What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-05 · 200 added, 142 removed, 535 unchanged (39% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2022 December 31,

2 unchanged sentences

Restricted cash 449,491 596,616

Accounts receivable, net of allowance of $ 10,772 and $ 11,155 at March 31, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance of $ 9,764 and $ 11,155 at June 30, 2022 and December 31, 2021, respectively

149,237 102,726

4 unchanged sentences

Operating lease right-of-use assets 50,036 53,883

Software development costs, net 126,766 121,377

Software and content development costs, net 130,329 121,377

Goodwill 1,051,230 1,058,640

21 unchanged sentences

Common stock, $ 0.001 par value;

180,000,000 shares authorized, 67,658,172 and 66,165,666 shares issued at March 31, 2022 and December 31, 2021, respectively

180,000,000 shares authorized, 67,755,374 and 66,165,666 shares issued at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,020,835 968,927

Treasury stock, at cost;

14,715,944 and 14,182,805 shares at March 31, 2022 and December 31, 2021, respectively

14,731,484 and 14,182,805 shares at June 30, 2022 and December 31, 2021, respectively

( 536,511 ) ( 500,911 )

4 unchanged sentences

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

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Comprehensive (Loss) Income

Three months ended

June 30, Six months ended

(dollars in thousands, except per share amounts) 2022 2021 2022 2021

14 unchanged sentences

Total operating expenses 139,266 108,327 279,007 217,489

(Loss) income from operations ( 5,979 ) 6,644

Income (loss) from operations 54 13,043 ( 5,925 ) 19,687

Interest expense ( 8,976 ) ( 5,054 ) ( 16,575 ) ( 10,168 )

2 unchanged sentences

Income tax (benefit) provision ( 2,367 ) 1,745 ( 4,417 ) 2,429

Net loss $ ( 10,407 ) $ ( 164 )

Loss per share

Net (loss) income $ ( 3,422 ) $ 6,731 $ ( 13,829 ) $ 6,567

(Loss) earnings per share

Basic $ ( 0.07 ) $ 0.14 $ ( 0.27 ) $ 0.14

3 unchanged sentences

Diluted weighted average shares 51,660,739 48,444,874 51,431,501 48,444,658

Other comprehensive income

Other comprehensive (loss) income

Foreign currency translation adjustment $ ( 10,398 ) $ 1,783 $ ( 12,530 ) $ 4,294

Unrealized gain on derivative instruments, net of tax 2,558 345 13,463 4,494

Total other comprehensive income 8,773 6,660

Total other comprehensive (loss) income ( 7,840 ) 2,128 933 8,788

Comprehensive (loss) income $ ( 11,262 ) $ 8,859 $ ( 12,896 ) $ 15,355

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

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Cash Flows

Three months ended

Six months ended

(dollars in thousands) 2022 2021

Cash flows from operating activities

Net loss $ ( 10,407 ) $ ( 164 )

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

Net (loss) income $ ( 13,829 ) $ 6,567

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

Depreciation and amortization 51,283 40,742

13 unchanged sentences

Purchase of property and equipment ( 7,518 ) ( 6,128 )

Capitalized software development costs ( 12,683 ) ( 9,302 )

Capitalized software and content development costs ( 27,183 ) ( 19,862 )

Purchase of net assets of acquired companies, net of cash and restricted cash acquired ( 19,016 ) —

3 unchanged sentences

Payments on debt ( 129,548 ) ( 113,477 )

Stock issuance costs ( 557 ) —

Employee taxes paid for withheld shares upon equity award settlement ( 35,600 ) ( 38,712 )

8 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,

2022 December 31,

3 unchanged sentences

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

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

4 unchanged sentences

comprehensive

income (loss) Retained

earnings Total

15 unchanged sentences

Balance at March 31, 2022 67,658,172 $ 68 $ 993,223 $ ( 535,585 ) $ 15,295 $ 232,049 $ 705,050

Net loss — — — — — ( 3,422 ) ( 3,422 )

Stock issuance costs related to purchase of EVERFI (see Note 3)

— — ( 223 ) — — — ( 223 )

Retirements of common stock (1)

( 395 ) — ( 19 ) — — — ( 19 )

Vesting of restricted stock units 23,549 — — — — — —

Employee taxes paid for 15,540 withheld shares upon equity award settlement

— — — ( 926 ) — — ( 926 )

Stock-based compensation — — 27,854 — — — 27,854

Restricted stock grants 136,598 — — — — — —

Restricted stock cancellations ( 62,550 ) — — — — — —

Other comprehensive loss — — — — ( 7,840 ) — ( 7,840 )

Balance at June 30, 2022 67,755,374 $ 68 $ 1,020,835 $ ( 536,511 ) $ 7,455 $ 228,627 $ 720,474

(1) Represents shares retired after determining certain EVERFI's selling shareholders would be paid in cash, rather than shares of our common stock.

