UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended March 31, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			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
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

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

☐

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 ☑

The number of shares of the registrant’s Common Stock outstanding as of May ~~2, 2022~~1, 2023 was ~~52,943,047.~~53,862,559.

TABLE OF CONTENTS


First Quarter ~~2022~~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, specific and overall impacts of the COVID-19 global pandemic on our financial condition and results of operations and on the markets and communities in which we and our customers and partners operate, trend analyses, statements regarding future events, future financial performance, our anticipated growth, the effect of general economic and market conditions, our business strategy and our plan to build and grow our business, our operating results, our ability to successfully integrate acquired businesses and technologies, the effect of foreign currency exchange rate and interest rate fluctuations on our financial results, the impact of expensing stock-based compensation, the sufficiency of our capital resources, our ability to meet our ongoing debt and obligations as they become due, cybersecurity and data protection risks and related liabilities, and current or potential 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 “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, ~~2021~~2022 and in our other 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						First Quarter ~~2022~~2023 Form 10-Q


						PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)	Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)					Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)	(dollars in thousands)	March 31, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	33,786	$	55,146	Cash and cash equivalents	$	24,083	$	31,691
Restricted cash	Restricted cash	279,594		596,616		Restricted cash	364,071		702,240
Accounts receivable, net of allowance of $10,772 and $11,155 at March 31, 2022 and December 31, 2021, respectively		91,770		102,726
Accounts receivable, net of allowance of $7,688 and $7,318 at March 31, 2023 and December 31, 2022, respectively						Accounts receivable, net of allowance of $7,688 and $7,318 at March 31, 2023 and December 31, 2022, respectively	100,253		102,809
Customer funds receivable	Customer funds receivable	2,049		977		Customer funds receivable	2,136		249
Prepaid expenses and other current assets	Prepaid expenses and other current assets	99,913		95,506		Prepaid expenses and other current assets	88,779		81,654
Total current assets	Total current assets	507,112		850,971		Total current assets	579,322		918,643
Property and equipment, net	Property and equipment, net	112,675		111,428		Property and equipment, net	105,309		107,426
Operating lease right-of-use assets	Operating lease right-of-use assets	51,808		53,883		Operating lease right-of-use assets	47,176		45,899
Software development costs, net		126,766		121,377
Software and content development costs, net						Software and content development costs, net	145,705		141,023
Goodwill	Goodwill	1,056,794		1,058,640		Goodwill	1,051,652		1,050,272
Intangible assets, net	Intangible assets, net	683,348		698,052		Intangible assets, net	622,237		635,136
Other assets	Other assets	90,194		77,266		Other assets	87,947		94,304
Total assets	Total assets	$	2,628,697	$	2,971,617	Total assets	$	2,639,348	$	2,992,703
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Trade accounts payable	Trade accounts payable	$	39,490	$	22,067	Trade accounts payable	$	46,528	$	42,559
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	72,195		100,096		Accrued expenses and other current liabilities	72,799		86,002
Due to customers	Due to customers	278,179		594,273		Due to customers	364,397		700,860
Debt, current portion	Debt, current portion	18,116		18,697		Debt, current portion	19,136		18,802
Deferred revenue, current portion	Deferred revenue, current portion	350,952		374,499		Deferred revenue, current portion	361,003		382,419
Total current liabilities	Total current liabilities	758,932		1,109,632		Total current liabilities	863,863		1,230,642
Debt, net of current portion	Debt, net of current portion	963,109		937,483		Debt, net of current portion	858,912		840,241
Deferred tax liability	Deferred tax liability	144,590		148,465		Deferred tax liability	131,460		125,759
Deferred revenue, net of current portion	Deferred revenue, net of current portion	4,725		4,247		Deferred revenue, net of current portion	6,956		2,817
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	50,785		53,386		Operating lease liabilities, net of current portion	45,190		44,918
Other liabilities	Other liabilities	1,506		1,344		Other liabilities	13,234		4,294
Total liabilities	Total liabilities	1,923,647		2,254,557		Total liabilities	1,919,615		2,248,671
Commitments and contingencies (see Note 10)		0
Commitments and contingencies (see Note 8)						Commitments and contingencies (see Note 8)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock; 20,000,000 shares authorized, none outstanding	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, 67,658,172 and 66,165,666 shares issued at March 31, 2022 and December 31, 2021, respectively		68		66
Common stock, $0.001 par value; 180,000,000 shares authorized, 69,154,863 and 67,814,044 shares issued at March 31, 2023 and December 31, 2022, respectively						Common stock, $0.001 par value; 180,000,000 shares authorized, 69,154,863 and 67,814,044 shares issued at March 31, 2023 and December 31, 2022, respectively	69		68
Additional paid-in capital	Additional paid-in capital	993,223		968,927		Additional paid-in capital	1,105,189		1,075,264
Treasury stock, at cost; 14,715,944 and 14,182,805 shares at March 31, 2022 and December 31, 2021, respectively		(535,585)		(500,911)
Treasury stock, at cost; 15,278,827 and 14,745,230 shares at March 31, 2023 and December 31, 2022, respectively						Treasury stock, at cost; 15,278,827 and 14,745,230 shares at March 31, 2023 and December 31, 2022, respectively	(568,277)		(537,287)
Accumulated other comprehensive income	Accumulated other comprehensive income	15,295		6,522		Accumulated other comprehensive income	404		8,938
Retained earnings	Retained earnings	232,049		242,456		Retained earnings	182,348		197,049
Total stockholders’ equity	Total stockholders’ equity	705,050		717,060		Total stockholders’ equity	719,733		744,032
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,628,697	$	2,971,617	Total liabilities and stockholders’ equity	$	2,639,348	$	2,992,703

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


First Quarter ~~2022~~2023 Form 10-Q						3


Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Loss (Unaudited)							Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
		Three months ended March 31,						Three months ended March 31,
(dollars in thousands, except per share amounts)	(dollars in thousands, except per share amounts)		2022		2021		(dollars in thousands, except per share amounts)		2023		2022
Revenue	Revenue						Revenue
Recurring	Recurring		$	244,666	$	206,750	Recurring		$	252,748	$	244,666
One-time services and other	One-time services and other		12,458		12,441		One-time services and other		9,005		12,458
Total revenue	Total revenue		257,124		219,191		Total revenue		261,753		257,124
Cost of revenue	Cost of revenue						Cost of revenue
Cost of recurring	Cost of recurring		112,174		88,865		Cost of recurring		114,500		112,174
Cost of one-time services and other	Cost of one-time services and other		11,188		14,520		Cost of one-time services and other		8,612		11,188
Total cost of revenue	Total cost of revenue		123,362		103,385		Total cost of revenue		123,112		123,362
Gross profit	Gross profit		133,762		115,806		Gross profit		138,641		133,762
Operating expenses	Operating expenses						Operating expenses
Sales, marketing and customer success	Sales, marketing and customer success		55,216		48,793		Sales, marketing and customer success		54,385		55,216
Research and development	Research and development		39,952		29,179		Research and development		40,591		39,952
General and administrative	General and administrative		43,762		30,587		General and administrative		52,838		43,762
Amortization	Amortization		811		549		Amortization		774		811
Restructuring			—		54

Total operating expenses	Total operating expenses		139,741		109,162		Total operating expenses		148,588		139,741
(Loss) income from operations			(5,979)		6,644
Loss from operations							Loss from operations		(9,947)		(5,979)
Interest expense	Interest expense		(7,599)		(5,114)		Interest expense		(10,662)		(7,599)
Other income (expense), net			1,121		(1,010)
(Loss) income before provision for income taxes			(12,457)		520
Income tax (benefit) provision			(2,050)		684
Other income, net							Other income, net		2,007		1,121
Loss before provision for income taxes							Loss before provision for income taxes		(18,602)		(12,457)
Income tax benefit							Income tax benefit		(3,901)		(2,050)
Net loss	Net loss		$	(10,407)	$	(164)	Net loss		$	(14,701)	$	(10,407)
Loss per share	Loss per share						Loss per share
Basic	Basic		$	(0.20)	$	—	Basic		$	(0.28)	$	(0.20)
Diluted	Diluted		$	(0.20)	$	—	Diluted		$	(0.28)	$	(0.20)
Common shares and equivalents outstanding	Common shares and equivalents outstanding						Common shares and equivalents outstanding
Basic weighted average shares	Basic weighted average shares		51,199,717		47,363,197		Basic weighted average shares		52,132,999		51,199,717
Diluted weighted average shares	Diluted weighted average shares		51,199,717		47,363,197		Diluted weighted average shares		52,132,999		51,199,717
Other comprehensive income
Other comprehensive (loss) income							Other comprehensive (loss) income
Foreign currency translation adjustment	Foreign currency translation adjustment		(2,132)		2,511		Foreign currency translation adjustment		$	2,158	$	(2,132)
Unrealized gain on derivative instruments, net of tax			10,905		4,149
Total other comprehensive income			8,773		6,660
Comprehensive (loss) income			$	(1,634)	$	6,496
Unrealized (loss) gain on derivative instruments, net of tax							Unrealized (loss) gain on derivative instruments, net of tax		(10,692)		10,905
Total other comprehensive (loss) income							Total other comprehensive (loss) income		(8,534)		8,773
Comprehensive loss							Comprehensive loss		$	(23,235)	$	(1,634)

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


4						First Quarter ~~2022~~2023 Form 10-Q


Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)	Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)					Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
		Three months ended March 31,					Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2022		2021		(dollars in thousands)	2023		2022
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net loss	Net loss	$	(10,407)	$	(164)	Net loss	$	(14,701)	$	(10,407)
Adjustments to reconcile net loss to net cash provided by operating activities:	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	Depreciation and amortization	25,545		20,461		Depreciation and amortization	27,272		25,545
Provision for credit losses and sales returns	Provision for credit losses and sales returns	1,875		2,141		Provision for credit losses and sales returns	1,522		1,875
Stock-based compensation expense	Stock-based compensation expense	27,860		30,005		Stock-based compensation expense	29,925		27,860
Deferred taxes	Deferred taxes	(7,431)		(1,142)		Deferred taxes	9,245		(7,431)
Amortization of deferred financing costs and discount	Amortization of deferred financing costs and discount	645		506		Amortization of deferred financing costs and discount	500		645
Other non-cash adjustments	Other non-cash adjustments	(150)		(32)		Other non-cash adjustments	(215)		(150)
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:					Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
Accounts receivable	Accounts receivable	9,010		10,407		Accounts receivable	1,139		9,010
Prepaid expenses and other assets	Prepaid expenses and other assets	(2,067)		(17,426)		Prepaid expenses and other assets	(2,750)		(2,067)
Trade accounts payable	Trade accounts payable	15,919		7,550		Trade accounts payable	3,362		15,919
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(13,430)		549		Accrued expenses and other liabilities	(15,931)		(13,430)
Deferred revenue	Deferred revenue	(22,865)		(22,752)		Deferred revenue	(17,562)		(22,865)
Net cash provided by operating activities	Net cash provided by operating activities	24,504		30,103		Net cash provided by operating activities	21,806		24,504
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchase of property and equipment	Purchase of property and equipment	(4,266)		(3,470)		Purchase of property and equipment	(1,364)		(4,266)
Capitalized software development costs		(12,683)		(9,302)
Capitalized software and content development costs						Capitalized software and content development costs	(13,967)		(12,683)
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	(19,985)		—		Purchase of net assets of acquired companies, net of cash and restricted cash acquired	—		(19,985)

Net cash used in investing activities	Net cash used in investing activities	(36,934)		(12,772)		Net cash used in investing activities	(15,331)		(36,934)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from issuance of debt	Proceeds from issuance of debt	59,400		80,700		Proceeds from issuance of debt	92,600		59,400
Payments on debt	Payments on debt	(33,765)		(59,667)		Payments on debt	(75,403)		(33,765)

Employee taxes paid for withheld shares upon equity award settlement	Employee taxes paid for withheld shares upon equity award settlement	(34,674)		(18,426)		Employee taxes paid for withheld shares upon equity award settlement	(31,417)		(34,674)

Change in due to customers	Change in due to customers	(315,294)		(353,597)		Change in due to customers	(337,159)		(315,294)
Change in customer funds receivable	Change in customer funds receivable	(1,115)		(563)		Change in customer funds receivable	(1,859)		(1,115)
Purchase of treasury stock		—		(28,066)

Net cash used in financing activities	Net cash used in financing activities	(325,448)		(379,619)		Net cash used in financing activities	(353,238)		(325,448)
Effect of exchange rate on cash, cash equivalents and restricted cash	Effect of exchange rate on cash, cash equivalents and restricted cash	(504)		230		Effect of exchange rate on cash, cash equivalents and restricted cash	986		(504)
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(338,382)		(362,058)		Net decrease in cash, cash equivalents and restricted cash	(345,777)		(338,382)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	651,762		644,969		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	$	313,380	$	282,911	Cash, cash equivalents and restricted cash, end of period	$	388,154	$	313,380

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)	(dollars in thousands)	March 31, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022
Cash and cash equivalents	Cash and cash equivalents	$	33,786	$	55,146	Cash and cash equivalents	$	24,083	$	31,691
Restricted cash	Restricted cash	279,594		596,616		Restricted cash	364,071		702,240
Total cash, cash equivalents and restricted cash in the statement of cash flows	Total cash, cash equivalents and restricted cash in the statement of cash flows	$	313,380	$	651,762	Total cash, cash equivalents and restricted cash in the statement of cash flows	$	388,154	$	733,931

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


First Quarter ~~2022~~2023 Form 10-Q						5

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)


(dollars in thousands)	(dollars in thousands)	Common stock			Additional paid-in capital		Treasury stock		Accumulated other comprehensive income (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, 2021		66,165,666	$	66	$	968,927	$	(500,911)	$	6,522	$	242,456	$	717,060
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	—	—		—		—		—		(10,407)		(10,407)		Net loss	—	—		—		—		—		(14,701)		(14,701)
Stock issuance costs related to purchase of EVERFI (see Note 3)		—	—		(983)		—		—		—		(983)

Retirements of common stock(1)		(33,075)	—		(2,581)		—		—		—		(2,581)

Vesting of restricted stock units	Vesting of restricted stock units	976,312	—		—		—		—		—		—		Vesting of restricted stock units	954,147	—		—		—		—		—		—
Employee taxes paid for 533,139 withheld shares upon equity award settlement		—	—		—		(34,674)		—		—		(34,674)
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	Stock-based compensation	—	—		27,860		—		—		—		27,860		Stock-based compensation	—	—		29,925		—		—		—		29,925
Restricted stock grants	Restricted stock grants	580,209	2		—		—		—		—		2		Restricted stock grants	427,941	1		—		—		—		—		1
Restricted stock cancellations	Restricted stock cancellations	(30,940)	—		—		—		—		—		—		Restricted stock cancellations	(41,269)	—		—		—		—		—		—
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
Other comprehensive loss															Other comprehensive loss	—	—		—		—		(8,534)		—		(8,534)
Balance at March 31, 2023															Balance at March 31, 2023	69,154,863	$	69	$	1,105,189	$	(568,277)	$	404	$	182,348	$	719,733


(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

(1)Represents shares retired after determining certain EVERFI's selling shareholders would be paid in cash, rather than shares of our common stock. ~~See Note 3 for additional information regarding our acquisition of EVERFI.~~

(dollars in thousands) Common stock Additional
paid-in
capital Treasury
stock Accumulated
other
comprehensive
income (loss) Retained
earnings Total
stockholders'
equity
Shares Amount
Balance at December 31, 2020 60,904,638 $ 61 $ 544,963 $ (353,091) $ (2,497) $ 236,714 $ 426,150
Net loss — — — — — (164) (164)
Purchase of 465,821 treasury shares under stock repurchase program (28,066) — — (28,066)
Vesting of restricted stock units 206,418 — — — — — —
Employee taxes paid for 240,867 withheld shares upon equity award settlement — — — (18,426) — — (18,426)
Stock-based compensation — — 29,995 — — 10 30,005
Restricted stock grants 519,009 1 — — — — 1
Restricted stock cancellations (34,789) — — — — — —
Other comprehensive income — — — — 6,660 — 6,660
Balance at March 31, 2021 61,595,276 $ 62 $ 574,958 $ (399,583) $ 4,163 $ 236,560 $ 416,160
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.


