UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 000-50600

Blackbaud, Inc.

(Exact name of registrant as specified in its charter)



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

65 Fairchild Street

Charleston, South Carolina 29492

(Address of principal executive offices, including zip code)

(843) 216-6200

(Registrant’s telephone number, including area code)



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

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

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

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

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ☐ No ☑

The number of shares of the registrant’s Common Stock outstanding as of ~~October~~April 28, ~~2020~~2021 was ~~49,568,364.~~

48,818,991.

TABLE OF CONTENTS


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		2

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial statements
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	87
Item 2.	Management's discussion and analysis of financial condition and results of operations	2621
Item 3.	Quantitative and qualitative disclosures about market risk	4737
Item 4.	Controls and procedures	4838

PART II.	OTHER INFORMATION	4939

Item 1.	Legal proceedings	4939
Item 1A.	Risk factors	4939
Item 2.	Unregistered sales of equity securities and use of proceeds	5240
~~Item 5.~~	~~Other information~~	52
Item 6.	Exhibits	5441

SIGNATURES		5542


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						1

Table of Contents

Blackbaud, Inc.


						CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Important factors that could cause actual results to differ materially from our expectations expressed in forward-looking statements include, but are not limited to, those summarized under “Part II, Item 1A. Risk factors” and elsewhere in this report, in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and in our other SEC filings. 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~~First Quarter ~~2020~~2021 Form 10-Q


						PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)	Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)					Blackbaud, Inc. Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)	(dollars in thousands)	September 30, 2020		December 31, 2019		(dollars in thousands)	March 31, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	30,563	$	31,810	Cash and cash equivalents	$	27,753	$	35,750
Restricted cash	Restricted cash	203,660		545,485		Restricted cash	255,158		609,219
Accounts receivable, net of allowance of $10,727 and $5,529 at September 30, 2020 and December 31, 2019, respectively		96,830		88,868
Accounts receivable, net of allowance of $10,361 and $10,292 at March 31, 2021 and December 31, 2020, respectively						Accounts receivable, net of allowance of $10,361 and $10,292 at March 31, 2021 and December 31, 2020, respectively	83,333		95,404
Customer funds receivable	Customer funds receivable	4,901		524		Customer funds receivable	945		321
Prepaid expenses and other current assets	Prepaid expenses and other current assets	76,761		67,852		Prepaid expenses and other current assets	98,095		78,366
Total current assets	Total current assets	412,715		734,539		Total current assets	465,284		819,060
Property and equipment, net	Property and equipment, net	109,469		35,546		Property and equipment, net	105,124		105,177
Operating lease right-of-use assets	Operating lease right-of-use assets	30,218		104,400		Operating lease right-of-use assets	20,055		22,671
Software development costs, net	Software development costs, net	108,891		101,302		Software development costs, net	113,624		111,827
Goodwill	Goodwill	632,840		634,088		Goodwill	637,113		635,854
Intangible assets, net	Intangible assets, net	284,414		317,895		Intangible assets, net	269,118		277,506
Other assets	Other assets	72,617		65,193		Other assets	74,022		72,639
Total assets	Total assets	$	1,651,164	$	1,992,963	Total assets	$	1,684,340	$	2,044,734
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Trade accounts payable	Trade accounts payable	$	31,775	$	47,676	Trade accounts payable	$	35,274	$	27,836
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	48,380		73,317		Accrued expenses and other current liabilities	53,013		52,228
Due to customers	Due to customers	207,356		546,009		Due to customers	254,947		608,264
Debt, current portion	Debt, current portion	10,305		7,500		Debt, current portion	12,875		12,840
Deferred revenue, current portion	Deferred revenue, current portion	322,452		314,335		Deferred revenue, current portion	290,025		312,236
Total current liabilities	Total current liabilities	620,268		988,837		Total current liabilities	646,134		1,013,404
Debt, net of current portion	Debt, net of current portion	497,953		459,600		Debt, net of current portion	537,924		518,193
Deferred tax liability	Deferred tax liability	46,989		44,594		Deferred tax liability	54,444		54,086
Deferred revenue, net of current portion	Deferred revenue, net of current portion	5,803		1,802		Deferred revenue, net of current portion	4,495		4,678
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	25,706		95,624		Operating lease liabilities, net of current portion	15,744		17,357
Other liabilities	Other liabilities	12,610		5,742		Other liabilities	9,439		10,866
Total liabilities	Total liabilities	1,209,329		1,596,199		Total liabilities	1,268,180		1,618,584
Commitments and contingencies (see Note 10)
Commitments and contingencies (see Note 9)						Commitments and contingencies (see Note 9)	0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock; 20,000,000 shares authorized, 0ne outstanding	Preferred stock; 20,000,000 shares authorized, 0ne outstanding	0		0		Preferred stock; 20,000,000 shares authorized, 0ne outstanding	0		0
Common stock, $0.001 par value; 180,000,000 shares authorized, 60,903,925 and 60,206,091 shares issued at September 30, 2020 and December 31, 2019, respectively		61		60
Common stock, $0.001 par value; 180,000,000 shares authorized, 61,595,276 and 60,904,638 shares issued at March 31, 2021 and December 31, 2020, respectively						Common stock, $0.001 par value; 180,000,000 shares authorized, 61,595,276 and 60,904,638 shares issued at March 31, 2021 and December 31, 2020, respectively	62		61
Additional paid-in capital	Additional paid-in capital	512,269		457,804		Additional paid-in capital	574,958		544,963
Treasury stock, at cost; 11,337,486 and 11,066,354 shares at September 30, 2020 and December 31, 2019, respectively		(311,951)		(290,665)
Accumulated other comprehensive loss		(8,872)		(5,290)
Treasury stock, at cost; 12,760,956 and 12,054,268 shares at March 31, 2021 and December 31, 2020, respectively						Treasury stock, at cost; 12,760,956 and 12,054,268 shares at March 31, 2021 and December 31, 2020, respectively	(399,583)		(353,091)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	4,163		(2,497)
Retained earnings	Retained earnings	250,328		234,855		Retained earnings	236,560		236,714
Total stockholders’ equity	Total stockholders’ equity	441,835		396,764		Total stockholders’ equity	416,160		426,150
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,651,164	$	1,992,963	Total liabilities and stockholders’ equity	$	1,684,340	$	2,044,734
											The accompanying notes are an integral part of these condensed consolidated financial statements.


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						3


Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited)	Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited)									Blackbaud, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited)
		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(dollars in thousands, except per share amounts)	(dollars in thousands, except per share amounts)	2020		2019		2020		2019		(dollars in thousands, except per share amounts)		2021		2020
Revenue	Revenue									Revenue
Recurring	Recurring	$	200,102	$	205,227	$	621,229	$	611,789	Recurring		$	206,750	$	204,867
One-time services and other	One-time services and other	14,899		15,893		49,384		50,795		One-time services and other		12,441		18,754
Total revenue	Total revenue	215,001		221,120		670,613		662,584		Total revenue		219,191		223,621
Cost of revenue	Cost of revenue									Cost of revenue
Cost of recurring	Cost of recurring	84,251		87,645		265,172		259,013		Cost of recurring		88,865		89,551
Cost of one-time services and other	Cost of one-time services and other	14,434		14,152		43,317		42,874		Cost of one-time services and other		14,520		15,314
Total cost of revenue	Total cost of revenue	98,685		101,797		308,489		301,887		Total cost of revenue		103,385		104,865
Gross profit	Gross profit	116,316		119,323		362,124		360,697		Gross profit		115,806		118,756
Operating expenses	Operating expenses									Operating expenses
Sales, marketing and customer success	Sales, marketing and customer success	48,460		55,499		159,149		165,963		Sales, marketing and customer success		48,793		58,735
Research and development	Research and development	22,783		25,941		72,655		80,304		Research and development		29,179		24,977
General and administrative	General and administrative	34,132		28,897		89,829		84,557		General and administrative		30,587		25,855
Amortization	Amortization	749		703		2,219		3,231		Amortization		549		741
Restructuring	Restructuring	105		400		179		3,083		Restructuring		54		24
Total operating expenses	Total operating expenses	106,229		111,440		324,031		337,138		Total operating expenses		109,162		110,332
Income from operations	Income from operations	10,087		7,883		38,093		23,559		Income from operations		6,644		8,424
Interest expense	Interest expense	(3,997)		(5,111)		(12,049)		(16,233)		Interest expense		(5,114)		(4,159)
Other income, net		542		2,158		2,242		4,521
Other (expense) income, net										Other (expense) income, net		(1,010)		1,070
Income before provision for income taxes	Income before provision for income taxes	6,632		4,930		28,286		11,847		Income before provision for income taxes		520		5,335
Income tax provision	Income tax provision	1,756		364		6,948		1,263		Income tax provision		684		696
Net income		$	4,876	$	4,566	$	21,338	$	10,584
Earnings per share
Net (loss) income										Net (loss) income		$	(164)	$	4,639
Earnings (loss) per share										Earnings (loss) per share
Basic	Basic	$	0.10	$	0.10	$	0.44	$	0.22	Basic		$	0	$	0.10
Diluted	Diluted	$	0.10	$	0.09	$	0.44	$	0.22	Diluted		$	0	$	0.10
Common shares and equivalents outstanding	Common shares and equivalents outstanding									Common shares and equivalents outstanding
Basic weighted average shares	Basic weighted average shares	48,271,139		47,757,769		48,182,799		47,668,235		Basic weighted average shares		47,363,197		48,036,300
Diluted weighted average shares	Diluted weighted average shares	48,859,707		48,464,529		48,582,068		48,223,712		Diluted weighted average shares		47,363,197		48,455,751
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Foreign currency translation adjustment	Foreign currency translation adjustment	4,661		(3,893)		(1,954)		(5,321)		Foreign currency translation adjustment		2,511		(5,728)
Unrealized gain (loss) on derivative instruments, net of tax	Unrealized gain (loss) on derivative instruments, net of tax	943		(363)		(1,628)		(3,234)		Unrealized gain (loss) on derivative instruments, net of tax		4,149		(3,122)
Total other comprehensive income (loss)	Total other comprehensive income (loss)	5,604		(4,256)		(3,582)		(8,555)		Total other comprehensive income (loss)		6,660		(8,850)
Comprehensive income		$	10,480	$	310	$	17,756	$	2,029
Comprehensive income (loss)										Comprehensive income (loss)		$	6,496	$	(4,211)
																The accompanying notes are an integral part of these condensed consolidated financial statements.


4						~~Third~~First Quarter ~~2020~~2021 Form 10-Q


Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)	Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)					Blackbaud, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
		Nine months ended September 30,					Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		(dollars in thousands)	2021		2020
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income		$	21,338	$	10,584
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income						Net (loss) income	$	(164)	$	4,639
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:						Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	68,755		63,998		Depreciation and amortization	20,461		21,804
Provision for credit losses and sales returns	Provision for credit losses and sales returns	10,156		6,192		Provision for credit losses and sales returns	2,141		2,488
Stock-based compensation expense	Stock-based compensation expense	54,556		43,621		Stock-based compensation expense	30,005		13,580
Deferred taxes	Deferred taxes	1,879		(75)		Deferred taxes	(1,142)		954
Amortization of deferred financing costs and discount	Amortization of deferred financing costs and discount	569		564		Amortization of deferred financing costs and discount	506		188
Other non-cash adjustments	Other non-cash adjustments	2,203		2,047		Other non-cash adjustments	(32)		102
Changes in operating assets and liabilities, net of acquisition and disposal of businesses:	Changes in operating assets and liabilities, net of acquisition and disposal of businesses:					Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
Accounts receivable	Accounts receivable	(18,319)		(6,375)		Accounts receivable	10,407		(3,876)
Prepaid expenses and other assets	Prepaid expenses and other assets	4,292		(5,129)		Prepaid expenses and other assets	(17,426)		(5,303)
Trade accounts payable	Trade accounts payable	(17,203)		(74)		Trade accounts payable	7,550		(4,021)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(31,595)		(13,592)		Accrued expenses and other liabilities	549		(31,694)
Deferred revenue	Deferred revenue	12,534		20,363		Deferred revenue	(22,752)		(23,364)
Net cash provided by operating activities		109,165		122,124
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	30,103		(24,503)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchase of property and equipment	Purchase of property and equipment	(25,836)		(9,597)		Purchase of property and equipment	(3,470)		(2,867)
Capitalized software development costs	Capitalized software development costs	(32,028)		(34,513)		Capitalized software development costs	(9,302)		(10,937)
Purchase of net assets of acquired companies, net of cash and restricted cash acquired		0		(109,353)
Other investing activities		0		500

Net cash used in investing activities	Net cash used in investing activities	(57,864)		(152,963)		Net cash used in investing activities	(12,772)		(13,804)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from issuance of debt	Proceeds from issuance of debt	267,400		371,200		Proceeds from issuance of debt	80,700		144,700
Payments on debt	Payments on debt	(290,999)		(255,625)		Payments on debt	(59,667)		(86,075)
Debt issuance costs		(593)		0

Employee taxes paid for withheld shares upon equity award settlement	Employee taxes paid for withheld shares upon equity award settlement	(21,286)		(20,279)		Employee taxes paid for withheld shares upon equity award settlement	(18,426)		(19,782)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	4		7		Proceeds from exercise of stock options	0		1
Change in due to customers	Change in due to customers	(337,821)		(215,942)		Change in due to customers	(353,597)		(311,095)
Change in customer funds receivable	Change in customer funds receivable	(4,495)		(6,283)		Change in customer funds receivable	(563)		(733)
Purchase of treasury stock						Purchase of treasury stock	(28,066)		0
Dividend payments to stockholders	Dividend payments to stockholders	(5,960)		(17,705)		Dividend payments to stockholders	0		(5,960)
Net cash used in financing activities	Net cash used in financing activities	(393,750)		(144,627)		Net cash used in financing activities	(379,619)		(278,944)
Effect of exchange rate on cash, cash equivalents and restricted cash	Effect of exchange rate on cash, cash equivalents and restricted cash	(623)		(2,240)		Effect of exchange rate on cash, cash equivalents and restricted cash	230		(2,822)
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(343,072)		(177,706)		Net decrease in cash, cash equivalents and restricted cash	(362,058)		(320,073)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	577,295		449,846		Cash, cash equivalents and restricted cash, beginning of period	644,969		577,295
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	234,223	$	272,140	Cash, cash equivalents and restricted cash, end of period	$	282,911	$	257,222

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


(dollars in thousands)	(dollars in thousands)	September 30, 2020		December 31, 2019		(dollars in thousands)	March 31, 2021		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	30,563	$	31,810	Cash and cash equivalents	$	27,753	$	35,750
Restricted cash	Restricted cash	203,660		545,485		Restricted cash	255,158		609,219
Total cash, cash equivalents and restricted cash in the statement of cash flows	Total cash, cash equivalents and restricted cash in the statement of cash flows	$	234,223	$	577,295	Total cash, cash equivalents and restricted cash in the statement of cash flows	$	282,911	$	644,969
											The accompanying notes are an integral part of these condensed consolidated financial statements.


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						5

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(dollars in thousands) Common stock Additional
paid-in
capital Treasury
stock Accumulated
other
comprehensive
income (loss) Retained
earnings Total
stockholders'
equity
Shares Amount
Balance at December 31, 2019 60,206,091 $ 60 $ 457,804 $ (290,665) $ (5,290) $ 234,855 $ 396,764
Net income — — — — — 4,639 4,639
Payment of dividends ($0.12 per share) — — — — — (5,960) (5,960)
Exercise of stock options and vesting of restricted stock units 210,057 — 1 — — — 1
Employee taxes paid for 245,358 withheld shares upon equity award settlement — — — (19,782) — — (19,782)
Stock-based compensation — — 13,539 — — 41 13,580
Restricted stock grants 563,947 1 — — — — 1
Restricted stock cancellations (47,456) — — — — — —
Other comprehensive loss — — — — (8,850) — (8,850)
Balance at March 31, 2020 60,932,639 $ 61 $ 471,344 $ (310,447) $ (14,140) $ 233,575 $ 380,393
Net income — — — — — 11,823 11,823
Exercise of stock options and vesting of restricted stock units 7,111 — 3 — — — 3
Employee taxes paid for 21,200 withheld shares upon equity award settlement — — — (1,214) — — (1,214)
Stock-based compensation — — 20,103 — — 30 20,133
Restricted stock grants 20,776 0 — — — — 0
Restricted stock cancellations (59,426) — — — — — —
Other comprehensive loss — — — — (336) — (336)
Balance at June 30, 2020 60,901,100 $ 61 $ 491,450 $ (311,661) $ (14,476) $ 245,428 $ 410,802
Net income — — — — — 4,876 4,876
Vesting of restricted stock units 906 — 0 — — — 0
Employee taxes paid for 4,574 withheld shares upon equity award settlement — — — (290) — — (290)
Stock-based compensation — — 20,819 — — 24 20,843
Restricted stock grants 48,783 0 — — — — 0
Restricted stock cancellations (46,864) — — — — — —
Other comprehensive income — — — — 5,604 — 5,604
Balance at September 30, 2020 60,903,925 $ 61 $ 512,269 $ (311,951) $ (8,872) $ 250,328 $ 441,835
The accompanying notes are an integral part of these condensed consolidated financial statements.


(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	—		0		—		—		—		0
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


(dollars in thousands)	Common stock			Additional paid-in capital		Treasury stock		Accumulated other comprehensive income (loss)		Retained earnings		Total stockholders' equity
	Shares	Amount
Balance at December 31, 2019	60,206,091	$	60	$	457,804	$	(290,665)	$	(5,290)	$	234,855	$	396,764
Net income	—	—		—		—		—		4,639		4,639
Payment of dividends ($0.12 per share)	—	—		—		—		—		(5,960)		(5,960)
Exercise of stock options and vesting of restricted stock units	210,057	—		1		—		—		—		1
Employee taxes paid for 245,358 withheld shares upon equity award settlement	—	—		—		(19,782)		—		—		(19,782)
Stock-based compensation	—	—		13,539		—		—		41		13,580
Restricted stock grants	563,947	1		—		—		—		—		1
Restricted stock cancellations	(47,456)	—		—		—		—		—		—
Other comprehensive loss	—	—		—		—		(8,850)		—		(8,850)
Balance at March 31, 2020	60,932,639	$	61	$	471,344	$	(310,447)	$	(14,140)	$	233,575	$	380,393



















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


6						~~Third~~First Quarter ~~2020~~2021 Form 10-Q

~~Blackbaud, Inc.~~

~~Condensed Consolidated statements of stockholders' equity (continued)~~

~~(Unaudited)~~

(dollars in thousands) Common stock Additional
paid-in
capital Treasury
stock Accumulated
other
comprehensive
income (loss) Retained
earnings Total
stockholders'
equity
Shares Amount
Balance at December 31, 2018 59,327,633 $ 59 $ 399,241 $ (266,884) $ (5,110) $ 246,477 $ 373,783
Net loss — — — — — (1,122) (1,122)
Payment of dividends ($0.12 per share) — — — — — (5,901) (5,901)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units 234,453 — 3 — — — 3
Employee taxes paid for 239,311 withheld shares upon equity award settlement — — — (18,400) — — (18,400)
Stock-based compensation — — 13,693 — — 33 13,726
Restricted stock grants 663,906 1 — — — — 1
Restricted stock cancellations (43,314) — — — — — —
Other comprehensive income — — — — 3,658 — 3,658
Balance at March 31, 2019 60,182,678 $ 60 $ 412,937 $ (285,284) $ (1,452) $ 239,487 $ 365,748
Net income — — — — — 7,140 7,140
Payment of dividends ($0.12 per share) — — — — — (5,901) (5,901)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units 21,726 — 3 — — — 3
Employee taxes paid for 17,119 withheld shares upon equity award settlement — — — (1,360) — — (1,360)
Stock-based compensation — — 15,010 — — 19 15,029
Restricted stock grants 12,405 0 — — — — 0
Restricted stock cancellations (29,746) — — — — — —
Other comprehensive loss — — — — (7,957) — (7,957)
Balance at June 30, 2019 60,187,063 $ 60 $ 427,950 $ (286,644) $ (9,409) $ 240,745 $ 372,702
Net income — — — — — 4,566 4,566
Payment of dividends ($0.12 per share) — — — — — (5,903) (5,903)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units 5,315 — 1 — — — 1
Employee taxes paid for 5,795 withheld shares upon equity award settlement — — — (519) — — (519)
Stock-based compensation — — 14,852 — — 14 14,866
Restricted stock grants 37,920 0 — — — — 0
Restricted stock cancellations (23,207) — — — — — —
Other comprehensive loss — — — — (4,256) — (4,256)
Balance at September 30, 2019 60,207,091 $ 60 $ 442,803 $ (287,163) $ (13,665) $ 239,422 $ 381,457
The accompanying notes are an integral part of these condensed consolidated financial statements.


