What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-04 · 199 added, 149 removed, 498 unchanged (41% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2021 December 31,

2 unchanged sentences

Restricted cash 434,567 609,219

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

Accounts receivable, net of allowance of $ 9,911 and $ 10,292 at June 30, 2021 and December 31, 2020, respectively

119,270 95,404

28 unchanged sentences

Common stock, $ 0.001 par value;

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

180,000,000 shares authorized, 62,332,714 and 60,904,638 shares issued at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 605,486 544,963

Treasury stock, at cost;

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

13,451,524 and 12,054,268 shares at June 30, 2021 and December 31, 2020, respectively

( 449,877 ) ( 353,091 )

4 unchanged sentences

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

First Quarter 2021 Form 10-Q

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Three months ended

June 30, Six months ended

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

16 unchanged sentences

Interest expense ( 5,054 ) ( 3,893 ) ( 10,168 ) ( 8,052 )

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

Other income (expense), net 487 630 ( 523 ) 1,700

Income before provision for income taxes 8,476 16,319 8,996 21,654

Income tax provision 1,745 4,496 2,429 5,192

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

Earnings (loss) per share

Net income $ 6,731 $ 11,823 $ 6,567 $ 16,462

Earnings per share

Basic $ 0.14 $ 0.25 $ 0.14 $ 0.34

7 unchanged sentences

Total other comprehensive income (loss) 2,128 ( 336 ) 8,788 ( 9,186 )

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

Comprehensive income $ 8,859 $ 11,487 $ 15,355 $ 7,276

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

First Quarter 2021 Form 10-Q

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Cash Flows

Three months ended

Six months ended

(dollars in thousands) 2021 2020

Cash flows from operating activities

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

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

Net income $ 6,567 $ 16,462

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

Depreciation and amortization 40,742 46,088

10 unchanged sentences

Deferred revenue 27,828 22,489

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

Net cash provided by operating activities 99,922 37,488

Cash flows from investing activities

17 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) March 31,

(dollars in thousands) June 30,

2021 December 31,

3 unchanged sentences

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

First Quarter 2021 Form 10-Q

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

20 unchanged sentences

Balance at March 31, 2021 61,595,276 $ 62 $ 574,958 $ ( 399,583 ) $ 4,163 $ 236,560 $ 416,160

Net income — — — — — 6,731 6,731

Purchase of 405,047 treasury shares under stock repurchase program

— — — ( 30,008 ) — — ( 30,008 )

Vesting of restricted stock units 804,323 — — — — — —

Employee taxes paid for 285,521 withheld shares upon equity award settlement

— — — ( 20,286 ) — — ( 20,286 )

Stock-based compensation — — 30,528 — — 21 30,549

Restricted stock grants 9,431 — — — — — —

Restricted stock cancellations ( 76,316 ) — — — — — —

Other comprehensive income — — — — 2,128 — 2,128

Balance at June 30, 2021 62,332,714 $ 62 $ 605,486 $ ( 449,877 ) $ 6,291 $ 243,312 $ 405,274

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(dollars in thousands) Common stock Additional

18 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

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

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

First Quarter 2021 Form 10-Q

Second 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 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.

Serving the industry for 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 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.

Operating results and cash flows for the six months ended June 30, 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").

As discussed in Note 13, beginning in the second quarter of 2021, we combined our General Markets Group ("GMG") and Enterprise Markets Group ("EMG") into a single U.S.

Markets Group ("UMG") and moved our Corporations vertical under our International Markets Group ("IMG").

This change was made to better align our resources toward customer retention and growth which, are key objectives as we progress toward our long-term aspirational goals.

The change did not impact our conclusion that we have one operating and reportable segment and one goodwill reporting unit.

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Risks and uncertainties related to COVID-19

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

We believe that COVID-19 may continue to 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)

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

Use of estimates

7 unchanged sentences

Goodwill and Other Intangible Assets

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

The change in goodwill during the six months ended June 30, 2021, consisted of the following:

(dollars in thousands) Total

1 unchanged sentence

Effect of foreign currency translation 1,656

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.

