What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-03 · 209 added, 376 removed, 438 unchanged (57% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2021 December 31,

2 unchanged sentences

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

Accounts receivable, net of allowance of $ 10,361 and $ 10,292 at March 31, 2021 and December 31, 2020, respectively

83,333 95,404

28 unchanged sentences

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

180,000,000 shares authorized, 61,595,276 and 60,904,638 shares issued at March 31, 2021 and December 31, 2020, respectively

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

12,760,956 and 12,054,268 shares at March 31, 2021 and December 31, 2020, respectively

( 399,583 ) ( 353,091 )

Accumulated other comprehensive loss ( 8,872 ) ( 5,290 )

Accumulated other comprehensive income (loss) 4,163 ( 2,497 )

Retained earnings 236,560 236,714

2 unchanged sentences

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

Third Quarter 2020 Form 10-Q

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Three months ended

September 30, Nine months ended

September 30,

(dollars in thousands, except per share amounts) 2021 2020

16 unchanged sentences

Interest expense ( 5,114 ) ( 4,159 )

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

Other (expense) income, net ( 1,010 ) 1,070

Income before provision for income taxes 520 5,335

Income tax provision 684 696

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

Earnings per share

Net (loss) income $ ( 164 ) $ 4,639

Earnings (loss) per share

Basic $ — $ 0.10

7 unchanged sentences

Total other comprehensive income (loss) 6,660 ( 8,850 )

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

Comprehensive income (loss) $ 6,496 $ ( 4,211 )

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

Third Quarter 2020 Form 10-Q

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Cash Flows

Nine months ended

September 30,

Three months ended

(dollars in thousands) 2021 2020

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 $ ( 164 ) $ 4,639

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization 20,461 21,804

10 unchanged sentences

Deferred revenue ( 22,752 ) ( 23,364 )

Net cash provided by operating activities 109,165 122,124

Net cash provided by (used in) operating activities 30,103 ( 24,503 )

Cash flows from investing activities

1 unchanged sentence

Capitalized software development costs ( 9,302 ) ( 10,937 )

Purchase of net assets of acquired companies, net of cash and restricted cash acquired — ( 109,353 )

Other investing activities — 500

Net cash used in investing activities ( 12,772 ) ( 13,804 )

2 unchanged sentences

Payments on debt ( 59,667 ) ( 86,075 )

Debt issuance costs ( 593 ) —

Employee taxes paid for withheld shares upon equity award settlement ( 18,426 ) ( 19,782 )

2 unchanged sentences

Change in customer funds receivable ( 563 ) ( 733 )

Purchase of treasury stock ( 28,066 ) —

Dividend payments to stockholders — ( 5,960 )

5 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) September 30,

(dollars in thousands) March 31,

2021 December 31,

3 unchanged sentences

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

Third Quarter 2020 Form 10-Q

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

9 unchanged sentences

Balance at December 31, 2020 60,904,638 $ 61 $ 544,963 $ ( 353,091 ) $ ( 2,497 ) $ 236,714 $ 426,150

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

Net loss — — — — — ( 164 ) ( 164 )

Purchase of 465,821 treasury shares under stock repurchase program

— — — ( 28,066 ) — — ( 28,066 )

Stock-based compensation — — 20,103 — — 30 20,133

Restricted stock grants 20,776 — — — — — —

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 206,418 — — — — — —

5 unchanged sentences

Other comprehensive income — — — — 6,660 — 6,660

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)

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

7 unchanged sentences

Balance at December 31, 2019 60,206,091 $ 60 $ 457,804 $ ( 290,665 ) $ ( 5,290 ) $ 234,855 $ 396,764

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 — — — — — 4,639 4,639

Payment of dividends ($ 0.12 per share)

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

— — — — — ( 5,960 ) ( 5,960 )

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

Restricted stock grants 12,405 — — — — — —

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

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

4 unchanged sentences

Other comprehensive loss — — — — ( 8,850 ) — ( 8,850 )

Balance at September 30, 2019 60,207,091 $ 60 $ 442,803 $ ( 287,163 ) $ ( 13,665 ) $ 239,422 $ 381,457

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.

Third Quarter 2020 Form 10-Q

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

3 unchanged sentences

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 decades, we are headquartered in Charleston, South Carolina, and have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom.

Serving the industry for 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.

Basis of Presentation

3 unchanged sentences

The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date.

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.

Operating results and cash flows for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 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.

8 unchanged sentences

Our chief operating decision maker is our chief executive officer ("CEO").

