UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended September 30, 2021

~~For the quarterly period ended~~ ~~September 30, 2017~~



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to .

~~For the transition period from~~ to .

Commission file number:000-50600

Blackbaud, Inc.

(Exact name of registrant as specified in its charter)



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

~~2000 Daniel Island Drive~~65 Fairchild Street

Charleston, South Carolina 29492

(Address of principal executive offices, including zip code)

(843) 216-6200

(Registrant’s telephone number, including area code)



Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock, $0.001 Par Value	BLKB	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~YES~~ þ NO ¨Yes☑No☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

~~YES~~ þ NO ¨Yes☑No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~ þ

~~Accelerated filer~~

~~Non-accelerated filer~~ ¨ ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~

Emerging growth company

¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

~~YES~~ ¨ NO þYes☐No☑

The number of shares of the registrant’s Common Stock outstanding as of October ~~23, 2017~~29, 2021 was ~~48,089,595.~~48,176,560.

TABLE OF CONTENTS


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS					2

PART I.			FINANCIAL INFORMATION		3

~~CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS~~Item 1.			2Financial statements
			Condensed Consolidated Balance Sheets (Unaudited)		3

~~PART I.~~Condensed Consolidated Statements of Comprehensive Income (Unaudited)	~~FINANCIAL INFORMATION~~4			3

~~Item 1.~~Condensed Consolidated Statements of Cash Flows (Unaudited)	~~Financial statements~~5
	~~Consolidated balance sheets as of September 30, 2017 and December 31, 2016 (unaudited)~~	3
			Condensed Consolidated ~~statements~~Statements of ~~comprehensive income for the three and nine months ended September 30, 2017 and 2016 (unaudited)~~Stockholders’ Equity (Unaudited)		46
			~~Consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016 (unaudited)~~		5
	~~Consolidated statement of stockholders’ equity for the nine months ended September 30, 2017 (unaudited)~~	6
	Notes to ~~consolidated financial statements (unaudited)~~Condensed Consolidated Financial Statements (Unaudited)	78
Item 2.			Management's discussion and analysis of financial condition and results of operations		2322
Item 3.			Quantitative and qualitative disclosures about market risk		4143
Item 4.			Controls and procedures		4144

PART II.			OTHER INFORMATION		4245

Item ~~1A.~~1.			~~Risk factors~~Legal proceedings		4245
Item 1A.			Risk factors		45
Item 2.			Unregistered sales of equity securities and use of proceeds		4246

Item 6.			Exhibits		4347

SIGNATURES					4448



Third Quarter ~~2017~~2021 Form 10-Q						1

Table of Contents

Blackbaud, Inc.



						CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the documents incorporated herein by reference, contains forward-looking statements that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These "forward-looking statements" are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements consist of, among other things, specific and overall impacts of the COVID-19 global pandemic on our financial condition and results of operations and on the markets and communities in which we and our customers and partners operate, trend analyses, statements regarding future events, future financial performance, our anticipated growth, the effect of general economic and market conditions, our business strategy and our plan to build and grow our business, our operating results, our ability to successfully integrate acquired businesses and technologies, the effect of foreign currency exchange rate and interest rate fluctuations on our financial results, the impact of expensing stock-based compensation, the sufficiency of our capital resources, our ability to meet our ongoing debt and obligations as they become due, cybersecurity and data protection risks and related liabilities, and current or potential ~~litigation~~legal proceedings involving us, all of which are based on current expectations, estimates, and forecasts, and the beliefs and assumptions of our management. Words such as “believes,” “seeks,” “expects,” “may,” “might,” “should,” “intends,” “could,” “would,” “likely,” “will,” “targets,” “plans,” “anticipates,” “aims,” “projects,” “estimates” or any variations of such words and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Accordingly, they should not be viewed as assurances of future performance, and actual results may differ materially and adversely from those expressed in any forward-looking statements.

Important factors that could cause actual results to differ materially from our expectations expressed in forward-looking statements include, but are not limited to, those summarized under ~~“Item~~“Part II, Item 1A. Risk factors” and elsewhere in this report, in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 and in our other ~~SEC filings.~~filings made with the United States Securities & Exchange Commission ("SEC"). Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statement, whether as a result of new information, future events or otherwise.



2						Third Quarter ~~2017~~2021 Form 10-Q



						PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


Blackbaud, Inc. Consolidated balance sheets (Unaudited)
Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)							Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)	September 30, 2017			December 31, 2016			(dollars in thousands)	September 30, 2021		December 31, 2020
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	17,050		$	16,902		Cash and cash equivalents	$	27,591	$	35,750
Restricted cash due to customers	139,095			353,771
Accounts receivable, net of allowance of $4,540 and $3,291 at September 30, 2017 and December 31, 2016, respectively	100,868			88,932
Restricted cash							Restricted cash	216,122		609,219
Accounts receivable, net of allowance of $10,847 and $10,292 at September 30, 2021 and December 31, 2020, respectively							Accounts receivable, net of allowance of $10,847 and $10,292 at September 30, 2021 and December 31, 2020, respectively	105,873		95,404
Customer funds receivable							Customer funds receivable	6,076		321
Prepaid expenses and other current assets	50,082			48,314			Prepaid expenses and other current assets	102,319		78,366
Total current assets	307,095			507,919			Total current assets	457,981		819,060
Property and equipment, net	43,903			50,269			Property and equipment, net	103,346		105,177
Operating lease right-of-use assets							Operating lease right-of-use assets	19,652		22,671
Software development costs, net	48,618			37,582			Software development costs, net	118,860		111,827
Goodwill	472,776			438,240			Goodwill	635,912		635,854
Intangible assets, net	252,713			253,676			Intangible assets, net	249,494		277,506
Other assets	21,889			22,524			Other assets	69,699		72,639
Total assets	$	1,146,994		$	1,310,210		Total assets	$	1,654,944	$	2,044,734
Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Current liabilities:							Current liabilities:
Trade accounts payable	$	17,830		$	23,274		Trade accounts payable	$	38,388	$	27,836
Accrued expenses and other current liabilities	45,650			54,196			Accrued expenses and other current liabilities	58,579		52,228
Due to customers	139,095			353,771			Due to customers	220,785		608,264
Debt, current portion	8,576			4,375			Debt, current portion	12,948		12,840
Deferred revenue, current portion	277,008			244,500			Deferred revenue, current portion	329,426		312,236
Total current liabilities	488,159			680,116			Total current liabilities	660,126		1,013,404
Debt, net of current portion	329,380			338,018			Debt, net of current portion	514,418		518,193
Deferred tax liability	39,352			29,558			Deferred tax liability	56,144		54,086
Deferred revenue, net of current portion	5,412			6,440			Deferred revenue, net of current portion	4,528		4,678
Operating lease liabilities, net of current portion							Operating lease liabilities, net of current portion	13,470		17,357
Other liabilities	7,799			8,533			Other liabilities	9,421		10,866
Total liabilities	870,102			1,062,665			Total liabilities	1,258,107		1,618,584
Commitments and contingencies (see Note 10)
Commitments and contingencies (see Note 9)							Commitments and contingencies (see Note 9)	0
Stockholders’ equity:							Stockholders’ equity:
Preferred stock; 20,000,000 shares authorized, none outstanding	—			—			Preferred stock; 20,000,000 shares authorized, none outstanding	—		—
Common stock, $0.001 par value; 180,000,000 shares authorized, 58,503,687 and 57,672,401 shares issued at September 30, 2017 and December 31, 2016, respectively	59			58
Common stock, $0.001 par value; 180,000,000 shares authorized, 62,353,643 and 60,904,638 shares issued at September 30, 2021 and December 31, 2020, respectively							Common stock, $0.001 par value; 180,000,000 shares authorized, 62,353,643 and 60,904,638 shares issued at September 30, 2021 and December 31, 2020, respectively	62		61
Additional paid-in capital	341,476			310,452			Additional paid-in capital	634,406		544,963
Treasury stock, at cost; 10,426,122 and 10,166,801 shares at September 30, 2017 and December 31, 2016, respectively	(234,329		)	(215,237		)
Accumulated other comprehensive loss	(1,013		)	(457		)
Treasury stock, at cost; 14,039,117 and 12,054,268 shares at September 30, 2021 and December 31, 2020, respectively							Treasury stock, at cost; 14,039,117 and 12,054,268 shares at September 30, 2021 and December 31, 2020, respectively	(490,456)		(353,091)
Accumulated other comprehensive income (loss)							Accumulated other comprehensive income (loss)	3,319		(2,497)
Retained earnings	170,699			152,729			Retained earnings	249,506		236,714
Total stockholders’ equity	276,892			247,545			Total stockholders’ equity	396,837		426,150
Total liabilities and stockholders’ equity	$	1,146,994		$	1,310,210		Total liabilities and stockholders’ equity	$	1,654,944	$	2,044,734

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



Third Quarter ~~2017~~2021 Form 10-Q						3


Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited)													Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited)
														Three months ended September 30,				Nine months ended September 30,
Blackbaud, Inc. Consolidated statements of comprehensive income (Unaudited)
(dollars in thousands, except per share amounts)	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016			(dollars in thousands, except per share amounts)	2021		2020		2021		2020
Revenue													Revenue
Subscriptions	$	127,492		$	105,440		$	370,923		$	306,330
Maintenance	31,486			36,410			98,184			111,019
Services and other	36,535			41,213			102,222			115,161
Recurring													Recurring	$	218,530	$	200,102	$	642,266	$	621,229
One-time services and other													One-time services and other	12,688		14,899		37,583		49,384
Total revenue	195,513			183,063			571,329			532,510			Total revenue	231,218		215,001		679,849		670,613
Cost of revenue													Cost of revenue
Cost of subscriptions	58,045			51,943			170,336			153,772
Cost of maintenance	5,698			5,531			17,551			16,547
Cost of services and other	23,262			25,843			71,595			76,499
Cost of recurring													Cost of recurring	95,823		84,251		279,123		265,172
Cost of one-time services and other													Cost of one-time services and other	11,858		14,434		40,013		43,317
Total cost of revenue	87,005			83,317			259,482			246,818			Total cost of revenue	107,681		98,685		319,136		308,489
Gross profit	108,508			99,746			311,847			285,692			Gross profit	123,537		116,316		360,713		362,124
Operating expenses													Operating expenses
Sales, marketing and customer success	44,193			40,690			129,394			115,707			Sales, marketing and customer success	44,703		48,460		138,948		159,149
Research and development	22,071			22,510			67,647			67,973			Research and development	31,566		22,783		90,967		72,655
General and administrative	23,545			22,319			67,350			62,089			General and administrative	34,733		34,132		97,328		89,829
Amortization	734			687			2,164			2,147			Amortization	558		749		1,674		2,219
Restructuring													Restructuring	131		105		263		179
Total operating expenses	90,543			86,206			266,555			247,916			Total operating expenses	111,691		106,229		329,180		324,031
Income from operations	17,965			13,540			45,292			37,776			Income from operations	11,846		10,087		31,533		38,093
Interest expense	(3,092		)	(2,641		)	(8,685		)	(8,037		)	Interest expense	(4,003)		(3,997)		(14,171)		(12,049)
Other income (expense), net	468			(15		)	1,581			(185		)
Other income, net													Other income, net	862		542		339		2,242
Income before provision for income taxes	15,341			10,884			38,188			29,554			Income before provision for income taxes	8,705		6,632		17,701		28,286
Income tax provision	2,793			1,950			2,964			5,323			Income tax provision	2,517		1,756		4,946		6,948
Net income	$	12,548		$	8,934		$	35,224		$	24,231		Net income	$	6,188	$	4,876	$	12,755	$	21,338
Earnings per share													Earnings per share
Basic	$	0.27		$	0.19		$	0.76		$	0.53		Basic	$	0.13	$	0.10	$	0.27	$	0.44
Diluted	$	0.26		$	0.19		$	0.74		$	0.51		Diluted	$	0.13	$	0.10	$	0.26	$	0.44
Common shares and equivalents outstanding													Common shares and equivalents outstanding
Basic weighted average shares	46,711,709			46,159,956			46,627,213			46,078,306			Basic weighted average shares	47,542,746		48,271,139		47,554,746		48,182,799
Diluted weighted average shares	47,846,997			47,394,106			47,679,103			47,268,469			Diluted weighted average shares	48,274,072		48,859,707		48,259,956		48,582,068
Dividends per share	$	0.12		$	0.12		$	0.36		$	0.36
Other comprehensive (loss) income													Other comprehensive (loss) income
Foreign currency translation adjustment	(188		)	289			(467		)	261			Foreign currency translation adjustment	(3,234)		4,661		1,060		(1,954)
Unrealized (loss) gain on derivative instruments, net of tax	(267		)	409			(89		)	(378		)
Unrealized gain (loss) on derivative instruments, net of tax													Unrealized gain (loss) on derivative instruments, net of tax	262		943		4,756		(1,628)
Total other comprehensive (loss) income	(455		)	698			(556		)	(117		)	Total other comprehensive (loss) income	(2,972)		5,604		5,816		(3,582)
Comprehensive income	$	12,093		$	9,632		$	34,668		$	24,114		Comprehensive income	$	3,216	$	10,480	$	18,571	$	17,756

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



4						Third Quarter ~~2017~~2021 Form 10-Q


Blackbaud, Inc. Consolidated statements of cash flows (Unaudited)
Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)							Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
	Nine months ended September 30,							Nine months ended September 30,
(dollars in thousands)	2017			2016			(dollars in thousands)	2021		2020
Cash flows from operating activities							Cash flows from operating activities
Net income	$	35,224		$	24,231		Net income	$	12,755	$	21,338
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,765			53,109			Depreciation and amortization	60,484		68,755
Provision for doubtful accounts and sales returns	7,246			3,139
Provision for credit losses and sales returns							Provision for credit losses and sales returns	7,992		10,156
Stock-based compensation expense	31,055			25,005			Stock-based compensation expense	89,480		54,556
Deferred taxes	(2,511		)	(225		)	Deferred taxes	400		1,879
Amortization of deferred financing costs and discount	650			718			Amortization of deferred financing costs and discount	1,234		569
Other non-cash adjustments	572			(634		)	Other non-cash adjustments	(527)		2,203
Changes in operating assets and liabilities, net of acquisition and disposal of businesses:							Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
Accounts receivable	(17,169		)	(9,288		)	Accounts receivable	(18,779)		(18,319)
Prepaid expenses and other assets	596			(934		)	Prepaid expenses and other assets	(14,169)		4,292
Trade accounts payable	(2,891		)	267			Trade accounts payable	10,728		(17,203)
Accrued expenses and other liabilities	(9,522		)	(12,837		)	Accrued expenses and other liabilities	2,790		(31,595)
Restricted cash due to customers	214,244			119,291
Due to customers	(214,244		)	(119,291		)
Deferred revenue	25,370			17,593			Deferred revenue	17,400		12,534
Net cash provided by operating activities	123,385			100,144			Net cash provided by operating activities	169,788		109,165
Cash flows from investing activities							Cash flows from investing activities
Purchase of property and equipment	(8,417		)	(15,459		)	Purchase of property and equipment	(8,332)		(25,836)
Capitalized software development costs	(20,605		)	(19,078		)	Capitalized software development costs	(29,661)		(32,028)
Purchase of net assets of acquired companies, net of cash acquired	(49,729		)	(3,377		)
Purchase of derivative instruments	(516		)	—
Proceeds from settlement of derivative instruments	1,030			—

Net cash used in investing activities	(78,237		)	(37,914		)	Net cash used in investing activities	(37,993)		(57,864)
Cash flows from financing activities							Cash flows from financing activities
Proceeds from issuance of debt	588,300			179,000			Proceeds from issuance of debt	128,300		267,400
Payments on debt	(594,144		)	(212,581		)	Payments on debt	(131,272)		(290,999)
Debt issuance costs	(3,085		)	—			Debt issuance costs	—		(593)
Employee taxes paid for withheld shares upon equity award settlement	(19,092		)	(10,497		)	Employee taxes paid for withheld shares upon equity award settlement	(39,012)		(21,286)
Proceeds from exercise of stock options	14			10			Proceeds from exercise of stock options	—		4
Change in due to customers							Change in due to customers	(386,973)		(337,821)
Change in customer funds receivable							Change in customer funds receivable	(5,838)		(4,495)
Purchase of treasury stock							Purchase of treasury stock	(98,353)		—
Dividend payments to stockholders	(17,299		)	(17,108		)	Dividend payments to stockholders	—		(5,960)
Net cash used in financing activities	(45,306		)	(61,176		)	Net cash used in financing activities	(533,148)		(393,750)
Effect of exchange rate on cash and cash equivalents	306			46
Net increase in cash and cash equivalents	148			1,100
Cash and cash equivalents, beginning of period	16,902			15,362
Cash and cash equivalents, end of period	$	17,050		$	16,462

The accompanying notes are an integral part of these consolidated financial statements.
Effect of exchange rate on cash, cash equivalents and restricted cash							Effect of exchange rate on cash, cash equivalents and restricted cash	97		(623)
Net decrease in cash, cash equivalents and restricted cash							Net decrease in cash, cash equivalents and restricted cash	(401,256)		(343,072)
Cash, cash equivalents and restricted cash, beginning of period							Cash, cash equivalents and restricted cash, beginning of period	644,969		577,295
Cash, cash equivalents and restricted cash, end of period							Cash, cash equivalents and restricted cash, end of period	$	243,713	$	234,223

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown above in the condensed consolidated statements of cash flows:


(dollars in thousands)	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	27,591	$	35,750
Restricted cash	216,122		609,219
Total cash, cash equivalents and restricted cash in the statement of cash flows	$	243,713	$	644,969

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



Third Quarter ~~2017~~2021 Form 10-Q						5

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)


Blackbaud, Inc. Consolidated statement of stockholders' equity (Unaudited)
(dollars in thousands)	Common stock				Additional paid-in capital		Treasury stock			Accumulated other comprehensive loss			Retained earnings			Total stockholders' equity			(dollars in thousands)	Common stock			Additional paid-in capital		Treasury stock		Accumulated other comprehensive income (loss)		Retained earnings		Total stockholders' equity
	Shares		Amount																	Shares	Amount
Balance at December 31, 2016	57,672,401		$	58	$	310,452	$	(215,237	)	$	(457	)	$	152,729		$	247,545
Balance at December 31, 2020																			Balance at December 31, 2020	60,904,638	$	61	$	544,963	$	(353,091)	$	(2,497)	$	236,714	$	426,150
Net loss																			Net loss	—	—		—		—		—		(164)		(164)
Purchase of 465,821 treasury shares under stock repurchase program																			Purchase of 465,821 treasury shares under stock repurchase program	—	—		—		(28,066)		—		—		(28,066)
Vesting of restricted stock units																			Vesting of restricted stock units	206,418	—		—		—		—		—		—
Employee taxes paid for 240,867 withheld shares upon equity award settlement																			Employee taxes paid for 240,867 withheld shares upon equity award settlement	—	—		—		(18,426)		—		—		(18,426)
Stock-based compensation																			Stock-based compensation	—	—		29,995		—		—		10		30,005
Restricted stock grants																			Restricted stock grants	519,009	1		—		—		—		—		1
Restricted stock cancellations																			Restricted stock cancellations	(34,789)	—		—		—		—		—		—
Other comprehensive income																			Other comprehensive income	—	—		—		—		6,660		—		6,660
Balance at March 31, 2021																			Balance at March 31, 2021	61,595,276	$	62	$	574,958	$	(399,583)	$	4,163	$	236,560	$	416,160
Net income	—		—		—		—			—			35,224			35,224			Net income	—	—		—		—		—		6,731		6,731
Payment of dividends	—		—		—		—			—			(17,299		)	(17,299		)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units	349,713		—		14		—			—			—			14
Employee taxes paid for 259,321 withheld shares upon equity award settlement	—		—		—		(19,092		)	—			—			(19,092		)
Purchase of 405,047 treasury shares under stock repurchase program																			Purchase of 405,047 treasury shares under stock repurchase program	—	—		—		(30,008)		—		—		(30,008)
Vesting of restricted stock units																			Vesting of restricted stock units	804,323	—		—		—		—		—		—
Employee taxes paid for 285,521 withheld shares upon equity award settlement																			Employee taxes paid for 285,521 withheld shares upon equity award settlement	—	—		—		(20,286)		—		—		(20,286)
Stock-based compensation																			Stock-based compensation	—	—		30,528		—		—		21		30,549
Restricted stock grants																			Restricted stock grants	9,431	—		—		—		—		—		—
Restricted stock cancellations																			Restricted stock cancellations	(76,316)	—		—		—		—		—		—
Other comprehensive income																			Other comprehensive income	—	—		—		—		2,128		—		2,128
Balance at June 30, 2021																			Balance at June 30, 2021	62,332,714	$	62	$	605,486	$	(449,877)	$	6,291	$	243,312	$	405,274
Net income																			Net income	—	—		—		—		—		6,188		6,188
Purchase of 583,280 treasury shares under stock repurchase program																			Purchase of 583,280 treasury shares under stock repurchase program	—	—		—		(40,279)		—		—		(40,279)
Vesting of restricted stock units																			Vesting of restricted stock units	908	—		—		—		—		—		—
Employee taxes paid for 4,313 withheld shares upon equity award settlement																			Employee taxes paid for 4,313 withheld shares upon equity award settlement	—	—		—		(300)		—		—		(300)
Stock-based compensation	—		—		31,010		—			—			45			31,055			Stock-based compensation	—	—		28,920		—		—		6		28,926
Restricted stock grants	549,589		1		—		—			—			—			1			Restricted stock grants	54,132	—		—		—		—		—		—
Restricted stock cancellations	(68,016	)	—		—		—			—			—			—			Restricted stock cancellations	(34,111)	—		—		—		—		—		—
Other comprehensive loss	—		—		—		—			(556		)	—			(556		)	Other comprehensive loss	—	—		—		—		(2,972)		—		(2,972)
Balance at September 30, 2017	58,503,687		$	59	$	341,476	$	(234,329	)	$	(1,013	)	$	170,699		$	276,892
Balance at September 30, 2021																			Balance at September 30, 2021	62,353,643	$	62	$	634,406	$	(490,456)	$	3,319	$	249,506	$	396,837

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



6						Third Quarter ~~2017~~2021 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(Unaudited)


(dollars in thousands)	Common stock			Additional paid-in capital		Treasury stock		Accumulated other comprehensive income (loss)		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at December 31, 2019	60,206,091	$	60	$	457,804	$	(290,665)	$	(5,290)	$	234,855	$	396,764
Net income	—	—		—		—		—		4,639		4,639
Payment of dividends ($0.12 per share)	—	—		—		—		—		(5,960)		(5,960)
Exercise of stock options and vesting of restricted stock units	210,057	—		1		—		—		—		1
Employee taxes paid for 245,358 withheld shares upon equity award settlement	—	—		—		(19,782)		—		—		(19,782)
Stock-based compensation	—	—		13,539		—		—		41		13,580
Restricted stock grants	563,947	1		—		—		—		—		1
Restricted stock cancellations	(47,456)	—		—		—		—		—		—
Other comprehensive loss	—	—		—		—		(8,850)		—		(8,850)
Balance at March 31, 2020	60,932,639	$	61	$	471,344	$	(310,447)	$	(14,140)	$	233,575	$	380,393
Net income	—	—		—		—		—		11,823		11,823
Exercise of stock options and vesting of restricted stock units	7,111	—		3		—		—		—		3
Employee taxes paid for 21,200 withheld shares upon equity award settlement	—	—		—		(1,214)		—		—		(1,214)
Stock-based compensation	—	—		20,103		—		—		30		20,133
Restricted stock grants	20,776	—		—		—		—		—		—
Restricted stock cancellations	(59,426)	—		—		—		—		—		—
Other comprehensive loss	—	—		—		—		(336)		—		(336)
Balance at June 30, 2020	60,901,100	$	61	$	491,450	$	(311,661)	$	(14,476)	$	245,428	$	410,802
Net income	—	—		—		—		—		4,876		4,876
Vesting of restricted stock units	906	—		—		—		—		—		—
Employee taxes paid for 4,574 withheld shares upon equity award settlement	—	—		—		(290)		—		—		(290)
Stock-based compensation	—	—		20,819		—		—		24		20,843
Restricted stock grants	48,783	—		—		—		—		—		—
Restricted stock cancellations	(46,864)	—		—		—		—		—		—
Other comprehensive income	—	—		—		—		5,604		—		5,604
Balance at September 30, 2020	60,903,925	$	61	$	512,269	$	(311,951)	$	(8,872)	$	250,328	$	441,835

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


Third Quarter 2021 Form 10-Q						7

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated financial statements~~Condensed Consolidated Financial Statements

(Unaudited)



1. Organization

We are the world’s leading cloud software company powering social good. Serving the entire social good community—nonprofits, ~~foundations, corporations,~~higher education institutions, K–12 schools, healthcare ~~institutions~~organizations, faith communities, arts and cultural organizations, foundations, companies and individual change agents—we connect and empower organizations to increase their impact through cloud software, services, expertise and data intelligence. Our portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility, school management, ticketing, grantmaking, financial management, payment processing and analytics. Serving the industry for ~~more than three~~four decades, we are headquartered in Charleston, South Carolina, and have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom. ~~As of September 30, 2017, we had approximately 35,000 customers.~~



2. Basis of Presentation

Unaudited condensed consolidated interim ~~consolidated~~ financial statements

The accompanying condensed consolidated interim ~~consolidated~~ financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to state fairly the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of stockholders’ equity, for the periods presented in accordance with accounting principles generally accepted in the United States ("U.S.") ("GAAP"). The consolidated balance sheet at December 31, ~~2016,~~2020 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the nine months ended September 30, ~~2017~~2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017,~~2021, or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations for interim reporting of the SEC. These condensed consolidated interim ~~consolidated~~ financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, and other forms filed with the SEC from time to time.

