interest rates, which includes the effect of interest rate swap agreements.


	Debt balance at				Weighted average effective interest rate at				Debt balance at				Weighted average effective interest rate at
(in thousands, except percentages)	December 31, 2014		December 31, 2013		December 31, 2014		December 31, 2013
(dollars in thousands)									December 31, 2016		December 31, 2015		December 31, 2016		December 31, 2015
Credit facility:
Revolving credit loans	$	110,700	$	70,408	1.56	%	1.95	%	$	180,900	$	242,900	2.36	%	2.15	%
Term loans	171,719		82,500		2.03	%	2.39	%	162,969		167,344		2.62	%	2.51	%
Total debt	282,419		152,908		1.85	%	2.14	%	343,869		410,244		2.48	%	2.30	%
Less: Unamortized debt discount	1,848		—						1,476		2,157
Less: Debt, current portion	4,375		17,158		1.39	%	2.39	%	4,375		4,375		2.50	%	2.11	%
Debt, net of current portion	$	276,196	$	135,750	1.85	%	2.11	%	$	338,018	$	403,712	2.48	%	2.30	%

We were previously party to a $325.0 million five-year credit facility entered into during February 2012. The credit facility included: a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans (the “2012 Revolving Facility”) and a delayed draw term loan (the “2012 Term Loan”) together, (the “2012 Credit Facility”).

2014 ~~Refinancing~~refinancing

In February 2014, we entered into a five-year $325.0 million credit facility (the “2014 Credit Facility”) and drew $175.0 million on a term loan upon closing, which was used to repay all amounts outstanding under the 2012 Credit Facility.

The 2014 Credit Facility includes the following facilities: (i) a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans (the “2014 Revolving Facility”) and (ii) a term loan facility (the “2014 Term Loan”).

Certain ~~participants~~lenders of the 2012 Term Loan participated in the 2014 Term Loan and the change in the present value of our future cash flows to these ~~participants~~lenders under the 2012 Term Loan and under the 2014 Term Loan was less than 10%. Accordingly, we accounted for the refinancing event for these ~~participants~~lenders as a debt modification. Certain ~~participants~~lenders of the 2012 Term Loan did not participate in the 2014 Term Loan. Accordingly, we accounted for the refinancing event for these ~~participants~~lenders as a debt extinguishment. Certain ~~participants~~lenders of the 2012 Revolving Facility participated in the 2014 Revolving Facility and provided increased borrowing capacities. Accordingly, we accounted for the refinancing event for these ~~participants~~lenders as a debt modification. Certain ~~participants~~lenders of the 2012 Revolving Facility did not participate in the 2014 Revolving Facility. Accordingly, we accounted for the refinancing event for these ~~participants~~lenders as a debt extinguishment.

~~Table of Contents~~

~~Index to Financial Statements~~

~~Blackbaud, Inc.~~

~~Notes to consolidated financial statements (continued)~~

We recorded a $0.4 million loss on debt extinguishment related to the write-off of deferred financing costs for the portions of the 2012 Credit Facility considered to be extinguished. This loss was recognized in the consolidated statements of comprehensive income within loss on debt extinguishment and termination of derivative instruments.

In connection with our entry into the 2014 Credit Facility, we paid $2.5 million in financing costs, of which $1.1 million were capitalized and, together with a portion of the unamortized deferred financing costs from the 2012 Credit Facility and prior facilities, are being amortized into interest expense ratably over the term of the new ~~facility using the effective interest method.~~facility. As of December 31, ~~2014~~2016 and ~~2013,~~December 31, 2015, deferred financing costs totaling ~~$1.7~~$0.6 million and ~~$1.9~~$0.9 million, respectively, were included in other assets on ~~the~~our consolidated balance ~~sheet.~~sheets.

Summary of the 2014 Credit Facility

The 2014 Credit Facility is secured by the stock and limited liability company interests of certain of our subsidiaries and is guaranteed by our material domestic subsidiaries.



