What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 365 added, 166 removed, 449 unchanged (54% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(dollars in thousands)

(dollars in thousands) September 30,

2020 December 31,

Current assets:

Cash and cash equivalents $ 30,563 $ 31,810

Restricted cash due to customers

Accounts receivable, net of allowance of $9,025 and $5,529 at June 30, 2020 and December 31, 2019, respectively

Restricted cash 203,660 545,485

Accounts receivable, net of allowance of $ 10,727 and $ 5,529 at September 30, 2020 and December 31, 2019, respectively

96,830 88,868

Customer funds receivable 4,901 524

4 unchanged sentences

Software development costs, net 108,891 101,302

Goodwill 632,840 634,088

Intangible assets, net 284,414 317,895

Other assets 72,617 65,193

Total assets $ 1,651,164 $ 1,992,963

Liabilities and stockholders’ equity

15 unchanged sentences

Preferred stock;

20,000,000 shares authorized, none outstanding

20,000,000 shares authorized, no ne outstanding

Common stock, $ 0.001 par value;

180,000,000 shares authorized, 60,901,100 and 60,206,091 shares issued at June 30, 2020 and December 31, 2019, respectively

180,000,000 shares authorized, 60,903,925 and 60,206,091 shares issued at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 512,269 457,804

Treasury stock, at cost;

11,332,912 and 11,066,354 shares at June 30, 2020 and December 31, 2019, respectively

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 )

3 unchanged sentences

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

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Three months ended

Six months ended

September 30, Nine months ended

September 30,

(dollars in thousands, except per share amounts) 2020 2019 2020 2019

Recurring $ 200,102 $ 205,227 $ 621,229 $ 611,789

One-time services and other 14,899 15,893 49,384 50,795

4 unchanged sentences

Total cost of revenue 98,685 101,797 308,489 301,887

Gross profit 116,316 119,323 362,124 360,697

Operating expenses

2 unchanged sentences

General and administrative 34,132 28,897 89,829 84,557

Amortization 749 703 2,219 3,231

Restructuring 105 400 179 3,083

5 unchanged sentences

Income tax provision 1,756 364 6,948 1,263

Net income $ 4,876 $ 4,566 $ 21,338 $ 10,584

Earnings per share

Basic $ 0.10 $ 0.10 $ 0.44 $ 0.22

Diluted $ 0.10 $ 0.09 $ 0.44 $ 0.22

Common shares and equivalents outstanding

1 unchanged sentence

Diluted weighted average shares 48,859,707 48,464,529 48,582,068 48,223,712

Other comprehensive loss

Other comprehensive income (loss)

Foreign currency translation adjustment 4,661 ( 3,893 ) ( 1,954 ) ( 5,321 )

Unrealized gain (loss) on derivative instruments, net of tax 943 ( 363 ) ( 1,628 ) ( 3,234 )

Total other comprehensive loss

Comprehensive income (loss)

Total other comprehensive income (loss) 5,604 ( 4,256 ) ( 3,582 ) ( 8,555 )

Comprehensive income $ 10,480 $ 310 $ 17,756 $ 2,029

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

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Cash Flows

Six months ended

Nine months ended

September 30,

(dollars in thousands) 2020 2019

Cash flows from operating activities

Net income $ 21,338 $ 10,584

Adjustments to reconcile net income to net cash provided by operating activities:

21 unchanged sentences

Payments on debt ( 290,999 ) ( 255,625 )

Debt issuance costs ( 593 ) —

Employee taxes paid for withheld shares upon equity award settlement ( 21,286 ) ( 20,279 )

3 unchanged sentences

Dividend payments to stockholders ( 5,960 ) ( 17,705 )

Net cash (used in) provided by financing activities

Net cash used in financing activities ( 393,750 ) ( 144,627 )

Effect of exchange rate on cash, cash equivalents and restricted cash ( 623 ) ( 2,240 )

3 unchanged sentences

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,

Cash and cash equivalents $ 30,563 $ 31,810

Restricted cash due to customers

Restricted cash 203,660 545,485

Total cash, cash equivalents and restricted cash in the statement of cash flows $ 234,223 $ 577,295