Risks and uncertainties

Impact of COVID-19

Risks and uncertainties related to COVID-19

We are subject to risks and uncertainties as a result of the global COVID-19 pandemic.

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.

Third Quarter 2020 Form 10-Q

We believe that COVID-19 may continue to impact our vertical markets and geographies, but the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including 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.

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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 due to COVID-19 could result in material changes and actual results could materially differ from these estimates.

Response to COVID-19

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.

Some of these actions include the following:

• 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;

• 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

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

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):

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.

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.

Recently issued accounting pronouncements

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

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

Summary of significant accounting policies

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 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, 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)

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.

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) Balance at

beginning of year (1)

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.

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, 2020, filed with the SEC on February 23, 2021.

Goodwill and Other Intangible Assets

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

The change in goodwill during the three months ended March 31, 2021, consisted of the following:

(dollars in thousands) Total

1 unchanged sentence

Effect of foreign currency translation 1,259

Balance at September 30, 2020 $ 632,840

Earnings Per Share

We compute basic earnings per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings 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 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.

Balance at March 31, 2021 $ 637,113

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 the computation of basic and diluted earnings per share:

Diluted loss per share for the 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 potentially dilutive securities was anti-dilutive.

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands, except per share amounts) 2021

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

Net (loss) income $ ( 164 ) $ 4,639

Weighted average common shares 47,363,197 48,036,300

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Weighted average common shares assuming dilution 47,363,197 48,455,751

Earnings per share:

Earnings (loss) per share:

Basic $ — $ 0.10

Diluted $ — $ 0.10

Anti-dilutive shares excluded from calculations of diluted earnings per share 915,226 227,523 1,036,445 252,282

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Fair Value Measurements

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

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Recurring fair value measurements

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

Fair value as of September 30, 2020

Fair value as of March 31, 2021

Financial assets:

Derivative instruments $ — $ 2,851 $ — $ 2,851

Total financial assets $ — $ 2,851 $ — $ 2,851

Financial liabilities:

9 unchanged sentences

Accordingly, our interest rate swaps are classified within Level 2 of the fair value hierarchy.

The Financial Conduct Authority in the U.K.

The Financial Co nduct 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 before the 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, 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.

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

We believe the carrying amount of our debt approximates its fair value at March 31, 2021 and December 31, 2020, as the debt bears interest rates that approximate market value.

As LIBOR rates are observable at commonly quoted intervals, our debt under the 2020 Credit Facility (as defined below) is classified within Level 2 of the fair value hierarchy.

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

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the nine 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

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the three months ended March 31, 2021.

Additionally, we did not hold any Level 3 assets or liabilities during the three months ended March 31, 2021.

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

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Non-recurring fair value measurements

Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets, goodwill and operating lease right-of-use ("ROU") 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.

Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, goodwill and operating lease right-of-use ("ROU") assets.

These assets are recognized at fair value during the period in which an acquisition is completed or at lease commencement, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired.

These non-recurring fair value measurements, primarily for long-lived assets, intangible assets acquired and operating lease ROU assets, are based on Level 3 unobservable inputs.

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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, 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)

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

Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2021 December 31,

3 unchanged sentences

Prepaid expenses and other assets

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2021 December 31,

3 unchanged sentences

33,113 24,471

Receivables for probable insurance recoveries (4)

Implementation costs for cloud computing arrangements, net (5)(6)

11,451 11,298

Unbilled accounts receivable 7,660 10,385

Receivables for probable insurance recoveries (6)

Prepaid insurance 6,397 1,426

Derivative instruments 2,851 —

Taxes, prepaid and receivable 1,486 1,891

Security deposits 808 885

Other assets 10,015 10,332

2 unchanged sentences

Prepaid expenses and other current assets $ 98,095 $ 78,366

(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.

(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.

(1) Amortization expense from costs of obtaining contracts was $ 9.2 million and $ 9.5 million for the three months ended March 31, 2021 and 2020, respectively.

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

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

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

Third Quarter 2020 Form 10-Q

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

(6) Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended March 31, 2021 and 2020, respectively.

Accumulated amortization for these costs was $ 1.6 million as of March 31, 2021 and $ 1.1 million as of December 31, 2020.

