UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended June 30, 2022

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



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

~~For the transition period from~~ to .

Commission file number:000-50600

Blackbaud, Inc.

(Exact name of registrant as specified in its charter)



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

~~2000 Daniel Island Drive~~65 Fairchild Street

Charleston, South Carolina 29492

(Address of principal executive offices, including zip code)

(843) 216-6200

(Registrant’s telephone number, including area code)



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

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

~~YES~~ þ NO ¨Yes☑No☐

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

~~YES~~ þ NO ¨Yes☑No☐

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

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~ þ

~~Accelerated filer~~

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

~~Smaller reporting company~~

Emerging growth company

¨☐

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

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

~~YES~~ ¨ NO þYes☐No☑

The number of shares of the registrant’s Common Stock outstanding as of ~~October 23, 2017~~August 1, 2022 was ~~48,089,595.~~53,029,940.

TABLE OF CONTENTS


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS					2

PART I.			FINANCIAL INFORMATION		3

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

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

~~Item 1.~~Condensed Consolidated Statements of Cash Flows (Unaudited)	~~Financial statements~~5
	~~Consolidated balance sheets as of September 30, 2017 and December 31, 2016 (unaudited)~~	3
			Condensed Consolidated ~~statements~~Statements of ~~comprehensive income for the three and nine months ended September 30, 2017 and 2016 (unaudited)~~Stockholders’ Equity (Unaudited)		46
			~~Consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016 (unaudited)~~		5
	~~Consolidated statement of stockholders’ equity for the nine months ended September 30, 2017 (unaudited)~~	6
	Notes to ~~consolidated financial statements (unaudited)~~Condensed Consolidated Financial Statements (Unaudited)	78
Item 2.			Management's discussion and analysis of financial condition and results of operations		2324
Item 3.			Quantitative and qualitative disclosures about market risk		4147
Item 4.			Controls and procedures		4147

PART II.			OTHER INFORMATION		4248

Item ~~1A.~~1.			~~Risk factors~~Legal proceedings		4248
Item 1A.			Risk factors		48
Item 2.			Unregistered sales of equity securities and use of proceeds		4250

Item 6.			Exhibits		4351

SIGNATURES					4452



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						1

Table of Contents

Blackbaud, Inc.



						CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from our expectations expressed in forward-looking statements include, but are not limited to, those summarized under ~~“Item~~“Part II, Item 1A. Risk factors” and elsewhere in this report, in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 and in our other ~~SEC filings.~~filings made with the United States Securities & Exchange Commission ("SEC"). Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statement, whether as a result of new information, future events or otherwise.



2						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q



						PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


Blackbaud, Inc. Consolidated balance sheets (Unaudited)
Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)							Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)	September 30, 2017			December 31, 2016			(dollars in thousands)	June 30, 2022		December 31, 2021
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	17,050		$	16,902		Cash and cash equivalents	$	29,029	$	55,146
Restricted cash due to customers	139,095			353,771
Accounts receivable, net of allowance of $4,540 and $3,291 at September 30, 2017 and December 31, 2016, respectively	100,868			88,932
Restricted cash							Restricted cash	449,491		596,616
Accounts receivable, net of allowance of $9,764 and $11,155 at June 30, 2022 and December 31, 2021, respectively							Accounts receivable, net of allowance of $9,764 and $11,155 at June 30, 2022 and December 31, 2021, respectively	149,237		102,726
Customer funds receivable							Customer funds receivable	1,194		977
Prepaid expenses and other current assets	50,082			48,314			Prepaid expenses and other current assets	98,041		95,506
Total current assets	307,095			507,919			Total current assets	726,992		850,971
Property and equipment, net	43,903			50,269			Property and equipment, net	111,865		111,428
Software development costs, net	48,618			37,582
Operating lease right-of-use assets							Operating lease right-of-use assets	50,036		53,883
Software and content development costs, net							Software and content development costs, net	130,329		121,377
Goodwill	472,776			438,240			Goodwill	1,051,230		1,058,640
Intangible assets, net	252,713			253,676			Intangible assets, net	664,400		698,052
Other assets	21,889			22,524			Other assets	90,670		77,266
Total assets	$	1,146,994		$	1,310,210		Total assets	$	2,825,522	$	2,971,617
Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Current liabilities:							Current liabilities:
Trade accounts payable	$	17,830		$	23,274		Trade accounts payable	$	36,640	$	22,067
Accrued expenses and other current liabilities	45,650			54,196			Accrued expenses and other current liabilities	77,411		100,096
Due to customers	139,095			353,771			Due to customers	449,402		594,273
Debt, current portion	8,576			4,375			Debt, current portion	18,154		18,697
Deferred revenue, current portion	277,008			244,500			Deferred revenue, current portion	412,712		374,499
Total current liabilities	488,159			680,116			Total current liabilities	994,319		1,109,632
Debt, net of current portion	329,380			338,018			Debt, net of current portion	921,619		937,483
Deferred tax liability	39,352			29,558			Deferred tax liability	135,393		148,465
Deferred revenue, net of current portion	5,412			6,440			Deferred revenue, net of current portion	3,547		4,247
Operating lease liabilities, net of current portion							Operating lease liabilities, net of current portion	48,542		53,386
Other liabilities	7,799			8,533			Other liabilities	1,628		1,344
Total liabilities	870,102			1,062,665			Total liabilities	2,105,048		2,254,557
Commitments and contingencies (see Note 10)							Commitments and contingencies (see Note 10)	0
Stockholders’ equity:							Stockholders’ equity:
Preferred stock; 20,000,000 shares authorized, none outstanding	—			—			Preferred stock; 20,000,000 shares authorized, none outstanding	—		—
Common stock, $0.001 par value; 180,000,000 shares authorized, 58,503,687 and 57,672,401 shares issued at September 30, 2017 and December 31, 2016, respectively	59			58
Common stock, $0.001 par value; 180,000,000 shares authorized, 67,755,374 and 66,165,666 shares issued at June 30, 2022 and December 31, 2021, respectively							Common stock, $0.001 par value; 180,000,000 shares authorized, 67,755,374 and 66,165,666 shares issued at June 30, 2022 and December 31, 2021, respectively	68		66
Additional paid-in capital	341,476			310,452			Additional paid-in capital	1,020,835		968,927
Treasury stock, at cost; 10,426,122 and 10,166,801 shares at September 30, 2017 and December 31, 2016, respectively	(234,329		)	(215,237		)
Accumulated other comprehensive loss	(1,013		)	(457		)
Treasury stock, at cost; 14,731,484 and 14,182,805 shares at June 30, 2022 and December 31, 2021, respectively							Treasury stock, at cost; 14,731,484 and 14,182,805 shares at June 30, 2022 and December 31, 2021, respectively	(536,511)		(500,911)
Accumulated other comprehensive income							Accumulated other comprehensive income	7,455		6,522
Retained earnings	170,699			152,729			Retained earnings	228,627		242,456
Total stockholders’ equity	276,892			247,545			Total stockholders’ equity	720,474		717,060
Total liabilities and stockholders’ equity	$	1,146,994		$	1,310,210		Total liabilities and stockholders’ equity	$	2,825,522	$	2,971,617

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



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						3


Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)													Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
														Three months ended June 30,				Six months ended June 30,
Blackbaud, Inc. Consolidated statements of comprehensive income (Unaudited)
(dollars in thousands, except per share amounts)	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016			(dollars in thousands, except per share amounts)	2022		2021		2022		2021
Revenue													Revenue
Subscriptions	$	127,492		$	105,440		$	370,923		$	306,330
Maintenance	31,486			36,410			98,184			111,019
Services and other	36,535			41,213			102,222			115,161
Recurring													Recurring	$	252,507	$	216,986	$	497,173	$	423,736
One-time services and other													One-time services and other	12,420		12,454		24,878		24,895
Total revenue	195,513			183,063			571,329			532,510			Total revenue	264,927		229,440		522,051		448,631
Cost of revenue													Cost of revenue
Cost of subscriptions	58,045			51,943			170,336			153,772
Cost of maintenance	5,698			5,531			17,551			16,547
Cost of services and other	23,262			25,843			71,595			76,499
Cost of recurring													Cost of recurring	114,487		94,435		226,661		183,300
Cost of one-time services and other													Cost of one-time services and other	11,120		13,635		22,308		28,155
Total cost of revenue	87,005			83,317			259,482			246,818			Total cost of revenue	125,607		108,070		248,969		211,455
Gross profit	108,508			99,746			311,847			285,692			Gross profit	139,320		121,370		273,082		237,176
Operating expenses													Operating expenses
Sales, marketing and customer success	44,193			40,690			129,394			115,707			Sales, marketing and customer success	52,737		45,452		107,953		94,245
Research and development	22,071			22,510			67,647			67,973			Research and development	38,333		30,222		78,285		59,401
General and administrative	23,545			22,319			67,350			62,089			General and administrative	47,391		32,008		91,153		62,595
Amortization	734			687			2,164			2,147			Amortization	805		567		1,616		1,116
Restructuring													Restructuring	—		78		—		132
Total operating expenses	90,543			86,206			266,555			247,916			Total operating expenses	139,266		108,327		279,007		217,489
Income from operations	17,965			13,540			45,292			37,776
Income (loss) from operations													Income (loss) from operations	54		13,043		(5,925)		19,687
Interest expense	(3,092		)	(2,641		)	(8,685		)	(8,037		)	Interest expense	(8,976)		(5,054)		(16,575)		(10,168)
Other income (expense), net	468			(15		)	1,581			(185		)	Other income (expense), net	3,133		487		4,254		(523)
Income before provision for income taxes	15,341			10,884			38,188			29,554
Income tax provision	2,793			1,950			2,964			5,323
Net income	$	12,548		$	8,934		$	35,224		$	24,231
Earnings per share
(Loss) income before provision for income taxes													(Loss) income before provision for income taxes	(5,789)		8,476		(18,246)		8,996
Income tax (benefit) provision													Income tax (benefit) provision	(2,367)		1,745		(4,417)		2,429
Net (loss) income													Net (loss) income	$	(3,422)	$	6,731	$	(13,829)	$	6,567
(Loss) earnings per share													(Loss) earnings per share
Basic	$	0.27		$	0.19		$	0.76		$	0.53		Basic	$	(0.07)	$	0.14	$	(0.27)	$	0.14
Diluted	$	0.26		$	0.19		$	0.74		$	0.51		Diluted	$	(0.07)	$	0.14	$	(0.27)	$	0.14
Common shares and equivalents outstanding													Common shares and equivalents outstanding
Basic weighted average shares	46,711,709			46,159,956			46,627,213			46,078,306			Basic weighted average shares	51,660,739		47,756,326		51,431,501		47,560,847
Diluted weighted average shares	47,846,997			47,394,106			47,679,103			47,268,469			Diluted weighted average shares	51,660,739		48,444,874		51,431,501		48,444,658
Dividends per share	$	0.12		$	0.12		$	0.36		$	0.36
Other comprehensive (loss) income													Other comprehensive (loss) income
Foreign currency translation adjustment	(188		)	289			(467		)	261			Foreign currency translation adjustment	$	(10,398)	$	1,783	$	(12,530)	$	4,294
Unrealized (loss) gain on derivative instruments, net of tax	(267		)	409			(89		)	(378		)
Unrealized gain on derivative instruments, net of tax													Unrealized gain on derivative instruments, net of tax	2,558		345		13,463		4,494
Total other comprehensive (loss) income	(455		)	698			(556		)	(117		)	Total other comprehensive (loss) income	(7,840)		2,128		933		8,788
Comprehensive income	$	12,093		$	9,632		$	34,668		$	24,114
Comprehensive (loss) income													Comprehensive (loss) income	$	(11,262)	$	8,859	$	(12,896)	$	15,355

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



4						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q


Blackbaud, Inc. Consolidated statements of cash flows (Unaudited)
Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)							Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
	Nine months ended September 30,							Six months ended June 30,
(dollars in thousands)	2017			2016			(dollars in thousands)	2022		2021
Cash flows from operating activities							Cash flows from operating activities
Net income	$	35,224		$	24,231
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							Net (loss) income	$	(13,829)	$	6,567
Adjustments to reconcile net (loss) income to net cash provided by operating activities:							Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	54,765			53,109			Depreciation and amortization	51,283		40,742
Provision for doubtful accounts and sales returns	7,246			3,139
Provision for credit losses and sales returns							Provision for credit losses and sales returns	3,653		4,418
Stock-based compensation expense	31,055			25,005			Stock-based compensation expense	55,714		60,554
Deferred taxes	(2,511		)	(225		)	Deferred taxes	(16,656)		276
Amortization of deferred financing costs and discount	650			718			Amortization of deferred financing costs and discount	1,254		879
Other non-cash adjustments	572			(634		)	Other non-cash adjustments	4,225		155
Changes in operating assets and liabilities, net of acquisition and disposal of businesses:							Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
Accounts receivable	(17,169		)	(9,288		)	Accounts receivable	(50,818)		(27,134)
Prepaid expenses and other assets	596			(934		)	Prepaid expenses and other assets	3,685		(18,162)
Trade accounts payable	(2,891		)	267			Trade accounts payable	12,769		2,356
Accrued expenses and other liabilities	(9,522		)	(12,837		)	Accrued expenses and other liabilities	(8,739)		1,443
Restricted cash due to customers	214,244			119,291
Due to customers	(214,244		)	(119,291		)
Deferred revenue	25,370			17,593			Deferred revenue	39,238		27,828
Net cash provided by operating activities	123,385			100,144			Net cash provided by operating activities	81,779		99,922
Cash flows from investing activities							Cash flows from investing activities
Purchase of property and equipment	(8,417		)	(15,459		)	Purchase of property and equipment	(7,518)		(6,128)
Capitalized software development costs	(20,605		)	(19,078		)
Purchase of net assets of acquired companies, net of cash acquired	(49,729		)	(3,377		)
Purchase of derivative instruments	(516		)	—
Proceeds from settlement of derivative instruments	1,030			—
Capitalized software and content development costs							Capitalized software and content development costs	(27,183)		(19,862)
Purchase of net assets of acquired companies, net of cash and restricted cash acquired							Purchase of net assets of acquired companies, net of cash and restricted cash acquired	(19,016)		—

Net cash used in investing activities	(78,237		)	(37,914		)	Net cash used in investing activities	(53,717)		(25,990)
Cash flows from financing activities							Cash flows from financing activities
Proceeds from issuance of debt	588,300			179,000			Proceeds from issuance of debt	113,200		128,300
Payments on debt	(594,144		)	(212,581		)	Payments on debt	(129,548)		(113,477)
Debt issuance costs	(3,085		)	—