~~Third Quarter 2020 Form 10-Q~~						7

Table of Contents

Blackbaud, Inc.

Notes to 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, higher education institutions, K–12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies and individual change agents—we connect and empower organizations to increase their impact through cloud software, services, expertise and data intelligence. Our portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility, school management, ticketing, grantmaking, financial management, payment processing and analytics. Serving the industry for ~~more than three~~nearly four decades, we are headquartered in Charleston, South Carolina, and have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom.


2. Basis of Presentation

Unaudited condensed consolidated interim financial statements

The accompanying condensed consolidated interim financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to state fairly the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of stockholders’ equity, for the periods presented in accordance with accounting principles generally accepted in the United States ("U.S.") ("GAAP"). The consolidated balance sheet at December 31, ~~2019~~2020 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2020,~~2021, or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations for interim reporting of the SEC. These condensed consolidated interim 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, ~~2019,~~2020, and other forms filed with the SEC from time to time.

Basis of consolidation

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

Reportable segment

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

Risks and uncertainties

~~Impact of~~ related to COVID-19

We are subject to risks and uncertainties as a result of the global COVID-19 pandemic. We ~~expect~~believe that COVID-19 ~~will~~may continue to impact ~~all of~~ our vertical markets ~~across all of our~~and geographies, ~~to some degree,~~ but the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ~~ultimate geographic spread of the disease, the~~ duration of the outbreak, travel restrictions and business closures, the effectiveness of vaccination programs and other actions taken to contain the disease and other unforeseeable consequences.


8First Quarter 2021 Form 10-Q						~~Third Quarter 2020 Form 10-Q~~7

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, income taxes, business combinations, stock-based compensation, capitalization of software development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuation of derivative instruments and loss contingencies, among others. Changes in the facts or circumstances underlying these estimates, including due to COVID-19, could result in material changes and actual results could materially differ from these estimates.

~~Response to COVID-19~~

•~~Temporarily closed our offices worldwide and transitioned our employees to work remotely;~~

•Rescinded our previously announced policy to pay an annual dividend at a rate of $0.48 per share of common stock and discontinued the declaration and payment of all cash dividends, beginning with the second quarter of 2020 and thereafter until such time, if any, as our Board of Directors may otherwise determine in its sole discretion;

•Temporarily suspended our 401(k)-match program, whereby we have historically matched 50% of qualified U.S. employees' contributions to our 401(k) plan up to 6% of their salaries, effective with the payroll period commencing April 1, 2020;

•~~Temporarily froze our hiring efforts and implemented a modest and targeted headcount reduction, though we have since began backfilling key roles, including engineering positions;~~

•Michael Gianoni, our President and Chief Executive Officer, elected to forego receipt of all but that portion of his base salary necessary to fund, on a pre-tax basis, his contributions to continue to participate in our health benefits plan, between April 1, 2020 and June 16, 2020;

•~~Restricted non-essential employee travel and put in place other operating cost containment actions;~~

•~~All of our employees with a base salary equal to or less than $75 thousand received financial support in the form of a one-time bonus of $1 thousand on April 30, 2020;~~

•On May 1, 2020, we granted restricted stock units with a total grant date fair value of $8.3 million to our employees that were eligible for base salary merit increases in lieu of such increases, which will vest on May 1, 2021 subject to the recipient's continued employment with us;

•On May 1, 2020, we granted performance-based restricted stock units with a total grant date fair value of $34.4 million to our employees that were eligible for a 2020 cash bonus plan in lieu of such cash bonus, which may be earned and become eligible for vesting on May 1, 2021 subject to meeting certain performance conditions and the recipient's continued employment with us;

~~Recently adopted accounting pronouncements~~

~~In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (“ASU 2016-13”). ASU 2016-13 requires certain types of financial instruments, including trade receivables, to be presented at the net amount expected to be collected based on historical events, current conditions and forward-looking information. We adopted ASU 2016-13 as of the January 1, 2020 effective date and the adoption did not have a material impact on our consolidated financial statements.


~~Third Quarter 2020 Form 10-Q~~						9

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs related to a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. We adopted ASU 2018-15 prospectively as of the January 1, 2020 effective date and the adoption did not have a material impact on our consolidated financial statements.

Recently issued accounting pronouncements

There are no recently issued accounting pronouncements that ~~are expected~~we expect to have a material impact on our consolidated financial ~~position or results of operations~~statements when adopted in the future.

Summary of significant accounting policies

~~Except for the accounting policies for allowance for credit losses and allowance for sales returns below that were updated as a result of adopting ASU 2016-13, there~~There have been no new or material changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~20, 2020.~~

~~Allowance for credit losses~~

Our accounts receivable consist of a single portfolio segment. Accounts receivable are recorded at original invoice amounts less an allowance for credit losses, an amount we estimate to be sufficient to provide adequate protection against lifetime expected losses resulting from extending credit to our customers. In judging the adequacy of the allowance for credit losses, we consider multiple factors including historical bad debt experience, the current aging of our receivables and current economic conditions that may affect our customers' ability to pay. A considerable amount of judgment is required in assessing these factors and if any receivables were to deteriorate, an additional provision for credit losses could be required. Accounts are written off after all means of collection are exhausted and recovery is considered remote. Provisions for credit losses are recorded in general and administrative expense.

~~Below is a summary of the changes in our allowance for credit losses.~~

(in thousands)
Balance at
beginning of year (1)
Provision/
adjustment Write-off Recovery
Balance at
September 30, 2020
2020 $ 4,011 $ 6,303 $ (971) $ 302 $ 9,645

~~(1)~~Upon adoption of ASU 2016-13 at January 1, 2020, we reclassified certain balances previously disclosed within the allowance for sales returns to the allowance for credit losses, as these amounts reflect the credit risk associated with our accounts receivable.

The increase in our allowance for credit losses during the nine months ended September 30, 2020 was primarily due to an increase in the aging of our receivables and observed changes in some of our customers' payment behavior associated with the COVID-19 pandemic, which may continue in the near term. The amount of write-offs during the nine months ended September 30, 2020 was lower than the amount of write-offs during the same period in 2019 as we temporarily suspended sending past due customer accounts to collections during the second and third quarters due to payment delays related to COVID-19.

~~Allowance for sales returns~~

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


10						~~Third Quarter 2020 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

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

(in thousands)
Balance at
beginning of year (1)
Provision/
adjustment Deduction
Balance at
September 30, 2020
2020 $ 1,518 $ 3,853 $ (4,289) $ 1,082

~~(1)As discussed above, we reclassified certain balances previously disclosed within the allowance for sales returns to the allowance for credit losses upon adoption of ASU 2016-13 at January 1, 2020.~~23, 2021.


3. Goodwill and Other Intangible Assets

The change in goodwill during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, consisted of the following:


(dollars in thousands)	Total
Balance at December 31, ~~2019~~2020	$	~~634,088~~635,854


Effect of foreign currency translation	~~(1,248)~~1,259
Balance at ~~September 30, 2020~~March 31, 2021	$	~~632,840~~637,113


4. Earnings (Loss) Per Share

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

~~The following table sets forth~~ Diluted loss per share for the ~~computation~~three months ended March 31, 2021 was the same as basic loss per share as there was a net loss in the period and inclusion of ~~basic and diluted earnings per share:~~

Three months ended
September 30,
Nine months ended
September 30,
(dollars in thousands, except per share amounts) 2020 2019 2020 2019
Numerator:
Net income $ 4,876 $ 4,566 $ 21,338 $ 10,584
Denominator:
Weighted average common shares 48,271,139 47,757,769 48,182,799 47,668,235
Add effect of dilutive securities:
Stock-based awards 588,568 706,760 399,269 555,477
Weighted average common shares assuming dilution 48,859,707 48,464,529 48,582,068 48,223,712
Earnings per share:
Basic $ 0.10 $ 0.10 $ 0.44 $ 0.22
Diluted $ 0.10 $ 0.09 $ 0.44 $ 0.22
Anti-dilutive shares excluded from calculations of diluted earnings per share 915,226 227,523 1,036,445 252,282
potentially dilutive securities was anti-dilutive.


~~Third Quarter 2020 Form 10-Q~~8						11First Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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


	Three months ended March 31,
(dollars in thousands, except per share amounts)		2021		2020
Numerator:
Net (loss) income		$	(164)	$	4,639
Denominator:
Weighted average common shares		47,363,197		48,036,300
Add effect of dilutive securities:
Stock-based awards		0		419,451
Weighted average common shares assuming dilution		47,363,197		48,455,751
Earnings (loss) per share:
Basic		$	0	$	0.10
Diluted		$	0	$	0.10

Anti-dilutive shares excluded from calculations of diluted earnings (loss) per share		1,360,378		1,170,289


5. Fair Value Measurements

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

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

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

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


First Quarter 2021 Form 10-Q						9

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Recurring fair value measurements

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


		Fair value measurement using									Fair value measurement using
(dollars in thousands)	(dollars in thousands)	Level 1		Level 2		Level 3		Total		(dollars in thousands)	Level 1		Level 2		Level 3		Total
Fair value as of March 31, 2021										Fair value as of March 31, 2021
Financial assets:										Financial assets:
Derivative instruments										Derivative instruments	$	0	$	2,851	$	0	$	2,851
Total financial assets										Total financial assets	$	0	$	2,851	$	0	$	2,851

Fair value as of September 30, 2020
Financial liabilities:	Financial liabilities:									Financial liabilities:
Derivative instruments	Derivative instruments	$	0	$	3,957	$	0	$	3,957	Derivative instruments	$	0	$	1,431	$	0	$	1,431
Total financial liabilities	Total financial liabilities	$	0	$	3,957	$	0	$	3,957	Total financial liabilities	$	0	$	1,431	$	0	$	1,431

Fair value as of December 31, 2019
Fair value as of December 31, 2020										Fair value as of December 31, 2020
Financial liabilities:	Financial liabilities:									Financial liabilities:
Derivative instruments	Derivative instruments	$	0	$	1,757	$	0	$	1,757	Derivative instruments	$	0	$	4,159	$	0	$	4,159
Total financial liabilities	Total financial liabilities	$	0	$	1,757	$	0	$	1,757	Total financial liabilities	$	0	$	4,159	$	0	$	4,159

Our derivative instruments within the scope of Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate swaps.

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. The Financial ~~Conduct~~Conduct Authority in the U.K. has stated that it plans to phase out LIBOR by the end of calendar year 2021. 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~~phase out occurs.

We believe the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at ~~September 30,~~March 31, 2021 and December��31, 2020, ~~and December 31, 2019,~~ due to the immediate or short-term maturity of these instruments.

We believe the carrying amount of our debt approximates its fair value at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, as the debt bears interest rates that approximate market value. As LIBOR rates are observable at commonly quoted intervals, our debt under the ~~2017~~2020 Credit Facility (as defined below) is classified within Level 2 of the fair value hierarchy. Our fixed rate debt is also classified within Level 2 of the fair value hierarchy.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Additionally, we did not hold any Level 3 assets or liabilities during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.


1210						~~Third~~First Quarter ~~2020~~2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Non-recurring fair value measurements

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

During the three months ended June 30, 2020, we recorded an impairment charge of $4.3 million against certain previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge is reflected in cost of recurring revenue and resulted primarily from our decision to accelerate the end of customer support for certain solutions. During the nine months ended September 30, 2020, we also recorded $2.9 million in impairments of operating lease ROU assets associated with certain leased office space we have ceased using or determined we will cease using. These impairment charges are reflected in general and administrative expense.

There were no ~~other~~ non-recurring fair value adjustments to our long-lived assets, intangible assets, goodwill and operating lease ROU assets ~~and goodwill~~ during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.


6. ~~Property and Equipment~~

~~Purchase of Headquarters Facility~~

In August 2020, we completed the purchase of the building, fixtures and other improvements and parcels of land of our headquarters facility in Charleston, South Carolina (the "Headquarters Facility"), pursuant to a Purchase and Sale Agreement (the "PSA") with HPBB1, LLC, a Georgia limited liability company (the "Seller") (the "Transaction"). Prior to the completion of the Transaction, we leased the Headquarters facility from the Seller. We paid the Seller a purchase price that included the assumption of the Seller's obligations of $61.1 million, cash of $15.2 million and certain lender fees, closing costs, adjustments and prorations as set forth in the PSA. We funded the cash portion of the purchase price through borrowings under the 2017 Credit Facility (as defined below). We capitalized the insignificant direct transaction costs we incurred as a component of the assets acquired.

As a result of the Transaction, we derecognized the ROU asset and lease liability associated with the former lease and recorded the following long-lived assets on a relative fair value basis in property and equipment, net upon closing:

(dollars in thousands) Assets
acquired Estimated useful life (years)
Land $ 9,548 —
Building 61,284 39
Building systems 4,393 7 - 15
Total long-lived assets $ 75,225

~~Depreciation expense~~

Depreciation expense was $5.1 million and $12.3 million for the three and nine months ended September 30, 2020, respectively, and $3.8 million and $11.3 million for the three and nine months ended September 30, 2019, respectively.


~~Third Quarter 2020 Form 10-Q~~						13

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~


7. Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) September 30,
2020 December 31,
2019
Restricted cash due to customers $ 202,455 $ 545,485
Real estate escrow balances 1,205 0
Total restricted cash 203,660 545,485


(dollars in thousands)	March 31, 2021		December 31, 2020
Restricted cash due to customers	$	254,002	$	607,943
Real estate escrow balances	1,156		1,276
Total restricted cash	255,158		609,219

Prepaid expenses and other assets


(dollars in thousands)	(dollars in thousands)	September 30, 2020		December 31, 2019		(dollars in thousands)	March 31, 2021		December 31, 2020
Costs of obtaining contracts(1)(2)	Costs of obtaining contracts(1)(2)	$	86,119	$	90,764	Costs of obtaining contracts(1)(2)	$	83,421	$	84,914
Prepaid software maintenance and subscriptions(3)	Prepaid software maintenance and subscriptions(3)	28,999		17,384		Prepaid software maintenance and subscriptions(3)	33,113		24,471
Implementation costs for cloud computing arrangements, net(4)(5)		11,372		7,294
Receivables for probable insurance recoveries(4)						Receivables for probable insurance recoveries(4)	15,723		6,288
Implementation costs for cloud computing arrangements, net(5)(6)						Implementation costs for cloud computing arrangements, net(5)(6)	11,451		11,298
Unbilled accounts receivable	Unbilled accounts receivable	9,711		6,233		Unbilled accounts receivable	7,660		10,385
Receivables for probable insurance recoveries(6)		2,949		0
Prepaid insurance	Prepaid insurance	2,079		1,585		Prepaid insurance	6,397		1,426
Derivative instruments						Derivative instruments	2,851		0
Taxes, prepaid and receivable	Taxes, prepaid and receivable	847		849		Taxes, prepaid and receivable	1,486		1,891
Security deposits		808		885
Other assets	Other assets	6,494		8,051		Other assets	10,015		10,332
Total prepaid expenses and other assets	Total prepaid expenses and other assets	149,378		133,045		Total prepaid expenses and other assets	172,117		151,005
Less: Long-term portion	Less: Long-term portion	72,617		65,193		Less: Long-term portion	74,022		72,639
Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	76,761	$	67,852	Prepaid expenses and other current assets	$	98,095	$	78,366

(1)Amortization expense from costs of obtaining contracts was ~~$9.4~~$9.2 million and ~~$28.2~~$9.5 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, and $9.2 million and $28.6 million for the three and nine months ended September 30, 2019,~~ respectively.

(2)The current portion of costs of obtaining contracts as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$32.1~~$31.6 million and ~~$33.0~~$31.9 million, respectively.

(3)The current portion of prepaid software maintenance and subscriptions as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$23.5~~$28.0 million and ~~$16.1~~$19.8 million, respectively.

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

(5)These costs ~~which were previously included in prepaid software maintenance and subscriptions,~~ primarily relate to the multi-year implementations of our new global enterprise resource planning and customer relationship management systems.

~~(5)~~(6)Amortization expense from capitalized cloud computing implementation costs was insignificant for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Accumulated amortization for these costs was ~~$0.7~~$1.6 million as of ~~September 30, 2020~~March 31, 2021 and ~~insignificant~~$1.1 million as of December 31, ~~2019.~~

~~(6)See discussion of the Security Incident at Note 10.~~2020.