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Accrued expenses and other liabilities

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2021 December 31,

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

Accrued bonuses (1)

Accrued commissions and salaries 2,985 6,980

Taxes payable (1)

Derivative instruments 3,957 1,757

$ 16,458 $ 19,577

Accrued legal costs 12,055 4,808

Operating lease liabilities, current portion 7,191 9,359

Customer credit balances 5,891 5,874

Accrued commissions and salaries 5,524 5,010

Unrecognized tax benefit 3,546 3,351

Accrued vacation costs 2,300 2,232

Accrued health care costs 2,389 2,341

Accrued vacation costs 2,304 2,311

Derivative instruments 1,431 4,159

Other liabilities 5,663 6,304

2 unchanged sentences

Accrued expenses and other current liabilities $ 53,013 $ 52,228

(1) In March 2020, we reduced our accrued bonuses due to the payment of bonuses from the prior 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).

Other income, net

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

Other (expense) income, net

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

1 unchanged sentence

Other (expense) income, net ( 1,162 ) 548

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

Other (expense) income, net $ ( 1,010 ) $ 1,070

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

1 unchanged sentence

effective interest rate at

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2021 December 31,

2019 September 30,

2020 March 31,

2021 December 31,

8 unchanged sentences

Debt, net of current portion $ 537,924 $ 518,193 3.15 % 3.22 %

Third Quarter 2020 Form 10-Q

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

2020 credit facility

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

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

In October 2020, we entered into a five-year $ 900.0 million senior credit facility (the "2020 Credit Facility").

At March 31, 2021, we were in compliance with our debt covenants under the 2020 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.

The agreement is a non-interest-bearing note requiring four equal annual payments, where the first payment was due in January 2020.

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

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:

In August 2020, we completed the purchase of our global headquarters facility.

As part of the purchase price, we assumed the Seller’s obligations under two senior secured notes with an aggregate outstanding principal amount of $ 61.1 million (collectively, the “Real Estate Loans”).

At March 31, 2021, we were in compliance with our debt covenants under the Real Estate Loans.

From time to time, we enter into third-party financing agreements for purchases of software and related services for our internal use.

Generally, the agreements are non-interest-bearing notes requiring annual payments.

Interest associated with the notes is imputed at the rate we would incur for amounts borrowed under our then-existing credit facility at the inception of the notes.

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

Years ending December 31,

3 unchanged sentences

Total required maturities $ 553,515

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 September 30, 2020:

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

(dollars in thousands) Term of derivative instrument Notional

3 unchanged sentences

Interest rate swap June 2019 - June 2021 75,000

Interest rate swap November 2020 - October 2024 60,000

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

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

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

Liability derivatives

(dollars in thousands) Balance sheet location September 30,

Asset derivatives Liability derivatives

(dollars in thousands) Balance sheet location March 31,

2021 December 31,

2020 Balance sheet location March 31,

2021 December 31,

Derivative instruments designated as hedging instruments:

Interest rate swaps, current portion Accrued expenses

and other current liabilities $ 3,957 $ —

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

Interest rate swaps, current portion Prepaid expenses

and other current assets $ — $ — Accrued expenses

current liabilities $ 1,431 $ 2,698

Interest rate swaps, long-term portion Other assets 2,851 — Other liabilities — 1,461

Total derivative instruments designated as hedging instruments $ 2,851 $ — $ 1,431 $ 4,159

10 unchanged sentences

other comprehensive loss into income

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2021 Three months ended

September 30,

Nine months ended

September 30, 2019

March 31, 2021

Interest rate swaps $ 1,420 Interest expense $ ( 1,373 )

September 30,

2020 Three months ended

September 30, 2019

Nine months ended

September 30, 2019

March 31, 2020

Interest rate swaps $ ( 5,979 ) Interest expense $ ( 205 )

2 unchanged sentences

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 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.

Third Quarter 2020 Form 10-Q

The estimated accumulated other comprehensive loss as of March 31, 2021 that is expected to be reclassified into earnings within the next twelve months is $ 2.2 million.

There were no ineffective portions of our interest rate swap derivatives during the three months ended

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

March 31, 2021 and 2020.

See Note 12 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.

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.

As of March 31, 2021, we had operating leases for office space that had not yet commenced with future rent payments of $ 3.5 million.

These operating leases are expected to commence during 2021 with lease terms of 3 years.

The components of lease expense were as follows:

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

5 unchanged sentences

(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

Thereafter 535

Total lease payments 45,967

Amount representing interest 3,628

Present value of future payments $ 42,339

Other commitments

The term loans under the 2020 Credit Facility require periodic principal payments.

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

The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the 2020 Credit Facility in October 2025.

The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038.

1 unchanged sentence

In certain cases, these arrangements require a minimum annual purchase commitment by us.

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)

As of March 31, 2021, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 79.0 million through 2024.

Solution and service indemnifications

10 unchanged sentences

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.