2016 Form 10-K		85

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

Amounts borrowed under the dollar tranche revolving credit loans and term loan under the 2014 Credit Facility bear interest at a rate per annum equal to, at our option, (a) a base rate equal to the highest of (i) the prime rate, (ii) federal funds rate plus 0.50% and (iii) one month LIBOR plus 1.00% (the “Base Rate”), in addition to a margin of 0.00% to 0.50%, or (b) LIBOR rate plus a margin of 1.00% to 1.50%. Swingline loans bear interest at a rate per annum equal to the Base Rate plus a margin of 0.00% to 0.50% or such other rate agreed to between the Swingline lender and us. Designated currency tranche revolving credit loans bear interest at a rate per annum equal to the LIBOR rate for the applicable currency plus a margin of 1.00% to 1.50%. The exact amount of any margin depends on the nature of the loan (Base Rate or LIBOR) and our net leverage ratio (as defined in the 2014 Credit Facility).

We also pay a quarterly commitment fee on the unused portion of the ~~revolving credit facility~~2014 Revolving Facility from 0.15% to 0.225% per annum, depending on our net leverage ratio. At December 31, ~~2014,~~2016, the commitment fee was ~~0.175%~~0.225%.

The term loan under the 2014 Credit Facility requires periodic principal payments. The balance of the term loan and any amounts drawn on the revolving credit loans are due upon maturity of the 2014 Credit Facility in February 2019. We evaluate the classification of our debt as current or non-current based on the required annual maturities of the 2014 Credit Facility.

The 2014 Credit Facility includes financial covenants related to the net leverage ratio and interest coverage ratio, as well as restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. At December 31, ~~2014,~~2016, we were in compliance with our debt covenants under the 2014 Credit Facility.

Financing for MicroEdge ~~Acquisition~~acquisition

The 2014 Credit Facility ~~included a right~~includes an option to ~~increase~~request increases in the revolving commitments and/or request additional term loans in aan aggregate principal amount of up to ~~$200~~$200.0 million. On October 1, 2014, we exercised ~~our right,~~this option, and certain lenders agreed, to increase the revolving credit commitments by ~~$100~~$100.0 million (the "October 2014 Additional Revolving Credit Commitments") such that ~~currently and~~ for the period commencing October 1, 2014, the aggregate revolving credit commitments ~~are $250~~available were $250.0 million. The ~~additional revolving credit commitments~~October 2014 Additional Revolving Credit Commitments have the same terms as the existing revolving credit commitments.

On October 1, 2014, we drew down ~~$140~~$140.0 million in revolving credit commitments under the 2014 Credit Facility to finance the acquisition of MicroEdge.

Financing for Smart Tuition acquisition

On July 17, 2015, we again exercised this option and certain lenders agreed to increase the revolving credit commitments by an additional $100.0 million (the "July 2015 Additional Revolving Credit Commitments") such that for the period commencing July 17, 2015, the aggregate revolving credit commitments available were $350.0 million. The July 2015 Additional Revolving Credit Commitments have the same terms as the existing revolving credit commitments.

On October 2, 2015, we drew down a $186.0 million revolving credit loan under the 2014 Credit Facility to finance the acquisition of Smart Tuition.

As of December 31, ~~2014,~~2016, the required annual maturities related to the 2014 Credit Facility were as follows:


Year ending December 31, (in thousands)	Annual maturities
2015	$	4,375
2016	4,375
Years ending December 31, (dollars in thousands)			Annual maturities
2017	4,375		$	4,375
2018	4,375		4,375
2019	$	264,919	335,119
2020			—
2021			—
Thereafter	$	—	—
Total required maturities	$	282,419	$	343,869



86		2016 Form 10-K

Table of Contents

~~Index to Financial Statements~~

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

~~12. Derivative instruments~~

10. Derivative Instruments

We use derivative instruments to manage our variable interest rate risk. In February 2014, in connection with the refinancing of our debt, we terminated the two interest rate swap agreements associated with the 2012 Credit Facility. As part of the settlement of our swap liabilities, we recorded a loss of $0.6 million, which was recognized in the consolidated statements of comprehensive income within loss on debt extinguishment and termination of derivative instruments. ~~This loss resulted in the recognition of an insignificant tax benefit.~~

In March 2014, we entered into ana new interest rate swap agreement (the ~~“March~~"March 2014 Swap ~~Agreement”~~Agreement"), which effectively converts portions of our variable rate debt under the 2014 Credit Facility to a fixed rate for the term of the ~~swap agreement.~~March 2014 Swap Agreement. The initial notional value of the March 2014 Swap Agreement was $125.0 million with an effective date beginning in March 2014. In March 2017, the notional value of the March 2014 Swap Agreement will decrease to $75.0 million for the remaining term through February 2018. We designated the March 2014 Swap Agreement as a cash flow hedge at the inception of the contract.