6						First Quarter ~~2022~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to 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, higher education institutions, K–12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies~~responsibility and individual change ~~agents—we connect and empower organizations~~makers, our essential software is built to ~~increase their~~accelerate impact ~~through cloud 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 ~~(CSR)~~ and ~~environmental, social and governance (ESG), school management, ticketing, grantmaking, financial management, payment processing and analytics. Serving the industry for more than four decades, we are a~~education management. A remote-first company, ~~headquartered in Charleston, South Carolina, with~~we have operations in the United States, Australia, Canada, Costa Rica and the United ~~Kingdom.~~Kingdom, supporting users in 100+ countries.


2. Basis of Presentation

Unaudited condensed consolidated interim financial statements

The accompanying condensed consolidated interim 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, ~~2021~~2022 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the three months ended March 31, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2022,~~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 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, ~~2021,~~2022, and other forms filed with the SEC from time to time.

Basis of consolidation

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

Reportable segment

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.

As discussed in Note 13 to these condensed consolidated financial statements, beginning in the second quarter of 2021, we combined our General Markets Group ("GMG") and Enterprise Markets Group ("EMG") into a single U.S. Markets Group ("UMG") and moved our Corporations vertical under our International Markets Group ("IMG"). This change was made to better align our resources toward customer retention and growth which, are key objectives as we progress toward our long-term aspirational goals. We also acquired EVERFI (as defined below) as of December 31, 2021. As we are working to integrate EVERFI into our business, it has not yet been included in one of our market groups. These changes did not impact our conclusions that we have one operating and reportable segment and one goodwill reporting unit.


~~First Quarter 2022 Form 10-Q~~						7

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Risks and uncertainties related to COVID-19~~

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

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, 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 circumstances underlying these estimates ~~including due to COVID-19,~~ could result in material changes and actual results could materially differ from these estimates.


First Quarter 2023 Form 10-Q						7

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Recently adopted accounting pronouncements

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 statement presentation of supplier finance programs. We adopted ASU 2022-04 on January 1, 2023 and the adoption did not have a material impact on our condensed consolidated financial statements.

Recently issued accounting pronouncements

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

Summary of significant accounting policies

There have been no material changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on ~~March 1, 2022.~~February 24, 2023.


3. ~~Business Combinations~~

~~2021 Acquisition~~

~~EVERFI~~

On December 31, 2021, we acquired all of the outstanding equity securities, including all voting equity interests, of EVERFI, Inc., a Delaware corporation ("EVERFI"), pursuant to an agreement and plan of merger. The acquisition advanced our position as a leader in the rapidly evolving ESG and CSR spaces. We acquired the equity securities for approximately $442.7 million in cash consideration and 3,811,348 shares of the company's common stock, valued at approximately $301.1 million, for an aggregate purchase price of approximately $743.8 million, subject to closing adjustments. The cash consideration and related expenses were funded primarily through cash on hand and new borrowings under the 2020 Credit Facility (as defined below). As a result of the acquisition, EVERFI has become a wholly owned subsidiary of ours. The operating results of EVERFI have been included in our consolidated financial statements from the date of acquisition. In accordance with applicable accounting rules, 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 to be presented.

The fair values assigned to the assets acquired and liabilities assumed in our acquisition of EVERFI 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 intangible assets as well as the assumed deferred income tax balances. During the three months ended March 31, 2022, we recorded an insignificant measurement period adjustment to the estimated fair value of the EVERFI assets acquired and liabilities assumed following the receipt of new information. The adjustment resulted in an increase to net working capital, excluding deferred revenue, with the corresponding offset to goodwill.


8						~~First Quarter 2022 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~


~~4. Goodwill and Other Intangible Assets~~

~~The change in goodwill during the three months ended March 31, 2022, consisted of the following:~~


~~(dollars in thousands)~~	~~Total~~
~~Balance at December 31, 2021~~	$	~~1,058,640~~

~~Adjustments related to prior year business combinations(1)~~	~~(203)~~
~~Effect of foreign currency translation~~	~~(1,643)~~
~~Balance at March 31, 2022~~	$	~~1,056,794~~

~~(1)~~See Note 3 to these condensed consolidated financial statements for a discussion of the measurement period adjustment during the three months ended March 31, 2022 to the estimated fair value of the EVERFI assets acquired and liabilities assumed.


5. Loss Per Share

We compute basic ~~earnings (loss)~~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)~~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)~~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. Diluted loss per share for the three months ended March 31, 2023 and 2022 was the same as basic loss per share as there ~~was a~~were net ~~loss~~losses in ~~the period~~both periods and inclusion of potentially dilutive securities was anti-dilutive.

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


		Three months ended March 31,						Three months ended March 31,
(dollars in thousands, except per share amounts)	(dollars in thousands, except per share amounts)		2022		2021		(dollars in thousands, except per share amounts)		2023		2022
Numerator:	Numerator:						Numerator:
Net loss	Net loss		$	(10,407)	$	(164)	Net loss		$	(14,701)	$	(10,407)
Denominator:	Denominator:						Denominator:
Weighted average common shares	Weighted average common shares		51,199,717		47,363,197		Weighted average common shares		52,132,999		51,199,717
Add effect of dilutive securities:	Add effect of dilutive securities:						Add effect of dilutive securities:
Stock-based awards	Stock-based awards		—		—		Stock-based awards		—		—
Weighted average common shares assuming dilution	Weighted average common shares assuming dilution		51,199,717		47,363,197		Weighted average common shares assuming dilution		52,132,999		51,199,717
Earnings per share:
Loss per share							Loss per share
Basic	Basic		$	(0.20)	$	—	Basic		$	(0.28)	$	(0.20)
Diluted	Diluted		$	(0.20)	$	—	Diluted		$	(0.28)	$	(0.20)

Anti-dilutive shares excluded from calculations of diluted earnings per share			1,558,751		1,360,378
Anti-dilutive shares excluded from calculations of diluted loss per share							Anti-dilutive shares excluded from calculations of diluted loss per share		1,638,453		1,558,751


~~First Quarter 2022 Form 10-Q~~8						9First Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


6.4. 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.

Recurring fair value measurements

~~Assets~~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									Fair value measurement using
(dollars in thousands)	(dollars in thousands)	Level 1		Level 2		Level 3		Total		(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 March 31, 2022
Fair value as of March 31, 2023										Fair value as of March 31, 2023
Financial assets:	Financial assets:									Financial assets:
Derivative instruments		$	—	$	21,947	$	—	$	21,947
Interest rate swaps										Interest rate swaps	$	—	$	26,514	$	—	$	26,514
Foreign currency forward contracts										Foreign currency forward contracts	—		96		—		96
Total financial assets	Total financial assets	$	—	$	21,947	$	—	$	21,947	Total financial assets	$	—	$	26,610	$	—	$	26,610

Fair value as of March 31, 2023										Fair value as of March 31, 2023
Financial liabilities:										Financial liabilities:
Interest rate swaps										Interest rate swaps	$	—	$	8,920	$	—	$	8,920
Foreign currency forward contracts										Foreign currency forward contracts	—		499		—		499
Contingent consideration obligations										Contingent consideration obligations	—		—		2,710		2,710
Total financial liabilities										Total financial liabilities	$	—	$	9,419	$	2,710	$	12,129

Fair value as of December 31, 2021
Fair value as of December 31, 2022										Fair value as of December 31, 2022
Financial assets:	Financial assets:									Financial assets:
Derivative instruments		$	—	$	7,160	$	—	$	7,160
Interest rate swaps										Interest rate swaps	$	—	$	31,870	$	—	$	31,870
Foreign currency forward contracts										Foreign currency forward contracts	—		247		—		247
Total financial assets	Total financial assets	$	—	$	7,160	$	—	$	7,160	Total financial assets	$	—	$	32,117	$	—	$	32,117

Fair value as of December 31, 2022										Fair value as of December 31, 2022
Financial liabilities:										Financial liabilities:

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


First Quarter 2023 Form 10-Q						9

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Our derivative instruments within the scope of 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.~~swaps and foreign currency forward contracts. See Note 97 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. ~~The Financial Co~~nduct Authority in the U.K. has stated that it plans to phase out all tenors of LIBOR by June 2023. We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as we expect that ourOur financial contracts ~~currently~~that were indexed to LIBOR ~~will either expire or be~~were modified ~~without~~to reference SOFR during the three months ended September 30, 2022. These modifications did not have a significant financial ~~impact before~~impact.

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 p~~hase out occurs.~~likelihood of possible achievement of specified performance measures or events and captures the contractual nature of the contingencies, commercial risk, and the time value of money. As the fair value measurements for our contingent consideration obligations contain significant unobservable inputs, they are classified within Level 3 of the fair value hierarchy.

We believe the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at March 31, ~~2022~~2023 and December 31, ~~2021,~~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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, as the debt bears interest rates that approximate market value. As ~~LIBOR and~~ 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.


10						~~First Quarter 2022 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the three months ended March 31, ~~2022. Additionally, we did not hold any Level 3 assets or liabilities during the three months ended March 31, 2022.~~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 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 these assets other than goodwill 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 operating lease ROU assets during the three months ended March 31, ~~2022.~~2023.


7.5. Consolidated Financial Statement Details

Restricted cash


(dollars in thousands)	(dollars in thousands)	March 31, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022
Restricted cash due to customers	Restricted cash due to customers	$	276,130	$	593,296	Restricted cash due to customers	$	362,261	$	700,611
Letters of credit for operating leases		2,193		2,256
Real estate escrow balances		1,271		1,064

Real estate escrow balances and other						Real estate escrow balances and other	1,810		1,629
Total restricted cash	Total restricted cash	$	279,594	$	596,616	Total restricted cash	$	364,071	$	702,240


10						First Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Prepaid expenses and other assets


(dollars in thousands)	March 31, 2023		December 31, 2022
Costs of obtaining contracts(1)(2)	$	71,956	$	74,272
Prepaid software maintenance and subscriptions(3)	37,125		34,766
Derivative instruments	26,610		32,117
Implementation costs for cloud computing arrangements, net(4)(5)	9,993		10,189
Prepaid insurance	9,962		4,902
Unbilled accounts receivable	7,092		5,775
Taxes, prepaid and receivable	1,728		1,855
Deferred tax assets	1,152		1,153
Other assets	11,108		10,929
Total prepaid expenses and other assets	176,726		175,958
Less: Long-term portion	87,947		94,304
Prepaid expenses and other current assets	$	88,779	$	81,654

(1)Amortization expense from costs of obtaining contracts was $8.3 million and $8.5 million for the three months ended March 31, 2023 and 2022, respectively.

(2)The current portion of costs of obtaining contracts as of March 31, 2023 and December 31, 2022 was $28.5 million and $29.1 million, respectively.

(3)The current portion of prepaid software maintenance and subscriptions as of March 31, 2023 and December 31, 2022 was $32.6 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 March 31, 2023 and 2022, respectively. Accumulated amortization for these costs was $5.7 million and $5.2 million as of March 31, 2023 and December 31, 2022, respectively.

Accrued expenses and other liabilities


(dollars in thousands)	March 31, 2023		December 31, 2022
Accrued legal costs(1)	$	35,705	$	28,448
Derivative instruments	9,419		323
Customer credit balances	7,990		8,257
Operating lease liabilities, current portion	7,962		7,723
Accrued commissions and salaries	5,407		6,944
Taxes payable	3,580		16,667
Contingent consideration liability	2,710		2,710
Accrued health care costs	2,213		2,467
Accrued vacation costs	2,019		2,156
Accrued transaction-based costs related to payments services	1,882		5,059


Other liabilities	7,146		9,542
Total accrued expenses and other liabilities	86,033		90,296
Less: Long-term portion	13,234		4,294
Accrued expenses and other current liabilities	$	72,799	$	86,002

(1)All accrued legal costs are classified as current.


First Quarter ~~2022~~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) March 31,
2022 December 31,
2021
Costs of obtaining contracts(1)(2)
$ 76,482 $ 78,465
Prepaid software maintenance and subscriptions(3)
33,950 28,880
Derivative instruments 21,947 7,160
Receivables for probable insurance recoveries(4)(5)
12,715 18,202
Implementation costs for cloud computing arrangements, net(6)(7)
11,354 11,892
Prepaid insurance 11,237 5,363
Unbilled accounts receivable 5,545 5,443
Taxes, prepaid and receivable 4,006 3,986
Deferred tax assets 1,569 1,546
Other assets 11,302 11,835
Total prepaid expenses and other assets 190,107 172,772
Less: Long-term portion 90,194 77,266
Prepaid expenses and other current assets $ 99,913 $ 95,506

~~(1)Amortization expense from costs of obtaining contracts was $8.5 million and $9.2 million for the three months ended March 31, 2022 and 2021, respectively.~~Other income, net

~~(2)The current portion of costs of obtaining contracts as of March 31, 2022 and December 31, 2021 was $29.7 million and $30.2 million, respectively.~~

~~(3)The current portion of prepaid software maintenance and subscriptions as of March 31, 2022 and December 31, 2021 was $29.8 million and $24.7 million, respectively.~~

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

~~(5)See discussion of the Security Incident at Note 10 to these condensed consolidated financial statements.~~

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

~~(7)~~Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended March 31, 2022 and 2021. Accumulated amortization for these costs was $3.5 million and $3.0 million as of March 31, 2022 and December 31, 2021, respectively.

