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 June 30, 2023

~~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
Preferred Stock Purchase Rights	N/A	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~~July 31, 2023 was ~~48,089,595.~~53,854,802.

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 (Loss) (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		2324
Item 3.			Quantitative and qualitative disclosures about market risk		4148
Item 4.			Controls and procedures		4148

PART II.			OTHER INFORMATION		4249

Item ~~1A.~~1.			~~Risk factors~~Legal proceedings		4249
Item 1A.			Risk factors		49
Item 2.			Unregistered sales of equity securities and use of proceeds		4252
Item 5.			Other information		52

Item 6.			Exhibits		4353

SIGNATURES					4454



~~Third~~Second Quarter ~~2017~~2023 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, 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~~2022 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~~Second Quarter ~~2017~~2023 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)	June 30, 2023		December 31, 2022
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	17,050		$	16,902		Cash and cash equivalents	$	29,041	$	31,691
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	761,289		702,240
Accounts receivable, net of allowance of $8,081 and $7,318 at June 30, 2023 and December 31, 2022, respectively							Accounts receivable, net of allowance of $8,081 and $7,318 at June 30, 2023 and December 31, 2022, respectively	168,908		102,809
Customer funds receivable							Customer funds receivable	3,731		249
Prepaid expenses and other current assets	50,082			48,314			Prepaid expenses and other current assets	81,597		81,654
Total current assets	307,095			507,919			Total current assets	1,044,566		918,643
Property and equipment, net	43,903			50,269			Property and equipment, net	104,672		107,426
Software development costs, net	48,618			37,582
Operating lease right-of-use assets							Operating lease right-of-use assets	45,497		45,899
Software and content development costs, net							Software and content development costs, net	151,158		141,023
Goodwill	472,776			438,240			Goodwill	1,053,342		1,050,272
Intangible assets, net	252,713			253,676			Intangible assets, net	609,524		635,136
Other assets	21,889			22,524			Other assets	84,254		94,304
Total assets	$	1,146,994		$	1,310,210		Total assets	$	3,093,013	$	2,992,703
Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Current liabilities:							Current liabilities:
Trade accounts payable	$	17,830		$	23,274		Trade accounts payable	$	40,730	$	42,559
Accrued expenses and other current liabilities	45,650			54,196			Accrued expenses and other current liabilities	102,747		86,002
Due to customers	139,095			353,771			Due to customers	763,845		700,860
Debt, current portion	8,576			4,375			Debt, current portion	19,176		18,802
Deferred revenue, current portion	277,008			244,500			Deferred revenue, current portion	434,631		382,419
Total current liabilities	488,159			680,116			Total current liabilities	1,361,129		1,230,642
Debt, net of current portion	329,380			338,018			Debt, net of current portion	827,403		840,241
Deferred tax liability	39,352			29,558			Deferred tax liability	91,306		125,759
Deferred revenue, net of current portion	5,412			6,440			Deferred revenue, net of current portion	3,520		2,817
Operating lease liabilities, net of current portion							Operating lease liabilities, net of current portion	43,529		44,918
Other liabilities	7,799			8,533			Other liabilities	4,756		4,294
Total liabilities	870,102			1,062,665			Total liabilities	2,331,643		2,248,671
Commitments and contingencies (see Note 10)
Commitments and contingencies (see Note 8)							Commitments and contingencies (see Note 8)
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, 69,164,244 and 67,814,044 shares issued at June 30, 2023 and December 31, 2022, respectively							Common stock, $0.001 par value; 180,000,000 shares authorized, 69,164,244 and 67,814,044 shares issued at June 30, 2023 and December 31, 2022, respectively	69		68
Additional paid-in capital	341,476			310,452			Additional paid-in capital	1,138,553		1,075,264
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; 15,311,367 and 14,745,230 shares at June 30, 2023 and December 31, 2022, respectively							Treasury stock, at cost; 15,311,367 and 14,745,230 shares at June 30, 2023 and December 31, 2022, respectively	(570,547)		(537,287)
Accumulated other comprehensive income							Accumulated other comprehensive income	8,842		8,938
Retained earnings	170,699			152,729			Retained earnings	184,453		197,049
Total stockholders’ equity	276,892			247,545			Total stockholders’ equity	761,370		744,032
Total liabilities and stockholders’ equity	$	1,146,994		$	1,310,210		Total liabilities and stockholders’ equity	$	3,093,013	$	2,992,703

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~~Second Quarter ~~2017~~2023 Form 10-Q						3

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
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
Total revenue 195,513
183,063
571,329
532,510
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
Total cost of revenue 87,005
83,317
259,482
246,818
Gross profit 108,508
99,746
311,847
285,692
Operating expenses
Sales, marketing and customer success 44,193
40,690
129,394
115,707
Research and development 22,071
22,510
67,647
67,973
General and administrative 23,545
22,319
67,350
62,089
Amortization 734
687
2,164
2,147
Total operating expenses 90,543
86,206
266,555
247,916
Income from operations 17,965
13,540
45,292
37,776
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
Income tax provision 2,793
1,950
2,964
5,323
Net income $ 12,548
$ 8,934
$ 35,224
$ 24,231
Earnings per share
Basic $ 0.27
$ 0.19
$ 0.76
$ 0.53
Diluted $ 0.26
$ 0.19
$ 0.74
$ 0.51
Common shares and equivalents outstanding
Basic weighted average shares 46,711,709
46,159,956
46,627,213
46,078,306
Diluted weighted average shares 47,846,997
47,394,106
47,679,103
47,268,469
Dividends per share $ 0.12
$ 0.12
$ 0.36
$ 0.36
Other comprehensive (loss) income
Foreign currency translation adjustment (188 ) 289
(467 ) 261
Unrealized (loss) gain on derivative instruments, net of tax (267 ) 409
(89 ) (378 )
Total other comprehensive (loss) income (455 ) 698
(556 ) (117 )
Comprehensive income $ 12,093
$ 9,632
$ 34,668
$ 24,114

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


Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
	Three months ended June 30,				Six months ended June 30,
(dollars in thousands, except per share amounts)	2023		2022		2023		2022
Revenue
Recurring	$	262,390	$	252,507	$	515,138	$	497,173
One-time services and other	8,652		12,420		17,657		24,878
Total revenue	271,042		264,927		532,795		522,051
Cost of revenue
Cost of recurring	113,926		114,487		228,426		226,661
Cost of one-time services and other	7,549		11,120		16,161		22,308
Total cost of revenue	121,475		125,607		244,587		248,969
Gross profit	149,567		139,320		288,208		273,082
Operating expenses
Sales, marketing and customer success	53,191		52,737		107,576		107,953
Research and development	36,146		38,333		76,737		78,285
General and administrative	59,148		47,391		111,986		91,153
Amortization	788		805		1,562		1,616

Total operating expenses	149,273		139,266		297,861		279,007
Income (loss) from operations	294		54		(9,653)		(5,925)
Interest expense	(11,167)		(8,976)		(21,829)		(16,575)
Other income, net	2,778		3,133		4,785		4,254
Loss before provision for income taxes	(8,095)		(5,789)		(26,697)		(18,246)
Income tax benefit	(10,200)		(2,367)		(14,101)		(4,417)
Net income (loss)	$	2,105	$	(3,422)	$	(12,596)	$	(13,829)
Earnings (loss) per share
Basic	$	0.04	$	(0.07)	$	(0.24)	$	(0.27)
Diluted	$	0.04	$	(0.07)	$	(0.24)	$	(0.27)
Common shares and equivalents outstanding
Basic weighted average shares	52,642,411		51,660,739		52,389,112		51,431,501
Diluted weighted average shares	53,643,124		51,660,739		52,389,112		51,431,501
Other comprehensive income (loss)
Foreign currency translation adjustment	$	3,055	$	(10,398)	$	5,213	$	(12,530)
Unrealized gain (loss) on derivative instruments, net of tax	5,383		2,558		(5,309)		13,463
Total other comprehensive income (loss)	8,438		(7,840)		(96)		933
Comprehensive income (loss)	$	10,543	$	(11,262)	$	(12,692)	$	(12,896)

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



4						~~Third~~Second Quarter ~~2017~~2023 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,							Six months ended June 30,
(dollars in thousands)	2017			2016			(dollars in thousands)	2023		2022
Cash flows from operating activities							Cash flows from operating activities
Net income	$	35,224		$	24,231
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss							Net loss	$	(12,596)	$	(13,829)
Adjustments to reconcile net loss to net cash provided by operating activities:							Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	54,765			53,109			Depreciation and amortization	53,622		51,283
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	3,798		3,653
Stock-based compensation expense	31,055			25,005			Stock-based compensation expense	63,289		55,714
Deferred taxes	(2,511		)	(225		)	Deferred taxes	(33,101)		(16,656)
Amortization of deferred financing costs and discount	650			718			Amortization of deferred financing costs and discount	963		1,254
Other non-cash adjustments	572			(634		)	Other non-cash adjustments	(1,569)		4,225
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	(69,624)		(50,818)
Prepaid expenses and other assets	596			(934		)	Prepaid expenses and other assets	9,470		3,685
Trade accounts payable	(2,891		)	267			Trade accounts payable	(3,431)		12,769
Accrued expenses and other liabilities	(9,522		)	(12,837		)	Accrued expenses and other liabilities	11,948		(8,739)
Restricted cash due to customers	214,244			119,291
Due to customers	(214,244		)	(119,291		)
Deferred revenue	25,370			17,593			Deferred revenue	52,233		39,238
Net cash provided by operating activities	123,385			100,144			Net cash provided by operating activities	75,002		81,779
Cash flows from investing activities							Cash flows from investing activities
Purchase of property and equipment	(8,417		)	(15,459		)	Purchase of property and equipment	(2,779)		(7,518)
Capitalized software development costs	(20,605		)	(19,078		)
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			—
Capitalized software and content development costs							Capitalized software and content development costs	(28,756)		(27,183)
Purchase of net assets of acquired companies, net of cash and restricted cash acquired							Purchase of net assets of acquired companies, net of cash and restricted cash acquired	—		(19,016)

Net cash used in investing activities	(78,237		)	(37,914		)	Net cash used in investing activities	(31,535)		(53,717)
Cash flows from financing activities							Cash flows from financing activities
Proceeds from issuance of debt	588,300			179,000			Proceeds from issuance of debt	158,000		113,200
Payments on debt	(594,144		)	(212,581		)	Payments on debt	(171,824)		(129,548)
Debt issuance costs	(3,085		)	—

Stock issuance costs							Stock issuance costs	—		(557)
Employee taxes paid for withheld shares upon equity award settlement	(19,092		)	(10,497		)	Employee taxes paid for withheld shares upon equity award settlement	(33,687)		(35,600)
Proceeds from exercise of stock options	14			10
Dividend payments to stockholders	(17,299		)	(17,108		)
Net cash used in financing activities	(45,306		)	(61,176		)
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.
Change in due to customers							Change in due to customers	61,313		(141,001)
Change in customer funds receivable							Change in customer funds receivable	(3,359)		(546)

Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	10,443		(194,052)
Effect of exchange rate on cash, cash equivalents and restricted cash							Effect of exchange rate on cash, cash equivalents and restricted cash	2,489		(7,252)
Net increase (decrease) in cash, cash equivalents and restricted cash							Net increase (decrease) in cash, cash equivalents and restricted cash	56,399		(173,242)
Cash, cash equivalents and restricted cash, beginning of period							Cash, cash equivalents and restricted cash, beginning of period	733,931		651,762
Cash, cash equivalents and restricted cash, end of period							Cash, cash equivalents and restricted cash, end of period	$	790,330	$	478,520

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)	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	29,041	$	31,691
Restricted cash	761,289		702,240
Total cash, cash equivalents and restricted cash in the statement of cash flows	$	790,330	$	733,931

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



~~Third~~Second Quarter ~~2017~~2023 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		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
Net income	—		—		—		—			—			35,224			35,224
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		)
Balance at December 31, 2022																			Balance at December 31, 2022	67,814,044	$	68	$	1,075,264	$	(537,287)	$	8,938	$	197,049	$	744,032
Net loss																			Net loss	—	—		—		—		—		(14,701)		(14,701)

Vesting of restricted stock units																			Vesting of restricted stock units	954,147	—		—		—		—		—		—
Employee taxes paid for 533,597 withheld shares upon equity award settlement																			Employee taxes paid for 533,597 withheld shares upon equity award settlement	—	—		—		(30,990)		—		—		(30,990)
Stock-based compensation	—		—		31,010		—			—			45			31,055			Stock-based compensation	—	—		29,925		—		—		—		29,925
Restricted stock grants	549,589		1		—		—			—			—			1			Restricted stock grants	427,941	1		—		—		—		—		1
Restricted stock cancellations	(68,016	)	—		—		—			—			—			—			Restricted stock cancellations	(41,269)	—		—		—		—		—		—
Other comprehensive loss	—		—		—		—			(556		)	—			(556		)	Other comprehensive loss	—	—		—		—		(8,534)		—		(8,534)
Balance at September 30, 2017	58,503,687		$	59	$	341,476	$	(234,329	)	$	(1,013	)	$	170,699		$	276,892
Balance at March 31, 2023																			Balance at March 31, 2023	69,154,863	$	69	$	1,105,189	$	(568,277)	$	404	$	182,348	$	719,733
Net income																			Net income	—	—		—		—		—		2,105		2,105

The accompanying notes are an integral part of these consolidated financial statements.
Vesting of restricted stock units																			Vesting of restricted stock units	23,550	—		—		—		—		—		—
Employee taxes paid for 32,540 withheld shares upon equity award settlement																			Employee taxes paid for 32,540 withheld shares upon equity award settlement	—	—		—		(2,270)		—		—		(2,270)
Stock-based compensation																			Stock-based compensation	—	—		33,364		—		—		—		33,364
Restricted stock grants																			Restricted stock grants	6,031	—		—		—		—		—		—
Restricted stock cancellations																			Restricted stock cancellations	(20,200)	—		—		—		—		—		—
Other comprehensive income																			Other comprehensive income	—	—		—		—		8,438		—		8,438
Balance at June 30, 2023																			Balance at June 30, 2023	69,164,244	$	69	$	1,138,553	$	(570,547)	$	8,842	$	184,453	$	761,370



6						~~Third~~Second Quarter ~~2017~~2023 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		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at December 31, 2021	66,165,666	$	66	$	968,927	$	(500,911)	$	6,522	$	242,456	$	717,060
Net loss	—	—		—		—		—		(10,407)		(10,407)
Stock issuance costs related to purchase of EVERFI	—	—		(983)		—		—		—		(983)
Retirements of common stock(1)	(33,075)	—		(2,581)		—		—		—		(2,581)

Vesting of restricted stock units	976,312	—		—		—		—		—		—
Employee taxes paid for 533,139 withheld shares upon equity award settlement	—	—		—		(34,674)		—		—		(34,674)
Stock-based compensation	—	—		27,860		—		—		—		27,860
Restricted stock grants	580,209	2		—		—		—		—		2
Restricted stock cancellations	(30,940)	—		—		—		—		—		—
Other comprehensive income	—	—		—		—		8,773		—		8,773
Balance at March 31, 2022	67,658,172	$	68	$	993,223	$	(535,585)	$	15,295	$	232,049	$	705,050
Net loss	—	—		—		—		—		(3,422)		(3,422)
Stock issuance costs related to purchase of EVERFI	—	—		(223)		—		—		—		(223)
Retirements of common stock(1)	(395)	—		(19)		—		—		—		(19)

Vesting of restricted stock units	23,549	—		—		—		—		—		—
Employee taxes paid for 15,540 withheld shares upon equity award settlement	—	—		—		(926)		—		—		(926)
Stock-based compensation	—	—		27,854		—		—		—		27,854
Restricted stock grants	136,598	—		—		—		—		—		—
Restricted stock cancellations	(62,550)	—		—		—		—		—		—
Other comprehensive loss	—	—		—		—		(7,840)		—		(7,840)
Balance at June 30, 2022	67,755,374	$	68	$	1,020,835	$	(536,511)	$	7,455	$	228,627	$	720,474

(1)Represents shares retired after determining certain EVERFI's selling shareholders would be paid in cash, rather than shares of our common stock. For more information regarding our acquisition of EVERFI on December 31, 2021, please see Note 3 of the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 22, 2023.