In October ~~2014,~~2015, we entered into an additional interest rate swap agreement (the ~~“October 2014~~"October 2015 Swap ~~Agreement”~~Agreement"), which effectively converts portions of our variable rate debt under the 2014 Credit Facility to a fixed rate for the term of the ~~swap agreement.~~October 2015 Swap Agreement. The ~~initial~~ notional value of the October ~~2014~~2015 Swap Agreement was $75.0 million with an effective date beginning in October ~~2014. In September~~ 2015 ~~the notional value of the October 2014 Swap Agreement will decrease to $50.0 million for the remaining term through June 2016.~~ and maturing in February 2018. We designated the October ~~2014~~2015 Swap Agreement as a cash flow hedge at the inception of the contract.

The fair values of our derivative instruments were as follows as of:


(dollars in thousands)						Balance sheet location	December 31, 2016		December 31, 2015
Derivative instruments designated as hedging instruments:
Interest rate swap, long-term portion						Other assets	$	206	$	406
Total derivative instruments designated as hedging instruments							$	206	$	406
		Liability fair value at					December 31, 2016		December 31, 2015
(in thousands)	Balance sheet location	December 31, 2014		December 31, 2013
Derivative instruments designated as hedging instruments:
Interest rate swaps, current portion	Accrued expenses and other current liabilities	$	—	$	46	Accrued expenses and other current liabilities	$	—	$	2
Interest rate swaps, long-term portion	Other liabilities	268		381		Other liabilities	163		436
Total derivative instruments designated as hedging instruments		$	268	$	427		$	163	$	438



2016 Form 10-K		87

Table of Contents

Blackbaud, Inc.

Notes to consolidated financial statements (continued)

The effects of derivative instruments in cash flow hedging relationships were as follows:


	Loss recognized in accumulated other comprehensive loss as of			Location of loss reclassified from accumulated other comprehensive loss into income		Amount reclassified from accumulated other comprehensive loss into income			Gain (loss) recognized in accumulated other comprehensive loss as of			Location of gain (loss) reclassified from accumulated other comprehensive loss into income	Gain (loss) reclassified from accumulated other comprehensive loss into income
	December 31, 2014				Year ended December 31,
(in thousands)					2014		Location of loss reclassified from accumulated other comprehensive loss into income
(dollars in thousands)								December 31, 2016			Location of gain (loss) reclassified from accumulated other comprehensive loss into income		Year ended December 31, 2016
Interest rate swaps	$	(268	)		Interest expense			$		$		42		$	(1,106	)

						Year ended December 31,
	December 31, 2013					2013			December 31, 2015				Year ended December 31, 2015
Interest rate swaps	$	(427	)	Interest expense		$		794		$	(31	)	Interest expense	$	(1,569	)

						Year ended December 31,			December 31, 2014				Year ended December 31, 2014
	December 31, 2012					2012
Interest rate swaps	$	(1,296	)	Interest expense		$	466		$	(268	)	Interest expense	$	(1,215	)
Interest rate swaps									—			Loss on debt extinguishment and termination of derivative instruments	(587		)
Total									$	(268	)		$	(1,802	)



~~[X]~~þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year ended December 31, ~~2014~~2016
	OR
~~[ ]~~¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________________ to ___________________.