~~Accrued expenses and other liabilities~~

(dollars in thousands) March 31,
2022 December 31,
2021
Taxes payable(1)
$ 23,305 $ 19,777
Accrued legal costs(2)
12,208 11,724
Operating lease liabilities, current portion 8,930 9,170
Customer credit balances 7,403 8,403
Accrued commissions and salaries 4,656 7,872
Accrued health care costs 2,601 3,042
Accrued vacation costs 2,210 2,234
Accrued bonuses 1,460 5,829
Accrued transaction-based costs related to payments services 1,418 5,427
Unrecognized tax benefit 1,409 1,248
Amounts payable to former EVERFI option holders(3)
— 17,404
Other liabilities 8,101 9,310
Total accrued expenses and other liabilities 73,701 101,440
Less: Long-term portion 1,506 1,344
Accrued expenses and other current liabilities $ 72,195 $ 100,096

~~(1)~~We deferred payments of the employer's portion of Social Security taxes during 2020 under the Coronavirus, Aid, Relief and Economic Security Act, half of which was due by the end of calendar year 2021 with the remainder due by the end of calendar year 2022.

~~(2)All accrued legal costs are classified as current.~~


12						~~First Quarter 2022 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~(3)~~Represents amounts 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 2021. See Note 3 to these condensed consolidated financial statements for additional information regarding our acquisition of EVERFI.


	Three months ended March 31,
(dollars in thousands)		2023		2022
Interest income		$	1,236	$	123
Currency revaluation (losses) gains		(245)		582
Other income, net		1,016		416
Other income, net		$	2,007	$	1,121


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					Debt balance at				Weighted average effective interest rate at
(dollars in thousands)	(dollars in thousands)	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Credit facility:	Credit facility:									Credit facility:
Revolving credit loans	Revolving credit loans	$	290,000	$	260,000	3.06	%	3.27	%	Revolving credit loans	$	199,400	$	177,800	5.47	%	5.18	%
Term loans	Term loans	635,938		640,000		2.93	%	3.02	%	Term loans	619,688		623,750		4.44	%	4.26	%
Real estate loans	Real estate loans	59,177		59,480		5.22	%	5.22	%	Real estate loans	57,849		58,189		5.22	%	5.22	%
Other debt	Other debt	537		1,694		5.00	%	5.00	%	Other debt	3,632		2,247		8.47	%	7.38	%
Total debt	Total debt	985,652		961,174		3.11	%	3.23	%	Total debt	880,569		861,986		4.74	%	4.52	%
Less: Unamortized discount and debt issuance costs	Less: Unamortized discount and debt issuance costs	4,427		4,994						Less: Unamortized discount and debt issuance costs	2,521		2,943
Less: Debt, current portion	Less: Debt, current portion	18,116		18,697		3.16	%	3.11	%	Less: Debt, current portion	19,136		18,802		6.99	%	6.45	%
Debt, net of current portion	Debt, net of current portion	$	963,109	$	937,483	3.11	%	3.23	%	Debt, net of current portion	$	858,912	$	840,241	4.69	%	4.48	%

2020 credit facility

In October 2020, we entered into a five-year $900.0 million senior credit facility (the "2020 Credit Facility"). At March 31, ~~2022,~~2023, we were in compliance with our debt covenants under the 2020 Credit Facility.

~~First incremental term loan~~

In December 2021, we entered into the First Incremental Term Loan Agreement (the "Incremental Amendment"). The Incremental Amendment amended the 2020 Credit Facility and, among other things, provided for a $250.0 million incremental term loan (the “2021 Incremental Term Loan”).

~~Financing for EVERFI acquisition~~

On December 31, 2021, we acquired EVERFI for approximately $442.7 million in cash consideration and 3,811,348 shares of the company's common stock, valued at approximately $301.1 million, for an aggregate purchase price of approximately $743.8 million, subject to closing adjustments. We financed the cash consideration and related expenses through cash on hand and new borrowings u~~nder the~~ ~~2020 Credit Facility, including~~ ~~$250.0 million~~ ~~under the 2021 Incremental Term Loan (as defined above).~~

~~First amendment to 2020 Credit Facility~~

On January 31, 2022, we entered into the First Amendment to Credit Agreement (the “Amendment”). The Amendment amended the 2020 Credit Facility to, among other things, (i) modify the definition of “Applicable Margin”, (ii) modify the net leverage ratio financial covenant to require a net leverage ratio of (A) 4.00:1.00 or less for the fiscal quarter ended December 31, 2021 and for fiscal quarters ending thereafter through December 31, 2023 and (B) 3.75:1.00 or less for the fiscal quarters ending March 31, 2024 and thereafter, (iii) reset the $250.0 million fixed dollar basket with respect to the accordion feature and (iv) modify certain negative covenants to provide additional operational flexibility.


~~First Quarter 2022 Form 10-Q~~						13

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Real estate loans

In August 2020, we completed the 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 $61.1 million (collectively, the “Real Estate Loans”). At March 31, ~~2022,~~2023, we were in compliance with our debt covenants under the Real Estate Loans.

Other debt

From time to time, we enter into third-party financing agreements for purchases of software and related services for our internal use. Generally, the agreements are non-interest-bearing notes requiring annual payments. Interest associated with the notes is imputed at the rate we would incur for amounts borrowed under our then-existing credit facility at the inception of the notes.


12						First Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes our currently effective supplier financing agreements as of March 31, ~~2022:~~2023:

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


(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 three months ended March 31, 2023, consisted of the following:


(dollars in thousands)	Total
Balance at December 31, 2022	$	2,247
Additions	2,491
Settlements	(1,106)
Balance at March 31, 2023	$	3,632


9.7. Derivative Instruments

~~Cash flow hedges~~

We generally use derivative instruments to manage our ~~variable~~ interest rate and foreign currency exchange risk. 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 March 31, 2023 and December 31, 2022, we have presented the fair value of our derivative instruments at the gross amounts in the condensed consolidated balance sheet as the gross fair values of our derivative instruments equaled their net fair values.

Cash flow hedges

We have entered into interest rate swap agreements, which effectively convert portions of our variable rate debt under the 2020 Credit Facility to a fixed rate for the term of the swap agreements. We designated each of the interest rate ~~swap agreements~~swaps as a cash flow ~~hedge~~hedges at the inception of the contracts.

~~The terms~~ As of March 31, 2023 and December 31, 2022, the aggregate notional values of ~~our derivative instruments~~the interest rate swaps were $935.0 million and $435.0 million, respectively. All of the contracts have maturities on or before October 2028.

We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian Dollar ("CAD") against changes in the exchange rate with the United States Dollar ("USD"). We designated each of the forwards as ~~follows as~~cash flow hedges at the inception of the contracts. As of March 31, ~~2022:~~


~~(dollars in thousands)~~	~~Term of derivative instrument~~	Notional value
~~Derivative instruments designated as hedging instruments:~~
~~Interest rate swap~~	~~November 2020 - October 2024~~	$	~~60,000~~
~~Interest rate swap~~	~~November 2020 - October 2024~~	~~60,000~~
~~Interest rate swap~~	~~June 2021 - October 2024~~	~~120,000~~
~~Interest rate swap~~	~~July 2021 - October 2024~~	~~120,000~~
~~Interest rate swap~~	~~July 2021 - October 2024~~	~~75,000~~
		$	~~435,000~~

~~The fair~~2023 and December 31, 2022, the aggregate notional values of ~~our derivative instruments~~the foreign currency forward contracts designated as cash flow hedges that we held to buy USD in exchange for Canadian Dollars were ~~as follows as of:~~

Asset derivatives
(dollars in thousands) Balance sheet location March 31,
2022 December 31,
2021
Derivative instruments designated as hedging instruments:
Interest rate swaps, long-term Other assets 21,947 7,160
Total derivative instruments designated as hedging instruments $ 21,947 $ 7,160
$27.7 million CAD and $22.6 million CAD, respectively. All of the contracts have maturities of 12 months or less.


14First Quarter 2023 Form 10-Q						~~First Quarter 2022 Form 10-Q~~13

Table of Contents

Blackbaud, Inc.

Notes to 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 March 31, 2023 and December 31, 2022, we had £14.0 million and £11.2 million, respectively, of 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.

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


		Asset derivatives					Liability derivatives
(dollars in thousands)	Balance sheet location	March 31, 2023		December 31, 2022		Balance sheet location	March 31, 2023		December 31, 2022
Derivative instruments designated as hedging instruments:
Foreign currency forward contracts, current portion	Prepaid expenses and other current assets	$	96	$	247	Accrued expenses and other current liabilities	$	499	$	323
Interest rate swaps, long-term	Other assets	26,514		31,870		Other liabilities	8,920		—
Total derivative instruments designated as hedging instruments		$	26,610	$	32,117		$	9,419	$	323

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

Gain (loss) recognized
in accumulated other
comprehensive
loss as of

Location
of gain (loss)
reclassified from
accumulated other
comprehensive
loss into income

Gain (loss) reclassified from accumulated
other comprehensive loss into income

Gain (loss) recognized

in accumulated other

comprehensive

income as of

Location

of gain (loss)

reclassified from

accumulated other

comprehensive

income into

loss

Gain (loss) reclassified from accumulated

other comprehensive income into loss

(dollars in thousands)

March 31,
2022

Three months ended

March 31, 2022

(dollars in thousands)

March 31,
2023

Three months ended

March 31, 2023

Cash Flow Hedges

Interest rate swaps

17,594

Interest expense

4,499

Foreign currency forward contracts

Revenue

125

Net Investment Hedges

Foreign currency forward contracts

(417)

—

March 31,
2022

Three months ended

March 31, 2022

Cash Flow Hedges

Interest rate swaps

21,947

Interest expense

(358)

Interest rate swaps

21,947

Interest expense

(358)

March 31,
2021

Three months ended

March 31, 2021

Interest rate swaps

1,420

Interest expense

(1,376)

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. 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 comprehensive income as of March 31, ~~2022~~2023 that is expected to be reclassified into earnings within the next twelve months is ~~$5.7~~


14						First Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

$18.6 million. There were 0no ineffective portions of our interest rate swap or foreign currency forward derivatives during the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. See Note 1210 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.


~~10.~~8. Commitments and Contingencies

Leases

We have operating leases for corporate offices, subleased offices and certain equipment and furniture. As of March 31, ~~2022,~~2023, we did not have any operating leases that had not yet commenced.

The following table summarizes the components of our lease expense:


		Three months ended March 31,						Three months ended March 31,
(dollars in thousands)	(dollars in thousands)		2022		2021		(dollars in thousands)		2023		2022
Operating lease cost(1)	Operating lease cost(1)		$	2,532	$	2,841	Operating lease cost(1)		$	2,385	$	2,532
Variable lease cost	Variable lease cost		437		699		Variable lease cost		432		437
Sublease income	Sublease income		(431)		(460)		Sublease income		(811)		(431)
Net lease cost	Net lease cost		$	2,538	$	3,080	Net lease cost		$	2,006	$	2,538

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

Other commitments

The term loans under the 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 2020 Credit Facility in 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 March 31, ~~2022,~~2023, the remaining aggregate minimum purchase commitment under these arrangements was approximately ~~$31.7~~$280.7 million through ~~2025.~~


~~First Quarter 2022 Form 10-Q~~						15

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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 to~~that might be covered by these indemnifications.

Legal proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and ~~inquiries,~~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. 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 at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. We recognize insurance recoveries, if any, when they are probable of receipt. All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred.


First Quarter 2023 Form 10-Q						15

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Security incident

As previously disclosed, we are subject to risks and uncertainties as a result of a ransomware attack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment (the "Security Incident"). Based on the nature of the Security Incident, our research and third party (including law enforcement) investigation, we ~~have no reason to~~do not believe that any data went beyond the cybercriminal, ~~was or will be~~has been misused, or ~~will be~~has been disseminated or otherwise made available publicly. Our investigation into the Security Incident by our cybersecurity team and third-party forensic advisors remains ongoing.

As a result of the Security Incident, we are currently subject to certain legal proceedings, claims ~~inquiries~~ and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, ~~inquires~~inquiries and investigations in the future that might result in adverse judgments, settlements, fines, penalties or other resolution. To limit our exposure to losses related to claims against us, including data breaches such as the Security Incident, we maintain $50 million of insurance above a $250 thousand deductible payable by us. As noted below, this coverage has reduced our financial exposure related to the Security ~~Incident, and we will continue to seek recoveries under these insurance policies.~~Incident.

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


		Three months ended March 31,						Three months ended March 31,
(dollars in thousands)	(dollars in thousands)		2022		2021		(dollars in thousands)		2023		2022
Gross expense	Gross expense		$	9,005	$	12,814	Gross expense		$	17,783	$	9,005
Offsetting probable insurance recoveries	Offsetting probable insurance recoveries		(1,804)		(12,813)		Offsetting probable insurance recoveries		—		(1,804)
Net expense	Net expense		$	7,201	$	1	Net expense		$	17,783	$	7,201

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


(dollars in thousands)	March 31, 2023		December 31, 2022
Cumulative gross expense	$	125,788	$	108,005
Cumulative offsetting insurance recoveries recognized	(50,000)		(50,000)
Cumulative net expense	$	75,788	$	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 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 months ended March 31, 2023, we incurred net pre-tax expense of $17.8 million related to the Security Incident, which included $7.6 million for ongoing legal fees and an additional accrual for loss contingencies of $10.2 million. During the three months ended March 31, 2023, we had net cash outlays of $9.2 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


16						First Quarter ~~2022~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

(dollars in thousands) March 31,
2022 December 31,
2021
Cumulative gross expense $ 59,396 $ 50,391
Cumulative offsetting insurance recoveries (49,913) (48,109)
Cumulative net expense $ 9,483 $ 2,282
Cumulative offsetting insurance recoveries paid $ (37,277) $ (29,968)

Due to the time required to submit and process such insurance claims, we have not yet received all of the accrued insurance recoveries. Recorded expenses consisted primarily of payments for legal fees related to governmental inquiries and investigations and customer constituent class actions. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on o~~ur consolidated statements of comprehensive income and as operating activities on our consolidated statements of cash flows. Total costs related to the Security Incident that we expect will be recoverable 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, inquiries and investigations discussed below, and our efforts to further enhance our security measures. For full year 2022, we currently expect net cash outlays of approximately $25.0$25.0 million to $35.0 million for ongoing legal fees related to the Security Incident. ~~In line~~Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.