Stock issuance costs							Stock issuance costs	(557)		—
Employee taxes paid for withheld shares upon equity award settlement	(19,092		)	(10,497		)	Employee taxes paid for withheld shares upon equity award settlement	(35,600)		(38,712)
Proceeds from exercise of stock options	14			10
Dividend payments to stockholders	(17,299		)	(17,108		)

Change in due to customers							Change in due to customers	(141,001)		(170,061)
Change in customer funds receivable							Change in customer funds receivable	(546)		(5,014)
Purchase of treasury stock							Purchase of treasury stock	—		(58,074)
Net cash used in financing activities	(45,306		)	(61,176		)	Net cash used in financing activities	(194,052)		(257,038)
Effect of exchange rate on cash and cash equivalents	306			46
Net increase in cash and cash equivalents	148			1,100
Cash and cash equivalents, beginning of period	16,902			15,362
Cash and cash equivalents, end of period	$	17,050		$	16,462

The accompanying notes are an integral part of these consolidated financial statements.
Effect of exchange rate on cash, cash equivalents and restricted cash							Effect of exchange rate on cash, cash equivalents and restricted cash	(7,252)		992
Net decrease in cash, cash equivalents and restricted cash							Net decrease in cash, cash equivalents and restricted cash	(173,242)		(182,114)
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, end of period							Cash, cash equivalents and restricted cash, end of period	$	478,520	$	462,855

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


(dollars in thousands)	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	29,029	$	55,146
Restricted cash	449,491		596,616
Total cash, cash equivalents and restricted cash in the statement of cash flows	$	478,520	$	651,762

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



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						5

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

Blackbaud, Inc.
Consolidated statement of stockholders' equity
(Unaudited)
(dollars in thousands) Common stock
Additional
paid-in
capital

Treasury
stock

Accumulated
other
comprehensive
loss

Retained
earnings

Total stockholders' equity
Shares
Amount
Balance at December 31, 2016 57,672,401
$ 58
$ 310,452
$ (215,237 ) $ (457 ) $ 152,729
$ 247,545
Net income —
—
—
—
—
35,224
35,224
Payment of dividends —
—
—
—
—
(17,299 ) (17,299 )
Exercise of stock options and stock appreciation rights and vesting of restricted stock units 349,713
—
14
—
—
—
14
Employee taxes paid for 259,321 withheld shares upon equity award settlement —
—
—
(19,092 ) —
—
(19,092 )
Stock-based compensation —
—
31,010
—
—
45
31,055
Restricted stock grants 549,589
1
—
—
—
—
1
Restricted stock cancellations (68,016 ) —
—
—
—
—
—
Other comprehensive loss —
—
—
—
(556 ) —
(556 )
Balance at September 30, 2017 58,503,687
$ 59
$ 341,476
$ (234,329 ) $ (1,013 ) $ 170,699
$ 276,892

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


(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 (see Note 3)	—	—		(983)		—		—		—		(983)

Retirements of common stock(1)	(33,075)	—		(2,581)		—		—		—		(2,581)
Vesting of restricted stock units	976,312	—		—		—		—		—		—
Employee taxes paid for 533,139 withheld shares upon equity award settlement	—	—		—		(34,674)		—		—		(34,674)
Stock-based compensation	—	—		27,860		—		—		—		27,860
Restricted stock grants	580,209	2		—		—		—		—		2
Restricted stock cancellations	(30,940)	—		—		—		—		—		—
Other comprehensive income	—	—		—		—		8,773		—		8,773
Balance at March 31, 2022	67,658,172	$	68	$	993,223	$	(535,585)	$	15,295	$	232,049	$	705,050
Net loss	—	—		—		—		—		(3,422)		(3,422)
Stock issuance costs related to purchase of EVERFI (see Note 3)	—	—		(223)		—		—		—		(223)

Retirements of common stock(1)	(395)	—		(19)		—		—		—		(19)
Vesting of restricted stock units	23,549	—		—		—		—		—		—
Employee taxes paid for 15,540 withheld shares upon equity award settlement	—	—		—		(926)		—		—		(926)
Stock-based compensation	—	—		27,854		—		—		—		27,854
Restricted stock grants	136,598	—		—		—		—		—		—
Restricted stock cancellations	(62,550)	—		—		—		—		—		—
Other comprehensive loss	—	—		—		—		(7,840)		—		(7,840)
Balance at June 30, 2022	67,755,374	$	68	$	1,020,835	$	(536,511)	$	7,455	$	228,627	$	720,474

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



6						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(Unaudited)


(dollars in thousands)	Common stock			Additional paid-in capital		Treasury stock		Accumulated other comprehensive income (loss)		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at December 31, 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
Net income	—	—		—		—		—		6,731		6,731
Purchase of 405,047 treasury shares under stock repurchase program						(30,008)		—		—		(30,008)
Vesting of restricted stock units	804,323	—		—		—		—		—		—
Employee taxes paid for 285,521 withheld shares upon equity award settlement	—	—		—		(20,286)		—		—		(20,286)
Stock-based compensation	—	—		30,528		—		—		21		30,549
Restricted stock grants	9,431	—		—		—		—		—		—
Restricted stock cancellations	(76,316)	—		—		—		—		—		—
Other comprehensive income	—	—		—		—		2,128		—		2,128
Balance at June 30, 2021	62,332,714	$	62	$	605,486	$	(449,877)	$	6,291	$	243,312	$	405,274










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


Second Quarter 2022 Form 10-Q						7

Table of Contents

Blackbaud, Inc.

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

(Unaudited)



1. Organization

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



2. Basis of Presentation

Unaudited condensed consolidated interim ~~consolidated~~ financial statements

The accompanying condensed consolidated interim ~~consolidated~~ financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to state fairly the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of stockholders’ equity, for the periods presented in accordance with accounting principles generally accepted in the United States ("U.S.") ("GAAP"). The consolidated balance sheet at December 31, ~~2016,~~2021 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017,~~2022, or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations for interim reporting of the SEC. These condensed consolidated interim ~~consolidated~~ financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, and other forms filed with the SEC from time to time.

~~Reclassifications~~

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

Basis of consolidation

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

~~Recently adopted accounting pronouncements~~Reportable segment

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718) - Scope~~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.

We acquired EVERFI (as defined below) on December 31, 2021. As we are working to integrate EVERFI into our business, it had not yet been included in one of ~~Modification Accounting ("ASU 2017-09"), which provides guidance about which changes~~our market groups as of June 30, 2022. This change did not impact our conclusions that we have one operating and reportable segment and one goodwill reporting unit.

Risks and uncertainties related to ~~the terms or conditions of a share-based payment award require an entity~~COVID-19

We are subject to apply modification accounting in Topic 718. Under ASU 2017-09, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changesrisks and uncertainties as a result of the ~~change in terms or conditions. ASU 2017-09 is effective for all companies for annual~~global COVID-19 pandemic. We believe that COVID-19 may continue to significantly impact our vertical markets and ~~interim periods beginning after December 15, 2017, with early adoption permitted in any interim period for reporting periods for~~

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.



~~Third~~8	Second Quarter ~~2017~~2022 Form 10-Q	7

Table of Contents

Blackbaud, Inc.

Notes to ~~consolidated~~Condensed Consolidated Financial Statements

(Unaudited)

Use of estimates

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

~~(Unaudited)~~

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

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

Recently issued accounting pronouncements

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

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

There have been no material changes to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We early adopted ASU 2017-04 as of July 1, 2017 for useour significant accounting policies described in our ~~fourth quarter annual goodwill impairment testing and do not expect~~Annual Report on Form 10-K for the ~~standard to have a material impact~~year ended December 31, 2021, filed with the SEC on ~~our consolidated financial statements.~~March 1, 2022.

~~Recently issued accounting pronouncements~~

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

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

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



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

3. Business Combinations

~~AcademicWorks acquisition~~2021 Acquisition

EVERFI

On ~~April 3, 2017,~~December 31, 2021, we acquired all of the outstanding ~~shares of capital stock,~~equity securities, including all voting equity interests, of ~~AcademicWorks,~~EVERFI, Inc., a ~~Texas~~Delaware corporation ("~~AcademicWorks"~~EVERFI"), pursuant to an agreement and plan of merger. The acquisition advanced our position as a ~~stock purchase agreement. AcademicWorks is the market~~ leader in ~~scholarship management for higher education~~the rapidly evolving ESG and ~~K-12 institutions, foundations, and grant-making institutions. The acquisition extends our offerings for our higher education, K-12, and corporate and foundation customers.~~CSR spaces. We acquired ~~AcademicWorks~~the equity securities for ~~$52.1~~approximately $441.8 million in cash consideration and 3,810,953 shares of the company's common stock, valued at approximately $301.0 million, for an aggregate purchase price of approximately $742.8 million, net of closing adjustments. ~~We financed~~The cash consideration and related expenses were funded primarily through cash on hand and new borrowings under the ~~acquisition through a draw down of a revolving credit loan under our then-existing credit facility.~~2020 Credit Facility (as defined below). As a result of the acquisition, ~~AcademicWorks~~EVERFI has become a ~~wholly-owned~~wholly owned subsidiary of ours. The operating results of ~~AcademicWorks~~EVERFI have been included in our consolidated financial statements ~~within our EMG and GMG reportable segments (as defined in Note 14 below)~~ from the date of acquisition. ~~During~~In accordance with applicable accounting rules, we determined that the ~~three~~impact of this acquisition was not material to our consolidated financial statements; therefore, revenue and ~~nine months ended September 30, 2017, we incurred insignificant acquisition-related expenses associated with~~earnings since the acquisition ~~of AcademicWorks, which were recorded in general~~date and ~~administrative expense.~~pro forma information are not required to be presented.

The fair values assigned to the assets acquired and liabilities assumed in ~~the table below~~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 ~~acquired finite-lived~~ intangible assets as well as the assumed deferred ~~revenue and deferred~~ income tax balances.

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

~~The~~ During the six months ended June 30, 2022, we recorded insignificant measurement period adjustments to the estimated fair value of ~~accounts receivable~~the EVERFI assets acquired ~~approximates~~and liabilities assumed following the ~~contractual value~~receipt of ~~$1.0 million.~~new information. The estimated goodwill recognized is attributable primarily to the opportunities for expected synergies from combining operations and the assembled workforce of AcademicWorks, with $20.6 million and $13.7 million assigned to our EMG and GMG reportable segments, respectively. None of the goodwill arising in the acquisition is deductible for income tax purposes.

~~The AcademicWorks acquisition~~adjustments resulted in an increase to net working capital, excluding deferred revenue, with the ~~identification of the following identifiable finite-lived intangible assets:~~

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

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

goodwill.



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						9

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

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

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



4. Goodwill and Other Intangible Assets

The change in goodwill ~~for each reportable segment (as defined in Note 14 below)~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, consisted of the following:

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


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

Adjustments related to prior year business combination(1)	~~See~~ ~~Note 3~~ ~~to these consolidated financial statements for details regarding our acquisition~~(1,203)
Effect of ~~AcademicWorks.~~foreign currency translation	(6,207)
Balance at June 30, 2022	$	1,051,230

(1)See Note 3 to these condensed consolidated financial statements for a discussion of the measurement period adjustments during the three and six months ended June 30, 2022 to the estimated fair value of the EVERFI assets acquired and liabilities assumed.


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

5. (Loss) Earnings Per Share

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



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

~~Table~~ Diluted loss per share for the three and six months ended June 30, 2022 was the same as basic loss per share as there was a net loss in the period and inclusion of ~~Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

potentially dilutive securities was anti-dilutive.

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

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

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


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands, except per share amounts)	2022		2021		2022		2021
Numerator:
Net (loss) income	$	(3,422)	$	6,731	$	(13,829)	$	6,567
Denominator:
Weighted average common shares	51,660,739		47,756,326		51,431,501		47,560,847
Add effect of dilutive securities:
Stock-based awards	—		688,548		—		883,811
Weighted average common shares assuming dilution	51,660,739		48,444,874		51,431,501		48,444,658
(Loss) earnings per share:
Basic	$	(0.07)	$	0.14	$	(0.27)	$	0.14
Diluted	$	(0.07)	$	0.14	$	(0.27)	$	0.14

Anti-dilutive shares excluded from calculations of diluted (loss) earnings per share	1,167,368		907,210		2,090,267		1,032,655



10						Second Quarter 2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


6. Fair Value Measurements

We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

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

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

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



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

Recurring fair value measurements

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


	Fair value measurement using									Fair value measurement using
(dollars in thousands)	Level 1		Level 2		Level 3		Total		(dollars in thousands)	Level 1		Level 2		Level 3		Total
Fair value as of September 30, 2017
Fair value as of June 30, 2022									Fair value as of June 30, 2022
Financial assets:									Financial assets:
Derivative instruments	$	—	$	223	$	—	$	223	Derivative instruments	$	—	$	25,412	$	—	$	25,412
Total financial assets	$	—	$	223	$	—	$	223	Total financial assets	$	—	$	25,412	$	—	$	25,412

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

Fair value as of December 31, 2016

Fair value as of December 31, 2021									Fair value as of December 31, 2021
Financial assets:									Financial assets:
Derivative instruments	$	—	$	206	$	—	$	206	Derivative instruments	$	—	$	7,160	$	—	$	7,160
Total financial assets	$	—	$	206	$	—	$	206	Total financial assets	$	—	$	7,160	$	—	$	7,160

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

Our derivative instruments within the scope of ~~ASC~~Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate ~~swaps, as well as foreign currency forward and option contracts.~~swaps. See Note 9 to these condensed consolidated financial statements for additional information about our derivative instruments.

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

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

We believe the carrying amounts of our cash and cash equivalents, restricted cash, ~~due to customers,~~ accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, due to the immediate or short-term maturity of these instruments.

We believe the carrying amount of our debt approximates its fair value at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, 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.


Second Quarter 2022 Form 10-Q						11

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 ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2022. Additionally, we did not hold any Level 3 assets or liabilities during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

2022.

Non-recurring fair value measurements

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

During the three and six months ended June 30, 2022, we recorded a noncash impairment charge of $2.3 million against certain previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge is reflected in general and administrative expense and resulted primarily from our decision to end customer support for certain solutions.

During the three and six months ended June 30, 2022, we recorded a noncash impairment charge of $2.0 million against certain insignificant customer relationship intangible assets that were held for sale. The impairment charge is reflected in general and administrative expense.