14First Quarter 2021 Form 10-Q						~~Third Quarter 2020 Form 10-Q~~11

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Accrued expenses and other liabilities


(dollars in thousands)	(dollars in thousands)	September 30, 2020		December 31, 2019		(dollars in thousands)	March 31, 2021		December 31, 2020
Taxes payable(1)						Taxes payable(1)	$	16,458	$	19,577
Accrued legal costs						Accrued legal costs	12,055		4,808
Operating lease liabilities, current portion	Operating lease liabilities, current portion	$	16,633	$	19,784	Operating lease liabilities, current portion	7,191		9,359
Accrued bonuses(1)		0		24,617
Customer credit balances						Customer credit balances	5,891		5,874
Accrued commissions and salaries	Accrued commissions and salaries	2,985		6,980		Accrued commissions and salaries	5,524		5,010
Taxes payable		13,576		6,835
Unrecognized tax benefit						Unrecognized tax benefit	3,546		3,351
Accrued health care costs						Accrued health care costs	2,389		2,341
Accrued vacation costs						Accrued vacation costs	2,304		2,311
Derivative instruments	Derivative instruments	3,957		1,757		Derivative instruments	1,431		4,159
Customer credit balances		5,677		4,505
Unrecognized tax benefit		3,833		3,758
Accrued vacation costs		2,300		2,232
Accrued health care costs		2,781		2,399
Other liabilities	Other liabilities	9,248		6,192		Other liabilities	5,663		6,304
Total accrued expenses and other liabilities	Total accrued expenses and other liabilities	60,990		79,059		Total accrued expenses and other liabilities	62,452		63,094
Less: Long-term portion	Less: Long-term portion	12,610		5,742		Less: Long-term portion	9,439		10,866
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	48,380	$	73,317	Accrued expenses and other current liabilities	$	53,013	$	52,228

(1)~~In March~~We deferred payments of the employer's portion of Social Security taxes during 2020 ~~we reduced our accrued bonuses~~under the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), half of which is due toby the ~~payment~~end of ~~bonuses from~~calendar year 2021 with the ~~prior~~remainder due by the end of calendar year ~~and, in response to the global COVID-19 pandemic, determined to replace our 2020 cash bonus plans with performance-based equity awards (see Note 2).~~2022.

Other (expense) income, net


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		2020		2019		(dollars in thousands)		2021		2020
Interest income	Interest income	$	767	$	1,247	$	1,399	$	2,426	Interest income		$	152	$	522

Other (expense) income, net	Other (expense) income, net	(225)		911		843		2,095		Other (expense) income, net		(1,162)		548
Other income, net		$	542	$	2,158	$	2,242	$	4,521
Other (expense) income, net										Other (expense) income, net		$	(1,010)	$	1,070


8.7. Debt

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


		Debt balance at				Weighted average effective interest rate at					Debt balance at				Weighted average effective interest rate at
(dollars in thousands)	(dollars in thousands)	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		(dollars in thousands)	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Credit facility:	Credit facility:									Credit facility:
Revolving credit loans	Revolving credit loans	$	169,200	$	187,000	2.21	%	3.11	%	Revolving credit loans	$	93,425	$	69,625	1.80	%	1.83	%
Term loans	Term loans	275,625		281,250		2.77	%	3.22	%	Term loans	397,500		400,000		3.13	%	3.12	%
Real estate loans	Real estate loans	60,890		0		5.22	%	0	%	Real estate loans	60,358		60,626		5.22	%	5.22	%
Other debt	Other debt	3,926		0		5.00	%	0	%	Other debt	2,232		3,926		5.00	%	5.00	%
Total debt	Total debt	509,641		468,250		2.89	%	3.18	%	Total debt	553,515		534,177		3.14	%	3.21	%
Less: Unamortized discount and debt issuance costs	Less: Unamortized discount and debt issuance costs	1,383		1,150						Less: Unamortized discount and debt issuance costs	2,716		3,144
Less: Debt, current portion	Less: Debt, current portion	10,305		7,500		2.39	%	3.05	%	Less: Debt, current portion	12,875		12,840		2.67	%	2.61	%
Debt, net of current portion	Debt, net of current portion	$	497,953	$	459,600	2.90	%	3.18	%	Debt, net of current portion	$	537,924	$	518,193	3.15	%	3.22	%


~~Third Quarter 2020 Form 10-Q~~12						15First Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

~~2017~~2020 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"). At ~~September 30, 2020,~~March 31, 2021, we were in compliance with our debt covenants under the ~~2017~~2020 Credit Facility.

Real estate loans

In August 2020, we completed the purchase of our ~~Headquarters Facility.~~global headquarters facility. As part of the purchase price, we assumed the Seller’s obligations under (i) a 5.12% Senior Secured Note, Series A1, in the outstanding principal amount of $49.1 million, dated May 2, 2018, and (ii) a 5.61% Senior Secured Note, Series A2, in the outstanding principal amount of $12.0 million, dated May 2, 2018, ortwo senior secured notes with an aggregate outstanding principal amount of $61.1 million (collectively, the “Real Estate Loans”). The Series A1 Note provides that we will pay the remaining principal amount due thereunder together with interest thereon at the rate indicated above, in monthly installments until it matures in April 2038. The Series A2 Note provides that we pay interest only in monthly installments at the rate indicated above with the principal amount due at maturity in April 2038. The Real Estate Loans are secured by a first priority lien on the real property constituting the Headquarters Facility. Our assumption of the Real Estate Loans was a noncash investing and financing transaction and, therefore, is not reflected in the statement of cash flows. At ~~September 30, 2020,~~March 31, 2021, we were in compliance with our debt covenants under the Real Estate Loans.

Other debt

~~In December 2019,~~From time to time, we ~~entered~~enter into ~~a 51-month $2.2 million agreement to finance our purchase~~third-party financing agreements for purchases of software and related services for our internal use. ~~The agreement is a~~Generally, the agreements are non-interest-bearing ~~note~~notes requiring ~~four equal~~ annual ~~payments, where the first payment was due in January 2020.~~payments. Interest associated with the ~~note has been~~notes is imputed at the rate we would incur for amounts borrowed under ~~the 2017 Credit Facility.~~

~~In January 2020, we entered into an additional 39-month $3.5 million agreement to finance~~ our purchase of software and related services for our internal use. The agreement is a non-interest-bearing note requiring three equal annual payments, where the first payment was due in March 2020. Interest associated with the note has been imputedthen-existing credit facility at the ~~rate we would incur for amounts borrowed under~~inception of the ~~2017 Credit Facility.~~notes.

The following table summarizes our currently effective financing agreements as of March 31, 2021:


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

As of ~~September 30, 2020,~~March 31, 2021, the required annual maturities related to the ~~2017~~2020 Credit Facility, the Real Estate Loans and our other debt were as follows:


Years ending December 31, (dollars in thousands)	Years ending December 31, (dollars in thousands)	Annual maturities		Years ending December 31, (dollars in thousands)	Annual maturities
2020 - remaining		$	2,139
2021		10,340
2021 - remaining				2021 - remaining	$	8,378
2022	2022	438,435		2022	12,985
2023	2023	1,983		2023	11,982
2024	2024	1,609		2024	11,609
2025				2025	455,209

Thereafter	Thereafter	55,135		Thereafter	53,352
Total required maturities	Total required maturities	$	509,641	Total required maturities	$	553,515


16						~~Third Quarter 2020 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~


9.8. Derivative Instruments

Cash flow hedges

We generally use derivative instruments to manage our variable interest rate risk. We have entered into interest rate swap agreements, which effectively convert portions of our variable rate debt under the ~~2017~~2020 Credit Facility to a fixed rate for the term of the swap agreements. We designated each of the interest rate swap agreements as a cash flow hedge at the inception of the contracts.


First Quarter 2021 Form 10-Q						13

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The terms and notional values of our derivative instruments were as follows as of ~~September 30, 2020:~~March 31, 2021:


(dollars in thousands)	Term of derivative instrument	Notional value
Derivative instruments designated as hedging instruments:
Interest rate swap	July 2017 - July 2021	$	150,000
Interest rate swap	February 2018 - June 2021	50,000
Interest rate swap	June 2019 - June 2021	75,000
Interest rate swap	November 2020 - October 2024	60,000
Interest rate swap	November 2020 - October 2024	60,000
		$	~~275,000~~395,000

Forward-starting interest rate swap	June 2021 - October 2024	120,000
Forward-starting interest rate swap	July 2021 - October 2024	120,000
		$	240,000

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


		Liability derivatives						Asset derivatives					Liability derivatives
(dollars in thousands)	(dollars in thousands)	Balance sheet location	September 30, 2020		December 31, 2019		(dollars in thousands)	Balance sheet location	March 31, 2021		December 31, 2020		Balance sheet location	March 31, 2021		December 31, 2020
Derivative instruments designated as hedging instruments:	Derivative instruments designated as hedging instruments:						Derivative instruments designated as hedging instruments:
Interest rate swaps, current portion	Interest rate swaps, current portion	Accrued expenses and other current liabilities	$	3,957	$	0	Interest rate swaps, current portion	Prepaid expenses and other current assets	$	0	$	0	Accrued expenses and other current liabilities	$	1,431	$	2,698
Interest rate swaps, long-term portion	Interest rate swaps, long-term portion	Other liabilities	0		1,757		Interest rate swaps, long-term portion	Other assets	2,851		0		Other liabilities	0		1,461
Total derivative instruments designated as hedging instruments	Total derivative instruments designated as hedging instruments		$	3,957	$	1,757	Total derivative instruments designated as hedging instruments		$	2,851	$	0		$	1,431	$	4,159

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 (loss) recognized in accumulated other comprehensive loss as of		Location of gain (loss) reclassified from accumulated other comprehensive loss into income	Gain (loss) reclassified from accumulated other comprehensive loss into income
(dollars in thousands)	(dollars in thousands)	September 30, 2020			Three months ended September 30,		Nine months ended September 30, 2019		(dollars in thousands)	March 31, 2021			Three months ended March 31, 2021
Interest rate swaps	Interest rate swaps	$	(3,957)	Interest expense	$	(1,276)	$	(2,499)	Interest rate swaps	$	1,420	Interest expense	$	(1,373)

		September 30, 2019			Three months ended September 30, 2019		Nine months ended September 30, 2019			March 31, 2020			Three months ended March 31, 2020
Interest rate swaps	Interest rate swaps	$	(2,318)	Interest expense	$	196	$	669	Interest rate swaps	$	(5,979)	Interest expense	$	(205)

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 loss as of ~~September 30, 2020~~March 31, 2021 that is expected to be reclassified into earnings within the next twelve months is ~~$4.0~~$2.2 million. There were 0 ineffective portions of our interest rate swap derivatives during the ~~nine~~three months ended ~~September 30, 2020 and 2019. See Note 13 for a summary of the changes in accumulated other comprehensive income (loss) by component.~~


~~Third Quarter 2020 Form 10-Q~~14						17First Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

March 31, 2021 and 2020. See Note 12 for a summary of the changes in accumulated other comprehensive income (loss) by component.


~~10.~~9. Commitments and Contingencies

Leases

We have operating leases for corporate offices, subleased offices and certain equipment and furniture. ~~In August 2020, we completed the purchase of our Headquarters Facility that we previously leased (see Note 6).~~ As of ~~September 30, 2020,~~March 31, 2021, we had operating leases for ~~equipment~~office space that had not yet commenced with future rent payments of ~~$1.3~~$3.5 million. These operating leases are expected to commence during ~~2020~~2021 with lease terms of 3 ~~to 5~~ years.

The components of lease expense were as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		2020		2019		(dollars in thousands)		2021		2020
Operating lease cost(1)	Operating lease cost(1)	$	12,128	$	6,786	$	24,720	$	18,680	Operating lease cost(1)		$	2,841	$	6,311
Variable lease cost	Variable lease cost	1,120		923		3,491		2,901		Variable lease cost		699		1,258
Sublease income	Sublease income	(732)		(803)		(2,585)		(2,262)		Sublease income		(460)		(913)
Net lease cost	Net lease cost	$	12,516	$	6,906	$	25,626	$	19,319	Net lease cost		$	3,080	$	6,656

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

During the third quarter of 2020, we adjusted our workforce strategy to provide more flexibility for our employees to work remotely when our offices reopen. This change is expected to create efficiencies within our real estate strategy as we optimize our footprint and shift toward more collaborative workspaces within our offices. As a result, during the three months ended September 30, 2020, we reduced the estimated useful lives of our operating lease ROU assets for certain of our office locations we expect to exit, which accounts for a substantial portion of the increase in operating lease costs during the periods. For these same office locations, we also reduced the estimated useful lives of certain facilities-related fixed assets, which resulted in an increase in depreciation expense (see Note 6).

~~Maturities of our operating lease liabilities as of September 30, 2020 were as follows:~~

Years ending December 31,
(dollars in thousands) Operating leases
2020 – remaining $ 5,055
2021 16,745
2022 12,034
2023 9,107
2024 2,491
Thereafter 535
Total lease payments 45,967
Less: Amount representing interest 3,628
Present value of future payments $ 42,339

Other commitments

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

We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of ~~September 30, 2020,~~March 31, 2021, the remaining aggregate minimum purchase commitment under these arrangements was approximately ~~$85.9~~$79.0 million through 2024.


18						~~Third Quarter 2020 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

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, 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. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material. If such a loss or range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency provisions at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. We


First Quarter 2021 Form 10-Q						15

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

recognize insurance recoveries, if any, when they are probable of receipt. All associated legal costs are expensed as incurred.

Based on our analysis as described above, we have determined as of September 30, 2020, that no provision for liability nor disclosure is required related to any legal proceeding, claim or inquiry 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.

Legal proceedings are inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending or threatened against us and intend to defend ourselves vigorously against all claims asserted. We further believe that the amount or range of reasonably possible losses related to such pending or threatened legal proceedings will not have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably. 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.

In the three months ended September 30, 2020, we recorded $3.2 million of expenses and $2.9 million of accrued insurance recoveries related to the Security Incident, and in the nine months ended September 30, 2020, we recorded $3.6 million of expenses and $2.9 million of accrued insurance recoveries related to the Security Incident. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, and enhancements to our cybersecurity measures. Due to the time required to submit and process such insurance claims, we have not yet received any of the accrued insurance recoveries. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our condensed consolidated statements of comprehensive income. We expect to continue to experience increased costs related to our response to the Security Incident and our efforts to further enhance our security measures.

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


~~Third Quarter 2020 Form 10-Q~~						19

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

investigations in the future that might result in adverse judgments, settlements, fines, penalties, or other resolution. To limit our exposure to losses related to claims against us, including data breaches such as the Security Incident, we maintain $50 million of insurance above a $250 thousand deductible payable by us. As noted below, this coverage has reduced our financial exposure related to the Security Incident, and we will continue to seek recoveries under these insurance policies. Although ~~we carry insurance policies~~it is possible that ~~we believe~~total losses related to the Security Incident will ~~provide coverage for a significant portion~~ultimately exceed the limits of our ~~current~~insurance coverage, we are currently unable to determine if or when that will be the case and, ~~expected future losses and~~if so, the approximate amount or range of any such excess.

In the three months ended March 31, 2021, we recorded $12.8 million of expenses related to the Security Incident ~~there can~~and offsetting probable insurance recoveries of $12.8 million. As of March 31, 2021, we have recorded cumulative expenses related to the Security Incident of $22.6 million and cumulative probable insurance recoveries of $22.1 million. Due to the time required to submit and process such insurance claims, we have not yet received all of the accrued insurance recoveries. Of the insurance recoveries recorded, $6.4 million had been paid as of March 31, 2021. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our condensed consolidated statements of comprehensive income. 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, which expenses may be ~~no assurance that they will do so.~~material.

Based on our analysis of the factors described above, we have not recorded a liability related to the Security Incident as of ~~September 30, 2020~~March 31, 2021 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 ~~160~~630 claims for reimbursement of expenses from customers or their attorneys in the U.S., U.K. and Canada related to the Security ~~Incident.~~Incident (none of which have as yet been filed in court or in arbitration). Possible exposure could result from our customers’ 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. We are in the process of analyzing individual customer contracts into which we have entered, the specific claims made and applicable law. ~~At this time we cannot determine what, if any, exposure we have in the context of customer claims.~~

Customer constituent class actions. ~~To date,~~Presently, we ~~have been named as~~are a defendant in 2330 putative consumer class action cases ~~(17~~[27 in U.S. federal courts 4(some of which have been consolidated under multi district litigation to a single federal court), 1 in a U.S. state ~~courts~~court and 2 in Canadian ~~courts)~~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


16						First Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

alleged actions and/or omissions by us in connection with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief.

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

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

Governmental ~~inquiries.~~inquiries and investigations. To date, we have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 4347 state Attorneys General and the District of Columbia and a separate Civil Investigative Demand from the office of the Illinois Attorney General’s Office relating to the Security Incident. In addition, we have received communications, inquires and requests from the U.S. Federal Trade Commission, the U.S. Securities and Exchange Commission, the U.S. Department of Health and Human Services, the Information Commissioner’s Office in the United Kingdom (the “ICO”) under the U.K. Data Protection Act 2018, the Office of the Australian Information Commissioner and the Office of the Privacy Commissioner of Canada. We are cooperating with these offices and responding to their ~~inquiries.~~inquiries, 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 be material.


10. Income Taxes

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


	Three months ended March 31,
(dollars in thousands)		2021			2020
Income tax provision		$	684		$	696
Effective income tax rate		131.5		%	13.0		%

The increase in our effective income tax rate for the three months ended March 31, 2021, when compared to the same period in 2020, was primarily attributable to higher 2021 discrete tax expense against lower pre-tax income. The 2020 effective income tax rate was positively impacted by benefits attributable to stock-based compensation. The 2021 effective income tax rate was negatively impacted by tax expense attributable to stock-based compensation against lower pre-tax income.


20First Quarter 2021 Form 10-Q						~~Third Quarter 2020 Form 10-Q~~17

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)


11. ~~Income Taxes~~

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

Three months ended
September 30,
Nine months ended
September 30,
(dollars in thousands) 2020 2019 2020 2019
Income tax provision $ 1,756 $ 364 $ 6,948 $ 1,263
Effective income tax rate 26.5 % 7.4 % 24.6 % 10.7 %

The increase in our effective tax rate for the three months ended September 30, 2020, when compared to the same period in 2019, was primarily attributable to higher 2019 discrete benefits against lower pre-tax income. The 2019 effective tax rate was positively impacted by a reduction to the liability for unrecognized tax benefits. The effective tax rate for 2020 was positively impacted by an adjustment to the prior year tax provision net of a tax charge resulting from an increase in the U.K. tax rate.

The increase in our effective tax rate for the nine months ended September 30, 2020, when compared to the same period in 2019, was primarily attributable to a reduction in benefits attributable to stock based compensation against increased 2020 profitability.


~~12.~~ Stock-based Compensation

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

Three months ended
September 30,
Nine months ended
September 30,
(dollars in thousands) 2020 2019 2020 2019
Included in cost of revenue:
Cost of recurring $ 1,608 $ 452 $ 3,229 $ 1,415
Cost of one-time services and other 2,080 332 3,894 1,134
Total included in cost of revenue 3,688 784 7,123 2,549
Included in operating expenses:
Sales, marketing and customer success 4,004 2,826 10,085 8,564
Research and development 4,098 2,847 11,245 8,274
General and administrative 9,053 8,409 26,103 24,234
Total included in operating expenses 17,155 14,082 47,433 41,072
Total stock-based compensation expense $ 20,843 $ 14,866 $ 54,556 $ 43,621

~~See Note 2 for discussion of the additional equity award grants we made in response to COVID-19 pandemic.~~


	Three months ended March 31,
(dollars in thousands)		2021		2020
Included in cost of revenue:
Cost of recurring		$	2,411	$	470
Cost of one-time services and other		2,947		395
Total included in cost of revenue		5,358		865
Included in operating expenses:
Sales, marketing and customer success		5,428		2,478
Research and development		6,714		2,799
General and administrative		12,505		7,438
Total included in operating expenses		24,647		12,715
Total stock-based compensation expense		$	30,005	$	13,580


~~13.~~12. Stockholders' Equity

~~Dividends~~Stock repurchase program

In ~~March~~November 2020, ~~in response to the global COVID-19 pandemic,~~ our Board of Directors ~~rescinded its previously announced policy~~reauthorized and expanded a stock repurchase program that authorizes us to ~~pay~~purchase up to $250.0 million of our outstanding shares of common stock. The program does not have an ~~annual dividend at a rate~~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 ~~$0.48 per share~~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. Under the ~~declaration and payment~~2020 Credit Facility, we have restrictions on our ability to repurchase shares of ~~all cash dividends, beginning with~~our common stock.