~~Based on~~loss contingency procedures described above. It is reasonably possible that our ~~analysis~~estimated or actual losses may change in the near term for those matters and be materially in excess of the ~~factors described above,~~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 ~~related to the Security Incident~~ as of March 31, ~~2022~~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, ~~("Customer Reimbursement Requests"~~approximately 205 (or 79%) 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 (none~~Incident. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, which ~~have as yet been filed in court). Of the Customer Reimbursement Requests received to date, approximately 190 have been fully resolved and closed.~~we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted ~~us. One~~us, and certain insurance ~~company has~~companies have filed a subrogation ~~claim~~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.

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.


~~First Quarter 2022 Form 10-Q~~						17

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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.


First Quarter 2023 Form 10-Q						17

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Governmental ~~inquiries and~~ 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;

•~~a formal investigation by the SEC;~~

•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.

On September 28, 2021, the Information ~~Commissioner's~~Commissioner’s Office in the United Kingdom under the ~~U.K~~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 ~~inquiries and~~ investigations, which include various requests for documents, policies, narratives and communications, as well as requests to interview or depose various Company-related personnel. As noted above, each of these separate governmental ~~inquiries and~~ investigations could result in adverse ~~judgements,~~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.


18						First Quarter ~~2022~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


~~11.~~9. Income Taxes

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


		Three months ended March 31,								Three months ended March 31,
(dollars in thousands)	(dollars in thousands)		2022			2021			(dollars in thousands)		2023			2022
Income tax (benefit) provision			$	(2,050)		$	684
Income tax benefit									Income tax benefit		$	(3,901)		$	(2,050)
Effective income tax rate	Effective income tax rate		16.5		%	131.5		%	Effective income tax rate		21.0		%	16.5		%

~~For~~During the three months ended March 31, 2022, we ~~have~~ 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 as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that, at this time, the use of this discrete method is no longer more appropriate than the annual effective tax rate ~~method as our full-year forecasted pre-tax income, relative to our forecasted permanent differences, has the potential to distort our estimated annual effective tax rate.~~method.

The ~~decrease~~increase in our effective income tax rate for the three months ended March 31, ~~2022~~2023 when compared to the same period in ~~2021~~2022 was primarily attributable to ~~the~~unfavorable impact of ~~stock based compensation. The 2022 effective~~non-deductible Security Incident accruals, lower foreign-derived intangible income deduction and an increase to the UK corporate tax rate ~~was negatively impacted by increased tax expense~~offset against benefit attributable to ~~stock based compensation against pre-tax loss for the period.~~valuation allowance reduction.


~~12.~~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
March 31,
(dollars in thousands) 2022 2021
Accumulated other comprehensive income (loss), beginning of period $ 6,522 $ (2,497)
By component:
Gains and losses on cash flow hedges:
Accumulated other comprehensive income (loss) balance, beginning of period $ 5,257 $ (3,101)
Other comprehensive income (loss) before reclassifications, net of tax effects of $(3,789) and $(1,100) 10,641 3,130
Amounts reclassified from accumulated other comprehensive income to interest expense 358 1,376
Tax benefit included in provision for income taxes (94) (357)
Total amounts reclassified from accumulated other comprehensive income 264 1,019
Net current-period other comprehensive income 10,905 4,149
Accumulated other comprehensive income balance, end of period $ 16,162 $ 1,048
Foreign currency translation adjustment:
Accumulated other comprehensive income balance, beginning of period $ 1,265 $ 604
Translation adjustments (2,132) 2,511
Accumulated other comprehensive (loss) income balance, end of period (867) 3,115
Accumulated other comprehensive income, end of period $ 15,295 $ 4,163


	Three months ended March 31,
(in thousands)		2023		2022
Accumulated other comprehensive income, beginning of period		$	8,938	$	6,522
By component:
Gains and losses on cash flow hedges:
Accumulated other comprehensive income balance, beginning of period		$	23,833	$	5,257
Other comprehensive (loss) income before reclassifications, net of tax effects of $2,566 and $(3,789)		(7,289)		10,641
Amounts reclassified from accumulated other comprehensive (loss) income		(4,624)		358
Tax expense (benefit) included in provision for income taxes		1,221		(94)
Total amounts reclassified from accumulated other comprehensive (loss) income		(3,403)		264
Net current-period other comprehensive (loss) income		(10,692)		10,905
Accumulated other comprehensive income balance, end of period		$	13,141	$	16,162
Foreign currency translation adjustment:
Accumulated other comprehensive (loss) income balance, beginning of period		$	(14,895)	$	1,265
Translation adjustment		2,158		(2,132)
Accumulated other comprehensive loss balance, end of period		(12,737)		(867)
Accumulated other comprehensive income, end of period		$	404	$	15,295


First Quarter ~~2022~~2023 Form 10-Q						19

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Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


~~13.~~11. Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of March 31, ~~2022,~~2023, approximately ~~$984 million~~$1.1 billion of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 60% 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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 were insignificant. Our ~~opening and~~ closing balances of deferred revenue were as follows:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Total deferred revenue	Total deferred revenue	$	355,677	$	378,746	Total deferred revenue	$	367,959	$	385,236

The decrease in deferred revenue during the three months ended March 31, ~~2022~~2023 was primarily due to a seasonal decrease 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 three months ended March 31, ~~2022~~2023 that was included in the deferred revenue balance at the beginning of the period was approximately ~~$152~~$162 million. The amount of revenue recognized during the three months ended March 31, ~~2022~~2023 from performance obligations satisfied in prior periods was ~~insignificant.~~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 March 31,						Three months ended March 31,
(dollars in thousands)	(dollars in thousands)		2022		2021		(dollars in thousands)		2023		2022
United States	United States		$	214,394	$	185,327	United States		$	221,669	$	214,394
United Kingdom	United Kingdom		27,660		22,305		United Kingdom		26,048		27,660
Other countries	Other countries		15,070		11,559		Other countries		14,036		15,070
Total revenue	Total revenue		$	257,124	$	219,191	Total revenue		$	261,753	$	257,124

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


20						First Quarter ~~2022~~2023 Form 10-Q

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Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

During the third quarter of 2022, we reorganized our market groups. The ~~UMG, IMG~~Social Sector and ~~EVERFI~~Corporate Sector market groups comprised our go-to-market organizations as of March 31, ~~2022.~~2023. The following is a description of each market group as of that date:

•The ~~UMG~~Social Sector market group focuses on sales ~~primarily~~ to ~~all~~customers and prospects in the social sector, such as nonprofits, foundations, education institutions, healthcare organizations and ~~customers inside of the U.S.;~~other not-for-profit entities globally, and includes JustGiving; and

•The ~~IMG~~Corporate Sector market group focuses on sales ~~primarily~~ to ~~all~~customers and prospects in the corporate sector globally, and ~~customers outside of the U.S, as well as corporations.~~

•~~We acquired~~includes EVERFI as of December 31, 2021 as discussed in Note 3 to these condensed consolidated financial statements. As we are working to integrate EVERFI into our business, it has not yet been included in one of our market groups.and YourCause.

The following table presents our revenue by market group:

Three months ended
March 31,
(dollars in thousands) 2022
2021(1)
UMG $ 182,489 $ 173,467
IMG 48,054 45,769
EVERFI 26,975 —
Other (394) (45)
Total revenue $ 257,124 $ 219,191


	Three months ended March 31,
(dollars in thousands)		2023		2022(1)



Social Sector		$	224,897	$	219,995
Corporate Sector		36,856		37,129

Total revenue		$	261,753	$	257,124

(1)Due to the market group change discussed above, we have recast our revenue by market group for the three months ended March 31, ~~2021~~2022 to present them on a consistent basis with the current year.

The following table presents our recurring revenue by type:


		Three months ended March 31,						Three months ended March 31,
(dollars in thousands)	(dollars in thousands)		2022		2021		(dollars in thousands)		2023		2022
Contractual recurring	Contractual recurring		$	174,531	$	146,821	Contractual recurring		$	177,603	$	174,531
Transactional recurring	Transactional recurring		70,135		59,929		Transactional recurring		75,145		70,135
Total recurring revenue	Total recurring revenue		$	244,666	$	206,750	Total recurring revenue		$	252,748	$	244,666


First Quarter ~~2022~~2023 Form 10-Q						21

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Blackbaud, Inc.

(Unaudited)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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

Our revenue is primarily generated from the following sources: (i) charging for the use of our software solutions in cloud and hosted environments; (ii) providing payment and transactional services; (iii) providing software maintenance and support services; (iv) providing Impact-as-a-Service™ digital educational content; and ~~(iv)~~(v) providing professional services, including implementation, consulting, training, analytic and other services.

~~COVID-19 Impact~~

~~The economic impact of COVID-19~~Update on ~~the social good industry remains somewhat uncertain, although we are seeing signs of recovery in the industry.~~ Our end markets continue to display resilience in the post-pandemic recovery with a digital-first mindset. In February, the Blackbaud Institute released its annual Charitable Giving Report, which reported that overall giving in 2021 grew 9% with the percent of giving done online up significantly from pre-pandemic levels and holding steady in the low-teens. Nearly 30% of those online donations are being made on a mobile device, which we see as a long-term positive as we equip organizations to process mobile donations and optimize mobile user interfaces. If our existing and prospective customers remain cautious in their purchase decisions, our operating environment may continue to be challenging. Notwithstanding these conditions, we remain focused on continuing to execute our four-point strategy and strengthening our leadership position.

~~Four-Point Strategy~~Five Key Operational Initiatives


			1						~~Expand Total Addressable Market~~Product Innovation

			2						~~Lead with World Class Teams~~Bookings Growth and ~~Operations~~Acceleration

			3						~~Delight Customers with Innovative Cloud Solutions~~Transactional Revenue Optimization

			4						~~Focus on Employees, Culture~~Modernized Approach to Pricing and ~~ESG Initiatives~~Multi-Year Customer Contracts

			5						Keen Attention to Cost Management

1.Product Innovation

We support our customers by replacing their aging, mission-critical systems of record and adding advanced digital services. We continuously seek ways to add substantial value for our customers and their constituents by investing in both organic innovation and ecosystem enablement through partnerships and acquisitions. These new capabilities and partnerships strengthen our offers and create new opportunities for our customers to deliver on their missions. For example, with the availability of SKY API endpoints for Blackbaud CRM and Blackbaud Altru, we are enabling customers to leverage applications in the Blackbaud Marketplace to integrate complementary point solutions with our partners.

We have expanded strategic partnerships to unlock even more value for our customers with partners like Almabase and SwipeTrack's XTrulink. We recently announced an expanded partnership with Almabase to provide a modern solution for advancement teams to unlock higher education and K-12 school alumni engagement and better fundraising by creating integrations that enable secure movement of constituent, gift and event data between systems, without friction. Additionally, we have partnered with SwipeTrack Solutions to create an integration between Blackbaud Altru and Blackbaud Merchant Services to modernize the patron digital experience and back office operations at arts and cultural organizations.

We also recently announced a new feature for general availability with Blackbaud TeamRaiser, Good Move. Good Move leverages Kilter, which we acquired last year, and helps charitable organizations raise more with mobile-first, gamified activity tracking and peer-to-peer fundraising.


22						First Quarter ~~2022~~2023 Form 10-Q

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(Unaudited)

1.2.~~Expand Total Addressable Market ("TAM")~~Bookings Growth and Acceleration

~~In December 2021, we doubled our TAM when we acquired EVERFI, an industry leader in global social impact technology. Adding EVERFI advances our position as a leader~~We drove strong bookings performance in the ~~rapidly evolving ESG~~first quarter, up significantly versus last year, led by our corporate sector (YourCause and ~~CSR spaces~~EVERFI solutions) which more than doubled its bookings over the first quarter of 2022. We signed several notable large enterprise contracts during the first quarter, which speaks to the resilience of the end markets we serve and ~~offers cross-selling and upselling opportunities through complementary product offerings with YourCause® solutions. Our TAM now stands at~~the focus we have placed on driving further improvements in sales productivity. Productivity per sales representative (defined as new sales bookings for the period divided by the number of sales representatives) has improved over ~~$20 billion, and we remain active~~30% versus last year. There can be volatility quarter-to-quarter on bookings. However, the strong start in the ~~evaluation~~first quarter with the most in-year revenue impact positions us well.

3.Transactional Revenue Optimization and Expansion

Transactional revenue, which is about one-third of ~~opportunities~~total revenue, has proven to ~~further expand our addressable market through acquisitions~~be resilient so far in 2023 following the lower average donation sizes we experienced during the fourth quarter of 2022. The rate changes that we announced on Blackbaud Merchant Services in the U.S. in late 2022 began to take effect during the first quarter. Our Blackbaud Tuition Management and ~~internal product development.~~

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

~~This strategy expands upon our previous strategies~~JustGiving platforms continue to ~~drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40 (see discussion of Non-GAAP Financial Measures below). We recently welcomed two accomplished leaders to our team~~perform well against plan. And as we look ahead, our teams are hard at work to drive ~~future~~ innovation across our payments solutions that are a win-win for both our customers and ~~customer delight,~~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 ~~Chief Product Officer, to oversee our global product portfolio and a Chief Information Security Officer, to oversee our global trust and security program including all elements of cybersecurity.~~better donor experience.

3.4.~~Delight Customers with Innovative Cloud Solutions~~Modernized Approach to Pricing and Multi-Year Contracts

We ~~are excited about~~deeply value the ~~role Blackbaud is playing in developing innovative~~relationships we have with our customers, many of whom have been with us for decades. Our solutions add considerable value for our customers and raise billions of dollars annually to ~~diversify~~fuel social impact, and we continue to innovate on our suite of products to generate incremental value. Last summer, we put in place an updated pricing policy primarily for our social sector customers that directly reflects the ~~way they receive~~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 two important contract changes. First, we are offering 3-year contract renewal terms as our standard, replacing one-year renewal terms. This process ~~donations. Recently,~~was already being implemented outside of the pricing changes. Second, we announced a new product integration in the U.S. between Blackbaud Merchant Services, our end-to-end payment processing solution, and PayPal allowing social good organizations to offer donors the option to checkout with PayPal or Venmo. Through this integration, Blackbaud customers will have access to a broader audience of donors with PayPal's more than 400 million active consumer accounts enablingare implementing a more ~~satisfying giving experience to expand impact. We are also driving a differentiated giving experience through our partnership with Change, to provide Blackbaud's corporate customers an~~significant rate increase on the 1-year renewal option ~~to run charitable campaigns at point-of-sale like roundups after purchase, match customer donations and offer donation~~versus the 3-year renewal option. And third, the 3-year renewal option includes annual rate increases that will compound. Our 3-year renewal options ~~in loyalty programs. Change is a good example~~did not historically include annual compounding rate increases.