~~Reclassifications~~

Due to the insignificance of our revenue from "license fees and other," we have combined that revenue with our "services" revenue beginning in 2017. In order to provide comparability between periods presented, "services" and "license fees and other" have been combined within "services and other" in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period. Similarly, "cost of services" and "cost of license fees and other" have been combined within "cost of services and other" in the previously reported consolidated statements of comprehensive income to conform to presentation of the current period.

Basis of consolidation

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

~~Recently adopted accounting pronouncements~~Reportable segment

~~In May 2017,~~We report our operating results and financial information in one operating and reportable segment. Our chief operating decision maker uses consolidated financial information to make operating decisions, assess financial performance and allocate resources. Our chief operating decision maker is our chief executive officer ("CEO").

As discussed in Note 13, beginning in the ~~FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718) - Scope~~second quarter of ~~Modification Accounting~~2021, we combined our General Markets Group ("~~ASU 2017-09"~~GMG"), and Enterprise Markets Group ("EMG") into a single U.S. Markets Group ("UMG") and moved our Corporations vertical under our International Markets Group ("IMG"). This change was made to better align our resources toward customer retention and growth which, provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under ASU 2017-09, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changesare key objectives as ~~a result of the~~we progress toward our long-term aspirational goals. The change ~~in terms or conditions. ASU 2017-09 is effective for all companies for annual~~did not impact our conclusions that we have one operating and ~~interim periods beginning after December 15, 2017, with early adoption permitted in any interim period for~~reportable segment and one goodwill reporting ~~periods for~~

unit.



8	Third Quarter ~~2017~~2021 Form 10-Q	7

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated~~Condensed Consolidated Financial Statements

(Unaudited)

Risks and uncertainties related to COVID-19

We are subject to risks and uncertainties as a result of the global COVID-19 pandemic. We believe that COVID-19 may continue to significantly impact our vertical markets and geographies, but the magnitude of the impact on our business cannot be determined at this time due to numerous uncertainties, including the duration of the outbreak, the severity of variants which may develop, travel restrictions and business closures, the effectiveness of vaccination programs and other actions taken to contain the disease and other unforeseeable consequences.

Use of estimates

The preparation of financial statements ~~(continued)~~

~~(Unaudited)~~

~~which financial statements have not been issued. ASU 2017-09 should be applied prospectively~~in conformity with GAAP requires management to ~~an award modified on or after~~make estimates and assumptions that affect the adoption date. We early adopted ASU 2017-09 as of April 1, 2017. As this standard is prospective in nature, the impact to our financial statements will depend on the nature of our future award modifications.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805) Clarifying the Definition of a Business ("ASU 2017-01"), which provides a screen to determine when an integrated set~~reported amounts of assets and ~~activities is not a business. The screen requires that when substantially all~~liabilities and disclosure of contingent assets and liabilities at the date of the ~~fair value~~financial statements, as well as the reported amounts of revenues and expenses during the ~~gross~~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, ~~acquired (or disposed of) is concentrated~~income taxes, business combinations, stock-based compensation, capitalization of software development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuation of derivative instruments, loss contingencies and insurance recoveries, among others. Changes in ~~a single identifiable asset~~the facts or ~~a group of similar identifiable assets, the set is not a business. ASU 2017-01 is effective for annual~~circumstances underlying these estimates, including due to COVID-19, could result in material changes and ~~interim periods beginning after December 15, 2017, with early adoption permitted, and applied prospectively. We early adopted ASU 2017-01 as of July 1, 2017 and do not~~actual results could materially differ from these estimates.

Recently issued accounting pronouncements

There are no recently issued accounting pronouncements that we expect ~~the standard~~ to have a material impact on our consolidated financial ~~statements.~~statements when adopted in the future.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment("ASU 2017-04"), which removes the requirement~~Summary of significant accounting policies

There have been no new or material changes to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We early adopted ASU 2017-04 as of July 1, 2017 for useour significant accounting policies described in our ~~fourth quarter annual goodwill impairment testing and do not expect~~Annual Report on Form 10-K for the ~~standard to have a material impact~~year ended December 31, 2020, filed with the SEC on ~~our consolidated financial statements.~~February 23, 2021.

~~Recently issued accounting pronouncements~~

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230) - Restricted Cash ("ASU 2016-18")~~, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. We are currently evaluating the impact of this standard on our consolidated statements of cash flows.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842) (ASU 2016-02)~~. ASU 2016-02 will require lessees to record most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current guidance. The updated guidance also eliminates certain real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. Classification will continue to affect amounts that lessors record on the balance sheet. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. Upon adoption, entities will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. We expect ASU 2016-02 will impact our consolidated financial statements and are currently evaluating the extent of the impact that implementation of this standard will have on adoption.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606) (ASU 2014-09)~~. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. ASU 2014-09 will be effective for us beginning in the first quarter of 2018 and we anticipate using the full retrospective transition method. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and related disclosures. As a result of our evaluation to date, we expect that ASU 2014-09 will generally result in the deferral of more costs to obtain a contract over a longer period using the expected period of benefit as compared with our current practice of using our average initial contract term. We also anticipate incremental disclosures, including, but not limited to, the opening and closing balances of contract assets and liabilities, revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period, and the aggregate amount of the transaction price allocated to remaining performance obligations at the end of each reporting period including when we expect to recognize that amount.



8				~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

3. ~~Business Combinations~~

~~AcademicWorks acquisition~~

On April 3, 2017, we acquired all of the outstanding shares of capital stock, including all voting equity interests, of AcademicWorks, Inc., a Texas corporation ("AcademicWorks"), pursuant to a stock purchase agreement. AcademicWorks is the market leader in scholarship management for higher education and K-12 institutions, foundations, and grant-making institutions. The acquisition extends our offerings for our higher education, K-12, and corporate and foundation customers. We acquired AcademicWorks for $52.1 million in cash, net of closing adjustments. We financed the acquisition through a draw down of a revolving credit loan under our then-existing credit facility. As a result of the acquisition, AcademicWorks has become a wholly-owned subsidiary of ours. The operating results of AcademicWorks have been included in our consolidated financial statements within our EMG and GMG reportable segments (as defined in Note 14 below) from the date of acquisition. During the three and nine months ended September 30, 2017, we incurred insignificant acquisition-related expenses associated with the acquisition of AcademicWorks, which were recorded in general and administrative expense.

The fair values assigned to the assets acquired and liabilities assumed in the table below are based on our best estimates and assumptions as of the reporting date and are considered preliminary pending finalization. The estimates and assumptions are subject to change as we obtain additional information during the measurement period, which may be up to one year from the acquisition date. The assets and liabilities, pending finalization, include the valuation of acquired finite-lived intangible assets as well as the assumed deferred revenue and deferred income tax balances.

(in thousands) Purchase price allocation
Net working capital, excluding deferred revenue $ 2,949
Property and equipment 290
Finite-lived intangible assets 30,900
Deferred revenue (3,950 )
Deferred tax liability (12,350 )
Goodwill 34,305
Total purchase price $ 52,144

The estimated fair value of accounts receivable acquired approximates the contractual value of $1.0 million. The estimated goodwill recognized is attributable primarily to the opportunities for expected synergies from combining operations and the assembled workforce of AcademicWorks, with $20.6 million and $13.7 million assigned to our EMG and GMG reportable segments, respectively. None of the goodwill arising in the acquisition is deductible for income tax purposes.

~~The AcademicWorks acquisition resulted in the identification of the following identifiable finite-lived intangible assets:~~

Intangible assets acquired
Weighted average amortization period
AcademicWorks (in thousands)
(in years)
Acquired technology $ 22,500
9
Customer relationships 8,000
15
Marketing assets 320
2
Non-compete agreements 80
3
Total intangible assets $ 30,900
10

The estimated fair values of the finite-lived intangible assets were based on variations of the income approach, which estimates fair value based upon the present value of cash flows that the assets are expected to generate, and which included the relief-from-royalty method, incremental cash flow method, including the comparative (with and without) method and multi-period excess earnings method, depending on the intangible asset being valued. The method of amortization of



~~Third Quarter 2017 Form 10-Q~~		9

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

identifiable finite-lived intangible assets is based on the expected pattern in which the estimated economic benefits of the respective assets are consumed or otherwise used up. Customer relationships and acquired technology are being amortized on an accelerated basis. Marketing assets and non-compete agreements are being amortized on a straight-line basis.

We determined that the impact of this acquisition was not material to our consolidated financial statements; therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.

4. Goodwill and Other Intangible Assets

The change in goodwill ~~for each reportable segment (as defined in Note 14 below)~~ during the nine months ended September 30, ~~2017,~~2021, consisted of the following:

(dollars in thousands) EMG GMG IMG Total
Balance at December 31, 2016 $ 241,334
$ 192,238
$ 4,668
$ 438,240
Additions related to current year business combination⁽¹⁾
20,583
13,722
—
34,305
Adjustments related to prior year business combination⁽²⁾
(29 ) (58 ) (1 ) (88 )
Effect of foreign currency translation —
—
319
319
Balance at September 30, 2017 $ 261,888
$ 205,902
$ 4,986
$ 472,776


(dollars in thousands)	Total
Balance at December 31, 2020	$	635,854

~~(1)~~	~~See~~ ~~Note 3~~ ~~to these consolidated financial statements for details regarding our acquisition~~
Effect of ~~AcademicWorks.~~foreign currency translation	58
Balance at September 30, 2021	$	635,912


~~(2)~~			The change in goodwill was related to a post-closing working capital adjustment associated with the prior year acquisition of Good+Geek, Inc. ("Attentive.ly"), as well as an immaterial measurement period adjustment.

5.4. Earnings Per Share

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Diluted earnings per share reflect the assumed exercise, settlement and vesting of all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive. Potentially dilutive securities consist of shares issuable upon the exercise of stock options, settlement of stock appreciation rights and vesting of restricted stock awards and units.



10	Third Quarter ~~2017~~2021 Form 10-Q	9

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated financial statements (continued)~~Condensed Consolidated Financial Statements

(Unaudited)

The following table sets forth the computation of basic and diluted earnings per share:


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands, except per share amounts)	2021		2020		2021		2020
Numerator:
Net income	$	6,188	$	4,876	$	12,755	$	21,338
Denominator:
Weighted average common shares	47,542,746		48,271,139		47,554,746		48,182,799
Add effect of dilutive securities:
Stock-based awards	731,326		588,568		705,210		399,269
Weighted average common shares assuming dilution	48,274,072		48,859,707		48,259,956		48,582,068
Earnings per share:
Basic	$	0.13	$	0.10	$	0.27	$	0.44
Diluted	$	0.13	$	0.10	$	0.26	$	0.44

Anti-dilutive shares excluded from calculations of diluted earnings per share	904,100		915,226		1,034,091		1,036,445

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands, except per share amounts) 2017
2016
2017
2016
Numerator:
Net income $ 12,548
$ 8,934
$ 35,224
$ 24,231
Denominator:
Weighted average common shares 46,711,709
46,159,956
46,627,213
46,078,306
Add effect of dilutive securities:
Stock-based awards 1,135,288
1,234,150
1,051,890
1,190,163
Weighted average common shares assuming dilution 47,846,997
47,394,106
47,679,103
47,268,469
Earnings per share:
Basic $ 0.27
$ 0.19
$ 0.76
$ 0.53
Diluted $ 0.26
$ 0.19
$ 0.74
$ 0.51

Anti-dilutive shares excluded from calculations of diluted earnings per share 1,719
1,723
4,938
3,766



6.5. Fair Value Measurements

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.



~~Third Quarter 2017 Form 10-Q~~		11

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

Recurring fair value measurements

~~Financial assets~~Assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below:


	Fair value measurement using
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Fair value as of September 30, 2021
Financial assets:
Derivative instruments	$	—	$	2,283	$	—	$	2,283
Total financial assets	$	—	$	2,283	$	—	$	2,283











Fair value as of December 31, 2020
Financial liabilities:
Derivative instruments	$	—	$	4,159	$	—	$	4,159
Total financial liabilities	$	—	$	4,159	$	—	$	4,159

Fair value measurement using
(dollars in thousands) Level 1
Level 2
Level 3
Total
Fair value as of September 30, 2017
Financial assets:
Derivative instruments $ —
$ 223
$ —
$ 223
Total financial assets $ —
$ 223
$ —
$ 223

Fair value as of September 30, 2017
Financial liabilities:
Derivative instruments $ —
$ 369
$ —
$ 369
Total financial liabilities $ —
$ 369
$ —
$ 369

Fair value as of December 31, 2016
Financial assets:
Derivative instruments $ —
$ 206
$ —
$ 206
Total financial assets $ —
$ 206
$ —
$ 206

Fair value as of December 31, 2016
Financial liabilities:
Derivative instruments $ —
$ 163
$ —
$ 163
Total financial liabilities $ —
$ 163
$ —
$ 163


10						Third Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Our derivative instruments within the scope of ~~ASC~~Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate ~~swaps, as well as foreign currency forward and option contracts.~~swaps. See Note 8 for additional information about our derivative instruments.

The fair value of our interest rate swaps was based on model-driven valuations using LIBOR rates, which are observable at commonly quoted intervals. Accordingly, our interest rate swaps are classified within Level 2 of the fair value hierarchy.

~~Our foreign currency forward and option~~ The Financial Conduct Authority in the U.K. has stated that it plans to phase out all tenors of LIBOR by June 2023. We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as we expect that our financial contracts are valued using standard calculations/models that use as their basis readily observable market parameters including, foreign currency exchange rates, volatilities, and interest rates. Therefore, our foreign currency forward and option contracts are classified within Level 2 ofcurrently indexed to LIBOR will either expire or be modified without significant financial impact before the ~~fair value hierarchy.~~phase out occurs.

We believe the carrying amounts of our cash and cash equivalents, restricted cash, ~~due to customers,~~ accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, due to the immediate or short-term maturity of these instruments.

We believe the carrying amount of our debt approximates its fair value at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, as the debt bears interest rates that approximate market value. As LIBOR rates are observable at commonly quoted intervals, our debt under the 2020 Credit Facility (as defined below) is classified within Level 2 of the fair value hierarchy. Our fixed rate debt is also classified within Level 2 of the fair value hierarchy.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the nine months ended September 30, ~~2017.~~2021. Additionally, we did not hold any Level 3 assets or liabilities during the nine months ended September 30, ~~2017.~~



12		~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

2021.

Non-recurring fair value measurements

Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, goodwill and ~~goodwill, which~~operating lease right-of-use ("ROU") assets. These assets are recognized at fair value during the period in which an acquisition is completed or at lease commencement, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for long-lived assets, intangible assets acquired and operating lease ROU assets, are based on Level 3 unobservable inputs. In the event of an impairment, we determine the fair value of ~~the~~these assets other than goodwill ~~and intangible assets~~ using a discounted cash flow approach, which contains significant unobservable inputs and, therefore, is considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate. For goodwill impairment testing, we estimate fair value using market-based methods including the use of market capitalization and consideration of a control premium.

There were no material non-recurring fair value adjustments to our long-lived assets, intangible assets, goodwill and ~~goodwill~~operating lease ROU assets during the nine months ended September 30, 2017, except for an insignificant business combination accounting adjustment to the initial fair value estimates of the Attentive.ly assets acquired and liabilities assumed at the acquisition date from updated information obtained during the measurement period. See Note 4 to these consolidated financial statements for additional details. The measurement period of a business combination may be up to one year from the acquisition date. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.2021.


6. Consolidated Financial Statement Details

Restricted cash


(dollars in thousands)	September 30, 2021		December 31, 2020
Restricted cash due to customers	$	214,709	$	607,943
Real estate escrow balances	1,413		1,276
Total restricted cash	$	216,122	$	609,219



~~7. Consolidated Financial Statement Details~~Third Quarter 2021 Form 10-Q						11

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Prepaid expenses and other assets


(dollars in thousands)	September 30, 2021		December 31, 2020
Costs of obtaining contracts(1)(2)	$	78,656	$	84,914
Prepaid software maintenance and subscriptions(3)	28,904		24,471
Receivables for probable insurance recoveries(4)(5)	25,936		6,288
Implementation costs for cloud computing arrangements, net(6)(7)	12,430		11,298
Unbilled accounts receivable	6,302		10,385
Prepaid insurance	3,331		1,426
Derivative instruments	2,283		—
Taxes, prepaid and receivable	1,473		1,891
Other assets	12,703		10,332
Total prepaid expenses and other assets	172,018		151,005
Less: Long-term portion	69,699		72,639
Prepaid expenses and other current assets	$	102,319	$	78,366

(1)Amortization expense from costs of obtaining contracts was $8.8 million and $26.9 million for the three and nine months ended September 30, 2021, respectively, and $9.4 million and $28.2 million for the three and nine months ended September 30, 2020, respectively.

(2)The current portion of costs of obtaining contracts as of September 30, 2021 and December 31, 2020 was $30.3 million and $31.9 million, respectively.

(3)The current portion of prepaid software maintenance and subscriptions as of September 30, 2021 and December 31, 2020 was $25.4 million and $19.8 million, respectively.

(4)All receivables for probable insurance recoveries are classified as current.

(5)See discussion of the Security Incident at Note 9.

(6)These costs primarily relate to the multi-year implementations of our new global enterprise resource planning and customer relationship management systems.

(7)Amortization expense from capitalized cloud computing implementation costs was insignificant and $1.3 million for the three and nine months ended September 30, 2021, respectively, and insignificant for the three and nine months ended September 30, 2020. Accumulated amortization for these costs was $2.5 million as of September 30, 2021 and $1.1 million as of December 31, 2020.

Accrued expenses and other liabilities


(dollars in thousands)	September 30, 2021		December 31, 2020
Accrued legal costs(1)	$	21,341	$	4,808
Taxes payable(2)	14,430		19,577
Operating lease liabilities, current portion	7,160		9,359
Customer credit balances	6,539		5,874
Accrued commissions and salaries	4,084		5,010
Unrecognized tax benefit	3,656		3,351
Accrued health care costs	2,440		2,341
Accrued vacation costs	2,207		2,311
Derivative instruments	—		4,159
Other liabilities	6,143		6,304
Total accrued expenses and other liabilities	68,000		63,094
Less: Long-term portion	9,421		10,866
Accrued expenses and other current liabilities	$	58,579	$	52,228

(dollars in thousands) September 30,
2017
December 31,
2016
Accrued bonuses $ 14,581
$ 19,217
Accrued commissions and salaries 5,429
9,352
Lease incentive obligations 4,780
5,604
Customer credit balances 5,246
5,148
Deferred rent liabilities 4,400
4,110
Taxes payable 2,584
3,452
Unrecognized tax benefit 3,609
3,295
Accrued subscriptions 2,638
2,840
Accrued vacation costs 2,626
2,214
Accrued health care costs 2,479
1,495
Other liabilities 5,077
6,002
Total accrued expenses and other liabilities 53,449
62,729
Less: Long-term portion 7,799
8,533
Accrued expenses and other current liabilities $ 45,650
$ 54,196
(1)All accrued legal costs are classified as current. The increase in accrued legal costs from December 31, 2020 was primarily due to the Security Incident. See Note 9.

~~Other income (expense)~~(2)We deferred payments of the employer's portion of Social Security taxes during 2020 under the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), ~~net~~

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands) 2017
2016
2017
2016
Components of Other Income (Expense), Net
Interest income $ 393
$ 224
$ 771
$ 463
(Loss) gain on derivative instrument (3 ) —
472
—
Loss on debt extinguishment (137 ) —
(299 ) —
Other income (expense), net 215
(239 ) 637
(648 )
Other income (expense), net $ 468
$ (15 ) $ 1,581
$ (185 )

half of which was due by the end of calendar year 2021 with the remainder due by the end of calendar year 2022.



12	Third Quarter ~~2017~~2021 Form 10-Q	13

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated financial statements (continued)~~Condensed Consolidated Financial Statements

(Unaudited)

Other income, net


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2021		2020		2021		2020
Interest income	$	82	$	767	$	311	$	1,399
Other income (expense), net	780		(225)		28		843
Other income, net	$	862	$	542	$	339	$	2,242



8.7. 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
(dollars in thousands)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Credit facility:
Revolving credit loans	$	75,000	$	69,625	2.23	%	1.83	%
Term loans	392,500		400,000		2.04	%	3.12	%
Real estate loans	59,779		60,626		5.22	%	5.22	%
Other debt	2,232		3,926		5.00	%	5.00	%
Total debt	529,511		534,177		2.44	%	3.21	%
Less: Unamortized discount and debt issuance costs	2,145		3,144
Less: Debt, current portion	12,948		12,840		2.47	%	2.61	%
Debt, net of current portion	$	514,418	$	518,193	2.44	%	3.22	%

Debt balance at
Weighted average
effective interest rate at

(dollars in thousands) September 30,
2017
December 31,
2016
September 30,
2017
December 31,
2016
Credit facility:
    Revolving credit loans $ 39,900
$ 180,900
3.38 % 2.36 %
    Term loans 298,125
162,969
2.64 % 2.62 %
Other debt 2,151
—
4.50 % — %
        Total debt 340,176
343,869
2.74 % 2.48 %
Less: Unamortized discount and debt issuance costs 2,220
1,476

Less: Debt, current portion 8,576
4,375
2.74 % 2.50 %
Debt, net of current portion $ 329,380
$ 338,018
2.74 % 2.48 %

~~Financing for AcademicWorks acquisition~~

As discussed in Note 3 to these consolidated financial statements, on April 3, 2017 we acquired AcademicWorks for $52.1 million in cash, net of closing adjustments. We financed the acquisition through a draw down of a revolving credit loan under the 2014 Credit Facility (defined below).