There were no other non-recurring fair value adjustments ~~to intangible assets and goodwill~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 except for ancertain insignificant business combination accounting ~~adjustment~~adjustments to the initial fair value estimates of ~~the Attentive.ly~~ assets acquired and liabilities assumed at the acquisition date from updated ~~information obtained~~estimates and assumptions during the measurement period. See Note 43 to these condensed consolidated financial statements for additional details. The measurement period of a business combination may be up to one year from the acquisition date. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.



7. Consolidated Financial Statement Details

Restricted cash


(dollars in thousands)	June 30, 2022		December 31, 2021
Restricted cash due to customers	$	448,208	$	593,296
Letters of credit for operating leases	—		2,186
Real estate escrow balances and other	1,283		1,134
Total restricted cash	$	449,491	$	596,616


12						Second Quarter 2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Prepaid expenses and other assets


(dollars in thousands)	June 30, 2022		December 31, 2021
Costs of obtaining contracts(1)(2)	$	74,378	$	78,465
Prepaid software maintenance and subscriptions(3)	31,723		28,880
Derivative instruments	25,412		7,160
Implementation costs for cloud computing arrangements, net(4)(5)	10,816		11,892
Receivables for probable insurance recoveries(6)(7)	10,000		18,202
Prepaid insurance	9,499		5,363
Unbilled accounts receivable	8,243		5,443
Taxes, prepaid and receivable	4,009		3,986
Deferred tax assets	1,466		1,546
Other assets	13,165		11,835
Total prepaid expenses and other assets	188,711		172,772
Less: Long-term portion	90,670		77,266
Prepaid expenses and other current assets	$	98,041	$	95,506

(1)Amortization expense from costs of obtaining contracts was $8.5 million and $17.0 million for the three and six months ended June 30, 2022, respectively, and $9.0 million and $18.2 million for the three and six months ended June 30, 2021.

(2)The current portion of costs of obtaining contracts as of June 30, 2022 and December 31, 2021 was $29.1 million and $30.2 million, respectively.

(3)The current portion of prepaid software maintenance and subscriptions as of June 30, 2022 and December 31, 2021 was $28.2 million and $24.7 million, respectively.

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

(5)Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended June 30, 2022 and 2021, respectively, and $1.1 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively. Accumulated amortization for these costs was $4.1 million and $3.0 million as of June 30, 2022 and December 31, 2021, respectively.

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

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

Accrued expenses and other liabilities


(dollars in thousands)	June 30, 2022		December 31, 2021
Taxes payable(1)	$	26,488	$	19,777
Accrued legal costs(2)	15,405		11,724
Operating lease liabilities, current portion	8,560		9,170
Customer credit balances	6,287		8,403
Accrued commissions and salaries	5,457		7,872
Accrued health care costs	2,676		3,042
Accrued vacation costs	2,266		2,234
Accrued transaction-based costs related to payments services	2,236		5,427
Accrued bonuses	1,845		5,829
Unrecognized tax benefit	1,533		1,248
Amounts payable to former EVERFI option holders(3)	—		17,404
Other liabilities	6,286		9,310
Total accrued expenses and other liabilities	79,039		101,440
Less: Long-term portion	1,628		1,344
Accrued expenses and other current liabilities	$	77,411	$	100,096

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

~~Other income (expense), net~~

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

(1)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.



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						13

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

(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 ~~(continued)~~for additional information regarding our acquisition of EVERFI.

~~(Unaudited)~~Other income (expense), net


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
Interest income	$	114	$	77	$	237	$	229
Currency revaluation gains (losses)	2,271		220		2,853		(1,167)
Other income, net	748		190		1,164		415
Other income (expense), net	$	3,133	$	487	$	4,254	$	(523)



8. Debt

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


	Debt balance at				Weighted average effective interest rate at
(dollars in thousands)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Credit facility:
Revolving credit loans	$	252,400	$	260,000	4.03	%	3.27	%
Term loans	631,875		640,000		3.45	%	3.02	%
Real estate loans	58,857		59,480		5.22	%	5.22	%
Other debt	538		1,694		5.00	%	5.00	%
Total debt	943,670		961,174		3.72	%	3.23	%
Less: Unamortized discount and debt issuance costs	3,897		4,994
Less: Debt, current portion	18,154		18,697		4.25	%	3.11	%
Debt, net of current portion	$	921,619	$	937,483	3.71	%	3.23	%

Debt balance at
Weighted average
effective interest rate at

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

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

~~Financing for AcademicWorks acquisition~~

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

~~2017 refinancing~~

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

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

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

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

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



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

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

~~Summary of the 2017 Credit Facility~~

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

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

Amounts borrowed under the dollar tranche revolving credit loans and term loan under the 2017 Credit Facility bear interest at a rate per annum equal to, at our option, (a) a base rate equal to the highest of (i) the prime rate announced by Bank of America, N.A., (ii) the Federal Funds Rate plus 0.50% and (iii) the Eurocurrency Rate (which varies depending on the currency in which the loan is denominated) plus 1.00% (the “Base Rate”), in addition to a margin of 0.00% to 0.75%, or (b) Eurocurrency Rate plus a margin of 1.00% to 1.75%.

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

The term loan under the 2017 Credit Facility requires periodic principal payments. The balance of the term loan and any amounts drawn on the revolving credit loans are due upon maturity of the 2017 Credit Facility in June 2022. We evaluate the classification of our debt as current or non-current based on the required annual maturities of the 2017 Credit Facility.

The 2017 Credit Facility includes financial covenants related to the net leverage ratio and interest coverage ratio, as well as restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. At September 30, 2017,2022, we were in compliance with our debt covenants under the ~~2017~~2020 Credit Facility.

First incremental term loan

In December 2021, we entered into the First Incremental Term Loan Agreement (the "Incremental Amendment"). The ~~2017~~Incremental Amendment amended the 2020 Credit Facility ~~also includes~~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 $441.8 million in cash consideration and 3,810,953 shares of the company's common stock, valued at approximately $301.0 million, for an ~~option~~aggregate purchase price of approximately $742.8 million, net of closing adjustments. We financed the cash consideration and related expenses through cash on hand and new borrowings under the 2020 Credit Facility, including $250.0 million under the 2021 Incremental Term Loan (as defined above).


14						Second Quarter 2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to ~~request increases in~~Condensed Consolidated Financial Statements

(Unaudited)

First amendment to 2020 Credit Facility

On January 31, 2022, we entered into the ~~revolving commitments and/~~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 ~~request~~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 ~~term~~operational flexibility.

Real estate loans ~~in an aggregate~~

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 ~~up to $200.0~~$61.1 million ~~plus an amount, if any, such that~~(collectively, the ~~Net Leverage Ratio shall be no greater than 3.00 to 1.00.~~

“Real Estate Loans”). At June 30, 2022, we were in compliance with our debt covenants under the Real Estate Loans.

Other debt

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

The following table summarizes our currently effective financing agreements as of June 30, 2022:

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

(dollars in thousands)

Term
in Months

Number of
Annual Payments

First Annual
Payment Due

Original Loan
Value

Effective dates of agreements:

December 2019

January 2020

2,150

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



~~Third Quarter 2017 Form 10-Q~~				15

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

9. Derivative Instruments

Cash flow hedges

We generally use derivative instruments to manage our variable interest rate risk. ~~In March 2014, we~~We have entered into an interest rate swap ~~agreement (the "March 2014 Swap Agreement"),~~agreements, which effectively ~~converts~~convert portions of our variable rate debt under ~~our credit facility~~the 2020 Credit Facility to a fixed rate for the term of the swap ~~agreement. The initial notional value~~agreements. We designated each of the March 2014 Swap Agreement was $125.0 million with an effective date beginning in March 2014. In March 2017, the notional value of the March 2014 Swap Agreement decreased to $75.0 million for the remaining term through February 2018. We designated the March 2014 Swap Agreementinterest rate swap agreements as a cash flow hedge at the inception of the ~~contract.~~contracts.

~~In October 2015, we entered into an additional interest rate swap agreement (the "October 2015 Swap Agreement"), which effectively converts portions~~The terms and notional values of our ~~variable rate debt under our credit facility to a fixed rate for the term~~derivative instruments were as follows as of the October 2015 Swap Agreement. The notional value of the October 2015 Swap Agreement was $75.0 million with an effective date beginning in October 2015 and maturing in February 2018. We designated the October 2015 Swap Agreement as a cash flow hedge at the inception of the contract.June 30, 2022:

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

~~Undesignated contracts~~

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

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


(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



16Second Quarter 2022 Form 10-Q						~~Third Quarter 2017 Form 10-Q~~15

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

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

Asset Derivatives Liability Derivatives
(dollars in thousands) Balance sheet location September 30,
2017
December 31,
2016
Balance sheet location September 30,
2017
December 31,
2016
Derivative instruments designated as hedging instruments:
Interest rate swaps, current portion
Prepaid expenses
and other current assets
$ 223
$ —

Accrued expenses
and other current liabilities
$ —
$ —
Interest rate swaps, long-term portion Other assets —
206
Other liabilities 328
163
Total derivative instruments designated as hedging instruments $ 223
$ 206
$ 328
$ 163

Derivative instruments not designated as hedging instruments:

Foreign currency forward contracts Prepaid expenses
and other current assets $ —
$ —

Accrued expenses
and other current liabilities
$ 41
$ —
Total derivative instruments not designated as hedging instruments
$ —
$ —
$ 41
$ —

Total derivative instruments $ 223
$ 206
$ 369
$ 163


		Asset derivatives
(dollars in thousands)	Balance sheet location	June 30, 2022		December 31, 2021
Derivative instruments designated as hedging instruments:

Interest rate swaps, long-term	Other assets	25,412		7,160
Total derivative instruments designated as hedging instruments		$	25,412	$	7,160

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


	Gain (loss) recognized in accumulated other comprehensive loss as of			Location of gain (loss) reclassified from accumulated other comprehensive loss into income	Gain (loss) reclassified from accumulated other comprehensive loss into income							Gain recognized in accumulated other comprehensive income as of		Location of gain reclassified from accumulated other comprehensive income into (loss) income	Gain (loss) reclassified from accumulated other comprehensive income into (loss) income
(dollars in thousands)	September 30, 2017				Three months ended September 30, 2017			Nine months ended September 30, 2017			(dollars in thousands)	June 30, 2022			Three months ended June 30, 2022		Six months ended June 30, 2022
Interest rate swaps	$	(105	)	Interest expense	$	(88	)	$	(192	)	Interest rate swaps	$	25,412	Interest expense	$	323	$	(35)

	September 30, 2016				Three months ended September 30, 2016			Nine months ended September 30, 2016				June 30, 2021			Three months ended June 30, 2021		Six months ended June 30, 2021
Interest rate swaps	$	(654	)	Interest expense	$	(265	)	$	(875	)	Interest rate swaps	$	1,923	Interest expense	$	(1,408)	$	(2,784)

Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit. Changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) is reclassified from accumulated other comprehensive income (loss) to current earnings. The estimated accumulated other comprehensive income as of ~~September~~June 30, ~~2017~~2022 that is expected to be reclassified into earnings within the next twelve months is ~~insignificant.~~$11.3 million. There were no0 ineffective portions of our interest rate swap derivatives during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. See Note ~~13 to these consolidated financial statements~~12 for a summary of the changes in accumulated other comprehensive income (loss) by component.


10. Commitments and Contingencies

Leases

We have operating leases for corporate offices, subleased offices and certain equipment and furniture. As of June 30, 2022, 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 June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
Operating lease cost(1)	$	2,445	$	2,372	$	4,976	$	5,213
Variable lease cost	413		699		850		1,398
Sublease income	(766)		(366)		(1,197)		(826)
Net lease cost	$	2,092	$	2,705	$	4,629	$	5,785

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



~~Third~~16	Second Quarter ~~2017~~2022 Form 10-Q	17

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

~~We did not have any undesignated derivative instruments during 2016. The effects of undesignated derivative instruments during the three and nine months ended September 30, 2017 were as follows:~~

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


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

~~10. Commitments and Contingencies~~

~~Leases~~

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

Other commitments

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

We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of ~~September~~June 30, ~~2017,~~2022, the remaining aggregate minimum purchase commitment under these arrangements was approximately ~~$51.9~~$241.3 million through ~~2021.~~2027.

Solution and service indemnifications

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

Legal proceedings

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

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

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

Security incident

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

As a result of the Security Incident, we are currently subject to certain legal proceedings, claims, inquiries and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, inquires and investigations in the future that might result in adverse judgments, settlements, fines, penalties, or ~~investigations.~~

other resolution. To limit our exposure to losses related to claims against us, including data breaches such as the Security Incident, we maintain $50 million of insurance above a $250 thousand deductible payable by us. As noted below, this coverage has reduced our financial exposure related to the Security Incident, and we will continue to seek recoveries under these insurance policies for claims we have submitted but have not yet been reimbursed.


Second Quarter 2022 Form 10-Q						17

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
Gross expense	$	8,435	$	11,654	$	17,440	$	24,468
Offsetting probable insurance recoveries	(87)		(11,184)		(1,891)		(23,997)
Net expense	$	8,348	$	470	$	15,549	$	471

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


(dollars in thousands)	June 30, 2022		December 31, 2021
Cumulative gross expense	$	67,831	$	50,391
Cumulative offsetting insurance recoveries	(50,000)		(48,109)
Cumulative net expense	$	17,831	$	2,282

Cumulative offsetting insurance recoveries paid	$	(40,000)	$	(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 have consisted primarily of payments for legal fees related to: governmental inquiries and investigations; and customer constituent class actions. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our consolidated statements of comprehensive (loss) 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 has exceeded the limit of our insurance coverage. 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 pre-tax expense of approximately $30.0 million to $35.0 million for ongoing legal fees related to the Security Incident. In line with our policy as discussed above, legal fees are expensed as incurred. For full year 2022, we currently expect net cash outlays of approximately $15.0 million to $25.0 million for ongoing legal fees related to the Security Incident.

Based on our analysis of the factors described above, we have not recorded a liability for a loss contingency related to the Security Incident as of June 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Customer claims. To date, we have received approximately 260 specific requests for reimbursement of expenses ("Customer Reimbursement Requests") and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident (none of which have as yet been filed in court). Of the Customer Reimbursement Requests received to date, approximately 190 have been fully resolved and closed. In June 2022, we also received notice of a proposed claim on behalf of a number of U.K. data subjects, which we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us. One insurance company has filed a subrogation claim 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.


18						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

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

(Unaudited)

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

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

Governmental inquiries and investigations. To date, we have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 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. 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.