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

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(dollars in thousands)

(dollars in thousands) Common stock Additional

capital Treasury

stock Accumulated

comprehensive

income (loss)

Total stockholders' equity

income (loss) Retained

earnings Total

stockholders'

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 )

1 unchanged sentence

Employee taxes paid for 245,358 withheld shares upon equity award settlement

— — — ( 19,782 ) — — ( 19,782 )

Stock-based compensation — — 13,539 — — 41 13,580

3 unchanged sentences

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

3 unchanged sentences

Balance at June 30, 2020 60,901,100 $ 61 $ 491,450 $ ( 311,661 ) $ ( 14,476 ) $ 245,428 $ 410,802

Second Quarter 2020 Form 10-Q

Net income — — — — — 4,876 4,876

Vesting of restricted stock units 906 — — — — — —

Employee taxes paid for 4,574 withheld shares upon equity award settlement

— — — ( 290 ) — — ( 290 )

Stock-based compensation — — 20,819 — — 24 20,843

Restricted stock grants 48,783 — — — — — —

Restricted stock cancellations ( 46,864 ) — — — — — —

Other comprehensive income — — — — 5,604 — 5,604

Balance at September 30, 2020 60,903,925 $ 61 $ 512,269 $ ( 311,951 ) $ ( 8,872 ) $ 250,328 $ 441,835

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

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated statements of stockholders' equity (continued)

(dollars in thousands)

(dollars in thousands) Common stock Additional

capital Treasury

stock Accumulated

comprehensive

income (loss)

Total stockholders' equity

income (loss) Retained

earnings Total

stockholders'

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 )

1 unchanged sentence

Employee taxes paid for 239,311 withheld shares upon equity award settlement

— — — ( 18,400 ) — — ( 18,400 )

Stock-based compensation — — 13,693 — — 33 13,726

3 unchanged sentences

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 )

1 unchanged sentence

Employee taxes paid for 17,119 withheld shares upon equity award settlement

— — — ( 1,360 ) — — ( 1,360 )

Stock-based compensation — — 15,010 — — 19 15,029

3 unchanged sentences

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 — — — — — —

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.

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

9 unchanged sentences

The consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date.

Operating results and cash flows for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 , or any other future period.

Operating results and cash flows for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020, 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.

12 unchanged sentences

We expect that COVID-19 will 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.

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

11 unchanged sentences

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 sales positions;

• 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;

3 unchanged sentences

• 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;

• 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.

Recently adopted accounting pronouncements

3 unchanged sentences

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

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

2 unchanged sentences

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.

Second Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Recently issued accounting pronouncements

10 unchanged sentences

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

(in thousands)

(in thousands) Balance at

beginning of year (1)

Balance at June 30, 2020

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 six months ended June 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.

The increase in the amount of write-offs during the six months ended June 30, 2020 was insignificant.

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

2 unchanged sentences

Provisions for sales returns and credits are charged against the related revenue items.

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

(in thousands)

(in thousands) Balance at

beginning of year (1)

Balance at June 30, 2020

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.

Second Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Goodwill and Other Intangible Assets

The change in goodwill during the six months ended June 30, 2020 , consisted of the following:

(dollars in thousands)

The change in goodwill during the nine months ended September 30, 2020, consisted of the following:

(dollars in thousands) Total

Balance at December 31, 2019 $ 634,088

Effect of foreign currency translation ( 1,248 )

Balance at June 30, 2020

Balance at September 30, 2020 $ 632,840

Earnings Per Share

5 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(dollars in thousands, except per share amounts) 2020

Net income $ 4,876 $ 4,566 $ 21,338 $ 10,584

Weighted average common shares 48,271,139 47,757,769 48,182,799 47,668,235

3 unchanged sentences

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

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

9 unchanged sentences

Fair value measurement using

(dollars in thousands)

Fair value as of June 30, 2020

(dollars in thousands) Level 1 Level 2 Level 3 Total

Fair value as of September 30, 2020

Financial liabilities:

12 unchanged sentences

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 before the phase out occurs.