~~2017 refinancing~~

~~We were previously party to a $325.0 million five-year~~2020 credit facility entered into during February 2014. The credit facility included: a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans (the “2014 Revolving Facility”) and a term loan facility (the “2014 Term Loan”), together, (the “2014 Credit Facility”).

In ~~June 2017,~~October 2020, we entered into a five-year ~~$700.0~~$900.0 million senior credit facility (the ~~“2017~~"2020 Credit ~~Facility”~~Facility"). The 2017 Credit Facility includes a $400.0 million revolving credit facility (the “2017 Revolving Facility”) and a $300.0 million term loan facility (the “2017 Term Loan”). Upon closing we drew $300.0 million on a term loan and $110.0 million in revolving credit loans, which was used to repay all amounts outstanding under the 2014 Credit Facility, fees and expenses incurred in connection with the 2017 Credit Facility, and for other general corporate purposes.

Certain lenders of the 2014 Term Loan participated in the 2017 Term Loan and the change in the present value of our future cash flows to these lenders under the 2014 Term Loan and under the 2017 Term Loan was less than 10%. Accordingly, we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2014 Term Loan did not participate in the 2017 Term Loan. Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment. Certain lenders of the 2014 Revolving Facility participated in the 2017 Revolving Facility and provided increased borrowing capacities. Accordingly, we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2014 Revolving Facility did not participate in the 2017 Revolving Facility. Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment.

We recorded an insignificant loss on debt extinguishment related to the write-off of debt discount and deferred financing costs for the portions of the 2014 Credit Facility considered to be extinguished. This loss was recognized in the consolidated statements of comprehensive income within other income (expense), net.

In connection with our entry into the 2017 Credit Facility, we paid $3.1 million in financing costs, of which $1.0 million was capitalized in other assets and, together with a portion of the unamortized deferred financing costs from the 2014 Credit Facility and prior facilities, are being amortized into interest expense ratably over the term of the new facility. As of September 30, 2017, deferred financing costs totaling $1.3 million were included in other assets on our consolidated balance sheets. As of December 31, 2016, deferred financing costs included in other assets on our consolidated balance sheets were insignificant. We recorded aggregate financing costs of $1.8 million as a direct deduction from the carrying



14		~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

~~amount of our debt liability, which related to debt discount (fees paid to lenders) and debt issuance costs for the 2017 Term Loan.~~

~~Summary of the 2017 Credit Facility~~

The 2017 Revolving Facility includes (i) a $50.0 million sublimit available for the issuance of standby letters of credit, (ii) a $50.0 million sublimit available for swingline loans, and (iii) a $100.0 million sublimit available for multicurrency borrowings.

~~The 2017 Credit Facility is secured by the stock and limited liability company interests of certain of our subsidiaries and any of our material domestic subsidiaries.~~

Amounts borrowed under the dollar tranche revolving credit loans and term loan under the 2017 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 announced by Bank of America, N.A., (ii) the Federal Funds Rate plus 0.50% and (iii) the Eurocurrency Rate (which varies depending on the currency in which the loan is denominated) plus 1.00% (the “Base Rate”), in addition to a margin of 0.00% to 0.75%, or (b) Eurocurrency Rate plus a margin of 1.00% to 1.75%.

~~We also pay a quarterly commitment fee on the unused portion of the 2017 Revolving Facility from 0.15% to 0.25% per annum, depending on our net leverage ratio.~~ At September 30, ~~2017, the commitment fee was 0.20%.~~

The term loan under the 2017 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 2017 Credit Facility in June 2022. We evaluate the classification of our debt as current or non-current based on the required annual maturities of the 2017 Credit Facility.

The 2017 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 September 30, 2017,2021, we were in compliance with our debt covenants under the ~~2017~~2020 Credit Facility.

Real estate loans

~~The 2017 Credit Facility also includes an option to request increases in~~In August 2020, we completed the ~~revolving commitments and/or request additional term loans in~~purchase of our global headquarters facility. As part of the purchase price, we assumed the Seller’s obligations under two senior secured notes with an aggregate outstanding principal amount of ~~up to $200.0~~$61.1 million ~~plus an amount, if any, such that~~(collectively, the ~~Net Leverage Ratio shall be no greater than 3.00 to 1.00.~~

“Real Estate Loans”). At September 30, 2021, we were in compliance with our debt covenants under the Real Estate Loans.

Other debt

~~In September 2017,~~From time to time, we ~~entered~~enter into ~~a two-year $2.2 million agreement to finance our purchase~~third-party financing agreements for purchases of software ~~licenses~~ and related ~~services. The agreement is a non-interest bearing note~~services for our internal use. Generally, the agreements are non-interest-bearing notes requiring annual ~~payments, with the first payment due in November 2017.~~payments. Interest associated with the ~~note~~notes is imputed at the rate we would incur for amounts borrowed under our then-existing credit facility at the ~~2017 Credit Facility.~~inception of the notes.

AsThe following table summarizes our currently effective financing agreements as of September 30, ~~2017, the required annual maturities related to the 2017 Credit Facility and other debt were as follows:~~

2021:

Years ending December 31,
(dollars in thousands)
Annual maturities
2017 - remaining $ 2,950
2018 8,576
2019 7,500
2020 7,500
2021 7,500
Thereafter 306,150
Total required maturities $ 340,176


(dollars in thousands)	Term in Months	Number of Annual Payments	First Annual Payment Due	Original Loan Value
Effective dates of agreements:
December 2019	51	4	January 2020	$	2,150
January 2020	39	3	March 2020	3,470



Third Quarter ~~2017~~2021 Form 10-Q						1513

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated financial statements (continued)~~Condensed Consolidated Financial Statements

(Unaudited)



9.8. Derivative Instruments

Cash flow hedges

We generally use derivative instruments to manage our variable interest rate risk. ~~In March 2014, we~~We have entered into an interest rate swap ~~agreement (the "March 2014 Swap Agreement"),~~agreements, which effectively ~~converts~~convert portions of our variable rate debt under ~~our credit facility~~the 2020 Credit Facility to a fixed rate for the term of the swap ~~agreement. The initial notional value~~agreements. We designated each 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 decreased to $75.0 million for the remaining term through February 2018. We designated the March 2014 Swap Agreementinterest rate swap agreements as a cash flow hedge at the inception of the ~~contract.~~contracts.

~~In October 2015, we entered into an additional interest rate swap agreement (the "October 2015 Swap Agreement"), which effectively converts portions~~The terms and notional values of our ~~variable rate debt under our credit facility to a fixed rate for the term~~derivative instruments were as follows as of the October 2015 Swap Agreement. The notional value of the October 2015 Swap Agreement was $75.0 million with an effective date beginning in October 2015 and maturing in February 2018. We designated the October 2015 Swap Agreement as a cash flow hedge at the inception of the contract.

In July 2017, we entered into an additional interest rate swap agreement (the "July 2017 Swap Agreement"), which effectively converts portions of our variable rate debt under our credit facility to a fixed rate for the term of the swap agreement. The notional value of the July 2017 Swap Agreement was $150.0 million with an effective date beginning in July 2017 through July 2021. We designated the July 2017 Swap Agreement as a cash flow hedge at the inception of the contract.

~~Undesignated contracts~~

In June 2017, we entered into a foreign currency option contract to hedge our exposure to currency fluctuations in connection with our acquisition of JustGiving because the purchase price was denominated in British Pounds. The notional value of the instrument was £100.0 million with an effective date beginning in June 2017 and maturing in September 2017. We settled the foreign currency option contract in September 2017. We did not designate the foreign currency option contract as a cash flow hedge for accounting purposes since it involved a business combination. As such, changes in the fair value of this derivative are recognized currently in earnings. The insignificant premium paid for this option and the $1.0 million in proceeds from the settlement are shown within cash flows from investing activities in our consolidated statements of cash flows.

As the closing date of our acquisition of JustGiving extended beyond the settlement date of the foreign currency option contract, we entered into a foreign currency forward contract in September 2017 with settlement in October 2017. The notional value of the instrument was £103.5 million. We did not designate the foreign currency forward contract as a cash flow hedge for accounting purposes since it involved a business combination. As such, changes in the fair value of this derivative are recognized currently in earnings.

30, 2021:


(dollars in thousands)			Term of derivative instrument	Notional value
Derivative instruments designated as hedging instruments:
Interest rate swap			November 2020 - October 2024	$	60,000
Interest rate swap			November 2020 - October 2024	60,000
Interest rate swap			June 2021 - October 2024	120,000
Interest rate swap			July 2021 - October 2024	120,000
Interest rate swap			July 2021 - October 2024	75,000

16$	435,000	~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

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


		Asset Derivatives					Liability Derivatives						Asset derivatives					Liability derivatives
(dollars in thousands)	Balance sheet location	September 30, 2017		December 31, 2016		Balance sheet location	September 30, 2017		December 31, 2016		(dollars in thousands)	Balance sheet location	September 30, 2021		December 31, 2020		Balance sheet location	September 30, 2021		December 31, 2020
Derivative instruments designated as hedging instruments:											Derivative instruments designated as hedging instruments:
Interest rate swaps, current portion	Prepaid expenses and other current assets	$	223	$	—	Accrued expenses and other current liabilities	$	—	$	—	Interest rate swaps, current portion	Prepaid expenses and other current assets	$	—	$	—	Accrued expenses and other current liabilities	$	—	$	2,698
Interest rate swaps, long-term portion	Other assets	—		206		Other liabilities	328		163		Interest rate swaps, long-term portion	Other assets	2,283		—		Other liabilities	—		1,461
Total derivative instruments designated as hedging instruments		$	223	$	206		$	328	$	163	Total derivative instruments designated as hedging instruments		$	2,283	$	—		$	—	$	4,159

Derivative instruments not designated as hedging instruments:
Foreign currency forward contracts	Prepaid expenses and other current assets	$	—	$	—	Accrued expenses and other current liabilities	$	41	$	—
Total derivative instruments not designated as hedging instruments		$	—	$	—		$	41	$	—

Total derivative instruments		$	223	$	206		$	369	$	163

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


	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
(dollars in thousands)	September 30, 2021			Three months ended September 30, 2021		Nine months ended September 30, 2021
Interest rate swaps	$	2,283	Interest expense	$	(505)	$	(3,289)

	September 30, 2020			Three months ended September 30, 2020		Nine months ended September 30, 2020
Interest rate swaps	$	(3,957)	Interest expense	$	(1,276)	$	(2,499)

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

(dollars in thousands) September 30,
2017
Three months ended
September 30, 2017
Nine months ended
September 30, 2017
Interest rate swaps $ (105 ) Interest expense $ (88 ) $ (192 )

September 30,
2016
Three months ended
September 30, 2016
Nine months ended
September 30, 2016
Interest rate swaps $ (654 ) Interest expense $ (265 ) $ (875 )


14						Third Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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. Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit. Changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) is reclassified from accumulated other comprehensive income (loss) to current earnings. The estimated accumulated other comprehensive ~~income~~loss as of September 30, ~~2017~~2021 that is expected to be reclassified into earnings within the next twelve months is ~~insignificant.~~$1.4 million. There were no0 ineffective portions of our interest rate swap derivatives during the nine months ended September 30, ~~2017~~2021 and ~~2016.~~2020. See Note ~~13 to these consolidated financial statements~~12 for a summary of the changes in accumulated other comprehensive income (loss) by component.



~~Third Quarter 2017 Form 10-Q~~				179. Commitments and Contingencies

Leases

~~Table~~We have operating leases for corporate offices, subleased offices and certain equipment and furniture. As of ~~Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

WeSeptember 30, 2021, we did not have any ~~undesignated derivative instruments during 2016.~~ operating leases that had not yet commenced.

The ~~effects~~components of ~~undesignated derivative instruments during the three and nine months ended September 30, 2017~~lease expense were as follows:

Location of gain (loss)
recognized in income on derivative
Gain (loss) recognized in income
(dollars in thousands) Three months ended
September 30, 2017
Nine months ended
September 30, 2017
Foreign currency option contracts Other income (expense), net $ 38
$ 513
Foreign currency forward contracts Other income (expense), net $ (41 ) $ (41 )
Total (loss) gain⁽¹⁾
$ (3 ) $ 472


~~(1)~~	~~The individual amounts for each year may not sum to total gain (loss) due to rounding.~~


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2021		2020		2021		2020
Operating lease cost(1)	$	2,344	$	12,128	$	7,557	$	24,720
Variable lease cost	625		1,120		2,023		3,491
Sublease income	(313)		(732)		(1,139)		(2,585)
Net lease cost	$	2,656	$	12,516	$	8,441	$	25,626

(1)Includes short-term lease costs, which were immaterial.

~~10. Commitments and Contingencies~~

~~Leases~~

~~Total rent expense was $3.8 million and $3.1 million~~See Note 14 for a discussion of the three months ended September 30, 2017 and 2016, respectively, and $11.9 million and $8.6 million for the nine months ended September 30, 2017 and 2016, respectively. The quarterly South Carolina state incentive paymentsworkforce strategy actions we received as a result of locating our headquarters facility in Berkeley County, South Carolina, ended in the fourth quarter of 2016. These amounts were recorded as a reduction of rent expense upon receipt and were insignificanttook during ~~the three months ended September 30, 2016 and $2.2 million during the nine months ended September 30, 2016.~~October 2021.

Other commitments

The term loans under the ~~2017~~2020 Credit Facility require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the ~~2017~~2020 Credit Facility in ~~June 2022.~~October 2025. The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038.

We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of September 30, ~~2017,~~2021, the remaining aggregate minimum purchase commitment under these arrangements was approximately ~~$51.9~~$39.7 million through ~~2021.~~2024.

Solution and service indemnifications

In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our solutions or services. If we determine that it is probable that a loss has been incurred related to solution or service indemnifications, any such loss that could be reasonably estimated would be recognized. We have not identified any losses and, accordingly, we have not recorded a liability related to these indemnifications.


Third Quarter 2021 Form 10-Q						15

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Legal proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of ~~business.~~business, as well as certain other non-ordinary course proceedings, claims and inquiries, as described below. We make a provision for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated. ~~These~~If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material. If such a loss or range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency provisions ~~are reviewed~~ at least quarterly and ~~adjusted~~adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. ~~Unless otherwise specifically disclosed in this note, we have determined as~~We recognize insurance recoveries, if any, when they are probable of ~~September 30, 2017, that no provision for liability nor disclosure is required related~~receipt. All associated costs due to any claim against us because (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.

~~All~~third-party service providers and consultants, including legal ~~costs associated with litigation~~fees, are expensed as incurred. ~~Litigation is~~

Legal proceedings are inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending or threatened against ~~us.~~us and intend to defend ourselves vigorously against all claims asserted. It is possible ~~nevertheless,~~ that our consolidated financial position, results of operations or cash flows could be materially negatively affected in any particular period by an unfavorable resolution of one or more of such legal proceedings.

Security incident

As previously disclosed, we are subject to risks and uncertainties as a result of a ransomware attack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment (the "Security Incident"). Based on the nature of the Security Incident, our research and third party (including law enforcement) investigation, we have no reason to believe that any data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly. Our investigation into the Security Incident by our cybersecurity team and third-party forensic advisors remains ongoing.

As a result of the Security Incident, we are currently subject to certain legal proceedings, claims, inquiries and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, inquires and investigations in the future that might result in adverse judgments, settlements, fines, penalties, or ~~investigations.~~other resolution. To limit our exposure to losses related to claims against us, including data breaches such as the Security Incident, we maintain $50 million of insurance above a $250 thousand deductible payable by us. As noted below, this coverage has reduced our financial exposure related to the Security Incident, and we will continue to seek recoveries under these insurance policies. Based on our review of expenses incurred to date, and upon consideration of the number of matters outstanding (as described below), we believe that total costs related to the Security Incident will exceed the limits of our insurance coverage during the fourth quarter of 2021. However, we are currently unable to estimate the approximate amount or range of any such excess.

In the three and nine months ended September 30, 2021, we recorded $11.4 million and $35.9 million, respectively, of expenses related to the Security Incident and offsetting probable insurance recoveries of $10.6 million and $34.5 million, respectively. As of September 30, 2021, we have recorded cumulative expenses related to the Security Incident of $45.7 million and cumulative probable insurance recoveries of $43.9 million. Due to the time required to submit and process such insurance claims, we have not yet received all of the accrued insurance recoveries. Of the insurance recoveries recorded, $18.0 million had been paid as of September 30, 2021. Recorded expenses consisted primarily of payments for legal fees related to governmental inquiries and investigations and customer constituent class actions. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our condensed consolidated statements of comprehensive income and as operating activities on our condensed consolidated statements of cash flows. We expect to continue to experience significant expenses related to our response to the Security Incident, resolution of legal proceedings, claims, inquiries and investigations discussed below, and our efforts to further enhance our security measures, and those expenses may be material.

Based on our analysis of the factors described above, we have not recorded a liability related to the Security Incident as of September 30, 2021 because we are unable at this time to reasonably estimate the possible loss or range of loss.



1816						Third Quarter ~~2017~~2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated financial statements (continued)~~Condensed Consolidated Financial Statements

(Unaudited)

Customer claims. To date, we have received approximately 260 specific requests for reimbursement of expenses ("Customer Reimbursement Requests") and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident (none of which have as yet been filed in court). Of the Customer Reimbursement Requests received to date, approximately 170 have been fully resolved and closed. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us. Customer and insurer subrogation claims generally seek reimbursement of their costs and expenses associated with notifying their own customers of the Security Incident and taking steps to assure that personal information has not been compromised as a result of the Security Incident. Our review of customer and subrogation claims includes analyzing individual customer contracts into which we have entered, the specific claims made and applicable law.

Customer constituent class actions. Presently, we are a defendant in 19 putative consumer class action cases [17 in U.S. federal courts (which have been consolidated under multi district litigation to a single federal court) and 2 in Canadian courts] alleging harm from the Security Incident. The plaintiffs in these cases, who purport to represent various classes of individual constituents of our customers, generally claim to have been harmed by alleged actions and/or omissions by us in connection with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief.

Lawsuits that are putative class actions require a plaintiff to satisfy a number of procedural requirements before proceeding to trial. These requirements include, among others, demonstration to a court that the law proscribes in some manner our activities, the making of factual allegations sufficient to suggest that our activities exceeded the limits of the law and a determination by the court—known as class certification—that the law permits a group of individuals to pursue the case together as a class. If these procedural requirements are not met, the lawsuit cannot proceed as a class action and the plaintiff may lose the financial incentive to proceed with the case. Frequently, a court’s determination as to these procedural requirements is subject to appeal to a higher court. As a result of these uncertainties, we may be unable to determine the probability of loss until, or after, a court has finally determined that a plaintiff has satisfied the applicable class action procedural requirements.

Furthermore, for putative class actions, it is often not possible to estimate the possible loss or a range of loss amounts, even where we have determined that a loss is reasonably possible. Generally, class actions involve a large number of people and raise complex legal and factual issues that result in uncertainty as to their outcome and, ultimately, making it difficult for us to estimate the amount of damages that a plaintiff might successfully prove. This analysis is further complicated by the fact that the plaintiffs lack contractual privity with us.

Governmental inquiries and investigations. To date, we have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 48 state Attorneys General and the District of Columbia and separate Civil Investigative Demands from the offices of the Illinois Attorney General and the California Attorney General relating to the Security Incident. In addition, we have received communications, inquires and requests from the U.S. Federal Trade Commission, the SEC, the U.S. Department of Health and Human Services, the Information Commissioner’s Office in the United Kingdom under the U.K. Data Protection Act 2018 (the "ICO", the Office of the Australian Information Commissioner, the Office of the Privacy Commissioner of Canada, the Spanish Data Protection Authority, and the Data Protection Commission of Ireland).

On September 28, 2021, the ICO notified us that it has closed its investigation of the Security Incident. Based on its investigation and having considered our actions before, during and after the Security Incident, the ICO issued our European subsidiary a reprimand in accordance with Article 58(2)(b) of the U.K. General Data Protection Regulation ("U.K. GDPR") due to our non-compliance, in the ICO's view, with the requirements set out in Article 32 of the U.K. GDPR regarding the processing of personal data. The ICO did not impose a penalty related to the Security Incident, nor did it impose any requirements for further action by us.

On September 24, 2021, we received notice from the Spanish Data Protection Authority that it has concluded its investigation of the Security Incident, pursuant to which our European subsidiary paid a penalty of €60,000 in relation to the alleged late notification of two Spanish data controllers regarding the Security Incident.

On January 15, 2021, we were notified by the Data Protection Commission of Ireland that it has concluded its investigation of the Security Incident without taking any action against us.



~~11.~~Third Quarter 2021 Form 10-Q						17

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

We continue to cooperate with all ongoing inquiries and investigations, which include various requests for documents, policies, narratives and communications, as well as requests to interview or depose various Company-related personnel. As noted above, each of these separate governmental inquiries and investigations could result in adverse judgements, settlements, fines, penalties, or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows, or financial condition.


10. Income Taxes

Our income tax provision and effective income tax rates, including the effects of period-specific events, were:


	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2021			2020			2021			2020
Income tax provision	$	2,517		$	1,756		$	4,946		$	6,948
Effective income tax rate	28.9		%	26.5		%	27.9		%	24.6		%

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands) 2017
2016
2017
2016
Income tax provision $ 2,793
$ 1,950
$ 2,964
$ 5,323
Effective income tax rate 18.2 % 17.9 % 7.8 % 18.0 %

~~Our~~The increase in our effective income tax rate ~~during~~for the three months ended September 30, ~~2017 remained relatively unchanged~~2021, when compared to the same period in ~~2016.~~ 2020, was primarily attributable to higher 2021 non-deductible stock-based compensation and reduced state tax credits. Furthermore, the 2020 effective tax rate was positively impacted by a favorable return to provision adjustment offset against tax expense attributable to a corporate income tax rate increase enacted during the period.

The ~~decrease~~increase in our effective income tax rate ~~during~~for the nine months ended September 30, ~~2017,~~2021 when compared to the same period in ~~2016,~~2020, was primarily due to a $9.0 million discrete tax benefit to expense relating to stock-based compensation items, as compared to a $4.3 million discrete tax benefit for the same period in 2016. The increase in the discrete tax benefit for the nine months ended September 30, 2017, as comparedattributable to the ~~same period in 2016, was attributable to an increase in the market price for shares~~impact of our common stock, as reported by the NASDAQ Stock Market LLC ("NASDAQ"), as well as an increase in the number of stock awards that vested and were exercised. Most of our equity awards are granted during our first quarter and vest in subsequent years during the same quarter.non-deductible expenses against lower pre-tax income.