We account for purchases of treasury stock under the ~~second quarter~~cost method. During the three months ended March 31, 2021, we purchased 465,821 shares for $28.1 million. The remaining amount available to purchase stock under the stock repurchase program was $180.9 million as of ~~2020 and thereafter until such time, if any, as it may otherwise determine in its sole discretion.~~March 31, 2021.


~~Third Quarter 2020 Form 10-Q~~18						21First Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

~~Dividends paid on common stock during the nine months ended September 30, 2020, consisted of the following:~~

~~Declaration Date~~

Dividend
per Share

~~Record Date~~

~~Payable Date~~

~~February 10, 2020~~

~~0.12~~

~~February 28~~

~~March 13~~

Changes in accumulated other comprehensive income (loss) by component

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		2020		2019		(dollars in thousands)		2021		2020
Accumulated other comprehensive loss, beginning of period	Accumulated other comprehensive loss, beginning of period	$	(14,476)	$	(9,409)	$	(5,290)	$	(5,110)	Accumulated other comprehensive loss, beginning of period		$	(2,497)	$	(5,290)
By component:	By component:									By component:
Gains and losses on cash flow hedges:	Gains and losses on cash flow hedges:									Gains and losses on cash flow hedges:
Accumulated other comprehensive (loss) income balance, beginning of period		$	(3,894)	$	(1,373)	$	(1,323)	$	1,498
Other comprehensive income (loss) before reclassifications, net of tax effects of $0, $78, $1,225 and $982		1		(219)		(3,472)		(2,741)
Accumulated other comprehensive loss balance, beginning of period										Accumulated other comprehensive loss balance, beginning of period		$	(3,101)	$	(1,323)
Other comprehensive income (loss) before reclassifications, net of tax effects of $(1,100) and $1,154										Other comprehensive income (loss) before reclassifications, net of tax effects of $(1,100) and $1,154		3,130		(3,273)

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense	Amounts reclassified from accumulated other comprehensive income (loss) to interest expense	1,276		(196)		2,499		(669)		Amounts reclassified from accumulated other comprehensive income (loss) to interest expense		1,376		205
Tax (benefit) expense included in provision for income taxes		(334)		52		(655)		176
Tax benefit included in provision for income taxes										Tax benefit included in provision for income taxes		(357)		(54)
Total amounts reclassified from accumulated other comprehensive income (loss)	Total amounts reclassified from accumulated other comprehensive income (loss)	942		(144)		1,844		(493)		Total amounts reclassified from accumulated other comprehensive income (loss)		1,019		151
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	943		(363)		(1,628)		(3,234)		Net current-period other comprehensive income (loss)		4,149		(3,122)
Accumulated other comprehensive loss balance, end of period		$	(2,951)	$	(1,736)	$	(2,951)	$	(1,736)
Accumulated other comprehensive income (loss) balance, end of period										Accumulated other comprehensive income (loss) balance, end of period		$	1,048	$	(4,445)
Foreign currency translation adjustment:	Foreign currency translation adjustment:									Foreign currency translation adjustment:
Accumulated other comprehensive loss balance, beginning of period		$	(10,582)	$	(8,036)	$	(3,967)	$	(6,608)
Accumulated other comprehensive income (loss) balance, beginning of period										Accumulated other comprehensive income (loss) balance, beginning of period		$	604	$	(3,967)
Translation adjustments	Translation adjustments	4,661		(3,893)		(1,954)		(5,321)		Translation adjustments		2,511		(5,728)
Accumulated other comprehensive loss balance, end of period		(5,921)		(11,929)		(5,921)		(11,929)
Accumulated other comprehensive loss, end of period		$	(8,872)	$	(13,665)	$	(8,872)	$	(13,665)
Accumulated other comprehensive income (loss) balance, end of period										Accumulated other comprehensive income (loss) balance, end of period		3,115		(9,695)
Accumulated other comprehensive income (loss), end of period										Accumulated other comprehensive income (loss), end of period		$	4,163	$	(14,140)


~~14.~~13. Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of ~~September 30, 2020,~~March 31, 2021, approximately ~~$812~~$776 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 60% of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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

Contract balances

Our contract assets as of March 31, 2021 and ~~usage)~~December 31, 2020 were insignificant. Our opening and closing balances of deferred revenue were as follows:


(in thousands)	March 31, 2021		December 31, 2020

Total deferred revenue	$	294,520	$	316,914

The decrease in deferred revenue during the three months ended March 31, 2021 was primarily due to a seasonal decrease in customer contract renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter generally resulting in our lowest balance of deferred revenue at the end of our first quarter. The amount of revenue recognized during the three months ended March 31, 2021 that was included in the deferred revenue balance at the beginning of the period was approximately


22First Quarter 2021 Form 10-Q						~~Third Quarter 2020 Form 10-Q~~19

Table of Contents

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

~~Contract balances~~

~~Our contract assets as of September 30, 2020 and December 31, 2019 were insignificant. Our opening and closing balances of deferred revenue were as follows:~~

(in thousands) September 30,
2020 December 31,
2019
Total deferred revenue $ 328,255 $ 316,137

The increase in deferred revenue during the nine months ended September 30, 2020 was primarily due a seasonal increase in customer contract renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. The amount of revenue recognized during the nine months ended September 30, 2020 that was included in the deferred revenue balance at the beginning of the period was approximately $272$134 million. The amount of revenue recognized during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 from performance obligations satisfied in prior periods was insignificant.

Disaggregation of revenue

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		2020		2019		(dollars in thousands)		2021		2020
United States	United States	$	182,649	$	188,649	$	565,912	$	567,174	United States		$	185,327	$	193,959
United Kingdom	United Kingdom	18,309		17,410		63,668		50,515		United Kingdom		22,305		15,825
Other countries	Other countries	14,043		15,061		41,033		44,895		Other countries		11,559		13,837
Total revenue	Total revenue	$	215,001	$	221,120	$	670,613	$	662,584	Total revenue		$	219,191	$	223,621

The General Markets Group ("GMG"), the Enterprise Markets Group ("EMG"), and the International Markets Group ("IMG") ~~comprise~~comprised our go-to-market ~~organizations.~~organizations as of March 31, 2021. The following is a description of each market ~~group:~~group as of that date:

•The GMG focuses on sales primarily to all K-12 private schools, ~~faith-based~~faith communities and arts and cultural organizations, as well as emerging and mid-sized prospects in the U.S.;

•The EMG focuses on sales primarily to all healthcare and higher education institutions, corporations and foundations, as well as large and/or strategic prospects in the U.S.; and

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

The following table presents our revenue by market group:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(dollars in thousands)	(dollars in thousands)	2020		2019		2020		2019		(dollars in thousands)		2021		2020
GMG	GMG	$	90,567	$	92,029	$	276,473	$	277,803	GMG		$	93,339	$	95,453
EMG	EMG	91,542		96,270		287,864		288,145		EMG		89,527		98,123
IMG	IMG	32,751		32,731		105,999		96,467		IMG		36,370		30,081
Other	Other	141		90		277		169		Other		(45)		(36)
Total revenue	Total revenue	$	215,001	$	221,120	$	670,613	$	662,584	Total revenue		$	219,191	$	223,621

The following table presents our recurring revenue by type:


	Three months ended March 31,
(dollars in thousands)		2021		2020
Contractual recurring		$	146,821	$	147,744
Transactional recurring		59,929		57,123
Total recurring revenue		$	206,750	$	204,867


~~Third Quarter 2020 Form 10-Q~~20						23

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~


~~15. Restructuring~~

During 2017, in an effort to further our organizational objectives, including improved operating efficiency, customer outcomes and employee satisfaction, we initiated a multi-year plan to consolidate and relocate some of our existing offices to highly modern and more collaborative workspaces with short-term financial commitments. We substantially completed our facilities optimization restructuring plan as of December 2019. During the three and nine months ended September 30, 2019, we incurred $0.4 million and $3.1 million, respectively, in before-tax restructuring charges related to these activities. Such charges during the three and nine months ended September 30, 2020 were insignificant.


~~16. Subsequent Events~~

~~October 2020 refinancing~~

On October 30, 2020, we entered into a 5-year $900.0 million Amended and Restated Credit Agreement (the “2020 Credit Facility”). The 2020 Credit Facility matures in October 2025 and replaces the 2017 Credit Facility by amending and restating it to include a $500.0 million revolving credit facility (the “Revolving Credit Facility”) and a $400.0 million term loan facility (the “Term Facility”). The Revolving Credit Facility includes (a) a $50.0 million sublimit available for the issuance of standby letters of credit, (b) a $50.0 million sublimit available for swingline loans, and (c) a $100.0 million sublimit available for multicurrency borrowings. We may prepay the 2020 Credit Facility in whole or in part at any time without premium or penalty, other than customary breakage costs with respect to certain types of loans.

Under the terms of the 2020 Credit Facility, we are entitled on one or more occasions, subject to the satisfaction of certain conditions, to request an increase in the commitments under the Revolving Credit Facility and/or request additional incremental term loans in the aggregate principal amount of up to $250.0 million plus an amount, if any, such that the net leverage ratio shall be no greater than 3.25 to 1.00.

In connection with the amendment and restatement of the 2017 Credit Facility, the existing Pledge Agreement dated June 2, 2017 (as amended, supplemented or modified from time to time, the “2017 Pledge Agreement”), by us in favor of Bank of America, N.A., as administrative agent, was likewise amended and restated.

On October 30, 2020, we borrowed $400.0 million pursuant to the Term Facility and used the proceeds to repay the outstanding principal balance of the term loan under the 2017 Credit Facility, and repay $124.4 million of outstanding revolving credit loans under the 2017 revolving credit facility.

Our obligations under the 2020 Credit Facility are secured by the stock and limited liability company interests of certain of our direct subsidiaries and any of our material domestic subsidiaries, if any, and the proceeds therefrom pledged pursuant to an Amended and Restated Pledge Agreement dated as of October 30, 2020 (the “2020 Pledge Agreement”), by us in favor of Bank of America, N.A., as administrative agent, for the ratable benefit of itself and the secured parties referred to therein.

Dollar tranche loans under the Revolving Credit Facility and Term Facility loans bear interest at a rate per annum equal to (a) a base rate equal to the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate announced by Bank of America, N.A., and (iii) the Eurocurrency Rate (which varies depending on the currency in which the loan is denominated) plus 1.00% (the “Base Rate”), plus (b) an applicable margin as specified in the 2020 Credit Facility (the “Applicable Margin”). Each Eurocurrency Rate Loan under the 2020 Credit Facility shall bear interest at a rate per annum equal to the Eurocurrency Rate, plus the Applicable Margin. The Applicable Margin shall be adjusted quarterly, varies based on our net leverage ratio and varies based on whether the loan is a Base Rate Loan (0.375% to 1.125%) or a Eurocurrency Rate Loan (1.375% to 2.125%). The 2020 Credit Facility also provides for a commitment fee of between 0.250% and 0.375% of the unused commitment under the Revolving Credit Facility, depending on our net leverage ratio.

The 2020 Credit Facility contains various representations, warranties and affirmative, negative and financial covenants customary for financings of this type. Financial covenants include a net leverage ratio and an interest coverage ratio.


24						~~Third~~First Quarter ~~2020~~2021 Form 10-Q

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

The 2020 Credit Facility and 2020 Pledge Agreement are filed as Exhibits 10.4 and 10.5, respectively, of this Quarterly Report on Form 10-Q. Any capitalized term used herein but not defined shall have the meaning ascribed to such term in the 2020 Credit Facility.


~~Third Quarter 2020 Form 10-Q~~						25

Table of Contents

Blackbaud, Inc.

(Unaudited)

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

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


Executive Summary

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

COVID-19 Impact

The outbreak of COVID-19 in numerous countries across the globe, including each country in which we currently operate, has adversely impacted the U.S. and global economies. We began 2020 with strong execution against our financial plan. In March 2020, we began to experience disruptions to our business from COVID-19, and the pandemic continues to impact each of our markets.

To better enable us to weather the extraordinary business challenges brought about by the global COVID-19 pandemic, to protect the safety and welfare of our employees, and to further effect our long-term strategy to deliver the greatest value to our stockholders, we have taken several actions. These initial measures taken are expected to provide us the financial flexibility needed to manage a wide array of outcomes that may result from the pandemic. See Note 2 to our condensed consolidated financial statements in this report for a discussion of some of these actions. In addition to the initial actions we have taken to date, we are continuously evaluating further possible actions in order to respond quickly to rapidly changing conditions, if needed.

~~The~~ economic impact of COVID-19 on the social good industry remains uncertain. ~~With~~If our existing and prospective customers ~~remaining~~remain cautious in their purchase decisions, ~~we expect that~~ our operating environment may continue to be challenging for the remainder of ~~2020,~~ 2021 and potentially ~~beyond, as discussed below.~~beyond. Notwithstanding these conditions, we remain focused on continuing to execute our four-point ~~growth~~ strategy and strengthening our leadership position.


26						~~Third Quarter 2020 Form 10-Q~~

~~Table~~As expected and previously disclosed, our bookings shortfalls that began at the start of ~~Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

the pandemic in March 2020 are putting pressure on our contractual recurring revenue growth in the near-term. However, we are optimistic this pressure will abate as we progress through 2021. We had a solid bookings performance in the first quarter of 2021, which was favorable to our plan and our first quarter 2020 bookings performance.

Four-Point ~~Growth~~ Strategy


			1						Expand Total Addressable Market

			2						Lead with World Class Teams and Operations

			3						Delight Customers with Innovative Cloud Solutions

			2						~~Drive Sales Effectiveness~~

			3						~~Expand Total Addressable Market~~

			4						~~Improve Operating Efficiency~~Focus on Employees, Culture and ESG Initiatives

1.~~Delight Customers with Innovative Cloud Solutions~~Expand Total Addressable Market ("TAM")

Our solutions are already equipped with features that are lending themselves to the current environment and we have quickly acted upon customer feedback to add enhancements and new functionality to serve our customers, so they can continue to focus on their missions during this time. For example, we built new integration between our peer-to-peer fundraising and donor management solutions simplifying the process of raising donations and acquiring new supporters through pandemic-friendly virtual events and peer-to-peer campaigns. We simplified donation forms to expedite fundraising by allowing organizations to create campaigns quickly and easily, which is critical in the current environment. We also added new financial management capabilities, further easing the transition to working from home with tools that support collaboration and efficient cash flow management and financial operations from the cloud.

2.~~Drive Sales Effectiveness~~

The investments we have made to enhance our digital footprint are enabling us to be more prescriptive and cost-effective in our marketing efforts and to quickly adapt to changing market conditions, and over the longer term we believe the impact of COVID-19 will accelerate the existing trends driving adoption of modern cloud solutions in our market. Despite our optimism over the long-term, the uncertainty of the current environment has created near-term challenges in our ability to build new pipeline and elongated sales cycles, which has caused bookings to fall short of budgeted expectations for the third quarter and year-to-date periods. We expect this shortfall to put pressure on both 2020 and 2021 revenues. As a result, we have begun shifting investment towards digital marketing aimed at lead generation and put a greater emphasis on selling solutions with the highest lifetime value. In response to the COVID-19 pandemic, we implemented a modest and targeted headcount reduction during the second quarter, including a reduction in our sales headcount with a focus on retaining our most highly productive sales executives.

3.~~Expand TAM~~

~~While we~~ remain active in the evaluation of opportunities to further expand our addressable market through acquisitions and internal product ~~development, our top priority in the near-term is protecting our employees and continuing to support our customers at a very high standard.~~development. We have significant opportunities in front of us as we are less than 10% penetrated into a ~~total addressable market~~TAM of over $10 billion.

4.~~Improve Operating Efficiency~~

We have made transformational changes to our business over the last several years, which allowed us to immediately switch to a virtual work environment in March and supported our global employees' ability to work effectively from home. We are re-evaluating elements of our workforce strategy based on what we have learned during the COVID-19 pandemic. During the third quarter of 2020, we adjusted our workforce strategy to provide more flexibility for our employees to work remotely when our offices reopen. This change also expands our access to a larger and more diverse talent pool, empowers our leaders to make decisions based on skills and business need rather than location, and it is expected to create efficiencies within our real estate strategy as we optimize our footprint and shift toward more collaborative workspaces within our offices. We currently expect most of the transactions related to these real estate activities will close during the fourth quarter of 2020 with a one-time cash outlay of between of between $20.0 million and $25.0 million. We incurred approximately $6.8 million of pre-tax costs related to these real estate activities during the third quarter of 2020.


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						2721

Table of Contents

Blackbaud, Inc.

(Unaudited)

2.Lead with World Class Teams and Operations

This strategy expands upon our previous strategies to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40 (see discussion of Non-GAAP Financial Measures below). We have a strong executive team that is delivering on our mission and executing on our strategy. We have talent across our company, at every level, who are aligned with these goals as well.

3.Delight Customers with Innovative Cloud Solutions

2020 required unprecedented speed and scale to support our customers, and we were quick to reprioritize and expedite product enhancements to support our customers' changing needs as they needed to operate more digitally. We have carried that momentum into 2021. For example, we upgraded virtually all of our Blackbaud Grantmaking customers to a new SKY UX version in just one month's time. This helps alleviate our customers' IT burden, improves data security with multi-factor authentication and provides freedom and flexibility to access advanced grant management technology anywhere via any browser on any device. With more veteran grantmakers using mobile technology and a younger generation of grantmakers emerging in the philanthropic community, providing convenient access to grant data and grant management tools will continue to be critical for success. Blackbaud plays a critical role in accelerating our customers' move to the cloud. In higher education, with the COVID-19 pandemic accelerating the need for powerful cloud-based systems that allow for easier collaboration, Blackbaud CRM has been the trusted CRM solution for a growing number of institutions to support their overall advancement needs.

4.Focus on Employees, Culture and ESG Initiatives

During the first quarter of 2021, we elevated a specific strategy focused on employees, culture and ESG initiatives. This is not new for us. It is something that has been in our DNA for a long time and is a big advantage as we look to attract and retain top talent. This is evident in our 2020 social responsibility report, which was released in April 2021, and demonstrates how we responded to the unique challenges the pandemic created for our employees, customers, and communities. We also expanded this year's report to include voluntary ESG reporting disclosures that align with the Sustainability Accounting Standards Board and Global Reporting Initiative. One highlight from the report is that the Company is comprised of 46% female employees and 54% male employees, which is an industry-leading ratio. We are fully committed to continuing to create a diverse and inclusive environment at all levels of the organization.

Financial Summary


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


22						First Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Total revenue decreased by ~~$6.1~~$4.4 million during the three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same period in ~~2019,~~2020, driven largely by the following:


			-						Decrease in ~~recurring~~one-time consulting revenue due primarily ~~due~~ to ~~declines in transactional revenue~~less implementation and ~~maintenance revenue. Transactional revenue decreased as many~~customization services. We changed our commission plans during the first quarter of 2020 to intentionally shift our ~~customers' in-person events have shifted online, been postponed or cancelled due~~sales teams' focus towards selling our cloud solutions. Additionally, the bookings shortfalls during 2020 caused by the COVID-19 pandemic contributed to ~~COVID-19. The~~the decrease ~~in maintenance revenue was related to our continuing efforts to migrate customers from legacy on-premises solutions onto our solutions powered by Blackbaud SKY, our modern cloud platform~~
			-						~~Decrease~~ in one-time consulting ~~revenue primarily from less one-time sales related to COVID-19~~

~~Total revenue increased by $8.0 million during the nine months ended September 30, 2020, when compared to the same period in 2019, driven largely by the following:~~


			+						~~Growth in recurring revenue related to positive demand from customers across our portfolio of cloud solutions and an increase in transactional revenue, including charitable giving related to COVID-19~~
			-						~~Decrease in one-time consulting revenue primarily from less of one-time sales related to COVID-19~~revenue.
			-						Decrease in one-time analytics revenue as analytics are generally integrated in our cloud solutions

~~Third Quarter 2020 Form 10-Q~~Growth in recurring revenue related to an increase in transactional revenue related to charitable giving

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

Income from operations ~~increased~~decreased by ~~$2.2~~$1.8 million during the three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same period in ~~2019,~~2020, driven largely by the following:


			+-						~~Reduced overall~~ Increase in stock-based compensation costs ~~primarily associated with the decision to replace~~of $16.4 million due to: •replacement of our ~~2020~~annual cash bonus plans with ~~grants of~~a short-term performance-based equity award plan; •increases in the grant date fair values of our annual equity awards granted to employees; •in response to COVID-19, replacement of our 2020 base salary merit increases with one-year time-based equity awards; •overall Company performance against 2020 goals; and •decrease in the ~~modest and targeted headcount reduction we implemented during the second quarter~~vesting period for our annual long-term incentive time-based equity awards from 4 years (1/4 per year) to 3 years (1/3 per year), beginning in February 2021.
			-						Decrease in total revenue, as described above

			+						Decrease in compensation costs other than stock-based compensation of $12.7 million primarily due to a decrease in headcount
			+						Decrease in travel costs of ~~$3.7~~$3.6 million due to our restriction on non-essential employee travel in response to the COVID-19 pandemic
			+						Decrease in amortization of intangible assets from business combinations of $2.0 million
			+						~~Decrease in acquisition-related expenses and integration costs of $1.2 million~~
			-						~~Decrease in total revenue, as described above~~
			-						~~Increase in real estate activity costs of $6.8 million due to our workforce strategy changes in response to the COVID-19 pandemic, as discussed above~~
			-						~~Increase in corporate costs of $2.9 million, primarily related to increases in bad debt expense; for additional details, see Note 2 of our condensed consolidated financial statements in this report~~

~~Income from operations increased by $14.5 million during the nine months ended September 30, 2020, when compared to the same period in 2019, driven largely by the following:~~


			+						~~Growth in total revenue, as described above~~
			+						~~Reduced overall compensation costs primarily associated with the decision to replace our 2020 cash bonus plans with grants of performance-based equity awards~~
			+						~~Decrease in travel costs of $6.9 million due to our restriction on non-essential employee travel in response to the COVID-19 pandemic~~
			+						~~Decrease in amortization of intangible assets from business combinations of $5.1 million~~
			+						~~Decrease in acquisition-related expenses and integration costs of $3.1 million~~
			+						~~Decrease in restructuring costs of $2.9 million as our facilities optimization plan was largely completed as of December 31, 2019~~
			-						Increase in real estate activity costs of $6.8 million due to our workforce strategy changes in response to the COVID-19 pandemic. For additional details, see "Results of Operations - General and administrative" below.
			-						~~Increase in corporate costs of $6.1 million primarily related to an increase in bad debt expense; for additional details, see Note 2 of our condensed consolidated financial statements in this report~~
			-						Increase in cost of revenue from a $4.3 million impairment charge during the three months ended June 30, 2020, against certain previously capitalized software development costs, resulting from our decision to accelerate the end of customer support for certain solutions
			-						~~Increase in hosting and data center costs of $3.3 million as we are migrating our cloud infrastructure to leading public cloud service providers~~

~~There are three primary revenue categories with related business drivers that we continue to monitor closely in light of the COVID-19 pandemic:~~

1.~~Contractual Recurring Revenue (approximately two thirds of total revenue in 2019)~~

Recurring subscription contracts are typically for a term of three years at contract inception, billed annually in advance, and we have been for several years successfully shifting our legacy customer base away from annual renewals and moving them onto multi-year renewal contracts. Our contracted recurring revenue has performed well as our renewals have continued to trend ahead of our original plan with over three quarters of 2020 now behind. We expect the shortfall in bookings to put pressure on our revenue during the fourth quarter of 2020 and more so on our full-year 2021 revenue. We are closely monitoring our customer receivable balances, payment terms, and creditworthiness. We are experiencing an increase in our aging of receivables and observed changes in some of our customers' payment behavior associated with the COVID-19 pandemic and this development may continue in the near term.

2.~~Transactional Revenue (approximately one quarter of total revenue in 2019)~~

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. We have historically experienced seasonal highs during the fourth quarter due to year-end giving


~~Third Quarter 2020 Form 10-Q~~						29

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

campaigns and during the second quarter when a large number of events are held. During the third quarter, we again saw many in-person events shift online, be postponed or canceled. Social good organizations are being forced to employ new strategies to maintain momentum with current supporters while capturing the attention of potential new donors. We continue to support our customers in adapting to these circumstances through virtual campaigns and events.

3.~~Bookings~~

Given our ratable revenue recognition model for our recurring subscription contracts and implementation periods, we expect that declines in our 2020 bookings performance will have a greater negative impact on our 2021 revenue than 2020 revenue. Of these three primary revenue categories, bookings represents the smallest potential impact on recurring revenue in 2020. One-time services and other revenue, which is tied to bookings, would have a more immediate impact on our total revenue. Our first quarter has historically been the seasonal low for bookings, with the second and fourth quarters historically being seasonally higher, and our bookings tend to be back-end loaded within individual quarters given our quarterly quota plans. Although our bookings have performed slightly better than our initial COVID-19 scenario planning, we are currently expecting a significant shortfall in 2020 bookings compared to our original plan for the year as we continue to see challenges in building pipeline. The magnitude of our 2020 bookings shortfall is expected to be impacted by the depth and duration of the COVID-19 pandemic.

Our strategy has historically relied on a balanced approach to growth and profitability. As discussed above, the pandemic has created short-term uncertainty in our revenue outlook and the early impacts on pipeline and bookings will likely limit our ability to drive near-term revenue growth at our originally planned levels. Therefore, in line with our strategy, we have made a pivot to greater emphasis on delivering shareholder value through increased profitability and cash flow, which are more controllable.


Customer retention

Our recurring revenue contracts are generally for a term of three years at contract inception with one to three-year renewals thereafter. We anticipate a continued decrease in maintenance contract renewals as we transition our solution portfolio and maintenance customers from a perpetual license-based model to a cloud subscription delivery model. In the long term, we also anticipate an increase in recurring subscription contract renewals as we continue focusing on innovation, quality and the integration of our cloud solutions, which we believe will provide value-adding capabilities to better address our customers' needs. Due primarily to these factors, we believe a recurring revenue customer retention measure that combines recurring subscription, maintenance and service customer contracts provides a better representation of our customers' overall behavior. For the twelve months ended ~~September 30, 2020,~~March 31, 2021, approximately ~~92%~~93% of our customers with recurring revenue contracts were retained. This customer retention rate is unchanged from our rate for the full year ended December 31, ~~2019.~~2020.

Balance sheet and cash flow

At ~~September 30, 2020,~~March 31, 2021, our cash and cash equivalents were ~~$30.6~~$27.8 million and the carrying amount of our debt under the ~~2017~~2020 Credit Facility was ~~$444.0~~$488.8 million. Our net leverage ratio was ~~1.95~~1.79 to 1.00.


30First Quarter 2021 Form 10-Q						~~Third Quarter 2020 Form 10-Q~~23

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(Unaudited)

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we generated ~~$109.2~~$30.1 million in cash from operations, ~~primarily from operating cost reductions put in place in response to COVID-19 and the increased use of stock-based compensation. During the nine months ended September 30, 2020, we~~ had a net ~~decrease~~increase in borrowings of ~~$23.6 million. Our assumption~~$21.0 million, returned $28.1 million to stockholders by way of ~~the real estate loans associated with our purchase of our Headquarter Facility was a noncash investing~~share repurchases and ~~financing transaction (see discussion below).~~

~~During the nine months ended September 30, 2020, we also~~ had aggregate cash outlays of ~~$57.9~~$12.8 million for purchases of property and equipment and capitalized software development costs.

~~Recent Developments~~

~~Purchase of Headquarters Facility~~

In August 2020, we completed the purchase of our Headquarters Facility. Prior to the completion of the Transaction, we leased the Headquarters facility from the Seller. We paid the Seller a purchase price that included the assumption of the Seller's obligations of $61.1 million, cash of $15.2 million and certain lender fees, closing costs, adjustments and prorations as set forth in the PSA. We funded the cash portion of the purchase price through borrowings under the 2017 Credit Facility.

~~October 2020 refinancing~~

On October 30, 2020, we entered into the 2020 Credit Facility. The 2020 Credit Facility matures in October 2025 and replaces the 2017 Credit Facility by amending and restating it to (a) increase the amount available under the revolving credit facility to $500.0 million, (b) increase the amount available under the term loan facility to $400.0 million and (c) provide for a net leverage ratio of, (i) commencing with the first fiscal quarter ending December 31, 2020 and through September 30, 2022, 4.00 to 1.00 and (ii) commencing with the fiscal quarter ending December 31, 2022 and thereafter, 3.75 to 1.00, among other changes. See Part II, Item 5. “Other Information” for detailed information relating to the terms of the 2020 Credit Facility.


~~Third Quarter 2020 Form 10-Q~~						31

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~~(Unaudited)~~


Results of Operations

Comparison of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

Revenue and Cost of Revenue

Recurring

Revenue ($M)

Cost of revenue ($M)

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

YoY Growth (%)

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

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

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

Recurring revenue increased by $1.9 million or 0.9%, during the three months ended March 31, 2021, when compared to the same period in 2020, driven primarily by the following:


			+						Increase in transactional revenue of $2.8 million, primarily due to the continued shift toward virtual and online fundraising and charitable giving
			-						Decrease in contractual recurring revenue of $0.9 million largely due to a decrease in maintenance revenue related to our continuing efforts to migrate customers from legacy on-premises solutions onto our cloud solutions as well as the bookings shortfalls during 2020 resulting from COVID-19


3224						~~Third~~First Quarter ~~2020~~2021 Form 10-Q

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(Unaudited)

~~Recurring~~Cost of recurring revenue decreased by ~~$5.1~~$0.7 million or ~~2.5%~~0.8%, during the three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same period in ~~2019,~~2020, driven primarily by the following:


			-						Decrease in ~~subscriptions revenue~~amortization of ~~$1.5~~intangible assets from business combinations of $1.7 million ~~largely related to a decrease in transactional revenue as many of our customers' in-person events have shifted online, been postponed or cancelled due to COVID-19~~
			-						~~Decrease~~Decreases in ~~maintenance revenue of $3.7 million primarily~~allocated facilities costs related to efficiencies in our ~~continuing efforts to migrate customers from legacy on-premises solutions onto our solutions powered by Blackbaud SKY, our modern cloud platform~~

~~Recurring revenue increased by $9.4 million or 1.5%, during the nine months ended September 30, 2020, when compared to the same period in 2019, driven primarily by the following:~~

		real estate footprint, and third-party contractor costs
+	Increase in ~~subscriptions revenue~~compensation costs of $21.0 million related to positive demand from customers across our portfolio of cloud solutions, an increase in transactional revenue, including charitable giving related to COVID-19, and an increase in services embedded in our renewable cloud solution contracts
-	~~Decrease in maintenance revenue of $11.5~~$1.3 million primarily related to ~~our continuing efforts~~stock-based compensation due to ~~migrate customers from legacy on-premises solutions onto our solutions powered by Blackbaud SKY, our modern cloud platform~~

Partially offsetting subscriptions revenue were decreases in the mix of retained and managed services contracts we present in recurring. Revenue from retained and managed service contracts that we do not expect to have a term consistent with our cloud solution contracts is included in one-time services and other revenue beginning January 1, 2020. This change in presentation resulted in decreases in recurring revenue and offsetting increases to one-time services and other revenue of $4.2 million and $12.7 million during the three and nine months ended September 30, 2020, respectively.

~~Cost of recurring revenue decreased by $3.4 million or 3.9%, during the three months ended September 30, 2020, when compared to the same period in 2019, driven primarily by the following:~~

		the factors discussed above on page 23
+	Increase in amortization of software development costs of ~~$2.4~~$1.0 million due to investments made on innovation, quality and the integration of our cloud solutions
+	~~Increase in hosting and data center costs of $1.0 million as we are migrating our cloud infrastructure to leading public cloud service providers~~
-	~~Decrease in transaction-based costs of $1.7 million related to payment services integrated in our cloud solutions~~
-	~~Decrease in amortization of intangible assets from business combinations of $2.9 million~~
-	~~Decrease in compensation costs primarily associated with the decision to replace our 2020 cash bonus plans with grants of performance-based equity awards~~
-	~~Decrease in costs associated with certain retained and managed services contracts for which revenue is included in one-time services and other revenue beginning January 1, 2020, as discussed above~~

~~Cost of recurring revenue~~Recurring gross margin increased by ~~$6.2 million or 2.4%, during~~0.7% for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same period in ~~2019, driven~~2020, primarily bydue to the ~~following:~~


			+						~~Increase in amortization of software development costs of $4.7 million due to investments made on innovation, quality and the integration of our cloud solutions~~
			+						Impairment charge of $4.3 million during the three months ended June 30, 2020, against certain previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to accelerate the end of customer support for certain solutions.
			+						~~Increase in hosting and data center costs of $3.3 million as we are migrating our cloud infrastructure to leading public cloud service providers~~
			+						~~Increase in transaction-based costs of $1.3 million related to payment services integrated in our cloud solutions~~
			-						~~Decrease in amortization of intangible assets from business combinations of $5.0 million~~
			-						~~Decrease in compensation costs primarily associated with the decision to replace our 2020 cash bonus plans with grants of performance-based equity awards~~
			-						~~Decrease in costs associated with certain retained and managed services contracts for which revenue is included in one-time services and other revenue beginning January 1, 2020, as discussed above~~


~~Third Quarter 2020 Form 10-Q~~						33

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~~(Unaudited)~~

~~The 0.6%~~ increase in recurring ~~gross margin for the three months ended September 30, 2020, when compared to the same period in 2019, was primarily the result of~~revenue slightly outpacing the decrease in ~~lower margin transactional revenue.~~

The 0.3% decrease in recurring gross margin for the nine months ended September 30, 2020, when compared to the same period in 2019, was primarily the result of the impairment of previously capitalized software development costs, and incremental costs associated with our continued shift toward selling cloud solutions, including data center costs and amortization of software developmentrelated costs. ~~We expect continued pressure on recurring gross margin largely driven by duplicate data center costs as we migrate our cloud infrastructure to leading cloud service providers.~~

One-time services and other

Revenue ($M)

Cost of revenue ($M)

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

YoY Growth (%)

One-time services and other revenue is comprised of fees for one-time consulting, analytic and onsite training services, fees for retained and managed services contracts that we do not expect to have a term consistent with our cloud solution contracts, revenue from the sale of our software sold under perpetual license arrangements, fees from user conferences and third-party software referral fees.

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


34						~~Third Quarter 2020 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

One-time services and other revenue decreased by ~~$1.0~~$6.3 million, or ~~6.3%, and $1.4 million, or 2.8%~~33.7%, during the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021, when compared to the same ~~periods~~period in ~~2019,~~2020, driven primarily by the following:


			+						Increases in the mix of retained and managed services contracts we present in one-time services and other. Revenue from retained and managed service contracts that we do not expect to have a term consistent with our cloud solution contracts is included in one-time services and other revenue beginning January 1, 2020. This change in presentation resulted in increases to one-time services and other revenue and offsetting decreases in recurring revenue of $4.2 million and $12.7 million during the three and nine months ended September 30, 2020.
			-						~~Decreases~~Decrease in one-time consulting revenue of ~~$2.5~~$4.7 million due primarily to less implementation and ~~$8.0 million, respectively, primarily from less~~customization services. We changed our commission plans during the first quarter of 2020 to intentionally shift our sales teams' focus towards selling our cloud solutions. Additionally, the bookings shortfalls during 2020 caused by the COVID-19 pandemic contributed to the decrease in one-time ~~sales related to COVID-19 as well as services increasingly being embedded in our renewable cloud solution contracts. Our embedded services are recorded as recurring~~consulting revenue.
			-						~~Decreases~~Decrease in one-time analytics revenue of ~~$0.8 million and $2.9~~$1.0 million as analytics are generally integrated in our cloud solutions
			-						~~Decreases in onsite training revenue of $0.6 million and $1.1 million due to COVID-19~~


First Quarter 2021 Form 10-Q						25

Table of Contents

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(Unaudited)

Cost of one-time services and other ~~remained relatively consistent~~decreased by $0.8 million, or 5.2%, during the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same periods in ~~2019.~~2020, driven primarily by the following:

~~The 7.8% and 3.3% decreases in one-time~~


			-						Decrease in compensation costs other than stock-based compensation of $1.3 million largely due to a decrease in headcount
			-						Decrease in third-party contractor costs of $0.7 million primarily due to the timing of our spending
			+						Increase in stock-based compensation costs of $2.6 million due to the factors discussed above on page 23

One-time services and other gross margin decreased by 35.1% during the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, respectively, when compared to the same ~~periods~~period in ~~2019, were~~2020, primarily due to the ~~result of the~~significant reductions in one-time consulting and analytics revenue discussed above.

Operating Expenses

Sales, marketing and
customer success ($M)

Research and development ($M)

General and administrative
($M)

Percentages indicate expenses as a percentage of total revenue


~~Third Quarter 2020 Form 10-Q~~						35

~~Table of Contents~~

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~~(Unaudited)~~

Sales, marketing and customer success

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

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

Sales, marketing and customer success expense decreased by ~~$7.0~~$9.9 million or ~~12.7%, and $6.8 million or 4.1%~~16.9%, during the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, respectively, when compared to the same ~~periods~~period in ~~2019,~~2020, primarily driven by the following:


			+-						~~For~~Decrease in compensation costs other than stock-based compensation of $8.6 million due to the ~~nine months ended September 30,~~targeted reduction in sales headcount during the second quarter of 2020, ~~increase~~discussed above
			-						Decrease in ~~employee severance~~allocated costs of ~~$1.0~~$2.5 million primarily related to a decrease in rent expense and the impact of the targeted reduction in ~~our~~ sales headcount ~~in response to~~during the ~~COVID-19 pandemic~~second quarter of 2020, as discussed above
			-						Decreases in compensation costs of $3.5 million and $2.6 million, respectively, primarily related to the decision to replace our 2020 cash bonus plans with grants of performance-based equity awards; for the three months ended September 30, 2020, compensation costs also decreased due to the reduction in sales headcount discussed above
			-						~~Decreases~~Decrease in travel costs of ~~$2.1~~$2.2 million ~~and $3.6 million, respectively,~~ due to our restriction on non-essential employee travel in response to the COVID-19 pandemic

			-+						~~Decreases~~Increase in ~~commissions expense~~stock-based compensation costs of ~~$0.7~~$2.9 million ~~and $0.9 million, respectively, related~~due to ~~a decrease in commissionable sales~~the factors discussed above on page 23


26						First Quarter 2021 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 delight our customers with innovative cloud solutions, which is a component of our four-point ~~growth~~ strategy. We increased engineering hiring beginning in the fourth quarter of 2020.

Research and development expenses ~~decreased~~increased by ~~$3.2~~$4.2 million or ~~12.2%, and $7.6 million or 9.5%~~16.8%, during the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021, when compared to the same ~~periods~~period in ~~2019,~~2020, primarily driven by the following:


			-+						~~Decreases~~Increase in compensation costs of ~~$2.5~~$3.3 million ~~and $6.0 million, respectively,~~ primarily related to stock-based compensation due to the ~~decision to replace our 2020 cash bonus plans with grants of performance-based equity awards~~factors discussed above on page 23

			-+						~~Decreases~~Decrease in ~~third-party contractor~~software development costs of ~~$0.9~~$1.7 million ~~and $1.2 million, respectively~~that were required to be capitalized under the internal-use software guidance, primarily due to lower engineering headcount

Not included in research and development expense for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were ~~$10.2~~$9.1 million and ~~$11.1 million, respectively, and for the nine months ended September 30, 2020 and 2019 were $31.6 million and $33.9~~$10.8 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 for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized software development costs associated with our cloud solutions are subsequently amortized to cost of subscriptions revenue over the related asset's estimated useful life, which generally range from three to seven years. We expect that the amount of software development costs capitalized will be relatively consistent in the near-term as we continue making investments in innovation, quality and the integration of our solutions, which we believe will drive long-term revenue growth.


36						~~Third Quarter 2020 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

General and administrative

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

During the third quarter of 2020, we adjusted our workforce strategy to provide more flexibility ~~for~~to our employees ~~to work remotely~~ after our offices ~~reopen.~~reopen and we expect to have more employees working remotely either part-time or full-time, even within our hub locations. This change is expected to create efficiencies within our real estate footprint as we shift toward more collaborative workspaces within our offices. As a result, during the three months ended September 30, 2020, we reduced the estimated useful lives of our operating lease ROU assets for certain of our office locations we expect to exit, which resulted in an increase in operating lease costs during the period. For these same office locations, we also reduced the estimated useful lives of certain facilities-related fixed assets, which resulted in an increase in depreciation expense. We currently expect most of the transactions related to these real estate activities will close during the fourth quarter of 2020 with a one-time cash outlay of between $20.0 million and $25.0 million during the third and fourth quarters of 2020. We incurred approximately $6.8 million of pre-tax costs related to these real estate activities during the third quarter of 2020.

General and administrative expense increased by ~~$5.2~~$4.7 million or ~~18.1%, and $5.3 million or 6.2%~~18.3%, during the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same ~~periods~~period in ~~2019,~~2020, primarily driven by the following:


			+						~~Increases~~Increase in ~~real estate activity~~stock-based compensation costs of ~~$6.8 and $6.8, respectively,~~$5.1 million due to ~~our workforce strategy changes in response to~~ the ~~COVID-19 pandemic, as~~factors discussed above on page 23
			+						~~Increases~~Increase in corporate costs of ~~$2.5~~$2.2 million ~~and $5.9 million, respectively,~~ primarily related to increases in ~~bad debt expense; for additional details, see Note 2 of our condensed consolidated financial statements in this report~~third-party consulting fees and insurance costs
			-						~~Decreases~~Decrease in ~~compensation costs~~rent expense of ~~$2.0~~$3.0 million ~~and $2.7 million, respectively,~~ primarily related to the ~~decision to replace~~purchase of our global headquarters facility during the third quarter of 2020 ~~cash bonus plans~~and our exit of certain other office leases globally during the second half of 2020 in-line with ~~grants of performance-based equity awards~~our new workforce strategy, discussed above
			-						~~Decreases in acquisition-related expenses and integration costs of $1.2 million and $3.1 million, respectively~~
			-						~~Decreases in third-party contractor costs of $1.0 million and $1.4 million, respectively~~

~~Restructuring~~

During 2017, in an effort to further our organizational objectives, including improved operating efficiency, customer outcomes and employee satisfaction, we initiated a multi-year plan to consolidate and relocate some of our existing offices to highly modern and more collaborative workspaces with short-term financial commitments, which was substantially completed as of December 2019. During the three and nine months ended September 30, 2019, we incurred $0.4 million and $3.1 million, respectively, in before-tax restructuring charges related to these activities. Such charges during the three and nine months ended September 30, 2020 were insignificant.

~~Interest Expense~~

Three months ended
September 30,
Nine months ended
September 30,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Interest expense $ 4.0 $ 5.1 (21.8) % $ 12.0 $ 16.2 (25.8) %
% of total revenue 1.9 % 2.3 % 1.8 % 2.4 %

The decreases in interest expense in dollars and as a percentage of total revenue during the three and nine months ended September 30, 2020, when compared to the same periods in 2019, were primarily due to decreases in our average daily borrowings and our weighted average effective interest rates. We expect our interest expense to remain relatively consistent in the near-term.


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						3727

Table of Contents

Blackbaud, Inc.

(Unaudited)

Interest Expense


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

The increase in interest expense in dollars and as a percentage of total revenue during the three months ended March 31, 2021, when compared to the same period in 2020, was primarily due to the Real Estate Loans assumed for the purchase of our global headquarters facility in August 2020 and the deferred financing costs and debt discount associated with the 2020 Credit Facility, which was entered into in October 2020.

Deferred Revenue

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


(dollars in millions)	(dollars in millions)	Timing of recognition	September 30, 2020		December 31, 2019		Change		(dollars in millions)	Timing of recognition	March 31, 2021		December 31, 2020		Change
Recurring	Recurring	Over the period billed in advance, generally one year	$	314.2	$	302.8	3.8	%	Recurring	Over the period billed in advance, generally one year	$	278.0	$	303.8	(8.5)	%
One-time services and other	One-time services and other	As services are delivered	14.1		13.4		5.2	%	One-time services and other	As services are delivered	16.5		13.1		26.4	%
Total deferred revenue(1)	Total deferred revenue(1)		328.3		316.1		3.8	%	Total deferred revenue(1)		294.5		316.9		(7.1)	%
Less: Long-term portion	Less: Long-term portion		5.8		1.8		222.0	%	Less: Long-term portion		4.5		4.7		(3.9)	%
Current portion(1)	Current portion(1)		$	322.5	$	314.3	2.6	%	Current portion(1)		$	290.0	$	312.2	(7.1)	%

(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, ~~with one to three-year renewals thereafter,~~ billed annually in advance, and non-cancelable. We have been for several years successfully shifting our legacy customer base away from annual renewals and moving them onto multi-year renewal contracts. We generally invoice our customers with recurring revenue contracts in annual cycles 30 days prior to the end ~~of the contract term.~~each one-year period.

Deferred revenue from recurring revenue contracts ~~increased~~decreased during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, primarily due a seasonal ~~increase~~decrease in customer contract renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter, which generally results in our lowest balance of deferred revenue at the end of our first quarter. Deferred revenue from one-time services and other increased during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, primarily due ~~an increase in~~to increased bookings during the ~~mix~~fourth quarter of ~~retained~~2020 and ~~managed services contracts we present in one-time services and other beginning January 1, 2020, as discussed above.~~the first quarter of 2021.

~~We have acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, we recorded write-downs~~


28						First Quarter 2021 Form 10-Q

Table 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".Contents

Blackbaud, Inc.

(Unaudited)

Income tax provision

Three months ended
September 30,
Nine months ended
September 30,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Income tax provision $ 1.8 $ 0.4 382.4 % $ 6.9 $ 1.3 450.1 %
Effective income tax rate 26.5 % 7.4 % 24.6 % 10.7 %


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

The increase in our effective income tax rate for the three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same period in ~~2019,~~2020, was primarily attributable to higher ~~2019~~2021 discrete ~~benefits~~tax expense against lower pre-tax income. The ~~2019~~2020 effective income tax rate was positively impacted by a reduction to the liability for unrecognized tax benefits. The effective tax rate for 2020 was positively impacted by an adjustment to the prior year tax provision net of a tax charge resulting from an increase in the U.K. tax rate.

~~The increase in our effective tax rate for the nine months ended September 30, 2020, when compared to the same period in 2019, was primarily attributable to a reduction in~~ benefits attributable to ~~stock based~~stock-based compensation. The 2021 effective income tax rate was negatively impacted by tax expense attributable to stock-based compensation against ~~increased 2020 profitability.~~lower pre-tax income.

Non-GAAP 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


38						~~Third Quarter 2020 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

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,									Three months ended March 31,
(dollars in millions)	(dollars in millions)	2020			2019			Change		2020			2019			Change		(dollars in millions)		2021			2020			Change
GAAP Revenue		$	215.0		$	221.1		(2.8)	%	$	670.6		$	662.6		1.2	%
Non-GAAP adjustments:
Add: Acquisition-related deferred revenue write-down		—			0.3			(100.0)	%	—			1.7			(100.0)	%
Non-GAAP revenue(1)		$	215.0		$	221.4		(2.9)	%	$	670.6		$	664.3		1.0	%

GAAP gross profit	GAAP gross profit	$	116.3		$	119.3		(2.5)	%	$	362.1		$	360.7		0.4	%	GAAP gross profit		$	115.8		$	118.8		(2.5)	%
GAAP gross margin	GAAP gross margin	54.1		%	54.0		%			54.0		%	54.4		%			GAAP gross margin		52.8		%	53.1		%
Non-GAAP adjustments:	Non-GAAP adjustments:																	Non-GAAP adjustments:
Add: Acquisition-related deferred revenue write-down		—			0.3			(100.0)	%	—			1.7			(100.0)	%

Add: Stock-based compensation expense	Add: Stock-based compensation expense	3.7			0.8			370.4	%	7.1			2.5			179.4	%	Add: Stock-based compensation expense		5.4			0.9			519.4	%
Add: Amortization of intangibles from business combinations	Add: Amortization of intangibles from business combinations	9.2			11.2			(17.9)	%	29.8			34.0			(12.2)	%	Add: Amortization of intangibles from business combinations		9.1			10.9			(16.5)	%
Add: Employee severance		—			—			(100.0)	%	0.8			1.1			(28.3)	%

Subtotal(1)	Subtotal(1)	12.9			12.3			5.0	%	37.8			39.3			(4.0)	%	Subtotal(1)		14.5			11.8			22.5	%
Non-GAAP gross profit(1)	Non-GAAP gross profit(1)	$	129.2		$	131.6		(1.8)	%	$	399.9		$	400.0		—	%	Non-GAAP gross profit(1)		$	130.3		$	130.6		(0.2)	%
Non-GAAP gross margin	Non-GAAP gross margin	60.1		%	59.5		%			59.6		%	60.2		%			Non-GAAP gross margin		59.4		%	58.4		%

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


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						3929

Table of Contents

Blackbaud, Inc.

(Unaudited)


		Three months ended September 30,								Nine months ended September 30,									Three months ended March 31,
(dollars in millions, except per share amounts)	(dollars in millions, except per share amounts)	2020			2019			Change		2020			2019			Change		(dollars in millions, except per share amounts)		2021			2020			Change
GAAP income from operations	GAAP income from operations	$	10.1		$	7.9		28.0	%	$	38.1		$	23.6		61.7	%	GAAP income from operations		$	6.6		$	8.4		(21.1)	%
GAAP operating margin	GAAP operating margin	4.7		%	3.6		%			5.7		%	3.6		%			GAAP operating margin		3.0		%	3.8		%
Non-GAAP adjustments:	Non-GAAP adjustments:																	Non-GAAP adjustments:
Add: Acquisition-related deferred revenue write-down		—			0.3			(100.0)	%	—			1.7			(100.0)	%

Add: Stock-based compensation expense	Add: Stock-based compensation expense	20.8			14.9			40.2	%	54.6			43.6			25.1	%	Add: Stock-based compensation expense		30.0			13.6			120.9	%
Add: Amortization of intangibles from business combinations	Add: Amortization of intangibles from business combinations	10.0			11.9			(16.4)	%	32.1			37.2			(13.8)	%	Add: Amortization of intangibles from business combinations		9.7			11.7			(17.1)	%
Add: Employee severance	Add: Employee severance	0.2			—			383.3	%	4.6			3.7			25.5	%	Add: Employee severance		1.0			0.1			921.6	%
Add: Acquisition-related integration costs	Add: Acquisition-related integration costs	—			1.0			(101.5)	%	(0.1)			2.2			(105.3)	%	Add: Acquisition-related integration costs		(0.1)			—			206.3	%
Add: Acquisition-related expenses	Add: Acquisition-related expenses	0.1			0.2			(70.9)	%	0.3			1.0			(72.0)	%	Add: Acquisition-related expenses		0.1			0.1			(53.2)	%
Add: Restructuring and other real estate activities	Add: Restructuring and other real estate activities	6.9			0.4			1,635.8	%	7.0			3.1			127.6	%	Add: Restructuring and other real estate activities		(0.1)			—			(562.5)	%
Subtotal(1)	Subtotal(1)	38.0			28.7			32.3	%	98.4			92.5			6.4	%	Subtotal(1)		40.5			25.5			59.1	%
Non-GAAP income from operations(1)	Non-GAAP income from operations(1)	$	48.1		$	36.6		31.4	%	$	136.5		$	116.1		17.6	%	Non-GAAP income from operations(1)		$	47.2		$	33.9		39.1	%
Non-GAAP operating margin	Non-GAAP operating margin	22.4		%	16.5		%			20.4		%	17.5		%			Non-GAAP operating margin		21.5		%	15.2		%

GAAP income before provision for income taxes	GAAP income before provision for income taxes	$	6.6		$	4.9		34.5	%	$	28.3		$	11.8		138.8	%	GAAP income before provision for income taxes		$	0.5		$	5.3		(90.3)	%
GAAP net income		$	4.9		$	4.6		6.8	%	$	21.3		$	10.6		101.6	%
GAAP net (loss) income																		GAAP net (loss) income		$	(0.2)		$	4.6		(103.5)	%
Shares used in computing GAAP diluted earnings per share	Shares used in computing GAAP diluted earnings per share	48,859,707			48,464,529			0.8	%	48,582,068			48,223,712			0.7	%	Shares used in computing GAAP diluted earnings per share		47,363,197			48,455,751			(2.3)	%
GAAP diluted earnings per share	GAAP diluted earnings per share	$	0.10		$	0.09		11.1	%	$	0.44		$	0.22		100.0	%	GAAP diluted earnings per share		$	—		$	0.10		(100.0)	%
Non-GAAP adjustments:	Non-GAAP adjustments:																	Non-GAAP adjustments:
Add: GAAP income tax provision	Add: GAAP income tax provision	1.8			0.4			382.4	%	6.9			1.3			450.1	%	Add: GAAP income tax provision		0.7			0.7			(1.7)	%
Add: Total non-GAAP adjustments affecting income from operations	Add: Total non-GAAP adjustments affecting income from operations	38.0			28.7			32.3	%	98.4			92.5			6.4	%	Add: Total non-GAAP adjustments affecting income from operations		40.5			25.5			59.1	%

Non-GAAP income before provision for income taxes	Non-GAAP income before provision for income taxes	44.7			33.7			32.6	%	126.7			104.3			21.4	%	Non-GAAP income before provision for income taxes		41.0			30.8			33.2	%
Assumed non-GAAP income tax provision(2)	Assumed non-GAAP income tax provision(2)	8.9			6.7			32.6	%	25.3			20.9			21.4	%	Assumed non-GAAP income tax provision(2)		8.2			6.2			33.2	%
Non-GAAP net income(1)	Non-GAAP net income(1)	$	35.7		$	26.9		32.6	%	$	101.3		$	83.5		21.4	%	Non-GAAP net income(1)		$	32.8		$	24.7		33.2	%

Shares used in computing non-GAAP diluted earnings per share	Shares used in computing non-GAAP diluted earnings per share	48,859,707			48,464,529			0.8	%	48,582,068			48,223,712			0.7	%	Shares used in computing non-GAAP diluted earnings per share		48,387,042			48,455,751			(0.1)	%
Non-GAAP diluted earnings per share	Non-GAAP diluted earnings per share	$	0.73		$	0.56		30.4	%	$	2.09		$	1.73		20.8	%	Non-GAAP diluted earnings per share		$	0.68		$	0.51		33.3	%

(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 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.

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


		Nine months ended September 30,							Three months ended March 31,
(dollars in millions)	(dollars in millions)	2020		2019		Change		(dollars in millions)	2021		2020		Change
GAAP net cash provided by operating activities		$	109.2	$	122.1	(10.6)	%
GAAP net cash provided by (used in) operating activities								GAAP net cash provided by (used in) operating activities	$	30.1	$	(24.5)	(222.9)	%
Less: purchase of property and equipment	Less: purchase of property and equipment	(25.8)		(9.6)		169.2	%	Less: purchase of property and equipment	(3.5)		(2.9)		21.0	%
Less: capitalized software development costs	Less: capitalized software development costs	(32.0)		(34.5)		(7.2)	%	Less: capitalized software development costs	(9.3)		(10.9)		(14.9)	%
Non-GAAP free cash flow	Non-GAAP free cash flow	$	51.3	$	78.0	(34.2)	%	Non-GAAP free cash flow	$	17.3	$	(38.3)	(145.2)	%


4030						~~Third~~First Quarter ~~2020~~2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Non-GAAP organic revenue growth

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


(dollars in millions)	(dollars in millions)	Three months ended September 30,					Nine months ended September 30,					(dollars in millions)	Three months ended March 31,
		2020			2019		2020			2019				2021			2020
GAAP revenue	GAAP revenue	$	215.0		$	221.1	$	670.6		$	662.6	GAAP revenue		$	219.2		$	223.6
GAAP revenue growth	GAAP revenue growth	(2.8)		%			1.2		%			GAAP revenue growth		(2.0)		%
Add: Non-GAAP acquisition-related revenue (1)	Add: Non-GAAP acquisition-related revenue (1)	—			0.3		—			1.7		Add: Non-GAAP acquisition-related revenue (1)		—			—
Non-GAAP organic revenue (2)	Non-GAAP organic revenue (2)	$	215.0		$	221.4	$	670.6		$	664.3	Non-GAAP organic revenue (2)		$	219.2		$	223.6
Non-GAAP organic revenue growth	Non-GAAP organic revenue growth	(2.9)		%			1.0		%			Non-GAAP organic revenue growth		(2.0)		%

Non-GAAP organic revenue (2)	Non-GAAP organic revenue (2)	$	215.0		$	221.4	$	670.6		$	664.3	Non-GAAP organic revenue (2)		$	219.2		$	223.6
Foreign currency impact on Non-GAAP organic revenue (3)	Foreign currency impact on Non-GAAP organic revenue (3)	(0.8)			—		1.5			—		Foreign currency impact on Non-GAAP organic revenue (3)		(2.0)			—
Non-GAAP organic revenue on constant currency basis (3)	Non-GAAP organic revenue on constant currency basis (3)	$	214.2		$	221.4	$	672.1		$	664.3	Non-GAAP organic revenue on constant currency basis (3)		$	217.2		$	223.6
Non-GAAP organic revenue growth on constant currency basis	Non-GAAP organic revenue growth on constant currency basis	(3.2)		%			1.2		%			Non-GAAP organic revenue growth on constant currency basis		(2.9)		%

GAAP recurring revenue	GAAP recurring revenue	$	200.1		$	205.2	$	621.2		$	611.8	GAAP recurring revenue		$	206.8		$	204.9
GAAP recurring revenue growth	GAAP recurring revenue growth	(2.5)		%			1.5		%			GAAP recurring revenue growth		0.9		%
Add: Non-GAAP acquisition-related revenue (1)	Add: Non-GAAP acquisition-related revenue (1)	—			0.3		—			1.7		Add: Non-GAAP acquisition-related revenue (1)		—			—
Non-GAAP organic recurring revenue	Non-GAAP organic recurring revenue	$	200.1		$	205.5	$	621.2		$	613.5	Non-GAAP organic recurring revenue		$	206.8		$	204.9
Non-GAAP organic recurring revenue growth	Non-GAAP organic recurring revenue growth	(2.6)		%			1.3		%			Non-GAAP organic recurring revenue growth		0.9		%

(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, if any, acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period, and it includes the non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those companies.

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

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


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						4131

Table of Contents

Blackbaud, Inc.

(Unaudited)

Rule of 40

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


	Three months ended March 31,
(dollars in millions)		2021			2020			Change
GAAP net (loss) income		$	(0.2)		$	4.6		(103.5)	%
Non-GAAP adjustments:
Add: Interest, net		5.0			3.6			36.4	%
Add: GAAP income tax provision		0.7			0.7			(1.7)	%
Add: Depreciation		3.2			3.5			(9.3)	%
Add: Amortization of intangibles from business combinations		9.7			11.7			(17.1)	%
Add: Amortization of software development costs(1)		8.0			6.7			19.3	%
Subtotal		26.5			26.2			1.1	%
Non-GAAP EBITDA		$	26.3		$	30.9		(14.7)	%
Non-GAAP EBITDA margin		12.0		%	13.8		%

Non-GAAP adjustments:

Add: Stock-based compensation expense		30.0			13.6			120.9	%
Add: Employee severance		1.0			0.1			921.6	%
Add: Acquisition-related integration costs		(0.1)			—			206.3	%
Add: Acquisition-related expenses		0.1			0.1			(53.2)	%
Add: Restructuring and other real estate activities		(0.1)			—			(562.5)	%
Subtotal		30.9			13.8			123.4	%
Adjusted Non-GAAP EBITDA		$	57.2		$	44.7		28.0	%
Adjusted Non-GAAP EBITDA margin		26.1		%

Rule of 40(2)		24.1		%

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

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


32						First Quarter 2021 Form 10-Q

Table of Contents

Blackbaud, Inc.

(Unaudited)

Seasonality

Our revenues normally fluctuate as a result of certain seasonal variations in our business. Our ~~transaction~~first quarter has historically been the seasonal low for bookings, with the second and fourth quarters historically being seasonally higher, and our bookings tend to be back-end loaded within individual quarters given our quarterly quota plans. Transactional revenue is non-contractual and less predictable given the susceptibility to certain drivers such as timing and number of events and marketing campaigns, as well as fluctuations in donation volumes and tuition payments. Our transactional revenue has historically been at its lowest in the first quarter due to the timing of customer fundraising initiatives and events. ~~Our revenue from payment 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 fourth quarter historically achieving the highest total revenue. Our expenses, however, do not vary significantly as a result of these factors, but do fluctuate on a quarterly basis due to varying timing of expenditures.

Our cash flow from operations normally fluctuates quarterly due to the combination of the timing of customer contract renewals including renewals associated with customers of acquired companies, delivery of professional services and occurrence of customer events, ~~the payment of bonuses,~~ as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our first quarter, combined with ~~the payment of bonuses from the prior year in our first quarter and~~ the payment of certain annual vendor contracts, our cash flow from operations has been lowest in our first quarter. Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has 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 were replaced in 2020 with performance-based equity awards due to COVID-19, but are ~~generally effective~~expected to return in ~~April each year.~~July 2021. In addition, deferred revenues can vary on a seasonal basis for the same reasons. Our cash flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards. During the second quarter of 2021, we expect an increase in the amount taxes we pay on behalf of our employees related to the settlement of equity awards when compared to the same period in 2020, as the equity granted in May 2020 in lieu of cash bonus plans and base salary merit increases will vest. 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.


Liquidity and Capital Resources

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


(dollars in millions)	(dollars in millions)	September 30, 2020		December 31, 2019		Change		(dollars in millions)	March 31, 2021		December 31, 2020		Change
Cash and cash equivalents	Cash and cash equivalents	$	30.6	$	31.8	(3.9)	%	Cash and cash equivalents	$	27.8	$	35.8	(22.4)	%
Property and equipment, net	Property and equipment, net	109.5		35.5		208.0	%	Property and equipment, net	105.1		105.2		(0.1)	%
Software development costs, net	Software development costs, net	108.9		101.3		7.5	%	Software development costs, net	113.6		111.8		1.6	%
Total carrying value of debt	Total carrying value of debt	508.3		467.1		8.8	%	Total carrying value of debt	550.8		531.0		3.7	%
Working capital	Working capital	(207.6)		(254.3)		18.4	%	Working capital	(180.9)		(194.3)		6.9	%

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


		Nine months ended September 30,							Three months ended March 31,
(dollars in millions)	(dollars in millions)	2020		2019		Change		(dollars in millions)	2021		2020		Change
Net cash provided by operating activities		$	109.2	$	122.1	(10.6)	%
Net cash provided by (used in) operating activities								Net cash provided by (used in) operating activities	$	30.1	$	(24.5)	(222.9)	%
Net cash used in investing activities	Net cash used in investing activities	(57.9)		(153.0)		(62.2)	%	Net cash used in investing activities	(12.8)		(13.8)		(7.5)	%
Net cash used in financing activities	Net cash used in financing activities	(393.8)		(144.6)		172.3	%	Net cash used in financing activities	(379.6)		(278.9)		36.1	%


First Quarter 2021 Form 10-Q						33

Table of Contents

Blackbaud, Inc.

(Unaudited)

Our principal sources of liquidity are our operating cash flow, funds available under the 2020 Credit Facility and cash on hand. Our operating cash flow depends on continued customer renewal of our subscription and maintenance arrangements, market acceptance of our solutions and services 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. To the extent we undertake future material acquisitions, investments or unanticipated capital expenditures, we may require additional capital. In that context, we regularly evaluate opportunities to enhance our capital structure including through potential debt or equity issuances.


42						~~Third Quarter 2020 Form 10-Q~~

~~Table of Contents~~

~~Blackbaud, Inc.~~

~~(Unaudited)~~

•~~Temporarily froze our hiring efforts and implemented a modest and targeted headcount reduction, though we have since began backfilling key roles, including engineering positions;~~

•~~Restricted non-essential employee travel and put in place other operating cost containment actions;~~

•~~All of our employees with a base salary equal to or less than $75 thousand received financial support in the form of a one-time bonus of $1 thousand on April 30, 2020;~~

•~~On May 1, 2020, we granted RSUs to our employees that were eligible for base salary merit increases in lieu of such increases, which will vest on May 1,~~At March 31, 2021, ~~subject to the recipient's continued employment with us; and~~

•On May 1, 2020, we granted PRSUs to our employees that were eligible for a 2020 cash bonus plan in lieu of such cash bonus, which may be earned and become eligible for vesting on May 1, 2021 subject to meeting certain performance conditions and the recipient's continued employment with us.

•During the third quarter of 2020, we adjusted our workforce strategy to provide more flexibility for our employees to work remotely when our offices reopen. This change also expands our access to a larger and more diverse talent pool, empowers our leaders to make decisions based on skills and business need rather than location, and it is expected to create efficiencies within our real estate strategy as we optimize our footprint and shift toward more collaborative workspaces within our offices. We currently expect most of the transactions related to these real estate activities will close during the fourth quarter of 2020 with a one-time cash outlay of between $20.0 million and $25.0 million during the third and fourth quarters of 2020. We incurred approximately $6.8 million of pre-tax costs related to these real estate activities during the third quarter of 2020.

~~In addition to the initial actions we have taken to date, we are continuously evaluating further possible actions in order to respond quickly to rapidly changing conditions, if needed.~~

We are experiencing an increase in our aging of receivables and observed changes in some of our customers' payment behavior associated with the COVID-19 pandemic and this development may continue in the near term. We have received short-term payment relief requests as a result of COVID-19, most often in the form of payment deferral requests. We are evaluating each request on a case-by-case basis to assess the customer's ability to pay. Not all customer requests will ultimately result in modified payment terms, nor are we forgoing our contractual rights under customer agreements. During the three and nine months ended September 30, 2020, our bad debt expense increased by $2.4 million and $5.3 million, respectively, compared to the same periods in 2019. We are continually monitoring our customer receivable balances, payment terms, and creditworthiness for changes that could have a significant impact on the collectability of our accounts receivables, our operating results and financial position.

~~At September 30, 2020,~~ our total cash and cash equivalents balance included approximately ~~$17.2~~$16.6 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

Net cash provided by operating activities ~~decreased~~increased by ~~$13.0~~$54.6 million during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same period in ~~2019,~~2020, primarily due to a ~~$45.5~~$46.6 million ~~decrease~~increase in cash flow from operations associated with working capital ~~partially offset by a $32.5~~and an $8.0 million increase in net income adjusted for ~~non-~~


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~~(Unaudited)~~

~~cash~~non-cash expenses. Throughout both periods, our cash flows from operations were derived principally from: (i) our earnings from on-going operations prior to non-cash expenses such as depreciation, amortization, stock-based compensation, amortization of deferred financing costs and debt discount and adjustments to our provision for credit losses and sales returns; and (ii) changes in our working capital. The increase in net income adjusted for non-cash expenses was primarily from operating cost reductions put in place in response to COVID-19 and the increased use of stock-based compensation in lieu of cash-based compensation.

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. The ~~decrease~~increase in cash flow from operations associated with working capital during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the ~~same~~same period in ~~2019,~~2020, was primarily due to:

•~~an increase in current period bonus payments as a result of an increase in amounts accrued as of December 31, 2019 for over-performance against 2019 targets;~~

•~~a decrease~~the payment of our 2019 cash bonus plans in 2020 and the ~~current period bonus accrual due to our decision to replace cash payments for~~replacement of our 2020 cash bonus plans with performance-based equity ~~awards;~~awards (which we expect will continue going forward);

•an increase in the ~~aging~~collection of customer receivable ~~balances primarily due to the COVID-19 pandemic;~~balances; and

•fluctuations in the timing of vendor payments.

Investing Cash Flow

Net cash used in investing activities of ~~$57.9~~$12.8 million decreased by ~~$95.1~~$1.0 million during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, when compared to the same period in ~~2019.~~2020.

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2021, we used ~~net cash of $109.4~~$9.3 million ~~for our acquisition of YourCause and we did not make any similar investments during the same period in 2020. During the nine months ended September 30, 2020, we used $32.0 million~~ for software development costs, which was ~~relatively consistent with~~down $1.6 million from cash spent during the same period in ~~2019.~~2020, primarily due to lower engineering headcount. We increased engineering hiring beginning in the fourth quarter of 2020 and continue to invest in our innovative cloud solutions, as well as development activities for Blackbaud SKY, our modern cloud platform.

We also spent ~~$25.8~~$3.5 million of cash for purchases of property and equipment during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, which was an increase of ~~$16.2~~$0.6 million when compared to the same period in ~~2019. The additional cash expended was primarily used to purchase our Headquarters Facility.~~2020.

Financing Cash Flow

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we had a net ~~decrease~~increase in borrowings of ~~$23.6~~$21.0 million.

We paid ~~$21.3~~$18.4 million to satisfy tax obligations of employees upon settlement of equity awards during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$20.3~~$19.8 million during the same period in ~~2019.~~2020. The amount of taxes paid by us on the behalf of employees related to the settlement of equity awards varies from period to period based upon the timing of grants and vesting, as well as the market price for shares of our common stock at the time of settlement. ~~Most~~While most of our equity awards currently vest in our first ~~quarter. In addition, during~~quarter, the ~~nine~~equity awards that we granted in May 2020 to replace our 2020 cash bonus plans and base salary merit increases will vest in May 2021. During the three months


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ended ~~September 30,~~March 31, 2020, we paid dividends of $6.0 million ~~down from $17.7 million~~and we did not pay dividends during the same period ~~of 2019,~~in 2021, as we discontinued the declaration and payment of all cash dividends, beginning with the second quarter of 2020.

Cash used in financing activities associated with changes in restricted cash due to customers increased ~~$121.9~~$42.5 million during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 when compared to the same period in ~~2019,~~2020, as the amount of restricted cash held and payable by us to customers as of December 31, ~~2019~~2020 was ~~significantly~~ larger than at the same date in ~~2018~~2019 primarily due to the timing of year-end donations. ~~Additionally, effective August 3,~~

Stock repurchase program

In November 2020, our Board of Directors reauthorized and expanded a ~~significant~~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 ~~restricted cash related to charitable giving transacted through~~repurchases depends on several factors, including market and business conditions, the trading price of our ~~social responsibility~~common stock and ~~grantmaking solutions is now held and disbursed by~~ the ~~Blackbaud Giving Fund, an independent nonprofit organization, strategic partner~~nature of ~~ours, and sponsoring organization~~other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. During the three months ended March 31, 2021, we purchased 465,821 shares for ~~a donor advised fund. This change was made primarily to facilitate faster tax receipts for our customers and their employees.~~$28.1 million.


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~~2017~~ Credit Facility

WeHistorically, we have drawn on our credit facility from time to time to help us meet financial needs, ~~such as~~primarily due to the seasonality of our cash flows from operations and financing for business acquisitions. At ~~September 30, 2020,~~March 31, 2021, our available borrowing capacity under the ~~2017~~2020 Credit Facility was ~~$229.6~~$406.0 million. The ~~2017~~2020 Credit Facility matures in ~~June 2022.~~October 2025.

At ~~September 30, 2020,~~March 31, 2021, the carrying amount of our debt under the ~~2017~~2020 Credit Facility was ~~$444.0~~$488.8 million. Our average daily borrowings during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 were ~~$472.7 million and $496.7 million, respectively.~~$489.5 million.

The following is a summary of the financial covenants under the ~~2017~~2020 Credit Facility:


Financial covenant	Requirement	Ratio as of ~~September 30, 2020~~March 31, 2021
Net leverage ratio	≤ ~~3.50~~4.00 to 1.00	~~1.95~~1.79 to 1.00
Interest coverage ratio	≥ 2.50 to 1.00	~~13.84~~16.44 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 30, 2020,~~March 31, 2021, we were in compliance with our debt covenants under ~~the 2017 Credit Facility.~~

~~October 2020 refinancing~~


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(Unaudited)

Commitments and Contingencies

As of ~~September 30, 2020,~~March 31, 2021, we had contractual obligations with future minimum commitments as follows:


		Payments due by period											Payments due by period
(in millions)	(in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		(in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Recorded contractual obligations:	Recorded contractual obligations:											Recorded contractual obligations:
Debt(1)	Debt(1)	$	509.6	$	10.3	$	442.2	$	3.3	$	53.8	Debt(1)	$	553.5	$	12.9	$	23.4	$	464.4	$	52.9
Interest payments on debt(2)	Interest payments on debt(2)	4.0		4.0		—		—		—		Interest payments on debt(2)	2.6		2.2		0.3		—		—
Operating leases(3)	Operating leases(3)	46.0		18.5		23.5		4.0		—		Operating leases(3)	25.6		8.1		9.3		4.6		3.5

Unrecorded contractual obligations:	Unrecorded contractual obligations:											Unrecorded contractual obligations:
Interest payments on debt(4)	Interest payments on debt(4)	50.0		9.5		10.3		5.8		24.3		Interest payments on debt(4)	78.9		11.9		24.9		19.2		22.9
Purchase obligations(5)	Purchase obligations(5)	85.9		50.6		35.2		—		—		Purchase obligations(5)	79.0		56.6		22.4		—		—
Total contractual obligations	Total contractual obligations	$	695.4	$	92.9	$	511.3	$	13.1	$	78.1	Total contractual obligations	$	739.6	$	91.8	$	80.3	$	488.2	$	79.3

(1)Represents principal payments only, under the following assumptions: (i) that the amounts outstanding under the ~~2017~~2020 Credit Facility, our Real Estate Loans and our other debt at ~~September 30, 2020~~March 31, 2021 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the ~~2017~~2020 Credit Facility for the purposes of determining minimum commitment amounts.

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

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

(4)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.

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

The term loan under the ~~2017 Credit Facility required, and the~~ 2020 Credit Facility ~~(as described below at Part II, Item 5. “Other Information”) requires,~~and our other debt require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans ~~previously were~~are due ~~in June 2022 under the 2017 Credit Facility and now will be due in October 2025 under~~upon maturity of the 2020 Credit ~~Facility.~~Facility in October 2025. The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038.

The total liability for uncertain tax positions as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, was $~~4.8~~4.6 million and ~~$4.3~~$4.6 million, respectively. Our accrued interest and penalties related to tax positions taken on our tax returns was $1.1 million and ~~$1.0~~$1.1 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.


Off-Balance Sheet Arrangements

As of ~~September 30, 2020,~~March 31, 2021, 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.


Foreign Currency Exchange Rates

Approximately ~~16%~~15% of our total revenue for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was generated from operations outside the U.S. We do not have significant operations in countries in which the economy is considered to be highly inflationary. Our consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between foreign currencies and the U.S. dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. The accumulated currency translation adjustment, recorded within accumulated other comprehensive loss as a component of stockholders’ equity, was a ~~loss~~gain of ~~$5.9~~$3.1 million as of ~~September 30, 2020~~March 31, 2021 and a ~~loss~~gain of ~~$4.0~~$0.6 million as of December 31, ~~2019.~~2020.