We believe the carrying amounts of our cash and cash equivalents, restricted cash due to customers, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at June 30, 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 June 30, 2020 and December 31, 2019 , as the debt bears interest rates that approximate market value.

As LIBOR rates are observable at commonly quoted intervals, our debt is 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 six months ended June 30, 2020 .

Additionally, we did not hold any Level 3 assets or liabilities during the six months ended June 30, 2020 .

Second Quarter 2020 Form 10-Q

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, 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 and December 31, 2019, as the debt bears interest rates that approximate market value.

As LIBOR rates are observable at commonly quoted intervals, our debt under the 2017 Credit Facility (as defined below) is classified within Level 2 of the fair value hierarchy.

Our fixed rate debt is also classified within Level 2 of the fair value hierarchy.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the nine months ended September 30, 2020.

Additionally, we did not hold any Level 3 assets or liabilities during the nine months ended September 30, 2020.

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

6 unchanged sentences

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 six 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.

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 six months ended June 30, 2020 , we also recorded an insignificant impairment of operating lease ROU assets associated with certain leased office space we ceased using.

This impairment charge is reflected in general and administrative expense.

There were no other non-recurring fair value adjustments to our long-lived assets, intangible assets, operating lease ROU assets and goodwill during the six months ended June 30, 2020 .

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, operating lease ROU assets and goodwill during the nine months ended September 30, 2020.

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

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) September 30,

2020 December 31,

Restricted cash due to customers $ 202,455 $ 545,485

Real estate escrow balances 1,205 —

Total restricted cash 203,660 545,485

Prepaid expenses and other assets

(dollars in thousands)

(dollars in thousands) September 30,

2020 December 31,

Costs of obtaining contracts (1)(2)

$ 86,119 $ 90,764

Prepaid software maintenance and subscriptions (3)

28,999 17,384

Implementation costs for cloud computing arrangements, net (4)(5)

Unbilled accounts receivable 9,711 6,233

Receivables for probable insurance recoveries (6)

Prepaid insurance 2,079 1,585

1 unchanged sentence

Security deposits 808 885

Other assets 6,494 8,051

Total prepaid expenses and other assets 149,378 133,045

1 unchanged sentence

Prepaid expenses and other current assets $ 76,761 $ 67,852

Amortization expense from costs of obtaining contracts was $ 9.4 million and $ 18.9 million for the three and six months ended June 30, 2020 , respectively, $ 9.8 million and $ 19.4 million for the three and six months ended June 30, 2019 , respectively.

The current portion of costs of obtaining contracts as of June 30, 2020 and December 31, 2019 was $ 32.7 million and $ 33.0 million , respectively.

The current portion of prepaid software maintenance and subscriptions as of June 30, 2020 and December 31, 2019 was $ 24.4 million and $ 16.1 million , respectively.

(1) Amortization expense from costs of obtaining contracts was $ 9.4 million and $ 28.2 million for the three and nine months ended September 30, 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 and December 31, 2019 was $ 32.1 million and $ 33.0 million, respectively.

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

(4) 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.

Amortization expense from capitalized cloud computing implementation costs was insignificant for the three and six months ended June 30, 2020 and 2019 , respectively.

Accumulated amortization for these costs was insignificant as of June 30, 2020 and December 31, 2019 .

Second Quarter 2020 Form 10-Q

(5) Amortization expense from capitalized cloud computing implementation costs was insignificant for the three and nine months ended September 30, 2020 and 2019, respectively.

Accumulated amortization for these costs was $ 0.7 million as of September 30, 2020 and insignificant as of December 31, 2019.

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

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Accrued expenses and other liabilities

(dollars in thousands)

(dollars in thousands) September 30,

2020 December 31,

Operating lease liabilities, current portion $ 16,633 $ 19,784

14 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2020

Interest income $ 767 $ 1,247 $ 1,399 $ 2,426

Other income, net

Other (expense) income, net ( 225 ) 911 843 2,095

Other income, net $ 542 $ 2,158 $ 2,242 $ 4,521

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

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,

Credit facility:

Revolving credit loans $ 169,200 $ 187,000 2.21 % 3.11 %

Term loans 275,625 281,250 2.77 % 3.22 %

Real estate loans 60,890 — 5.22 % — %

Other debt 3,926 — 5.00 % — %

Total debt 509,641 468,250 2.89 % 3.18 %

Unamortized discount and debt issuance costs 1,383 1,150

1 unchanged sentence

Debt, net of current portion $ 497,953 $ 459,600 2.90 % 3.18 %

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

2 unchanged sentences

In June 2017, we entered into a five-year $ 700.0 million senior credit facility (the "2017 Credit Facility").