~~12.~~11. Stock-based Compensation

Stock-based compensation expense is allocated to cost of revenue and operating expenses on the condensed consolidated statements of comprehensive income based on where the associated employee’s compensation is recorded. The following table summarizes stock-based compensation expense:


	Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2017		2016		2017		2016		(dollars in thousands)	2021		2020		2021		2020
Included in cost of revenue:									Included in cost of revenue:
Cost of subscriptions	$	331	$	318	$	963	$	904
Cost of maintenance	103		137		294		391
Cost of services and other	500		461		1,418		1,308
Cost of recurring									Cost of recurring	$	2,997	$	1,608	$	8,900	$	3,229
Cost of one-time services and other									Cost of one-time services and other	1,266		2,080		5,958		3,894
Total included in cost of revenue	934		916		2,675		2,603		Total included in cost of revenue	4,263		3,688		14,858		7,123
Included in operating expenses:									Included in operating expenses:
Sales, marketing and customer success	1,686		1,055		4,906		2,972		Sales, marketing and customer success	4,942		4,004		15,048		10,085
Research and development	2,093		1,674		5,877		4,874		Research and development	6,110		4,098		19,725		11,245
General and administrative	6,213		5,173		17,597		14,556		General and administrative	13,611		9,053		39,849		26,103
Total included in operating expenses	9,992		7,902		28,380		22,402		Total included in operating expenses	24,663		17,155		74,622		47,433
Total stock-based compensation expense	$	10,926	$	8,818	$	31,055	$	25,005	Total stock-based compensation expense	$	28,926	$	20,843	$	89,480	$	54,556



18	Third Quarter ~~2017~~2021 Form 10-Q	19

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated financial statements (continued)~~Condensed Consolidated Financial Statements

(Unaudited)

~~13. Stockholders' Equity~~

~~Dividends~~

Our Board of Directors has adopted a dividend policy, which provides for the distribution to stockholders of a portion of cash generated by us that is in excess of operational needs and capital expenditures. The 2017 Credit Facility limits the amount of dividends payable and certain state laws restrict the amount of dividends distributed.

In February 2017, our Board of Directors approved an annual dividend rate of $0.48 per share to be made in quarterly payments. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to declare and pay further dividends. The following table provides information with respect to quarterly dividends of $0.12 per share paid on common stock during the nine months ended September 30, 2017.

Declaration Date
Dividend
per Share

Record Date Payable Date
February 8, 2017 $ 0.12
February 28 March 15
May 1, 2017 $ 0.12
May 26 June 15
July 31, 2017 $ 0.12
August 28 September 15

~~On October 25, 2017, our Board of Directors declared a fourth quarter dividend of $0.12 per share payable on December 15, 2017 to stockholders of record on November 28, 2017.~~

~~Changes in accumulated other comprehensive loss by component~~

~~The changes in accumulated other comprehensive loss by component, consisted of the following:~~

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands) 2017
2016
2017
2016
Accumulated other comprehensive loss, beginning of period $ (558 ) $ (1,640 ) $ (457 ) $ (825 )
By component:
Gains and losses on cash flow hedges:
Accumulated other comprehensive income (loss) balance, beginning of period $ 203
$ (806 ) $ 25
$ (19 )
Other comprehensive (loss) income before reclassifications, net of tax effects of $209, $(161), $135 and $589 (320 ) 248
(205 ) (909 )
Amounts reclassified from accumulated other comprehensive loss to interest expense 88
265
192
875
Tax benefit included in provision for income taxes (35 ) (104 ) (76 ) (344 )
Total amounts reclassified from accumulated other comprehensive loss 53
161
116
531
Net current-period other comprehensive (loss) income (267 ) 409
(89 ) (378 )
Accumulated other comprehensive loss balance, end of period $ (64 ) $ (397 ) $ (64 ) $ (397 )
Foreign currency translation adjustment:
Accumulated other comprehensive loss balance, beginning of period $ (761 ) $ (834 ) $ (482 ) $ (806 )
Translation adjustments (188 ) 289
(467 ) 261
Accumulated other comprehensive loss balance, end of period (949 ) (545 ) (949 ) (545 )
Accumulated other comprehensive loss, end of period $ (1,013 ) $ (942 ) $ (1,013 ) $ (942 )



20				~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

~~14. Segment Information~~12. Stockholders' Equity

~~During the first quarter~~Stock repurchase program

In November 2020, our Board of ~~2017, we changed the names~~Directors reauthorized and expanded a stock repurchase program that authorizes us to purchase up to $250.0 million of our ~~reportable segments. However, there was no change~~outstanding shares of common stock. The program does not have an expiration date. Under the stock repurchase program, we are authorized to repurchase shares from time to time in accordance with applicable laws both on the ~~determination~~open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The timing and amount of repurchases depends on several factors, including market and business conditions, the trading price of our ~~reportable segments or our reporting units at that time. As of September 30, 2017, our reportable segments were the General Markets Group ("GMG"), the Emerging Markets Group ("EMG"),~~common stock and the ~~International Markets Group ("IMG").~~nature of other investment opportunities. The ~~following is a description of each reportable segment:~~

~~The GMG is generally focused~~repurchase program may be limited, suspended or discontinued at any time without prior notice. Under the 2020 Credit Facility, we have restrictions on ~~sales~~our ability to ~~all emerging and mid-sized prospects and customers in North America;~~

~~The EMG is generally focused on sales to all large and/or strategic prospects and customers in North America; and~~

~~The IMG is focused on marketing, sales, delivery and support to all prospects and customers outside of North America.~~

Our chief operating decision maker is our chief executive officer ("CEO"). Currently, our CEO reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance. The CEO uses internal financial reports that provide segment revenues and operating income, as adjusted, which excludes stock-based compensation expense, amortization expense, depreciation expense, research and development expense and certain corporate sales, marketing, general and administrative expenses. Segment operating income, as adjusted, includes direct, controllable costs related to the salerepurchase shares of our ~~solutions and services, and our customer success program.~~common stock, which are summarized on page 42 below.

~~The CEO does not review any segment balance sheet information. Summarized reportable segment financial results, were as follows:~~

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands) 2017
2016
2017
2016
Revenue by segment:
GMG $ 102,838
$ 97,621
$ 296,954
$ 279,543
EMG 81,836
74,351
243,713
220,887
IMG 10,846
11,030
30,632
31,926
Other⁽¹⁾
(7 ) 61
30
154
Total revenue $ 195,513
$ 183,063
$ 571,329
$ 532,510
Segment operating income, as adjusted⁽²⁾:

GMG $ 49,971
$ 46,540
$ 143,658
$ 134,408
EMG 44,375
38,696
130,887
113,186
IMG 2,888
1,064
7,084
3,126
Other⁽¹⁾
(58 ) (157 ) (113 ) (109 )
97,176
86,143
281,516
250,611
Less:
Corporate unallocated costs⁽³⁾
(57,575 ) (53,236 ) (173,102 ) (156,013 )
Stock-based compensation costs (10,926 ) (8,818 ) (31,055 ) (25,005 )
Amortization expense (10,710 ) (10,549 ) (32,067 ) (31,817 )
Interest expense (3,092 ) (2,641 ) (8,685 ) (8,037 )
Other income (expense), net 468
(15 ) 1,581
(185 )
Income before provision for income taxes $ 15,341
$ 10,884
$ 38,188
$ 29,554


~~(1)~~	~~Other includes revenue and the related costs from the sale of solutions and services not directly attributable to a reportable segment.~~


~~(2)~~	~~Segment operating income, as adjusted, includes direct, controllable costs related to the sale of our solutions and service, and our customer success program.~~


~~(3)~~	~~Corporate unallocated costs include research and development, depreciation expense, and certain corporate sales, marketing, general and administrative expenses.~~



~~Third Quarter 2017 Form 10-Q~~		21

~~Table~~We account for purchases of ~~Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

~~In light of~~treasury stock under the ongoing and anticipated increasing centralization of our operations, including without limitation marketing, customer support, customer success and professional services, we are evaluating whether changes may need to be made to our internal reporting structure to better support and assess the operations of our business going forward. If changes are made, we will assess the resulting effect on our reportable segments, operating segments and reporting units, if any.

~~15. Subsequent Events~~

~~JustGiving acquisition~~

On October 2, 2017, Blackbaud Global Limited (“Blackbaud Global”), a United Kingdom limited liability company and wholly-owned subsidiary of ours, acquired the entire issued share capital, including all voting equity interests, of Giving Limited, a United Kingdom private limited company doing business as “JustGiving” for an aggregate purchase price of £95.0 million, or approximately $127.4 million, in cash, subject to certain adjustments set forth in the stock purchase agreement. JustGiving is a market leading social platform for giving, and the acquisition is expected to enhance our capabilities to serve both individual donors and nonprofits, expanding the peer-to-peer fundraising capabilities we offer today. As a result of the acquisition, JustGiving has become a wholly-owned subsidiary of ours. We will include the operating results of JustGiving as well as the net assets acquired and liabilities assumed in our consolidated financial statements from the date of acquisition.cost method. During the three and nine months ended September 30, ~~2017,~~2021, we ~~incurred acquisition-related expenses associated with the acquisition of JustGiving of $0.7~~purchased 583,280 and 1,454,148 shares for $40.3 million and ~~$2.2~~$98.4 million, ~~respectively, which are recorded~~respectively. The remaining amount available to purchase stock under the stock repurchase program was $110.6 million as of September 30, 2021.

Changes in ~~general and administrative expense. Due to the timing~~accumulated other comprehensive income (loss) by component

The changes in accumulated other comprehensive income (loss) by component, consisted of the transaction, the initial accounting for this acquisition, including the measurement of assets acquired, liabilities assumed and goodwill, is not complete and is pending detailed analyses of the facts and circumstances that existed as of the October 2, 2017 acquisition date.following:

On October 2, 2017, we borrowed $138.7 million pursuant to a revolving credit loan under the 2017 Credit Facility to finance the acquisition of JustGiving. Following the borrowing, approximately $178.6 million was outstanding under the revolving credit loans with approximately $169.8 million of available borrowing capacity under the 2017 Credit Facility.


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2021		2020		2021		2020
Accumulated other comprehensive income (loss), beginning of period	$	6,291	$	(14,476)	$	(2,497)	$	(5,290)
By component:
Gains and losses on cash flow hedges:
Accumulated other comprehensive income (loss) balance, beginning of period	$	1,393	$	(3,894)	$	(3,101)	$	(1,323)

Other comprehensive income (loss) before reclassifications, net of tax effects of $38, $0, $(818) and $1,225	(109)		1		2,329		(3,472)
Amounts reclassified from accumulated other comprehensive (loss) income to interest expense	505		1,276		3,289		2,499
Tax benefit included in provision for income taxes	(134)		(334)		(862)		(655)
Total amounts reclassified from accumulated other comprehensive (loss) income	371		942		2,427		1,844
Net current-period other comprehensive income (loss)	262		943		4,756		(1,628)
Accumulated other comprehensive income (loss) balance, end of period	$	1,655	$	(2,951)	$	1,655	$	(2,951)
Foreign currency translation adjustment:
Accumulated other comprehensive income (loss) balance, beginning of period	$	4,898	$	(10,582)	$	604	$	(3,967)
Translation adjustments	(3,234)		4,661		1,060		(1,954)
Accumulated other comprehensive income (loss) balance, end of period	1,664		(5,921)		1,664		(5,921)
Accumulated other comprehensive income (loss), end of period	$	3,319	$	(8,872)	$	3,319	$	(8,872)


Third Quarter 2021 Form 10-Q						19

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


2213. Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of September 30, 2021, approximately $821 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 55% of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

We applied the practical expedient in ASC 606-10-50-14 and have excluded the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less (one-time services); and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (transactional revenue).

Contract balances

Our contract assets as of September 30, 2021 and December 31, 2020 were insignificant. Our opening and closing balances of deferred revenue were as follows:


(in thousands)	September 30, 2021		December 31, 2020
Total deferred revenue	$	333,954	$	316,914

The increase in deferred revenue during the nine months ended September 30, 2021 was primarily due to a seasonal increase in customer contract renewals and, to a lesser extent, early progress in initiatives to bring our pricing in line with the market. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. The amount of revenue recognized during the nine months ended September 30, 2021 that was included in the deferred revenue balance at the beginning of the period was approximately $270 million. The amount of revenue recognized during the nine months ended September 30, 2021 from performance obligations satisfied in prior periods was insignificant.

Disaggregation of revenue

We sell our cloud solutions and related services in three primary geographical markets: to customers in the United States, to customers in the United Kingdom and to customers located in other countries. The following table presents our revenue by geographic area based on the address of our customers:


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2021		2020		2021		2020
United States	$	191,580	$	182,649	$	563,916	$	565,912
United Kingdom	25,351		18,309		72,142		63,668
Other countries	14,287		14,043		43,791		41,033
Total revenue	$	231,218	$	215,001	$	679,849	$	670,613

Beginning in the second quarter of 2021, we combined our General Markets Group ("GMG") and Enterprise Markets Group ("EMG") into a single U.S. Markets Group ("UMG") and moved our Corporations vertical under our International Markets Group ("IMG"). This change was made to better align our resources toward customer retention and growth, which are key objectives as we progress toward our long-term aspirational goals.

The UMG and the IMG comprised our go-to-market organizations as of September 30, 2021. The following is a description of each market group as of that date:

•The UMG focuses on sales primarily to all prospects and customers inside of the U.S.; and

•The IMG focuses on sales primarily to all prospects and customers outside of the U.S, as well as corporations.


20						Third Quarter ~~2017~~2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents our revenue by market group:


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2021		2020(1)		2021		2020(1)
UMG	$	180,570	$	164,796	$	533,473	$	535,340
IMG	49,220		49,168		145,017		134,996
Other	1,428		1,037		1,359		277
Total revenue	$	231,218	$	215,001	$	679,849	$	670,613

(1)Due to the market group change discussed above, we have recast our revenue by market group for the three and nine months ended September 30, 2020 to present them on a consistent basis with the current year.

The following table presents our recurring revenue by type:


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2021		2020		2021		2020
Contractual recurring	$	150,581	$	147,492	$	448,552	$	443,450
Transactional recurring	67,949		52,610		193,714		177,779
Total recurring revenue	$	218,530	$	200,102	$	642,266	$	621,229


14. Subsequent Events

Workforce strategy actions

In October 2021, we made the decision to permanently close our fixed office locations (with the exception of our global headquarters facility in Charleston, South Carolina), effective December 1, 2021. This change was intended to align our real estate footprint with our transition to a remote-first workforce. We may enter into arrangements for smaller more flexible workspaces where necessary. We currently expect to incur between $13.0 million and $14.0 million of pre-tax costs related to these actions during the fourth quarter of 2021. We expect that the costs associated with these actions will be largely noncash impairment charges, primarily for operating lease ROU assets in the office locations we have determined to exit.


Third Quarter 2021 Form 10-Q						21

Table of Contents

Blackbaud, Inc.

(Unaudited)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis presents financial information denominated in millions of dollars which can lead to differences from rounding when compared to similar information contained in the condensed consolidated financial statements and related notes which are primarily denominated in thousands of dollars.



Executive Summary

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

~~During~~COVID-19 Impact

The economic impact of COVID-19 on the ~~third~~social good industry remains somewhat uncertain, although we are seeing signs of recovery in the industry. We believe the COVID-19 pandemic has accelerated the shift to a digital-first world. The percentage of giving done online grew by approximately 40% in 2020 with roughly a quarter of ~~2017,~~that giving taking place on mobile device. If our existing and prospective customers remain cautious in their purchase decisions, our operating environment may continue to be challenging for the remainder of 2021 and potentially beyond. Notwithstanding these conditions, we ~~continued~~remain focused on continuing to execute on our four-point ~~growth~~ strategy ~~targeted to drive an extended period of quality enhancement, solution~~ and ~~service innovation and increasing operating efficiency and financial performance:~~strengthening our leadership position.

Four-Point Strategy


1.	~~Deliver Integrated~~1	Expand Total Addressable Market

	2	Lead with World Class Teams and ~~Open~~Operations

	3	Delight Customers with Innovative Cloud Solutions ~~in the Cloud~~

	4	Focus on Employees, Culture and ESG Initiatives

1.Expand Total Addressable Market ("TAM")

We ~~continue~~are now once again actively evaluating opportunities to ~~transition~~further expand our ~~business to predominantly serve customers~~addressable market through acquisitions and internal product development. We have significant opportunities in front of us as we are less than 10% penetrated into a ~~subscription-based cloud delivery model, enabling lower cost~~TAM of entry, greater scalability and lower total cost of ownership to our customers. We continue to optimize our portfolio of solutions and integrate powerful capabilities — such as built in data, analytics, artificial intelligence, payment processing and tailored user-specific experiences — to bring even greater value and performance to our customers.

The Blackbaud SKY™ cloud platform is allowing us to innovate at a more rapid pace, including delivering enhanced integrated analytics capabilities that surface directly in our customers’ software through SKY AI and SKY Analytics—componentsover $10 billion. Acquisitions are an important element of our broader Intelligence for Good approach that combines AI, analytics, one of the industry’s most robust data sets and expertise to drive powerful insights for our customers. These embedded, cloud-delivered insights provide high impact, workflow-integrated intelligence that drives fundraising, advocacy, event participation and other purpose driven constituent interactions.

~~At our annual user conference,~~ ~~bbcon,~~ we announced a joint-partnership with Microsoft to couple together Microsoft's horizontal solutions with our industry-leading vertical solutions. We now intend to fully power Blackbaud SKY in the Microsoft Azure environment, and we will become a Cloud Solution Provider Partner for the Microsoft platform.

strategy going forward.


22						Third Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

2.Lead with World Class Teams and Operations

This strategy expands upon our previous strategies to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40 (see discussion of Non-GAAP Financial Measures below). We have a strong executive team that is delivering on our mission and executing on our strategy. We have talent across our company, at every level, who are aligned with these goals as well. In support of this strategy, during the second quarter of 2021, we merged our EMG and GMG to create one U.S. Market Group to better align our resources toward customer retention and growth. For more information, see Note 13 to our condensed consolidated financial statements in this report.

3.Delight Customers with Innovative Cloud Solutions

2020 required unprecedented speed and scale to support our customers, and we were quick to reprioritize and expedite product enhancements to support our customers' changing needs as they needed to operate more digitally. We have carried that momentum into 2021. For example, we recently released an entirely new experience for Blackbaud Grantmaking which provides the relevant capabilities to users from their Blackbaud fundraising, fund management, and grant making solutions all in one interface. It also delivers purpose-built automation capabilities and maximizes the value of relationships by giving our customers a holistic view of the relationships driving their grant making - highlighting connections between grantees, and the relationships between individuals and the organizations they are funding. Another example is a recent release within Financial Edge NXT where we're transforming the entire accounts receivable experience. This provides a modern experience and new streamlined workflows and controls in areas such as invoice creation, billing and receiving payments, as well as holistic relationship management across vendors, customers, and sponsors.

4.Focus on Employees, Culture and ESG Initiatives

During the first quarter of 2021, we elevated a specific strategy focused on employees, culture and ESG initiatives. This is not new for us. It is something that is in our DNA and is a big advantage as we look to attract and retain top talent. This is evident in our 2020 social responsibility report, which was released in April 2021. We are fully committed to continuing to create a diverse and inclusive environment at all levels of the organization. Early in 2021, we established an ESG Steering Committee with our CEO as the executive sponsor, and our Board of Directors are also involved in this initiative. Building on our culture of innovation, we launched a new ideation initiative called "Imagine Week," inviting employees across the globe to pitch their ideas directly to the executive leadership team. Employees at every level and length of tenure in the company made proposals ranging from fundraising to customer service improvements. These ideas are making their way into our go-forward plans. In addition, we recently decided, effective December 1, 2021, to permanently close our fixed office locations (with the exception of our global headquarters facility in Charleston, South Carolina) to align our real estate footprint with our transition to a remote-first workforce. We may enter into arrangements for smaller more flexible workspaces where necessary.


Third Quarter ~~2017~~2021 Form 10-Q						23

Table of Contents

Blackbaud, Inc.

(Unaudited)

Financial Summary


2.	~~Drive Sales Effectiveness~~

We continue to invest in a world-class sales organization to accelerate revenue growth and penetrate our large and expanding total addressable market ("TAM"), which is currently estimated to be over $7.0 billion. During the first three quarters of 2017, we created a new Senior Vice President of Global Sales position to lead this effort across the organization and we have focused on enabling our expanding sales teams with training, processes, and tools to improve effectiveness and drive revenue growth. The further development of our customer success program is allowing our sales teams to focus on closing sales rather than account management. The move to selling pre-integrated solution suites instead of individual point-solutions continues to be successful, and we have furthered our go-to-market shift with a concentrated sales focus by sub-vertical, including K-12 private schools, foundations, corporations, arts & cultural, higher education and healthcare.


3.	~~Expand TAM into Near Adjacencies through Acquisitions and Product Investments~~

We continue to evaluate compelling opportunities to acquire companies, technologies and/or services. We are guided by our acquisition criteria for considering attractive assets that expand our TAM, provide entry into new and near adjacencies, accelerate our shift to the cloud, accelerate revenue growth, are accretive to margins and present synergistic opportunities.

During the third quarter, we launched Blackbaud Labs as a means to incubate new ideas and foster our strong culture of innovation and creativity within Blackbaud, with the sole focus of bringing new capabilities to market organically. We previously announced the promotion of our new Senior Vice President of Corporate Strategy and Business Development, who led the effort for many of our acquisitions, including AcademicWorks in April 2017 and, most recently, JustGiving.

AcademicWorks is the market leader in scholarship management for higher education and K-12 institutions, foundations, and grant-making institutions. Their cloud platform enables students to apply for all awards at an institution using one intuitive and streamlined process, while offering schools and awarding institutions a common platform for improved awarding, reporting, compliance, communication and stewardship of those awards. Additional details regarding our acquisition of AcademicWorks are provided in Note 3 to our consolidated financial statements in this report. During the third quarter, we focused on integrating AcademicWorks' solutions and operations as well as cross-selling.

In October 2017, we closed our acquisition of the United Kingdom-based online fundraising services provider JustGiving, whose online social giving platform has played a powerful role in the growth of peer-to-peer fundraising. The acquisition enhances our capability to serve both individual donors and nonprofits, expanding the peer-to-peer fundraising capabilities we currently offer today through TeamRaiser and everydayhero, which are used by leading nonprofit organizations to connect their causes to the individuals who support them. JustGiving also adds personal crowdfunding to our portfolio, which is an offering we did not previously provide and a fast growing segment of charitable giving. Additional details regarding our acquisition of JustGiving are provided below and in Note 15 to our consolidated financial statements in this report.

Both AcademicWorks and JustGiving meet the acquisition criteria discussed above. We remain active in the evaluation of acquisition opportunities to broaden our portfolio, provide better integrated solutions for our customers, differentiate ourselves from the competition and improve our financial performance.