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


Second Quarter 2023 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~~provider exclusively dedicated to powering social ~~good.~~impact. Serving the ~~entire~~nonprofit and education sectors, companies committed to social ~~good community—nonprofits, foundations, corporations, education institutions, healthcare institutions~~responsibility and individual change ~~agents—we connect and empower organizations~~makers, our essential software is built to ~~increase their~~accelerate impact ~~through software, services, expertise and data intelligence. Our portfolio is tailored to the unique needs of vertical markets, with solutions for~~in fundraising, ~~and CRM, marketing, advocacy, peer-to-peer fundraising,~~nonprofit financial management, digital giving, grantmaking, corporate social responsibility ~~school management, ticketing, grantmaking, financial management, payment processing,~~ and ~~analytics. Serving the industry for more than three decades,~~education management. A remote-first company, 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.~~Kingdom, supporting users in 100+ countries.



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,~~2022 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017,~~2023, 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,~~2022, 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.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the ~~FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718) - Scope~~reported amounts of ~~Modification Accounting ("ASU 2017-09"), which provides guidance about which changes to~~assets and liabilities and disclosure of contingent assets and liabilities at 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 classificationdate of the ~~award (as equity~~financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, income taxes, business combinations, stock-based compensation, capitalization of software and content 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 the facts or ~~liability)~~circumstances underlying these estimates could result in material changes ~~as a result of the change in terms or conditions. ASU 2017-09 is effective for all companies for annual~~ and ~~interim periods beginning after December 15, 2017, with early adoption permitted in any interim period for reporting periods for~~

actual results could materially differ from these estimates.



~~Third~~8	Second Quarter ~~2017~~2023 Form 10-Q	7

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

Recently adopted accounting pronouncements

~~which~~In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations ("ASU 2022-04"). This update requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement, or financial ~~statements have not been issued.~~statement presentation of supplier finance programs. We adopted ASU ~~2017-09 should be applied prospectively to an award modified~~2022-04 on ~~or after~~January 1, 2023 and the adoption ~~date. We early adopted ASU 2017-09 as of April 1, 2017. As this standard is prospective in nature, the~~did not have a material impact toon our condensed consolidated financial ~~statements will depend on the nature of our future award modifications.~~statements.

~~In January 2017, the FASB~~Recently 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 of assets and activities is not a business. The screen requires~~accounting pronouncements

There are no recently issued accounting pronouncements that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. ASU 2017-01 is effective for annual 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 notwe 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 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, 2022, filed with the SEC on ~~our consolidated financial statements.~~February 24, 2023.

~~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, 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


~~(1)~~	~~See~~ ~~Note 3~~ ~~to these consolidated financial statements for details regarding our acquisition of AcademicWorks.~~


~~(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. Earnings (Loss) Per Share

We compute basic earnings (loss) per share by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Diluted earnings (loss) per share ~~reflect~~reflects 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 Form 10-Q~~

~~Table~~ Diluted loss per share for the three months ended June 30, 2022 and six months ended June 30, 2023 and 2022 was the same as basic loss per share as there were net losses each of ~~Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

those periods and inclusion of potentially dilutive securities was anti-dilutive.

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

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


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands, except per share amounts)	2023		2022		2023		2022
Numerator:
Net income (loss)	$	2,105	$	(3,422)	$	(12,596)	$	(13,829)
Denominator:
Weighted average common shares	52,642,411		51,660,739		52,389,112		51,431,501
Add effect of dilutive securities:
Stock-based awards	1,000,713		—		—		—
Weighted average common shares assuming dilution	53,643,124		51,660,739		52,389,112		51,431,501
Earnings (loss) per share
Basic	$	0.04	$	(0.07)	$	(0.24)	$	(0.27)
Diluted	$	0.04	$	(0.07)	$	(0.24)	$	(0.27)

Anti-dilutive shares excluded from calculations of diluted earnings (loss) per share	9,487		1,167,368		1,151,974		2,090,267



6.Second Quarter 2023 Form 10-Q						9

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


4. 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 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)	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Fair value as of June 30, 2023
Financial assets:
Interest rate swaps	$	—	$	26,978	$	—	$	26,978

Total financial assets	$	—	$	26,978	$	—	$	26,978

Fair value as of June 30, 2023
Financial liabilities:
Interest rate swaps	$	—	$	1,774	$	—	$	1,774
Foreign currency forward contracts	—		693		—		693
Contingent consideration obligations	—		—		1,379		1,379
Total financial liabilities	$	—	$	2,467	$	1,379	$	3,846

Fair value as of December 31, 2022
Financial assets:
Interest rate swaps	$	—	$	31,870	$	—	$	31,870
Foreign currency forward contracts	—		247		—		247
Total financial assets	$	—	$	32,117	$	—	$	32,117

Fair value as of December 31, 2022
Financial liabilities:

Foreign currency forward contracts	$	—	$	323	$	—	$	323
Contingent consideration obligations	—		—		2,710		2,710
Total financial liabilities	$	—	$	323	$	2,710	$	3,033

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						Second Quarter 2023 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~~and foreign currency forward ~~and option~~ contracts. See Note 7 to these condensed consolidated financial statements for additional information about our derivative instruments.

The fair value of our interest rate swaps ~~was~~and foreign currency forward contracts are based on model-driven valuations using ~~LIBOR~~Secured Overnight Financing Rate ("SOFR") rates and foreign currency forward rates, respectively, which are observable at commonly quoted intervals. Accordingly, our interest rate swaps and foreign currency forward contracts are classified within Level 2 of the fair value hierarchy. Our financial contracts that were indexed to LIBOR were modified to reference SOFR during the three months ended September 30, 2022. These modifications did not have a significant financial impact.

~~Our foreign currency forward~~Contingent consideration obligations arise from business acquisitions. The fair values are based on discounted cash flow analyses reflecting a probability-weighted assessment approach derived from the likelihood of possible achievement of specified performance measures or events and ~~option contracts are valued using standard calculations/models that use as their basis readily observable market parameters including, foreign currency exchange rates, volatilities,~~captures the contractual nature of the contingencies, commercial risk, and ~~interest rates. Therefore,~~the time value of money. As the fair value measurements for our ~~foreign currency forward and option contracts~~contingent consideration obligations contain significant unobservable inputs, they are classified within Level 23 of the fair value hierarchy.

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~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, 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~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, as the debt bears interest rates that approximate market value. As ~~LIBOR~~SOFR 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~~six months ended ~~September~~June 30, ~~2017. 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)~~

2023.

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~~six months ended ~~September~~June 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.2023.


5. Consolidated Financial Statement Details

Restricted cash


(dollars in thousands)	June 30, 2023		December 31, 2022
Restricted cash due to customers	$	760,114	$	700,611

Real estate escrow balances and other	1,175		1,629
Total restricted cash	$	761,289	$	702,240



~~7. Consolidated Financial Statement Details~~Second Quarter 2023 Form 10-Q						11

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Prepaid expenses and other assets


(dollars in thousands)	June 30, 2023		December 31, 2022
Costs of obtaining contracts(1)(2)	$	68,366	$	74,272
Prepaid software maintenance and subscriptions(3)	31,587		34,766
Derivative instruments	26,978		32,117
Implementation costs for cloud computing arrangements, net(4)(5)	10,237		10,189
Prepaid insurance	8,340		4,902
Unbilled accounts receivable	5,082		5,775
Taxes, prepaid and receivable	1,389		1,855
Deferred tax assets	1,156		1,153
Other assets	12,716		10,929
Total prepaid expenses and other assets	165,851		175,958
Less: Long-term portion	84,254		94,304
Prepaid expenses and other current assets	$	81,597	$	81,654

(1)Amortization expense from costs of obtaining contracts was $8.1 million and $16.4 million for the three and six months ended June 30, 2023, respectively, and $8.5 million and $17.0 million for the three and six months ended June 30, 2022, respectively.

(2)The current portion of costs of obtaining contracts as of June 30, 2023 and December 31, 2022 was $27.3 million and $29.1 million, respectively.

(3)The current portion of prepaid software maintenance and subscriptions as of June 30, 2023 and December 31, 2022 was $28.0 million and $31.7 million, respectively.

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

(5)Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended June 30, 2023 and 2022, respectively, and $1.1 million and $1.1 million for the six months ended June 30, 2023 and 2022, respectively. Accumulated amortization for these costs was $6.3 million and $5.2 million as of June 30, 2023 and December 31, 2022, respectively.

Accrued expenses and other liabilities


(dollars in thousands)	June 30, 2023		December 31, 2022
Accrued legal costs(1)	$	55,888	$	28,448
Taxes payable	14,305		16,667
Customer credit balances	7,588		8,257
Operating lease liabilities, current portion	7,330		7,723
Accrued commissions and salaries	4,329		6,944
Accrued health care costs	2,932		2,467
Derivative instruments	2,467		323
Accrued vacation costs	2,004		2,156
Accrued transaction-based costs related to payments services	1,545		5,059
Contingent consideration liability	1,379		2,710


Other liabilities	7,736		9,542
Total accrued expenses and other liabilities	107,503		90,296
Less: Long-term portion	4,756		4,294
Accrued expenses and other current liabilities	$	102,747	$	86,002

(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

~~Other income (expense), 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 )

(1)All accrued legal costs are classified as current. See Note 8 to these unaudited, condensed consolidated financial statements for additional information about our loss contingency accruals and other legal expenses.



~~Third~~12	Second Quarter ~~2017~~2023 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 June 30,				Six months ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Interest income	$	2,308	$	114	$	3,544	$	237
Currency revaluation (losses) gains	(535)		2,271		(779)		2,853
Other income, net	1,005		748		2,020		1,164
Other income, net	$	2,778	$	3,133	$	4,785	$	4,254



8.6. 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)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Credit facility:
Revolving credit loans	$	172,800	$	177,800	5.38	%	5.18	%
Term loans	615,625		623,750		4.30	%	4.26	%
Real estate loans	57,490		58,189		5.22	%	5.22	%
Other debt	2,800		2,247		8.42	%	7.38	%
Total debt	848,715		861,986		4.60	%	4.52	%
Less: Unamortized discount and debt issuance costs	2,136		2,943
Less: Debt, current portion	19,176		18,802		7.03	%	6.45	%
Debt, net of current portion	$	827,403	$	840,241	4.54	%	4.48	%

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 SeptemberAt June 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, 2017,2023, 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 an aggregate~~purchase of our global headquarters facility. As part of the purchase price, we assumed the seller’s obligations under two senior secured notes with a then-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 June 30, 2023, 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.~~

Asinception of ~~September 30, 2017,~~ the ~~required annual maturities related to the 2017 Credit Facility and other debt were as follows:~~

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

notes.



~~Third~~Second Quarter ~~2017~~2023 Form 10-Q						1513

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

The following table summarizes our currently effective supplier financing agreements as of June 30, 2023:


(dollars in thousands)	Term in Months	Number of Annual Payments	First Annual Payment Due	Original Loan Value
Effective dates of agreements (1):
December 2022	39	3	January 2023	$	1,710
January 2023	36	3	April 2023	$	2,491

(1)Represent noncash investing and financing transactions during the periods indicated as we purchased software and services by assuming directly related liabilities.

The changes in supplier financing obligations during the six months ended June 30, 2023, consisted of the following:



~~9. Derivative Instruments~~(dollars in thousands)	Total
Balance at December 31, 2022	$	2,247
Additions	2,491
Settlements	(1,938)
Balance at June 30, 2023	$	2,800

~~Cash flow hedges~~


7. Derivative Instruments

We generally use derivative instruments to manage our ~~variable~~ interest rate and foreign currency exchange risk. ~~In March 2014,~~We currently have derivatives classified as cash flow hedges and net investment hedges. We do not enter into any derivatives for trading or speculative purposes.

All of our derivative instruments are governed by International Swap Dealers Association, Inc. master agreements with our counterparties. As of June 30, 2023 and December 31, 2022, we have presented the fair value of our derivative instruments at the gross amounts in the condensed consolidated balance sheets as the gross fair values of our derivative instruments equaled their net fair values.

Cash flow hedges

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 swaps as a cash flow ~~hedge~~hedges at the inception of the ~~contract.~~contracts. As of June 30, 2023 and December 31, 2022, the aggregate notional values of the interest rate swaps were $935.0 million and $435.0 million, respectively. All of the contracts have maturities on or before October 2028.

~~In October 2015, we~~We have entered into ~~an additional interest~~foreign currency forward contracts to hedge revenues denominated in the Canadian Dollar ("CAD") against changes in the exchange rate ~~swap agreement (the "October 2015 Swap Agreement"), which effectively converts portions of our variable rate debt under our credit facility to a fixed rate for~~with the ~~term 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.~~United States Dollar ("USD"). We designated ~~the October 2015 Swap Agreement~~each of these foreign currency forward contracts as a cash flow ~~hedge~~hedges 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~~contracts. As of ~~our variable rate debt under our credit facility to a fixed rate for~~June 30, 2023 and December 31, 2022, the ~~term of the swap agreement. The~~aggregate 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~~values of the foreign currency ~~option contract,~~forward contracts designated as cash flow hedges that we ~~entered into a foreign currency forward contract~~held to buy USD in ~~September 2017 with settlement in October 2017. The notional value~~exchange for Canadian Dollars were $27.1 million CAD and $22.6 million CAD, respectively. All 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 valuecontracts have maturities of ~~this derivative are recognized currently in earnings.~~

12 months or less.



1614						~~Third~~Second Quarter ~~2017~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

Net investment hedges

We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds ("GBP") into USD. We designated each of these foreign currency forward contracts as net investment hedges at the inception of the contracts. As of June 30, 2023 and December 31, 2022, the aggregate notional values of the foreign currency forward contracts designated as net investment hedges to reduce the volatility of the U.S. dollar value of a portion of our GBP-denominated investments was £11.5 million and £11.2 million, respectively.