At June 30, 2020, we were in compliance with our debt covenants under the 2017 Credit Facility.

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

Real estate loans

In August 2020, we completed the purchase of our 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, or 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, we were in compliance with our debt covenants under the Real Estate Loans.

In December 2019, we entered into a 51-month $ 2.2 million agreement to finance our purchase of software and related services for our internal use.

4 unchanged sentences

Interest associated with the note has been imputed at the rate we would incur for amounts borrowed under the 2017 Credit Facility.

As of June 30, 2020 , the required annual maturities related to the 2017 Credit Facility and other debt were as follows:

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

Years ending December 31,

(dollars in thousands)

Annual maturities

(dollars in thousands) Annual

2020 - remaining $ 2,139

Thereafter 55,135

Total required maturities $ 509,641

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Derivative Instruments

3 unchanged sentences

We designated each of the interest rate swap agreements as a cash flow hedge at the inception of the contracts.

The terms and notional values of our derivative instruments were as follows as of June 30, 2020 :

(dollars in thousands)

Term of derivative instrument

Notional Value

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

(dollars in thousands) Term of derivative instrument Notional

Derivative instruments designated as hedging instruments:

Interest rate swap

July 2017 - July 2021

Interest rate swap

February 2018 - June 2021

Interest rate swap

June 2019 - June 2021

Second Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

Liability derivatives

(dollars in thousands)

Balance sheet location

(dollars in thousands) Balance sheet location September 30,

2020 December 31,

Derivative instruments designated as hedging instruments:

Interest rate swaps, current portion

Accrued expenses

Interest rate swaps, current portion Accrued expenses

and other current liabilities $ 3,957 $ —

Interest rate swaps, long-term portion

Other liabilities

Interest rate swaps, long-term portion Other liabilities — 1,757

Total derivative instruments designated as hedging instruments $ 3,957 $ 1,757

3 unchanged sentences

comprehensive

loss as of Location

of gain (loss)

2 unchanged sentences

comprehensive

loss into income

Gain (loss) reclassified from accumulated

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

June 30, 2020

Six months ended

June 30, 2020

Interest rate swaps

Interest expense

September 30,

Nine months ended

September 30, 2019

Interest rate swaps $ ( 3,957 ) Interest expense $ ( 1,276 ) $ ( 2,499 )

September 30,

2019 Three months ended

June 30, 2019

Six months ended

June 30, 2019

Interest rate swaps

Interest expense

September 30, 2019

Nine months ended

September 30, 2019

Interest rate swaps $ ( 2,318 ) Interest expense $ 196 $ 669

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.

1 unchanged sentence

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 June 30, 2020 that is expected to be reclassified into earnings within the next twelve months is $ 5.1 million .

There were no ineffective portions of our interest rate swap derivatives during the six months ended June 30, 2020 and 2019 .

The estimated accumulated other comprehensive loss as of September 30, 2020 that is expected to be reclassified into earnings within the next twelve months is $ 4.0 million.

There were no ineffective portions of our interest rate swap derivatives during the nine months ended September 30, 2020 and 2019.

See Note 13 for a summary of the changes in accumulated other comprehensive income (loss) by component.

Commitments and Contingencies

We have operating leases for corporate offices, subleased offices and certain equipment and furniture.

As of June 30, 2020 , we had operating leases for equipment that had not yet commenced with future rent payments of $ 0.9 million .

These operating leases are expected to commence during 2020 with lease terms of 5 years .

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Commitments and Contingencies

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, we had operating leases for equipment that had not yet commenced with future rent payments of $ 1.3 million.