4.	~~Improve Operating Efficiency~~

We are also focused on operational efficiency to deliver improved profitability. Our organizational model has evolved in recent years allowing us to gain efficiency and consistency in how we execute. We have centralized our operations, including marketing, product management, finance, customer support, customer success and professional services. In 2014, we set a long-term aspirational goal to improve operating margins annually, and increase our non-GAAP operating margins by at least 300 basis points on a constant currency basis from our 2014 baseline of 17.5%, by the end of 2017. Since setting that goal, we have improved margins annually, inclusive of heightened investments to drive future growth and in the midst of migrating our customer base to the cloud. We expect to deliver on our goal, and we see future opportunity ahead to further improve profitability through the infrastructure investments we have made in our back office for scale, focus on operational excellence, and achieving our productivity initiatives.

We have included the results of operations of AcademicWorks in our consolidated results of operations from the date of acquisition. We determined that the AcademicWorks acquisition was not a material business combination; therefore, revenue and earnings since the acquisition date are not required or presented.



24Total revenue ($M)						~~Third Quarter 2017 Form 10-Q~~Income from operations ($M)
YoY Growth (%)						YoY Growth (%)

~~Table of Contents~~

~~Blackbaud, Inc.~~

Total revenue
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Total revenue $ 195.5
$ 183.1
6.8 % $ 571.3
$ 532.5
7.3 %

~~The increases in total~~Total revenue increased by $16.2 million and $9.2 million during the three and nine months ended September 30, ~~2017,~~2021, respectively, when compared to the same periods in ~~2016, were primarily~~2020, driven largely by ~~growth in subscriptions~~the following:


			+						Growth in recurring revenue related to increases in transactional revenue from the continued shift toward virtual fundraising and online charitable giving and, to a lesser extent, early progress in initiatives to bring our pricing in line with the market; also included in the increases in total revenue are increases related to fluctuations in foreign currency exchange rates of $1.9 million and $7.8 million, respectively
			-						Decreases in one-time consulting revenue due primarily to less implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model. Our cloud subscription offerings generally require less implementation and customization services.
			-						Decreases in one-time analytics revenue as analytics are generally integrated in our cloud solutions

For additional information on the impact of foreign currency fluctuations on our business model continues to shift towards providing predominantly cloud-based subscription solutions. Subscriptions revenue also grew as a result of increases in the number of customers and the volume of transactions for which we process payments. Services and other revenue as well as maintenance revenue declined during the three and nine months ended September 30, 2017 from our continued shift in focus towards selling cloud-based subscription solutions. In general, our NXT and other cloud-based solutions require less implementation services, which we expect to continue to negatively impact services and other revenue over time. In addition, we have also used promotions and discounts for our consulting services as incentives to accelerate the migration of our existing customer base from on-premises solutions toward our cloud-based subscriptions. In the near-term, the transition to subscription-based solutions also negatively impacts total revenue growth, as time-based revenue from subscription arrangements is deferred and recognized ratably over the subscription period, typically three years at contract inception, whereas on-premises license revenue from arrangements that include perpetual licenses is recognized up-front.financial results, see Foreign Currency Exchange Rates below on page 44.

Income from operations
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Income from operations $ 18.0
$ 13.5
32.7 % $ 45.3
$ 37.8
19.9 %


24						Third Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Income from operations increased by $1.8 million during the three ~~and nine~~ months ended September 30, ~~2017,~~2021, when compared to the same ~~periods~~period in ~~2016. The positive impact~~2020, driven largely by the following:


			+						Increase in total revenue, as described above
			+						Decrease in restructuring and other real estate costs of $7.4 million due to our workforce strategy changes made in the third quarter of 2020
			+						Decrease in rent expense of $2.3 million related to the purchase of our global headquarters facility during the third quarter of 2020 and our exit of certain other office leases globally during the second half of 2020 in-line with the changes to our workforce strategy at that time
			-						Increase in stock-based compensation expense of $8.1 million primarily due to: •Certain changes to our compensation program that are expected to cause stock-based compensation expense to remain higher than historical levels, including ◦decrease in the vesting period for our annual long-term incentive time-based equity awards from 4 years (1/4 per year) to 3 years (1/3 per year), beginning in February 2021; and ◦replacement of cash sign-on and retention bonuses with time-based equity awards. •Increases in the grant date fair values of our annual equity awards granted to employees; and •Overall year-to-date Company performance against 2021 goals.
			-						Increase in transaction-based costs of $5.5 million related to payment services integrated in our cloud solutions
			-						Increase in third-party contractor costs of $4.1 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and invest in security
			-						Increase in compensation costs other than stock-based compensation of $3.9 million primarily due to base salary merit increases in July 2021 and the return of our 401(k)-match program effective January 1, 2021
			-						Increase in marketing costs of $1.3 million primarily due to incremental spending on advertising campaigns and, to a lesser extent, investments in digital marketing


Third Quarter 2021 Form 10-Q						25

Table of ~~growth in total revenue driven~~Contents

Blackbaud, Inc.

(Unaudited)

Income from operations decreased by subscriptions as discussed above was partially offset primarily by investments we are making in our sales organization and customer success program and, to a lesser extent, increases in stock based compensation expense of $2.1$6.6 million and $6.1 million, respectively, rent expense of $0.7 million and $3.3 million, respectively, and net increases in acquisition-related expenses and integration costs of $0.8 million and $2.8 million, respectively. An increase of $2.5 million in employee severance costs during the nine months ended September 30, ~~2017 also negatively impacted income from operations. The increase~~2021, when compared to the same period in ~~rent expense was primarily~~2020, driven largely by the ~~end~~following:


			-						Increase in stock-based compensation expense of $34.9 million, respectively, due to: •Certain changes to our compensation program that are expected to cause stock-based compensation expense to remain higher than historical levels, including ◦replacement of our annual cash bonus plans with a short-term performance-based equity award plan ◦decrease in the vesting period for our annual long-term incentive time-based equity awards from 4 years (1/4 per year) to 3 years (1/3 per year), beginning in February 2021; and ◦replacement of cash sign-on and retention bonuses with time-based equity awards. •Increases in the grant date fair values of our annual equity awards granted to employees; and •Overall Company performance against 2020 and year-to-date Company performance against 2021 goals.
			-						Increase in transaction-based costs of $7.1 million related to payment services integrated in our cloud solutions
			-						Increase in marketing costs of $2.7 million primarily due to investments in digital marketing and, to a lesser extent, incremental spending on advertising campaigns
			-						Increases in third-party contractor and hosting costs of $2.5 million and $2.1 million, respectively, as we continue to migrate our cloud infrastructure to leading public cloud service providers and invest in security

			-						Increase in corporate costs of $1.8 million primarily related to increases in third-party consulting fees and insurance costs, partially offset by a decrease in bad debt expense
			+						Increase in total revenue, as described above
			+						Decrease in compensation costs other than stock-based compensation of $9.2 million primarily due to a decrease in headcount, partially offset by base salary merit increases in July 2021 and the return of our 401(k)-match program effective January 1, 2021
			+						Decrease in rent expense of $7.7 million related to the purchase of our global headquarters facility during the third quarter of 2020 and our exit of certain other office leases globally during the second half of 2020 in-line with the changes to our workforce strategy at that time
			+						Decrease in real estate activity costs of $7.4 million due to our workforce strategy changes made in the third quarter of 2020
			+						Decrease in amortization of intangible assets from business combinations of $3.8 million
			+						Decrease in travel costs of $3.5 million due to our restriction on non-essential employee travel in response to the COVID-19 pandemic
			+						Decrease in employee severance of $3.1 million, related to a modest and targeted headcount reduction during the three months ended June 30, 2020, in response to the COVID-19 pandemic

We are continuing to make critical investments in the ~~fourth quarter~~business in areas such as digital marketing, engineering, security, customer success and our continued shift of ~~2016~~cloud infrastructure to leading public cloud service providers. While we are making good progress, some of ~~the South Carolina state incentive payments~~these investments are likely to push into early 2022, particularly in areas where we ~~received as a result~~are increasing headcount.


26						Third Quarter 2021 Form 10-Q

Table of locating our headquarters facility in Berkeley County, South Carolina. These amounts were recorded as a reduction of rent expense upon receipt. Also contributing to the increase in rent expense were new operating leases for equipment that we have historically purchased.Contents

~~Customer retention~~

~~Subscription~~Blackbaud, Inc.

(Unaudited)


Customer retention

Our recurring revenue contracts are ~~typically~~generally for a term of three years at contract inception with one to ~~three year~~three-year renewals thereafter. ~~Over time, we~~We anticipate a continued decrease in maintenance contract renewals as we transition our solution portfolio and maintenance customers from a perpetual license-based model to a ~~cloud-based~~cloud subscription delivery model. WeIn the long term, we also anticipate an increase in recurring subscription contract renewals as we continue focusing on innovation, quality and the integration of our ~~subscription~~cloud solutions, which we believe will provide value-adding capabilities to better address our customers' needs. Due primarily to these factors, we believe a recurring revenue customer retention measure that combines recurring subscription, maintenance and ~~maintenance~~service customer contracts provides ~~an accurate~~a better representation of our customers' overall behavior. For the ~~year~~twelve months ended September 30, ~~2017,~~2021, approximately 93% of our customers with recurring ~~subscription or maintenance~~revenue contracts were retained. This customer retention rate is ~~relatively~~materially unchanged from our rate for the full year ~~2016.~~



~~Third Quarter 2017 Form 10-Q~~		25

~~Table of Contents~~

~~Blackbaud, Inc.~~

ended December 31, 2020.

Balance sheet and cash flow

At September 30, ~~2017,~~2021, our cash and cash equivalents were ~~$17.1~~$27.6 million and ~~outstanding borrowings~~the carrying amount of our debt under the ~~2017~~2020 Credit Facility ~~were $340.2~~was $465.9 million. Our net leverage ratio was 1.70 to 1.00.

During the nine months ended September 30, ~~2017,~~2021, we generated ~~$123.4~~$169.8 million in cash ~~flow~~ from operations, ~~reduced our~~had a net decrease in borrowings ~~by $5.8~~of $3.0 million, ~~inclusive of the incremental borrowings needed to finance the acquisition of AcademicWorks,~~ returned ~~$17.3~~$98.4 million to stockholders by way of ~~dividends~~share repurchases and had aggregate cash outlays of ~~$29.0~~$38.0 million for purchases of property and equipment and capitalized software development costs.

Security Incident update

As discussed in Note 9 to our unaudited, condensed consolidated financial statements included in this report, we believe that total costs related to the Security Incident will exceed the limits of our insurance coverage during the fourth quarter of 2021. Accordingly, we expect that the Security Incident could negatively impact our GAAP profitability and cash flow during the fourth quarter of 2021 and will negatively impact our GAAP profitability and cash flow for the foreseeable future. As we are currently unable to estimate the approximate amount or range of any such excess, we are unable to determine the effect the Security Incident will have on our results of operations, cash flows, or financial condition.

Recent development - ~~JustGiving acquisition~~workforce strategy actions

OnIn October ~~2, 2017,~~2021, we ~~acquired~~made the ~~entire issued share capital~~decision to permanently close our fixed office locations (with the exception of ~~JustGiving~~our global headquarters facility in Charleston, South Carolina), effective December 1, 2021. This change was intended to align our real estate footprint with our transition to a remote-first workforce. We may enter into arrangements for ~~an aggregate purchase price~~smaller more flexible workspaces where necessary. We currently expect to incur between $13.0 million and $14.0 million of ~~£95.0 million, or approximately $127.4 million, in cash, subject~~pre-tax costs related to ~~certain adjustments set forth~~these actions during the fourth quarter of 2021. We expect that the costs associated with these actions will be largely noncash impairment charges, primarily for operating lease ROU assets in the ~~stock purchase agreement. We financed the acquisition through borrowings under the 2017 Credit Facility. As a~~office locations we have determined to exit. These actions are expected to result in future annual before-tax expense savings of ~~the acquisition, JustGiving has become a wholly-owned subsidiary of ours. We will include the operating results of JustGiving as well as the net assets acquired~~between approximately $3.0 million and ~~liabilities assumed~~$5.0 million beginning in our consolidated financial statements from the date of acquisition. Due to the timing of the transaction, the initial accounting for this acquisition, including the measurement of assets acquired, liabilities assumed and goodwill, is not complete and is pending detailed analyses of the facts and circumstances that existed as of the October 2, 2017 acquisition date.

2022.



Third Quarter 2021 Form 10-Q						27

Table of Contents

Blackbaud, Inc.

(Unaudited)


Results of Operations

Comparison of the three and nine months ended September 30, ~~2017~~2021 and ~~2016~~2020

Revenue and Cost of Revenue

Revenue by segment
Three months ended
September 30,
Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
GMG $ 102.8
$ 97.6
5.3 % $ 297.0
$ 279.5
6.2 %
EMG 81.8
74.4
10.1 % 243.7
220.9
10.3 %
IMG 10.8
11.0
(1.7 )% 30.6
31.9
(4.1 )%
Total revenue⁽¹⁾
$ 195.5
$ 183.1
6.8 % $ 571.3
$ 532.5
7.3 %


~~(1)~~	~~The individual amounts for each year may not sum to total revenue due to rounding.~~

GMG
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
GMG revenue $ 102.8
$ 97.6
5.3 % $ 297.0
$ 279.5
6.2 %
% of total revenue 52.6 % 53.3 % 52.0 % 52.5 %

The increases in GMG revenue during the three and nine months ended September 30, 2017 when compared to the same periods in 2016 were attributable to growth in subscriptions revenue, partially offset by declines in maintenance revenue and, to a lesser extent, services and other revenue. The growth in GMG subscriptions revenue was primarily due to increases in demand across our portfolio of cloud-based solutions. To a much lesser extent, GMG subscriptions revenue growth was also driven by increases in the number of customers and the volume of transactions for which we process payments. We expect that the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services will continue to negatively impact both services and other revenue and maintenance revenue over time.



26Recurring						~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

EMG
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
EMG revenue $ 81.8
$ 74.4
10.1 % $ 243.7
$ 220.9
10.3 %
% of total revenue 41.9 % 40.6 % 42.7 % 41.5 %

The increases in EMG revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily attributable to growth in subscriptions revenue, partially offset by decreases in services and other revenue and, to a lesser extent, maintenance revenue. The growth in EMG subscriptions was driven primarily by increases in demand for our cloud-based solutions, as well as an increase in the number of customers and the volume of transactions for which we process payments. We are increasingly selling our Blackbaud CRM solution as a subscription offering, which has resulted in less license fees revenue during the three and nine months ended, September 30, 2017, when compared to the same periods in 2016. We expect that the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services will continue to negatively impact both services and other revenue and maintenance revenue over time.

IMG
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
IMG revenue $ 10.8
$ 11.0
(1.7 )% $ 30.6
$ 31.9
(4.1 )%
% of total revenue 5.5 % 6.0 % 5.4 % 6.0 %

The decreases in IMG revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily related to reductions in services and other revenue and maintenance revenue, partially offset by increases in subscriptions revenue. The increases in IMG subscriptions revenue during the three and nine months ended September 30, 2017 were primarily due to increased demand for our cloud-based solutions and, to a much lesser extent, increases in the volume of transactions for which we process payments. The fluctuation in foreign currency exchange rates had an insignificant impact on IMG revenue during the three months ended September 30, 2017 and negatively impacted IMG revenue during the nine months ended September 30, 2017 by approximately $0.8 million. Further explanation of this impact is included below under the caption "Foreign Currency Exchange Rates". We expect that the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services will continue to negatively impact both services and other revenue and maintenance revenue over time.

~~Third Quarter 2017 Form 10-Q~~Revenue ($M)

27Cost of revenue ($M)

Gross profit ($M)
and gross margin (%)

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Operating results~~

Subscriptions
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Subscriptions revenue $ 127.5
$ 105.4
20.9 % $ 370.9
$ 306.3
21.1 %
Cost of subscriptions 58.0
51.9
11.7 % 170.3
153.8
10.8 %
Subscriptions gross profit⁽¹⁾
$ 69.4
$ 53.5
29.8 % $ 200.6
$ 152.6
31.5 %
Subscriptions gross margin 54.5 % 50.7 % 54.1 % 49.8 %

YoY Growth (%)

~~(1)~~

~~The individual amounts for each year may not sum to subscriptions gross profit due to rounding.~~

~~Subscriptions~~

Recurring revenue is comprised of ~~revenue from charging~~fees for the use of our subscription-based software solutions, which includes providing access to ~~cloud-based~~cloud solutions, ~~and~~ hosting services, ~~access~~online training programs, subscription-based analytic services, such as donor acquisitions and data enrichment, and payment services. Recurring revenue also includes fees from maintenance services for our on-premises solutions, services included in our renewable subscription contracts, retained and managed services contracts that we expect to ~~certain data services~~have a term consistent with our cloud solution contracts, and ~~our online subscription training offerings, revenue from payment processing services, as well as~~ variable transaction revenue associated with the use of our solutions.

We continue to experience growth in sales of our cloud-based solutions and hosting services as we meet the demand of our customers that increasingly prefer cloud-based subscription offerings, including existing customers that are migrating from on-premises solutions to our cloud-based solutions. In addition, we have experienced growth in our payment processing services from the continued shift to online giving, further integration of these services to our existing solution portfolio and the sale of these services to new and existing customers. Recurring subscriptions contracts are typically for a term of three years at contract inception with one to three year renewals thereafter. We intend to continue focusing on innovation, quality and integration of our subscription solutions, which we believe will drive subscriptions revenue growth.

Cost of ~~subscriptions~~recurring revenue is primarily comprised of compensation costs for customer support and production IT personnel, hosting and data center costs, third-party contractor expenses, third-party royalty and data ~~expenses, hosting~~ expenses, allocated depreciation, facilities and IT support costs, amortization of intangible assets from business combinations, amortization of software development costs, transaction-based costs related to payments services including remittances of amounts due to third-parties and other costs incurred in providing support and recurring services to our customers.

~~The increases in subscriptions~~Our customers continue to prefer cloud subscription offerings with integrated analytics, training and payment services. Recurring subscription contracts are typically for a term of three years at contract inception with one to three-year renewals thereafter. We intend to continue focusing on innovation, quality and integration of our cloud solutions, which we believe will drive future revenue growth.


28						Third Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Recurring revenue increased by $18.4 million, or 9.2%, and $21.0 million, or 3.4%, during the three and nine months ended September 30, ~~2017,~~2021, when compared to the same periods in ~~2016, were~~2020, driven primarily ~~due to strong demand across~~by the following:


			+						Increases in transactional revenue of $15.3 million and $15.9 million, respectively, primarily due to the continued shift toward virtual fundraising and online charitable giving; also included in the increases in transactional revenue are increases related to fluctuations in foreign currency exchange rates of $1.2 million and $4.2 million, respectively
			+						Increases in contractual recurring revenue of $3.1 million and $5.1 million, respectively, related to the performance of our cloud solutions, partially offset by a decrease in maintenance revenue as customers migrate to our cloud solutions; also included in the increases in contractual recurring revenue are increases related to fluctuations in foreign currency exchange rates of $0.7 million and $3.6 million, respectively

For additional information on the impact of foreign currency fluctuations on our ~~cloud-based solution portfolio,~~financial results, see Foreign Currency Exchange Rates below on page 44.

Cost of recurring revenue increased by $11.6 million, or 13.7%, and ~~to a much lesser extent, increases in the number of customers and the volume of transactions for which we process payments.~~

~~The increases in cost of subscriptions~~$14.0 million, or 5.3%, during the three and nine months ended September 30, ~~2017,~~2021, respectively, when compared to the same periods in ~~2016, were~~2020, driven primarily ~~due to increases~~by the following:


			+						Increases in transaction-based costs ~~related to our payments services~~ of $5.5 million and $7.2 million, respectively, related to payment services integrated in our cloud solutions
			+						Increases in compensation costs of $3.4 million and $7.6 million, respectively, primarily related to stock-based compensation due to the factors discussed above on page 26 and a shift in resources historically supporting one-time services and other towards recurring revenue
			+						Increases in third-party contractor and hosting costs of $3.2 million and $4.7 million, respectively, as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security
			-						Decrease in amortization of intangible assets from business combinations of $2.0 million during the nine months ended September 30, 2021
			-						Decrease in amortization of software development costs of $1.7 million, during the nine months ended September 30, 2021 due to an impairment charge in Q2 2020 which did not recur in 2021
			-						Decrease in rent expense of $0.8 million, during the nine months ended September 30, 2021, largely due to a decrease in leased hardware, including servers, network gear and storage

Recurring gross margin decreased by 1.7% and $12.4 million, respectively and increases in the cost of third-party technology embedded in certain of our subscription solutions of $1.5 million and $4.8 million. Partially offsetting the increase in cost of subscriptions during the nine months ended September 30, 2017 was a decrease in third-party contractor expenses of $1.5 million.

~~The increases in subscriptions gross margin~~0.8% for the three and nine months ended September 30, ~~2017,~~2021, respectively, when compared to the same periods in ~~2016, were~~2020, primarily due to the ~~result~~increases in cost of recurring revenue outpacing the ~~positive economics of shifting customers to our next generation cloud-based solutions as growth~~increases in subscriptions revenue outpaced the growth in related costs. The results of AcademicWorks did not significantly impact our subscriptions gross margins for the three and nine months ended September 30, 2017.

recurring revenue.



28		~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

Maintenance
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Maintenance revenue $ 31.5
$ 36.4
(13.5 )% $ 98.2
$ 111.0
(11.6 )%
Cost of maintenance 5.7
5.5
3.0 % 17.6
16.5
6.1 %
Maintenance gross profit⁽¹⁾
$ 25.8
$ 30.9
(16.5 )% $ 80.6
$ 94.5
(14.6 )%
Maintenance gross margin 81.9 % 84.8 % 82.1 % 85.1 %


~~(1)~~	~~The individual amounts for each year may not sum to maintenance gross profit due to rounding.~~

Maintenance revenue is comprised of annual fees derived from maintenance contracts associated with new software licenses and annual renewals of existing maintenance contracts. These contracts provide customers with updates, enhancements and certain upgrades to our software solutions and online, telephone and email support. Maintenance contracts are typically renewed on an annual basis.

Cost of maintenance is primarily comprised of compensation costs for customer support personnel, third-party contractor expenses, third-party royalty costs, allocated depreciation, facilities and IT support costs, amortization of intangible assets from business combinations, amortization of software development costs and other costs incurred in providing support and services to our customers.

The decreases in maintenance revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily comprised of (i) reductions in maintenance from contracts that were migrated to a cloud-based subscription or not renewed and reductions in contracts with existing customers of $9.2 million and $25.7 million, respectively; partially offset by (ii) incremental maintenance from new customers associated with new license contracts and increases in contracts with existing customers of $4.3 million and $12.1 million, respectively; and (iii) insignificant amounts of incremental maintenance from contractual inflationary rate adjustments.

Cost of maintenance during the three months ended September 30, 2017 remained relatively unchanged when compared to the same period in 2016. Cost of maintenance increased during the nine months ended September 30, 2017, when compared to the same period in 2016, primarily as a result of an increase in compensation costs of $1.0 million, driven by a refinement in the method in which we allocate customer support costs between cost of maintenance and cost of subscriptions.

Maintenance gross margin decreased during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, primarily due to the increase in maintenance customer support costs combined with the decline in maintenance revenue as discussed above.



Third Quarter ~~2017~~2021 Form 10-Q						29

Table of Contents

Blackbaud, Inc.