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

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
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, long-term portion Other assets —
206
Other liabilities 328
163
Total derivative instruments designated as hedging instruments $ 223
$ 206
$ 328
$ 163

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


		Asset derivatives					Liability derivatives
(dollars in thousands)	Balance sheet location	June 30, 2023		December 31, 2022		Balance sheet location	June 30, 2023		December 31, 2022
Derivative instruments designated as hedging instruments:
Foreign currency forward contracts, current portion	Prepaid expenses and other current assets	$	—	$	247	Accrued expenses and other current liabilities	$	693	$	323
Interest rate swaps, long-term	Other assets	26,978		31,870		Other liabilities	1,774		—
Total derivative instruments designated as hedging instruments		$	26,978	$	32,117		$	2,467	$	323

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


												Gain (loss) recognized in accumulated other comprehensive income as of		Location of gain (loss) reclassified from accumulated other comprehensive income into income (loss)	Gain (loss) reclassified from accumulated other comprehensive income into income (loss)
(dollars in thousands)											(dollars in thousands)	June 30, 2023			Three months ended June 30, 2023		Six months ended June 30, 2023
Cash Flow Hedges											Cash Flow Hedges
Interest rate swaps											Interest rate swaps	$	25,204	Interest expense	$	5,083	$	9,582
Foreign currency forward contracts											Foreign currency forward contracts	$	(292)	Revenue	$	109	$	234
Net Investment Hedges											Net Investment Hedges
Foreign currency forward contracts											Foreign currency forward contracts	$	(401)		$	—	$	—

												June 30, 2022			Three months ended June 30, 2022		Six months ended June 30, 2022
Cash Flow Hedges											Cash Flow Hedges
Interest rate swaps											Interest rate swaps	$	25,412	Interest expense	$	323	$	(35)

	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	)

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~~Excluding net investment hedges, 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) isand related tax effects are reclassified from accumulated other comprehensive income (loss) to current earnings. ~~The estimated~~For net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to translation adjustment, a component of accumulated other comprehensive income (loss), and recognized in earnings only when the hedged GBP investment is liquidated. The estimated accumulated other


Second Quarter 2023 Form 10-Q						15

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

comprehensive income as of ~~September~~June 30, ~~2017~~2023 that is expected to be reclassified into earnings within the next twelve months is ~~insignificant.~~$20.9 million. There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016.~~2022. See Note 1310 to these condensed consolidated financial statements for a summary of the changes in accumulated other comprehensive income (loss) by component. We classify cash flows related to derivative instruments as operating activities in the condensed consolidated statements of cash flows.



~~Third Quarter 2017 Form 10-Q~~				178. 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)~~

WeJune 30, 2023, we did not have any ~~undesignated derivative instruments during 2016.~~ operating leases that had not yet commenced.

The ~~effects~~following table summarizes the components of ~~undesignated derivative instruments during the three and nine months ended September 30, 2017~~our lease expense:


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Operating lease cost(1)	$	2,304	$	2,445	$	4,689	$	4,976
Variable lease cost	395		413		827		850
Sublease income	(854)		(766)		(1,665)		(1,197)
Net lease cost	$	1,845	$	2,092	$	3,851	$	4,629

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

~~10. Commitments and Contingencies~~

~~Leases~~

Total rent expense was $3.8 million and $3.1 million for 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 payments 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 insignificant during the three months ended September 30, 2016 and $2.2 million during the nine months ended September 30, 2016.immaterial.

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~~June 30, ~~2017,~~2023, the remaining aggregate minimum purchase commitment under these arrangements was approximately ~~$51.9~~$270.4 million through ~~2021.~~2027.

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~~that might be covered by these indemnifications.


16						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to ~~these indemnifications.~~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 investigations, 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 do not believe that any data went beyond the cybercriminal, has been misused, or has been disseminated or otherwise made available publicly. Our investigation into the Security Incident remains ongoing.

As a result of the Security Incident, we are currently subject to certain legal proceedings, claims and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, inquiries 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.

We recorded expenses and offsetting insurance recoveries related to the Security Incident as follows:


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Gross expense	$	26,777	$	8,435	$	44,560	$	17,440
Offsetting insurance recoveries	—		(87)		—		(1,891)
Net expense	$	26,777	$	8,348	$	44,560	$	15,549


Second Quarter 2023 Form 10-Q						17

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following summarizes our cumulative expenses, insurance recoveries recognized and insurance recoveries paid as of:


(dollars in thousands)	June 30, 2023		December 31, 2022
Cumulative gross expense	$	152,565	$	108,005
Cumulative offsetting insurance recoveries recognized	(50,000)		(50,000)
Cumulative net expense	$	102,565	$	58,005

Cumulative offsetting insurance recoveries paid	$	(50,000)	$	(50,000)

Recorded expenses have consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlement of the previously disclosed SEC investigation (as discussed below), settlements of customer claims and accruals for certain loss contingencies. Not included in the expenses discussed above were costs associated with enhancements to our cybersecurity program. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our consolidated statements of comprehensive income (loss) and as operating activities on our consolidated statements of cash flows. Total costs related to the Security Incident exceeded the limit of our insurance coverage during the first quarter of 2022. We expect to continue to experience significant expenses related to our response to the Security Incident, resolution of legal proceedings, claims and investigations, including those discussed below, and our efforts to further enhance our cybersecurity measures. For the three and six months ended June 30, 2023, we incurred net pre-tax expenses of $26.8 million and $44.6 million, respectively, related to the Security Incident, which included $7.0 million and $14.6 million, respectively, for ongoing legal fees and additional accruals for loss contingencies of $19.8 million and $30.0 million, respectively. During the six months ended June 30, 2023, we had net cash outlays of $15.8 million related to the Security Incident, which included ongoing legal fees and the $3.0 million civil penalty paid related to the SEC settlement (as discussed below). In line with our policy, legal fees are expensed as incurred. For full year 2023, we currently expect net pre-tax expense of approximately $20.0 million to $30.0 million and net cash outlays of approximately $25.0 million to $35.0 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.

As of June 30, 2023, we have recorded approximately $50.0 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate in accordance with our loss contingency procedures described above. Our liabilities for loss contingencies are recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of June 30, 2023 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty 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.

Customer claims. To date, we have received approximately 260 specific requests for reimbursement of expenses, approximately 210 (or 81%) have been fully resolved and closed. We have also received 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. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, which we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us, and certain insurance companies have filed subrogation claims in court. 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.


18						~~Third~~Second Quarter ~~2017~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

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. We are currently engaged in court proceedings to determine whether this will proceed as a class action. 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 reasonably 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 investigations. To date, we have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 49 state Attorneys General and the District of Columbia, a separate Civil Investigative Demand from the office of the Indiana Attorney General and a separate Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident. We have been in discussions, directly with certain Attorneys General or indirectly through an executive committee of the multi-state group of Attorneys General, about potential resolution of issues arising from these investigations. Although we are hopeful that we can resolve these matters on acceptable terms, there is no assurance that we will be able to do so on terms acceptable to us and to any or all such states.

We also are subject to the following pending governmental actions:

•an investigation by the U.S. Federal Trade Commission;

•an investigation by the U.S. Department of Health and Human Services;

•an investigation by the Office of the Australian Information Commissioner; and

•an investigation by the Office of the Privacy Commissioner of Canada.

As previously disclosed, on March 9, 2023, the Company reached a settlement with the SEC in connection with the Security Incident. This settlement fully resolves the previously disclosed SEC investigation of the Security Incident and is further described in an SEC cease-and-desist order (the “SEC Order”). Under the terms of the SEC Order, the Company has agreed to cease-and-desist from committing or causing any violations or any future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended (the “Securities Act”), and Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 12b-20, 13a-13 and 13a-15(a) thereunder. No other violations of the securities laws are alleged in the SEC Order. As part of the SEC Order, the Company also agreed to pay, and has paid, a civil penalty in the amount of $3.0 million. The Company consented to the entry of the SEC Order without admitting or denying the findings of the SEC Order, other than with respect to the SEC’s jurisdiction over the Company and the subject matter of the SEC Order. The SEC Order describing the settlement was furnished as Exhibit 99.1 and the SEC’s press release announcing this resolution is furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2023.



~~11.~~Second Quarter 2023 Form 10-Q						19

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On September 28, 2021, the Information Commissioner’s Office in the United Kingdom under the U.K. Data Protection Act 2018 (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.

We continue to cooperate with all ongoing 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 investigations could result in adverse judgments, 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.


9. Income Taxes

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


	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2023			2022			2023			2022
Income tax benefit	$	(10,200)		$	(2,367)		$	(14,101)		$	(4,417)
Effective income tax rate	126.0		%	40.9		%	52.8		%	24.2		%

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 effective income tax rate during the three months ended September 30, 2017 remained relatively unchanged when compared to the same period in 2016.~~ The ~~decrease~~increases in our effective income tax rate ~~during~~for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same periods in 2022 were primarily attributable to unfavorable impact of non-deductible Security Incident accruals. See Note 8 to these unaudited, condensed consolidated financial statements for additional information about our loss contingency accruals related to the Security Incident.

For the three and six months ended June 30, 2022, we utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, Income Taxes—Interim Reporting, to calculate our interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period ~~in 2016,~~as if it was ~~primarily~~the annual period and determines the income tax expense or benefit on that basis. For the three and six months ended June 30, 2023 we have utilized the annual effective tax rate method, as we believe it can now be reliably estimated. This methodology requires us to apply our estimated annual effective tax rate to year-to-date pre-tax earnings. During the second quarter of 2023, our estimated annual effective tax rate increased due to ~~a $9.0 million discrete~~the unfavorable impacts of non-deductible Security Incident accruals and its impact on pre-tax earnings. This increase, when applied to quarter-to-date and year-to-date date pre-tax losses, resulted in recognition of income 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 compared to the same period in 2016, was attributable to an increase in the market price for shares of our common stock, as reported by the NASDAQ Stock Market LLC ("NASDAQ")benefits at 126.0% and 52.8%, 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.

~~12. Stock-based Compensation~~

Stock-based compensation expense is allocated to cost of revenue and operating expenses on the 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,
(dollars in thousands) 2017
2016
2017
2016
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
Total included in cost of revenue 934
916
2,675
2,603
Included in operating expenses:
Sales, marketing and customer success 1,686
1,055
4,906
2,972
Research and development 2,093
1,674
5,877
4,874
General and administrative 6,213
5,173
17,597
14,556
Total included in operating expenses 9,992
7,902
28,380
22,402
Total stock-based compensation expense $ 10,926
$ 8,818
$ 31,055
$ 25,005

respectively.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(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~~Second Quarter ~~2017~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

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

(Unaudited)



~~14. Segment Information~~10. Stockholders' Equity

Changes in accumulated other comprehensive income (loss) by component

The changes in accumulated other comprehensive income (loss) by component, consisted of the following:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
Accumulated other comprehensive income, beginning of period	$	404	$	15,295	$	8,938	$	6,522
By component:
Gains and losses on cash flow hedges:
Accumulated other comprehensive income balance, beginning of period	$	13,141	$	16,162	$	23,833	$	5,257
Other comprehensive income before reclassifications, net of tax effects of $(3,238), $(993) $(672) and $(4,782)	9,231		2,796		1,942		13,437
Amounts reclassified from accumulated other comprehensive income	(5,192)		(323)		(9,816)		35
Tax expense (benefit) included in provision for income taxes	1,344		85		2,565		(9)
Total amounts reclassified from accumulated other comprehensive income	(3,848)		(238)		(7,251)		26
Net current-period other comprehensive income (loss)	5,383		2,558		(5,309)		13,463
Accumulated other comprehensive income balance, end of period	$	18,524	$	18,720	$	18,524	$	18,720
Foreign currency translation adjustment:
Accumulated other comprehensive (loss) income balance, beginning of period	$	(12,737)	$	(867)	$	(14,895)	$	1,265
Translation adjustment	3,055		(10,398)		5,213		(12,530)
Accumulated other comprehensive loss balance, end of period	(9,682)		(11,265)		(9,682)		(11,265)
Accumulated other comprehensive income, end of period	$	8,842	$	7,455	$	8,842	$	7,455


Second Quarter 2023 Form 10-Q						21

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


11. Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of June 30, 2023, approximately $1.2 billion of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 50% 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 June 30, 2023 and December 31, 2022 were insignificant. Our closing balances of deferred revenue were as follows:


(in thousands)	June 30, 2023		December 31, 2022
Total deferred revenue	$	438,151	$	385,236

The increase in deferred revenue during the six months ended June 30, 2023 was primarily due to a seasonal increase in customer contract renewals. 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. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter. The amount of revenue recognized during the six months ended June 30, 2023 that was included in the deferred revenue balance at the beginning of the period was approximately $252 million. The amount of revenue recognized during the six months ended June 30, 2023 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 June 30,				Six months ended June 30,
(dollars in thousands)	2023		2022		2023		2022
United States	$	228,744	$	223,128	$	450,413	$	437,522
United Kingdom	28,234		26,831		54,282		54,491
Other countries	14,064		14,968		28,100		30,038
Total revenue	$	271,042	$	264,927	$	532,795	$	522,051


22						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

During the ~~first~~third quarter of ~~2017,~~2022, we ~~changed the names~~reorganized our market groups. The Social Sector and Corporate Sector market groups comprised our go-to-market organizations as of ~~our reportable segments. However, there was no change in the determination of our reportable segments or our reporting units at that time. As of September~~June 30, ~~2017, our reportable segments were the General Markets Group ("GMG"), the Emerging Markets Group ("EMG"), and the International Markets Group ("IMG").~~2023. The following is a description of each ~~reportable segment:~~market group as of that date:

•The ~~GMG is generally focused~~Social Sector market group focuses on sales to ~~all emerging~~customers and ~~mid-sized~~ prospects in the social sector, such as nonprofits, foundations, education institutions, healthcare organizations and ~~customers in North America;~~other not-for-profit entities globally, and includes JustGiving; and

•The ~~EMG is generally focused~~Corporate Sector market group focuses on sales to ~~all large and/or strategic~~customers and prospects in the corporate sector globally, and ~~customers in North America;~~includes EVERFI and YourCause.

The ~~IMG is focused on marketing, sales, delivery and support~~following table presents our revenue by market group:


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2023		2022(1)		2023		2022(1)
Social Sector	$	232,381	$	227,756	$	457,278	$	447,751
Corporate Sector	38,661		37,171		75,517		74,300

Total revenue	$	271,042	$	264,927	$	532,795	$	522,051

(1)Due to ~~all prospects and customers outside of North America.~~

~~Our chief operating decision maker is~~the market group change discussed above, we have recast our ~~chief executive officer ("CEO"). Currently, our CEO reviews financial information presented on an operating segment basis~~revenue by market group for the ~~purposes of making certain operating decisions~~three 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 relatedsix months ended June 30, 2022 to present them on a consistent basis with the ~~sale of our solutions and services, and our customer success program.~~current year.

The ~~CEO does not review any segment balance sheet information. Summarized reportable segment financial results, were as follows:~~following table presents our recurring revenue by type:


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Contractual recurring	$	181,235	$	177,350	$	358,838	$	351,882
Transactional recurring	81,155		75,157		156,300		145,291
Total recurring revenue	$	262,390	$	252,507	$	515,138	$	497,173

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.~~12. Subsequent Events


~~(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.~~

Fixed Asset Impairment



~~Third~~Second Quarter ~~2017~~2023 Form 10-Q						2123

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

In light of 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. During the three and nine months ended September 30, 2017, we incurred acquisition-related expenses associated with the acquisition of JustGiving of $0.7 million and $2.2 million, respectively, which are recorded in general and administrative expense. 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.

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.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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 unaudited, 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 unaudited, condensed consolidated financial statements and related notes which are primarily denominated in thousands of dollars.