Through April 2023, we have renewed over 25% of the ~~ecosystem we~~customers that are building through our Social Good Startup Program. Their platform is already making an impact in the mission-driven commerce space, including enabling a new frontier of giving with cryptocurrency. We also recently held our Product Update Briefings, a semi-annual event designed to share new product features and roadmaps. We provided updates on innovations in the pipelineup for Raiser's Edge NXT, Financial Edge NXT, Grantmaking, Data Intelligence, Payment Services, Luminate Online and TeamRaiser, JustGiving, and SKY Developer, to name a few. New this year, we hosted an executive summary session that briefly highlighted our most important product enhancements and strategies, which can be accessed along with all the sessions by visiting our corporate website. Also, in just over a month, we are projecting our highest turnout ever at our developers' conference designed as a learning event that brings together all levels of developers and technology enthusiasts to share best practices, collaborate with Blackbaud product experts and build relationships with peers. We continue to drive significant growthrenewal in our ~~non-Blackbaud developer ecosystem consisting~~2023 cohort. The close day-to-day management of ~~customers, consultants, partners~~renewals, the mix of 3-year and ~~individual change agents.~~

4.~~Focus on Employees, Culture~~1-year contracts, and ~~ESG Initiatives~~

~~We recently announced~~the impact of pricing are progressing very 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 ~~we achieved carbon neutrality for 2021. This~~renewable base is ~~a goal we have been striving towards~~expected to renew this year. These contracts are renewing every day and our shift to a remote-first workforce enabled us to accelerate our timeline. Since 2019, Blackbaud has reduced its global real estate footprint by 50%, energy emissions to run office space by 63% and employee commute emissions by 75%. With a multi-pronged climate strategy, Blackbaud is focused on reducing emissions, using energy efficiently and investing in environmental projects for a more sustainable future. We will share more about our ESG strategy on our Corporate Social Responsibility website, whichcreate revenue growth that we expect to ~~launch~~accelerate with each successive quarter this ~~quarter. Our mission driven culture has been~~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 compound annually. 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 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 DNA since inception and is very attractive in a competitive labor market. We continue to foster a diverse and inclusive environment focused on employee engagement and connectedness with our remote-first workforce strategy. For example, of our most recent hires, nearly 67% have come from historically under-represented groups. We have a significant role to play in driving advancesstaff in the ~~social good space, and we are proud of the strong corporate culture~~first quarter. Because we have ~~built and continue~~organized to ~~cultivate in today's environment.~~achieve much better scale efficiencies, we now have reduced our headcount by approximately 14% 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.


First Quarter ~~2022~~2023 Form 10-Q						23

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(Unaudited)

Financial Summary


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

Total revenue increased by ~~$37.9~~$4.6 million during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, driven largely by the following:


			+						Growth in recurring revenue primarily related to: •an increase in transactional recurring revenue of $5.0 million 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; the increase in transactional recurring revenue was partially offset by a decrease related to fluctuations in foreign currency exchange rates of $1.7 million, respectively •increase in contractual recurring revenue of ~~$27.7~~$3.1 million related to the performance of our cloud ~~solutions, $24.1 million of which was attributable to EVERFI;~~solutions; partially offset by a decrease in maintenance revenue as customers migrate to our cloud ~~solutions;~~solutions and •~~an increase~~ a decrease related to fluctuations in ~~transactional revenue~~foreign currency exchange rates of ~~$10.2~~$0.8 million primarily due to an increase in online charitable giving, the continued shift toward virtual fundraising and, to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events.
			+-						~~Increase~~ Decreases in one-time service and other revenue primarily related to: •decrease in one-time consulting revenue due primarily due to ~~our acquisition of EVERFI, largely offset by a decrease in~~less revenue from implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model. Our cloud subscription offerings generally require less implementation and customization ~~services.~~
			services -•						~~Decrease~~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 financial results, see Foreign Currency Exchange Rates below on page 41.

We have a number of 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 our customers. As a result, we expect to see an acceleration in growth in the second half of 2023 when compared to 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 will continue to significantly decrease during 2023 compared to 2022 driven by our continued migration to the cloud in our core business.


24						First Quarter ~~2022~~2023 Form 10-Q

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(Unaudited)

Income from operations decreased by ~~$12.6~~$4.0 million during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, driven largely by the following:


			-						Increase in Security Incident-related expenses of $10.6 million. See "Security Incident update" below.
			-						Increase in stock-based compensation expense of $2.1 million primarily due to 2022 performance-based equity award adjustments, partially offset by the targeted workforce reductions during the fourth quarter of 2022 and first quarter of 2023
			-						Increase in transaction-based costs of $2.1 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 third-party software costs of $1.9 million primarily related to a higher number of licenses needed and also price increases
			-						Net decrease of $0.9 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
			+						Decrease in compensation costs other than stock-based compensation of $7.7 million, partially offset by a corresponding increase in severance costs of $4.3 million due to our targeted workforce reductions discussed above
			+						Increase in total revenue, as described above
			+						Decrease in ~~stock-based compensation expense~~hosting and data center costs of $2.1 million ~~attributable~~as we continue to a change in the timing of our annual short-term incentive ("STI") equity award grants from the second quarter during 2020 to the first quarter beginning in 2021, which resulted in double-expense for STI awards during the first quarter of 2021
			-						~~Increase in compensation costs other than stock-based compensation of $23.7 million primarily due to increased employee headcount due to our acquisition of EVERFI~~
			-						Increases in third-party contractor and hosting costs of $7.8 million and $2.7 million, respectively, primarily attributable to our acquisition of EVERFI and, to a lesser extent, our continued migration ofmigrate our cloud infrastructure to leading public cloud service providers and make investments in ~~security~~security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future
			-+						~~Increase~~Decrease in ~~Security Incident-related expenses, net of insurance, of $7.2 million. See "Security Incident update" below.~~
			-						~~Increase in transaction-based~~third-party contractor costs of ~~$5.1 million related to payment services integrated in our cloud solutions~~
			-						~~Increase in amortization of intangible assets from business combinations of $3.6 million due to our acquisition of EVERFI~~
			-						~~Increase in marketing costs of $2.1~~$1.9 million primarily due to a decrease in our ~~acquisition~~use of ~~EVERFI~~third-party software developers
			-+						~~Increase~~Decrease in ~~corporate IT~~advertising costs of ~~$1.2~~$0.9 million ~~primarily related to our acquisition of EVERFI and investments in security tools~~

We are continuing to make critical investments in the business in areas such as digital marketing, ~~engineering, security,~~innovation, cybersecurity, customer success and our continued shift of cloud infrastructure to leading public cloud service providers. Our profitability ~~through~~during the first quarter reflects ~~the addition of EVERFI and~~ some of these incremental ~~investments~~investments. In 2023, we expect our financial performance to improve with each successive quarter, starting with meaningful improvement in the second quarter as our pricing and cost initiatives take hold.

We continuously seek opportunities to optimize our portfolio of solutions to focus time and resources on innovation that ~~were pushed from 2021 into 2022, particularly in areas where~~will have the greatest impact for our customers and the markets we ~~are increasing headcount.~~serve, and drive the highest return on investment. To that end, we will continue to simplify and rationalize our portfolio through product sunsets and divestitures of non-core businesses and technologies.


~~Customer~~Gross dollar retention

~~Our~~A key factor to our overall success is the renewal and expansion of our existing subscription agreements with our customers. Management uses gross dollar retention in analyzing our success at delighting our customers with innovative and cloud solutions. Gross dollar retention is defined as contracted annual recurring revenue ~~contracts are generally for~~("CARR") divided by beginning CARR with a ~~term~~measurement period of three years at contract inception with one to three-year renewals thereafter. We anticipate a continued decrease in maintenance contract renewals as we transition our solution portfolio and maintenance customers from a perpetual license-based model to a cloud subscription delivery model. In the long term, we also anticipate an increase in recurring subscription contract renewals as we continue focusing on innovation, quality and the integration of our cloud solutions, which we believe will provide value-adding capabilities to better address our customers' needs. Due primarily to these factors, we believe a recurring revenue customer retention measure that combines recurring subscription, maintenance and service customer contracts provides a better representation of our customers' overall behavior.twelve months. For the twelve months ended March 31, ~~2022,~~2023, our gross dollar retention was approximately ~~92% of our customers with recurring revenue contracts were retained.~~90%. This ~~customer~~gross dollar retention rate is ~~materially~~relatively unchanged from our rate for the full year ended December 31, ~~2021 and reflects our efforts to rationalize our portfolio of solutions and migrate customers from legacy solutions towards our next generation solutions.~~2022. We are continually investing in innovation, which we believe will increase gross dollar retention over the long-term.


First Quarter ~~2022~~2023 Form 10-Q						25

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(Unaudited)

Although some customer attrition is normal, our new contract pricing and renewal model (as described above on page 24) does not appear to have impacted customer attrition to date.

Balance sheet and cash flow

At March 31, ~~2022,~~2023, our cash and cash equivalents were ~~$33.8~~$24.1 million and the carrying amount of our debt under the 2020 Credit Facility was ~~$922.0~~$817.1 million. Our net leverage ratio was ~~3.57~~2.99 to 1.00.

During the three months ended March 31, ~~2022,~~2023, we generated ~~$24.5~~$21.8 million in cash from operations, had a net increase in borrowings of ~~$25.6~~$17.2 million, and had aggregate cash outlays of ~~$16.9~~$15.3 million for purchases of property and equipment and capitalized software and content development costs.

Security Incident update

As discussed in Note 108 to our unaudited, condensed consolidated financial statements included in this report, total costs related to the Security Incident ~~that we expect will be recoverable~~ exceeded the limit of our insurance coverage ~~during~~in the first quarter of 2022. Accordingly, ~~we expect that~~ the Security Incident ~~will~~has negatively impacted, and we expect it to continue for the foreseeable future to negatively impact, our GAAP ~~profitability~~profitability and GAAP cash flow ~~for the foreseeable future~~ (see discussion regarding ~~our~~ non-GAAP ~~financial measures beginning~~adjusted free cash flow on page 3236). For ~~full year 2022,~~the three months ended March 31, 2023, we ~~currently expect~~incurred net ~~cash outlays~~pre-tax expense of ~~approximately $25~~$17.8 million related to ~~$35~~the Security Incident, which included $7.6 million for ongoing legal fees and an additional accrual for loss contingencies of $10.2 million. During the three months ended March 31, 2023, we had net cash outlays of $9.2 million related to the Security ~~Incident.~~Incident, which included ongoing legal fees and the $3.0 million civil penalty paid related to the SEC settlement (as discussed in Note 8). In line with our policy, legal fees are expensed as incurred. WeFor 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 March 31, 2023, we have recorded approximately $30.2 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.


26						First Quarter 2023 Form 10-Q

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(Unaudited)


Results of Operations

Comparison of the three months ended March 31, ~~2022~~2023 and ~~2021~~

We have included the results of operations of EVERFI in our consolidated results of operations from the date of acquisition. We determined that the EVERFI acquisition was not material to our consolidated financial statements; therefore, separate presentation of revenue and earnings since the acquisition date is not required.2022

Revenue and Cost of Revenue

Recurring

Revenue ($M)

Cost of revenue ($M)

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

YoY Growth (%)

Recurring revenue is comprised of fees for the use of our subscription-based software solutions, which includes providing access to cloud solutions, Impact-as-a-Service™ digital educational content, hosting services, 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 have a term consistent with our cloud solution contracts, and variable transaction revenue associated with the use of our solutions.


26						~~First Quarter 2022 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

Cost of 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, 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.

Our customers continue to prefer cloud subscription offerings with integrated analytics, training and payment services. Recurring subscription contracts are typically for a term of three years at contract ~~inception with one to three-year~~inception. We have been for several years successfully shifting our legacy customer base away from annual renewals ~~thereafter.~~and moving them onto multi-year renewal contracts. We intend to continue focusing on innovation, quality and integration of our cloud solutions, which we believe will drive future revenue growth.

Recurring revenue increased by ~~$37.9~~$8.1 million, or ~~18.3%~~3.3%, during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, driven primarily by the following:


			+						Increase in transactional recurring revenue of $5.0 million 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; the increase in transactional recurring revenue was partially offset by a decrease related to fluctuations in foreign currency exchange rates of $1.7 million

			+						Increase in contractual recurring revenue of ~~$27.7~~$3.1 million related to the performance of our cloud ~~solutions, $24.1 million of which was attributable to EVERFI;~~solutions; partially offset by a decrease in maintenance revenue as customers migrate to our cloud ~~solutions~~solutions; also offsetting the increase in contractual recurring revenue was a decrease related to fluctuations in foreign currency exchange rates of $0.8 million


First Quarter 2023 Form 10-Q			+						Increase in transactional revenue of $10.2 million primarily due to an increase in online charitable giving, the continued shift toward virtual fundraising and, to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events.27

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For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 41.

Cost of recurring revenue increased by ~~$23.3~~$2.3 million, or ~~26.2%~~2.1%, during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, driven primarily by the following:


			+						Increase in ~~compensation~~transaction-based costs of ~~$7.6~~$2.1 million ~~primarily~~ related to anthe increase in ~~headcount due~~the volume of transactions for which we process payments and, to ~~our acquisition of EVERFI, and~~ a ~~continued shift~~lesser extent, increases in ~~resources historically supporting one-time services and other towards recurring revenue~~vendor rates
			+						Increase in ~~transaction-based~~third-party software costs of ~~$5.1~~$1.6 million primarily related to ~~payment services integrated~~a higher number of licenses needed and also price increases
			+						Increase in amortization of software development costs of $1.3 million due to our ~~cloud~~continued investments in the innovation and security of our solutions
			+						Increase in amortization of intangible assets from business combinations of ~~$3.5~~$0.6 million primarily due to our acquisition of EVERFI
			+-						~~Increase~~Decrease in ~~third-party contractor and hosting~~compensation costs of ~~$3.9~~$2.1 million primarily related to our targeted workforce reductions during the fourth quarter of 2022 and the first quarter of 2023, partially offset by a corresponding increase in severance costs of $0.4 million
			-						Decrease in hosting and data center costs of $2.1 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in ~~security~~security; currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future
			+						~~Increase in overhead allocations of $1.6 million related to the increased headcount discussed above~~
			+						~~Increase in amortization of software development costs of $1.1 million~~

Recurring gross margin ~~decreased~~increased by ~~2.9%~~50 basis points for the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, primarily due to the increase in ~~cost of~~ recurring revenue outpacing the increase in cost of recurring revenue.