(Unaudited)

Services and other
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Services and other revenue $ 36.5
$ 41.2
(11.4 )% $ 102.2
$ 115.2
(11.2 )%
Cost of services and other 23.3
25.8
(10.0 )% 71.6
76.5
(6.4 )%
Services and other gross profit⁽¹⁾
$ 13.3
$ 15.4
(13.6 )% $ 30.6
$ 38.7
(20.8 )%
Services and other gross margin 36.3 % 37.3 % 30.0 % 33.6 %

~~(1)~~

~~The individual amounts for each year may not sum to~~One-time services and other

Revenue ($M)

Cost of revenue ($M)

Gross profit ($M)
and gross ~~profit due to rounding.~~margin (%)

YoY Growth (%)

~~Services~~

One-time services and other revenue ~~includes~~is comprised of fees for one-time consulting, ~~implementation, training,~~ analytic and ~~installation~~onsite training services, ~~as well as~~fees for retained and managed services contracts that we do not expect to have a term consistent with our cloud solution contracts, revenue from the sale of our software sold under perpetual license arrangements, fees from user conferences and third-party software referral fees. Consulting, implementation and installation services involve converting data from a customer’s existing system, system configuration, process re-engineering and assistance in file set up. Analytic services are comprised of donor prospect research, sales of lists of potential donors, benchmarking studies and data modeling services. These analytic services involve the assessment of current and prospective donor information of the customer and are performed using our proprietary analytical tools. The end product is intended to enable organizations to more effectively target their fundraising activities.

Cost of one-time services and other is primarily comprised of compensation costs for professional services and onsite training personnel, ~~third-party contractor expenses,~~other costs incurred in providing onsite customer training, third-party contractor expenses, data expense incurred to perform one-time analytic services, third-party software royalties, ~~variable reseller commissions,~~ costs of user conferences, allocated depreciation, facilities and IT support costs and amortization of intangible assets from business combinations.

~~Services~~One-time services and other revenue decreased by $2.2 million, or 14.8%, and $11.8 million, or 23.9%, during the three and nine months ended September 30, ~~2017,~~2021, respectively, when compared to the same periods in ~~2016,~~2020, driven primarily ~~due to decreases in consulting revenue and, to a lesser extent, declines in analytics revenue and license fees revenue. We expect that~~by the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services, will continue to negatively impact services and other revenue over time. We have also used promotions and discounts for our consulting services as incentives to accelerate the migration of our existing customer base from on-premises solutions toward our cloud-based subscriptions. The maturation of our Blackbaud Enterprise CRM solution is lessening the extent of implementation services required for that solution. In addition, we are increasingly selling our Blackbaud CRM solution as a subscription offering, which has resulted in less license fees revenue.following:


			-						Decreases in one-time consulting revenue of $1.4 million and $8.5 million, respectively, due primarily to less implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model. Our cloud subscription offerings generally require less implementation and customization services.
			-						Decreases in one-time analytics revenue of $1.2 million and $3.0 million, respectively, as analytics are generally integrated in our cloud solutions

Cost of one-time services and other decreased by $2.6 million, or 17.8%, during the three ~~and nine~~ months ended September 30, ~~2017,~~2021, when compared to the same ~~periods~~period in ~~2016,~~2020, driven primarily ~~due to decreases in compensation costs of $1.4 million and $2.5 million, respectively, which is in line with~~by the ~~ongoing shift in our go-to-market strategy as discussed above.~~following:

Services and other gross margin decreased during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, primarily due to the declines in consulting, analytics and license fees revenue coupled with the slightly more modest reductions in costs of services and other.


			-						Decrease in amortization of intangible assets from business combinations of $1.1 million
			-						Decrease in compensation costs of $1.0 million largely due to a decrease in headcount, as well as a shift in resources historically supporting one-time services and other towards recurring revenue



30						Third Quarter ~~2017~~2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Cost of one-time services and other decreased by $3.3 million, or 7.6%, during the nine months ended September 30, 2021, when compared to the same period in 2020, driven primarily by the following:


			-						Decrease in amortization intangible assets from business combinations of $1.3 million
			-						Decrease in third-party contractor costs of $1.2 million, primarily due to a decrease in partners delivering services
			-						Decrease in compensation costs other than stock-based compensation of $0.7 million largely due to a decrease in headcount, as well as a shift in resources historically supporting one-time services and other towards recurring revenue
			-						Decrease in allocated costs of $1.4 million primarily related to a decrease in rent expense, as discussed below in General and Administrative
			+						Increase in stock-based compensation costs of $2.1 million due to the factors discussed above on page 23

One-time services and other gross margin increased by 3.4% during the three months ended September 30, 2021, when compared to the same period in 2020, primarily due to the decrease in cost of one-time services and other outpacing the decrease in one-time services and other revenue.

One-time services and other gross margin decreased by 18.8% during the nine months ended September 30, 2021, when compared to the same period in 2020, primarily due to the significant reductions in one-time consulting and analytics revenue discussed above.

Operating ~~expenses~~Expenses

Sales, marketing and
customer success ($M)

Research and
development ($M)

General and
administrative ($M)

Percentages indicate expenses as a percentage of total revenue

Sales, marketing and customer success
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Sales, marketing and customer success expense $ 44.2
$ 40.7
8.6 % $ 129.4
$ 115.7
11.8 %
% of total revenue 22.6 % 22.2 % 22.6 % 21.7 %

Sales, marketing and customer success

Sales, marketing and customer success expense includes compensation costs, variable sales commissions, travel-related expenses, ~~sales commissions,~~ advertising and marketing materials, public relations costs, variable reseller commissions and allocated depreciation, facilities and IT support costs.


Third Quarter 2021 Form 10-Q						31

Table of Contents

Blackbaud, Inc.

(Unaudited)

We see a large market opportunity in the long-term and will continue to make investments to drive sales ~~effectiveness, which is~~effectiveness. We have also implemented software tools to enhance our digital footprint and drive lead generation. In response to the COVID-19 pandemic, we implemented a ~~component~~modest and targeted headcount reduction during the second quarter of ~~our four-point growth strategy to accelerate revenue growth. We are also investing~~2020, including a reduction in our sales headcount with a focus on retaining our most highly productive sales executives. The enhancements we are making in our go-to-market approach are expected to significantly reduce our average customer ~~success organization to drive customer loyalty, retention, and referrals. The increase in~~acquisition cost as well as the related payback period while increasing sales velocity. As a result, we do not expect our sales, marketing and customer success expense ~~in dollars~~to return to pre-pandemic levels.

Sales, marketing and ~~as a percentage of total revenue~~customer success expense decreased by $3.8 million, or 7.8%, and $20.2 million, or 12.7%, during the three and nine months ended September 30, ~~2017,~~2021, respectively, when compared to the same periods in 2016, were primarily due to increases in compensation costs of $3.3 million and $10.5 million, respectively. Also contributing to the increase in sales, marketing and customer success expense for the nine months ended September 30, 2017 was an increase in commission expense of $1.8 million. Compensation costs increased primarily due to incremental headcount associated with the increase in direct sales, marketing, and customer success efforts of our growing operations. The increase in commission expense was2020, primarily driven by ~~a refinement in~~ the ~~period over which we recognize deferred commission to expense.~~following:

Research and development
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions)
2017⁽¹⁾

2016⁽¹⁾

Change

2017⁽²⁾

2016⁽²⁾

Change
Research and development expense $ 22.1
$ 22.5
(2.0 )% $ 67.6
$ 68.0
(0.5 )%
% of total revenue 11.3 % 12.3 % 11.8 % 12.8 %


~~(1)~~	~~Not included~~-	Decreases in ~~research~~compensation costs other than stock-based compensation of $3.9 million and ~~development~~$17.9 million, respectively, primarily due to the targeted reduction in sales headcount during the second quarter of 2020, discussed above
	-	Decreases in allocated costs of $1.5 million and $5.8 million, respectively, primarily related to a decrease in rent expense ~~for~~and the ~~three~~impact of the targeted reduction in sales headcount during the second quarter of 2020, as discussed above
	-	Decrease in travel costs of $2.0 million, during the nine months ended September 30, ~~2017~~2021, due to our restriction on non-essential employee travel in response to the COVID-19 pandemic, which went into effect during March 2020
	-	Decrease in commissions expense of $1.4 million, during the nine months ended September 30, 2021, related to a decrease in overall commissionable bookings during 2020 due to the COVID-19 pandemic and ~~2016~~ ~~were $7.0~~a decrease in commissionable one-time services and other bookings during 2021
	+	Increases in advertising costs of $1.3 million and ~~$6.9~~$2.7 million, respectively, ~~of qualifying costs associated with development activities that are required~~primarily due to be capitalized under the internal-use software accounting guidance such as those related to development of our next generation cloud-based solutions. Qualifying capitalized software development costs associated with our cloud-based solutions are subsequently amortized to cost of subscriptions revenue over the related asset's estimated useful life, which generally range from three to seven years.incremental spending on advertising campaigns and investments in digital marketing


~~(2)~~+	~~Not included~~			Increases in ~~research and development expense for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016~~ ~~were $20.6~~stock-based compensation costs of $0.9 million and ~~$18.9~~$5.0 million, respectively, ~~of qualifying costs associated with development activities that are required~~due to ~~be capitalized under~~ the ~~internal-use software accounting guidance.~~factors discussed beginning on page 25

Research and development

Research and development expense includes compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support costs.

We continue to make investments to ~~deliver integrated and open~~delight our customers with innovative cloud solutions, ~~in the cloud,~~ which is a component of our four-point ~~growth strategy to accelerate revenue growth.~~ strategy. We increased engineering hiring beginning in the fourth quarter of 2020.

Research and development ~~expense remained relatively unchanged~~expenses increased by $8.8 million or 38.6%, and $18.3 million or 25.2%, during the three and nine months ended September 30, ~~2017,~~2021, respectively, when compared to the same periods in ~~2016. During~~2020, primarily driven by the following:


			+						Increases in compensation costs of $6.1 million and $14.2 million, respectively, primarily related to stock-based compensation due to the factors discussed above on page 26
			+						Increases in third-party contractor costs of $1.6 million and $2.1 million, respectively, as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security
			+						Decrease in software development costs of $2.5 million, during the nine months ended September 30, 2021, that were required to be capitalized under the internal-use software guidance

Not included in research and development expense for the three months ended September 30, 2021 and 2020 were $9.7 million and $10.2 million, respectively, and for the nine months ended September 30, ~~2017, an increase in compensation costs~~2021 and 2020 were $29.2 million and $31.6 million, respectively, of $1.4 million associated with our addition of specialized engineering resources to help drive our solution development efforts was offset primarily by an increase in the amount of software development costs that were capitalized of $1.7 million. As discussed above, the increases in the amounts capitalized were a result of incurring more qualifying costs associated with development activities that are required to be capitalized under the internal-use software ~~guidance.~~accounting guidance such as those for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized software development costs associated with our cloud solutions are subsequently amortized to cost of subscriptions revenue over the related asset's estimated


32						Third Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

useful life, which generally range from three to seven years. We expect that the amount of software development costs capitalized will ~~continue to increase modestly~~be relatively consistent in the near-term as we ~~make~~continue making investments in innovation, quality and the integration of our solutions, which we believe will drive long-term revenue growth.

~~Research~~General and development expense decreased as a percentage of total revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, primarily due to productivity gains, which have allowed us to scale our business. The increases in the amounts of software development costs capitalized as discussed above also contributed to the decreases in research and development expense as a percentage of total revenue.



~~Third Quarter 2017 Form 10-Q~~		31

~~Table of Contents~~

~~Blackbaud, Inc.~~

General and administrative
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
General and administrative expense $ 23.5
$ 22.3
5.5 % $ 67.4
$ 62.1
8.5 %
% of total revenue 12.0 % 12.2 % 11.8 % 11.7 %
administrative

General and administrative expense consists primarily of compensation costs for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development, third-party professional fees, insurance, allocated depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses.

~~The increases in general~~General and administrative expense increased by $0.6 million, or 1.8%, and $7.5 million, or 8.3%, during the three and nine months ended September 30, ~~2017,~~2021, respectively, when compared to the same periods in ~~2016, were~~2020, primarily driven by the following:


			+						Increases in stock-based compensation costs of $4.6 million and $13.7 million, respectively, due to the factors discussed above on page 25
			+						Increases in compensation expense, excluding stock-based compensation costs, of $1.9 million and $1.8 million, respectively, due to base salary merit increases on July 2021, as well as an increase in headcount
			+						Increases in corporate costs of $1.6 million and $2.0 million, respectively, primarily related to increases in third-party consulting fees and insurance costs, partially offset by decreases in bad debt expense
			-						Decreases in real estate activity costs of $6.6 million and $7.4 million, respectively, due to our workforce strategy changes made in the third quarter of 2020
			-						Decreases in rent expense, net of allocated costs, of $1.0 million and $1.9 million, respectively, primarily related to the purchase of our global headquarters facility during the third quarter of 2020 and our exit of certain other office leases globally during the second half of 2020 in-line with changes to our workforce strategy at that time
			-						Decrease in third-party contractor costs of $1.1 million during the nine months ended September 30, 2021

Interest Expense


Interest expense ($M)
Percentages indicate expenses as a percentage of total revenue

Interest expense in ~~rent~~dollars and as a percentage of total revenue during the three months ended September 30, 2021 was relatively in line with the same period in 2020.

The increase in interest expense in dollars and as a percentage of $0.7 million and $3.3 million, respectively, and net increases in acquisition-related expenses and integration costs of $0.8 million and $2.8 million, respectively. An increase of $2.5 million in employee severance coststotal revenue during the nine months ended September 30, 2017 also drove up general and administrative expense. The increases in rent expense were primarily driven by the end in the fourth quarter of 2016 of the South Carolina state incentive payments we received as a result of locating our headquarters facility in Berkeley County, South Carolina. These amounts were recorded as a reduction of rent expense upon receipt. Also contributing to the increases in rent expense were new operating leases for equipment that we have historically purchased.

~~General and administrative expense as a percentage of total revenue remained relatively unchanged during the three and nine months ended September 30, 2017,~~2021, when compared to the same periods in ~~2016.~~

Interest expense
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Interest expense $ 3.1
$ 2.6
17.1 % $ 8.7
$ 8.0
8.1 %
% of total revenue 1.6 % 1.4 % 1.5 % 1.5 %

~~Interest expense increased during the three and nine months ended September 30, 2017, when compared to the same periods in 2016,~~2020, was primarily due to ~~modest increases in~~the Real Estate Loans assumed for the purchase of our weighted average effective interest rates. Also contributing to the increase in interest expense during the nine months ended September 30, 2017 was the required immediate expense recognition for certain debt issuance costs when we refinanced our creditglobal headquarters facility in ~~June 2017. In~~August 2020 and the ~~near term, we expect interest expense as well as interest expense as a percentage of revenue to increase as a result of our acquisition of JustGiving.~~

deferred financing costs and debt discount associated with the 2020 Credit Facility, which was entered into in October 2020.



32	Third Quarter ~~2017~~2021 Form 10-Q	33

Table of Contents

Blackbaud, Inc.

(Unaudited)

Deferred ~~revenue~~Revenue

The table below compares the components of deferred revenue from our consolidated balance sheets:


(dollars in millions)	Timing of recognition	September 30, 2021		December 31, 2020		Change
Recurring	Over the period billed in advance, generally one year	$	314.5	$	303.8	3.5	%
One-time services and other	As services are delivered	19.5		13.1		49.0	%
Total deferred revenue(1)		334.0		316.9		5.4	%
Less: Long-term portion		4.5		4.7		(3.2)	%
Current portion(1)		$	329.4	$	312.2	5.5	%

(dollars in millions) Timing of recognition September 30,
2017
Change
December 31,
2016
Subscriptions Over the period billed in advance, generally one year $ 179.9
24.4 % $ 144.6
Maintenance Over the period billed in advance, generally one year 68.5
(10.8 )% 76.8
Services and other As services are delivered 34.0
15.2 % 29.5
Total deferred revenue⁽¹⁾
282.4
12.5 % 250.9
Less: Long-term portion 5.4
(16.0 )% 6.4
Current portion⁽¹⁾
$ 277.0
13.3 % $ 244.5
(1)The individual amounts for each year may not sum to total deferred revenue or current portion of deferred revenue due to rounding.


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

To the extent that our customers are billed for our solutions and services in advance of delivery, we record such amounts in deferred revenue. Our recurring revenue contracts are generally for a term of three years at contract inception, billed annually in advance, and non-cancelable. We have been for several years successfully shifting our legacy customer base away from annual renewals and moving them onto multi-year renewal contracts. We generally invoice our ~~subscription and maintenance~~ customers with recurring revenue contracts in annual cycles 30 days prior to the end ~~of the contract term.~~ each one-year period.

Deferred revenue from ~~subscriptions~~recurring revenue contracts increased during the nine months ended September 30, ~~2017,~~2021, primarily due ~~to an increase in subscription sales, as well as~~ a seasonal increase in ~~subscription~~ customer contract ~~renewals.~~renewals and, to a lesser extent, early progress in initiatives to bring our pricing in line with the market. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals inat or near the beginning of our ~~second quarter as compared to our fourth~~third quarter. ~~The increase in deferred~~Deferred revenue from one-time services and other increased during the nine months ended September 30, ~~2017 was~~2021, primarily ~~the result of an increase in training sales and related billings. A~~due to a seasonal increase in ~~advance registration~~one-time service billings ~~associated with our~~ ~~bbcon~~ ~~user conference, which occurs each year in October, also contributed to~~during the second and third quarters.

Income Taxes


Income tax provision ($M)
Percentages indicate effective income tax rates

The increase in ~~deferred revenue from services and other. The decrease in deferred revenue attributable to maintenance during the nine months ended September 30, 2017 was primarily due to the continuing shift in~~ our ~~go-to-market strategy towards cloud-based subscription offerings, which do not require maintenance contracts.~~

We have acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, we recorded write-downs of deferred revenue from customer arrangements predating the acquisition to fair value, which resulted in lower recorded deferred revenue as of the acquisition date than the actual amounts paid in advance for solutions and services under those customer arrangements. Therefore, our deferred revenue after an acquisition will not reflect the full amount of deferred revenue that would have been reported if the acquired deferred revenue was not written down to fair value. Further explanation of this impact is included below under the caption "Non-GAAP financial measures".

Income tax provision
Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
Income tax provision $ 2.8
$ 2.0
43.2 % $ 3.0
$ 5.3
(44.3 )%
Effective income tax rate 18.2 % 17.9 % 7.8 % 18.0 %

~~Our~~ effective income tax rate ~~during~~for the three months ended September 30, ~~2017 remained relatively unchanged~~2021, when compared to the same period in ~~2016.~~ 2020, was primarily attributable to higher 2021 non-deductible stock-based compensation and reduced state tax credits. Furthermore, the 2020 effective tax rate was positively impacted by a favorable return to provision adjustment offset against tax expense attributable to a corporate income tax rate increase enacted during the period.

The ~~decrease~~increase in our effective income tax rate ~~during~~for the nine months ended September 30, ~~2017,~~2021 when compared to the same period in ~~2016,~~2020, was primarily due to a $9.0 million discrete tax benefit to expense relating to stock-based compensation items, as compared to a $4.3 million discrete tax benefit for the same period in 2016. The increase in the discrete tax benefit for the nine months ended September 30, 2017, as comparedattributable to the ~~same period in 2016, was attributable to an increase in the market price for shares~~impact of our common stock, as reported by NASDAQ, as well as an increase in the number of stock awards that vested and were exercised. Most of our equity awards are granted during our first quarter and vest in subsequent years during the same quarter.

non-deductible expenses against lower pre-tax income.



34	Third Quarter ~~2017~~2021 Form 10-Q	33

Table of Contents

Blackbaud, Inc.

(Unaudited)

Non-GAAP ~~financial measures~~Financial Measures

The operating results analyzed below are presented on a non-GAAP basis. We use non-GAAP ~~revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP diluted earnings per share~~financial measures internally in analyzing our operational performance. Accordingly, we believe these non-GAAP measures are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. While we believe these non-GAAP measures provide useful supplemental information, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies.

We have acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, we recorded write-downs of deferred revenue under arrangements predating the acquisition to fair value, which resulted in lower recognized revenue than the contributed purchase price until the related obligations to provide services under such arrangements are fulfilled. Therefore, our GAAP revenues after the acquisitions will not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP measures described below reverse the acquisition-related deferred revenue write-downs so that the full amount of revenue booked by the acquired companies is included, which we believe provides a more accurate representation of a revenue run-rate in a given period and, therefore, will provide more meaningful comparative results in future periods.

The non-GAAP financial measures discussed below exclude the impact of certain transactions because we believe they are not directly related to our operating performance in any particular period, but are for our long-term benefit over multiple periods. We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.

Three months ended
September 30, Nine months ended
September 30,
(dollars in millions) 2017
2016
Change
2017
2016
Change
GAAP Revenue $ 195.5
$ 183.1
6.8 % $ 571.3
$ 532.5
7.3 %
Non-GAAP adjustments:
Add: Acquisition-related deferred revenue write-down 0.3
—
100.0 % 0.7
3.6
(80.8 )%
Non-GAAP revenue⁽¹⁾
$ 195.9
$ 183.1
7.0 % $ 572.0
$ 536.1
6.7 %

GAAP gross profit $ 108.5
$ 99.7
8.8 % $ 311.8
$ 285.7
9.2 %
GAAP gross margin 55.5 % 54.5 % 54.6 % 53.7 %
Non-GAAP adjustments:
Add: Acquisition-related deferred revenue write-down 0.3
—
100.0 % 0.7
3.6
(80.8 )%
Add: Stock-based compensation expense 0.9
0.9
2.0 % 2.7
2.6
2.8 %
Add: Amortization of intangibles from business combinations 10.0
9.9
1.2 % 29.9
29.7
0.8 %
Add: Employee severance —
—
(100.0 )% 1.0
0.2
508.1 %
Add: Acquisition-related integration costs —
—
— % 0.1
—
100.0 %
Subtotal⁽¹⁾
11.3
10.8
4.3 % 34.3
36.1
(4.8 )%
Non-GAAP gross profit⁽¹⁾
$ 119.8
$ 110.5
8.3 % $ 346.2
$ 321.8
7.6 %
Non-GAAP gross margin 61.1 % 60.4 % 60.5 % 60.0 %


~~(1)~~	~~The individual amounts for each year may not sum to non-GAAP revenue, subtotal or non-GAAP gross profit due to rounding.~~



34	Third Quarter ~~2017~~2021 Form 10-Q	35

Table of Contents

Blackbaud, Inc.

(Unaudited)


																		Three months ended September 30,								Nine months ended September 30,
(dollars in millions, except per share amounts)																	(dollars in millions, except per share amounts)	2021			2020			Change		2021			2020			Change
GAAP Revenue																	GAAP Revenue	$	231.2		$	215.0		7.5	%	$	679.8		$	670.6		1.4	%

	Three months ended September 30,								Nine months ended September 30,
(dollars in millions, except per share amounts)	2017			2016			Change		2017			2016			Change

GAAP gross profit																	GAAP gross profit	$	123.5		$	116.3		6.2	%	$	360.7		$	362.1		(0.4)	%
GAAP gross margin																	GAAP gross margin	53.4		%	54.1		%			53.1		%	54.0		%
Non-GAAP adjustments:																	Non-GAAP adjustments:

Add: Stock-based compensation expense																	Add: Stock-based compensation expense	4.3			3.7			15.6	%	14.9			7.1			108.6	%
Add: Amortization of intangibles from business combinations																	Add: Amortization of intangibles from business combinations	8.6			9.2			(6.8)	%	26.6			29.8			(10.8)	%
Add: Employee severance																	Add: Employee severance	—			—			100.0	%	—			0.8			(96.4)	%

Subtotal(1)																	Subtotal(1)	12.9			12.9			(0.3)	%	41.5			37.8			9.8	%
Non-GAAP gross profit(1)																	Non-GAAP gross profit(1)	$	136.4		$	129.2		5.6	%	$	402.2		$	399.9		0.6	%
Non-GAAP gross margin																	Non-GAAP gross margin	59.0		%	60.1		%			59.2		%	59.6		%

GAAP income from operations	$	18.0		$	13.5		32.7	%	$	45.3		$	37.8		19.9	%	GAAP income from operations	$	11.8		$	10.1		17.4	%	$	31.5		$	38.1		(17.2)	%
GAAP operating margin	9.2		%	7.4		%			7.9		%	7.1		%			GAAP operating margin	5.1		%	4.7		%			4.6		%	5.7		%
Non-GAAP adjustments:																	Non-GAAP adjustments:
Add: Acquisition-related deferred revenue write-down	0.3			—			100.0	%	0.7			3.6			(80.8	)%

Add: Stock-based compensation expense	10.9			8.8			23.9	%	31.1			25.0			24.2	%	Add: Stock-based compensation expense	28.9			20.8			38.8	%	89.5			54.6			64.0	%
Add: Amortization of intangibles from business combinations	10.7			10.5			1.5	%	32.1			31.8			0.8	%	Add: Amortization of intangibles from business combinations	9.2			10.0			(8.2)	%	28.3			32.1			(11.8)	%
Add: Employee severance	0.1			0.1			77.8	%	3.0			0.5			533.0	%	Add: Employee severance	0.1			0.2			(70.7)	%	1.5			4.6			(67.1)	%
Add: Acquisition-related integration costs	0.4			0.9			(58.2	)%	0.6			1.4			(56.8	)%	Add: Acquisition-related integration costs	—			—			13.3	%	(0.1)			(0.1)			(2.5)	%
Add: Acquisition-related expenses	1.5			0.2			899.3	%	3.9			0.3			1,353.2	%	Add: Acquisition-related expenses	0.1			0.1			4.7	%	0.2			0.3			(31.9)	%
Add: Restructuring and other real estate activities																	Add: Restructuring and other real estate activities	(0.4)			6.9			(106.0)	%	(0.4)			7.0			(105.9)	%
Add: Security Incident-related costs, net of insurance(2)																	Add: Security Incident-related costs, net of insurance(2)	0.9			—			100.0	%	1.3			—			100.0	%
Subtotal⁽¹⁾	24.0			20.5			17.1	%	71.3			62.6			13.8	%	Subtotal(1)	38.6			38.0			1.6	%	120.3			98.4			22.2	%
Non-GAAP income from operations⁽¹⁾	$	42.0		$	34.0		23.3	%	$	116.6		$	100.4		16.1	%	Non-GAAP income from operations(1)	$	50.5		$	48.1		4.9	%	$	151.8		$	136.5		11.2	%
Non-GAAP operating margin	21.4		%	18.6		%			20.4		%	18.7		%			Non-GAAP operating margin	21.8		%	22.4		%			22.3		%	20.4		%

GAAP income before provision for income taxes																	GAAP income before provision for income taxes	$	8.7		$	6.6		31.3	%	$	17.7		$	28.3		(37.4)	%
GAAP net income	$	12.5		$	8.9		40.5	%	$	35.2		$	24.2		45.4	%	GAAP net income	$	6.2		$	4.9		26.9	%	$	12.8		$	21.3		(40.2)	%
Shares used in computing GAAP diluted earnings per share	47,846,997			47,394,106			1.0	%	47,679,103			47,268,469			0.9	%	Shares used in computing GAAP diluted earnings per share	48,274,072			48,859,707			(1.2)	%	48,259,956			48,582,068			(0.7)	%
GAAP diluted earnings per share	$	0.26		$	0.19		36.8	%	$	0.74		$	0.51		45.1	%	GAAP diluted earnings per share	$	0.13		$	0.10		30.0	%	$	0.26		$	0.44		(40.9)	%
Non-GAAP adjustments:																	Non-GAAP adjustments:
Add: Total Non-GAAP adjustments affecting income from operations	24.0			20.5			17.1	%	71.3			62.6			13.8	%
Add (less): Loss (gain) on derivative instrument	—			—			100.0	%	(0.5		)	—			100.0	%
Add: Loss on debt extinguishment	0.1			—			100.0	%	0.3			—			100.0	%
Less: Tax impact related to Non-GAAP adjustments⁽²⁾	(9.8		)	(8.1		)	21.6	%	(32.0		)	(24.2		)	32.4	%
Add: GAAP income tax provision																	Add: GAAP income tax provision	2.5			1.8			43.3	%	4.9			6.9			(28.8)	%
Add: Total non-GAAP adjustments affecting income from operations																	Add: Total non-GAAP adjustments affecting income from operations	38.6			38.0			1.6	%	120.3			98.4			22.2	%

Non-GAAP income before provision for income taxes																	Non-GAAP income before provision for income taxes	47.3			44.7			6.0	%	138.0			126.7			8.9	%
Assumed non-GAAP income tax provision(3)																	Assumed non-GAAP income tax provision(3)	9.5			8.9			6.0	%	27.6			25.3			8.9	%
Non-GAAP net income⁽¹⁾	$	26.9		$	21.3		25.8	%	$	74.3		$	62.7		18.6	%	Non-GAAP net income(1)	$	37.9		$	35.7		6.0	%	$	110.4		$	101.3		8.9	%

Shares used in computing Non-GAAP diluted earnings per share	47,846,997			47,394,106			1.0	%	47,679,103			47,268,469			0.9	%
Shares used in computing non-GAAP diluted earnings per share																	Shares used in computing non-GAAP diluted earnings per share	48,274,072			48,859,707			(1.2)	%	48,259,956			48,582,068			(0.7)	%
Non-GAAP diluted earnings per share	$	0.56		$	0.45		24.4	%	$	1.56		$	1.33		17.3	%	Non-GAAP diluted earnings per share	$	0.78		$	0.73		6.8	%	$	2.29		$	2.09		9.6	%


~~(1)~~	~~The individual amounts for each year may not sum to subtotal, non-GAAP income from operations or non-GAAP net income due to rounding.~~


~~(2)~~	We apply a non-GAAP effective tax rate of 32.0% in our determination of non-GAAP net income, which represents the GAAP effective tax rate, excluding the discrete tax effect of stock-based compensation.

(1)The ~~increases in~~individual amounts for each year may not sum to non-GAAP gross profit, subtotal, non-GAAP income from operations or non-GAAP net income due to rounding.

(2)Includes Security Incident-related costs incurred during the three and nine months ended September 30, ~~2017, when compared to~~2021 of $11.4 million and $35.9 million, respectively, net of probable insurance recoveries during the same periods of $10.6 million and $34.5 million, respectively. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims. Not included in ~~2016,~~this adjustment were ~~primarily due~~costs associated with enhancements to ~~growth in subscriptions revenue, partially offset by investments we are making in~~ our ~~sales organization~~cybersecurity program.

(3)We apply a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and ~~customer success program and, to a lesser extent, increases in rent expense, which are discussed above.~~non-GAAP diluted earnings per share.


36						Third Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Non-GAAP organic revenue growth

In addition, we discuss non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis ~~non-GAAP organic subscriptions revenue growth~~ and non-GAAP organic recurring revenue growth, ~~which we~~in analyzing our operating performance. We believe ~~provides~~that these non-GAAP measures are useful ~~information~~to investors, as a supplement to GAAP measures, for evaluating the periodic growth of our business on a consistent basis. Each of these measures of non-GAAP organic revenue growth excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, each of these non-GAAP organic revenue growth measures reflects presentation of full year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, and ~~it includes~~they include the non-GAAP revenue attributable to those companies, as if there were no acquisition-related write-downs of acquired deferred revenue to fair value as required by GAAP. In addition, each of these non-GAAP organic revenue growth measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. We believe this presentation provides a more comparable representation of our current business’ organic revenue growth and revenue run-rate.


(dollars in millions)	Three months ended September 30,					Nine months ended September 30,
	2021			2020		2021			2020
GAAP revenue	$	231.2		$	215.0	$	679.8		$	670.6
GAAP revenue growth	7.5		%			1.4		%
Add: Non-GAAP acquisition-related revenue(1)	—			—		—			—
Non-GAAP organic revenue(2)	$	231.2		$	215.0	$	679.8		$	670.6
Non-GAAP organic revenue growth	7.5		%			1.4		%

Non-GAAP organic revenue(2)	$	231.2		$	215.0	$	679.8		$	670.6
Foreign currency impact on Non-GAAP organic revenue(3)	(2.0)			—		(8.4)			—
Non-GAAP organic revenue on constant currency basis(3)	$	229.2		$	215.0	$	671.5		$	670.6
Non-GAAP organic revenue growth on constant currency basis	6.6		%			0.1		%

GAAP recurring revenue	$	218.5		$	200.1	$	642.3		$	621.2
GAAP recurring revenue growth	9.2		%			3.4		%
Add: Non-GAAP acquisition-related revenue(1)	—			—		—			—
Non-GAAP organic recurring revenue	$	218.5		$	200.1	$	642.3		$	621.2
Non-GAAP organic recurring revenue growth	9.2		%			3.4		%

(1)Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to companies acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period, and it includes the non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those companies.

(2)Non-GAAP organic revenue for the prior year periods presented herein will not agree to non-GAAP organic revenue presented in the respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth is calculated.

(3)To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Australian Dollar, British Pound, Canadian Dollar and EURO.



Third Quarter ~~2017~~2021 Form 10-Q						3537

Table of Contents

Blackbaud, Inc.

(Unaudited)

Rule of 40

Rule of 40 is defined as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. Non-GAAP adjusted EBITDA is defined as GAAP net income plus interest, net; income tax provision (benefit); depreciation; amortization of intangible assets from business combinations; amortization of software development costs; acquisition-related deferred revenue write-down; stock-based compensation; acquisition-related integration costs; acquisition-related expenses; employee severance; restructuring and other real estate activities; and Security Incident-related costs, net of insurance.


	Three months ended September 30,							Nine months ended September 30,
(dollars in millions)	2021			2020		Change		2021			2020		Change
GAAP net income	$	6.2		$	4.9	26.9	%	$	12.8		$	21.3	(40.2)	%
Non-GAAP adjustments:
Add: Interest, net	3.9			3.2		21.4	%	13.9			10.7		30.1	%
Add: GAAP income tax provision	2.5			1.8		43.3	%	4.9			6.9		(28.8)	%
Add: Depreciation	3.1			3.7		(15.8)	%	9.5			10.9		(12.6)	%
Add: Amortization of intangibles from business combinations	9.2			10.0		(8.2)	%	28.3			32.1		(11.8)	%
Add: Amortization of software development costs(1)	8.0			7.8		2.5	%	24.1			24.8		(3.1)	%
Subtotal(2)	26.7			26.5		0.9	%	80.6			85.3		(5.5)	%
Non-GAAP EBITDA(2)	$	32.9		$	31.3	5.0	%	$	93.4		$	106.7	(12.5)	%
Non-GAAP EBITDA margin	14.2		%					13.7		%

Non-GAAP adjustments:

Add: Stock-based compensation expense	28.9			20.8		38.8	%	89.5			54.6		64.0	%
Add: Employee severance	0.1			0.2		(70.7)	%	1.5			4.6		(67.1)	%
Add: Acquisition-related integration costs	—			—		13.3	%	(0.1)			(0.1)		(2.5)	%
Add: Acquisition-related expenses	0.1			0.1		4.7	%	0.2			0.3		(31.9)	%
Add: Restructuring and other real estate activities	(0.4)			6.9		(106.0)	%	(0.4)			7.0		(105.9)	%
Add: Security Incident-related costs, net of insurance(3)	0.9			—		100.0	%	1.3			—		100.0	%
Subtotal(2)	29.5			28.1		5.0	%	92.0			66.3		38.7	%
Non-GAAP Adjusted EBITDA(2)	$	62.4		$	59.4	5.0	%	$	185.4		$	173.0	7.1	%
Non-GAAP Adjusted EBITDA margin	27.0		%					27.3		%

Rule of 40(4)	34.5		%					28.7		%

(1)Includes amortization expense related to software development costs and amortization expense from capitalized cloud computing implementation costs.

(2)The individual amounts for each year may not sum to subtotal, non-GAAP EBITDA or non-GAAP adjusted EBITDA due to rounding.

(3)Includes Security Incident-related costs incurred, net of probable insurance recoveries. See additional details in the reconciliation of GAAP to Non-GAAP operating income above.

(4)Measured by non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. See Non-GAAP organic revenue growth table above.

Non-GAAP free cash flow

Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.


	Nine months ended September 30,
(dollars in millions)	2021		2020		Change
GAAP net cash provided by operating activities	$	169.8	$	109.2	55.5	%
Less: purchase of property and equipment	(8.3)		(25.8)		(67.8)	%
Less: capitalized software development costs	(29.7)		(32.0)		(7.4)	%
Non-GAAP free cash flow	$	131.8	$	51.3	156.9	%

(dollars in millions) Three months ended
September 30, Nine months ended
September 30,
2017
2016
2017
2016
GAAP revenue $ 195.5
$ 183.1
$ 571.3
$ 532.5
GAAP revenue growth 6.8 % 7.3 %
(Less) Add: Non-GAAP acquisition-related revenue ⁽¹⁾
(2.1 ) —
(4.0 ) 3.6
Total Non-GAAP adjustments (2.1 ) —
(4.0 ) 3.6
Non-GAAP revenue $ 193.4
$ 183.1
$ 567.3
$ 536.1
Non-GAAP organic revenue growth 5.6 % 5.8 %

Non-GAAP revenue ⁽²⁾
$ 193.4
$ 183.1
$ 567.3
$ 536.1
Foreign currency impact on Non-GAAP organic revenue ⁽³⁾
(0.5 ) —
0.8
—
Non-GAAP revenue on constant currency basis ⁽³⁾
$ 192.9
$ 183.1
$ 568.1
$ 536.1
Non-GAAP organic revenue growth on constant currency basis 5.4 % 6.0 %

GAAP subscriptions revenue $ 127.5
$ 105.4
$ 370.9
$ 306.3
GAAP subscriptions revenue growth 20.9 % 21.1 %
(Less) Add: Non-GAAP acquisition-related revenue ⁽¹⁾
(2.0 ) —
(3.7 ) 3.5
Total Non-GAAP adjustments (2.0 ) —
(3.7 ) 3.5
Non-GAAP organic subscriptions revenue $ 125.5
$ 105.4
$ 367.2
$ 309.9
Non-GAAP organic subscriptions revenue growth 19.0 % 18.5 %

GAAP subscriptions revenue $ 127.5
$ 105.4
$ 370.9
$ 306.3
GAAP maintenance revenue $ 31.5
$ 36.4
98.2
111.0
GAAP recurring revenue $ 159.0
$ 141.9
469.1
417.3
GAAP recurring revenue growth 12.1 % 12.4 %
(Less) Add: Non-GAAP acquisition-related revenue ⁽¹⁾
(2.0 ) —
(3.7 ) 3.6
Total Non-GAAP adjustments (2.0 ) —
(3.7 ) 3.6
Non-GAAP recurring revenue $ 157.0
$ 141.9
$ 465.4
$ 421.0
Non-GAAP organic recurring revenue growth 10.7 % 10.5 %


~~(1)~~38			Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to companies acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period, and it includes the non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those companies.			Third Quarter 2021 Form 10-Q


~~(2)~~	Non-GAAP revenue for the prior year periods presented herein may not agree to non-GAAP revenue presented in the respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth is calculated.


~~(3)~~	To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Canadian Dollar, EURO, British Pound and Australian Dollar.

Table of Contents

Blackbaud, Inc.

(Unaudited)

Seasonality

Our revenues normally fluctuate as a result of certain seasonal variations in our business. Our ~~transaction~~first quarter has historically been the seasonal low for bookings, with the second and fourth quarters historically being seasonally higher, and our bookings tend to be back-end loaded within individual quarters given our quarterly quota plans. Transactional revenue is non-contractual and less predictable given the susceptibility to certain drivers such as timing and number of events and marketing campaigns, as well as fluctuations in donation volumes and tuition payments. Our transactional revenue has historically been at its lowest in the first quarter due to the timing of customer fundraising initiatives and events. ~~Our revenue from payment processing services has~~We have historically ~~increased~~experienced seasonal highs during the fourth quarter due to year-end ~~giving.~~giving campaigns and during the second quarter when a large number of events are held. Our revenue from professional services has historically been lower in the first quarter when many of those services commence and in the fourth quarter due to the holiday season. As a result of these and other factors, our total revenue has historically been lower in the first quarter than in the remainder of our fiscal year, with the ~~third and~~ fourth ~~quarters~~quarter historically achieving the highest total ~~revenues.~~revenue. Our expenses, however, do not vary significantly as a result of these factors, but do fluctuate on a quarterly basis due to varying timing of expenditures.

Our cash flow from operations normally fluctuates quarterly due to the combination of the timing of customer contract renewals including renewals associated with customers of acquired companies, delivery of professional services and occurrence of customer events, ~~the payment of bonuses,~~ as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our first quarter, combined with the payment of ~~bonuses from the prior year in our first quarter,~~certain annual vendor contracts, our cash flow from operations has been lowest in



36		~~Third Quarter 2017 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

our first ~~quarter, and due~~quarter. Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has been lower in our second quarter as compared to our third and fourth quarters. Partially offsetting these favorable drivers of cash flow from operations in our third and fourth quarters are ~~merit-based~~base salary merit increases, which ~~are generally effective~~were replaced in ~~April each year.~~2020 with performance-based equity awards due to COVID-19, but returned in July 2021. In addition, deferred revenues can vary on a seasonal basis for the same reasons. Our cash flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards. During the second quarter of 2021, however, we experienced an increase in the amount taxes we paid on behalf of our employees related to the settlement of equity awards when compared to the same period in 2020, as the equity granted in May 2020 in lieu of cash bonus plans and base salary merit increases vested. These patterns may change as a result of the continued shift to online giving, growth in volume of transactions for which we process payments, or as a result of acquisitions, new market opportunities, new solution introductions, the COVID-19 pandemic or other factors. Our cash flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards.



Liquidity and Capital Resources

The following table presents selected financial information about our financial position:


(dollars in millions)	September 30, 2017			Change		December 31, 2016			(dollars in millions)	September 30, 2021		December 31, 2020		Change
Cash and cash equivalents	$	17.1		0.9	%	$	16.9		Cash and cash equivalents	$	27.6	$	35.8	(22.8)	%
Property and equipment, net	43.9			(12.7	)%	50.3			Property and equipment, net	103.3		105.2		(1.7)	%
Software development costs, net	48.6			29.4	%	37.6			Software development costs, net	118.9		111.8		6.3	%
Total carrying value of debt	338.0			(1.3	)%	342.4			Total carrying value of debt	527.4		531.0		(0.7)	%
Working capital	(181.1		)	(5.1	)%	(172.2		)	Working capital	(202.1)		(194.3)		(4.0)	%
Working capital excluding deferred revenue	95.9			32.7	%	72.3

The following table presents selected financial information about our cash flows:


	Nine months ended September 30,
(dollars in millions)	2021		2020		Change
Net cash provided by operating activities	$	169.8	$	109.2	55.5	%
Net cash used in investing activities	(38.0)		(57.9)		(34.3)	%
Net cash used in financing activities	(533.1)		(393.8)		35.4	%

Nine months ended September 30,
(dollars in millions) 2017
Change
2016
Net cash provided by operating activities $ 123.4
23.2 % $ 100.1
Net cash used in investing activities (78.2 ) 106.4 % (37.9 )
Net cash used in financing activities (45.3 ) (25.9 )% (61.2 )


Third Quarter 2021 Form 10-Q						39

Table of Contents

Blackbaud, Inc.

(Unaudited)

Our principal sources of liquidity are our operating cash flow, funds available under the ~~2017~~2020 Credit Facility and cash on hand. Our operating cash flow depends on continued customer renewal of our subscription and maintenance ~~and support~~ arrangements, ~~and~~ market acceptance of our solutions and ~~services.~~services and our customers' ability to pay. Based on current estimates of revenue and expenses, we believe that the currently available sources of funds and anticipated cash flows from operations will be adequate for at least the next twelve months to finance our operations, fund anticipated capital expenditures and meet our debt obligations and pay dividends. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to declare and pay further dividends and/or repurchase our common stock.obligations. To the extent we undertake future material acquisitions or, investments or ~~unanticipated~~incur unusually high capital or operating expenditures, we may require additional capital. In that context, we regularly evaluate opportunities to enhance our capital structure including through potential debt or equity issuances.

At September 30, ~~2017,~~2021, our total cash and cash equivalents balance included approximately ~~$7.5~~$15.4 million of cash that was held by operations outside the U.S. While these funds may not be needed to fund our U.S. operations for at least the next twelve months, if we need these funds, we may be required to accrue and pay taxes to repatriate the funds. We currently do not intend nor anticipate a need to repatriate our cash held outside the U.S.

Operating ~~cash flow~~Cash Flow

Net cash provided by operating activities ~~of $123.4 million~~ increased by ~~$23.2~~$60.6 million during the nine months ended September 30, ~~2017,~~2021, when compared to the same period in ~~2016,~~2020, primarily due to ~~an increase in net income adjusted for non-cash expenses, and an~~a $48.3 million increase in cash flow from operations associated with working ~~capital.~~capital and an $12.4 million increase in net income adjusted for non-cash expenses. Throughout both periods, our cash flows from operations were derived principally from: (i) our earnings from on-going operations prior to non-cash



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expenses such as depreciation, amortization, stock-based compensation, amortization of deferred financing costs and debt discount and adjustments to our provision for credit losses and sales ~~returns and allowances;~~returns; and (ii) changes in our working capital.

Working capital changes are composed of changes in accounts receivable, prepaid expenses and other assets, trade accounts payable, accrued expenses and other liabilities, and deferred revenue. ~~Cash~~The increase in cash flow from operations associated with working capital ~~increased $1.6~~during the nine months ended September 30, 2021, when compared to the same period in 2020, was primarily due to:

•fluctuations in the timing of vendor payments; and

•the payment of our 2019 cash bonus plans in 2020 and the replacement of our 2020 cash bonus plans with performance-based equity awards (which we expect will continue going forward).

Security Incident update

Investing Cash Flow

Net cash used in investing activities of $38.0 million decreased by $19.9 million during the nine months ended September 30, ~~2017,~~2021, when compared to the same period in ~~2016, primarily due to a decrease in bonus payments partially offset by an increase in cash taxes paid.~~2020.