Delaware	11-2617163
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)




Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class	Name of Each Exchange on which Registered
Common Stock, $0.001 Par Value	The NASDAQ Stock Market LLC (NASDAQ Global Select Market)
Securities Registered Pursuant to Section 12(g) of the Act: None



Large accelerated filer þ	Accelerated filer	¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		2

PART I.		~~Page No.~~ 3
~~PART I~~
Item 1.	Business	13
Item 1A.	Risk factors	1416
Item 1B.	Unresolved staff comments	2822
Item 2.	Properties	2822
Item 3.	Legal proceedings	2823
Item 4.	Mine ~~Safety Disclosure~~safety disclosure	2823

PART IIII.		24
Item 5.	Market for ~~registrant’s~~registrant's common equity, related stockholder matters and issuer purchases of equity securities	2924
Item 6.	Selected financial data	3328
Item 7.	~~Management’s~~Management's discussion and analysis of financial condition and results of operations	3429
Item 7A.	Quantitative and qualitative disclosures about market risk	6059
Item 8.	Financial statements and supplementary data	6059
Item 9.	Changes in and disagreements with accountants on accounting and financial disclosure	103
Item 9A.	Controls and procedures	103
Item 9B.	Other information	103

PART ~~III~~III.		104

Item 10.	Directors, executive officers and corporate governance	104
Item 11.	Executive compensation	104
Item 12.	Security ownership of certain beneficial owners and management and related stockholder matters	104
Item 13.	Certain relationships and related transactions, and director independence	104
Item 14.	Principal accountant fees and services	104

PART IVIV.		105
Item 15.	Exhibits and financial statement schedules	105
Item 16.	Form 10-K Summary	109

SIGNATURES		110


3.	Expand ~~our Total Addressable Market~~TAM into Near Adjacencies with Acquisitions and Investments


4.	~~Optimize our Back-Office Infrastructure~~Improve Operating Efficiency



Percentage of Total Revenue

Years ended December 31,
	2016		2015		2014
Subscriptions	58.7	%	52.0	%	46.7	%
Maintenance	20.1	%	24.1	%	26.1	%
Services	19.1	%	20.8	%	22.7	%



Name	Age	Title
Michael P. Gianoni	5456	President and Chief Executive Officer
Anthony W. Boor	5254	Executive Vice President and Chief Financial Officer
Charles T. Cumbaa⁽¹⁾	6264	Executive Vice President of Corporate and Product Strategy ~~Interim President, Enterprise Customer Business Unit~~
Kevin W. Mooney	5658	Executive Vice President and President, General Markets Business Unit
~~Bradley J. Holman~~Brian E. Boruff	5357	Executive Vice President ~~International~~and President, Enterprise Customer Business Unit
John J. Mistretta	5961	Executive Vice President of Human Resources


	Common Stock Market Prices						Common Stock Market Prices
	High		Low		Dividends Declared		High		Low		Dividends Declared
Fiscal year ended December 31, 2014
Fiscal year ended December 31, 2016
Fourth quarter	$	45.86	$	37.38	$	0.12	$	67.42	$	58.29	$	0.12
Third quarter	40.99		33.62		0.12		71.09		64.32		0.12
Second quarter	36.33		29.42		0.12		68.40		58.36		0.12
First quarter	38.84		29.99		0.12		65.33		50.97		0.12
Fiscal year ended December 31, 2013
Fiscal year ended December 31, 2015
Fourth quarter	$	42.23	$	33.88	$	0.12	$	67.54	$	56.17	$	0.12
Third quarter	40.00		32.54		0.12		63.73		54.10		0.12
Second quarter	34.44		27.68		0.12		59.67		47.39		0.12
First quarter	30.84		22.85		0.12		47.45		42.00		0.12


December 31,	2009		2010		2011		2012		2013		2014		2011		2012		2013		2014		2015		2016
Blackbaud, Inc.	$	100.00	$	111.71	$	121.73	$	102.22	$	171.14	$	199.28	$	100.00	$	83.97	$	140.59	$	163.70	$	251.47	$	246.25
NASDAQ Composite Index	100.00		117.61		118.70		139.00		196.83		223.74		100.00		116.41		165.47		188.69		200.32		216.54
NASDAQ Computer & Data Processing Index	100.00		106.82		107.70		115.65		176.58		202.04		100.00		107.40		164.63		189.15		223.06		242.34