~~First Quarter 2022 Form 10-Q~~						27

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One-time services and other

Revenue ($M)

Cost of revenue ($M)

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

YoY Growth (%)

One-time services and other revenue is comprised of fees for one-time consulting, analytic and onsite training services, 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, and third-party software referral fees.

Cost of one-time services and other is primarily comprised of compensation costs for professional services and onsite training personnel, 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, allocated depreciation, facilities and IT support costs and amortization of intangible assets from business combinations.


28						First Quarter 2023 Form 10-Q

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One-time services and other revenue decreased by $3.5 million, or 27.7%, during the three months ended March 31, ~~2022 remained relatively consistent with~~2023, when compared to the same ~~period~~periods in ~~2021, and included~~2022, driven primarily by the ~~following activity:~~following:


			+-						~~Increase~~Decrease in one-time consulting revenue of ~~$1.0~~$3.0 million primarily ~~attributable~~due to ~~EVERFI, largely offset by~~ less revenue from implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model. Our cloud subscription offerings generally require less implementation and customization services.
			-						Decrease in one-time analytics revenue of $0.8 million as analytics are generally integrated in our cloud solutions

Cost of one-time services and other decreased by ~~$3.3~~$2.6 million, or ~~22.9%~~23.0%, during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, driven primarily by the following:


			-						Decrease in compensation costs of ~~$2.7~~$2.5 million ~~largely due~~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

One-time services and other gross margin ~~increased~~decreased by ~~26.9%~~580 basis points during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, primarily due to the ~~significant reductions in~~decrease of one-time services and other revenue outpacing the decrease compensation costs discussed above.


28						~~First Quarter 2022 Form 10-Q~~

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Operating 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

Sales, marketing and customer success expense includes compensation costs, variable sales commissions, travel-related expenses, 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. We have also implemented software tools to enhance our digital footprint and drive lead generation. The enhancements we are making in our go-to-market approach are expected to significantly reduce our average customer acquisition cost per customer as well as the related payback period while increasing sales velocity.

Sales, marketing and customer success expense ~~increased~~decreased by ~~$6.4~~$0.8 million, or ~~13.2%~~1.5%, during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, primarily driven by the following:


			+-						~~Increase~~Decrease in ~~compensation~~advertising costs of ~~$3.7~~$0.9 million ~~primarily related to increased employee headcount due to our acquisition of EVERFI~~
			+						~~Increase~~ Net increase in ~~advertising~~the following costs ~~of $2.1 million~~ primarily due to our ~~acquisition~~targeted workforce reductions discussed above: •Increase in severance costs of ~~EVERFI~~$1.6 million; •Decrease in compensation costs of $0.9 million; and •Decrease in commissions expense of $0.6 million


First Quarter 2023 Form 10-Q						29

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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 delight our customers with innovative and secure cloud solutions. Research and development expenses increased by ~~$10.8~~$0.6 million or ~~36.9%~~1.6%, during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, primarily driven by the following:


			+						Increase in ~~compensation~~severance costs of ~~$8.4~~$1.1 million primarily ~~related to increased employee headcount~~ due to our ~~acquisition of EVERFI, and to a lesser extent, our increased hiring of engineers~~targeted workforce reductions discussed above
			+						Increase in stock-based compensation of $1.1 million primarily due to new grants related to 2022 performance-based equity award adjustments, partially offset by the targeted workforce reductions discussed above
			-						Decrease in third-party contractor costs of ~~$5.5~~$1.1 million primarily due to ~~our acquisition of EVERFI and, to~~ a ~~lesser extent, an increase~~decrease in our use of third-party software developers
			+						~~Increase in overhead allocation costs of $1.0 million primarily related to increased headcount discussed above~~

			-						~~Increase in development costs of $4.7 million that were required to be capitalized under GAAP, of which $3.5 million was attributable to EVERFI software and content~~

Not included in research and development expense for the three months ended March 31, 2023 and 2022 ~~and 2021~~ were ~~$13.8~~$14.2 million and ~~$9.1~~$13.8 million, respectively, of qualifying costs associated with software and content development activities


~~First Quarter 2022 Form 10-Q~~						29

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that are required to be capitalized under GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized development costs associated with our cloud solutions are subsequently amortized to cost of subscriptions revenue over the related assets' estimated useful life, which generally range from three to seven years.

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, third-party professional fees, insurance, allocated depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses.

General and administrative expense increased by ~~$13.2~~$9.1 million, or ~~43.1%~~20.7%, during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, primarily driven by the following:


			+						Increase in Security Incident-related expenses ~~net~~ of ~~insurance, of $7.2 million, consisting primarily of legal fees, as total costs related to the Security~~$10.6 million. See "Security Incident ~~that we expect will be recoverable exceeded the limit of our insurance coverage during the first quarter of 2022.~~update" on page 26
			+						Increase in severance costs of $0.8 million, partially offset by a corresponding decrease in compensation costs of ~~$4.6 million primarily related to increased employee headcount due to our acquisition of EVERFI~~
			+						~~Increase in third-party contractor costs of $1.2 million~~
			+						~~Increase in acquisition-related expenses and integration costs of $1.0~~$0.6 million due to our ~~acquisition of EVERFI~~targeted workforce reductions discussed above
			-						~~Increase~~Decrease in ~~allocated corporate IT~~third-party contractor costs of ~~$1.8~~$0.6 million primarily related to investments in security tools. Depreciation, facilities and IT support costs are pooled and recorded to general and administrative expense and allocated to other lines of our statements of comprehensive income based on headcount.


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Interest Expense


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

The increase in interest expense in dollars and as a percentage of total revenue during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, was primarily due to ~~the new borrowings used to finance~~an increase in our ~~acquisition of EVERFI.~~weighted average effective interest rates. We currently expect interest expense for the full year ~~2022~~2023 to be approximately ~~$30~~$37 million to ~~$33~~$41 million although our interest expense in connection with the variable rate portion of our outstanding debt could increase in a rising interest rate environment. See Note 97 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.

Deferred Revenue

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


(dollars in millions)	(dollars in millions)	March 31, 2022		December 31, 2021		Change		(dollars in millions)	March 31, 2023		December 31, 2022		Change
Deferred revenue(1)	Deferred revenue(1)	$	355.7	$	378.7	(6.1)	%	Deferred revenue(1)	$	368.0	$	385.2	(4.5)	%
Less: Long-term portion	Less: Long-term portion	4.7		4.2		11.3	%	Less: Long-term portion	7.0		2.8		146.9	%
Current portion(1)	Current portion(1)	$	351.0	$	374.5	(6.3)	%	Current portion(1)	$	361.0	$	382.4	(5.6)	%

(1)The individual amounts for each year may not sum to 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 customers with recurring revenue contracts in annual cycles 30 days prior to the end of each one-year period.

The decrease in deferred revenue during the three months ended March 31, ~~2022~~2023 was primarily due to to a seasonal decrease in customer contract ~~renewals.~~ 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.


First Quarter ~~2022~~2023 Form 10-Q						31

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Income Taxes


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

For the three months ended March 31, 2022, we ~~have~~ 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 as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that, at this time, the use of this discrete method is no longer more appropriate than the annual effective tax rate ~~method as our as our full-year forecasted pre-tax income, relative to our forecasted permanent differences, has the potential to distort our estimated annual effective tax rate.~~method.

The ~~decrease~~increase in our effective income tax rate for the three months ended March 31, ~~2022~~2023 when compared to the same period in ~~2021~~2022 was primarily attributable to ~~the~~unfavorable impact of ~~stock based compensation. The 2022 effective~~non-deductible Security Incident accruals, lower foreign-derived intangible income deduction and increase to the UK corporate tax rate ~~was negatively impacted by increased tax expense~~offset against benefit attributable to ~~stock based compensation against pre-tax loss for the period.~~valuation allowance reduction.

Non-GAAP Financial Measures

The operating results analyzed below are presented on a non-GAAP basis. We use non-GAAP 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.

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.


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		Three months ended March 31,										Three months ended March 31,
(dollars in millions, except per share amounts)	(dollars in millions, except per share amounts)		2022			2021			Change		(dollars in millions, except per share amounts)		2023			2022			Change
GAAP Revenue	GAAP Revenue		$	257.1		$	219.2		17.3	%	GAAP Revenue		$	261.8		$	257.1		1.8	%

GAAP gross profit	GAAP gross profit		$	133.8		$	115.8		15.5	%	GAAP gross profit		$	138.6		$	133.8		3.6	%
GAAP gross margin	GAAP gross margin		52.0		%	52.8		%			GAAP gross margin		53.0		%	52.0		%
Non-GAAP adjustments:	Non-GAAP adjustments:										Non-GAAP adjustments:

Add: Stock-based compensation expense	Add: Stock-based compensation expense		4.1			5.4			(22.6)	%	Add: Stock-based compensation expense		4.0			4.1			(4.7)	%
Add: Amortization of intangibles from business combinations	Add: Amortization of intangibles from business combinations		12.5			9.1			36.8	%	Add: Amortization of intangibles from business combinations		13.1			12.5			5.0	%

Add: Employee severance											Add: Employee severance		0.7			—			100.0	%

Subtotal(1)	Subtotal(1)		16.6			14.5			14.9	%	Subtotal(1)		17.8			16.6			7.0	%
Non-GAAP gross profit(1)	Non-GAAP gross profit(1)		$	150.4		$	130.3		15.4	%	Non-GAAP gross profit(1)		$	156.4		$	150.4		4.0	%
Non-GAAP gross margin	Non-GAAP gross margin		58.5		%	59.4		%			Non-GAAP gross margin		59.8		%	58.5		%

GAAP (loss) income from operations			$	(6.0)		$	6.6		(190.0)	%
GAAP loss from operations											GAAP loss from operations		$	(9.9)		$	(6.0)		66.4	%
GAAP operating margin	GAAP operating margin		(2.3)		%	3.0		%			GAAP operating margin		(3.8)		%	(2.3)		%
Non-GAAP adjustments:	Non-GAAP adjustments:										Non-GAAP adjustments:

Add: Stock-based compensation expense	Add: Stock-based compensation expense		27.9			30.0			(7.1)	%	Add: Stock-based compensation expense		29.9			27.9			7.4	%
Add: Amortization of intangibles from business combinations	Add: Amortization of intangibles from business combinations		13.3			9.7			37.4	%	Add: Amortization of intangibles from business combinations		13.9			13.3			4.4	%
Add: Employee severance	Add: Employee severance		—			1.0			(100.0)	%	Add: Employee severance		4.3			—			100.0	%
Add: Acquisition-related integration costs			0.6			(0.1)			(756.1)	%
Add: Acquisition-related expenses			0.3			0.1			383.1	%
Add: Acquisition and disposition-related costs											Add: Acquisition and disposition-related costs		0.6			1.0			(35.3)	%
Add: Restructuring and other real estate activities	Add: Restructuring and other real estate activities		0.1			(0.1)			(164.0)	%	Add: Restructuring and other real estate activities		—			0.1			(100.0)	%
Add: Security Incident-related costs, net of insurance(2)	Add: Security Incident-related costs, net of insurance(2)		7.2			—			100.0	%	Add: Security Incident-related costs, net of insurance(2)		17.8			7.2			147.0	%

Subtotal(1)	Subtotal(1)		49.4			40.5			21.9	%	Subtotal(1)		66.5			49.4			34.7	%
Non-GAAP income from operations(1)	Non-GAAP income from operations(1)		$	43.4		$	47.2		(8.0)	%	Non-GAAP income from operations(1)		$	56.6		$	43.4		30.4	%
Non-GAAP operating margin	Non-GAAP operating margin		16.9		%	21.5		%			Non-GAAP operating margin		21.6		%	16.9		%

GAAP (loss) income before provision for income taxes			$	(12.5)		$	0.5		(2,495.6)	%
GAAP loss before provision for income taxes											GAAP loss before provision for income taxes		$	(18.6)		$	(12.5)		49.3	%
GAAP net loss	GAAP net loss		$	(10.4)		$	(0.2)		6,245.7	%	GAAP net loss		$	(14.7)		$	(10.4)		41.3	%
Shares used in computing GAAP diluted (loss) earnings per share			51,199,717			47,363,197			8.1	%
GAAP diluted (loss) earnings per share			$	(0.20)		$	—		100.0	%
Shares used in computing GAAP diluted loss per share											Shares used in computing GAAP diluted loss per share		52,132,999			51,199,717			1.8	%
GAAP diluted loss per share											GAAP diluted loss per share		$	(0.28)		$	(0.20)		40.0	%
Non-GAAP adjustments:	Non-GAAP adjustments:										Non-GAAP adjustments:
Add: GAAP income tax (benefit) provision			(2.1)			0.7			(399.7)	%
Less: GAAP income tax benefit											Less: GAAP income tax benefit		(3.9)			(2.1)			90.3	%
Add: Total non-GAAP adjustments affecting income from operations	Add: Total non-GAAP adjustments affecting income from operations		49.4			40.5			21.9	%	Add: Total non-GAAP adjustments affecting income from operations		66.5			49.4			34.7	%

Non-GAAP income before provision for income taxes	Non-GAAP income before provision for income taxes		36.9			41.0			(10.0)	%	Non-GAAP income before provision for income taxes		47.9			36.9			29.8	%
Assumed non-GAAP income tax provision(3)	Assumed non-GAAP income tax provision(3)		7.4			8.2			(10.0)	%	Assumed non-GAAP income tax provision(3)		9.6			7.4			29.8	%
Non-GAAP net income(1)	Non-GAAP net income(1)		$	29.5		$	32.8		(10.0)	%	Non-GAAP net income(1)		$	38.3		$	29.5		29.8	%

Shares used in computing non-GAAP diluted earnings per share	Shares used in computing non-GAAP diluted earnings per share		52,076,858			48,387,042			7.6	%	Shares used in computing non-GAAP diluted earnings per share		53,171,410			52,076,858			2.1	%
Non-GAAP diluted earnings per share	Non-GAAP diluted earnings per share		$	0.57		$	0.68		(16.2)	%	Non-GAAP diluted earnings per share		$	0.72		$	0.57		26.3	%

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

(2)Includes Security Incident-related costs incurred during the three months ended March 31, 2023 of $17.8 million, which includes approximately $10.2 million in recorded liabilities for loss contingencies, net of insurance recoveries during the same period of $0.0 million and during the three months ended March 31, 2022 of $9.0 million, net of ~~probable~~ insurance recoveries during the same period of $1.8 million. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer ~~claims.~~claims and accruals for certain loss contingencies. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year ~~2022,~~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. WeAs of March 31, 2023, we have recorded approximately $30.2 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 ~~related to the Security Incident~~ as of March 31, ~~2022~~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.