On September 28, 2021, the Information Commissioner's Office in the United Kingdom under the U.K Data Protection Act 2018 (the "ICO") notified us that it has closed its investigation of the Security Incident. Based on its investigation and having considered our actions before, during and after the Security Incident, the ICO issued our European subsidiary a reprimand in accordance with Article 58(2)(b) of the U.K. General Data Protection Regulation ("U.K. GDPR") due to our non-compliance, in the ICO's view, with the requirements set out in Article 32 of the U.K. GDPR regarding the processing of personal data. The ICO did not impose a penalty related to the Security Incident, nor did it impose any requirements for further action by us.

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

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

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



Second Quarter 2022 Form 10-Q						19

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


11. Income Taxes

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


	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2022			2021			2022			2021
Income tax (benefit) provision	$	(2,367)		$	1,745		$	(4,417)		$	2,429
Effective income tax rate	40.9		%	20.6		%	24.2		%	27.0		%

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

~~Our~~The increase in our effective income tax rate ~~during~~for the three months ended ~~September~~June 30, ~~2017 remained relatively unchanged~~2022 when compared to the same period in ~~2016.~~ 2021 was primarily due to 2022 tax benefit attributable to foreign-derived intangible income ("FDII") deduction not generated in the prior year. Furthermore, the 2021 effective tax rate was positively impacted by benefit attributable to stock based compensation partially offset against expense attributable to an income tax rate increase enacted during the period.

The decrease in our effective income tax rate ~~during~~for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 when compared to the same period in ~~2016,~~2021 was primarily ~~due~~attributable to ~~a $9.0 million discrete~~2022 tax benefit attributable to FDII deduction not generated in the prior year. Furthermore, the 2022 effective tax rate was negatively impacted by tax expense ~~relating~~attributable to stock-based compensation ~~items, as compared to a $4.3 million discrete tax benefit~~against pre-tax loss for the ~~same period in 2016.~~period. The ~~increase in the discrete~~2021 effective tax rate was positively impacted by benefit ~~for the nine months ended September 30, 2017, as compared~~attributable to ~~the same period in 2016, was~~stock-based compensation, partially offset against expense attributable to an income tax rate increase in the market price for shares of our common stock, as reported by the NASDAQ Stock Market LLC ("NASDAQ"), as well as an increase in the number of stock awards that vested and were exercised. Most of our equity awards are granted during our first quarter and vest in subsequent yearsenacted during the ~~same quarter.~~

~~12. Stock-based Compensation~~

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

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands) 2017
2016
2017
2016
Included in cost of revenue:
Cost of subscriptions $ 331
$ 318
$ 963
$ 904
Cost of maintenance 103
137
294
391
Cost of services and other 500
461
1,418
1,308
Total included in cost of revenue 934
916
2,675
2,603
Included in operating expenses:
Sales, marketing and customer success 1,686
1,055
4,906
2,972
Research and development 2,093
1,674
5,877
4,874
General and administrative 6,213
5,173
17,597
14,556
Total included in operating expenses 9,992
7,902
28,380
22,402
Total stock-based compensation expense $ 10,926
$ 8,818
$ 31,055
$ 25,005

period.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

~~13. Stockholders' Equity~~

~~Dividends~~

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

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

Declaration Date
Dividend
per Share

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

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

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

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

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



20						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

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

(Unaudited)



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

~~During~~Changes in accumulated other comprehensive income (loss) by component

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


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
Accumulated other comprehensive income (loss), beginning of period	$	15,295	$	4,163	$	6,522	$	(2,497)
By component:
Gains and losses on cash flow hedges:
Accumulated other comprehensive income (loss) balance, beginning of period	$	16,162	$	1,048	$	5,257	$	(3,101)
Other comprehensive income (loss) before reclassifications, net of tax effects of (993), $244, $(4,782) and $(856)	2,796		(692)		13,437		2,438
Amounts reclassified from accumulated other comprehensive income (loss) to interest expense	(323)		1,408		35		2,784
Tax expense (benefit) included in provision for income taxes	85		(371)		(9)		(728)
Total amounts reclassified from accumulated other comprehensive income (loss)	(238)		1,037		26		2,056
Net current-period other comprehensive income	2,558		345		13,463		4,494
Accumulated other comprehensive income balance, end of period	$	18,720	$	1,393	$	18,720	$	1,393
Foreign currency translation adjustment:
Accumulated other comprehensive (loss) income balance, beginning of period	$	(867)	$	3,115	$	1,265	$	604
Translation adjustments	(10,398)		1,783		(12,530)		4,294
Accumulated other comprehensive (loss) income balance, end of period	(11,265)		4,898		(11,265)		4,898
Accumulated other comprehensive income, end of period	$	7,455	$	6,291	$	7,455	$	6,291


13. Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of ~~2017,~~June 30, 2022, approximately $1.0 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 ~~changed~~recognize revenue at the ~~names~~amount to which we have the right to invoice for services performed (transactional revenue).


Second Quarter 2022 Form 10-Q						21

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contract balances

Our contract assets as of June 30, 2022 and December 31, 2021 were insignificant. Our opening and closing balances of deferred revenue were as follows:


(in thousands)	June 30, 2022		December 31, 2021
Total deferred revenue	$	416,259	$	378,746

The increase in deferred revenue during the six months ended June 30, 2022 was primarily due to a seasonal increase in customer contract renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our ~~reportable segments. However, there~~third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter. The amount of revenue recognized during the six months ended June 30, 2022 that was ~~no change~~included in the ~~determination~~deferred revenue balance at the beginning of the period was approximately $273 million. The amount of revenue recognized during the six months ended June 30, 2022 from performance obligations satisfied in prior periods was insignificant.

Disaggregation of revenue

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


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
United States	$	223,128	$	192,000	$	437,522	$	377,327
United Kingdom	26,831		24,505		54,491		46,810
Other countries	14,968		12,935		30,038		24,494
Total revenue	$	264,927	$	229,440	$	522,051	$	448,631

The UMG, IMG and EVERFI comprised our ~~reporting units at that time. As~~go-to-market organizations as of ~~September~~June 30, ~~2017, our reportable segments were the General Markets Group ("GMG"), the Emerging Markets Group ("EMG"), and the International Markets Group ("IMG").~~2022. The following is a description of each ~~reportable segment:~~market group as of that date:

•The ~~GMG is generally focused~~UMG focuses on sales primarily to all ~~emerging and mid-sized~~ prospects and customers ~~in North America;~~inside of the U.S.; and

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

~~The IMG is focused on marketing, sales, delivery and support~~primarily to all prospects and customers outside of ~~North America.~~the U.S, as well as corporations.

~~Our chief operating decision maker is~~•We acquired 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 chief executive officer ("CEO"). Currently, our CEO reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance. The CEO uses internal financial reports that provide segment revenues and operating income, as adjusted, which excludes stock-based compensation expense, amortization expense, depreciation expense, research and development expense and certain corporate sales, marketing, general and administrative expenses. Segment operating income, as adjusted, includes direct, controllable costs related to the salebusiness, it had not yet been included in one of our ~~solutions and services, and our customer success program.~~market groups as of June 30, 2022.

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


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
UMG	$	184,761	$	179,436	$	367,250	$	352,903
IMG	53,567		50,028		101,621		95,797
EVERFI	26,827		—		53,802		—
Other	(228)		(24)		(622)		(69)
Total revenue	$	264,927	$	229,440	$	522,051	$	448,631

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

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


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


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


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



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(Unaudited)~~

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

~~15. Subsequent Events~~

~~JustGiving acquisition~~

On October 2, 2017, Blackbaud Global Limited (“Blackbaud Global”), a United Kingdom limited liability company and wholly-owned subsidiary of ours, acquired the entire issued share capital, including all voting equity interests, of Giving Limited, a United Kingdom private limited company doing business as “JustGiving” for an aggregate purchase price of £95.0 million, or approximately $127.4 million, in cash, subject to certain adjustments set forth in the stock purchase agreement. JustGiving is a market leading social platform for giving, and the acquisition is expected to enhance our capabilities to serve both individual donors and nonprofits, expanding the peer-to-peer fundraising capabilities we offer today. As a result of the acquisition, JustGiving has become a wholly-owned subsidiary of ours. We will include the operating results of JustGiving as well as the net assets acquired and liabilities assumed in our consolidated financial statements from the date of acquisition. During the three and nine months ended September 30, 2017, we incurred acquisition-related expenses associated with the acquisition of JustGiving of $0.7 million and $2.2 million, respectively, which are recorded in general and administrative expense. Due to the timing of the transaction, the initial accounting for this acquisition, including the measurement of assets acquired, liabilities assumed and goodwill, is not complete and is pending detailed analyses of the facts and circumstances that existed as of the October 2, 2017 acquisition date.

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



22						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents our recurring revenue by type:


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
Contractual recurring	$	177,350	$	151,150	$	351,882	$	297,971
Transactional recurring	75,157		65,836		145,291		125,765
Total recurring revenue	$	252,507	$	216,986	$	497,173	$	423,736


Second Quarter 2022 Form 10-Q						23

Table of Contents

Blackbaud, Inc.

(Unaudited)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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-based~~cloud and hosted environments; (ii) providing ~~transaction~~payment and ~~payment processing~~transactional services; (iii) providing software maintenance and support services; (iv) providing Impact-as-a-Service™ digital educational content; and (v) providing professional services, including implementation, consulting, training, ~~consulting,~~ analytic and other ~~services;~~services.

COVID-19 Impact

The economic impact of COVID-19 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 2022, 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 ~~(iv) providing software maintenance~~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 ~~support services.~~

~~During the third quarter of 2017,~~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 ~~continued~~remain focused on continuing to execute on our four-point ~~growth~~ strategy ~~targeted to drive an extended period of quality enhancement, solution~~ and ~~service innovation and increasing operating efficiency and financial performance:~~strengthening our leadership position.

Four-Point Strategy


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

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

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

	4	Focus on Employees, Culture and ESG Initiatives

We continue to transition our business to predominantly serve customers through a subscription-based cloud delivery model, enabling lower cost of entry, greater scalability and lower total cost of ownership to our customers. We continue to optimize our portfolio of solutions and integrate powerful capabilities — such as built in data, analytics, artificial intelligence, payment processing and tailored user-specific experiences — to bring even greater value and performance to our customers.

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

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



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

~~Table of Contents~~

~~Blackbaud, Inc.~~


2.	~~Drive Sales Effectiveness~~

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


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

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

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

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

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

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


4.	~~Improve Operating Efficiency~~

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

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



24						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

1.Expand Total Addressable Market ("TAM")

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 in the rapidly evolving ESG and CSR spaces and offers cross-selling and upselling opportunities through complementary product offerings with YourCause® solutions. Our TAM now stands at over $20 billion, and we remain active in the evaluation of opportunities to further expand our addressable market through acquisitions and internal product development.

2.Lead with World Class Teams and Operations

This strategy expands upon our previous strategies to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40 (see discussion of Non-GAAP Financial Measures below). We recently announced a series of strategic organizational updates to streamline our business operations and become even more customer centric. We created three new roles: Chief Operating Officer, Chief Commercial Officer and Executive Vice President of Corporations. We believe the appointments for these new roles will: ensure consistency in our approach to the customer experience; further streamline and simplify our go-to-market efforts to maximize our outcomes as a global company; and further align our YourCause and EVERFI offerings and continue our investment in being the partner of choice for corporations focused on social responsibility and impact. We also recently appointed a new member to our board of directors, who brings over 20 years of experience in technology and cybersecurity to our board.

3.Delight Customers with Innovative Cloud Solutions

We are excited about the role Blackbaud is playing in developing innovative solutions for our customers to diversify the way they receive and process donations. Recently, we announced the launch of Prospect Insights—a new software tool within Raiser's Edge NXT that automates in-app intelligence related to major giving likelihood and capacity, and then prescribes actions related to portfolio management and solicitation. Also, in June 2022, we held our annual developer conference focusing on the low-code movement and accessible technology with a high number of attendees. Feedback from the conference showed that a significant majority of attendees left feeling that Blackbaud empowers customers to improve usage and experience with our solutions.

4.Focus on Employees, Culture and ESG Initiatives

We recently announced that we achieved carbon neutrality for 2021. This is a goal we have been striving towards 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 shared more about our ESG strategy on our Corporate Social Responsibility website during the second quarter. Our mission driven culture has been in 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. We have a significant role to play in driving advances in the social good space, and we are proud of the strong corporate culture we have built and continue to cultivate in today's environment.

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

~~The increases in total~~


Second Quarter 2022 Form 10-Q						25

Table of Contents

Blackbaud, Inc.

(Unaudited)

Financial Summary


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

Total revenue increased by $35.5 million and $73.4 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in ~~2016, were primarily~~2021, driven largely by ~~growth~~the following:


			+						Growth in recurring revenue primarily related to: •increases in contractual recurring revenue of $26.2 million and $53.9 million, respectively, related to the performance of our cloud solutions, of which $23.4 million and $47.5 million, respectively, was attributable to EVERFI; partially offset by decreases in maintenance revenue as customers migrate to our cloud solutions; also offsetting the increases in contractual recurring revenue are decreases related to fluctuations in foreign currency exchange rates of $0.8 million and $1.1 million, respectively; and •increases in transactional recurring revenue of $9.3 million and $19.5 million, respectively, 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; partially offset by decreases related to fluctuations in foreign currency exchange rates of $1.8 million and $2.3 million, respectively.
			+						Increases in one-time consulting revenue due primarily to our acquisition of EVERFI, largely offset by a decrease in implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model. Our cloud subscription offerings generally require less implementation and customization services.
			-						Decreases in one-time analytics revenue as analytics are generally integrated in our cloud solutions

We currently expect that fluctuations in ~~subscriptions~~foreign currency exchange rates will have a significant negative impact on our total revenue asfor the full year 2022. Our latest projections suggest some softness in our ~~business model continues to shift towards providing predominantly cloud-based subscription solutions. Subscriptions~~full year 2022 bookings plan for EVERFI, which has minimal impact on our full year 2022 revenues given the ratable revenue ~~also grew as a result~~recognition. We will be intently focused on closing the EVERFI bookings gap during the remainder of ~~increases in the number of customers and the volume of transactions for which~~2022. Additionally, we ~~process payments. Services~~currently expect one-time services and other revenue ~~as well as maintenance~~to be relatively flat during 2022 when compared to 2021, inclusive of incremental one-time revenue ~~declined~~expected from EVERFI.