Executive Summary

We are the ~~world’s~~ leading ~~cloud~~ software ~~company~~provider exclusively dedicated to powering social ~~good.~~impact. Serving the ~~entire~~nonprofit and education sectors, companies committed to social ~~good community—nonprofits, foundations, corporations, education institutions, healthcare institutions~~responsibility and individual change ~~agents—we connect and empower organizations~~makers, our essential software is built to ~~increase their~~accelerate impact ~~through software, services, expertise, and data intelligence. Our portfolio is tailored to the unique needs of vertical markets, with solutions for~~in fundraising, ~~and CRM, marketing, advocacy, peer-to-peer fundraising,~~nonprofit financial management, digital giving, grantmaking, corporate social responsibility ~~school management, ticketing, grantmaking, financial management, payment processing,~~ and ~~analytics. Serving the industry for more than three decades,~~education management. A remote-first company, 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.~~Kingdom, supporting users in 100+ countries.

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~~transactional services; (iii) providing ~~professional services including implementation, training, consulting, analytic and other services; and~~Impact-as-a-Service™ digital educational content; (iv) providing software maintenance and support services; and (v) providing professional services, including implementation, consulting, training, analytic and other services.

~~During the third quarter of 2017, we continued to execute~~Update 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:~~Five Key Operational Initiatives


1.	~~Deliver Integrated~~1	Product Innovation and ~~Open Solutions in the Cloud~~Delivery

	2	Bookings Growth and Acceleration

	3	Transactional Revenue Optimization and Expansion

	4	Modernized Approach to Pricing and Multi-Year Customer Contracts

	5	Keen Attention to Cost Management

~~We continue~~1.Product Innovation and Delivery

Product is core at Blackbaud, and we strive to ~~transition~~bring increased value to our ~~business to predominantly serve~~ customers through their software subscriptions with improved and innovative capabilities. For example, we recently released a ~~subscription-based cloud delivery model, enabling lower cost~~new, next generation donation form in Raiser’s Edge NXT with the goal of ~~entry, greater scalability~~increasing the conversion rate and ~~lower total cost~~donations our customers raise. We match the new donation form with Prospect Insights, which utilizes artificial intelligence ("AI") to identify and qualify candidates for major gifts.

For years, we have been using AI-enabled capabilities in our analytics offerings. We are expanding our strategy into next-generation and generative AI technology that addresses specific challenges of ~~ownership to~~ our customers. ~~We continue~~As recently announced, we will be rolling out an extensive new set of capabilities across our product portfolio over upcoming quarters, including:

•AI for Peer-to-Peer (P2P) Fundraisers: Enabling P2P participants to ~~optimize our portfolio~~use Generative AI-based features to make sharing their own story easier and more effective for their fundraiser.

•AI for Online Giving: Providing a personalized experience to online donors through predictive AI capabilities.

•AI for Major Giving Officers: Expanding Prospect Insights to include AI-driven insights into planned and major giving vehicles and likelihood.

•AI for Donor Stewardship: Enabling organizations to automate the creation of ~~solutions and integrate powerful capabilities —~~key donor stewardship documents 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~~thank you notes through a ~~more rapid pace, including delivering enhanced integrated analytics capabilities that surface directly in our customers’ software through SKY~~built-in Generative AI and SKY Analytics—components 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.

experience.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~


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.



24						~~Third~~Second Quarter ~~2017~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

•AI for Educators: Assisting teachers with personalized, AI-driven content that has appropriate guardrails to drive more classroom engagement.

•AI for School Administrators: Leveraging AI to automate review and recommendations for financial aid submissions.

•AI for Corporate Impact: Empowering Corporate Social Responsibility teams to capture, visualize and tell the story of their corporate social impact missions through inclusion of modern AI services.

2.Bookings Growth and Acceleration

We drove strong bookings performance in the first quarter, up significantly versus last year, led by our corporate sector (YourCause and EVERFI solutions) which more than doubled its bookings over the first quarter of 2022. We signed several notable large contracts during the second quarter. As previously disclosed, there can be volatility quarter-to-quarter on bookings.

3.Transactional Revenue Optimization and Expansion

Transactional revenue, which is about one-third of total revenue, has proven to be resilient so far in 2023 following the lower average donation sizes we experienced during the fourth quarter of 2022. A rate increase on Blackbaud Merchant Services in the U.S. took effect on August 1, 2023, which is incremental to the January 2023 rate change previously disclosed. Our Blackbaud Tuition Management and JustGiving platforms continue to perform well against plan. And as we look ahead, our teams are hard at work to drive innovation across our payments solutions that are a win-win for both our customers and Blackbaud. We have already introduced our two fee cover models, and we are also looking at ways to optimize our payments solutions to drive a better donor experience.

4.Modernized Approach to Pricing and Multi-Year Contracts

Last summer, we put in place an updated pricing policy primarily for our social sector customers that directly reflects the value we provide to them, is in-line with the broader market and reflects the inflationary pressures that all businesses are facing. In November 2022, we started notifying customers with a March 2023 contract renewal that we would be making important contract changes. First, we are offering 3-year contract renewal terms as our standard, replacing one-year renewal terms. This process was already being implemented outside of the pricing changes. Second, we are implementing a more significant rate increase on the 1-year renewal option versus the 3-year renewal option. And third, the 3-year renewal option includes annual rate increases. Our 3-year renewal options did not historically include annual rate increases.

These efforts are well on their way. We have already notified customers with December 2023 contract renewals of the new terms. Through July 2023, nearly 70% of our 2023 contracts eligible for renewal rate increases have already renewed. The close day-to-day management of renewals, the mix of 3-year and 1-year contracts, and the impact of pricing are progressing well, and we expect more impact from the compounding effect of these rate increases over time as we layer in future year contract renewals and annual rate increases. For example, over 50% of our planned 2023 revenue will renew in a little over 3 years and approximately 35% of that renewable base is expected to renew this year. These contracts are renewing every day and create revenue growth that we expect to accelerate with each successive quarter this year. We expect that to lead to an even greater impact in 2024, 2025 and beyond as we begin to see the full-year impact of the rate increases. Approximately 30% of the renewable base is up for renewal in 2024 and more than 20% in 2025. The adoption of 3-year renewals as a standard, with more customers opting for this option than we originally expected, are expected to have an added benefit of higher retention which provides greater revenue assurance and predictability. Looking even further ahead, the cycle starts fresh in 2026 as the 2023 signed contracts will begin to renew. We expect that this will be a sustainable and meaningful revenue growth stream for us.

5.Keen Attention to Cost Management

We closed four legacy data centers during 2022, and we plan to close more this year. We renegotiated key vendor contracts including Microsoft Azure and AWS and made the difficult decision to further reduce our staff in the first quarter. Because we have organized to achieve much better scale efficiencies, we have significantly reduced our headcount since the third quarter of 2022. Our goal is to run the business at about this headcount level for the foreseeable future, such that our revenue growth will better drive margin acceleration.

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~~


Second Quarter 2023 Form 10-Q						25

Table of Contents

Blackbaud, Inc.

(Unaudited)

Financial Summary


Total revenue ($M)						Income (Loss) from operations ($M)
YoY Growth (%)						YoY Growth (%)

Total revenue increased by $6.1 million and $10.7 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, respectively, when compared to the same periods in ~~2016, were primarily~~2022, driven largely by ~~growth in subscriptions~~the following:


			+						Growth in recurring revenue primarily related to: •increases in transactional recurring revenue of $6.0 million and $11.0 million, respectively, primarily due to increases in volume for our Blackbaud Tuition Management and JustGiving solutions and positive results related to a pricing initiative we implemented at the beginning of 2023; also offsetting the increases in transactional recurring revenue were decreases related to fluctuations in foreign currency exchange rates of $0.6 million and $2.2 million, respectively; and •increases in contractual recurring revenue of $3.9 million and $7.0 million, respectively, related to the performance of our cloud solutions and, to a lesser extent, the early impact of our pricing initiatives; partially offset by decreases in maintenance revenue as customers migrate to our cloud solutions; also offsetting the increases in contractual recurring revenue were decreases related to fluctuations in foreign currency exchange rates of $0.3 million and $1.1 million, respectively
			-						Decreases in one-time service and other revenue primarily related to: •decreases in one-time consulting revenue due primarily to less sales of creative services and 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, which generally requires less implementation and customization services; and •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~~financial results, see Foreign Currency Exchange Rates below on page 47.


26						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

We have a ~~result of increases in the~~ number of ~~customers~~multi-year pricing initiatives underway, some to bring our pricing in line with the market while others are model changes that are expected to drive greater revenue for both us 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~~customers. As a result, we expect to ~~continue~~see an acceleration in growth in the second half of 2023 when compared to ~~negatively impact~~the first half of the year as we begin to see the full-year effect of some of these pricing initiatives.

We expect that the one-time services and other revenue ~~over time. In addition, we have also used promotions and discounts for~~will continue to significantly decrease during 2023 compared to 2022 driven by our ~~consulting services as incentives~~continued migration to ~~accelerate~~ the ~~migration of~~cloud in 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.

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 %
core business.

Income from operations increased by $0.2 million during the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same ~~periods~~period in ~~2016. The positive impact~~2022, driven largely by the following:


			+						Decreases in compensation costs other than stock-based compensation of $10.1 million and commission expense of $0.8 million due to our targeted workforce reductions discussed below
			+						Increase in total revenue, as described above
			+						Decrease in acquisition and disposition-related costs of $3.1 million primarily related to the release of $1.4 million in accrued contingent consideration related to our Kilter acquisition during the three months ended June 30, 2023 and a $2.0 million noncash impairment of certain insignificant intangible assets that were held for sale during the three months ended June 30, 2022 which did not reoccur in the comparable 2023 period
			+						A $2.3 million noncash impairment charge during the three months ended June 30, 2022 against previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to end customer support for certain solutions and did not reoccur in 2023
			+						Decrease in third-party contractor costs of $1.8 million primarily due to a decrease in our use of third-party software developers
			+						Decrease in hosting and data center costs of $1.5 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future
			+						Decrease in other corporate costs of $1.2 million primarily related to the release of certain accrued tax liabilities due to favorable sales tax rulings
			+						Net decrease of $0.9 million primarily related to a decrease in rent and utilities, partially offset by higher third-party software costs due to the number of licenses needed and also price increases for the software being used
			-						Increase in Security Incident-related expenses of $18.4 million. See "Security Incident update" below.
			-						Increase in stock-based compensation expense of $5.5 million primarily due to estimated overall Company performance against 2023 goals, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023
			-						Increase in transaction-based costs of $1.2 million related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates
			-						Increase in advertising costs of $1.1 million
			-						Net decrease of $0.8 million due to an increase in amortization of capitalized software and content development costs, partially offset by an increase in software and content development costs that were required to be capitalized under the internal-use software guidance
			-						Increase in amortization of intangible assets from business combinations of $0.7 million due to our acquisition of EVERFI


Second Quarter 2023 Form 10-Q						27

Table of ~~growth~~Contents

Blackbaud, Inc.

(Unaudited)

Income from operations decreased by $3.7 million during the six months ended June 30, 2023, when compared to the same period in ~~total revenue~~2022, driven largely by ~~subscriptions~~the following:


			-						Increase in Security Incident-related expenses of $29.0 million. See "Security Incident update" below.
			-						Increase in stock-based compensation expense of $7.6 million primarily due to 2022 performance-based equity award adjustments and estimated overall Company performance against 2023 goals, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023
			-						Increase in transaction-based costs of $3.3 million related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates
			-						Net decrease of $1.7 million due to an increase in amortization of capitalized software and content development costs, partially offset by an increase in software and content development costs that were required to be capitalized under the internal-use software guidance
			-						Increase in amortization of intangible assets from business combinations of $1.3 million due to our acquisition of EVERFI
			-						Net increase of $1.0 million primarily related to higher third-party software costs due to the number of licenses needed and also price increases for the software being used, partially offset by a decrease in rent and utilities
			+						Decreases in compensation costs other than stock-based compensation of $17.8 million and commission expense of $1.5 million, partially offset by a corresponding increase in severance costs of $4.5 million due to our targeted workforce reductions discussed below
			+						Increase in total revenue, as described above
			+						Decrease in third-party contractor costs of $3.7 million primarily due to a decrease in our use of third-party software developers
			+						Decrease in hosting and data center costs of $3.6 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future
			+						Decrease in acquisition and disposition-related costs of $3.5 million primarily related to the release of $1.4 million in accrued contingent consideration related to our Kilter acquisition during the six months ended June 30, 2023 and a $2.0 million noncash impairment of certain insignificant intangible assets that were held for sale during the three months ended June 30, 2022 which did not reoccur in the comparable 2023 period
			+						A $2.3 million noncash impairment charge during the six months ended June 30, 2022 against previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to end customer support for certain solutions
			+						Decrease in other corporate costs of $1.6 million primarily related to the release of certain accrued tax liabilities due to favorable sales tax rulings

We are continuing to make critical investments in the business in areas such as ~~discussed above was partially offset primarily by investments we are making in our sales organization and~~digital marketing, innovation, cybersecurity, customer success ~~program~~ and our continued shift of cloud infrastructure to a lesser extent, increases in stock based compensation expense of $2.1 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 costsleading public cloud service providers. Our profitability during the ~~nine months ended September 30, 2017 also negatively impacted income from operations. The increase in rent expense was primarily driven by~~first half of 2023 reflects some of these incremental investments. In the second half of 2023, we expect our financial performance to improve each quarter as our pricing and cost initiatives continue to take hold.

We continuously seek opportunities to optimize our portfolio of solutions to focus time and resources on innovation that will have the greatest impact for our customers and the markets we serve, and drive the highest return on investment. To that end, ~~in the fourth quarter~~we will continue to simplify and rationalize our portfolio through product sunsets and divestitures of ~~2016~~non-core businesses and technologies.


28						Second Quarter 2023 Form 10-Q

Table 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 increase in rent expense were new operating leases for equipment that we have historically purchased.Contents

~~Customer retention~~

~~Subscription~~Blackbaud, Inc.

(Unaudited)


Gross dollar retention

Our recurring subscription contracts are typically for a term of three years at contract ~~inception with one~~inception. We have been for several years successfully shifting our legacy customer base away from annual renewals and moving them onto multi-year renewal contracts.

A key factor to ~~three year renewals thereafter. Over time, we anticipate a decrease in maintenance contract renewals as we transition~~ our ~~solution portfolio~~overall success is the renewal and maintenance customers from a perpetual license-based model to a cloud-based subscription delivery model. We also anticipate an increase in subscription contract renewals as we continue focusing on innovation, quality and the integrationexpansion of our existing subscription ~~solutions which we believe will provide value-adding capabilities to better address~~agreements with our ~~customers' needs. Due primarily to these factors, we believe a recurring revenue customer~~customers. Management uses gross dollar retention ~~measure that combines subscription and maintenance customer contracts provides an accurate representation of~~in analyzing our ~~customers' overall behavior. For the year ended September 30, 2017, approximately 93% of~~success at delighting our customers with innovative and cloud solutions. Gross dollar retention is defined as contracted annual recurring ~~subscription or maintenance contracts were retained.~~revenue ("CARR") divided by beginning CARR with a measurement period of twelve months. For the twelve months ended June 30, 2023, our gross dollar retention was approximately 90%. This ~~customer~~gross dollar retention rate is relatively ~~unchanged from~~consistent with our rate for the full year ~~2016.~~ended December 31, 2022. We are continually investing in innovation, which we believe will increase gross dollar retention over the long-term. Although some customer attrition is normal, our new contract pricing and renewal model (as described above on page 24) does not appear to have had a significant impact on customer attrition to date.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

Balance sheet and cash flow

At ~~September~~June 30, ~~2017,~~2023, our cash and cash equivalents were ~~$17.1~~$29.0 million and ~~outstanding borrowings~~the carrying amount of our debt under the ~~2017~~2020 Credit Facility ~~were $340.2~~was $786.8 million. Our net leverage ratio was 2.67 to 1.00.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we generated ~~$123.4~~$75.0 million in cash ~~flow~~ from operations, ~~reduced our~~had a net decrease in borrowings ~~by $5.8~~of $13.8 million, ~~inclusive of the incremental borrowings needed to finance the acquisition of AcademicWorks, returned $17.3 million to stockholders by way of dividends~~ and had aggregate cash outlays of ~~$29.0~~$31.5 million for purchases of property and equipment and capitalized software and content development costs.