~~Investing cash flow~~

~~Net cash used in investing activities of $78.2 million increased by $40.3 million during the nine months ended September 30, 2017, when compared to the same period in 2016.~~

During the nine months ended September 30, ~~2017,~~2021, we used ~~net cash of $49.7~~$29.7 million ~~for the acquisition of AcademicWorks compared to $3.4 million spent on investments in acquired companies during the same period in 2016. We used $20.6 million~~ for software development costs, which was ~~up $1.5~~down $2.4 million from cash spent induring the same period in ~~2016. The increase~~2020, primarily due to less costs qualifying for capitalization under the internal-use software accounting guidance. We increased engineering hiring beginning in ~~cash outlays for software development costs was primarily driven by development activities related~~the fourth quarter of 2020 and continue to invest in our ~~next generation cloud-based~~innovative cloud solutions, ~~and~~as well as development activities for Blackbaud SKY, our ~~new~~ modern cloud platform.

We also spent ~~$8.4~~$8.3 million of cash for purchases of property and equipment during the nine months ended September 30, ~~2017,~~2021, which was ~~down $7.0~~an decrease of $17.5 million ~~from cash spent during~~when compared to the same period in ~~2016.~~2020. The ~~decrease in~~additional cash ~~outlays for property and equipment~~expended during the nine months ended 2020 was primarily ~~driven by a shift toward leasing certain equipment that we have historically purchased. Cash outlays for operating leases are presented in operating cash flows.~~used to purchase our global headquarters facility.


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(Unaudited)

Financing ~~cash flow~~Cash Flow

During the nine months ended September 30, ~~2017,~~2021, we had a net decrease in borrowings of ~~$5.8 million, even with the incremental borrowings needed to finance our acquisition of AcademicWorks. We also paid $3.1 million in financing costs as a result of refinancing our credit facility.~~$3.0 million.

We paid ~~$19.1~~$39.0 million to satisfy tax obligations of employees upon settlement ~~or exercise~~ of equity awards during the nine months ended September 30, ~~2017~~2021 compared to ~~$10.5~~$21.3 million during the same period in ~~2016.~~2020. The amount of taxes paid by us on ~~the~~ behalf of employees related to the settlement ~~or exercise~~ of equity awards varies from period to period based upon the timing of grants and vesting, ~~employee exercise decisions,~~ as well as the market price for shares of our common stock at the time of settlement. ~~Due to a change in the timing of our annual equity award grants, most~~Most of our equity awards ~~now~~currently vest in our first quarter. ~~In addition,~~During the nine months ended September 30, 2020, we paid dividends of $6.0 million and we did not pay dividends during the same period in 2021, as we discontinued the declaration and payment of all cash dividends, beginning with the second quarter of 2020.

Cash used in financing activities associated with changes in restricted cash due to customers increased $49.2 million during the nine months ended September 30, ~~2017,~~2021 when compared to the same period in 2020, as the amount of restricted cash held and payable by us to customers as of December 31, 2020 was larger than at the same date in 2019 primarily due to the timing of year-end donations.

Stock repurchase program

In November 2020, our Board of Directors reauthorized and expanded a stock repurchase program that authorizes us to purchase up to $250.0 million of our outstanding shares of common stock. The program does not have an expiration date. Under the stock repurchase program, we ~~paid dividends~~are authorized to repurchase shares from time to time in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of ~~$17.3~~1934, as amended, and in privately negotiated transactions. The timing and amount of repurchases depends on several factors, including market and business conditions, the trading price of our common stock and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. During the three and nine months ended September 30, 2021, we purchased 583,280 and 1,454,148 shares for $40.3 million ~~which~~and $98.4 million, respectively. The remaining amount available to purchase stock under the stock repurchase program was ~~relatively consistent with the comparable period~~$110.6 million as of ~~2016.~~September 30, 2021.

~~2017~~2020 Credit Facility

~~As discussed above, in June 2017,~~Historically, we entered into the 2017 Credit Facility. Upon closing, we drew $300.0 million on a term loan and $110.0 million in revolving credit loans, which was used to repay all amounts outstanding under our previous credit facility and for other general corporate purposes.

We have drawn on our credit facility from time to time to help us meet financial needs, ~~such as~~primarily due to the seasonality of our cash flows from operations and financing for business acquisitions. At September 30, ~~2017,~~2021, our available borrowing capacity under the ~~2017~~2020 Credit Facility was ~~$356.2~~$424.6 million. The ~~2017~~2020 Credit Facility matures in ~~June 2022.~~October 2025.

At September 30, ~~2017,~~2021, the carrying amount of our debt under the ~~2017~~2020 Credit Facility was ~~$335.8~~$465.9 million. Our average daily borrowings during the three and nine months ended September 30, ~~2017~~2021 were ~~$355.4~~$471.0 million and ~~$368.5~~$485.3 million, respectively.

The following is a summary of the financial covenants under ~~our credit facility:~~

the 2020 Credit Facility:



Financial ~~Covenant~~covenant	Requirement	Ratio as of September 30, ~~2017~~2021
Net ~~Leverage Ratio~~leverage ratio	≤ ~~3.50~~4.00 to 1.00	~~1.79~~1.70 to 1.00
Interest ~~Coverage Ratio~~coverage ratio	≥ 2.50 to 1.00	~~16.31~~16.32 to 1.00



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Under the ~~2017~~2020 Credit Facility, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (i) no default or event of default shall have occurred and be continuing under the ~~2017~~2020 Credit Facility, and (ii) our pro forma net leverage ratio, as set forth in the ~~2017~~2020 Credit Facility, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase. At September 30, ~~2017,~~2021, we were in compliance with our debt covenants under the ~~2017~~2020 Credit Facility.


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(Unaudited)

Commitments and ~~contingencies~~Contingencies

As of September 30, ~~2017,~~2021, we had contractual obligations with future minimum commitments as follows:


	Payments due by period											Payments due by period
(in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		(in millions)	Total(1)		Less than 1 year		1-3 years		3-5 years		More than 5 years
Recorded contractual obligations:											Recorded contractual obligations:
Debt⁽¹⁾	$	340.2	$	8.6	$	16.1	$	315.5	$	—
Debt(2)											Debt(2)	$	529.5	$	12.9	$	23.5	$	441.2	$	51.9
Interest payments on debt(3)											Interest payments on debt(3)	1.6		1.4		0.2		—		—
Operating leases(4)											Operating leases(4)	22.6		8.0		9.6		3.0		2.0

Unrecorded contractual obligations:											Unrecorded contractual obligations:
Operating leases⁽²⁾	190.4		20.2		40.0		33.1		97.1
Interest payments on debt⁽³⁾⁽⁵⁾	41.9		8.9		18.7		14.3		—		71.6		11.3		24.8		13.9		21.5
Purchase obligations⁽⁴⁾⁽⁶⁾	51.9		21.3		30.6		—		—		39.7		27.5		12.2		—		—
Total contractual obligations	$	624.4	$	59.0	$	105.4	$	362.9	$	97.1	Total contractual obligations	$	664.9	$	61.2	$	70.2	$	458.0	$	75.5

~~(1)~~

~~Represents principal payments only, under the following assumptions: (i) that the amounts outstanding under the~~ ~~2017 Credit Facility~~ ~~and our other debt at~~ ~~September 30, 2017~~ will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the 2017 Revolving Facility for the purposes of determining minimum commitment amounts.

(1)The individual amounts for each period may not sum to total due to rounding.

(2)Represents principal payments only, under the following assumptions: (i) that the amounts outstanding under the 2020 Credit Facility, our Real Estate Loans and our other debt at September 30, 2021 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the 2020 Credit Facility for the purposes of determining minimum commitment amounts.

(3)Represents interest payment obligations related to our interest rate swap agreements.

(4)Our commitments related to operating leases have not been reduced by sublease income, incentive payments and reimbursement of leasehold improvements.

(5)The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions described in (2) above.

(6)We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us.


~~(2)~~	~~Our commitments related to operating leases have not been reduced by incentive payments and reimbursement of leasehold improvements.~~


~~(3)~~	The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions described in (1) above.


~~(4)~~	We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us.

The term loan under the ~~2017~~2020 Credit Facility and our other debt require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the ~~2017~~2020 Credit Facility in ~~June 2022.~~October 2025. The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038.

The total liability for uncertain tax positions as of September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, was ~~$3.4~~$4.9 million and ~~$3.1~~$4.6 million, respectively. Our accrued interest and penalties related to tax positions taken on our tax returns was ~~insignificant~~$1.2 million and $1.1 million as of September 30, ~~2017~~2021 and December 31, ~~2016.~~

2020, respectively. In February 2017, our Board of Directors approved our annual dividend rate of $0.48 per share to be made in quarterly payments. Dividends at this annual rate would aggregate to $23.0 million assuming 48.0 million shares of common stock are outstanding, although dividends are not guaranteed and our Board of Directors may decide, in its absolute discretion, to change or suspend dividend payments at any time for any reason. Our ability to continue to declare and pay dividends quarterly this year and beyond might be restricted by, among other things, the ~~terms of the 2017 Credit Facility, general economic conditions and our ability to generate adequate operating cash flow.~~

~~On October 25, 2017, our Board of Directors declared a~~ fourth quarter ~~dividend~~ of ~~$0.12 per share payable~~2021, we entered into settlement discussions with the IRS Appeals Office in relation to one of our uncertain tax positions, which is not material to the financial statements. Successful settlement is expected to result in release of corresponding liability for uncertain tax positions within next twelve months.

Security Incident

As discussed in Note 9 to our unaudited, condensed consolidated financial statements included in this report, we believe that total losses related to the Security Incident will exceed the limits of our insurance coverage during the fourth quarter of 2021. As we are currently unable to determine the approximate amount or range of any such excess, we are unable to determine the effect the Security Incident will have on ~~December 15, 2017 to stockholders~~our results of ~~record on November 28, 2017.~~operations, liquidity, or financial condition.



Off-Balance Sheet Arrangements

As of September 30, ~~2017,~~2021, we did not have any off-balance sheet arrangements as previously defined inby Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.


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(Unaudited)


~~Third Quarter 2017 Form 10-Q~~				39

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~~Blackbaud, Inc.~~

Foreign Currency Exchange Rates

Approximately ~~10%~~17% of our total revenue for the nine months ended September 30, ~~2017~~2021 was generated from operations outside the ~~United States.~~U.S. We do not have significant operations in countries in which the economy is considered to be highly inflationary. Our consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between foreign currencies and the U.S. dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. The accumulated currency translation adjustment, recorded within accumulated other comprehensive loss as a component of stockholders’ equity, was a ~~loss~~gain of ~~$0.9 million and $0.5~~$1.7 million as of September 30, ~~2017~~2021 and a gain of $0.6 million as of December 31, ~~2016, respectively.~~2020.

The vast majority of our contracts are entered into by our U.S. or U.K. entities. The contracts entered into by the U.S. entity are almost always denominated in U.S. dollars or Canadian dollars, and contracts entered into by our U.K., Australian and Irish subsidiaries are generally denominated in British Pounds, Australian dollars and Euros, respectively. Historically, as the U.S. dollar weakened, foreign currency translation resulted in an increase in our revenues and expenses denominated in non-U.S. currencies. Conversely, as the U.S. dollar strengthened, foreign currency translation resulted in a decrease in our revenue and expenses denominated in non-U.S. currencies. During the nine months ended September 30, ~~2017,~~2021, foreign translation resulted in ~~an decrease~~increases in our revenues and expenses denominated in non-U.S. currencies. Though we have exposure to fluctuations in currency exchange rates, primarily those between the U.S. dollar and both the British Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operations or financial position. For the nine months ended September 30, ~~2017,~~2021, the fluctuation in foreign currency exchange rates ~~had insignificant impacts on~~increased our total revenue and our income from ~~operations. For the nine months ended September 30, 2017, the fluctuation in foreign currency exchange rates decreased IMG revenue~~operations by ~~approximately $0.8 million.~~$8.4 million and $3.2 million, respectively. We will continue monitoring such exposure and take action as appropriate. To determine the impacts on revenue (or income from operations) from fluctuations in currency exchange rates, current period revenues (or income from operations) from entities reporting in foreign currencies were translated into U.S. dollars using the comparable prior year period's weighted average foreign currency exchange rates. These impacts are non-GAAP financial information and are not in accordance with, or an alternative to, information prepared in accordance with GAAP.

In June and September 2017, we entered into a foreign currency option contract and a foreign currency forward contract, respectively, to hedge our exposure to currency fluctuations in connection with our acquisition of JustGiving, because the purchase price was denominated in British Pounds. See Note 9 of our consolidated financial statements in this report for additional information about these derivative instruments.



~~Inflation~~

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. In addition, if inflationary pressures impact the rate of giving to our customers, there could be adverse impacts to our business, financial condition and results of operations.

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, ~~2017~~2021 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2020.



Recently Issued Accounting Pronouncements

For a discussion of the impact that recently issued accounting pronouncements are expected to have on our financial position and results of operations when adopted in the future, see Note 2 ofto our condensed consolidated financial statements in this report.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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



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. Our interest rate exposure includes LIBOR rates. The Financial Conduct Authority in the U.K. has stated that it plans to phase out all tenors of LIBOR by June 2023. We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as we expect that our financial contracts currently indexed to LIBOR will either expire or be modified without significant financial impact before the phase out occurs. Due to the nature of our debt, the materiality of the fair values of the


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(Unaudited)

derivative instruments and the highly liquid, short-term nature and level of our cash and cash equivalents as of September 30, ~~2017,~~2021, we believe ~~there is no material~~that the risk of exposure to changing interest rates for those ~~positions.~~positions is immaterial. There were no significant changes in how we manage interest rate risk between December 31, ~~2016~~2020 and September 30, ~~2017.~~

2021.



Foreign Currency Risk

For a discussion of our exposure to foreign currency exchange rate fluctuations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Foreign Currency Exchange Rates” in this report.

ITEM 4. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e) and 15d-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) pursuant to Securities Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to provide the reasonable assurance discussed above.



Changes in Internal Control Over Financial Reporting

No ~~change~~changes in internal control over financial reporting occurred during the most recent fiscal quarter ended September 30, ~~2017~~2021 with respect to our operations, which ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.



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						PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, see Note 9 to our condensed consolidated financial statements in this report.

ITEM 1A. RISK FACTORS

~~Our operations and financial results~~We are ~~subject to various risks and uncertainties, including those described in Part I,~~supplementing Item ~~IA, "Risk factors"~~1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, as filed with the Securities and Exchange Commission on February 23, 2021 (the “Annual Report”). The following risk factors should be read in conjunction with the risk factors set forth in that Annual Report.


Operational Risks

The Security Incident could have numerous adverse effects on our business.

As previously disclosed, on July 16, 2020, we contacted certain customers to inform them about the Security Incident, including that in May 2020 we discovered and stopped a ransomware attack. Prior to our successfully preventing the cybercriminal from blocking our system access and fully encrypting files, and ultimately expelling them from our system with no significant disruption to our operations, the cybercriminal removed a copy of a subset of data from our self-hosted environment. Although the nature of the incident, our research and third party (including law enforcement) investigation have provided no reason to believe that any data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly, our investigation into the Security Incident remains ongoing and may provide additional information.

To date, we have received approximately 260 specific requests for reimbursement of expenses ("Customer Reimbursement Requests") and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident (none of which have as yet been filed in court) and are in the process of assessing what liability may exist pursuant to such claims. Of the Customer Reimbursement Requests received to date, approximately 170 have been fully resolved and closed. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us. Customer and insurer subrogation claims generally seek reimbursement of their costs and expenses associated with notifying their own customers of the Security Incident and taking steps to assure that personal information has not been compromised as a result of the Security Incident. Our review of customer and subrogation claims generally seek reimbursement of their costs and expenses associated with notifying their own customers of the Security Incident and taking steps to assure that personal information has not been compromised as a result of the Security Incident. In addition, presently, we are a defendant in 19 putative consumer class action cases [17 in U.S. federal courts (which have been consolidated under multi district litigation to a single federal court) and 2 in Canadian courts] alleging harm from the Security Incident. The plaintiffs in these cases, who generally purport to represent various classes of individual constituents of our customers, generally claim to have been harmed by alleged actions and/or omissions by us in connection with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief. To date, we also have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 48 state Attorneys General and the District of Columbia and separate Civil Investigative Demands from the offices of the Illinois Attorney General and the California Attorney General relating to the Security Incident. In addition, we have received communications, inquires and requests from the U.S. Federal Trade Commission, the U.S. Department of Health and Human Services, the U.S. Securities and Exchange Commission, the Information Commissioner’s Office in the United Kingdom (the “ICO”) under the U.K. Data Protection Act 2018, the Office of the Australian Information Commissioner, the Office of the Privacy Commissioner of Canada, the Spanish Data Protection Authority and the Data Protection Commission of Ireland. (See Note 9 to our unaudited, condensed consolidated financial statements included in this report for a more detailed description of the Security Incident and related matters.)


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We may be named as a party in additional lawsuits, other claims may be asserted by or on behalf of our customers or their constituents, and we may be subject to additional governmental inquires, requests or investigations. Responding to and resolving these current and any future lawsuits, claims and/or investigations could result in material remedial and other expenses that may not be covered by insurance. Governmental authorities also may seek to impose undertakings, injunctive relief, consent decrees, or other civil or criminal penalties, which could, ~~adversely affect~~among other things, materially increase our data security costs or otherwise require us to alter how we operate our business. Although we intend to defend ourselves vigorously against the claims asserted against us, we cannot predict the potential outcomes, cost and expenses associated with current and any future claims, lawsuits, inquiries and investigations.

Significant management time and Company resources have been, and are expected to continue to be, devoted to the Security Incident. In the three and nine months ended September 30, 2021, we recorded $11.4 million and $35.9 million, respectively, of expenses related to the Security Incident and offsetting probable insurance recoveries of $10.6 million and $34.5 million, respectively. As of September 30, 2021, we have recorded cumulative expenses related to the Security Incident of $45.7 million and cumulative probable insurance recoveries of $43.9 million. Although we carry insurance designed to protect us against certain losses related to cybersecurity events, we believe that insurance coverage will not be sufficient to cover all expenses or other losses (including fines) or all types of claims that may arise in connection with the Security Incident, and may not be sufficient for possible future cyberattacks, security compromises and other related incidents. Furthermore, in the future such insurance may not be available on commercially reasonable terms, or at all. (See Note 9 to our unaudited, condensed consolidated financial statements included in this report.)

Future publicity or developments related to the Security Incident could have a range of other adverse effects on our business ~~financial condition, results~~or prospects, including causing or contributing to loss of ~~operations, cash flows,~~customer confidence, reduced customer demand, reduced customer retention, strategic growth opportunities, and ~~the trading price of our stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2016.~~associated retention and recruiting difficulties.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



Issuer Purchases of Equity Securities

The following table provides information about shares of common stock acquired or repurchased during the three months ended September 30, ~~2017. All of these acquisitions were of~~2021 under the stock repurchase program then in effect, as well as common stock withheld by us to satisfy the minimum tax obligations of employees due upon ~~exercise~~vesting of restricted stock ~~appreciation rights~~awards and units.


Period	Total number of shares purchased(1)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs(2)	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
Beginning balance, July 1, 2021					$	150,925
July 1, 2021 through July 31, 2021	—	$	—	—	150,925
August 1, 2021 through August 31, 2021	4,313	69.40		—	150,925
September 1, 2021 through September 30, 2021	583,280	69.06		583,280	110,646
Total	587,593	$	69.06	583,280	$	110,646

(1)Includes 4,313 shares in August withheld by us to satisfy the minimum tax obligations of employees due upon vesting of restricted stock awards and units. The level of this acquisition activity varies from period to period based upon the timing of award grants and ~~vesting as well as employee exercise decisions.~~vesting.

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, July 1, 2017 $ 50,000
July 1, 2017 through July 31, 2017 —
$ —
—
50,000
August 1, 2017 through August 31, 2017 24,710
86.24
—
50,000
September 1, 2017 through September 30, 2017 3,644
87.00
—
50,000
Total 28,354
$ 86.34
—
$ 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.

(2)In November 2020, our Board of Directors reauthorized and expanded our stock repurchase program to authorize us to purchase up to $250.0 million of our outstanding shares of common stock. The program does not have an expiration date.



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ITEM 6. EXHIBITS

The exhibits listed below are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q:

Filed In

Exhibit
Number

Description of Document

Filed Herewith

Form

Exhibit Number

Filing Date

10.01

LIBOR Transition Amendment, dated as of September 20, 2021, between Blackbaud, Inc. and Bank of America, N.A.

31.1

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*101.INS

Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL Document.

101.SCH*101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to liability of that Section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, except as shall be expressly set forth by specific reference in such filing.



Third Quarter ~~2017~~2021 Form 10-Q						4347

Table of Contents

Blackbaud, Inc.



						SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


				BLACKBAUD, INC.

Date:			November 4, 2021	~~BLACKBAUD, INC.~~
By:
~~Date:~~	~~November 2, 2017~~	~~By:~~	/s/ Michael P. Gianoni
					Michael P. Gianoni
					President and Chief Executive Officer
					(Principal Executive Officer)

Date:			November ~~2, 2017~~4, 2021	By:	/s/ Anthony W. Boor
					Anthony W. Boor
					Executive Vice President and Chief Financial Officer
					(Principal Financial and Accounting Officer)



4448						Third Quarter ~~2017~~2021 Form 10-Q



(in thousands)	Purchase price allocation
Net working capital, excluding deferred revenue	$	2,949
Property and equipment	290
Finite-lived intangible assets	30,900
Deferred revenue	(3,950		)
Deferred tax liability	(12,350		)
Goodwill	34,305
Total purchase price	$	52,144



	Intangible assets acquired		Weighted average amortization period
AcademicWorks	(in thousands)		(in years)
Acquired technology	$	22,500	9
Customer relationships	8,000		15
Marketing assets	320		2
Non-compete agreements	80		3
Total intangible assets	$	30,900	10



Years ending December 31, (dollars in thousands)	Annual maturities
2017 - remaining	$	2,950
2018	8,576
2019	7,500
2020	7,500
2021	7,500
Thereafter	306,150
Total required maturities	$	340,176



	Location of gain (loss) recognized in income on derivative	Gain (loss) recognized in income
(dollars in thousands)	Location of gain (loss) recognized in income on derivative	Three months ended September 30, 2017			Nine months ended September 30, 2017
Foreign currency option contracts	Other income (expense), net	$	38		$	513
Foreign currency forward contracts	Other income (expense), net	$	(41	)	$	(41	)
Total (loss) gain⁽¹⁾		$	(3	)	$	472



Declaration Date	Dividend per Share		Record Date	Payable Date
February 8, 2017	$	0.12	February 28	March 15
May 1, 2017	$	0.12	May 26	June 15
July 31, 2017	$	0.12	August 28	September 15



Revenue by segment
	Three months ended September 30,						Nine months ended September 30,
(dollars in millions)	2017		2016		Change		2017		2016		Change
GMG	$	102.8	$	97.6	5.3	%	$	297.0	$	279.5	6.2	%
EMG	81.8		74.4		10.1	%	243.7		220.9		10.3	%
IMG	10.8		11.0		(1.7	)%	30.6		31.9		(4.1	)%
Total revenue⁽¹⁾	$	195.5	$	183.1	6.8	%	$	571.3	$	532.5	7.3	%



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, July 1, 2017					$	50,000
July 1, 2017 through July 31, 2017	—	$	—	—	50,000
August 1, 2017 through August 31, 2017	24,710	86.24		—	50,000
September 1, 2017 through September 30, 2017	3,644	87.00		—	50,000
Total	28,354	$	86.34	—	$	50,000