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

1 unchanged sentence

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 negatively affected in any particular period by an unfavorable resolution of one or more of such legal proceedings.

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

2 unchanged sentences

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.

As a result of the Security Incident, we are currently subject to certain legal proceedings, claims, inquiries and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, inquires and investigations in the future that might result in adverse judgments, settlements, fines, penalties, or 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 it is possible that total losses related to the Security Incident will ultimately exceed the limits of our insurance coverage, we are currently unable to determine if or when that will be the case 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 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 increased costs related to our response to the Security Incident and our efforts to further enhance our security measures.

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.

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 material.

Based on our analysis of the factors described above, we have not recorded a liability related to the Security Incident as of 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 claims from customers or their attorneys in the U.S., U.K.

and Canada related to the Security Incident.

To date, we have received approximately 630 claims for reimbursement of expenses from customers or their attorneys in the U.S., U.K.

and Canada related to the Security Incident (none of which have as yet been filed in court 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, 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.

Presently, we are a defendant in 30 putative consumer class action cases [ 27 in U.S.

federal courts (some of which have been consolidated under multi district litigation to a single federal court), 1 in a U.S.

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

The plaintiffs in these cases, who purport to represent various classes of individual constituents of our customers, generally claim to have been harmed by

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

6 unchanged sentences

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.

Governmental inquiries and investigations.

To date, we have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 47 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.

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

We are cooperating with these offices and responding to their 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.

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) 2021

1 unchanged sentence

Effective income tax rate 131.5 % 13.0 %

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.

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.

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Stock-based Compensation

2 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

9 unchanged sentences

Total stock-based compensation expense $ 30,005 $ 13,580

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

Stockholders' Equity

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.

Third Quarter 2020 Form 10-Q

Stock repurchase program

In November 2020, our Board of Directors reauthorized and expanded a stock repurchase program that authorizes us to purchase up to $ 250.0 million of our outstanding shares of common stock.

The program does not have an expiration date.

Under the stock repurchase program, we are authorized to repurchase shares from time to time in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions.

The timing and amount of repurchases depends on several factors, including market and business conditions, the trading price of our common stock and the nature of other investment opportunities.

The repurchase program may be limited, suspended or discontinued at any time without prior notice.

Under the 2020 Credit Facility, we have restrictions on our ability to repurchase shares of our common stock.

We account for purchases of treasury stock under the 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 March 31, 2021.

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

1 unchanged sentence

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

2 unchanged sentences

Gains and losses on cash flow hedges:

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

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

1 unchanged sentence

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 ( 357 ) ( 54 )

Total amounts reclassified from accumulated other comprehensive income (loss) 1,019 151

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 $ 1,048 $ ( 4,445 )

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 $ 604 $ ( 3,967 )

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 3,115 ( 9,695 )

Accumulated other comprehensive income (loss), end of period $ 4,163 $ ( 14,140 )

Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of September 30, 2020, approximately $ 812 million of revenue is expected to be recognized from remaining performance obligations.

As of March 31, 2021, approximately $ 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 and usage).

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Contract balances

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

Our contract assets as of March 31, 2021 and December 31, 2020 were insignificant.

Our opening and closing balances of deferred revenue were as follows:

(in thousands) September 30,

(in thousands) March 31,

2021 December 31,

Total deferred revenue $ 294,520 $ 316,914

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 million.

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

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 reven ue balance at the beginning of the period was approximately

First Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

$ 134 million.

The amount of revenue recognized during the three months ended March 31, 2021 from performance obligations satisfied in prior periods was insignificant.

Disaggregation of revenue

3 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

3 unchanged sentences

Total revenue $ 219,191 $ 223,621

The General Markets Group ("GMG"), the Enterprise Markets Group ("EMG"), and the International Markets Group ("IMG") comprise our go-to-market organizations.

The following is a description of each market group:

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

The General Markets Group ("GMG"), the Enterprise Markets Group ("EMG"), and the International Markets Group ("IMG") comprised our go-to-market organizations as of March 31, 2021.

The following is a description of each market group as of that date:

• The GMG focuses on sales primarily to all K-12 private schools, 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.;

2 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

4 unchanged sentences

Total revenue $ 219,191 $ 223,621

Third Quarter 2020 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

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

The following table presents our recurring revenue by type:

Three months ended

(dollars in thousands) 2021

Contractual recurring $ 146,821 $ 147,744

Transactional recurring 59,929 57,123

Total recurring revenue $ 206,750 $ 204,867

First Quarter 2021 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