~~Recent development - JustGiving acquisition~~

~~On October 2, 2017, we acquired the entire issued share capital of JustGiving for an aggregate purchase price of £95.0 million, or approximately $127.4 million,~~Security Incident update

As discussed in ~~cash, subject~~Note 8 to certain adjustments set forth in the stock purchase agreement. We financed the acquisition through borrowings under the 2017 Credit Facility. 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 unaudited, condensed consolidated financial statements ~~from the date of acquisition. Due~~included in this report, total costs related to the ~~timing~~Security Incident exceeded the limit of our insurance coverage in the ~~transaction,~~first quarter of 2022. Accordingly, the ~~initial accounting~~Security Incident has negatively impacted, and we expect it to continue for ~~this acquisition, including~~ the ~~measurement of assets acquired, liabilities assumed~~foreseeable future to negatively impact, our GAAP profitability 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.~~

GAAP cash flow (see discussion regarding non-GAAP adjusted free cash flow on page 42

~~Results of Operations~~

~~Comparison of~~). For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023, we incurred net pre-tax expenses of $26.8 million and ~~2016~~

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~~$44.6 million, respectively, related to the Security Incident, which included $7.0 million and $14.6 million, respectively, for ongoing legal fees and additional accruals for loss contingencies of $19.8 million and $30.0 million, respectively. During the six months ended June 30, 2023, we had net cash outlays of $15.8 million related to the Security Incident, which included ongoing legal fees and the $3.0 million civil penalty paid during the ~~three and nine months ended September 30, 2017 when compared~~first quarter of 2023 related to the ~~same periods~~SEC settlement (as discussed in ~~2016 were attributable~~Note 8). In line with our policy, legal fees are expensed as incurred. For full year 2023, we currently expect net pre-tax expense of approximately $20.0 million to ~~growth~~$30.0 million and net cash outlays of approximately $25.0 million to $35.0 million for ongoing legal fees related to the Security Incident. Not included in ~~subscriptions revenue, partially offset by declines~~these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.

As of June 30, 2023, we have recorded approximately $50.0 million in ~~maintenance revenue and,~~aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to ~~a lesser extent, services and other revenue. The growth~~the Security Incident that we believe we can reasonably estimate in ~~GMG subscriptions revenue was primarily due to increases~~accordance with our loss contingency procedures described in ~~demand across~~Note 8. It is reasonably possible that our ~~portfolio of cloud-based solutions. To a much lesser extent, GMG subscriptions revenue growth was also driven by increases~~estimated or actual losses may change in the ~~number~~near term for those matters and be materially in excess of ~~customers and~~ the ~~volume of transactions for which~~amounts accrued, but we ~~process payments. We expect that~~are unable at this time to reasonably estimate 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.

possible additional loss.



26Second Quarter 2023 Form 10-Q						~~Third Quarter 2017 Form 10-Q~~29

Table of Contents

Blackbaud, Inc.

(Unaudited)

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~~There are other Security Incident-related matters, including customer claims, customer constituent class actions 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 transactionsgovernmental investigations, for which we ~~process payments. We~~have not recorded a liability for a loss contingency as of June 30, 2023 because we are ~~increasingly selling our Blackbaud CRM solution as a subscription offering, which has resulted in less license fees revenue during~~unable at this time to reasonably estimate 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, increasespossible loss or range of loss. Each of these matters could, separately or in the ~~volume~~aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of ~~transactions for~~ which we ~~process payments. The fluctuation in foreign currency exchange rates had an insignificant~~are currently unable to predict, but could have a material adverse impact on ~~IMG revenue during~~our results of operations, cash flows or financial condition.

Fixed asset impairment

On July 31, 2023, we entered into a sublease for a portion of our Washington, DC office location, which we previously closed in February 2023 to align with our remote-first workforce strategy. We considered our entry into the ~~three months ended September 30, 2017~~sublease an impairment indicator. As a result, we currently expect to incur pre-tax costs between $6.0 million and ~~negatively impacted IMG revenue during~~$8.0 million in the ~~nine months ended September 30, 2017 by approximately $0.8 million. Further explanation~~third quarter 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 services2023, consisting of noncash impairment charges against certain operating lease right-of-use assets and ~~other revenue~~property and ~~maintenance revenue over time.~~

equipment assets.


30						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)


~~Third Quarter 2017 Form 10-Q~~				27Results of Operations

Comparison of the three and six months ended June 30, 2023 and 2022

~~Table~~Revenue and Cost of ~~Contents~~Revenue

~~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 %

~~(1)~~Recurring

~~The individual amounts for each year may not sum to subscriptions~~

Revenue ($M)

Cost of revenue ($M)

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

YoY Growth (%)

~~Subscriptions~~ 549755816212

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~~Impact-as-a-Service™ digital educational content, hosting services, ~~access~~payment services, online training programs and subscription-based analytic 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. We intend to continue focusing on innovation, quality and integration of our cloud solutions, which we believe will drive future revenue growth.


Second Quarter 2023 Form 10-Q						31

Table of Contents

Blackbaud, Inc.

(Unaudited)

Recurring revenue increased by $9.9 million, or 3.9%, and $18.0 million, or 3.6%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, respectively, when compared to the same periods in ~~2016, were~~2022, driven primarily ~~due to strong demand across~~by the following:


			+						Increases in transactional recurring revenue of $6.0 million and $11.0 million, respectively, primarily due to increases in volume for our Blackbaud Tuition Management and JustGiving solutions and positive results related to a pricing initiative we implemented at the beginning of 2023; also offsetting the increases in transactional recurring revenue were decreases related to fluctuations in foreign currency exchange rates of $0.6 million and $2.2 million, respectively
			+						Increases in contractual recurring revenue of $3.9 million and $7.0 million, respectively, related to the performance of our cloud solutions and, to a lesser extent, the early impact of our pricing initiatives; partially offset by decreases in maintenance revenue as customers migrate to our cloud solutions; also offsetting the increases in contractual recurring revenue were decreases related to fluctuations in foreign currency exchange rates of $0.3 million and $1.1 million, respectively

For additional information on the impact of foreign currency fluctuations on our ~~cloud-based solution portfolio, and, to a much lesser extent, increases in the number~~financial results, see Foreign Currency Exchange Rates below on page 47.

Cost of ~~customers and the volume of transactions for which we process payments.~~

~~The increases in cost of subscriptions~~recurring revenue decreased by $0.6 million, or 0.5%, during the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same period in 2022, driven primarily by the following:


			-						Decrease in compensation costs other than stock-based compensation of $2.6 million primarily due to our targeted workforce reductions discussed above
			-						Decrease in hosting and data center costs of $1.5 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future
			+						Increase in amortization of software development costs of $1.4 million due to our continued investments in the innovation and security of our solutions
			+						Increase in transaction-based costs of $1.2 million related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates
			+						Increase in amortization of intangible assets from business combinations of $0.7 million primarily due to our acquisition of EVERFI in December 2021

Cost of recurring revenue increased by $1.8 million, or 0.8%, during the six months ended June 30, 2023, when compared to the same period in 2022, driven primarily by the following:


			+						Increase in transaction-based costs of $3.3 million related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates
			+						Increase in amortization of software development costs of $2.7 million due to our continued investments in the innovation and security of our solutions
			+						Increase in amortization of intangible assets from business combinations of $1.4 million primarily due to our acquisition of EVERFI in December 2021
			+						Increase in third-party software costs of $1.1 million primarily related to a higher number of licenses needed and also price increases for the software being used
			+						Increase in stock-based compensation costs of $0.7 million primarily due to 2022 performance-based equity award adjustments and estimated overall Company performance against 2023 goals, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023
			-						Decrease in compensation costs other than stock-based compensation of $4.8 million primarily due to our targeted workforce reductions discussed above
			-						Decrease in hosting and data center costs of $3.6 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future

Recurring gross margin increased by 190 and 120 basis points for the three and six months ended June 30, 2023, respectively, when compared to the same periods in ~~2016, were~~2022, primarily due to the increases in ~~transaction-based costs related to our payments services of $4.7 million and $12.4 million, respectively and increases in~~recurring revenue outpacing 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~~changes 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 for the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily the result of the positive economics of shifting customers to our next generation cloud-based solutions as growth 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.



2832						~~Third~~Second Quarter ~~2017~~2023 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.

(Unaudited)

~~Third Quarter 2017 Form 10-Q~~One-time services and other

~~Table of Contents~~

~~Blackbaud, Inc.~~

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)~~Revenue ($M)

~~The individual amounts for each year may not sum to services~~

Cost of revenue ($M)

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

YoY Growth (%)

~~Services~~ 549755815205

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 $3.8 million, or 30.3%, and $7.2 million, or 29.0%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same periods in ~~2016,~~2022, 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 $2.7 million and $5.7 million, respectively, primarily due to less sales of creative services and 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, which generally requires less implementation and customization services.
			-						Decreases in one-time analytics revenue of $0.8 million and $1.6 million, respectively, as analytics are generally integrated in our cloud solutions

Cost of one-time services and other decreased by $3.6 million, or 32.1%, and $6.1 million, or 27.6%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, respectively, when compared to the same periods in ~~2016,~~2022, 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.


			-						Decreases in compensation costs of $2.5 million and $5.0 million, respectively, primarily related to our targeted workforce reductions discussed above and a continued shift in resources historically supporting one-time services and other towards recurring revenue



30Second Quarter 2023 Form 10-Q						~~Third Quarter 2017 Form 10-Q~~33

Table of Contents

Blackbaud, Inc.

(Unaudited)

One-time services and other gross margin increased by 230 basis points during the three months ended June 30, 2023, when compared to the same period in 2022, primarily due to the decrease in compensation costs discussed above outpacing the decrease in one-time services and other revenue.

One-time services and other gross margin decreased by 190 basis points during the six months ended June 30, 2023, when compared to the same period in 2022, primarily due to the decrease of one-time services and other revenue outpacing the decrease compensation costs 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.

We see a large market opportunity in the long-term and will continue to make investments to drive sales ~~effectiveness, which is a component of~~effectiveness. We have also implemented software tools to enhance our ~~four-point growth strategy to accelerate revenue growth. We~~digital footprint and drive lead generation. The enhancements we are ~~also investing~~making in our go-to-market approach are expected to reduce our average customer ~~success organization to drive~~acquisition cost per customer ~~loyalty, retention, and referrals. The increase in~~as well as the related payback period while increasing sales velocity.


34						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Sales, marketing and customer success expense ~~in dollars and as a percentage of total revenue~~increased by $0.5 million or 0.9%, during the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same ~~periods~~period in ~~2016, were~~2022, primarily ~~due to increases in compensation costs of $3.3 million and $10.5 million, respectively. Also contributing to~~driven by the ~~increase in sales,~~following:


			+						Increase in stock-based compensation costs of $1.9 million primarily due to estimated overall Company performance against 2023 goals, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023
			+						Increase in advertising costs of $1.1 million
			-						Net decrease in the following costs primarily due to our targeted workforce reductions discussed above: •Decrease in compensation costs other than stock-based compensation of $2.0 million; and •Decrease in commissions expense of $0.9 million

Sales, marketing and customer success expense ~~for~~decreased by $0.4 million, or 0.3%, during the ~~nine~~six months ended ~~September~~June 30, ~~2017 was an increase~~2023, when compared to the same period 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 was2022, 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~~Net decrease in ~~research~~the following costs primarily due to our targeted workforce reductions discussed above: •Increase in severance costs of $2.1 million; •Decrease in compensation costs other than stock-based compensation of $3.4 million; and ~~development~~ •Decrease in commissions expense ~~for the~~ ~~three months ended September 30, 2017~~ ~~and~~ ~~2016~~ ~~were $7.0~~of $1.5 million and $6.9 million, respectively, of qualifying costs associated with development activities that are required 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.

	+	Increases in stock-based compensation costs of $2.4 million primarily due to 2022 performance-based equity award adjustments and estimated overall Company performance against 2023 goals, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023

~~(2)~~	~~Not included in research and development expense for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016~~ ~~were $20.6 million and $18.9 million, respectively, of qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance.~~

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~~delight our customers with innovative and ~~open solutions in the~~secure cloud ~~which is a component of our four-point growth strategy to accelerate revenue growth.~~solutions. Research and development ~~expense remained relatively unchanged~~expenses decreased by $2.2 million, or 5.7%, and $1.5 million or 2.0%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, respectively, when compared to the same periods in ~~2016. During~~2022, primarily driven by the ~~nine~~following:


			-						Decreases in third-party contractor costs of $2.4 million and $3.6 million, respectively, primarily due to a decrease in our use of third-party software developers
			-						Decreases in compensation costs other than stock-based compensation of $1.3 million and $1.9 million, respectively, primarily due to our targeted workforce reductions discussed above
			+						Increases in stock-based compensation of $1.7 million and $2.8 million, respectively, primarily due to estimated overall Company performance against 2023 goals, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023. 2022 performance-based equity award adjustments also contributed to the increase in stock-based compensation expense during the six months ended June 30, 2023
			+						Increase in severance costs of $1.1 million, for the six months ended June 30, 2023, primarily due to our targeted workforce reductions discussed above

Not included in research and development expense for the three months ended ~~September~~June 30, ~~2017, an increase in compensation costs~~2023 and 2022 were $15.4 million and $14.8 million, respectively, and for the six months ended June 30, 2023 and 2022 were $29.6 million and $28.5 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 software and content development activities that are required to be capitalized under ~~the internal-use software guidance. We expect that the amount of software~~GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized ~~will continue to increase modestly in the near-term as we make investments in innovation, quality and the integration of our solutions, which we believe will drive long-term revenue growth.~~

Research 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~~associated with our cloud solutions are subsequently amortized to cost of recurring revenue over the ~~decreases in research and development expense as a percentage of total revenue.~~

related assets' estimated useful life, which generally range from three to seven years.



~~Third~~Second Quarter ~~2017~~2023 Form 10-Q						3135

Table of Contents

Blackbaud, Inc.

(Unaudited)

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 %
General and 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, Security Incident-related expenses (including legal fees, settlements and loss contingency accruals), 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 $11.8 million or 24.8%, and $20.8 million or 22.9%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, respectively, when compared to the same periods in ~~2016, were~~2022, primarily driven by the following:


			+						Increases in Security Incident-related expenses of $18.4 million and $29.0 million, respectively. See "Security Incident update" on page 29
			+						Increases in stock-based compensation costs of $1.5 million and $2.2 million, respectively, primarily due to estimated overall Company performance against 2023 goals, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023. 2022 performance-based equity award adjustments also contributed to the increase in stock-based compensation expense during the six months ended June 30, 2023
			-						Decreases in acquisition and disposition-related costs of $3.1 million and $3.5 million, respectively, primarily related to the release of $1.4 million in accrued contingent consideration related to our Kilter acquisition during the three and six months ended June 30, 2023 and a $2.0 million noncash impairment of certain insignificant intangible assets that were held for sale during the three and six months ended June 30, 2022 which did not reoccur in the comparable 2023 periods
			-						Decreases in compensation costs other than stock-based compensation of $2.0 million and $3.3 million, respectively, primarily due to our targeted workforce reductions discussed above
			-						A $2.3 million noncash impairment charge during the three and six months ended June 30, 2022 against previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to end customer support for certain solutions and did not reoccur in 2023

Fixed Asset Impairment

On July 31, 2023, we entered into a sublease for a portion of our Washington, DC office location, which we previously closed in February 2023 to ~~increases~~align with our remote-first workforce strategy. We considered our entry into the sublease an impairment indicator. As a result, we currently expect to incur pre-tax costs between $6.0 million and $8.0 million in ~~rent expense~~the third quarter of ~~$0.7 million~~2023, consisting of noncash impairment charges against certain operating lease right-of-use assets and ~~$3.3 million, respectively,~~property and ~~net increases~~equipment assets. We expect the impairment charge to be recorded 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 drove up general and administrative expense.


36						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Interest Expense


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

The increases in ~~rent~~interest 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~~dollars and ~~administrative expense~~ as a percentage of total revenue ~~remained relatively unchanged~~ during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same ~~periods~~period 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,~~2022, were primarily due to ~~modest increases~~an increase in 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 credit facility in June 2017. In the near term, weWe currently expect interest expense ~~as well as~~for the full year 2023 to be approximately $37 million to $41 million although our interest expense ~~as a percentage of revenue to increase as a result~~in connection with the variable rate portion of our ~~acquisition of JustGiving.~~outstanding debt could increase in a rising interest rate environment. See Note 7 to our condensed consolidated financial statements in this report for more information regarding our derivative instruments, which we use to manage our variable interest rate risk, and Item 3. Quantitative and Qualitative Disclosures about Market Risk: Interest Rate Risk (below) for more information about our variable interest rate exposure and related risk.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

Deferred ~~revenue~~Revenue

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


(dollars in millions)	June 30, 2023		December 31, 2022		Change
Deferred revenue(1)	$	438.2	$	385.2	13.7	%
Less: Long-term portion	3.5		2.8		25.0	%
Current portion(1)	$	434.6	$	382.4	13.7	%

(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 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. Deferred~~each one-year period.

The increase in deferred revenue ~~from subscriptions increased~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 was primarily due to ~~an increase in subscription sales, as well as~~ a seasonal increase in ~~subscription~~ customer contract ~~renewals.~~renewals. 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~~third quarter. Generally, our fourth quarter. The increase in deferred revenue from services and other during the nine months ended September 30, 2017 was primarily the result of an increase in training sales and related billings. A seasonal increase in advance registration billings associated with our ~~bbcon~~ user conference, which occurs each year in October, also contributed to 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~~lowest balance of deferred revenue ~~from customer arrangements predating~~during the ~~acquisition to fair value, which resulted in lower recorded deferred revenue as~~year is at the end 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".first quarter.

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 the three months ended September 30, 2017 remained relatively unchanged when compared to the same period in 2016.~~


Second Quarter 2023 Form 10-Q						37

Table of Contents

Blackbaud, Inc.

(Unaudited)

Income Taxes


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

The ~~decrease~~increases in our effective income tax rate ~~during~~for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same periods in 2022 were primarily attributable to unfavorable impact of non-deductible Security Incident accruals. See Note 8 to our unaudited, condensed consolidated financial statements included in this report for additional information about our loss contingency accruals related to the Security Incident.

For the three and six months ended June 30, 2022, we utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, Income Taxes—Interim Reporting, to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period ~~in 2016,~~as if it was ~~primarily~~the annual period and determines the income tax expense or benefit on that basis. For the three and six months ended June 30, 2023 we have utilized the annual effective tax rate method, as we believe it can now be reliably estimated. This methodology requires us to apply our estimated annual effective tax rate to year-to-date pre-tax earnings. During the second quarter of 2023, our estimated annual effective tax rate increased due to ~~a $9.0 million discrete~~the unfavorable impacts of non-deductible Security Incident accruals and its impact on pre-tax earnings. This increase, when applied to quarter-to-date and year-to-date date pre-tax losses, resulted in recognition of income 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 compared to the same period in 2016, was attributable to an increase in the market price for shares of our common stock, as reported by NASDAQ, as well as an increase in the number of stock awards that vestedbenefits at 126.0% and ~~were exercised. Most of our equity awards are granted during our first quarter and vest in subsequent years during the same quarter.~~52.8%, respectively.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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)~~38			~~The individual amounts for each year may not sum to non-GAAP revenue, subtotal or non-GAAP gross profit due to rounding.~~			Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)


	Three months ended June 30,								Six months ended June 30,
(dollars in millions, except per share amounts)	2023			2022			Change		2023			2022			Change
GAAP Revenue	$	271.0		$	264.9		2.3	%	$	532.8		$	522.1		2.1	%

GAAP gross profit	$	149.6		$	139.3		7.4	%	$	288.2		$	273.1		5.5	%
GAAP gross margin	55.2		%	52.6		%			54.1		%	52.3		%
Non-GAAP adjustments:
Add: Stock-based compensation expense	4.1			3.8			10.1	%	8.1			7.9			2.3	%
Add: Amortization of intangibles from business combinations	13.1			12.4			5.9	%	26.2			24.9			5.4	%
Add: Employee severance	0.1			0.4			(85.8)	%	0.8			0.4			109.2	%

Subtotal(1)	17.3			16.5			4.7	%	35.1			33.2			5.9	%
Non-GAAP gross profit(1)	$	166.9		$	155.9		7.1	%	$	323.3		$	306.3		5.6	%
Non-GAAP gross margin	61.6		%	58.8		%			60.7		%	58.7		%

GAAP income (loss) from operations	$	0.3		$	0.1		444.4	%	$	(9.7)		$	(5.9)		62.9	%
GAAP operating margin	0.1		%	—		%			(1.8)		%	(1.1)		%
Non-GAAP adjustments:
Add: Stock-based compensation expense	33.4			27.9			19.8	%	63.3			55.7			13.6	%
Add: Amortization of intangibles from business combinations	13.9			13.2			5.4	%	27.8			26.5			4.9	%
Add: Employee severance	0.6			0.5			36.8	%	5.0			0.5			972.3	%
Add: Acquisition and disposition-related costs(2)	(0.8)			2.3			(137.0)	%	(0.2)			3.2			(107.1)	%
Add: Restructuring and other real estate activities	—			—			—	%	—			0.1			(100.0)	%
Add: Security Incident-related costs, net of insurance(3)	26.8			8.3			220.8	%	44.6			15.5			186.6	%
Add: Impairment of capitalized software development costs	—			2.3			(100.0)	%	—			2.3			(100.0)	%
Subtotal(1)	73.8			54.4			35.7	%	140.4			103.8			35.2	%
Non-GAAP income from operations(1)	$	74.1		$	54.5		36.1	%	$	130.7		$	97.9		33.5	%
Non-GAAP operating margin	27.4		%	20.6		%			24.5		%	18.8		%

GAAP loss before provision for income taxes	$	(8.1)		$	(5.8)		39.8	%	$	(26.7)		$	(18.2)		46.3	%
GAAP net income (loss)	$	2.1		$	(3.4)		(161.5)	%	$	(12.6)		$	(13.8)		(8.9)	%
Shares used in computing GAAP diluted earnings (loss) per share	53,643,124			51,660,739			3.8	%	52,389,112			51,431,501			1.9	%
GAAP diluted earnings (loss) per share	$	0.04		$	(0.07)		(157.1)	%	$	(0.24)		$	(0.27)		(11.1)	%
Non-GAAP adjustments:
Less: GAAP income tax benefit	(10.2)			(2.4)			330.9	%	(14.1)			(4.4)			219.2	%
Add: Total non-GAAP adjustments affecting income from operations	73.8			54.4			35.7	%	140.4			103.8			35.2	%


Non-GAAP income before provision for income taxes	65.8			48.6			35.2	%	113.7			85.6			32.9	%
Assumed non-GAAP income tax provision(4)	13.2			9.7			35.2	%	22.7			17.1			32.9	%
Non-GAAP net income(1)	$	52.6		$	38.9		35.2	%	$	90.9		$	68.5		32.9	%

Shares used in computing non-GAAP diluted earnings per share	53,643,124			51,985,530			3.2	%	53,168,985			51,954,151			2.3	%
Non-GAAP diluted earnings per share	$	0.98		$	0.75		30.7	%	$	1.71		$	1.32		29.5	%

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

(2)Includes a $2.0 million noncash impairment of certain intangible assets held for sale during the three and six months ended June 30, 2022.

(3)Includes Security Incident-related costs incurred during the three and six months ended June 30, 2023 of $26.8 million and $44.6 million, respectively, which includes approximately $19.8 million and $30.0 million, respectively, in recorded liabilities for loss contingencies, net of insurance recoveries during the same periods of $0.0 million each and during the three and six months ended June 30, 2022 of $8.4 million and $17.4 million, respectively, net of insurance recoveries during the same periods that were insignificant and $1.9 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 and accruals for certain loss contingencies. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year 2023, we currently expect net pre-tax expense of approximately $20 million to $30 million and net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below. In line with our policy, legal fees are expensed as incurred. As of June 30, 2023, we have recorded approximately $50.0 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss. There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of June 30, 2023 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution,



34Second Quarter 2023 Form 10-Q						~~Third Quarter 2017 Form 10-Q~~39

Table of Contents

Blackbaud, Inc.

(Unaudited)

Three months ended
September 30, Nine months ended
September 30,
(dollars in millions, except per share amounts) 2017
2016
Change
2017
2016
Change
GAAP income from operations $ 18.0
$ 13.5
32.7 % $ 45.3
$ 37.8
19.9 %
GAAP operating margin 9.2 % 7.4 % 7.9 % 7.1 %
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: Amortization of intangibles from business combinations 10.7
10.5
1.5 % 32.1
31.8
0.8 %
Add: Employee severance 0.1
0.1
77.8 % 3.0
0.5
533.0 %
Add: Acquisition-related integration costs 0.4
0.9
(58.2 )% 0.6
1.4
(56.8 )%
Add: Acquisition-related expenses 1.5
0.2
899.3 % 3.9
0.3
1,353.2 %
Subtotal⁽¹⁾
24.0
20.5
17.1 % 71.3
62.6
13.8 %
Non-GAAP income from operations⁽¹⁾
$ 42.0
$ 34.0
23.3 % $ 116.6
$ 100.4
16.1 %
Non-GAAP operating margin 21.4 % 18.6 % 20.4 % 18.7 %

GAAP net income $ 12.5
$ 8.9
40.5 % $ 35.2
$ 24.2
45.4 %
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 %
GAAP diluted earnings per share $ 0.26
$ 0.19
36.8 % $ 0.74
$ 0.51
45.1 %
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 %
Non-GAAP net income⁽¹⁾
$ 26.9
$ 21.3
25.8 % $ 74.3
$ 62.7
18.6 %

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 %
Non-GAAP diluted earnings per share $ 0.56
$ 0.45
24.4 % $ 1.56
$ 1.33
17.3 %


~~(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~~the amount, scope and timing 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.~~

The increases in non-GAAP income from operations during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily due to growth in subscriptions revenue, partially offset by investments we are ~~making in~~currently unable to predict, but could have a material adverse impact on our ~~sales organization~~results of operations, cash flows or financial condition.

(4)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.

Non-GAAP organic revenue growth

In addition, we ~~discuss~~use 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 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.~~period. 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 June 30,					Six months ended June 30,
	2023			2022		2023			2022
GAAP revenue	$	271.0		$	264.9	$	532.8		$	522.1
GAAP revenue growth	2.3		%			2.1		%

Less: Non-GAAP revenue from divested businesses(1)	—			(1.3)		—			(2.6)

Non-GAAP organic revenue(2)	$	271.0		$	263.6	$	532.8		$	519.4
Non-GAAP organic revenue growth	2.8		%			2.6		%

Non-GAAP organic revenue(2)	$	271.0		$	263.6	$	532.8		$	519.4
Foreign currency impact on Non-GAAP organic revenue(3)	1.0			—		3.7			—
Non-GAAP organic revenue on constant currency basis(3)	$	272.0		$	263.6	$	536.5		$	519.4
Non-GAAP organic revenue growth on constant currency basis	3.2		%			3.3		%

GAAP recurring revenue	$	262.4		$	252.5	$	515.1		$	497.2
GAAP recurring revenue growth	3.9		%			3.6		%

Less: Non-GAAP recurring revenue from divested businesses(1)	—			(1.3)		—			(2.5)

Non-GAAP organic recurring revenue(2)	$	262.4		$	251.2	$	515.1		$	494.6
Non-GAAP organic recurring revenue growth	4.4		%			4.1		%

Non-GAAP organic recurring revenue(2)	$	262.4		$	251.2	$	515.1		$	494.6
Foreign currency impact on non-GAAP organic recurring revenue(3)	0.9			—		3.4			—
Non-GAAP organic recurring revenue on constant currency basis(3)	$	263.3		$	251.2	$	518.5		$	494.6
Non-GAAP organic recurring revenue growth on constant currency basis	4.8		%			4.8		%

(1)Non-GAAP revenue from divested businesses excludes revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested business with the results of the combined company for the same period of time in both the prior and current periods.

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

(3)To determine non-GAAP organic revenue growth and non-GAAP organic recurring 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~~40						Second Quarter ~~2017~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Rule of 40

We previously defined Rule of 40 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 and content development costs; stock-based compensation; employee severance; acquisition and disposition-related costs; restructuring and other real estate activities; Security Incident-related costs, net of insurance; and impairment of capitalized software development costs. Beginning in the fiscal quarter ended June 30, 2022, we now also include in non-GAAP adjusted EBITDA impairment of capitalized software development costs because we believe it is not directly related to our operating performance in any particular period.


	Three months ended June 30,							Six months ended June 30,
(dollars in millions)	2023			2022		Change		2023			2022		Change
GAAP net income (loss)	$	2.1		$	(3.4)	(161.5)	%	$	(12.6)		$	(13.8)	(8.9)	%
Non-GAAP adjustments:
Add: Interest, net	8.9			8.9		—	%	18.3			16.3		11.9	%
Less: GAAP income tax benefit	(10.2)			(2.4)		330.9	%	(14.1)			(4.4)		219.2	%
Add: Depreciation	3.3			3.6		(8.7)	%	6.6			7.1		(7.2)	%
Add: Amortization of intangibles from business combinations	13.9			13.2		5.4	%	27.8			26.5		4.9	%
Add: Amortization of software and content development costs(1)	10.9			9.5		15.2	%	21.5			18.7		15.0	%
Subtotal(2)	26.8			32.8		(18.3)	%	60.1			64.3		(6.4)	%
Non-GAAP EBITDA(2)	$	28.9		$	29.4	(1.6)	%	$	47.5		$	50.5	(5.8)	%
Non-GAAP EBITDA margin	10.7		%					8.9		%

Non-GAAP adjustments:
Add: Stock-based compensation expense	33.4			27.9		19.8	%	63.3			55.7		13.6	%
Add: Employee severance	0.6			0.5		36.8	%	5.0			0.5		972.3	%
Add: Acquisition and disposition-related costs(3)	(0.8)			2.3		(137.0)	%	(0.2)			3.2		(107.1)	%
Add: Restructuring and other real estate activities	—			—		—	%	—			0.1		(100.0)	%
Add: Security Incident-related costs, net of insurance(3)	26.8			8.3		220.8	%	44.6			15.5		186.6	%
Add: Impairment of capitalized software development costs	—			2.3		(100.0)	%	—			2.3		(100.0)	%
Subtotal(2)	59.9			41.2		45.4	%	112.6			77.3		45.6	%
Non-GAAP Adjusted EBITDA(2)	$	88.8		$	70.6	25.9	%	$	160.1		$	127.8	25.3	%
Non-GAAP Adjusted EBITDA margin	32.8		%					30.1		%

Rule of 40(4)	35.6		%					32.7		%

Non-GAAP adjusted EBITDA	88.8			70.6		25.9	%	160.1			127.8		25.3	%
Foreign currency impact on Non-GAAP adjusted EBITDA(5)	0.6			1.7		(65.2)	%	1.9			2.2		(13.1)	%
Non-GAAP adjusted EBITDA on constant currency basis(5)	$	89.4		$	72.2	23.8	%	$	162.0		$	129.9	24.7	%
Non-GAAP adjusted EBITDA margin on constant currency basis	32.9		%					30.2		%

Rule of 40 on constant currency basis(6)	36.1		%					33.5		%

(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, non-GAAP adjusted EBITDA or non-GAAP adjusted EBITDA on a constant currency basis due to rounding.

(3)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.

(5)To determine non-GAAP adjusted EBITDA on a constant currency basis, non-GAAP adjusted EBITDA 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.

(6)Measured by non-GAAP organic revenue growth on constant currency basis plus non-GAAP adjusted EBITDA margin on constant currency basis. See Non-GAAP organic revenue growth table above.


Second Quarter 2023 Form 10-Q						3541

Table of Contents

Blackbaud, Inc.

(Unaudited)

(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 %
Non-GAAP free cash flow and non-GAAP adjusted free cash flow

~~(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 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.

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

Non-GAAP adjusted free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software and content development and capital expenditures for property and equipment, plus cash outflows, net of insurance, related to the Security Incident.

We believe non-GAAP free cash flow and non-GAAP adjusted free cash flow provides useful measures of the Company's operating performance. Non-GAAP adjusted free cash flow is not intended to represent and should not be viewed as the amount of residual cash flow available for discretionary expenditures.


	Six months ended June 30,
(dollars in millions)	2023		2022		Change
GAAP net cash provided by operating activities	$	75.0	$	81.8	(8.3)	%
Less: purchase of property and equipment	(2.8)		(7.5)		(63.0)	%
Less: capitalized software and content development costs	(28.8)		(27.2)		5.8	%
Non-GAAP free cash flow(1)	$	43.5	$	47.1	(7.7)	%
Add: Security Incident-related cash flows, net of insurance	15.8		5.2		206.4	%
Non-GAAP adjusted free cash flow(1)	$	59.3	$	52.2	13.5	%

(1)The individual amounts for each year may not sum to non-GAAP free cash flow or non-GAAP adjusted free cash flow due to rounding.

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,~~other than transaction-based costs related to our payments services, 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 generally 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~~occur in ~~April each year.~~July. In addition, deferred revenues can vary on a seasonal basis ~~for~~due to the ~~same reasons. These patterns may change as a result~~timing of ~~the continued shift to online giving, growth in volume of transactions for which we process payments,~~customer contract renewals and student enrollments or ~~as a result of acquisitions, new market opportunities, new solution introductions or other factors.~~significant acquisitions. 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.

These patterns may change as a result of the continued shift to online giving, growth in volume of transactions for which we process payments, large dollar customer bookings and contract renewals, or as a result of acquisitions, new market opportunities, new solution introductions or other factors.



42						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)


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)	June 30, 2023		December 31, 2022		Change
Cash and cash equivalents	$	17.1		0.9	%	$	16.9		Cash and cash equivalents	$	29.0	$	31.7	(8.4)	%
Property and equipment, net	43.9			(12.7	)%	50.3			Property and equipment, net	104.7		107.4		(2.6)	%
Software development costs, net	48.6			29.4	%	37.6
Software and content development costs, net									Software and content development costs, net	151.2		141.0		7.2	%
Total carrying value of debt	338.0			(1.3	)%	342.4			Total carrying value of debt	846.6		859.0		(1.5)	%
Working capital	(181.1		)	(5.1	)%	(172.2		)	Working capital	(316.6)		(312.0)		(1.5)	%
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,									Six months ended June 30,
(dollars in millions)	2017			Change		2016			(dollars in millions)	2023		2022		Change
Net cash provided by operating activities	$	123.4		23.2	%	$	100.1		Net cash provided by operating activities	$	75.0	$	81.8	(8.3)	%
Net cash used in investing activities	(78.2		)	106.4	%	(37.9		)	Net cash used in investing activities	(31.5)		(53.7)		(41.3)	%
Net cash used in financing activities	(45.3		)	(25.9	)%	(61.2		)
Net cash provided by (used in) financing activities									Net cash provided by (used in) financing activities	10.4		(194.1)		(105.4)	%

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, the volume and size of transactions for which we process payments 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~~obligations. We also believe that we will be able to continue to meet our long-term cash requirements due to our anticipated cash flow from operations, solid financial position 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~~ability to ~~declare and pay further dividends and/or repurchase our common stock.~~access capital from financial markets. To the extent we undertake future material acquisitions or investments or unanticipated capital or operating expenditures, including in connection with the Security Incident, we may require additional capital. In that context, we regularly evaluate opportunities to enhance our capital structure, including through potential debt or equity issuances. In the near term, excluding any future material events noted above or otherwise, we intend to reduce our net leverage to our target level of 2 to 1.

As a well-known seasoned issuer, we filed an automatic shelf registration statement for an undetermined amount of debt and equity securities with the SEC on January 14, 2022. Under this universal shelf registration statement we may offer and sell, from time to time, debt securities, common stock, preferred stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Subject to certain conditions, this registration statement will be effective through January 13, 2024.

At ~~September~~June 30, ~~2017,~~2023, our total cash and cash equivalents balance included approximately ~~$7.5~~$17.3 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.


Second Quarter 2023 Form 10-Q						43

Table of Contents

Blackbaud, Inc.

(Unaudited)

Operating ~~cash flow~~Cash Flow

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



~~Third Quarter 2017 Form 10-Q~~		37

~~Table of Contents~~

~~Blackbaud, Inc.~~

expenses such as depreciation, amortization, stock-based compensation, deferred taxes, 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~~

Net cash provided by operating activities decreased by $6.8 million during the six months ended June 30, 2023, when compared to the same period in 2022, primarily due to a $11.2 million decrease in net income adjusted for non-cash expenses and a $4.5 million increase in cash flow from operations associated with working capital.

The increase in cash flow from operations associated with working capital ~~increased $1.6 million~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same period in ~~2016,~~2022, was primarily due to:

•an increase in accrued expenses related to the Security Incident; partially offset by

•fluctuations in the timing of vendor payments; and

•a decrease in ~~bonus payments partially offset by~~taxes payable.

Security Incident update

As discussed in Note 8 to our unaudited, condensed consolidated financial statements included in this report, total costs related to the Security Incident exceeded the limit of our insurance coverage in the first quarter of 2022. Accordingly, the Security Incident has negatively impacted, and we expect it to continue for the foreseeable future to negatively impact, our GAAP profitability and GAAP cash flow (see discussion regarding non-GAAP adjusted free cash flow on page 42). For full year 2023, we currently expect net pre-tax expense of approximately $20 million to $30 million and net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.

As of June 30, 2023, we have recorded approximately $50.0 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate in accordance with our loss contingency procedures described in Note 8. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of June 30, 2023 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an ~~increase in~~adverse judgment, settlement, fine, penalty 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 ~~taxes paid.~~flows or financial condition.

Investing ~~cash flow~~Cash Flow

Net cash used in investing activities of ~~$78.2~~$31.5 million ~~increased~~decreased by ~~$40.3~~$22.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, when compared to the same period in ~~2016.~~2022.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we used ~~net cash of $49.7~~$19.0 million for our acquisition of EVERFI comprised of (i) $17.4 million that had not been paid by EVERFI to its former option holders as of December 31, 2021, solely due to the timing of the acquisition on the last day of ~~AcademicWorks compared~~2021; and (ii) $2.6 million that was paid to ~~$3.4 million spent on investments~~a number of EVERFI's selling shareholders after determining they would be paid in ~~acquired companies during~~cash, rather than shares of our common stock.

During the ~~same period in 2016. We~~six months ended June 30, 2023, we used ~~$20.6~~$28.8 million for software and content development costs, which was up $1.5 million from cash spent in the same period in 2016. The increase in cash outlays for software development costs was primarily driven by development activities related to our next generation cloud-based solutions, and development activities for Blackbaud SKY, our new modern cloud platform.

~~We also spent $8.4 million of cash for purchases of property and equipment during the nine months ended September 30, 2017, which was down $7.0~~$1.6 million from cash spent during the same period in ~~2016. The~~2022. We also spent $2.8 million of cash for purchases of property and


44						Second Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

equipment during the six months ended June 30, 2023, which was a decrease of $4.7 million when compared to the same period in cash outlays for property and equipment 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.2022.

Financing ~~cash flow~~Cash Flow

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, 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.~~$13.8 million.

We paid ~~$19.1~~$33.7 million to satisfy tax obligations of employees upon settlement ~~or exercise~~ of equity awards during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to ~~$10.5~~$35.6 million during the same period in ~~2016.~~2022. 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 six months ended June 30, 2023, cash flow from financing activities associated with changes in restricted cash due to customers increased $61.3 million, compared to a decrease of $141.0 million during the ~~nine~~same period in 2022. This line in the statement of cash flows represents the change in the amount of restricted cash held and payable by us to customers from one period to the next.

Stock repurchase program

In December 2021, our Board of Directors reauthorized and replenished our 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 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 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 six months ended ~~September~~June 30, ~~2017,~~2023, we ~~paid dividends~~did not purchase any shares. The remaining amount available to purchase stock under the stock repurchase program was $250.0 million as of ~~$17.3 million, which was relatively consistent with~~June 30, 2023. While we intend to reduce our net leverage to our 2 to 1 target level in the ~~comparable period~~near term, as we gain visibility into the timing and magnitude of ~~2016.~~probable costs related to the Security Incident over time, we expect to resume stock repurchases.

~~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~~June 30, ~~2017,~~2023, our available borrowing capacity under the ~~2017~~2020 Credit Facility was ~~$356.2~~$325.8 million. The ~~2017~~2020 Credit Facility matures in ~~June 2022.~~October 2025.

At ~~September~~June 30, ~~2017,~~2023, the carrying amount of our debt under the ~~2017~~2020 Credit Facility was ~~$335.8~~$786.8 million. Our average daily borrowings during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 were ~~$355.4~~$823.4 million and ~~$368.5~~$814.9 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~~June 30, ~~2017~~2023
Net ~~Leverage Ratio~~leverage ratio(1)	≤ ~~3.50~~4.00 to 1.00	~~1.79~~2.67 to 1.00
Interest ~~Coverage Ratio~~coverage ratio	≥ 2.50 to 1.00	~~16.31~~7.59 to 1.00



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

~~Table~~(1)Under the terms of ~~Contents~~

~~Blackbaud, Inc.~~

the 2020 Credit Facility, the Net Leverage Ratio requirement may be increased by up to 0.50 provided we satisfy certain requirements, including a permitted business acquisition, and provided that the maximum Net Leverage Ratio shall not exceed 4.25 to 1.00.

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~~June 30, ~~2017,~~2023, we were in compliance with our debt covenants under the ~~2017~~2020 Credit Facility. See Note 6 to our unaudited, condensed consolidated financial statements included in this report for additional information regarding the 2020 Credit Facility.

~~Commitments and contingencies~~

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

Payments due by period
(in millions) Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Recorded contractual obligations:
Debt⁽¹⁾
$ 340.2
$ 8.6
$ 16.1
$ 315.5
$ —

Unrecorded contractual obligations:
Operating leases⁽²⁾
190.4
20.2
40.0
33.1
97.1
Interest payments on debt⁽³⁾
41.9
8.9
18.7
14.3
—
Purchase obligations⁽⁴⁾
51.9
21.3
30.6
—
—
Total contractual obligations $ 624.4
$ 59.0
$ 105.4
$ 362.9
$ 97.1


~~(1)~~Second Quarter 2023 Form 10-Q			~~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~~			45

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(Unaudited)

Commitments and Contingencies


	Payments due by period
(in millions)	Less than 1 year		More than 1 year		Total(1)
Recorded contractual obligations:
Debt	$	19.2	$	829.5	$	848.7
Operating leases	9.5		51.2		60.7
Interest payment on debt	—		3.1		3.1
Contingent consideration	—		1.4		1.4
Unrecorded contractual obligations:
Purchase obligations	75.5		194.9		270.4
Interest payments on debt	38.9		84.1		123.0
Total contractual obligations(1)	$	143.0	$	1,164.2	$	1,307.2

(1)The individual amounts may not sum to the total due to rounding.

Debt

As of June 30, 2023, we had total remaining principal payments of $848.7 million. These payments represent 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 June 30, 2023 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.~~


~~(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 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~~under the ~~2017~~2020 Credit Facility for the purposes of determining minimum commitment amounts. See Note 6 to our unaudited, condensed consolidated financial statements in this report for more information.

Interest payments on debt

In addition to principal payments, as of June ~~2022.~~30, 2023, we expect to pay interest expense over the life of our debt obligations of approximately $123.0 million. These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of June 30, 2023, which includes the effect of interest rate swap agreements. 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 on our remaining principal payments described above.

Operating leases

As of June 30, 2023, we had remaining operating lease payments of $60.7 million. These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest of $9.8 million. Our operating leases are generally for corporate offices, subleased offices and certain equipment and furniture. Given our remote-first workforce strategy and real estate footprint optimization efforts, as discussed above, we do not anticipate entering any new, material operating leases for offices for the foreseeable future. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.

Purchase obligations

As of June 30, 2023, we had remaining purchase obligations of $270.4 million. These purchase obligations are 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. Our purchase obligations are not recorded as liabilities on our consolidated balance sheets as of June 30, 2023, as we had not received the related services. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.

The total liability for uncertain tax positions as of ~~September~~June 30, ~~2017 and December 31, 2016,~~2023 was ~~$3.4~~$3.3 million ~~and $3.1 million, respectively.~~. Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of ~~September~~June 30, ~~2017 and December 31, 2016.~~

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 on December 15, 2017 to stockholders of record on November 28, 2017.~~

~~Off-Balance Sheet Arrangements~~

As of September 30, 2017, we did not have any off-balance sheet arrangements as defined in 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.