Balance at June 30, 2021 $ 637,510

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.

Potentially dilutive securities consist of shares issuable upon the exercise of stock options, settlement of stock appreciation rights and vesting of restricted stock awards and units.

Diluted loss per share for the three months ended March 31, 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

Second 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:

Notes to Condensed Consolidated Financial Statements

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

Three months ended

Six months ended

(dollars in thousands, except per share amounts) 2021

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

Net income $ 6,731 $ 11,823 $ 6,567 $ 16,462

Weighted average common shares 47,756,326 48,239,928 47,560,847 48,138,125

2 unchanged sentences

Weighted average common shares assuming dilution 48,444,874 48,418,378 48,444,658 48,465,077

Earnings (loss) per share:

Earnings per share:

Basic $ 0.14 $ 0.25 $ 0.14 $ 0.34

Diluted $ 0.14 $ 0.24 $ 0.14 $ 0.34

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

Anti-dilutive shares excluded from calculations of diluted earnings per share 907,210 1,484,976 1,032,655 1,329,519

Fair Value Measurements

4 unchanged sentences

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

First Quarter 2021 Form 10-Q

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Notes to Condensed Consolidated Financial Statements

Recurring fair value measurements

2 unchanged sentences

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

Fair value as of March 31, 2021

Fair value as of June 30, 2021

Financial assets:

13 unchanged sentences

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.

has stated that it plans to phase out all tenors of LIBOR by June 2023.

We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as we expect that our financial contracts currently indexed to LIBOR will either expire or be modified without significant financial impact before the p hase 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 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.

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 June 30, 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 June 30, 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 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

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the six months ended June 30, 2021.

Additionally, we did not hold any Level 3 assets or liabilities during the six months ended June 30, 2021.

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Notes to Condensed Consolidated Financial Statements

Non-recurring fair value measurements

5 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.

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 .

There were no non-recurring fair value adjustments to our long-lived assets, intangible assets, goodwill and operating lease ROU assets during the six months ended June 30, 2021 .

Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2021 December 31,

3 unchanged sentences

Prepaid expenses and other assets

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2021 December 31,

14 unchanged sentences

Prepaid expenses and other current assets $ 103,493 $ 78,366

(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.

(1) Amortization expense from costs of obtaining contracts was $ 9.0 million and $ 18.2 million for the three and six months ended June 30, 2021, respectively, and $ 9.4 million and $ 18.9 million for the three and six months ended June 30, 2020, respectively.

(2) The current portion of costs of obtaining contracts as of June 30, 2021 and December 31, 2020 was $ 31.0 million and $ 31.9 million, respectively.

(3) The current portion of prepaid software maintenance and subscriptions as of June 30, 2021 and December 31, 2020 was $ 28.2 million and $ 19.8 million, respectively.

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

(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

(6) Amortization expense from capitalized cloud computing implementation costs was insignificant and $ 0.9 million for the three and six months ended June 30, 2021, respectively, and insignificant for the three and six months ended June 30, 2020.

Accumulated amortization for these costs was $ 2.0 million as of June 30, 2021 and $ 1.1 million as of December 31, 2020.

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Notes to Condensed Consolidated Financial Statements

Accrued expenses and other liabilities

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2021 December 31,

14 unchanged sentences

(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

Other income (expense), net

Three months ended

Six months ended

(dollars in thousands) 2021

Interest income $ 77 $ 110 $ 229 $ 632

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

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

Other income (expense), net 410 520 ( 752 ) 1,068

Other income (expense), net $ 487 $ 630 $ ( 523 ) $ 1,700

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) March 31,

(dollars in thousands) June 30,

2021 December 31,

2020 March 31,

2020 June 30,

2021 December 31,

8 unchanged sentences

Debt, net of current portion $ 531,973 $ 518,193 2.76 % 3.22 %

First Quarter 2021 Form 10-Q

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Notes to Condensed Consolidated Financial Statements

2020 credit facility

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

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

At June 30, 2021, we were in compliance with our debt covenants under the 2020 Credit Facility.

Real estate loans

1 unchanged sentence

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.

At June 30, 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.

1 unchanged sentence

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:

The following table summarizes our currently effective financing agreements as of June 30, 2021:

(dollars in thousands) Term

in Months Number of

Annual Payments First Annual Payment Due Original Loan Value

Annual Payments First Annual

Payment Due Original Loan

Effective dates of agreements:

1 unchanged sentence

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:

As of June 30, 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,

8 unchanged sentences

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

First Quarter 2021 Form 10-Q

Second 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:

Notes to Condensed Consolidated Financial Statements

The terms and notional values of our derivative instruments were as follows as of June 30, 2021:

(dollars in thousands) Term of derivative instrument Notional

1 unchanged sentence

Interest rate swap July 2017 - July 2021 $ 150,000

Interest rate swap February 2018 - June 2021 50,000

Interest rate swap June 2019 - June 2021 75,000

Interest rate swap November 2020 - October 2024 60,000

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

Interest rate swap June 2021 - October 2024 120,000

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

In July 2021, we entered into a new interest rate swap agreement.

See additional details at Note 14.

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

Asset derivatives Liability derivatives

(dollars in thousands) Balance sheet location March 31,

(dollars in thousands) Balance sheet location June 30,

2021 December 31,

2020 Balance sheet location March 31,

2020 Balance sheet location June 30,

2021 December 31,

1 unchanged sentence

Interest rate swaps, current portion Prepaid expenses

and other current assets $ — $ — Accrued expenses

current assets $ — $ — Accrued expenses

current liabilities $ 138 $ 2,698

12 unchanged sentences

other comprehensive loss into income

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2021 Three months ended

March 31, 2021

June 30, 2021

Six months ended

June 30, 2021

Interest rate swaps $ 1,923 Interest expense $ ( 1,408 ) $ ( 2,784 )

2020 Three months ended

March 31, 2020

June 30, 2020

Six months ended

June 30, 2020

Interest rate swaps $ ( 5,233 ) Interest expense $ ( 1,018 ) $ ( 1,223 )

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 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

The estimated accumulated other comprehensive loss as of June 30, 2021 that is expected to be reclassified into earnings within the next twelve months

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

March 31, 2021 and 2020.

Notes to Condensed Consolidated Financial Statements

is $ 1.2 million.

There were no ineffective portions of our interest rate swap derivatives during the six months ended June 30, 2021 and 2020.

See Note 12 for a summary of the changes in accumulated other comprehensive income (loss) by component.

1 unchanged sentence

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

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.

As of June 30, 2021, we did not have any operating leases that had not yet commenced.

The components of lease expense were as follows:

Three months ended

Six months ended

(dollars in thousands) 2021

11 unchanged sentences

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

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

As of June 30, 2021, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 45.0 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.

First Quarter 2021 Form 10-Q

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Notes to Condensed Consolidated Financial Statements

recognize insurance recoveries, if any, when they are probable of receipt.

All associated legal costs are expensed as incurred.

All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred.

Legal proceedings are inherently unpredictable.

However, we believe that we have valid defenses with respect to the legal matters pending or threatened against us and intend to defend ourselves vigorously against all claims asserted.

We further believe that the amount or range of reasonably possible losses related to such pending or threatened legal proceedings will not have a material adverse effect on our business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably.

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

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

Security incident

4 unchanged sentences

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.

As noted below, this coverage has reduced our fina ncial exposure related to the Security Incident, and we will continue to seek recoveries under these insurance policies.

Based on our review of expenses incurred to date, and upon consideration of the number of matters outstanding (as described below), w e believe it is probable that total losses related to the Security Incident will ultimately exceed the limits of our insurance coverage.

However, we are currently unable to determine when that will be the case nor are we able to determine the approximate amount or range of any such excess.

In the three and six months ended June 30, 2021, we recorded $ 11.7 million and $ 24.4 million, respectively, of expenses related to the Security Incident and offsetting probable insurance recoveries of $ 11.2 million and $ 23.9 million, respectively.

As of June 30, 2021, we have recorded cumulative expenses related to the Security Incident of $ 34.2 million and cumulative probable insurance recoveries of $ 33.3 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.

Of the insurance recoveries recorded, $ 10.0 million had been paid as of June 30, 2021.

Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees.

We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our condensed consolidated statements of comprehensive income.

We expect to continue to experience significant expenses related to our response to the Security Incident, resolution of legal proceedings, claims, inquiries and investigations discussed below, and our efforts to further enhance our security measures, which expenses may be 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.

We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our condensed consolidated statements of comprehensive income and as operating activities on our condensed consolidated statements of cash flows.

Based on our analysis of the factors described above, we have not recorded a liability related to the Security Incident as of June 30, 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 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.

To date, we have received approximately 260 specific requests for reimbursement of expenses ("Customer Reimbursement Requests") and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K.

and Canada related to the Security Incident (none of which have as yet been filed in court and only one of which is in arbitration).

Of the Customer Reimbursement Requests received to date, approximately 160 have been fully resolved and closed.

Customer claims generally seek reimbursement of their costs and expenses associated with notifying their own customers of the Security Incident and taking steps to assure that personal information has not been compromised as a result of the Security Incident.

Our review of customer claims includes analyzing individual customer contracts into which we have entered, the specific claims made and applicable law.

Customer constituent class actions.

Presently, we are a defendant in 29 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

federal courts (some of which have been consolidated under multi district litigation to a single federal court) and 2

Second 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.

Notes to Condensed Consolidated Financial Statements

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.

7 unchanged sentences

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.

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 separate Civil Investigative Demands from the offices of the Illinois Attorney General and the California Attorney General 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.

Federal Trade Commission, the SEC, the U.S.

Department of Health and Human Services, the Information Commissioner’s Office in the United Kingdom under the U.K.

Data Protection Act 2018, the Office of the Australian Information Commissioner, the Office of the Privacy Commissioner of Canada and the Spanish Data Protection Agency.

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.

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(dollars in thousands) 2021

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Effective income tax rate 20.6 % 27.6 % 27.0 % 24.0 %

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

The 2020 effective income tax rate was positively impacted by benefits attributable to stock-based compensation.

The 2021 effective income tax rate was negatively impacted by tax expense attributable to stock-based compensation against lower pre-tax income.

First Quarter 2021 Form 10-Q

The decrease in our effective income tax rate for the three months ended June 30, 2021, when compared to the same period in 2020, was primarily attributable to a 2021 discrete tax benefit against lower pre-tax income.

The 2020 effective income tax rate was negatively impacted by discrete adjustments comprised of tax expense attributable to stock-based compensation and unrecognized tax benefits net of benefit attributable to deferred tax adjustment.

The 2021 effective income tax rate was positively impacted by increased tax benefit attributable to stock-based compensation offset against tax expense attributable to a corporate income tax rate increase enacted during the period against lower pre-tax income.

The increase in our effective income tax rate for the six months ended June 30, 2021 when compared to the same periods in 2020, was primarily attributable to the impact of non deductible expenses against lower pre-tax income.

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Notes to Condensed Consolidated Financial Statements

Stock-based Compensation

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(dollars in thousands) 2021

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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.

Under the 2020 Credit Facility, we have restrictions on our ability to repurchase shares of our common stock, which are summarized on page 40 below.

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

During the three and six months ended June 30, 2021, we purchased 405,047 and 870,868 shares for $ 30.0 million and $ 58.1 million, respectively.

The remaining amount available to purchase stock under the stock repurchase program was $ 150.9 million as of June 30, 2021.

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Notes to Condensed Consolidated Financial Statements

Changes in accumulated other comprehensive income (loss) by component

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(dollars in thousands) 2021

Accumulated other comprehensive loss, beginning of period $ ( 2,497 ) $ ( 5,290 )

Accumulated other comprehensive income (loss), beginning of period $ 4,163 $ ( 14,140 ) $ ( 2,497 ) $ ( 5,290 )

By component:

Gains and losses on cash flow hedges:

Accumulated other comprehensive loss balance, beginning of period $ ( 3,101 ) $ ( 1,323 )

Accumulated other comprehensive income (loss) balance, beginning of period $ 1,048 $ ( 4,445 ) $ ( 3,101 ) $ ( 1,323 )

Other comprehensive income (loss) before reclassifications, net of tax effects of $ 244 , $ 71 , $( 856 ) and $ 1,225

( 692 ) ( 200 ) 2,438 ( 3,473 )

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense 1,376 205

Amounts reclassified from accumulated other comprehensive (loss) income to interest expense 1,408 1,018 2,784 1,223

Tax benefit included in provision for income taxes ( 371 ) ( 267 ) ( 728 ) ( 321 )

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

Total amounts reclassified from accumulated other comprehensive (loss) income 1,037 751 2,056 902

Net current-period other comprehensive income (loss) 345 551 4,494 ( 2,571 )

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Transaction price allocated to the remaining performance obligations

As of March 31, 2021, approximately $ 776 million of revenue is expected to be recognized from remaining performance obligations.

As of June 30, 2021, approximately $ 797 million of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 55 % of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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Contract balances

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

Our contract assets as of June 30, 2021 and December 31, 2020 were insignificant.

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

(in thousands) March 31,

(in thousands) June 30,

2021 December 31,

Total deferred revenue $ 345,419 $ 316,914

The decrease in deferred revenue during the three months ended March 31, 2021 was primarily due to a seasonal decrease in customer contract renewals .

Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter generally resulting in our lowest balance of deferred revenue at the end of our first quarter.

The amount of revenue recognized during the three months ended March 31, 2021 that was included in the deferred reven ue balance at the beginning of the period was approximately

First Quarter 2021 Form 10-Q

Second 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.

Notes to Condensed Consolidated Financial Statements

The increase in deferred revenue during the six months ended June 30, 2021 was primarily due to a seasonal increase in customer contract renewals and, to a lesser extent, early progress in initiatives to bring our pricing in line with the market .

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, 2021 that was included in the deferred reven ue balance at the beginning of the period was approximately $ 229 million.

The amount of revenue recognized during the six months ended June 30, 2021 from performance obligations satisfied in prior periods was insignificant.

Disaggregation of revenue

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(dollars in thousands) 2021

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Total revenue $ 229,440 $ 231,991 $ 448,631 $ 455,612

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.

Beginning in the second quarter of 2021, we combined our General Markets Group ("GMG") and Enterprise Markets Group ("EMG") into a single U.S.

Markets Group ("UMG") and moved our Corporations vertical under our International Markets Group ("IMG").

This change was made to better align our resources toward customer retention and growth, which are key objectives as we progress toward our long-term aspirational goals.

The UMG and the IMG comprised our go-to-market organizations as of June 30, 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.;

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

• The UMG focuses on sales primarily to all prospects and customers inside of the U.S.;

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

The following table presents our revenue by market group:

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GMG $ 93,339 $ 95,453

EMG 89,527 98,123

IMG 36,370 30,081

UMG $ 179,436 $ 182,925 $ 352,903 $ 370,544

50,028 49,790 95,797 85,828

Other ( 24 ) ( 724 ) ( 69 ) ( 760 )

Total revenue $ 229,440 $ 231,991 $ 448,631 $ 455,612

(1) Due to the market group change discussed above, we have recast our revenue by market group for the three and six months ended June 30, 2020 to present them on a consistent basis with the current year.

The following table presents our recurring revenue by type:

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Total recurring revenue $ 216,986 $ 216,260 $ 423,736 $ 421,127

First Quarter 2021 Form 10-Q

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Subsequent Events

Interest rate swap agreement

In July 2021, we entered into an additional interest rate swap agreement (the "July 2021 Swap Agreement"), which effectively converts portions of our variable rate debt under the 2020 Credit Facility to a fixed rate for the term of the July 2021 Swap Agreement.

The notional value of the July 2021 Swap Agreement was $ 75.0 million with an effective date beginning in July 2021 through Oct 2024.

We designated the July 2021 Swap Agreement as a cash flow hedge at the inception of the contract.

See Note 8 for information about our other interest rate swap agreements.

Second 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