See Note 3 for additional information regarding our acquisition of EVERFI.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(dollars in thousands) Common stock Additional

2 unchanged sentences

comprehensive

income (loss) Retained

income (loss)

earnings Total

13 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

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

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

9 unchanged sentences

The consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date.

Operating results and cash flows for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022, or any other future period.

Operating results and cash flows for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022, 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.

As discussed in Note 13 to these condensed consolidated financial statements, 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.

We also acquired EVERFI (as defined below) as of December 31, 2021.

As we are working to integrate EVERFI into our business, it has not yet been included in one of our market groups.

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

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

We acquired EVERFI (as defined below) on December 31, 2021.

As we are working to integrate EVERFI into our business, it had not yet been included in one of our market groups as of June 30, 2022.

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

Risks and uncertainties related to COVID-19

1 unchanged sentence

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.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Use of estimates

10 unchanged sentences

The acquisition advanced our position as a leader in the rapidly evolving ESG and CSR spaces.

We acquired the equity securities for approximately $ 442.7 million in cash consideration and 3,811,348 shares of the company's common stock, valued at approximately $ 301.1 million, for an aggregate purchase price of approximately $ 743.8 million, subject to closing adjustments.

We acquired the equity securities for approximately $ 441.8 million in cash consideration and 3,810,953 shares of the company's common stock, valued at approximately $ 301.0 million, for an aggregate purchase price of approximately $ 742.8 million, net of closing adjustments.

The cash consideration and related expenses were funded primarily through cash on hand and new borrowings under the 2020 Credit Facility (as defined below).

6 unchanged sentences

The assets and liabilities, pending finalization, include the valuation of intangible assets as well as the assumed deferred income tax balances.

During the three months ended March 31, 2022, we recorded an insignificant measurement period adjustment to the estimated fair value of the EVERFI assets acquired and liabilities assumed following the receipt of new information.

The adjustment resulted in an increase to net working capital, excluding deferred revenue, with the corresponding offset to goodwill.

First Quarter 2022 Form 10-Q

During the six months ended June 30, 2022, we recorded insignificant measurement period adjustments to the estimated fair value of the EVERFI assets acquired and liabilities assumed following the receipt of new information.

The adjustments resulted in an increase to net working capital, excluding deferred revenue, with the corresponding offset to goodwill.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Goodwill and Other Intangible Assets

The change in goodwill during the three months ended March 31, 2022, consisted of the following:

The change in goodwill during the six months ended June 30, 2022, consisted of the following:

(dollars in thousands) Total

Balance at December 31, 2021 $ 1,058,640

Adjustments related to prior year business combinations (1)

Adjustments related to prior year business combination (1)

Effect of foreign currency translation ( 6,207 )

Balance at March 31, 2022 $ 1,056,794

(1) See Note 3 to these condensed consolidated financial statements for a discussion of the measurement period adjustment during the three months ended March 31, 2022 to the estimated fair value of the EVERFI assets acquired and liabilities assumed.

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, 2022 $ 1,051,230

(1) See Note 3 to these condensed consolidated financial statements for a discussion of the measurement period adjustments during the three and six months ended June 30, 2022 to the estimated fair value of the EVERFI assets acquired and liabilities assumed.

(Loss) Earnings Per Share

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

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

Diluted (loss) 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, 2022 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.

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

Diluted loss per share for the three and six months ended June 30, 2022 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.

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

Three months ended

Six months ended

(dollars in thousands, except per share amounts) 2022

Net loss $ ( 10,407 ) $ ( 164 )

Net (loss) income $ ( 3,422 ) $ 6,731 $ ( 13,829 ) $ 6,567

Weighted average common shares 51,660,739 47,756,326 51,431,501 47,560,847

2 unchanged sentences

Weighted average common shares assuming dilution 51,660,739 48,444,874 51,431,501 48,444,658

Earnings per share:

(Loss) earnings per share:

Basic $ ( 0.07 ) $ 0.14 $ ( 0.27 ) $ 0.14

Diluted $ ( 0.07 ) $ 0.14 $ ( 0.27 ) $ 0.14

Anti-dilutive shares excluded from calculations of diluted earnings per share 1,558,751 1,360,378

First Quarter 2022 Form 10-Q

Anti-dilutive shares excluded from calculations of diluted (loss) earnings per share 1,167,368 907,210 2,090,267 1,032,655

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

10 unchanged sentences

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

Fair value as of March 31, 2022

Fair value as of June 30, 2022

Financial assets:

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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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, as the debt bears interest rates that approximate market value.

As LIBOR and SOFR 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.

First Quarter 2022 Form 10-Q

Second Quarter 2022 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 three months ended March 31, 2022.

Additionally, we did not hold any Level 3 assets or liabilities during the three months ended March 31, 2022.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the six months ended June 30, 2022.

Additionally, we did not hold any Level 3 assets or liabilities during the six months ended June 30, 2022.

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 material 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, 2022 .

During the three and six months ended June 30, 2022, we recorded a noncash impairment charge of $ 2.3 million against certain previously capitalized software development costs that reduced the carrying value of those assets to zero.

The impairment charge is reflected in general and administrative expense and resulted primarily from our decision to end customer support for certain solutions.

During the three and six months ended June 30, 2022, we recorded a noncash impairment charge of $ 2.0 million against certain insignificant customer relationship intangible assets that were held for sale.

The impairment charge is reflected in general and administrative expense.

There were no other non-recurring fair value adjustments during the six months ended June 30, 2022 except for certain insignificant business combination accounting adjustments to the initial fair value estimates of assets acquired and liabilities assumed at the acquisition date from updated estimates and assumptions during the measurement period.

See Note 3 to these condensed consolidated financial statements for additional details.

Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2022 December 31,

1 unchanged sentence

Letters of credit for operating leases — 2,186

Real estate escrow balances 1,271 1,064

Real estate escrow balances and other

Total restricted cash $ 449,491 $ 596,616

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Prepaid expenses and other assets

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2022 December 31,

4 unchanged sentences

Derivative instruments 25,412 7,160

Receivables for probable insurance recoveries (4)(5)

12,715 18,202

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

10,816 11,892

Receivables for probable insurance recoveries (6)(7)

10,000 18,202

Prepaid insurance 9,499 5,363

6 unchanged sentences

Prepaid expenses and other current assets $ 98,041 $ 95,506

(1) Amortization expense from costs of obtaining contracts was $ 8.5 million and $ 9.2 million for the three months ended March 31, 2022 and 2021, respectively.

(2) The current portion of costs of obtaining contracts as of March 31, 2022 and December 31, 2021 was $ 29.7 million and $ 30.2 million, respectively.

(3) The current portion of prepaid software maintenance and subscriptions as of March 31, 2022 and December 31, 2021 was $ 29.8 million and $ 24.7 million, respectively.

(1) Amortization expense from costs of obtaining contracts was $ 8.5 million and $ 17.0 million for the three and six months ended June 30, 2022, respectively, and $ 9.0 million and $ 18.2 million for the three and six months ended June 30, 2021.

(2) The current portion of costs of obtaining contracts as of June 30, 2022 and December 31, 2021 was $ 29.1 million and $ 30.2 million, respectively.

(3) The current portion of prepaid software maintenance and subscriptions as of June 30, 2022 and December 31, 2021 was $ 28.2 million and $ 24.7 million, respectively.

(4) These costs 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 months ended June 30, 2022 and 2021, respectively, and $ 1.1 million and $ 0.9 million for the six months ended June 30, 2022 and 2021, respectively.

Accumulated amortization for these costs was $ 4.1 million and $ 3.0 million as of June 30, 2022 and December 31, 2021, respectively.

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

(7) See discussion of the Security Incident at Note 10 to these condensed consolidated financial statements.

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

(7) Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended March 31, 2022 and 2021.

Accumulated amortization for these costs was $ 3.5 million and $ 3.0 million as of March 31, 2022 and December 31, 2021, respectively.

Accrued expenses and other liabilities

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2022 December 31,

8 unchanged sentences

Accrued vacation costs 2,266 2,234

Accrued bonuses 1,460 5,829

Accrued transaction-based costs related to payments services 2,236 5,427

Accrued bonuses 1,845 5,829

Unrecognized tax benefit 1,533 1,248

5 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, half of which was due by the end of calendar year 2021 with the remainder due by the end of calendar year 2022.

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

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

(3) Represents amounts that had not been paid by EVERFI to its former option holders as of December 31, 2021, solely due to the timing of the acquisition on the last day of 2021.

See Note 3 to these condensed consolidated financial statements for additional information regarding our acquisition of EVERFI.

Other income (expense), net

Three months ended

Six months ended

(dollars in thousands) 2022

Interest income $ 114 $ 77 $ 237 $ 229

Currency revaluation gains (losses) 2,271 220 2,853 ( 1,167 )

Other income, net 748 190 1,164 415

Other income (expense), net $ 3,133 $ 487 $ 4,254 $ ( 523 )

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,

2022 December 31,

2021 March 31,

2021 June 30,

2022 December 31,

10 unchanged sentences

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

At March 31, 2022, we were in compliance with our debt covenants under the 2020 Credit Facility.

At June 30, 2022, we were in compliance with our debt covenants under the 2020 Credit Facility.

First incremental term loan

2 unchanged sentences

Financing for EVERFI acquisition

On December 31, 2021, we acquired EVERFI for approximately $ 442.7 million in cash consideration and 3,811,348 shares of the company's common stock, valued at approximately $ 301.1 million, for an aggregate purchase price of approximately $ 743.8 million, subject to closing adjustments.

On December 31, 2021, we acquired EVERFI for approximately $ 441.8 million in cash consideration and 3,810,953 shares of the company's common stock, valued at approximately $ 301.0 million, for an aggregate purchase price of approximately $ 742.8 million, net of closing adjustments.

We financed the cash consideration and related expenses through cash on hand and new borrowings u nder the 2020 Credit Facility , including $ 250.0 million under the 2021 Incremental Term Loan (as defined above).

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

First amendment to 2020 Credit Facility

1 unchanged sentence

The Amendment amended the 2020 Credit Facility to, among other things, (i) modify the definition of “Applicable Margin”, (ii) modify the net leverage ratio financial covenant to require a net leverage ratio of (A) 4.00 :1.00 or less for the fiscal quarter ended December 31, 2021 and for fiscal quarters ending thereafter through December 31, 2023 and (B) 3.75 :1.00 or less for the fiscal quarters ending March 31, 2024 and thereafter, (iii) reset the $ 250.0 million fixed dollar basket with respect to the accordion feature and (iv) modify certain negative covenants to provide additional operational flexibility.

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Real estate loans

1 unchanged sentence

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

At March 31, 2022, we were in compliance with our debt covenants under the Real Estate Loans.

At June 30, 2022, 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, 2022:

The following table summarizes our currently effective financing agreements as of June 30, 2022:

(dollars in thousands) Term

9 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 March 31, 2022:

The terms and notional values of our derivative instruments were as follows as of June 30, 2022:

(dollars in thousands) Term of derivative instrument Notional

5 unchanged sentences

Interest rate swap July 2021 - October 2024 75,000

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

Asset derivatives

(dollars in thousands) Balance sheet location March 31,

(dollars in thousands) Balance sheet location June 30,

2022 December 31,

3 unchanged sentences

Total derivative instruments designated as hedging instruments $ 25,412 $ 7,160

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

The effects of derivative instruments in cash flow hedging relationships were as follows:

Gain (loss) recognized

Gain recognized

in accumulated other

comprehensive

loss as of Location

of gain (loss)

reclassified from

1 unchanged sentence

comprehensive

loss into income Gain (loss) reclassified from accumulated

other comprehensive loss into income

(dollars in thousands) March 31,

(loss) income

Gain (loss) reclassified from accumulated

other comprehensive income into (loss) income

(dollars in thousands) June 30,

2022 Three months ended

March 31, 2022

June 30, 2022

Six months ended

June 30, 2022

Interest rate swaps $ 25,412 Interest expense $ 323 $ ( 35 )

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 )

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 income as of March 31, 2022 that is expected to be reclassified into earnings within the next twelve months is $ 5.7 million.

There were no ineffective portions of our interest rate swap derivatives during the three months ended March 31, 2022 and 2021.

The estimated accumulated other comprehensive income as of June 30, 2022 that is expected to be reclassified into earnings within the next twelve months is $ 11.3 million.

There were no ineffective portions of our interest rate swap derivatives during the six months ended June 30, 2022 and 2021.

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, 2022, we did not have any operating leases that had not yet commenced.

As of June 30, 2022, we did not have any operating leases that had not yet commenced.

The following table summarizes the components of our lease expense:

Three months ended

Six months ended

(dollars in thousands) 2022

5 unchanged sentences

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

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Other commitments

4 unchanged sentences

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

As of March 31, 2022, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 31.7 million through 2025.

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

As of June 30, 2022, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 241.3 million through 2027.

Solution and service indemnifications

21 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 fina ncial exposure related to the Security Incident, and we will continue to seek recoveries under these insurance policies.

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 for claims we have submitted but have not yet been reimbursed.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

We recorded expenses and offsetting probable insurance recoveries related to the Security Incident as follows:

Three months ended

Six months ended

(dollars in thousands) 2022

2 unchanged sentences

Net expense $ 8,348 $ 470 $ 15,549 $ 471

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

The following summarizes our cumulative expenses, probable insurance recoveries and insurance recoveries paid as of:

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2022 December 31,

4 unchanged sentences

Due to the time required to submit and process such insurance claims, we have not yet received all of the accrued insurance recoveries.

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 consolidated statements of comprehensive income and as operating activities on our consolidated statements of cash flows.

T otal costs related to the Security Incident that we expect will be recoverable exceeded the limit of our insurance coverage during the first quarter of 2022.

Recorded expenses have 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 consolidated statements of comprehensive (loss) income and as operating activities on our consolidated statements of cash flows.

T otal costs related to the Security Incident that we expect will be recoverable has exceeded the limit of our insurance coverage.

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.

For full year 2022, we currently expect net cash outlays of approximately $ 25.0 million to $ 35.0 million for ongoing legal fees related to the Security Incident.

For full year 2022, we currently expect net pre-tax expense of approximately $ 30.0 million to $ 35.0 million for ongoing legal fees related to the Security Incident.

In line with our policy as discussed above, legal fees are expensed as incurred.

Based on our analysis of the factors described above, we have not recorded a liability for a loss contingency related to the Security Incident as of March 31, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.

For full year 2022, we currently expect net cash outlays of approximately $ 15.0 million to $ 25.0 million for ongoing legal fees related to the Security Incident.

Based on our analysis of the factors described above, we have not recorded a liability for a loss contingency related to the Security Incident as of June 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Customer claims.

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Of the Customer Reimbursement Requests received to date, approximately 190 have been fully resolved and closed.

In June 2022, we also received notice of a proposed claim on behalf of a number of U.K.

data subjects, which we are reviewing.

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

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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.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

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

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

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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 have a material adverse impact on our results of operations, cash flows, or financial condition.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

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(dollars in thousands) 2022

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Effective income tax rate 40.9 % 20.6 % 24.2 % 27.0 %

For the three months ended March 31, 2022, we have utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, Income Taxes—Interim Reporting , to calculate our interim income tax provision.

For the three and six months ended June 30, 2022, we have utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, Income Taxes—Interim Reporting , to calculate our interim income tax provision.

The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate.

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We believe that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as our full-year forecasted pre-tax income, relative to our forecasted permanent differences, has the potential to distort our estimated annual effective tax rate.

The decrease in our effective income tax rate for the three months ended March 31, 2022 when compared to the same period in 2021 was primarily attributable to the impact of stock based compensation.

The 2022 effective tax rate was negatively impacted by increased tax expense attributable to stock based compensation against pre-tax loss for the period.

The increase in our effective income tax rate for the three months ended June 30, 2022 when compared to the same period in 2021 was primarily due to 2022 tax benefit attributable to foreign-derived intangible income ("FDII") deduction not generated in the prior year.

Furthermore, the 2021 effective tax rate was positively impacted by benefit attributable to stock based compensation partially offset against expense attributable to an income tax rate increase enacted during the period.

The decrease in our effective income tax rate for the six months ended June 30, 2022 when compared to the same period in 2021 was primarily attributable to 2022 tax benefit attributable to FDII deduction not generated in the prior year.

Furthermore, the 2022 effective tax rate was negatively impacted by tax expense attributable to stock-based compensation against pre-tax loss for the period.

The 2021 effective tax rate was positively impacted by benefit attributable to stock-based compensation, partially offset against expense attributable to an income tax rate increase enacted during the period.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Stockholders' Equity

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(dollars in thousands) 2022

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Other comprehensive income (loss) before reclassifications, net of tax effects of ( 993 ), $ 244 , $( 4,782 ) and $( 856 )

Amounts reclassified from accumulated other comprehensive income to interest expense 358 1,376

Tax benefit included in provision for income taxes ( 94 ) ( 357 )

Total amounts reclassified from accumulated other comprehensive income 264 1,019

2,796 ( 692 ) 13,437 2,438

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense ( 323 ) 1,408 35 2,784

Tax expense (benefit) included in provision for income taxes 85 ( 371 ) ( 9 ) ( 728 )

Total amounts reclassified from accumulated other comprehensive income (loss) ( 238 ) 1,037 26 2,056

Net current-period other comprehensive income 2,558 345 13,463 4,494

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Foreign currency translation adjustment:

Accumulated other comprehensive income balance, beginning of period $ 1,265 $ 604

Accumulated other comprehensive (loss) income balance, beginning of period $ ( 867 ) $ 3,115 $ 1,265 $ 604

Translation adjustments ( 10,398 ) 1,783 ( 12,530 ) 4,294

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Accumulated other comprehensive income, end of period $ 7,455 $ 6,291 $ 7,455 $ 6,291

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of March 31, 2022, approximately $ 984 million of revenue is expected to be recognized from remaining performance obligations.

As of June 30, 2022, approximately $ 1.0 billion of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 60 % of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Contract balances

Our contract assets as of March 31, 2022 and December 31, 2021 were insignificant.

Our contract assets as of June 30, 2022 and December 31, 2021 were insignificant.

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

(in thousands) March 31,

(in thousands) June 30,

2022 December 31,

Total deferred revenue $ 416,259 $ 378,746

The decrease in deferred revenue during the three months ended March 31, 2022 was primarily due to a seasonal decrease in customer contract renewals.

The increase in deferred revenue during the six months ended June 30, 2022 was primarily due to 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.

Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter.

The amount of revenue recognized during the three months ended March 31, 2022 that was included in the deferred reven ue balance at the beginning of the period was approximately $ 152 million.

The amount of revenue recognized during the three months ended March 31, 2022 from performance obligations satisfied in prior periods was insignificant.

The amount of revenue recognized during the six months ended June 30, 2022 that was included in the deferred reven ue balance at the beginning of the period was approximately $ 273 million.

The amount of revenue recognized during the six months ended June 30, 2022 from performance obligations satisfied in prior periods was insignificant .

Disaggregation of revenue

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(dollars in thousands) 2022

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Total revenue $ 264,927 $ 229,440 $ 522,051 $ 448,631

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.

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

The UMG, IMG and EVERFI comprised our go-to-market organizations as of March 31, 2022.

The UMG, IMG and EVERFI comprised our go-to-market organizations as of June 30, 2022.

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

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• We acquired EVERFI as of December 31, 2021 as discussed in Note 3 to these condensed consolidated financial statements.

As we are working to integrate EVERFI into our business, it has not yet been included in one of our market groups.

As we are working to integrate EVERFI into our business, it had not yet been included in one of our market groups as of June 30, 2022.

The following table presents our revenue by market group:

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(dollars in thousands) 2022

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53,567 50,028 101,621 95,797

26,827 — 53,802 —

Other ( 228 ) ( 24 ) ( 622 ) ( 69 )

Total revenue $ 264,927 $ 229,440 $ 522,051 $ 448,631

(1) Due to the market group change discussed above, we have recast our revenue by market group for the three months ended March 31, 2021 to present them on a consistent basis with the current year.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents our recurring revenue by type:

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(dollars in thousands) 2022

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Total recurring revenue $ 252,507 $ 216,986 $ 497,173 $ 423,736

First Quarter 2022 Form 10-Q

Second Quarter 2022 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