These operating leases are expected to commence during 2020 with lease terms of 3 to 5 years.

The components of lease expense were as follows:

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Operating lease cost (1)

$ 12,128 $ 6,786 $ 24,720 $ 18,680

Variable lease cost 1,120 923 3,491 2,901

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

See Note 15 for a discussion of the pending purchase of our Headquarters Facility that we currently lease.

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

Thereafter 535

Total lease payments 45,967

Amount representing interest 3,628

Present value of future payments $ 42,339

Other commitments

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The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the 2017 Credit Facility in June 2022.

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 June 30, 2020 , the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 90.5 million through 2024 .

As of September 30, 2020, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 85.9 million through 2024.

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Solution and service indemnifications

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We have not identified any losses and, accordingly, we have not recorded a liability related to these indemnifications.

Security incident

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 "Incident").

Based on the nature of the 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 Incident by our cybersecurity team and third-party forensic advisors remains ongoing.

We incurred insignificant costs associated with the Incident during the three months ended June 30, 2020.

It is expected that we will continue to experience increased costs related to our response to the Incident and our efforts to further enhance our security measures.

Because we are unable at this time to reasonably estimate the possible loss or range of loss, we have not recorded a liability related to the Incident as of June 30, 2020.

Legal proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of business.

We make a provision for a loss contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

Unless otherwise specifically disclosed in this note, we have determined as of June 30, 2020 , that no provision for liability nor disclosure is required related to any claim against us because (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim;

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 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.

All legal costs associated with litigation are expensed as incurred.

Litigation is inherently unpredictable.

However, we believe that we have valid defenses with respect to the legal matters pending against us.

It is possible, nevertheless, that our consolidated financial position, results of operations or cash flows could be negatively affected in any particular period by an unfavorable resolution of one or more of such proceedings, claims or investigations.

Second Quarter 2020 Form 10-Q

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.

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

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

investigations in the future that might result in adverse judgments, settlements, fines, penalties, or other resolution.

Although we carry insurance policies that we believe will provide coverage for a significant portion of our current and expected future losses and expenses related to the Security Incident, there can be no assurance that they will do so.

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 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 claims from customers or their attorneys in the U.S., U.K.

and Canada related to the Security Incident.

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, we have been named as a defendant in 23 putative consumer class action cases ( 17 in U.S.

federal courts, 4 in U.S.

state courts and 2 in Canadian courts) alleging harm from the Security Incident.

The plaintiffs in these cases, who purport to represent various classes of individual constituents of our customers, generally claim to have been harmed by alleged actions and/or omissions by us in connection with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief.

Lawsuits that are putative class actions require a plaintiff to satisfy a number of procedural requirements before proceeding to trial.

These requirements include, among others, demonstration to a court that the law proscribes in some manner our activities, the making of factual allegations sufficient to suggest that our activities exceeded the limits of the law and a determination by the court—known as class certification—that the law permits a group of individuals to pursue the case together as a class.

If these procedural requirements are not met, the lawsuit cannot proceed as a class action and the plaintiff may lose the financial incentive to proceed with the case.

Frequently, a court’s determination as to these procedural requirements is subject to appeal to a higher court.

As a result of these uncertainties, we may be unable to determine the probability of loss until, or after, a court has finally determined that a plaintiff has satisfied the applicable class action procedural requirements.

Furthermore, for putative class actions, it is often not possible to estimate the possible loss or a range of loss amounts, even where we have determined that a loss is reasonably possible.

Generally, class actions involve a large number of people and raise complex legal and factual issues that result in uncertainty as to their outcome and, ultimately, making it difficult for us to estimate the amount of damages that a plaintiff might successfully prove.

This analysis is further complicated by the fact that the plaintiffs lack contractual privity with us.

Governmental inquiries.

To date, we have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 43 state Attorneys General and the District of Columbia 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 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.

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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Effective income tax rate 26.5 % 7.4 % 24.6 % 10.7 %

The increase in our effective income tax rate during the six months ended June 30, 2020 , when compared to the same period in 2019 , was primarily attributable to improved 2020 profitability and changes in jurisdictional mix and reduced 2020 non-deductible costs.