Period	Total number of shares acquired or purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Approximate dollar value of shares that may yet be purchased under the plan or programs (in thousands)
Beginning balance, October 1, 2014					$	50,000
October 1, 2014 through October 31, 2014	—	$	—	—	50,000
November 1, 2014 through November 30, 2014	134,030	44.85		—	50,000
December 1, 2014 through December 31, 2014	2,875	44.98		—	50,000
Total	136,905	$	44.85	—	$	50,000



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
Beginning balance, October 1, 2016					$	50,000
October 1, 2016 through October 31, 2016	—	$	—	—	50,000
November 1, 2016 through November 30, 2016	82,056	59.48		—	50,000
December 1, 2016 through December 31, 2016	—	—		—	50,000
Total	82,056	$	59.48	—	$	50,000


(1)	In August 2010, our Board of Directors approved a stock repurchase program that authorized us to purchase up to $50.0 million of our outstanding shares of common stock. We have not made any repurchases under the program to date, and the program does not have an expiration date.


	Year ended December 31,										Year ending December 31,
(in thousands, except per share data)	2014		2013		2012		2011		2010		2016		2015		2014		2013		2012
SUMMARY OF OPERATIONS
Total revenue	$	564,421	$	503,817	$	447,419	$	370,868	$	326,565	$	730,815	$	637,940	$	564,421	$	503,817	$	447,419
Total cost of revenue	273,438		232,663		202,460		157,194		132,139		339,220		304,631		273,438		232,663		202,460
Gross profit	290,983		271,154		244,959		213,674		194,426		391,595		333,309		290,983		271,154		244,959
Total operating expenses	244,619		219,612		225,524		162,746		148,402		329,795		286,597		244,619		219,612		225,524
Income from operations	46,364		51,542		19,435		50,928		46,024		61,800		46,712		46,364		51,542		19,435
Net income	28,290		30,472		6,583		33,220		29,187		41,515		25,649		28,290		30,472		6,583
PER SHARE DATA
Basic net income	$	0.63	$	0.68	$	0.15	$	0.76	$	0.68	$	0.90	$	0.56	$	0.63	$	0.68	$	0.15
Diluted net income	0.62		0.67		0.15		0.75		0.67		0.88		0.55		0.62		0.67		0.15
Cash dividends	0.48		0.48		0.48		0.48		0.44		0.48		0.48		0.48		0.48		0.48
BALANCE SHEET DATA
Total assets(1)	$	943,183	$	706,610	$	705,747	$	392,590	$	323,806	$	1,310,210	$	1,223,336	$	942,503	$	706,025	$	704,973
Deferred revenue, including current portion	221,274		190,574		185,018		163,437		150,661		250,940		237,335		221,274		190,574		185,018
Total debt, including current portion(1)	280,571		152,908		215,500		—		—		342,393		408,087		279,891		152,323		214,726
Total long-term liabilities(1)	336,263		188,384		246,368		12,547		9,319		382,549		446,450		335,583		187,799		245,594


1.	~~Accelerate Organic Revenue Growth~~


2.	~~Accelerate our Move to~~ the Cloud


2.	Drive Sales Effectiveness


5.	~~Implement a 3-Year Margin Improvement Plan~~


1.	~~Accelerate organic revenue growth;~~Integrated and Open Solutions in the Cloud


2.	~~Accelerate our product portfolio's move to the cloud;~~Drive Sales Effectiveness


3.	Expand ~~our total addressable market;~~TAM into Near Adjacencies with Acquisitions and Investments



Total revenue
	Years ended December 31,
(dollars in millions)	2016		Change		2015
Total revenue⁽¹⁾	$	730.8	14.6	%	$	637.9


(1)	Included in total revenue for 2016 and 2015 was$39.8 million and $8.5 million, respectively, attributable to the inclusion of Smart Tuition.