(3)We apply a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.


First Quarter ~~2022~~2023 Form 10-Q						33

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Non-GAAP organic revenue growth

In addition, we use non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth, in analyzing our operating performance. We believe that these non-GAAP measures are useful 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. 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)	(dollars in millions)	Three months ended March 31,				(dollars in millions)				Three months ended March 31,
			2022					2021	(dollars in millions)		2023			2022
GAAP revenue	GAAP revenue		$	257.1		$	219.2				$	261.8		$	257.1
GAAP revenue growth	GAAP revenue growth		17.3		%				GAAP revenue growth		1.8		%
Add: Non-GAAP acquisition-related revenue(1)			—			25.2

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

Non-GAAP organic revenue(2)	Non-GAAP organic revenue(2)		$	257.1		$	244.4		Non-GAAP organic revenue(2)		$	261.8		$	255.8
Non-GAAP organic revenue growth	Non-GAAP organic revenue growth		5.2		%				Non-GAAP organic revenue growth		2.3		%

Non-GAAP organic revenue(2)	Non-GAAP organic revenue(2)		$	257.1		$	244.4		Non-GAAP organic revenue(2)		$	261.8		$	255.8
Foreign currency impact on Non-GAAP organic revenue(3)	Foreign currency impact on Non-GAAP organic revenue(3)		0.9			—			Foreign currency impact on Non-GAAP organic revenue(3)		2.7			—
Non-GAAP organic revenue on constant currency basis(3)	Non-GAAP organic revenue on constant currency basis(3)		$	258.0		$	244.4		Non-GAAP organic revenue on constant currency basis(3)		$	264.4		$	255.8
Non-GAAP organic revenue growth on constant currency basis	Non-GAAP organic revenue growth on constant currency basis		5.6		%				Non-GAAP organic revenue growth on constant currency basis		3.4		%

GAAP recurring revenue	GAAP recurring revenue		$	244.7		$	206.8		GAAP recurring revenue		$	252.7		$	244.7
GAAP recurring revenue growth	GAAP recurring revenue growth		18.3		%				GAAP recurring revenue growth		3.3		%
Add: Non-GAAP acquisition-related revenue(1)			—			22.8
Non-GAAP organic recurring revenue			$	244.7		$	229.5

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

Non-GAAP organic recurring revenue(2)									Non-GAAP organic recurring revenue(2)		$	252.7		$	243.4
Non-GAAP organic recurring revenue growth	Non-GAAP organic recurring revenue growth		6.6		%				Non-GAAP organic recurring revenue growth		3.8		%

Non-GAAP organic recurring revenue(2)									Non-GAAP organic recurring revenue(2)		$	252.7		$	243.4
Foreign currency impact on non-GAAP organic recurring revenue(3)									Foreign currency impact on non-GAAP organic recurring revenue(3)		2.5			—
Non-GAAP organic recurring revenue on constant currency basis(3)									Non-GAAP organic recurring revenue on constant currency basis(3)		$	255.2		$	243.4
Non-GAAP organic recurring revenue growth on constant currency basis									Non-GAAP organic recurring revenue growth on constant currency basis		4.9		%

(1)Non-GAAP ~~acquisition-related~~ revenue from divested businesses excludes ~~incremental acquisition-related~~ revenue ~~calculated in accordance~~associated with ~~GAAP that is attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation~~divested businesses. The exclusion of ~~full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout~~ the prior ~~period.~~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 ~~will~~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 isand 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.


34						First Quarter ~~2022~~2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Rule of 40

We previously defined Rule of 40 ~~is defined~~ as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. Non-GAAP adjusted EBITDA is defined as GAAP net income plus interest, net; income tax provision (benefit); depreciation; amortization of intangible assets from business combinations; amortization of software and content development costs; stock-based compensation; ~~acquisition-related integration costs; acquisition-related expenses;~~ employee severance; acquisition and disposition-related costs; restructuring and other real estate activities; ~~and~~ Security Incident-related costs, net of ~~insurance.~~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 March 31,									Three months ended March 31,
(dollars in millions)	(dollars in millions)		2022			2021		Change		(dollars in millions)		2023			2022		Change
GAAP net loss	GAAP net loss		$	(10.4)		$	(0.2)	6,245.7	%	GAAP net loss		$	(14.7)		$	(10.4)	41.3	%
Non-GAAP adjustments:	Non-GAAP adjustments:									Non-GAAP adjustments:
Add: Interest, net	Add: Interest, net		7.5			5.0		50.7	%	Add: Interest, net		9.4			7.5		26.1	%
Add: GAAP income tax (benefit) provision			(2.1)			0.7		(399.7)	%
Less: GAAP income tax benefit										Less: GAAP income tax benefit		(3.9)			(2.1)		90.3	%
Add: Depreciation	Add: Depreciation		3.5			3.2		10.2	%	Add: Depreciation		3.3			3.5		(5.7)	%
Add: Amortization of intangibles from business combinations	Add: Amortization of intangibles from business combinations		13.3			9.7		37.4	%	Add: Amortization of intangibles from business combinations		13.9			13.3		4.4	%
Add: Amortization of software development costs(1)			9.2			8.0		16.1	%
Add: Amortization of software and content development costs(1)										Add: Amortization of software and content development costs(1)		10.6			9.2		14.7	%
Subtotal(2)	Subtotal(2)		31.5			26.5		18.9	%	Subtotal(2)		33.4			31.5		5.8	%
Non-GAAP EBITDA(2)	Non-GAAP EBITDA(2)		$	21.1		$	26.3	(19.9)	%	Non-GAAP EBITDA(2)		$	18.7		$	21.1	(11.6)	%
Non-GAAP EBITDA margin	Non-GAAP EBITDA margin		8.2		%					Non-GAAP EBITDA margin		7.1		%

Non-GAAP adjustments:	Non-GAAP adjustments:									Non-GAAP adjustments:

Add: Stock-based compensation expense	Add: Stock-based compensation expense		27.9			30.0		(7.1)	%	Add: Stock-based compensation expense		29.9			27.9		7.4	%
Add: Employee severance	Add: Employee severance		—			1.0		(100.0)	%	Add: Employee severance		4.3			—		100.0	%
Add: Acquisition-related integration costs			0.6			(0.1)		(756.1)	%
Add: Acquisition-related expenses			0.3			0.1		383.1	%
Add: Acquisition and disposition-related costs(3)										Add: Acquisition and disposition-related costs(3)		0.6			1.0		(35.3)	%
Add: Restructuring and other real estate activities	Add: Restructuring and other real estate activities		0.1			(0.1)		(164.0)	%	Add: Restructuring and other real estate activities		—			0.1		(100.0)	%
Add: Security Incident-related costs, net of insurance(3)	Add: Security Incident-related costs, net of insurance(3)		7.2			—		100.0	%	Add: Security Incident-related costs, net of insurance(3)		17.8			7.2		147.0	%

Subtotal(2)	Subtotal(2)		36.1			30.9		17.0	%	Subtotal(2)		52.6			36.1		45.9	%
Non-GAAP Adjusted EBITDA(2)	Non-GAAP Adjusted EBITDA(2)		$	57.2		$	57.2	—	%	Non-GAAP Adjusted EBITDA(2)		$	71.3		$	57.2	24.7	%
Non-GAAP Adjusted EBITDA margin	Non-GAAP Adjusted EBITDA margin		22.2		%					Non-GAAP Adjusted EBITDA margin		27.2		%

Rule of 40(4)	Rule of 40(4)		27.4		%					Rule of 40(4)		29.5		%

Non-GAAP adjusted EBITDA	Non-GAAP adjusted EBITDA		57.2			57.2		—	%	Non-GAAP adjusted EBITDA		71.3			57.2		24.7	%
Foreign currency impact on Non-GAAP adjusted EBITDA(5)	Foreign currency impact on Non-GAAP adjusted EBITDA(5)		0.5			(0.5)		(199.4)	%	Foreign currency impact on Non-GAAP adjusted EBITDA(5)		1.3			0.5		158.9	%
Non-GAAP adjusted EBITDA on constant currency basis(5)	Non-GAAP adjusted EBITDA on constant currency basis(5)		57.7			56.7		1.8	%	Non-GAAP adjusted EBITDA on constant currency basis(5)		$	72.6		$	57.7	25.8	%
Non-GAAP adjusted EBITDA margin on constant currency basis	Non-GAAP adjusted EBITDA margin on constant currency basis		22.4		%					Non-GAAP adjusted EBITDA margin on constant currency basis		27.5		%

Rule of 40 on constant currency basis(6)	Rule of 40 on constant currency basis(6)		28.0		%					Rule of 40 on constant currency basis(6)		30.9		%

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

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

(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.


First Quarter ~~2022~~2023 Form 10-Q						35

Table of Contents

Blackbaud, Inc.

(Unaudited)

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

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


		Three months ended March 31,							Three months ended March 31,
(dollars in millions)	(dollars in millions)	2022		2021		Change		(dollars in millions)	2023		2022		Change
GAAP net cash provided by operating activities	GAAP net cash provided by operating activities	$	24.5	$	30.1	(18.6)	%	GAAP net cash provided by operating activities	$	21.8	$	24.5	(11.0)	%
Less: purchase of property and equipment	Less: purchase of property and equipment	(4.3)		(3.5)		22.9	%	Less: purchase of property and equipment	(1.4)		(4.3)		(68.0)	%
Less: capitalized software development costs		(12.7)		(9.3)		36.3	%
Less: capitalized software and content development costs								Less: capitalized software and content development costs	(14.0)		(12.7)		10.1	%
Non-GAAP free cash flow(1)	Non-GAAP free cash flow(1)	$	7.6	$	17.3	(56.4)	%	Non-GAAP free cash flow(1)	$	6.5	$	7.6	(14.3)	%
Add: Security Incident-related cash flows, net of insurance	Add: Security Incident-related cash flows, net of insurance	0.8		1.4		(41.9)	%	Add: Security Incident-related cash flows, net of insurance	9.2		0.8		1,020.7	%
Non-GAAP adjusted free cash flow(1)	Non-GAAP adjusted free cash flow(1)	$	8.4	$	18.7	(55.3)	%	Non-GAAP adjusted free cash flow(1)	$	15.7	$	8.4	87.4	%

(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 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. We have historically experienced seasonal highs during the fourth quarter due to year-end 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 fourth quarter historically achieving the highest total revenue. Our expenses, 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, as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our first quarter, combined with the payment of certain annual vendor contracts, our cash flow from operations has been lowest in our first 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 base salary merit increases, which occur in July. In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract renewals and student ~~enrollments.~~enrollments or 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 ~~the COVID-19 pandemic~~ or other factors.


36						First Quarter ~~2022~~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)	(dollars in millions)	March 31, 2022		December 31, 2021		Change		(dollars in millions)	March 31, 2023		December 31, 2022		Change
Cash and cash equivalents	Cash and cash equivalents	$	33.8	$	55.1	(38.7)	%	Cash and cash equivalents	$	24.1	$	31.7	(24.0)	%
Property and equipment, net	Property and equipment, net	112.7		111.4		1.1	%	Property and equipment, net	105.3		107.4		(2.0)	%
Software development costs, net		126.8		121.4		4.4	%
Software and content development costs, net								Software and content development costs, net	145.7		141.0		3.3	%
Total carrying value of debt	Total carrying value of debt	981.2		956.2		2.6	%	Total carrying value of debt	878.0		859.0		2.2	%
Working capital	Working capital	(251.8)		(258.7)		2.6	%	Working capital	(284.5)		(312.0)		8.8	%

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


		Three months ended March 31,							Three months ended March 31,
(dollars in millions)	(dollars in millions)	2022		2021		Change		(dollars in millions)	2023		2022		Change
Net cash provided by operating activities	Net cash provided by operating activities	$	24.5	$	30.1	(18.6)	%	Net cash provided by operating activities	$	21.8	$	24.5	(11.0)	%
Net cash used in investing activities	Net cash used in investing activities	(36.9)		(12.8)		189.2	%	Net cash used in investing activities	(15.3)		(36.9)		(58.5)	%
Net cash used in financing activities	Net cash used in financing activities	(325.4)		(379.6)		(14.3)	%	Net cash used in financing activities	(353.2)		(325.4)		8.5	%

Our principal sources of liquidity are our operating cash flow, funds available under the 2020 Credit Facility and cash on hand. Our operating cash flow depends on continued customer renewal of our subscription and maintenance arrangements, market acceptance of our solutions and 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. 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 ability to 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, we are committed to reducing 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 March 31, ~~2022,~~2023, our total cash and cash equivalents balance included approximately ~~$18.4~~$14.1 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.


First Quarter 2023 Form 10-Q						37

Table of Contents

Blackbaud, Inc.

(Unaudited)

Operating Cash Flow

Our cash flows from operations are derived principally from: (i) our earnings from on-going operations prior to non-cash 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 (ii) changes in our working capital.


~~First Quarter 2022 Form 10-Q~~						37

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

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.

Net cash provided by operating activities decreased by ~~$5.6~~$2.7 million during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021,~~2022, primarily due to a ~~$13.8~~$15.6 million ~~decrease~~increase in net income adjusted for non-cash expenses and a ~~$8.2~~$18.3 million ~~increase~~decrease in cash flow from operations associated with working capital.

The ~~increase~~decrease in cash flow from operations associated with working capital during the three months ended March 31, ~~2022~~2023, when compared to the same period in ~~2021,~~2022, was primarily due to:

•a decrease in taxes payable; and

•fluctuations in the timing of vendor ~~payments; and~~

•~~an increase in taxes payable; partially offset by~~

•~~payment of assumed EVERFI accrued bonuses and other payroll-related liabilities during the first quarter of 2022.~~payments.

Security Incident update

Investing Cash Flow

Net cash used in investing activities of ~~$36.9~~$15.3 million ~~increased~~decreased by ~~$24.2~~$21.6 million during the three months ended March 31, ~~2022,~~2023, when compared to the same period in ~~2021.~~2022.

During the three months ended March 31, 2022, we used $20.0 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 2021; and (ii) $2.6 million that was paid to a number of EVERFI's selling shareholders after determining they would be paid in cash, rather than shares of our common stock.

WeDuring the three months ended March 31, 2023, we used ~~$12.7~~$14.0 million for software and content development costs, which was up ~~$3.4~~$1.3 million from cash spent during the same period in ~~2021, primarily due to the inclusion of EVERFI's software and content development activities.~~2022. We also spent ~~$4.3~~$1.4 million of cash for purchases of property and equipment during the three months ended March 31, ~~2022,~~2023, which was a decrease of ~~$0.8~~$2.9 million when compared to the same period in ~~2021.~~2022.


38						First Quarter 2023 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Financing Cash Flow

During the three months ended March 31, ~~2022,~~2023, we had a net increase in borrowings of ~~$25.6~~$17.2 million.

We paid ~~$34.7~~$31.4 million to satisfy tax obligations of employees upon settlement of equity awards during the three months ended March 31, ~~2022~~2023 compared to ~~$18.4~~$34.7 million during the same period in 2021. The increase was primarily attributable to the timing of our annual short-term incentive (bonus) awards vesting during the first quarter of 2022, while similar awards vested during the second quarter of 2021.2022. The amount of taxes paid by us on behalf of employees related to the settlement of equity awards varies from period to period based upon the timing of grants and vesting, as well as the market price for shares of our common stock at the time of settlement. Most of our equity awards currently vest in our first quarter.

During the three months ended March 31, ~~2022,~~2023, cash flow from financing activities associated with changes in restricted cash due to customers decreased ~~$315.3~~$337.2 million, compared to a decrease of ~~$353.6~~$315.3 million during the same period in ~~2021.~~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.


38						~~First Quarter 2022 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

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 months ended March 31, ~~2022,~~2023, we did not purchase any shares. The remaining amount available to purchase stock under the stock repurchase program was $250.0 million as of March 31, ~~2022.~~2023. While we are committed to reducing our net leverage to our 2 to 1 target level in the near term, as we gain visibility into the timing and magnitude of probable costs related to the Security Incident over time, we expect to resume stock repurchases.

2020 Credit Facility

Historically, we have drawn on our credit facility from time to time to help us meet financial needs, primarily due to the seasonality of our cash flows from operations and financing for business acquisitions. At March 31, ~~2022,~~2023, our available borrowing capacity under the 2020 Credit Facility was ~~$209.7~~$298.2 million. The 2020 Credit Facility matures in October 2025.

At March 31, ~~2022,~~2023, the carrying amount of our debt under the 2020 Credit Facility was ~~$922.0~~$817.1 million. Our average daily borrowings during the three months ended March 31, ~~2022~~2023 were ~~$909.4~~$806.3 million.

The following is a summary of the financial covenants under the 2020 Credit Facility:


Financial covenant	Requirement	Ratio as of March 31, ~~2022~~2023
Net leverage ratio(1)	≤ ~~4.25~~4.00 to 1.00	~~3.57~~2.99 to 1.00
Interest coverage ratio	≥ 2.50 to 1.00	~~14.59~~7.56 to 1.00

(1)Under the terms of 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 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 2020 Credit Facility, and (ii) our pro forma net leverage ratio, as set forth in the 2020 Credit Facility, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase. At March 31, ~~2022,~~2023, we were in compliance with our debt covenants under the 2020 Credit Facility. See Note 86 to our unaudited, condensed consolidated financial statements included in this report for additional information regarding the 2020 Credit Facility.

~~Commitments and Contingencies~~

Payments due by period
(in millions) Less than
1 year More than
1 year
Total(1)
Recorded contractual obligations:
Debt $ 18.1 $ 967.5 $ 985.7
Operating leases 11.4 60.9 72.3
Unrecorded contractual obligations:
Purchase obligations 20.6 11.1 31.7
Interest payments on debt 30.8 101.1 131.9
Total contractual obligations(1)
$ 80.9 $ 1,140.7 $ 1,221.5

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


First Quarter ~~2022~~2023 Form 10-Q						39

Table of Contents

Blackbaud, Inc.

(Unaudited)

Commitments and Contingencies


	Payments due by period
(in millions)	Less than 1 year		More than 1 year		Total(1)
Recorded contractual obligations:
Debt	$	19.1	$	861.4	$	880.6
Operating leases	10.2		53.4		63.5
Interest payment on debt	—		8.9		8.9
Contingent consideration	1.4		1.4		2.7
Unrecorded contractual obligations:
Purchase obligations	72.4		208.3		280.7
Interest payments on debt	41.6		91.9		133.6
Total contractual obligations(1)	$	144.7	$	1,225.3	$	1,370.1

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

Debt

As of March 31, ~~2022,~~2023, we had total remaining principal payments of ~~$985.7~~$880.6 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 March 31, ~~2022~~2023 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the revolving credit loans under the 2020 ~~Revolving~~Credit Facility for the purposes of determining minimum commitment amounts. See Note 86 to our unaudited, condensed consolidated financial statements in this report for more information.

Interest payments on debt

In addition to principal payments, as of March 31, ~~2022,~~2023, we expect to pay interest expense over the life of our debt obligations of approximately ~~$131.9~~$133.6 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 March 31, ~~2022,~~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 March 31, ~~2022,~~2023, we had remaining operating lease payments of ~~$72.3~~$63.5 million. These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest of ~~$12.6~~$10.4 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 108 to our unaudited, condensed consolidated financial statements in this report for more information.

Purchase obligations

As of March 31, ~~2022,~~2023, we had remaining purchase obligations of ~~$31.7~~$280.7 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 March 31, ~~2022,~~2023, as we had not received the related services. See Note 108 to our unaudited, condensed consolidated financial statements in this report for more information.

The total liability for uncertain tax positions as of March 31, ~~2022 and December 31, 2021,~~2023 was $~~3.8~~3.3 million ~~and~~ ~~$3.7 million, respectively.~~. Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of March 31, ~~2022 and December 31, 2021.~~2023.


40						First Quarter ~~2022~~2023 Form 10-Q

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Blackbaud, Inc.

(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 March 31, 2023, a liability for the contingent consideration is recorded at its acquisition-date fair value of $2.7 million in other liabilities in our consolidated balance sheet.


Foreign Currency Exchange Rates

Approximately ~~17%~~15% of our total revenue for the three months ended March 31, ~~2022~~2023 was generated from operations outside the 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~~$12.7 million as of March 31, ~~2022~~2023 and a ~~gain~~loss of ~~$1.3~~$14.9 million as of December 31, ~~2021.~~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 three months ended March 31, ~~2022,~~2023, foreign translation resulted in 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 three months ended March 31, ~~2022,~~2023, the fluctuation in foreign currency exchange rates reduced our total revenue and our income from operations by ~~$0.9~~$2.7 million and ~~$0.2~~$0.3 million, respectively. We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian dollar against changes in the exchange 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.


Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, ~~2022~~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, ~~2021.~~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 to our unaudited, condensed consolidated financial statements in this report.


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Blackbaud, Inc.

(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 ~~LIBOR and~~ SOFR rates. The Financial Conduct Authority in the U.K. has stated that it plans to phase out all tenors of LIBOR by June ~~2023. We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as~~2023, therefore, we ~~expect that~~modified our financial contracts ~~currently~~that were indexed to LIBOR ~~will either expire or be modified without~~to reference SOFR during 2022. These modifications did not have a significant financial ~~impact before the phase out occurs.~~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 March 31, ~~2022,~~2023, we believe that the risk of exposure to changing interest rates for those positions is immaterial. There were no significant changes in how we manage interest rate risk between December 31, ~~2021~~2022 and March 31, ~~2022.~~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

Although we do not believe it materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, our evaluation of the effectiveness of internal control over financial reporting as of March 31, 2022 excluded EVERFI as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). The acquisition of EVERFI was completed on December 31, 2021. As of and for the quarter ended March 31, 2022, EVERFI's assets represented approximately 3% of our consolidated total assets and its revenue represented approximately 10% of our consolidated total revenue. We are working to integrate EVERFI into our overall internal control over financial reporting processes.

No changes in internal control over financial reporting occurred during the most recent fiscal quarter ended March 31, ~~2022~~2023 with respect to our operations, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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						PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, see Note 108 to our unaudited, condensed consolidated financial statements in this report.

ITEM 1A. RISK FACTORS

We are supplementing Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as filed with the Securities and Exchange Commission on ~~March 1, 2022~~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. ~~Although~~Based on the nature of the incident, our research and third party (including law enforcement) investigation ~~have provided no reason to~~we believe that ~~any~~no data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available ~~publicly,~~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~~customer reimbursement requests and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security ~~Incident (none~~Incident. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, which ~~have as yet been filed in court).~~we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted ~~us.~~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 ~~SEC, the~~ Office of the Australian Information Commissioner and the Office of the Privacy Commissioner of Canada. ~~(See~~

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.


First Quarter 2023 Form 10-Q						43

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Blackbaud, Inc.

See Note 108 to our unaudited, condensed consolidated financial statements included in this report for a more detailed description of the Security Incident and related matters.)


~~First Quarter 2022 Form 10-Q~~						43

~~Table of Contents~~

~~Blackbaud, Inc.~~

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. ~~Governmental~~For example, we have recorded approximately $30.2 million in aggregate liabilities for loss contingencies related to the Security Incident that we believe we can reasonably estimate as of March 31, 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 ~~also may seek~~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 months ended March 31, 2023, we incurred net pre-tax expense of $17.8 million related to the Security Incident, which included $7.6 million for ongoing legal fees and an additional accrual for loss contingencies of $10.2 million. During the three months ended March 31, 2023, we had net cash outlays of $9.2 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 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 ~~$25~~approximately $25.0 million to ~~$35~~$35.0 million for ongoing legal fees related to the Security ~~Incident for full year 2022.~~Incident. Although we carry insurance against certain losses related to the Security Incident, we exceeded the limit of that insurance coverage ~~during~~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 liquidity and results of operations. (See Note 108 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 ~~our credit facility,~~the 2020 Credit Facility, we may be forced to renegotiate or obtain a waiver under ~~our credit facility~~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.


Financial Risks

Adverse developments affecting the financial services industry, including events or risks involving liquidity, defaults or non-performance by financial institutions, could have a material adverse effect on our business, financial condition or results of operations.

Financial services market conditions and changing circumstances, some of which may be beyond our control, could impair our ability to access our existing cash, cash equivalents and investments and to timely pay key vendors and others. For example, on March 10, 2023, Silicon Valley Bank (SVB), where we maintain certain accounts and cash deposits, was placed into receivership with the Federal Deposit Insurance Corporation (FDIC), which resulted in all funds held at SVB being temporarily inaccessible by SVB’s customers, including Blackbaud. As of March 13, 2023, access to our cash and cash equivalents at SVB was fully restored. Although our cash balances at SVB are insignificant and we do not expect further developments at SVB to have a material impact on our cash and cash equivalents, if other banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC.


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Although we seek to minimize our exposure to third-party losses of our cash and cash equivalents, we hold cash balances in several large financial institutions significantly in excess of FDIC insurance limits. Notwithstanding their large size and historical stability, these financial institutions are subject to risk or failure. In addition, we also maintain cash deposits in foreign banks, some of which are not insured or are partially insured by government agencies. Any delay in our ability to access our cash, cash equivalents and investments (or the loss of some or all of such funds) or to timely pay key vendors and others could have a material adverse effect on our business, financial condition or results of operations.

If one of our payment processing partners were to experience a significant disruption or fail, it could temporarily interrupt our ability to provide payment services to our customers, which could negatively impact our business, financial condition or results of operations.

In addition, concerns or rumors regarding the U.S. or international financial systems in general could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all. Any decline in available funding or access to our cash and liquidity resources could, among other things, adversely impact our ability to meet our operating expenses, financial obligations or other obligations, result in breaches of our contractual obligations or result in violations of federal, state and foreign laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our our business, financial condition or results of operations.


Legal and Compliance Risks

Provisions in our organizational documents, our Stockholder Rights Agreement (as described below, the "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 common stock if they are viewed as discouraging takeover attempts in the future.

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 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.


First Quarter 2023 Form 10-Q						45

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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 Stockholder Rights Agreement, dated as of October 7, 2022 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC (the “Rights Agent”). 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 Chief Executive Officer and retention agreements with certain of our 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 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.


46						First Quarter 2023 Form 10-Q

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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 March 31, ~~2022~~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 vesting of restricted stock 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, January 1, 2022 $ 250,000
January 1, 2022 through January 31, 2022 — $ — — 250,000
February 1, 2022 through February 28, 2022 533,139 65.04 — 250,000
March 1, 2022 through March 31, 2022 — — — 250,000
Total 533,139 $ 65.04 — $ 250,000


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, January 1, 2023					$	250,000
January 1, 2023 through January 31, 2023	—	$	—	—	250,000
February 1, 2023 through February 28, 2023	533,597	58.08		—	250,000
March 1, 2023 through March 31, 2023	—	—		—	250,000
Total	533,597	$	58.08	—	$	250,000

(1)Includes ~~533,139~~533,597 shares in February 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.

(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.


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ITEM 6. EXHIBITS

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

Filed In
Exhibit
Number Description of Document Filed Herewith Form Exhibit Number Filing Date
10.01
First Amendment to Credit Agreement, dated as of January 31, 2022, by and among Blackbaud, Inc., the lenders party thereto and Bank of America N.A., as administrative agent
8-K 10.1 2/3/2022
31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
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.
X
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.
X
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. X
101.SCH Inline XBRL Taxonomy Extension Schema Document. X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). X

Filed In

Exhibit
Number

Description of Document

Filed Herewith

Form

Exhibit Number

Filing Date

10.1

Form of Retention Agreement dated as of April 24, 2023 between Blackbaud, Inc. and each of Anthony W. Boor, David J. Benjamin, Kevin P. Gregoire, Kevin R. McDearis, Kevin W. Mooney and Jon W. Olson

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).


4648						First Quarter ~~2022~~2023 Form 10-Q

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:	May ~~5, 2022~~4, 2023	By:	/s/ Michael P. Gianoni
			Michael P. Gianoni
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	May ~~5, 2022~~4, 2023	By:	/s/ Anthony W. Boor
			Anthony W. Boor
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)


First Quarter ~~2022~~2023 Form 10-Q						4749


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		2

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial statements
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive ~~Income~~Loss (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's discussion and analysis of financial condition and results of operations	22
Item 3.	Quantitative and qualitative disclosures about market risk	42
Item 4.	Controls and procedures	42

PART II.	OTHER INFORMATION	43

Item 1.	Legal proceedings	43
Item 1A.	Risk factors	43
Item 2.	Unregistered sales of equity securities and use of proceeds	4547

Item 6.	Exhibits	4648

SIGNATURES		4749