Furthermore, our 2020 effective tax rate was negatively impacted by a decrease in the total discrete benefit to income tax expense related to stock-based compensation.

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.

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.

Stock-based Compensation

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

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:

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In March 2020, in response to the global COVID-19 pandemic, our Board of Directors rescinded its 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 it may otherwise determine in its sole discretion.

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Dividends paid on common stock during the six months ended June 30, 2020 , consisted of the following:

Declaration Date

February 10, 2020

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

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(dollars in thousands) 2020

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Accumulated other comprehensive (loss) income balance, beginning of period $ ( 3,894 ) $ ( 1,373 ) $ ( 1,323 ) $ 1,498

Other comprehensive loss before reclassifications, net of tax effects of $71, $628, $1,225 and $904

Amounts reclassified from accumulated other comprehensive loss to interest expense

Tax (benefit) expense included in provision for in come taxes

Total amounts reclassified from accumulated other comprehensive loss

Other comprehensive income (loss) before reclassifications, net of tax effects of $ 0 , $ 78 , $ 1,225 and $ 982

1 ( 219 ) ( 3,472 ) ( 2,741 )

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense 1,276 ( 196 ) 2,499 ( 669 )

Tax (benefit) expense included in provision for income taxes ( 334 ) 52 ( 655 ) 176

Total amounts reclassified from accumulated other comprehensive income (loss) 942 ( 144 ) 1,844 ( 493 )

Net current-period other comprehensive income (loss) 943 ( 363 ) ( 1,628 ) ( 3,234 )

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Transaction price allocated to the remaining performance obligations

As of June 30, 2020 , approximately $ 854 million of revenue is expected to be recognized from remaining performance obligations.

As of September 30, 2020, approximately $ 812 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.

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and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (payment services and usage).

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

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Contract balances

Our contract assets as of June 30, 2020 and December 31, 2019 were insignificant .

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)

(in thousands) September 30,

2020 December 31,

Total deferred revenue $ 328,255 $ 316,137

The increase in deferred revenue during the six months ended June 30, 2020 was primarily due a seasonal increase in customer contract renewals and new subscription sales of our cloud solutions.

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 six months ended June 30, 2020 that was included in the deferred revenue balance at the beginning of the period was approximately $ 219 million .

The amount of revenue recognized during the six months ended June 30, 2020 from performance obligations satisfied in prior periods was insignificant .

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 million.

The amount of revenue recognized during the nine months ended September 30, 2020 from performance obligations satisfied in prior periods was insignificant.

Disaggregation of revenue

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Six months ended

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Nine months ended

September 30,

(dollars in thousands) 2020

GMG $ 90,567 $ 92,029 $ 276,473 $ 277,803

EMG 91,542 96,270 287,864 288,145

IMG 32,751 32,731 105,999 96,467

Other 141 90 277 169

Total revenue $ 215,001 $ 221,120 $ 670,613 $ 662,584

Second Quarter 2020 Form 10-Q

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

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We substantially completed our facilities optimization restructuring plan as of December 2019.

During the three and six months ended June 30, 2019 , we incurred $ 0.7 million and $ 2.7 million , respectively, in before-tax restructuring charges related to these activities.

Such charges during the three and six months ended June 30, 2020 were insignificant.

Property and Equipment

Pending Headquarters Facility Purchase

In June 2020, we entered into a binding purchase and sale agreement with HPBB1, LLC, a Georgia limited liability company (the "Seller"), for the purchase and sale of the building, fixtures and other improvements and parcels of land of our headquarters facility (the "Headquarters Facility") in Charleston, South Carolina (the "Transaction").

We currently lease the Headquarters facility from the Seller.

At the closing of the Transaction, we would pay the Seller a purchase price of $ 76.3 million , which includes the assumption of the Seller's obligations in the aggregate principal amount of $ 63.0 million and cash, which we expect to fund by borrowings under the 2017 Credit Facility.

The Transaction is expected to close during the second half of 2020.

Second Quarter 2020 Form 10-Q

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.

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.

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Blackbaud, Inc.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements