What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-06 · 196 added, 155 removed, 542 unchanged (39% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 December 31,

2 unchanged sentences

Restricted cash 216,122 609,219

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

Accounts receivable, net of allowance of $ 10,847 and $ 10,292 at September 30, 2021 and December 31, 2020, respectively

105,873 95,404

28 unchanged sentences

Common stock, $ 0.001 par value;

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

180,000,000 shares authorized, 62,353,643 and 60,904,638 shares issued at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 634,406 544,963

Treasury stock, at cost;

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

14,039,117 and 12,054,268 shares at September 30, 2021 and December 31, 2020, respectively

( 490,456 ) ( 353,091 )

4 unchanged sentences

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

Second Quarter 2021 Form 10-Q

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

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

16 unchanged sentences

Interest expense ( 4,003 ) ( 3,997 ) ( 14,171 ) ( 12,049 )

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

Other income, net 862 542 339 2,242

Income before provision for income taxes 8,705 6,632 17,701 28,286

7 unchanged sentences

Diluted weighted average shares 48,274,072 48,859,707 48,259,956 48,582,068

Other comprehensive income (loss)

Other comprehensive (loss) income

Foreign currency translation adjustment ( 3,234 ) 4,661 1,060 ( 1,954 )

Unrealized gain (loss) on derivative instruments, net of tax 262 943 4,756 ( 1,628 )

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

Total other comprehensive (loss) income ( 2,972 ) 5,604 5,816 ( 3,582 )

Comprehensive income $ 3,216 $ 10,480 $ 18,571 $ 17,756

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

Second Quarter 2021 Form 10-Q

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Cash Flows

Six months ended

Nine months ended

September 30,

(dollars in thousands) 2021 2020

22 unchanged sentences

Payments on debt ( 131,272 ) ( 290,999 )

Debt issuance costs — ( 593 )

Employee taxes paid for withheld shares upon equity award settlement ( 39,012 ) ( 21,286 )

10 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) June 30,

(dollars in thousands) September 30,

2021 December 31,

3 unchanged sentences

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

Second Quarter 2021 Form 10-Q

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

31 unchanged sentences

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

Net income — — — — — 6,188 6,188

Purchase of 583,280 treasury shares under stock repurchase program

— — — ( 40,279 ) — — ( 40,279 )

Vesting of restricted stock units 908 — — — — — —

Employee taxes paid for 4,313 withheld shares upon equity award settlement

— — — ( 300 ) — — ( 300 )

Stock-based compensation — — 28,920 — — 6 28,926

Restricted stock grants 54,132 — — — — — —

Restricted stock cancellations ( 34,111 ) — — — — — —

Other comprehensive loss — — — — ( 2,972 ) — ( 2,972 )

Balance at September 30, 2021 62,353,643 $ 62 $ 634,406 $ ( 490,456 ) $ 3,319 $ 249,506 $ 396,837

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

29 unchanged sentences

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

Net income — — — — — 4,876 4,876

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

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

— — — ( 290 ) — — ( 290 )

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

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

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

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

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

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

Second Quarter 2021 Form 10-Q

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

9 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 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.

Operating results and cash flows for the nine months ended September 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.

11 unchanged sentences

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

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

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

5 unchanged sentences

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.

On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, income taxes, business combinations, stock-based compensation, capitalization of software development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuation of derivative instruments and loss contingencies, among others.

Changes in the facts or circumstances underlying these estimates, including due to COVID-19, could result in material changes and actual results could materially differ from these estimates.

4 unchanged sentences

Goodwill and Other Intangible Assets

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

The change in goodwill during the nine months ended September 30, 2021, consisted of the following:

(dollars in thousands) Total

1 unchanged sentence

Effect of foreign currency translation 58

Balance at June 30, 2021 $ 637,510

Balance at September 30, 2021 $ 635,912

Earnings Per Share

3 unchanged sentences

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.

Second Quarter 2021 Form 10-Q

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

2 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(dollars in thousands, except per share amounts) 2021

14 unchanged sentences

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

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

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 June 30, 2021

Fair value as of September 30, 2021

Financial assets:

1 unchanged sentence

Total financial assets $ — $ 2,283 $ — $ 2,283

Financial liabilities:

Derivative instruments $ — $ 138 $ — $ 138

Total financial liabilities $ — $ 138 $ — $ 138

Fair value as of December 31, 2020

2 unchanged sentences

Total financial liabilities $ — $ 4,159 $ — $ 4,159

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

Our derivative instruments that are recorded at fair value include interest rate swaps.

See Note 8 for additional information about our derivative instruments.

The fair value of our interest rate swaps was based on model-driven valuations using LIBOR rates, which are observable at commonly quoted intervals.

3 unchanged sentences

We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as we expect that our financial contracts currently indexed to LIBOR will either expire or be modified 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 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.

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, 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 September 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 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

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

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

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 six months ended June 30, 2021 .

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

Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 December 31,

2 unchanged sentences

Total restricted cash $ 216,122 $ 609,219

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Prepaid expenses and other assets

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 December 31,

14 unchanged sentences

Prepaid expenses and other current assets $ 102,319 $ 78,366

(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.

(1) Amortization expense from costs of obtaining contracts was $ 8.8 million and $ 26.9 million for the three and nine months ended September 30, 2021, respectively, and $ 9.4 million and $ 28.2 million for the three and nine months ended September 30, 2020, respectively.

(2) The current portion of costs of obtaining contracts as of September 30, 2021 and December 31, 2020 was $ 30.3 million and $ 31.9 million, respectively.

(3) The current portion of prepaid software maintenance and subscriptions as of September 30, 2021 and December 31, 2020 was $ 25.4 million and $ 19.8 million, respectively.

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

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

(6) 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 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

(7) Amortization expense from capitalized cloud computing implementation costs was insignificant and $ 1.3 million for the three and nine months ended September 30, 2021, respectively, and insignificant for the three and nine months ended September 30, 2020.

Accumulated amortization for these costs was $ 2.5 million as of September 30, 2021 and $ 1.1 million as of December 31, 2020.

Accrued expenses and other liabilities

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 December 31,

Accrued legal costs (1)

$ 21,341 $ 4,808

Taxes payable (2)

14,430 19,577

Accrued legal costs 17,796 4,808

Operating lease liabilities, current portion 7,160 9,359

9 unchanged sentences

Accrued expenses and other current liabilities $ 58,579 $ 52,228

(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 income (expense), net

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

The increase in accrued legal costs from December 31, 2020 was primarily due to the Security Incident.

(2) 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 was due by the end of calendar year 2021 with the remainder due by the end of calendar year 2022.

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Other income, net

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

1 unchanged sentence

Other income (expense), net 780 ( 225 ) 28 843

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

Other income, net $ 862 $ 542 $ 339 $ 2,242

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) June 30,

(dollars in thousands) September 30,

2021 December 31,

2020 June 30,

2020 September 30,

2021 December 31,

8 unchanged sentences

Debt, net of current portion $ 514,418 $ 518,193 2.44 % 3.22 %

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

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

At September 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 June 30, 2021, we were in compliance with our debt covenants under the Real Estate Loans.

At September 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 June 30, 2021:

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

(dollars in thousands) Term

5 unchanged sentences

January 2020 39 3 March 2020 3,470

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,

(dollars in thousands) Annual

2021 - remaining $ 5,594

Thereafter 53,351

Total required maturities $ 547,306

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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.

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

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

(dollars in thousands) Term of derivative instrument Notional

Derivative instruments designated as hedging instruments:

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

Interest rate swap November 2020 - October 2024 $ 60,000

1 unchanged sentence

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.

Interest rate swap July 2021 - October 2024 120,000

Interest rate swap July 2021 - October 2024 75,000

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

Asset derivatives Liability derivatives

(dollars in thousands) Balance sheet location June 30,

(dollars in thousands) Balance sheet location September 30,

2021 December 31,

2020 Balance sheet location June 30,

2020 Balance sheet location September 30,

2021 December 31,

16 unchanged sentences

other comprehensive loss into income

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 Three months ended

June 30, 2021

Six months ended

June 30, 2021

September 30, 2021

Nine months ended

September 30, 2021

Interest rate swaps $ 2,283 Interest expense $ ( 505 ) $ ( 3,289 )

September 30,

2020 Three months ended

June 30, 2020

Six months ended

June 30, 2020

September 30, 2020

Nine months ended

September 30, 2020

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

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract.

1 unchanged sentence

Changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) is reclassified from accumulated other comprehensive income (loss) to current earnings.

The estimated accumulated other comprehensive loss as of June 30, 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

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.

The estimated accumulated other comprehensive loss as of September 30, 2021 that is expected to be reclassified into earnings within the next twelve months is $ 1.4 million.

There were no ineffective portions of our interest rate swap derivatives during the nine months ended September 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 June 30, 2021, we did not have any operating leases that had not yet commenced.

As of September 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

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

5 unchanged sentences

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

See Note 14 for a discussion of the workforce strategy actions we took during October 2021.

Other commitments

4 unchanged sentences

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

As of June 30, 2021, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 45.0 million through 2024.

As of September 30, 2021, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 39.7 million through 2024.

Solution and service indemnifications

2 unchanged sentences

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

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Legal proceedings

6 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.

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

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

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

9 unchanged sentences

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.

Based on our review of expenses incurred to date, and upon consideration of the number of matters outstanding (as described below), w e believe that total costs related to the Security Incident will exceed the limits of our insurance coverage during the fourth quarter of 2021.

However, we are currently unable to estimate the approximate amount or range of any such excess.

In the three and nine months ended September 30, 2021, we recorded $ 11.4 million and $ 35.9 million, respectively, of expenses related to the Security Incident and offsetting probable insurance recoveries of $ 10.6 million and $ 34.5 million, respectively.

As of September 30, 2021, we have recorded cumulative expenses related to the Security Incident of $ 45.7 million and cumulative probable insurance recoveries of $ 43.9 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, $ 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 and as operating activities on our condensed consolidated statements of cash flows.

Of the insurance recoveries recorded, $ 18.0 million had been paid as of September 30, 2021.

Recorded expenses consisted primarily of payments for legal fees related to governmental inquiries and investigations and customer constituent class actions.

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

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, and those 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 June 30, 2021 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Based on our analysis of the factors described above, we have not recorded a liability related to the Security Incident as of September 30, 2021 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Customer claims.

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

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

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

Of the Customer Reimbursement Requests received to date, approximately 170 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.

In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us.

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

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

Customer constituent class actions.

Presently, we are a defendant in 19 putative consumer class action cases [ 17 in U.S.

federal courts (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

in Canadian courts] alleging harm from the Security Incident.

federal courts (which have been consolidated under multi district litigation to a single federal court) and 2 in Canadian courts] alleging harm from the Security Incident.

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

12 unchanged sentences

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.

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.

Data Protection Act 2018 (the "ICO", the Office of the Australian Information Commissioner, the Office of the Privacy Commissioner of Canada, the Spanish Data Protection Authority, and the Data Protection Commission of Ireland).

On September 28, 2021, the ICO notified us that it has closed its investigation of the Security Incident.

Based on its investigation and having considered our actions before, during and after the Security Incident, the ICO issued our European subsidiary a reprimand in accordance with Article 58(2)(b) of the U.K.

General Data Protection Regulation ("U.K.

GDPR") due to our non-compliance, in the ICO's view, with the requirements set out in Article 32 of the U.K.

GDPR regarding the processing of personal data.

The ICO did not impose a penalty related to the Security Incident, nor did it impose any requirements for further action by us.

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

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

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

We continue to cooperate with all ongoing inquiries and investigations, which include various requests for documents, policies, narratives and communications, as well as requests to interview or depose various Company-related personnel.

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

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2021

1 unchanged sentence

Effective income tax rate 28.9 % 26.5 % 27.9 % 24.6 %

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

The increase in our effective income tax rate for the three months ended September 30, 2021, when compared to the same period in 2020, was primarily attributable to higher 2021 non-deductible stock-based compensation and reduced state tax credits.

Furthermore, the 2020 effective tax rate was positively impacted by a favorable return to provision adjustment offset against tax expense attributable to a corporate income tax rate increase enacted during the period.

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

Stock-based Compensation

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Total stock-based compensation expense $ 28,926 $ 20,843 $ 89,480 $ 54,556

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Stockholders' Equity

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We account for purchases of treasury stock under the cost method.

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

During the three and nine months ended September 30, 2021, we purchased 583,280 and 1,454,148 shares for $ 40.3 million and $ 98.4 million, respectively.

The remaining amount available to purchase stock under the stock repurchase program was $ 110.6 million as of September 30, 2021.

Changes in accumulated other comprehensive income (loss) by component

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Accumulated other comprehensive income (loss), end of period $ 3,319 $ ( 8,872 ) $ 3,319 $ ( 8,872 )

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Revenue Recognition

Transaction price allocated to the remaining performance obligations

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

As of September 30, 2021, approximately $ 821 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 June 30, 2021 and December 31, 2020 were insignificant.

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

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

(in thousands) June 30,

(in thousands) September 30,

2021 December 31,

Total deferred revenue $ 333,954 $ 316,914

Second Quarter 2021 Form 10-Q

Blackbaud, Inc.

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 .

The increase in deferred revenue during the nine months ended September 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.

The amount of revenue recognized during the nine months ended September 30, 2021 that was included in the deferred reven ue balance at the beginning of the period was approximately $ 270 million.

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

Disaggregation of revenue

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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 UMG and the IMG comprised our go-to-market organizations as of September 30, 2021 .

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

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

Third Quarter 2021 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents our revenue by market group:

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Total revenue $ 231,218 $ 215,001 $ 679,849 $ 670,613

(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.

(1) Due to the market group change discussed above, we have recast our revenue by market group for the three and nine months ended September 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 $ 218,530 $ 200,102 $ 642,266 $ 621,229

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

Workforce strategy actions

In October 2021, we made the decision to permanently close our fixed office locations (with the exception of our global headquarters facility in Charleston, South Carolina), effective December 1, 2021.

This change was intended to align our real estate footprint with our transition to a remote-first workforce.

We may enter into arrangements for smaller more flexible workspaces where necessary.

We currently expect to incur between $ 13.0 million and $ 14.0 million of pre-tax costs related to these actions during the fourth quarter of 2021.

We expect that the costs associated with these actions will be largely noncash impairment charges, primarily for operating lease ROU assets in the office locations we have determined to exit.

Third 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