26						Second Quarter 2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 46.

Income from operations decreased by $13.0 million and $25.6 million during the three and ~~nine~~six months ended ~~September~~June 30, 2017 from our continued shift in focus towards selling cloud-based subscription solutions. In general, our NXT and other cloud-based solutions require less implementation services, which we expect to continue to negatively impact services and other revenue over time. In addition, we have also used promotions and discounts for our consulting services as incentives to accelerate the migration of our existing customer base from on-premises solutions toward our cloud-based subscriptions. In the near-term, the transition to subscription-based solutions also negatively impacts total revenue growth, as time-based revenue from subscription arrangements is deferred and recognized ratably over the subscription period, typically three years at contract inception, whereas on-premises license revenue from arrangements that include perpetual licenses is recognized up-front.

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

~~Income from operations increased during the three and nine months ended September 30, 2017,~~2022, respectively, when compared to the same periods in ~~2016. The positive impact~~2021, driven largely by the following:


			-						Increases in compensation costs other than stock-based compensation of $17.0 million and $40.8 million, respectively, primarily due to increased employee headcount due to our acquisition of EVERFI
			-						Increases in Security Incident-related expenses, net of insurance, of $7.9 million and $15.1 million, respectively. See "Security Incident update" below.
			-						Increases in third-party contractor costs of $7.0 million and $14.8 million, respectively, and hosting costs of $1.9 million and $4.6 million, respectively, primarily attributable to our acquisition of EVERFI and, to a lesser extent, our continued migration of our cloud infrastructure to leading public cloud service providers and investments in security
			-						Increases in transaction-based costs of $4.2 million and $9.3 million, respectively, related to the increase in the volume of transactions for which we process payments
			-						Increases in amortization of intangible assets from business combinations of $3.8 million and $7.4 million, respectively, due to our acquisition of EVERFI
			-						Increases in infrastructure and building costs of $3.0 million and $4.2 million, respectively, primarily related to our acquisition of EVERFI and investments in security tools
			-						A $2.3 million noncash impairment charge during the three and six months ended June 30, 2022, against previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to end customer support for certain solutions
			-						Increases in acquisition and disposition-related costs of $2.2 million and $3.2 million, respectively, primarily related to a $2.0 million noncash impairment of certain insignificant intangible assets held for sale
			-						Increases in marketing costs of $1.8 million and $4.0 million, respectively, primarily due to our acquisition of EVERFI
			-						Increases in travel costs of $1.7 million and $2.6 million, respectively, due to our easing of restrictions on non-essential employee travel, which went into effect during March 2020 in response to the COVID-19 pandemic
			+						Increases in total revenue, as described above
			+						Decreases in stock-based compensation expense of $2.7 million and $4.8 million, respectively, attributable to: •A decrease in the grant date fair value of our annual equity awards granted to employees during 2022 compared to 2021; and •As a one-time response to COVID-19, replacement of our 2020 base salary merit increases with one-year time-based equity awards, which vested and were recognized as expense between May 1, 2020 and May 1, 2021.

We are continuing to make critical investments in the business in areas such as digital marketing, engineering, security, customer success and our continued shift of ~~growth~~cloud infrastructure to leading public cloud service providers. Our profitability through the second quarter reflects the addition of EVERFI and some of these incremental investments that were pushed from 2021 into 2022, particularly in ~~total revenue driven by subscriptions as discussed above was partially offset primarily by investments~~areas where we are ~~making in~~increasing headcount.

We continuously seek opportunities to optimize our ~~sales organization~~portfolio of solutions to focus time and ~~customer success program~~resources on innovation that will have the greatest impact for our customers and the markets we serve, and drive the highest return on investment. To that end, we will continue to ~~a lesser extent, increases in stock based compensation expense~~simplify and rationalize our portfolio through product sunsets and divestitures of ~~$2.1 million~~non-core businesses and ~~$6.1 million, respectively, rent expense~~technologies.


Second Quarter 2022 Form 10-Q						27

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

~~Customer retention~~

~~Subscription~~Blackbaud, Inc.

(Unaudited)


Customer retention

Our recurring revenue contracts are ~~typically~~generally for a term of three years at contract inception with one to ~~three year~~three-year renewals thereafter. ~~Over time, we~~We anticipate a continued decrease in maintenance contract renewals as we transition our solution portfolio and maintenance customers from a perpetual license-based model to a ~~cloud-based~~cloud subscription delivery model. WeIn the long term, we also anticipate an increase in recurring subscription contract renewals as we continue focusing on innovation, quality and the integration of our ~~subscription~~cloud solutions, which we believe will provide value-adding capabilities to better address our customers' needs. Due primarily to these factors, we believe a recurring revenue customer retention measure that combines recurring subscription, maintenance and ~~maintenance~~recurring service customer contracts provides ~~an accurate~~a better representation of our customers' overall behavior. For the ~~year~~twelve months ended ~~September~~June 30, ~~2017,~~2022, approximately ~~93%~~92% of our customers with recurring ~~subscription or maintenance~~revenue contracts were retained. This customer retention rate is ~~relatively~~materially unchanged from our rate for the full year ~~2016.~~ended December 31, 2021 and reflects our continuing efforts to rationalize our portfolio of solutions and migrate customers from legacy solutions towards our next generation solutions.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

Balance sheet and cash flow

At ~~September~~June 30, ~~2017,~~2022, our cash and cash equivalents were ~~$17.1~~$29.0 million and ~~outstanding borrowings~~the carrying amount of our debt under the ~~2017~~2020 Credit Facility ~~were $340.2~~was $880.9 million. Our net leverage ratio was 3.42 to 1.00.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we generated ~~$123.4~~$81.8 million in cash ~~flow~~ from operations, ~~reduced our~~had a net decrease in borrowings ~~by $5.8~~of $16.3 million, ~~inclusive of the incremental borrowings needed to finance the acquisition of AcademicWorks, returned $17.3 million to stockholders by way of dividends and~~ had aggregate cash outlays of ~~$29.0~~$34.7 million for purchases of property and equipment and capitalized software and content development ~~costs.~~

~~Recent development - JustGiving acquisition~~

~~On October 2, 2017, we acquired~~costs, and spent $19.0 million on the ~~entire issued share capital~~purchase of JustGiving for an aggregate purchase price of £95.0 million, or approximately $127.4 million, in cash, subject to certain adjustments set forth in the stock purchase agreement. We financed the acquisition through borrowings under the 2017 Credit Facility. As a result of the acquisition, JustGiving has become a wholly-owned subsidiary of ours. We will include the operating results of JustGiving as well as the net assets acquired and liabilities assumed in our consolidated financial statements from the date of acquisition. DueEVERFI solely due to the timing of the ~~transaction,~~acquisition on the ~~initial accounting~~last day of 2021.

Security Incident update

As discussed in Note 10 to our unaudited, condensed consolidated financial statements included in this report, total costs related to the Security Incident that we expect will be recoverable has exceeded the limit of our insurance coverage. Accordingly, we expect that the Security Incident will continue to negatively impact our GAAP profitability and GAAP cash flow for ~~this acquisition, including~~ the ~~measurement~~foreseeable future (see discussion regarding our non-GAAP financial measures beginning on page 36). For full year 2022, we currently expect net pre-tax expense of ~~assets acquired, liabilities assumed and goodwill, is~~approximately $30 million to $35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. For full year 2022, we currently expect net cash outlays of approximately $15 million to $25 million for ongoing legal fees related to the Security Incident. We have not ~~complete and is pending detailed analyses of~~recorded a liability for a loss contingency related to the ~~facts and circumstances that existed~~Security Incident as of June 30, 2022 because we are unable at this time to reasonably estimate the ~~October 2, 2017 acquisition date.~~possible loss or range of loss.



Results of Operations

Comparison of the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021

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


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

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

~~The increases~~We have included the results of operations of EVERFI in ~~GMG revenue during~~our consolidated results of operations from the ~~three and nine months ended September 30, 2017 when compared~~date of acquisition on December 31, 2022. We determined that the EVERFI acquisition was not material to ~~the same periods in 2016 were attributable to growth in subscriptions revenue, partially offset by declines in maintenance~~our consolidated financial statements; therefore, separate presentation of revenue and to a lesser extent, services and other revenue. The growth in GMG subscriptions revenue was primarily due to increases in demand across our portfolio of cloud-based solutions. To a much lesser extent, GMG subscriptions revenue growth was also driven by increases inearnings since the number of customers and the volume of transactions for which we process payments. We expect that the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services will continue to negatively impact both services and other revenue and maintenance revenue over time.

acquisition date is not required.



2628						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

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

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

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

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

Revenue

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

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Operating results~~

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

~~(1)~~Revenue ($M)

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

Cost of revenue ($M)

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

YoY Growth (%)

~~Subscriptions~~

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

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

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

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


Second Quarter 2022 Form 10-Q						29

Table of Contents

Blackbaud, Inc.

(Unaudited)

Recurring revenue increased by $35.5 million, or 16.4%, and $73.4 million, or 17.3%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in ~~2016, were~~2021, driven primarily ~~due to strong demand across~~by the following:


			+						Increases in contractual recurring revenue of $26.2 million and $53.9 million, respectively, related to the performance of our cloud solutions, of which $23.4 million and $47.5 million, respectively, was attributable to EVERFI; partially offset by decreases in maintenance revenue as customers migrate to our cloud solutions; also offsetting the increases in contractual recurring revenue are decreases related to fluctuations in foreign currency exchange rates of $0.8 million and $1.1 million, respectively
			+						Increases in transactional recurring revenue of $9.3 million and $19.5 million, respectively, 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; partially offset by decreases related to fluctuations in foreign currency exchange rates of $1.8 million and $2.3 million, respectively

For additional information on the impact of foreign currency fluctuations on our ~~cloud-based solution portfolio,~~financial results, see Foreign Currency Exchange Rates below on page 46.

Cost of recurring revenue increased by $20.1 million, or 21.2%, and ~~to a much lesser extent, increases in the number of customers and the volume of transactions for which we process payments.~~

~~The increases in cost of subscriptions~~$43.4 million, or 23.7%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in ~~2016, were~~2021, driven primarily ~~due to increases in transaction-based costs related to our payments services of $4.7~~by the following:



			+						Increases in compensation costs of $5.2 million and $12.8 million, respectively, primarily related to an increase in headcount due to our acquisition of EVERFI, and a continued shift in resources historically supporting one-time services and other towards recurring revenue
			+						Increases in transaction-based costs of $4.2 million and $9.2 million, respectively, related to the increase in the volume of transactions for which we process payments
			+						Increases in amortization of intangible assets from business combinations of $3.6 million and $7.1 million, respectively, due to our acquisition of EVERFI
			+						Increases in third-party contractor and hosting costs of $2.9 million and $6.9 million, respectively, as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migration efforts and increased level of security investments to continue through 2024
			+						Increases in overhead allocations of $1.2 million and $2.8 million, respectively, related to the increased headcount discussed above
			+						Increases in amortization of software development costs of $1.2 million and $2.3 million, respectively

Recurring gross margin decreased by 1.8% and $12.4 million, respectively and increases in the cost of third-party technology embedded in certain of our subscription solutions of $1.5 million and $4.8 million. Partially offsetting the increase in cost of subscriptions during the nine months ended September 30, 2017 was a decrease in third-party contractor expenses of $1.5 million.

~~The increases in subscriptions gross margin~~2.3% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in ~~2016, were~~2021, primarily due to the ~~result~~increase in cost of recurring revenue outpacing the ~~positive economics of shifting customers to our next generation cloud-based solutions as growth~~increase in subscriptions revenue outpaced the growth in related costs. The results of AcademicWorks did not significantly impact our subscriptions gross margins for the three and nine months ended September 30, 2017.

recurring revenue.



2830						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

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


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

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

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

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

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

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

(Unaudited)

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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

~~(1)~~Revenue ($M)

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

Cost of revenue ($M)

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

YoY Growth (%)

~~Services~~

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

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

~~Services~~One-time services and other revenue decreased insignificantly, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, when compared to the same periods in ~~2016,~~2021, driven primarily ~~due to decreases in consulting revenue and, to a lesser extent, declines in analytics revenue and license fees revenue. We expect that~~by the ongoing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in general, require less implementation services, will continue to negatively impact services and other revenue over time. We have also used promotions and discounts for our consulting services as incentives to accelerate the migration of our existing customer base from on-premises solutions toward our cloud-based subscriptions. The maturation of our Blackbaud Enterprise CRM solution is lessening the extent of implementation services required for that solution. In addition, we are increasingly selling our Blackbaud CRM solution as a subscription offering, which has resulted in less license fees revenue.following:


			+						Increases in one-time consulting revenue of $0.6 million and $1.6 million, respectively, primarily attributable 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.
			-						Decreases in one-time analytics revenue of $0.9 million and $1.7 million, respectively, as analytics are generally integrated in our cloud solutions

Cost of one-time services and other decreased by $2.5 million, or 18.4%, and $5.8 million, or 20.8%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in ~~2016,~~2021, driven primarily ~~due to decreases~~by the following:


			-						Decreases in compensation costs of $2.6 million and $5.3 million,respectively, largely due to a continued shift in resources historically supporting one-time services and other towards recurring revenue as well as a decrease in professional services headcount


Second Quarter 2022 Form 10-Q						31

Table of ~~$1.4 million and $2.5 million, respectively, which is in line with the ongoing shift in our go-to-market strategy as discussed above.~~Contents

~~Services~~

Blackbaud, Inc.

(Unaudited)

One-time services and other gross margin ~~decreased~~increased by 19.9% and 23.4% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in ~~2016,~~2021, primarily due to the ~~declines in consulting, analytics and license fees revenue coupled with the slightly more modest~~significant reductions in compensation costs ~~of services and other.~~discussed above.

Operating Expenses

30Sales, marketing and
customer success ($M)

~~Third Quarter 2017 Form 10-Q~~Research and
development ($M)

General and
administrative ($M)

Percentages indicate expenses as a percentage of total revenue

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Operating expenses~~

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

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

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

Sales, marketing and customer success expense ~~in dollars~~increased by $7.3 million, or 16.0%, and ~~as a percentage of total revenue~~$13.7 million, or 14.5%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in 2016, were primarily due to increases in compensation costs of $3.3 million and $10.5 million, respectively. Also contributing to the increase in sales, marketing and customer success expense for the nine months ended September 30, 2017 was an increase in commission expense of $1.8 million. Compensation costs increased primarily due to incremental headcount associated with the increase in direct sales, marketing, and customer success efforts of our growing operations. The increase in commission expense was2021, primarily driven by ~~a refinement in~~ the ~~period over which we recognize deferred commission to expense.~~following:

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

2016⁽¹⁾

Change

2017⁽²⁾

2016⁽²⁾

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


~~(1)~~	~~Not included~~+	Increases in ~~research and development expense for the~~ ~~three months ended September 30, 2017~~ ~~and~~ ~~2016~~ ~~were $7.0~~compensation costs of $4.0 million and ~~$6.9~~$7.7 million, respectively, ~~of qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance such as those~~primarily related to ~~development~~increased employee headcount due to our acquisition of EVERFI
	+	Increases in advertising costs of $1.8 million and $4.0 million, respectively, primarily due to our ~~next generation cloud-based solutions. Qualifying capitalized software development~~acquisition of EVERFI
	+	Increases in travel costs ~~associated with~~of $0.6 million and $1.0 million due to our ~~cloud-based solutions are subsequently amortized~~easing of restrictions on non-essential employee travel, which went into effect during March 2020 in response to ~~cost of subscriptions revenue over~~ the ~~related asset's estimated useful life, which generally range from three to seven years.~~COVID-19 pandemic


~~(2)~~


32			~~Not included in research and development expense for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016~~ ~~were $20.6 million and $18.9 million, respectively, of qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance.~~			Second Quarter 2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Research and development

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

We continue to make investments to ~~deliver integrated~~delight our customers with innovative and ~~open solutions in the~~secure cloud ~~which is a component of our four-point growth strategy to accelerate revenue growth.~~solutions. Research and development ~~expense remained relatively unchanged~~expenses increased by $8.1 million, or 26.8%, and $18.9 million or 31.8%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in ~~2016. During~~2021, primarily driven by the ~~nine~~following:


			+						Increases in compensation costs of $5.8 million and $14.1 million, respectively, primarily related to increased employee headcount due to our acquisition of EVERFI, and to a lesser extent, our increased hiring of engineers
			+						Increases in third-party contractor costs of $5.4 million and $11.0 million, respectively, primarily due to our acquisition of EVERFI and, to a lesser extent, an increase in our use of third-party software developers
			+						Increases in overhead allocation costs of $0.8 million and $1.8 million, respectively, primarily related to increased headcount discussed above
			-						Increases in development costs of $4.3 million and $9.0 million, respectively, that were required to be capitalized under GAAP, of which $3.1 million and $6.6 million was attributable to EVERFI software and content

Not included in research and development expense for the three months ended ~~September~~June 30, ~~2017, an increase in compensation costs~~2022 and 2021 were $14.8 million and $10.4 million, respectively, and for the six months ended June 30, 2022 and 2021 were $28.5 million and $19.5 million, respectively, of $1.4 million associated with our addition of specialized engineering resources to help drive our solution development efforts was offset primarily by an increase in the amount of software development costs that were capitalized of $1.7 million. As discussed above, the increases in the amounts capitalized were a result of incurring more qualifying costs associated with software and content development activities that are required to be capitalized under ~~the internal-use software guidance. We expect that the amount of software~~GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized ~~will continue to increase modestly in the near-term as we make investments in innovation, quality and the integration of our solutions, which we believe will drive long-term revenue growth.~~

Research and development expense decreased as a percentage of total revenue during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, primarily due to productivity gains, which have allowed us to scale our business. The increases in the amounts of software development costs ~~capitalized as discussed above also contributed~~associated with our cloud solutions are subsequently amortized to cost of subscriptions revenue over the ~~decreases in research~~related assets' estimated useful life, which generally range from three to seven years.

General and ~~development expense as a percentage of total revenue.~~



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

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

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

~~The increases in general~~


Second Quarter 2022 Form 10-Q						33

Table of Contents

Blackbaud, Inc.

(Unaudited)

General and administrative expense increased by $15.4 million or 48.1%, and $28.6 million, or 45.6%, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, when compared to the same periods in 2016, were primarily due to increases in rent expense of $0.7 million and $3.3 million, respectively, and net increases in acquisition-related expenses and integration costs of $0.8 million and $2.8 million, respectively. An increase of $2.5 million in employee severance costs during the nine months ended September 30, 2017 also drove up general and administrative expense. The increases in rent expense were2021, primarily driven by the ~~end in the fourth quarter~~following:


			+						Increases in Security Incident-related expenses, net of insurance, of $7.9 million and $15.1 million, respectively, consisting primarily of legal fees, as total costs related to the Security Incident that we expect will be recoverable has exceeded the limit of our insurance coverage.
			+						A $2.3 million noncash impairment charge during the three and six months ended June 30, 2022 against previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to end customer support for certain solutions
			+						Increases in acquisition and disposition-related costs of $2.2 million and $3.2 million, respectively, primarily related to a $2.0 million noncash impairment of certain insignificant intangible assets held for sale
			+						Increases in compensation costs of $2.0 million and $6.6 million, respectively, primarily related to increased employee headcount due to our acquisition of EVERFI
			+						Increases in third-party contractor costs of $0.7 million and $1.9 million, respectively
			+						Increases in rent expense of $0.7 million and $1.2 million, respectively, primarily related to leases assumed from our acquisition of EVERFI
			+						Increases in travel costs of $0.6 million and $0.9 million due to our easing of restrictions on non-essential employee travel, which went into effect during March 2020 in response to the COVID-19 pandemic
			-						Increases in allocated corporate IT costs of $1.8 million and $3.6 million, respectively, 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 condensed statements of comprehensive income based on headcount.


34						Second Quarter 2022 Form 10-Q

Table of 2016 of the South Carolina state incentive payments we received as a result of locating our headquarters facility in Berkeley County, South Carolina. These amounts were recorded as a reduction of rent expense upon receipt. Also contributing to theContents

Blackbaud, Inc.

(Unaudited)

Interest Expense


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

The increases in ~~rent~~interest expense ~~were new operating leases for equipment that we have historically purchased.~~

~~General~~in dollars and ~~administrative expense~~ as a percentage of total revenue ~~remained relatively unchanged~~ during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, when compared to the same ~~periods~~period in ~~2016.~~

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

~~Interest expense increased during the three and nine months ended September 30, 2017, when compared to the same periods in 2016,~~2021, were primarily due to ~~modest increases in~~the new borrowings used to finance our weighted average effective interest rates. Also contributing to the increase in interest expense during the nine months ended September 30, 2017 was the required immediate expense recognition for certain debt issuance costs when we refinanced our credit facility in June 2017. In the near term, weacquisition of EVERFI. We currently expect interest expense ~~as well as~~for the full year 2022 to be approximately $34 million million to $37 million although our interest expense ~~as a percentage of revenue to increase as a result~~in connection with the variable rate portion of our ~~acquisition of JustGiving.~~outstanding debt could increase in a rising interest rate environment. See Note 9 to our condensed consolidated financial statements in this report for more information regarding our derivative instruments, which we use to manage our variable interest rate risk, and Item 3. Quantitative and Qualitative Disclosures about Market Risk: Interest Rate Risk (below) for more information about our variable interest rate exposure and related risk.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

Deferred ~~revenue~~Revenue

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


(dollars in millions)	June 30, 2022		December 31, 2021		Change
Deferred revenue(1)	$	416.3	$	378.7	9.9	%
Less: Long-term portion	3.5		4.2		(16.5)	%
Current portion(1)	$	412.7	$	374.5	10.2	%

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


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

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

The increase in deferred revenue ~~from subscriptions increased~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 was primarily due to ~~an increase in subscription sales, as well as~~ a seasonal increase in ~~subscription~~ customer contract renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals inat or near the beginning of our ~~second quarter~~third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter.


Second Quarter 2022 Form 10-Q						35

Table of Contents

Blackbaud, Inc.

(Unaudited)

Income Taxes


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

For the six months ended June 30, 2022, we have utilized the discrete effective tax rate method, as ~~compared~~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 more appropriate than the annual effective tax rate method as our as our full-year forecasted pre-tax income, relative to our ~~fourth quarter.~~ forecasted permanent differences, has the potential to distort our estimated annual effective tax rate.

The increase in deferred revenue from services and other during the nine months ended September 30, 2017 was primarily the result of an increase in training sales and related billings. A seasonal increase in advance registration billings associated with our~~bbcon~~ user conference, which occurs each year in October, also contributed to the increase in deferred revenue from services and other. The decrease in deferred revenue attributable to maintenance during the nine months ended September 30, 2017 was primarily due to the continuing shift in our go-to-market strategy towards cloud-based subscription offerings, which do not require maintenance contracts.

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

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

~~Our~~ effective income tax rate ~~during~~for the three months ended ~~September~~June 30, ~~2017 remained relatively unchanged~~2022 when compared to the same period in ~~2016.~~ 2021 was primarily due to 2022 tax benefit attributable to foreign-derived intangible income ("FDII") deduction not generated in the prior year. Furthermore, the 2021 effective tax rate was positively impacted by benefit attributable to stock-based compensation, partially offset against expense attributable to an income tax rate increase enacted during the period.

The decrease in our effective income tax rate ~~during~~for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 when compared to the same period in ~~2016,~~2021 was primarily ~~due~~attributable to ~~a $9.0 million discrete~~2022 tax benefit attributable to FDII deduction not generated in the prior year. Furthermore, the 2022 effective tax rate was negatively impacted by tax expense ~~relating~~attributable to stock-based compensation ~~items, as compared to a $4.3 million discrete tax benefit~~against pre-tax loss for the ~~same period in 2016.~~period. The ~~increase in the discrete~~2021 effective tax rate was positively impacted by benefit ~~for the nine months ended September 30, 2017, as compared~~attributable to ~~the same period in 2016, was~~stock-based compensation, partially offset against expense attributable to an income tax rate increase in the market price for shares of our common stock, as reported by NASDAQ, as well as an increase in the number of stock awards that vested and were exercised. Most of our equity awards are granted during our first quarter and vest in subsequent yearsenacted during the ~~same quarter.~~period.



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

Non-GAAP ~~financial measures~~Financial Measures

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

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

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

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

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


~~(1)~~36			~~The individual amounts for each year may not sum to non-GAAP revenue, subtotal or non-GAAP gross profit due to rounding.~~			Second Quarter 2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)


	Three months ended June 30,								Six months ended June 30,
(dollars in millions, except per share amounts)	2022			2021			Change		2022			2021			Change
GAAP Revenue	$	264.9		$	229.4		15.5	%	$	522.1		$	448.6		16.4	%

GAAP gross profit	$	139.3		$	121.4		14.8	%	$	273.1		$	237.2		15.1	%
GAAP gross margin	52.6		%	52.9		%			52.3		%	52.9		%
Non-GAAP adjustments:
Add: Stock-based compensation expense	3.8			5.2			(28.1)	%	7.9			10.6			(25.3)	%
Add: Amortization of intangibles from business combinations	12.4			8.9			39.7	%	24.9			18.0			38.2	%
Add: Employee severance	0.4			—			2,440.0	%	0.4			—			2,440.0	%

Subtotal(1)	16.5			14.1			17.1	%	33.2			28.6			16.0	%
Non-GAAP gross profit(1)	$	155.9		$	135.5		15.0	%	$	306.3		$	265.8		15.2	%
Non-GAAP gross margin	58.8		%	59.1		%			58.7		%	59.2		%

GAAP income (loss) from operations	$	0.1		$	13.0		(99.6)	%	$	(5.9)		$	19.7		(130.1)	%
GAAP operating margin	—		%	5.7		%			(1.1)		%	4.4		%
Non-GAAP adjustments:
Add: Stock-based compensation expense	27.9			30.5			(8.8)	%	55.7			60.6			(8.0)	%
Add: Amortization of intangibles from business combinations	13.2			9.4			39.8	%	26.5			19.1			38.6	%
Add: Employee severance	0.5			0.5			2.4	%	0.5			1.4			(68.0)	%
Add: Acquisition and disposition-related costs(2)	2.3			0.1			3,481.3	%	3.2			—			10,380.6	%
Add: Restructuring and other real estate activities	—			0.1			(100.0)	%	0.1			—			914.3	%
Add: Security Incident-related costs, net of insurance(3)	8.3			0.5			1,676.2	%	15.5			0.5			3,201.3	%
Add: Impairment of capitalized software development costs	2.3			—			100.0	%	2.3			—			100.0	%
Subtotal(1)	54.4			41.1			32.4	%	103.8			81.6			27.2	%
Non-GAAP income from operations(1)	$	54.5		$	54.1		0.6	%	$	97.9		$	101.3		(3.4)	%
Non-GAAP operating margin	20.6		%	23.6		%			18.8		%	22.6		%

GAAP (loss) income before provision for income taxes	$	(5.8)		$	8.5		(168.3)	%	$	(18.2)		$	9.0		(302.8)	%
GAAP net (loss) income	$	(3.4)		$	6.7		(150.8)	%	$	(13.8)		$	6.6		(310.6)	%
Shares used in computing GAAP diluted (loss) earnings per share	51,660,739			48,444,874			6.6	%	51,431,501			48,444,658			6.2	%
GAAP diluted (loss) earnings per share	$	(0.07)		$	0.14		(150.0)	%	$	(0.27)		$	0.14		(292.9)	%
Non-GAAP adjustments:
Add: GAAP income tax (benefit) provision	(2.4)			1.7			(235.6)	%	(4.4)			2.4			(281.8)	%
Add: Total non-GAAP adjustments affecting income from operations	54.4			41.1			32.4	%	103.8			81.6			27.2	%


Non-GAAP income before provision for income taxes	48.6			49.6			(1.9)	%	85.6			90.6			(5.6)	%
Assumed non-GAAP income tax provision(4)	9.7			9.9			(1.9)	%	17.1			18.1			(5.6)	%
Non-GAAP net income(1)	$	38.9		$	39.7		(1.9)	%	$	68.5		$	72.5		(5.6)	%

Shares used in computing non-GAAP diluted earnings per share	51,985,530			48,444,874			7.3	%	51,954,151			48,444,658			7.2	%
Non-GAAP diluted earnings per share	$	0.75		$	0.82		(8.5)	%	$	1.32		$	1.50		(12.0)	%

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

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

(3)Includes Security Incident-related costs incurred during the three and six months ended June 30, 2022 of $8.4 million and $17.4 million, respectively, net of probable insurance recoveries during the same periods of $0.1 million and $1.9 million, respectively, and during the three and six months ended June 30, 2021 of $11.7 million and $24.5 million, respectively, net of probable insurance recoveries during the same periods of $11.2 million and $24.0 million, respectively. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year 2022, we currently expect net pre-tax expense of approximately $30 million to $35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. For full year 2022, we currently expect net cash outlays of approximately $15 million to $25 million for ongoing legal fees related to the Security Incident. We have not recorded a liability for a



34Second Quarter 2022 Form 10-Q						~~Third~~37

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Blackbaud, Inc.

(Unaudited)

loss contingency related to the Security Incident as of June 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.

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


38						Second Quarter ~~2017~~2022 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Three months ended
September 30, Nine months ended
September 30,
(dollars in millions, except per share amounts) 2017
2016
Change
2017
2016
Change
GAAP income from operations $ 18.0
$ 13.5
32.7 % $ 45.3
$ 37.8
19.9 %
GAAP operating margin 9.2 % 7.4 % 7.9 % 7.1 %
Non-GAAP adjustments:
Add: Acquisition-related deferred revenue write-down 0.3
—
100.0 % 0.7
3.6
(80.8 )%
Add: Stock-based compensation expense 10.9
8.8
23.9 % 31.1
25.0
24.2 %
Add: Amortization of intangibles from business combinations 10.7
10.5
1.5 % 32.1
31.8
0.8 %
Add: Employee severance 0.1
0.1
77.8 % 3.0
0.5
533.0 %
Add: Acquisition-related integration costs 0.4
0.9
(58.2 )% 0.6
1.4
(56.8 )%
Add: Acquisition-related expenses 1.5
0.2
899.3 % 3.9
0.3
1,353.2 %
Subtotal⁽¹⁾
24.0
20.5
17.1 % 71.3
62.6
13.8 %
Non-GAAP income from operations⁽¹⁾
$ 42.0
$ 34.0
23.3 % $ 116.6
$ 100.4
16.1 %
Non-GAAP operating margin 21.4 % 18.6 % 20.4 % 18.7 %

GAAP net income $ 12.5
$ 8.9
40.5 % $ 35.2
$ 24.2
45.4 %
Shares used in computing GAAP diluted earnings per share 47,846,997
47,394,106
1.0 % 47,679,103
47,268,469
0.9 %
GAAP diluted earnings per share $ 0.26
$ 0.19
36.8 % $ 0.74
$ 0.51
45.1 %
Non-GAAP adjustments:
Add: Total Non-GAAP adjustments affecting income from operations 24.0
20.5
17.1 % 71.3
62.6
13.8 %
Add (less): Loss (gain) on derivative instrument —
—
100.0 % (0.5 ) —
100.0 %
Add: Loss on debt extinguishment 0.1
—
100.0 % 0.3
—
100.0 %
Less: Tax impact related to Non-GAAP adjustments⁽²⁾
(9.8 ) (8.1 ) 21.6 % (32.0 ) (24.2 ) 32.4 %
Non-GAAP net income⁽¹⁾
$ 26.9
$ 21.3
25.8 % $ 74.3
$ 62.7
18.6 %

Shares used in computing Non-GAAP diluted earnings per share 47,846,997
47,394,106
1.0 % 47,679,103
47,268,469
0.9 %
Non-GAAP diluted earnings per share $ 0.56
$ 0.45
24.4 % $ 1.56
$ 1.33
17.3 %


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


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

The increases in non-GAAP income from operations during the three and nine months ended September 30, 2017, when compared to the same periods in 2016, were primarily due to growth in subscriptions revenue, partially offset by investments we are making in our sales organization and customer success program and, to a lesser extent, increases in rent expense, which are discussed above.

Non-GAAP organic revenue growth

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


(dollars in millions)	Three months ended June 30,					Six months ended June 30,
	2022			2021		2022			2021
GAAP revenue	$	264.9		$	229.4	$	522.1		$	448.6
GAAP revenue growth	15.5		%			16.4		%
Add: Non-GAAP acquisition-related revenue(1)	—			25.8		—			51.1
Non-GAAP organic revenue(2)	$	264.9		$	255.3	$	522.1		$	499.7
Non-GAAP organic revenue growth	3.8		%			4.5		%

Non-GAAP organic revenue(2)	$	264.9		$	255.3	$	522.1		$	499.7
Foreign currency impact on Non-GAAP organic revenue(3)	2.9			—		3.8			—
Non-GAAP organic revenue on constant currency basis(3)	$	267.8		$	255.3	$	525.9		$	499.7
Non-GAAP organic revenue growth on constant currency basis	4.9		%			5.2		%

GAAP recurring revenue	$	252.5		$	217.0	$	497.2		$	423.7
GAAP recurring revenue growth	16.4		%			17.3		%
Add: Non-GAAP acquisition-related revenue(1)	—			23.2		—			45.9
Non-GAAP organic recurring revenue	$	252.5		$	240.1	$	497.2		$	469.7
Non-GAAP organic recurring revenue growth	5.1		%			5.9		%

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

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

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



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						3539

Table of Contents

Blackbaud, Inc.

(Unaudited)

Rule of 40

We previously defined Rule of 40 as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. Non-GAAP adjusted EBITDA is defined as GAAP net income plus interest, net; income tax provision (benefit); depreciation; amortization of intangible assets from business combinations; amortization of software and content development costs; stock-based compensation; employee severance; acquisition and disposition-related costs; restructuring and other real estate activities; Security Incident-related costs, net of insurance; and impairment of capitalized software development costs. Beginning in the fiscal quarter ended June 30, 2022, we now also include in non-GAAP adjusted EBITDA impairment of capitalized software development costs because we believe it is not directly related to our operating performance in any particular period.


	Three months ended June 30,							Six months ended June 30,
(dollars in millions)	2022			2021		Change		2022			2021		Change
GAAP net (loss) income	$	(3.4)		$	6.7	(150.8)	%	$	(13.8)		$	6.6	(310.6)	%
Non-GAAP adjustments:
Add: Interest, net	8.9			5.0		78.1	%	16.3			9.9		64.4	%
Add: GAAP income tax (benefit) provision	(2.4)			1.7		(235.6)	%	(4.4)			2.4		(281.8)	%
Add: Depreciation	3.6			3.1		14.2	%	7.1			6.4		12.2	%
Add: Amortization of intangibles from business combinations	13.2			9.4		39.8	%	26.5			19.1		38.6	%
Add: Amortization of software and content development costs(1)	9.5			8.1		16.9	%	18.7			16.1		16.5	%
Subtotal(2)	32.8			27.4		19.5	%	64.3			53.9		19.2	%
Non-GAAP EBITDA(2)	$	29.4		$	34.2	(14.1)	%	$	50.5		$	60.5	(16.6)	%
Non-GAAP EBITDA margin	11.1		%					9.7		%

Non-GAAP adjustments:
Add: Stock-based compensation expense	27.9			30.5		(8.8)	%	55.7			60.6		(8.0)	%
Add: Employee severance	0.5			0.5		2.4	%	0.5			1.4		(68.0)	%
Add: Acquisition and disposition-related costs(3)	2.3			0.1		3,481.3	%	3.2			—		10,380.6	%
Add: Restructuring and other real estate activities	—			0.1		(100.0)	%	0.1			—		914.3	%
Add: Security Incident-related costs, net of insurance(3)	8.3			0.5		1,676.2	%	15.5			0.5		3,201.3	%
Add: Impairment of capitalized software development costs	2.3			—		100.0	%	2.3			—		100.0	%
Subtotal(2)	41.2			31.7		30.2	%	77.3			62.5		23.7	%
Non-GAAP Adjusted EBITDA(2)	$	70.6		$	65.8	7.2	%	$	127.8		$	123.0	3.9	%
Non-GAAP Adjusted EBITDA margin	26.6		%					24.5		%

Rule of 40(4)	30.4		%					29.0		%

Non-GAAP adjusted EBITDA	70.6			65.8		7.2	%	127.8			123.0		3.9	%
Foreign currency impact on Non-GAAP adjusted EBITDA(5)	1.7			(1.7)		(195.7)	%	2.2			(2.2)		(196.5)	%
Non-GAAP adjusted EBITDA on constant currency basis(5)	$	72.2		$	64.1	12.7	%	$	129.9		$	120.8	7.6	%
Non-GAAP adjusted EBITDA margin on constant currency basis	27.0		%					24.7		%

Rule of 40 on constant currency basis(6)	31.9		%					29.9		%

(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 or non-GAAP adjusted EBITDA due to rounding.

(3)See additional details in the reconciliation of GAAP to Non-GAAP operating income above.

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

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

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

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

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

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

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


~~(1)~~40			Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to companies acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period, and it includes the non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those companies.			Second Quarter 2022 Form 10-Q


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


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

Table of Contents

Blackbaud, Inc.

(Unaudited)

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 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 development and capital expenditures for property and equipment, plus cash outflows, net of insurance, related to the Security Incident.

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


	Six months ended June 30,
(dollars in millions)	2022		2021		Change
GAAP net cash provided by operating activities	$	81.8	$	99.9	(18.2)	%
Less: purchase of property and equipment	(7.5)		(6.1)		22.7	%
Less: capitalized software and content development costs	(27.2)		(19.9)		36.9	%
Non-GAAP free cash flow(1)	$	47.1	$	73.9	(36.3)	%
Add: Security Incident-related cash flows, net of insurance	5.2		3.8		36.1	%
Non-GAAP adjusted free cash flow(1)	$	52.2	$	77.7	(32.8)	%

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

Seasonality

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

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



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

~~Table of Contents~~

~~Blackbaud, Inc.~~

our first ~~quarter, and due~~quarter. Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has been lower in our second quarter as compared to our third and fourth quarters. Partially, offsetting these favorable drivers of cash flow from operations in our third and fourth quarters are ~~merit-based~~base salary merit increases, which ~~are generally effective~~occur in ~~April each year.~~July. In addition, deferred revenues can vary on a seasonal basis ~~for~~due to the ~~same reasons.~~timing of customer contract renewals and student enrollments. 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, or as a result of acquisitions, new market opportunities, new solution introductions, the COVID-19 pandemic or other factors. Our cash flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards.



Second Quarter 2022 Form 10-Q						41

Table of Contents

Blackbaud, Inc.

(Unaudited)


Liquidity and Capital Resources

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


(dollars in millions)	September 30, 2017			Change		December 31, 2016			(dollars in millions)	June 30, 2022		December 31, 2021		Change
Cash and cash equivalents	$	17.1		0.9	%	$	16.9		Cash and cash equivalents	$	29.0	$	55.1	(47.4)	%
Property and equipment, net	43.9			(12.7	)%	50.3			Property and equipment, net	111.9		111.4		0.4	%
Software development costs, net	48.6			29.4	%	37.6
Software and content development costs, net									Software and content development costs, net	130.3		121.4		7.4	%
Total carrying value of debt	338.0			(1.3	)%	342.4			Total carrying value of debt	939.8		956.2		(1.7)	%
Working capital	(181.1		)	(5.1	)%	(172.2		)	Working capital	(267.3)		(258.7)		(3.4)	%
Working capital excluding deferred revenue	95.9			32.7	%	72.3

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


	Nine months ended September 30,									Six months ended June 30,
(dollars in millions)	2017			Change		2016			(dollars in millions)	2022		2021		Change
Net cash provided by operating activities	$	123.4		23.2	%	$	100.1		Net cash provided by operating activities	$	81.8	$	99.9	(18.2)	%
Net cash used in investing activities	(78.2		)	106.4	%	(37.9		)	Net cash used in investing activities	(53.7)		(26.0)		106.7	%
Net cash used in financing activities	(45.3		)	(25.9	)%	(61.2		)	Net cash used in financing activities	(194.1)		(257.0)		(24.5)	%

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

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

At ~~September~~June 30, ~~2017,~~2022, our total cash and cash equivalents balance included approximately ~~$7.5~~$17.4 million of cash that was held by operations outside the U.S. While these funds may not be needed to fund our U.S. operations for at least the next twelve months, if we need these funds, we may be required to accrue and pay taxes to repatriate the funds. We currently do not intend nor anticipate a need to repatriate our cash held outside the U.S.

Operating ~~cash flow~~Cash Flow

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



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

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~~Blackbaud, Inc.~~

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


42						Second Quarter 2022 Form 10-Q

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(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. ~~Cash~~

Net cash provided by operating activities decreased by $18.1 million during the six months ended June 30, 2022, when compared to the same period in 2021, primarily due to a $27.9 million decrease in net income adjusted for non-cash expenses and a $9.8 million increase in cash flow from operations associated with working capital.

The increase in cash flow from operations associated with working capital ~~increased $1.6 million~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, when compared to the same period in ~~2016,~~2021, was primarily due ~~to a decrease~~to:

•fluctuations in ~~bonus payments partially offset by~~ the timing of vendor payments; and

•an increase in taxes payable; partially offset by

•timing associated with customer contract renewal billings and the collection of those amounts; and

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

Security Incident update

As discussed in Note 10 to our unaudited, condensed consolidated financial statements included in this report, total costs related to the Security Incident that we expect will be recoverable has exceeded the limit of our insurance coverage. Accordingly, we expect that the Security Incident will continue to negatively impact our GAAP profitability and GAAP cash ~~taxes paid.~~flow for the foreseeable future (see discussion regarding our non-GAAP financial measures beginning on page 36). For full year 2022, we currently expect net pre-tax expense of approximately $30 million to $35 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees are expensed as incurred. For full year 2022, we currently expect net cash outlays of approximately $15 million to $25 million for ongoing legal fees related to the Security Incident. We have not recorded a liability for a loss contingency related to the Security Incident as of June 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Investing ~~cash flow~~Cash Flow

Net cash used in investing activities of ~~$78.2~~$53.7 million increased by ~~$40.3~~$27.7 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, when compared to the same period in ~~2016.~~2021.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we used ~~net cash of $49.7~~$19.0 million for our acquisition of EVERFI comprised primarily of (i) $17.4 million that had not been paid by EVERFI to its former option holders as of December 31, 2021, solely due to the timing of the acquisition on the last day of ~~AcademicWorks compared~~2021; and (ii) $2.6 million that was paid to ~~$3.4 million spent on investments~~a number of EVERFI's selling shareholders after determining they would be paid in ~~acquired companies during the same period in 2016.~~ cash, rather than shares of our common stock.

We used ~~$20.6~~$27.2 million for software development costs, which was up ~~$1.5~~$7.3 million from cash spent induring the same period in ~~2016. The increase in cash outlays for~~2021, primarily due to the inclusion of EVERFI's software and content development ~~costs was primarily driven by development activities related to our next generation cloud-based solutions, and development activities for Blackbaud SKY, our new modern cloud platform.~~

activities. We also spent ~~$8.4~~$7.5 million of cash for purchases of property and equipment during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, which was ~~down $7.0~~an increase of $1.4 million ~~from cash spent during~~when compared to the same period in 2016. The decrease in cash outlays for property and equipment was primarily driven by a shift toward leasing certain equipment that we have historically purchased. Cash outlays for operating leases are presented in operating cash flows.2021.

Financing ~~cash flow~~Cash Flow

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we had a net decrease in borrowings of ~~$5.8 million, even with the incremental borrowings needed to finance our acquisition of AcademicWorks. We also paid $3.1 million in financing costs as a result of refinancing our credit facility.~~$16.3 million.

We paid ~~$19.1~~$35.6 million to satisfy tax obligations of employees upon settlement ~~or exercise~~ of equity awards during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$10.5~~$38.7 million during the same period in ~~2016.~~2021. The amount of taxes paid by us on ~~the~~ behalf of employees related to the settlement ~~or exercise~~ of equity awards varies from period to period based upon the timing of grants and vesting, ~~employee exercise decisions,~~ as well as the market price for shares of our common stock at the time of settlement. ~~Due to a change in the timing of our annual equity award grants, most~~Most of our equity awards ~~now~~currently vest in our first quarter. ~~In addition,~~

During the six months ended June 30, 2022, cash flow from financing activities associated with changes in restricted cash due to customers decreased $141.0 million, compared to a decrease of $170.1 million during the ~~nine~~same period in 2021. 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.


Second Quarter 2022 Form 10-Q						43

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(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 and six months ended ~~September~~June 30, ~~2017,~~2022, we ~~paid dividends~~did not purchase any shares. The remaining amount available to purchase stock under the stock repurchase program was $250.0 million as of ~~$17.3 million, which was relatively consistent with the comparable period of 2016.~~June 30, 2022.

~~2017~~

2020 Credit Facility

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

We have drawn on our credit facility from time to time to help us meet financial needs, ~~such as~~primarily due to the seasonality of our cash flows from operations and financing for business acquisitions. At ~~September~~June 30, ~~2017,~~2022, our available borrowing capacity under the ~~2017~~2020 Credit Facility was ~~$356.2~~$245.2 million. The ~~2017~~2020 Credit Facility matures in ~~June 2022.~~October 2025.

At ~~September~~June 30, ~~2017,~~2022, the carrying amount of our debt under the ~~2017~~2020 Credit Facility was ~~$335.8~~$880.9 million. Our average daily borrowings during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 were ~~$355.4~~$917.3 million and ~~$368.5~~$913.4 million, respectively.

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

the 2020 Credit Facility:



Financial ~~Covenant~~covenant	Requirement	Ratio as of ~~September~~June 30, ~~2017~~2022
Net ~~Leverage Ratio~~leverage ratio(1)	≤ ~~3.50~~4.25 to 1.00	~~1.79~~3.42 to 1.00
Interest ~~Coverage Ratio~~coverage ratio	≥ 2.50 to 1.00	~~16.31~~11.91 to 1.00



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

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

~~Blackbaud, Inc.~~

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

Under the ~~2017~~2020 Credit Facility, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (i) no default or event of default shall have occurred and be continuing under the ~~2017~~2020 Credit Facility, and (ii) our pro forma net leverage ratio, as set forth in the ~~2017~~2020 Credit Facility, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase. At ~~September~~June 30, ~~2017,~~2022, we were in compliance with our debt covenants under the ~~2017~~2020 Credit Facility. See Note 8 to our unaudited, condensed consolidated financial statements included in this report for additional information regarding the 2020 Credit Facility.

Commitments and ~~contingencies~~Contingencies

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


	Payments due by period
(in millions)	Less than 1 year		More than 1 year		Total(1)
Recorded contractual obligations:
Debt	$	18.2	$	925.5	$	943.7
Operating leases	10.9		58.1		69.0
Unrecorded contractual obligations:
Purchase obligations	52.1		189.2		241.3
Interest payments on debt	35.2		108.7		144.0
Total contractual obligations(1)	$	116.4	$	1,281.6	$	1,398.0

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

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

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


~~(1)~~44			~~Represents~~			Second Quarter 2022 Form 10-Q

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(Unaudited)

Debt

As of June 30, 2022, we had total remaining principal payments of $943.7 million. These payments represent principal payments only, ~~under the following assumptions: (i) that the amounts outstanding under the~~ ~~2017 Credit Facility~~ ~~and our other debt at~~ ~~September 30, 2017~~ will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the 2017 Revolving Facility for the purposes of determining minimum commitment amounts.


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


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


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

~~The term loan~~ under the ~~2017~~following assumptions: (i) that the amounts outstanding under the 2020 Credit Facility, our real estate loans and our other debt ~~require periodic principal payments. The balance of the term loans~~at June 30, 2022 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and ~~any amounts drawn~~(ii) that there are no assumed future borrowings on the ~~revolving credit loans~~2020 Revolving Facility for the purposes of determining minimum commitment amounts. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.

Interest payments on debt

In addition to principal payments, as of June 30, 2022, we expect to pay interest expense over the life of our debt obligations of approximately $144.0 million. These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of June 30, 2022, which includes the effect of interest rate swap agreements. The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions on our remaining principal payments described above.

Operating leases

As of June 30, 2022, we had remaining operating lease payments of $69.0 million. These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest of $11.9 million. Our operating leases are ~~due upon maturity~~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 10 to our unaudited, condensed consolidated financial statements in this report for more information.

Purchase obligations

As of June 30, 2022, we had remaining purchase obligations of $241.3 million. These purchase obligations are for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. Our purchase obligations are not recorded as liabilities on our consolidated balance sheets as of June 30, 2022, as we had not received the ~~2017 Credit Facility~~related services. See Note 10 to our unaudited, condensed consolidated financial statements in ~~June 2022.~~this report for more information.

The total liability for uncertain tax positions as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, was ~~$3.4~~$3.9 million and ~~$3.1~~$3.7 million, respectively. Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~

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

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

~~Off-Balance Sheet Arrangements~~

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

2021.


Second Quarter 2022 Form 10-Q						45

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(Unaudited)


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

~~Table of Contents~~

~~Blackbaud, Inc.~~

Foreign Currency Exchange Rates

Approximately ~~10%~~16% of our total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was generated from operations outside the ~~United States.~~U.S. We do not have significant operations in countries in which the economy is considered to be highly inflationary. Our consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between foreign currencies and the U.S. dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. The accumulated currency translation adjustment, recorded within accumulated other comprehensive ~~loss~~income (loss) as a component of stockholders’ equity, was a loss of ~~$0.9 million and $0.5~~$11.3 million as of ~~September~~June 30, ~~2017~~2022 and income of $1.3 million as of December 31, ~~2016, respectively.~~2021.

The vast majority of our contracts are entered into by our U.S. or U.K. entities. The contracts entered into by the U.S. entity are almost always denominated in U.S. dollars or Canadian dollars, and contracts entered into by our U.K., Australian and Irish subsidiaries are generally denominated in British Pounds, Australian dollars and Euros, respectively. Historically, as the U.S. dollar weakened, foreign currency translation resulted in an increase in our revenues and expenses denominated in non-U.S. currencies. Conversely, as the U.S. dollar strengthened, foreign currency translation resulted in a decrease in our revenue and expenses denominated in non-U.S. currencies. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, foreign translation resulted in ~~an decrease~~decreases in our revenues and expenses denominated in non-U.S. currencies. Though we have exposure to fluctuations in currency exchange rates, primarily those between the U.S. dollar and both the British Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operations or financial position. However, we currently expect that fluctuations in foreign currency exchange rates will have a significant negative impact on our total revenue for the full year 2022. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, the fluctuation in foreign currency exchange rates ~~had insignificant impacts on~~reduced our total revenue and our income from ~~operations. For the nine months ended September 30, 2017, the fluctuation in foreign currency exchange rates decreased IMG revenue~~operations by ~~approximately $0.8 million.~~$3.8 million and $0.9 million, respectively. We will continue monitoring such exposure and take action as appropriate. To determine the impacts on revenue (or income from operations) from fluctuations in currency exchange rates, current period revenues (or income from operations) from entities reporting in foreign currencies were translated into U.S. dollars using the comparable prior year period's weighted average foreign currency exchange rates. These impacts are non-GAAP financial information and are not in accordance with, or an alternative to, information prepared in accordance with GAAP.

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



~~Inflation~~

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

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2021.



Recently Issued Accounting Pronouncements

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



4046						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

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(Unaudited)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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



Interest Rate Risk

Our variable rate debt is our primary financial instrument with market risk exposure for changing interest rates. We manage our variable rate interest rate risk through a combination of short-term and long-term borrowings and the use of derivative instruments entered into for hedging purposes. Our interest rate exposure includes 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 we expect that our financial contracts currently indexed to LIBOR will either expire or be modified without significant financial impact before the phase out occurs. Due to the nature of our debt, the materiality of the fair values of the derivative instruments and the highly liquid, short-term nature and level of our cash and cash equivalents as of ~~September~~June 30, ~~2017,~~2022, we believe ~~there is no material~~that the risk of exposure to changing interest rates for those ~~positions.~~positions is immaterial. There were no significant changes in how we manage interest rate risk between December 31, ~~2016~~2021 and ~~September~~June 30, ~~2017.~~

2022.



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 June 30, 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 June 30, 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 ~~change~~changes in internal control over financial reporting occurred during the most recent fiscal quarter ended ~~September~~June 30, ~~2017~~2022 with respect to our operations, which ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						4147

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						PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, see Note 10 to our unaudited, condensed consolidated financial statements in this report.

ITEM 1A. RISK FACTORS

~~Our operations and financial results~~We are ~~subject to various risks and uncertainties, including those described in Part I,~~supplementing Item ~~IA, "Risk factors"~~1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, as filed with the Securities and Exchange Commission on March 1, 2022 (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 the nature of the incident, our research and third party (including law enforcement) investigation have provided no reason to believe that any data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly, our investigation into the Security Incident remains ongoing and may provide additional information.

To date, we have received approximately 260 Customer Reimbursement Requests and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident (none of which have as yet been filed in court). In June 2022, we also received notice of a proposed claim on behalf of a number of U.K. data subjects, which we are reviewing. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us. 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 Note 10 to our unaudited, condensed consolidated financial statements included in this report for a more detailed description of the Security Incident and related matters.)


48						Second Quarter 2022 Form 10-Q

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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 authorities also may seek 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, we currently expect net cash outlays of approximately $15 million to $25 million for ongoing legal fees related to the Security Incident for full year 2022. For full year 2022, we currently expect net pre-tax expense of approximately $30 million to $35 million for ongoing legal fees related to the Security Incident. Although we carry insurance against certain losses related to the Security Incident, we have exceeded the limit of that insurance coverage. As a result, we will be responsible for all expenses or other losses (including penalties, fines or other judgments) or all types of claims that may arise in connection with the Security Incident, which could materially and adversely affect our ~~business, financial condition,~~liquidity and results of ~~operations, cash flows, and the trading price of our stock. There have been no material changes~~operations. (See Note 10 to our ~~risk factors since~~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 ~~Annual Report~~credit facility, we may be forced to renegotiate or obtain a waiver under our credit facility and/or seek additional debt or equity financing. Such renegotiation or financing may not be available on ~~Form 10-K for~~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 ~~year ended December 31, 2016.~~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.


Second Quarter 2022 Form 10-Q						49

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Blackbaud, Inc.

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



Issuer Purchases of Equity Securities

The following table provides information about shares of common stock acquired or repurchased during the three months ended ~~September~~June 30, ~~2017. All of these acquisitions were of~~2022 under the stock repurchase program then in effect, as well as common stock withheld by us to satisfy the minimum tax obligations of employees due upon ~~exercise~~vesting of restricted stock ~~appreciation rights~~awards and units.


Period	Total number of shares purchased(1)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs(2)	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
Beginning balance, April 1, 2022					$	250,000
April 1, 2022 through April 30, 2022	—	$	—	—	250,000
May 1, 2022 through May 31, 2022	15,540	59.57		—	250,000
June 1, 2022 through June 30, 2022	—	—		—	250,000
Total	15,540	$	59.57	—	$	250,000

(1)Includes 15,540 shares in May withheld by us to satisfy the minimum tax obligations of employees due upon vesting of restricted stock awards and units. The level of this acquisition activity varies from period to period based upon the timing of award grants and ~~vesting as well as employee exercise decisions.~~vesting.

Period
Total
number
of shares
purchased

Average
price
paid
per
share

Total number
of shares
purchased as
part of
publicly
announced
plans or
programs⁽¹⁾

Approximate
dollar value
of shares
that may yet
be purchased
under the
plans or programs
(in thousands)

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


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

(2)In 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.



4250						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q

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Blackbaud, Inc.

ITEM 6. EXHIBITS

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

Filed In

Exhibit
Number

Description of Document

Filed Herewith

Form

Exhibit Number

Filing Date

10.01

Amended and Restated Blackbaud, Inc. 2016 Equity and Incentive Compensation Plan

DEF 14A

Appendix B

4/19/2022

31.1

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

31.2

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

32.1

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

32.2

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

101.INS*101.INS

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

101.SCH*101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

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

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



~~Third~~Second Quarter ~~2017~~2022 Form 10-Q						4351

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Blackbaud, Inc.



						SIGNATURES

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


				BLACKBAUD, INC.

Date:			August 4, 2022	~~BLACKBAUD, INC.~~
By:
~~Date:~~	~~November 2, 2017~~	~~By:~~	/s/ Michael P. Gianoni
					Michael P. Gianoni
					President and Chief Executive Officer
					(Principal Executive Officer)

Date:			~~November 2, 2017~~August 4, 2022	By:	/s/ Anthony W. Boor
					Anthony W. Boor
					Executive Vice President and Chief Financial Officer
					(Principal Financial and Accounting Officer)



4452						~~Third~~Second Quarter ~~2017~~2022 Form 10-Q



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



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



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



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



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

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

Total derivative instruments		$	223	$	206		$	369	$	163



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



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



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



(dollars in millions)	Timing of recognition	September 30, 2017		Change		December 31, 2016
Subscriptions	Over the period billed in advance, generally one year	$	179.9	24.4	%	$	144.6
Maintenance	Over the period billed in advance, generally one year	68.5		(10.8	)%	76.8
Services and other	As services are delivered	34.0		15.2	%	29.5
Total deferred revenue⁽¹⁾		282.4		12.5	%	250.9
Less: Long-term portion		5.4		(16.0	)%	6.4
Current portion⁽¹⁾		$	277.0	13.3	%	$	244.5



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
Beginning balance, July 1, 2017					$	50,000
July 1, 2017 through July 31, 2017	—	$	—	—	50,000
August 1, 2017 through August 31, 2017	24,710	86.24		—	50,000
September 1, 2017 through September 30, 2017	3,644	87.00		—	50,000
Total	28,354	$	86.34	—	$	50,000