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(Unaudited)

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~~three months ended ~~September 30, 2020,~~March 31, 2021, foreign translation resulted in ~~decreases~~increases in our revenues and expenses denominated in non-U.S. currencies. Though we have exposure to fluctuations in currency exchange rates, primarily those between the U.S. dollar and both the British Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operations or financial position. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the fluctuation in foreign currency exchange rates ~~reduced~~increased our total revenue and our income from operations by ~~$1.5~~$2.0 million and ~~$0.8~~$0.7 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.


Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020.


Recently Issued Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


Interest Rate Risk

Our variable rate debt is our primary financial instrument with market risk exposure for changing interest rates. We manage our variable rate interest rate risk through a combination of short-term and long-term borrowings and the use of derivative instruments entered into for hedging purposes. Our interest rate exposure includes LIBOR rates. The Financial Conduct Authority in the U.K. has stated that it plans to phase out LIBOR by the end of calendar year 2021. 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 30, 2020,~~March 31, 2021, we believe that the risk of exposure to changing interest rates for those positions is immaterial. There were no significant changes in how we manage interest rate risk between December 31, ~~2019~~2020 and ~~September 30, 2020.~~March 31, 2021.


Foreign Currency Risk

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


~~Third~~First Quarter ~~2020~~2021 Form 10-Q						4737

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(Unaudited)

ITEM 4. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures

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


Changes in Internal Control Over Financial Reporting

No changes in internal control over financial reporting occurred during the most recent fiscal quarter ended ~~September 30, 2020~~March 31, 2021 with respect to our operations, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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						PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of our legal proceedings, see Note 109 to our condensed consolidated financial statements in this report.

ITEM 1A. RISK FACTORS

We are supplementing Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the Securities and Exchange Commission on February ~~20, 2020~~23, 2021 (the “Annual Report”). The following risk factors should be read in conjunction with the risk factors set forth in that Annual Report.


Operational Risks

~~The COVID-19 pandemic (“COVID-19”) has disrupted, and is expected to continue to disrupt, our business, which is likely to adversely affect our operations and financial performance.~~

The outbreak of COVID-19 in numerous countries across the globe, including each country in which we currently operate, has adversely impacted the U.S. and global economies. We have experienced disruptions to our business thus far from COVID-19, and the pandemic continues to impact each of our markets. Governmental authorities have taken, and continue to take, countermeasures to slow the outbreak, including shelter-in-place and business closure orders and large-scale restrictions on travel. Furthermore, because the pandemic is a rapidly evolving situation, we cannot anticipate with certainty the length, scope or severity of such restrictions in the jurisdictions in which we operate.

~~Certain vertical markets we serve are especially vulnerable to the ongoing global business disruption. For example:~~

•Many arts and cultural organizations, including museums, zoos, performing arts centers and theaters, among others, have had to cancel events or have seen a significant decline in attendance due to COVID-19. Many of these organizations have also suspended their operations temporarily.

•We believe that a number of K-12 private schools, that would have ordinarily considered purchasing our cloud solutions for the 2020-2021 academic school year, have delayed their expenditure decisions due to the uncertainty of COVID-19.

•A number of our nonprofit customers have also been negatively impacted by the postponement or cancellation of mass-participation events, such as marathons and other endurance sporting events, galas, auctions and other fundraisers.

We believe that COVID-19 has impacted and will continue to impact all of our vertical markets across all of our geographies to some degree, but the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease and other unforeseeable consequences. This impact could include:

•~~changes in customer demand;~~

•~~our relationship with, and the financial and operational capacities of, our service providers, suppliers and business partners, including their ability to fulfill their obligations to us;~~

•~~further declines in our customers' ability to pay for our solutions and services;~~

•~~reduced workforce availability and productivity due to working remotely using different technologies and potential health effects and concerns;~~

•~~risks associated with our indebtedness (including available borrowing capacity, compliance with financial~~


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~~covenants and ability to refinance or repay indebtedness on favorable terms);~~

•~~the adequacy of our cash flows and earnings and other conditions that may affect our liquidity;~~

•~~disruptions to our technology network and other critical systems; and~~

•~~impairment charges against our goodwill and other intangible assets, operating lease right-of-use assets and other long-lived assets.~~

We believe that business disruption relating to the COVID-19 pandemic will continue to negatively impact the U.S. and global economies and may materially adversely impact our business, financial condition and results of operations.

If the security of our software is breached, we fail to securely collect, store and transmit customer information, or we fail to safeguard confidential donor data, we could be exposed to liability, litigation, penalties and remedial costs and our reputation and business could suffer.

Fundamental to the use of our solutions is the secure collection, storage and transmission of confidential donor and end user data and transaction data, including in our payment services. Despite the network, application and physical security procedures and internal control measures we employ to safeguard our systems, we may still be vulnerable to a security breach, intrusion, loss or theft of confidential donor data and transaction data, which may harm our business, reputation and future financial results. Furthermore, our increased reliance on remote access to information systems and global disruptions in response to COVID-19, as described above, increase our exposure to potential cybersecurity incidents.

Like many major businesses, we are, from time to time, a target of cyberattacks, phishing and social engineering schemes, such as the Security Incident (as described in Note 10 of the unaudited condensed consolidated financial statements in this report), and we expect these threats to continue, some of which may be successful to varying degrees. Because the numerous and evolving cybersecurity threats used to obtain unauthorized access, disable, degrade or sabotage systems have become increasingly more complex and sophisticated, it may be difficult to anticipate these acts or to detect them for periods of time, as with the Security Incident, and we may be unable to respond adequately or timely. As these threats continue to evolve and increase, we may be required to devote significant additional resources in order to modify and enhance our security controls and to identify and remediate any security vulnerabilities.

A compromise of our data security that results in customer or customer constituent personal or payment card data being obtained by unauthorized persons could adversely affect our reputation with our customers and others, as well as our operations, results of operations, financial condition and liquidity and could result in litigation against us or the imposition of fines and penalties. We might be required to expend significant additional capital and other resources to rectify problems caused by a security breach, including notification under data privacy laws and regulations, and incur expenses related to remediating our information security systems. Even though we carry cyber-technology insurance policies that may provide insurance coverage under certain circumstances, we might suffer losses as a result of a security breach that exceed the coverage available under our insurance policies or for which we do not have coverage. A security breach and any efforts we make to address such breach could also result in a disruption of our operations, particularly our online sales operations.

The occurrence of actual cyber security events, such as the Security Incident, could magnify the severity of the adverse effects of future incidents on our business. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage information systems can be difficult to detect for long periods of time and can involve difficult or prolonged assessment or remediation periods even once detected. We, therefore, cannot assure you that all potential causes of past significant incidents, including the Security Incident, have been fully identified and remediated. The steps we take may not be sufficient to prevent future significant incidents and, as a result, such incidents may occur again.

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

As previously disclosed, on July 16, 2020, we contacted certain customers to inform them about the Security Incident, including that in May 2020 we discovered and stopped a ransomware attack. Prior to our successfully preventing the cybercriminal from blocking our system access and fully encrypting files, and ultimately expelling them from our system with no significant disruption to our operations, the cybercriminal removed a copy of a subset of data from our self-hosted environment. Although the nature of the incident, our research and third party (including law enforcement)


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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 ~~160~~630 claims for reimbursement of expenses from customers or their attorneys related to the Security Incident (none of which have as yet been filed in court or in arbitration) and are in the process of assessing what ~~if any,~~ liability may exist pursuant to such claims. Possible exposure could result from our customers’ costs and expenses associated with notifying their own constituents 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, ~~to date,~~presently, we ~~have been named as~~are a defendant in 2330 putative consumer class action cases ~~(17~~[27 in U.S. federal courts 4(some of which have been consolidated under multi district litigation to a single federal court), 1 in a U.S. state ~~courts~~court and 2 in Canadian ~~courts)~~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 4347 state Attorneys General and the District of Columbia and a separate Civil Investigative Demand from the office of the Illinois Attorney General’s Office relating to the Security Incident. In addition, we have received communications, inquires and requests from the U.S. Federal Trade Commission, the U.S. Department of Health and Human Services, the U.S. Securities and Exchange Commission, the Information Commissioner’s Office in the United Kingdom (the “ICO”) under the U.K. Data Protection Act 2018, the Office of the Australian Information Commissioner and the Office of the Privacy Commissioner of Canada. (See Note 109 to ~~the~~our unaudited, condensed consolidated financial statements included in this ~~report.)~~report for a more detailed description of the Security Incident and related matters)

We may be named as a party in additional lawsuits, other claims may be asserted by or on behalf of our customers or their constituents, and we may be subject to additional governmental inquires, requests or investigations. Responding to and resolving these current and any future lawsuits, claims and/or investigations could result in material remedial and other expenses that may not be covered by insurance. Governmental authorities also may seek to impose undertakings, injunctive relief, consent decrees, or other civil or criminal penalties, which could, 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.


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Significant management time and Company resources have been, and are expected to continue to be, devoted to the Security Incident. (See Note 109 to ~~the~~our unaudited, condensed consolidated financial statements included in this report.) Although we carry ~~cyber-technology~~ insurance designed to protect us against certain losses related to cybersecurity events, that insurance coverage may not be sufficient to cover all expenses or other losses (including fines) or all types of claims that may arise in connection with cyberattacks, security compromises and other related incidents. Furthermore, in the future such insurance may not be available on commercially reasonable terms, or at all.

Future publicity or developments related to the Security Incident could 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.


~~Third Quarter 2020 Form 10-Q~~						51

~~Table of Contents~~

~~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 30, 2020. All of these acquisitions were of~~March 31, 2021 under the stock repurchase program then in effect, as well as common stock withheld by us to satisfy the minimum tax obligations of employees due upon vesting of restricted stock awards and units.


Period	Total number of shares purchased(1)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs(2)	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
Beginning balance, January 1, 2021					$	208,999
January 1, 2021 through January 31, 2021	464,149	$	60.23	464,149	181,042
February 1, 2021 through February 28, 2021	242,539	76.42		1,672	180,933
March 1, 2021 through March 31, 2021	—	—		—	180,933
Total	706,688	$	65.79	465,821	$	180,933

(1)Includes 240,867 shares in February withheld by us to satisfy the minimum tax obligations of employees due upon vesting of restricted stock awards and units. The level of this acquisition activity varies from period to period based upon the timing of award grants and ~~vesting as well as employee exercise decisions.~~

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, 2020 $ 50,000
July 1, 2020 through July 31, 2020 — $ — — 50,000
August 1, 2020 through August 31, 2020 3,844 63.85 — 50,000
September 1, 2020 through September 30, 2020 730 60.02 — 50,000
Total 4,574 $ 63.24 — $ 50,000
vesting.

~~(1)~~(2)In ~~August 2010,~~November 2020, our Board of Directors ~~approved a~~reauthorized and expanded our stock repurchase program ~~that authorized~~to authorize us to purchase up to ~~$50.0~~$250.0 million of our outstanding shares of common stock. ~~We have not made any repurchases under the program to date, and the~~The program does not have an expiration date.

~~ITEM 5. OTHER INFORMATION~~


~~October 2020 Refinancing~~

On October 30, 2020, we entered into the 2020 Credit Facility with the lenders referred to therein (the “Lenders”), Bank of America, N.A., as Administrative Agent, Swingline Lender and an Issuing Lender, PNC Bank, National Association, as Syndication Agent, and Regions Bank, BBVA USA and Fifth Third Bank, National Association, as Co-Documentation Agents, with BofA Securities, Inc., PNC Bank, National Association, Regions Capital Markets, BBVA USA and Fifth Third Bank, National Association, as Joint Lead Arrangers and Joint Bookrunners.

The 2020 Credit Facility is a $900 million senior secured facility that matures on October 30, 2025, unless earlier terminated, subject to certain conditions and circumstances set forth in the 2020 Credit Facility. The 2020 Credit Facility replaces the 2017 Credit Facility by amending and restating it to include a $500 million revolving credit facility (the “Revolving Credit Facility”) and a $400 million term loan facility (the “Term Facility”). The Revolving Credit Facility includes (a) a $50 million sublimit available for the issuance of standby letters of credit, (b) a $50 million sublimit available for swingline loans, and (c) a $100 million sublimit available for multicurrency borrowings. We may prepay the 2020 Credit Facility in whole or in part at any time without premium or penalty, other than customary breakage costs with respect to certain types of loans.

Under the terms of the 2020 Credit Facility, we are entitled on one or more occasions, subject to the satisfaction of certain conditions, to request an increase in the commitments under the Revolving Credit Facility and/or request additional incremental term loans in the aggregate principal amount of up to $250 million plus an amount, if any, such that the net leverage ratio shall be no greater than 3.25 to 1.00.

On October 30, 2020, we borrowed $400 million pursuant to the Term Facility and used the proceeds to repay the outstanding principal balance of the term loan under the 2017 Credit Facility, and repay $124.4 million of outstanding revolving credit loans under the 2017 revolving credit facility.


5240						~~Third~~First Quarter ~~2020~~2021 Form 10-Q

~~Table of Contents~~

~~Blackbaud, Inc.~~

Dollar tranche loans under the Revolving Credit Facility and Term Facility loans bear interest at a rate per annum equal to (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”), plus (b) an applicable margin as specified in the 2020 Credit Facility (the “Applicable Margin”). Each Eurocurrency Rate Loan under the 2020 Credit Facility shall bear interest at a rate per annum equal to the Eurocurrency Rate, plus the Applicable Margin. The Applicable Margin shall be adjusted quarterly, varies based on our net leverage ratio and varies based on whether the loan is a Base Rate Loan (0.375% to 1.125%) or a Eurocurrency Rate Loan (1.375% to 2.125%). The 2020 Credit Facility also provides for a commitment fee of between 0.250% and 0.375% of the unused commitment under the Revolving Credit Facility, depending on our net leverage ratio.

Bank of America, N.A., the Lenders and other agents under the 2020 Credit Facility and the 2020 Pledge Agreement and their respective affiliates have in the past provided, and may in the future provide, investment banking, underwriting, lending, commercial banking, cash management services, interest rate swaps and other advisory services to us. These parties have received, and may in the future receive, customary compensation from us for such services.

The descriptions of the 2020 Credit Facility and the 2020 Pledge Agreement contained in this Part II, Item 5 of our Quarterly Report on Form 10-Q do not purport to be complete and is subject to, and qualified in their entirety by, the full and complete terms contained in the 2020 Credit Facility and 2020 Pledge Agreement, copies of which are filed as Exhibits 10.4 and 10.5, respectively, and are incorporated herein by reference. Any capitalized term used herein but not defined shall have the meaning ascribed to such term in the 2020 Credit Facility.


~~Third Quarter 2020 Form 10-Q~~						53

Table of Contents

Blackbaud, Inc.

ITEM 6. EXHIBITS

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

~~Filed In~~

~~Exhibit~~

~~Number~~

~~Description of Document~~

~~Filed Herewith~~

~~Form~~

~~Exhibit Number~~

~~Filing Date~~

~~10.1~~

~~First Amendment to Purchase and Sale Agreement, dated July 8, 2020, between HPBB1, LLC and BBHQ1, LLC.~~

~~10.2~~

~~Second Amendment to Purchase and Sale Agreement, dated July 21, 2020, between HPBB1, LLC and BBHQ1, LLC.~~

~~10.3~~

~~Eleventh Amendment to Lease Agreement, dated as of August 13, 2020, between BBHQ1, LLC and Blackbaud, Inc.~~

~~10.4~~

~~Amended and Restated Credit Agreement, dated as of October~~ 30 , 2020, by and among Blackbaud, Inc., and certain of its subsidiaries, as Borrowers, the lenders referred to therein, Bank of America, N.A., as Administrative Agent, Swingline Lender and Issuing Lender, ~~PNC Bank, National Association, as Syndication Agent, and~~ ~~Regions Bank, BBVA USA~~ ~~and~~ ~~Fifth Third Bank, National Association, as Co-Documentation Agents, with BofA Securities, Inc.,~~ ~~PNC Bank, National Association, Regions Capital Markets, BBVA USA~~ ~~and~~ ~~Fifth Third Bank, National~~ ~~Association~~ ~~as Joint Lead Arrangers and Joint Bookrunners~~.

~~10.5~~

Amended and Restated Pledge Agreement, dated as of October 30, 2020, by Blackbaud, Inc. in favor of Bank of America, N.A., as Administrative Agent, for the ratable benefit of itself and the secured parties referred to therein .

~~31.1~~

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

~~31.2~~

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

~~32.1~~

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

~~32.2~~

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

~~101.INS~~

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

~~101.SCH~~

~~Inline XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~

~~Inline XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~101.DEF~~

~~Inline XBRL Taxonomy Extension Definition Linkbase Document.~~

~~101.LAB~~

~~Inline XBRL Taxonomy Extension Label Linkbase Document.~~

~~101.PRE~~

~~Inline XBRL Taxonomy Extension Presentation Linkbase Document.~~

~~104~~

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

Filed In

Exhibit

Number

Description of Document

Filed Herewith

Form

Exhibit Number

Filing Date

10.1

Form of Employment Agreement between Blackbaud, Inc. and Kevin McDearis

10.2

Form of Retention Agreement between Blackbaud, Inc. and Kevin McDearis

10-Q

10.92

8/4/2017

31.1

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

31.2

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

32.1

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

32.2

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

101.INS

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

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

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


54First Quarter 2021 Form 10-Q						~~Third Quarter 2020 Form 10-Q~~41

Table of Contents

Blackbaud, Inc.


						SIGNATURES

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


		BLACKBAUD, INC.

Date:	~~November 3, 2020~~May 4, 2021	By:	/s/ Michael P. Gianoni
			Michael P. Gianoni
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	~~November 3, 2020~~May 4, 2021	By:	/s/ Anthony W. Boor
			Anthony W. Boor
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)


~~Third Quarter 2020 Form 10-Q~~42						55First Quarter 2021 Form 10-Q


(in thousands)	Balance at beginning of year (1)		Provision/ adjustment		Write-off		Recovery		Balance at September 30, 2020
2020	$	4,011	$	6,303	$	(971)	$	302	$	9,645


(dollars in thousands)	Assets acquired		Estimated useful life (years)
Land	$	9,548	—
Building	61,284		39
Building systems	4,393		7 - 15
Total long-lived assets	$	75,225


Years ending December 31, (dollars in thousands)	Operating leases
2020 – remaining	$	5,055
2021	16,745
2022	12,034
2023	9,107
2024	2,491
Thereafter	535
Total lease payments	45,967
Less: Amount representing interest	3,628
Present value of future payments	$	42,339


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, 2020					$	50,000
July 1, 2020 through July 31, 2020	—	$	—	—	50,000
August 1, 2020 through August 31, 2020	3,844	63.85		—	50,000
September 1, 2020 through September 30, 2020	730	60.02		—	50,000
Total	4,574	$	63.24	—	$	50,000