2023.


46						Second Quarter 2023 Form 10-Q

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(Unaudited)

Contingent consideration

In connection with our acquisition of Kilter in August 2022, we may be required to pay up to a maximum of $3.0 million in additional cash consideration if, during the two-year period commencing January 1, 2023, Kilter meets certain application participation targets. As of June 30, 2023, a liability for the contingent consideration is recorded at its current estimated fair value of $1.4 million in other liabilities in our consolidated balance sheet.


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

~~Table of Contents~~

~~Blackbaud, Inc.~~

Foreign Currency Exchange Rates

Approximately ~~10%~~15% of our total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 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~~income as a component of stockholders’ equity, was a loss of ~~$0.9 million and $0.5~~$9.7 million as of ~~September~~June 30, ~~2017~~2023 and a loss of $14.9 million as of December 31, ~~2016, respectively.~~2022. We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds into U.S. dollars.

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~~six months ended ~~September~~June 30, ~~2017,~~2023, foreign translation resulted in ~~an decrease~~decreases 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. However, we currently expect that fluctuations in foreign currency exchange rates will have a significant negative impact on our total revenue for the full year 2023. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, the fluctuation in foreign currency exchange rates ~~had insignificant impacts on~~reduced our total revenue and our income from ~~operations. For the nine months ended September 30, 2017, the fluctuation in~~operations by $3.7 million and $0.6 million, respectively. We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian dollar against changes in the exchange ~~rates decreased IMG revenue by approximately $0.8 million.~~rate with the U.S. dollar. 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~~six months ended ~~September~~June 30, ~~2017~~2023 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.~~2022.



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 unaudited, condensed consolidated financial statements in this report.



40	~~Third~~Second Quarter ~~2017~~2023 Form 10-Q	47

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(Unaudited)

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 SOFR rates. Because the Financial Conduct Authority in the U.K. previously stated that it would phase out all tenors of LIBOR by June 2023, we modified our financial contracts that were indexed to LIBOR to reference SOFR during 2022. These modifications did not have a significant financial impact. Due to the nature of our debt, the materiality of the fair values of the derivative instruments and the highly liquid, short-term nature and level of our cash and cash equivalents as of ~~September~~June 30, ~~2017,~~2023, 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~~2022 and ~~September~~June 30, ~~2017.~~

2023.



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~~June 30, ~~2017~~2023 with respect to our operations, which ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.



~~Third~~48	Second Quarter ~~2017~~2023 Form 10-Q	41

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Blackbaud, Inc.



						PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, see Note 8 to our unaudited, 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,~~2022, as filed with the Securities and Exchange Commission on February 24, 2023 (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 has had, and may continue to have, numerous adverse effects on our business, results of operations, financial condition and cash flows.

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. Based on the nature of the incident, our research and third party (including law enforcement) investigation we believe that no data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly. However, our investigation into the Security Incident remains ongoing and may provide additional information.

To date, we have received approximately 260 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. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, which we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us, and certain insurance companies have filed subrogation claims in court. 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. 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 49 state Attorneys General and the District of Columbia and a separate Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident. In addition, we are subject to pending governmental actions or investigations by the U.S. Federal Trade Commission, the U.S. Department of Health and Human Services, the Office of the Australian Information Commissioner and the Office of the Privacy Commissioner of Canada.

On March 9, 2023, the Company reached a settlement with the SEC in connection with the Security Incident. This settlement fully resolves the previously disclosed SEC investigation of the Security Incident and is further described in the SEC Order. Under the terms of the SEC Order, the Company agreed to cease-and-desist from committing or causing any violations or any future violations of Sections 17(a)(2) and (3) of the Securities Act and Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-13 and 13a-15(a) thereunder. As part of the SEC Order, the Company also agreed to pay, and has paid, a civil penalty in the amount of $3.0 million.


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See Note 8 to our unaudited, condensed consolidated financial statements included in this report for a more detailed description of the Security Incident and related matters.

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 will not be covered by insurance. For example, we have recorded approximately $50.0 million in aggregate liabilities for loss contingencies related to the Security Incident that we believe we can reasonably estimate as of June 30, 2023. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued. Certain governmental authorities are seeking to impose undertakings, injunctive relief, consent decrees, or other civil or criminal penalties, which could, 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.

In addition, any legislative or regulatory changes adopted in reaction to the Security Incident or other companies’ data breaches could require us to make modifications to the operation of our business that could have an adverse effect and/or increase or accelerate our compliance costs.

Significant management time and Company resources have been, and are expected to continue to be, devoted to the Security Incident. For example, for the three and six months ended June 30, 2023, we incurred net pre-tax expenses of $26.8 million and $44.6 million, respectively, related to the Security Incident, which included $7.0 million and $14.6 million, respectively, for ongoing legal fees and additional accruals for loss contingencies of $19.8 million and $30.0 million, respectively. During the six months ended June 30, 2023, we had net cash outlays of $15.8 million related to the Security Incident, which included ongoing legal fees and the $3.0 million civil penalty paid during the first quarter of 2023 related to the SEC settlement (as discussed in Note 8). For full year 2023, we currently expect net pre-tax expense of approximately $20.0 million to $30.0 million and net cash outlays of approximately $25.0 million to $35.0 million for ongoing legal fees related to the Security Incident. Although we carry insurance against certain losses related to the Security Incident, we exceeded the limit of that insurance coverage in the first quarter of 2022. As a result, we will be responsible for all expenses or other losses (including penalties, fines or other judgments) or all types of claims that may arise in connection with the Security Incident, which could materially and adversely affect our ~~business, financial condition,~~liquidity and results of ~~operations, cash flows,~~operations. (See Note 8 to our unaudited, condensed consolidated financial statements included in this report.) If any such fines or penalties were great enough that we could not pay them through funds generated from operating activities and/or cause a default under the 2020 Credit Facility, we may be forced to renegotiate or obtain a waiver under the 2020 Credit Facility and/or seek additional debt or equity financing. Such renegotiation or financing may not be available on acceptable terms, or at all. In these circumstances, if we were unable to obtain sufficient financing, we may not be able to meet our obligations as they come due.

In addition, publicity or developments related to the Security Incident could in the future have a range of other adverse effects on our business or prospects, including causing or contributing to loss of customer confidence, reduced customer demand, reduced customer retention, strategic growth opportunities, and associated retention and recruiting difficulties, some or all of which could be material.


Legal and Compliance Risks

Provisions in our organizational documents, our Stockholder Rights Agreement (as described below, the ~~trading~~"Rights Agreement"), certain officer compensation arrangements and Delaware law may delay or prevent an acquisition or change of control of our Company that could be deemed beneficial to our stockholders.

Certain provisions in our organizational documents, the Rights Agreement, compensation arrangements with our officers and Delaware law (as summarized below) may have the effect of delaying, deferring, discouraging or preventing an acquisition or change in control of the Company or a change in our management. This includes tender offers for our common stock, proxy contests or other takeover attempts. These anti-takeover effects may discourage transactions that might result in the payment of a premium over the market price for shares of our common stock. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our ~~stock. There~~common stock if they are viewed as discouraging takeover attempts in the future.


50						Second Quarter 2023 Form 10-Q

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Certificate of Incorporation and Bylaw provisions. The Board of Directors is divided into three classes of directors, as nearly equal in number as possible, with each class serving a staggered term of three years. The classification of directors will have ~~been no material changes~~the effect of making it more difficult and time-consuming for stockholders to change the composition of the Board of Directors, could discourage a third-party from making a tender offer or otherwise attempting to obtain control of the Company and may maintain the incumbency of the Board of Directors.

Our Bylaws contain an advance notice procedure for stockholders proposals to be brought before a meeting of stockholders, including any proposed nominations of persons for election to the Board of Directors. The Bylaws may have the effect of precluding the conduct of business at a meeting if the proper procedures are not followed and may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company.

The Board of Directors has the authority to issue up to an aggregate of 20,000,000 shares of preferred stock in one or more classes or series and to determine, with respect to any such class or series, the designations, powers, preferences and rights of such class or series, and the qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences, and the number of shares constituting any class or series or the designation of such class or series, without further vote or action by the stockholders. This preferred stock, including the Series A Preferred Stock described below, could have terms that may discourage a potential acquirer from making, without first negotiating with the Board of Directors, an acquisition attempt through which such acquirer may be able to change the composition of the Board of Directors, including a tender offer or other takeover attempt.

The Board of Directors possesses the authority to call and hold emergency special meetings of the Board of Directors with less than forty-eight hours’ notice. This power to hold an emergency special meeting of the Board of Directors on short notice could discourage a potential acquirer from launching a bid to acquire majority ownership of the Company, a proxy solicitation in order to replace the current Board of Directors, or otherwise attempting to obtain control of the Company.

Stockholder Rights Agreement. On October 7, 2022, the Company declared a dividend of one preferred share purchase right for each of the Company’s issued and outstanding shares of Common Stock. The description and terms of these Rights are set forth in the Rights Agreement by and between the Company and American Stock Transfer & Trust Company, LLC. Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from us one one-thousandth of a share of the Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) at a price of $313.00, subject to certain adjustments (as adjusted from time to time, the “Exercise Price”). Under the Rights Agreement, the Rights will become exercisable if an entity, person or group acquires beneficial ownership of 20% or more of the outstanding Common Stock in a transaction not approved by the Board of Directors. In the event that the Rights become exercisable due to the ownership threshold being crossed, each Right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase additional shares of Common Stock having a then-current market value of twice the Exercise Price, which would likely make any takeover or change of control attempt by such entity, person or group prohibitively expensive. Subject to the terms of the Rights Agreement, the Rights will expire on October 2, 2023. Additional information regarding the Rights Agreement is contained in a Form 8-K filed with the SEC on October 11, 2022.

Officer Compensation Arrangements. We have entered into an employment agreement with our ~~risk factors since~~Chief Executive Officer and retention agreements with certain of our ~~Annual Report on Form 10-K~~officers, which provide that, upon the occurrence of a change in control of us and either the termination of their employment without cause (as defined) or their resignation for good reason (as defined), such persons would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of compensation and accelerated vesting of certain equity stock awards paid in accordance with the ~~year ended December 31, 2016.~~terms and conditions of the respective agreement). Such provisions could significantly increase the costs to a third-party acquirer and/or deter such third-party from acquiring us.

Delaware anti-takeover law. We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation, such as the Company, from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless certain criteria are met. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or is an affiliate or associate of the corporation, and within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock.


Second Quarter 2023 Form 10-Q						51

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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~~June 30, ~~2017. All of these acquisitions were of~~2023 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, April 1, 2023					$	250,000
April 1, 2023 through April 30, 2023	—	$	—	—	250,000
May 1, 2023 through May 31, 2023	32,540	69.76		—	250,000
June 1, 2023 through June 30, 2023	—	—		—	250,000
Total	32,540	$	69.76	—	$	250,000

(1)Includes 32,540 shares in May 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.

(2)In December 2021, our Board of Directors reauthorized and replenished 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.

ITEM 5. OTHER INFORMATION

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.Trading Arrangements Adopted or Terminated

The following table provides information about trading arrangements adopted or terminated by certain of our officers and directors during the three months ended June 30, 2023.

Trading arrangement(1)

Aggregate
number of
securities to
be sold
under plan

Name and Title

Action

Date of Adoption

Plan
effective
date

Plan
end
date

Plan
duration
(months)

Rule 10b5-1

Non-Rule 10b5-1

Jon W. Olson

Senior Vice President and General Counsel

Adoption

5/08/23

8/15/23

2/23/24

Six

7,000

David J. Benjamin

Executive Vice President and Chief Commercial Officer

Adoption

5/23/23

8/21/23

2/23/24

Six

20,000

(1)An SEC "Rule 10b5-1(c) trading arrangement" is a trading arrangement made by a person through entering into a binding contract, verbal instruction or adoption of a written plan prior to becoming aware of material non-public information. The contract, instruction or written plan must specify the amount, price and date of securities to be sold; include the means for determining the amount, price and date of the sale or sales; and not permit the person to have subsequent influence over the sale or sales. The compliant plan must be entered into and operated in good faith, include a specified cooling off period, be certified by an authorized officer and is restricted from having multiple or overlapping plans. A non-compliant trading arrangement, or a "non-Rule 10b5-1 trading arrangement," is a trading arrangement that has similar requirements to a Rule 10b5-1(c) trading arrangement except that it must be in written form and does not require a cooling off period or certification of an authorized officer and there is no restriction from having multiple or overlapping plans.

None of our officers or directors adopted or terminated a non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023.



4252						~~Third~~Second Quarter ~~2017~~2023 Form 10-Q

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Blackbaud, Inc.

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

10.1

Relocation Agreement dated June 8, 2023 between Blackbaud, Inc. and David J. Benjamin.

8-K

10.1

6/12/2023

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

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

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

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

Second Quarter 2023 Form 10-Q

~~Filed In~~

~~Exhibit Number~~

~~Description of Document~~

~~Filed Herewith~~

~~Form~~

~~Exhibit Number~~

~~Filing Date~~

~~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*

~~XBRL Instance Document.~~

101.SCH*

~~XBRL Taxonomy Extension Schema Document.~~

101.CAL*

~~XBRL Taxonomy Extension Calculation Linkbase Document.~~

101.DEF*

~~XBRL Taxonomy Extension Definition Linkbase Document.~~

101.LAB*

~~XBRL Taxonomy Extension Label Linkbase Document.~~

101.PRE*

~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

* Pursuant to Rule 406T

Table 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.Contents

Blackbaud, Inc.



~~Third Quarter 2017 Form 10-Q~~						43

~~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:			August 3, 2023	~~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~~August 3, 2023	By:	/s/ Anthony W. Boor
					Anthony W. Boor
					Executive Vice President and Chief Financial Officer
					(Principal Financial and Accounting Officer)



4454						~~Third~~Second Quarter ~~2017~~2023 Form 10-Q



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
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
Total revenue	195,513			183,063			571,329			532,510
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
Total cost of revenue	87,005			83,317			259,482			246,818
Gross profit	108,508			99,746			311,847			285,692
Operating expenses
Sales, marketing and customer success	44,193			40,690			129,394			115,707
Research and development	22,071			22,510			67,647			67,973
General and administrative	23,545			22,319			67,350			62,089
Amortization	734			687			2,164			2,147
Total operating expenses	90,543			86,206			266,555			247,916
Income from operations	17,965			13,540			45,292			37,776
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
Income tax provision	2,793			1,950			2,964			5,323
Net income	$	12,548		$	8,934		$	35,224		$	24,231
Earnings per share
Basic	$	0.27		$	0.19		$	0.76		$	0.53
Diluted	$	0.26		$	0.19		$	0.74		$	0.51
Common shares and equivalents outstanding
Basic weighted average shares	46,711,709			46,159,956			46,627,213			46,078,306
Diluted weighted average shares	47,846,997			47,394,106			47,679,103			47,268,469
Dividends per share	$	0.12		$	0.12		$	0.36		$	0.36
Other comprehensive (loss) income
Foreign currency translation adjustment	(188		)	289			(467		)	261
Unrealized (loss) gain on derivative instruments, net of tax	(267		)	409			(89		)	(378		)
Total other comprehensive (loss) income	(455		)	698			(556		)	(117		)
Comprehensive income	$	12,093		$	9,632		$	34,668		$	24,114

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



(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



	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



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	%



(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



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