Revenue by segment										Revenue by segment
	Year ended December 31,									Years ended December 31,
(in millions, except percentages)	2014			2013		Change		% Change
ECBU	$	219.9	(1)(2)	$	195.6	$	24.3	12	%
(dollars in millions)										2016		Change		2015		Change		2014
GMBU(1)	254.7		(1)(3)	225.3		29.4		13	%	$	383.3	22.1	%	$	313.9	16.0	%	$	270.6
ECBU⁽²⁾										303.0		8.2	%	279.9		14.2	%	245.1
IBU	46.5		(1)	41.5		5.0		12	%	42.5		1.3	%	42.0		(10.8	)%	47.1
Target Analytics	41.8			39.8		2.0		5	%
Other	1.6			1.6		—		—	%	2.0		(5.8	)%	2.1		32.2	%	1.6
Total revenue⁽⁴⁾⁽³⁾	$	564.4		$	503.8	$	60.7	12	%	$	730.8	14.6	%	$	637.9	13.0	%	$	564.4


(1)	Included in ECBU, GMBU and IBU revenue for the year ended December 31, 2014 was $6.8 million, $13.2 million and $1.1 million, respectively, attributable to the prospective change in presentation from net to gross for revenue and costs associated with certain payment processing services as a result of certain third-party arrangements that had changes in contractual terms effective October 2013.


~~(2)~~	~~Included in ECBU revenue for the year ended December 31, 2014 was $5.8 million attributable to the inclusion of MicroEdge.~~


~~(3)~~	~~Included in~~ GMBU revenue for ~~the year ended December 31,~~ 2014 was $4.5 million attributable to the inclusion of WhippleHill. WhippleHill also positively impacted GMBU revenue for 2015. Included in GMBU revenue for 2015 and 2016 was $8.5 million and $39.8 million, respectively, attributable to the inclusion of Smart Tuition.


~~(4)~~(2)	Included in ECBU revenue and total revenue for 2015 and 2014 was$31.9 million and $5.8 million, respectively, attributable to the inclusion of MicroEdge.


(3)	The individual amounts for each ~~segment~~year may not sum to total revenue due to rounding.



GMBU
	Years ended December 31,
(dollars in millions)	2016			Change		2015			Change		2014
GMBU revenue⁽¹⁾	$	383.3		22.1	%	$	313.9		16.0	%	$	270.6
% of total revenue	52.5		%			49.2		%			47.9		%


(1)	Included in GMBU revenue for 2014 was $4.5 million attributable to the inclusion of WhippleHill. WhippleHill also positively impacted GMBU revenue for 2015. Included in GMBU revenue for 2015 and 2016 was $8.5 million and $39.8 million, respectively, attributable to the inclusion of Smart Tuition.


(1)	Included in ECBU revenue for 2015 and 2014 was$31.9 million and $5.8 million, respectively, attributable to the inclusion of MicroEdge.


~~(2)~~	2015 when compared to 2014. Included in subscriptions revenue for 2014 was ~~$2.7~~$3.0 million and ~~$3.0~~$2.7 million attributable to the inclusion of ~~WhippleHill~~MicroEdge and ~~MicroEdge,~~WhippleHill, respectively.


~~(3)~~	Included in cost of subscriptions for 2014 was $1.2 million attributable to the inclusion of WhippleHill. The impact on cost of subscriptions in 2014 as a result of the inclusion of MicroEdge was not significant.


(1)	Included in maintenance revenue for 2015 and ~~cost of maintenance for~~ 2014 was ~~$1.9~~$11.0 million and ~~$0.6~~$1.9 million, respectively, attributable to the inclusion of MicroEdge.


~~(2)~~	~~Included in cost of services for 2014 was $2.5 million and $0.8 million attributable to the inclusion of WhippleHill and MicroEdge, respectively.~~



(dollars in millions)	Timing of recognition	December 31, 2016		Change		December 31, 2015
Subscriptions	Over the period billed in advance, generally one year	$	144.6	18.0	%	$	122.5
Maintenance	Over the period billed in advance, generally one year	76.8		(10.6	)%	85.9
Services	As services are delivered	29.0		1.8	%	28.5
License fees and other	Upon delivery of the solution or service	0.5		25.2	%	0.4
Total deferred revenue⁽¹⁾		250.9		5.7	%	237.3
Less: Long-term portion		6.4		(9.5	)%	7.1
Current portion⁽¹⁾		$	244.5	6.2	%	$	230.2


(1)	The individual amounts for each year may not sum to total deferred revenue or current portion of deferred revenue due to rounding.