What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 230 added, 170 removed, 393 unchanged (50% of the section changed)

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(iii) providing software maintenance and support services;

providing Impact-as-a-Service ™ digital educational content;

and (iv) providing professional services, including implementation, consulting, training, analytic and other services.

(iv) providing Impact-as-a-Service ™ digital educational content;

and (v) providing professional services, including implementation, consulting, training, analytic and other services.

COVID-19 Impact

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4 Focus on Employees, Culture and ESG Initiatives

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

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This strategy expands upon our previous strategies to drive sales effectiveness and improve operating efficiency to include improving overall company performance as measured by the Rule of 40 (see discussion of Non-GAAP Financial Measures below).

W e recently welcomed two accomplished leaders to our team as we look to drive future innovation and customer delight, a Chief Product Officer, to oversee our global product portfolio and a Chief Information Security Officer, to oversee our global trust and security program including all elements of cybersecurity.

We recently announced a series of strategic organizational updates to streamline our business operations and become even more customer centric.

We created three new roles:

Chief Operating Officer, Chief Commercial Officer and Executive Vice President of Corporations.

We believe the appointments for these new roles will:

ensure consistency in our approach to the customer experience;

further streamline and simplify our go-to-market efforts to maximize our outcomes as a global company;

and further align our YourCause and EVERFI offerings and continue our investment in being the partner of choice for corporations focused on social responsibility and impact.

We also recently appointed a new member to our board of directors, who brings over 20 years of experience in technology and cybersecurity to our board.

Delight Customers with Innovative Cloud Solutions

We are excited about the role Blackbaud is playing in developing innovative solutions for our customers to diversify the way they receive and process donations.

Recently, we announced a new product integration in the U.S.

between Blackbaud Merchant Services, our end-to-end payment processing solution, and PayPal allowing social good organizations to offer donors the option to checkout with PayPal or Venmo.

Through this integration, Blackbaud customers will have access to a broader audience of donors with PayPal's more than 400 million active consumer accounts enabling a more satisfying giving experience to expand impact.

We are also driving a differentiated giving experience through our partnership with Change, to provide Blackbaud's corporate customers an option to run charitable campaigns at point-of-sale like roundups after purchase, match customer donations and offer donation options in loyalty programs.

Change is a good example of the ecosystem we are building through our Social Good Startup Program.

Their platform is already making an impact in the mission-driven commerce space, including enabling a new frontier of giving with cryptocurrency.

We also recently held our Product Update Briefings, a semi-annual event designed to share new product features and roadmaps.

We provided updates on innovations in the pipeline for Raiser's Edge NXT, Financial Edge NXT, Grantmaking, Data Intelligence, Payment Services, Luminate Online and TeamRaiser, JustGiving, and SKY Developer, to name a few.

New this year, we hosted an executive summary session that briefly highlighted our most important product enhancements and strategies, which can be accessed along with all the sessions by visiting our corporate website.

Also, in just over a month, we are projecting our highest turnout ever at our developers' conference designed as a learning event that brings together all levels of developers and technology enthusiasts to share best practices, collaborate with Blackbaud product experts and build relationships with peers.

We continue to drive significant growth in our non-Blackbaud developer ecosystem consisting of customers, consultants, partners and individual change agents.

Recently, we announced the launch of Prospect Insights—a new software tool within Raiser's Edge NXT that automates in-app intelligence related to major giving likelihood and capacity, and then prescribes actions related to portfolio management and solicitation.

Also, in June 2022, we held our annual developer conference focusing on the low-code movement and accessible technology with a high number of attendees.

Feedback from the conference showed that a significant majority of attendees left feeling that Blackbaud empowers customers to improve usage and experience with our solutions.

Focus on Employees, Culture and ESG Initiatives

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With a multi-pronged climate strategy, Blackbaud is focused on reducing emissions, using energy efficiently and investing in environmental projects for a more sustainable future.

We will share more about our ESG strategy on our Corporate Social Responsibility website, which we expect to launch this quarter.

We shared more about our ESG strategy on our Corporate Social Responsibility website during the second quarter.

Our mission driven culture has been in our DNA since inception and is very attractive in a competitive labor market.

We continue to foster a diverse and inclusive environment focused on employee engagement and connectedness with our remote-first workforce strategy.

For example, of our most recent hires, nearly 67% have come from historically under-represented groups.

We have a significant role to play in driving advances in the social good space, and we are proud of the strong corporate culture we have built and continue to cultivate in today's environment.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

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YoY Growth (%) YoY Growth (%)

Total revenue increased by $37.9 million during the three months ended March 31, 2022, when compared to the same period in 2021, driven largely by the following:

Total revenue increased by $35.5 million and $73.4 million during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, driven largely by the following:

+ Growth in recurring revenue primarily related to:

• an increase in contractual recurring revenue of $27.7 million related to the performance of our cloud solutions, $24.1 million of which was attributable to EVERFI;

partially offset by a decrease in maintenance revenue as customers migrate to our cloud solutions;

• an increase in transactional revenue of $10.2 million primarily due to an increase in online charitable giving, the continued shift toward virtual fundraising and, to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events.

+ Increase in one-time consulting revenue due primarily to our acquisition of EVERFI, largely offset by a decrease in implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model.

• increases in contractual recurring revenue of $26.2 million and $53.9 million, respectively, related to the performance of our cloud solutions, of which $23.4 million and $47.5 million, respectively, was attributable to EVERFI;

partially offset by decreases in maintenance revenue as customers migrate to our cloud solutions;

also offsetting the increases in contractual recurring revenue are decreases related to fluctuations in foreign currency exchange rates of $0.8 million and $1.1 million, respectively;

• increases in transactional recurring revenue of $9.3 million and $19.5 million, respectively, primarily due to an increase in online charitable giving, the continued shift toward virtual fundraising and, to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events;

partially offset by decreases related to fluctuations in foreign currency exchange rates of $1.8 million and $2.3 million, respectively.

+ Increases in one-time consulting revenue due primarily to our acquisition of EVERFI, largely offset by a decrease in implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model.

Our cloud subscription offerings generally require less implementation and customization services.

- Decrease in one-time analytics revenue as analytics are generally integrated in our cloud solutions

First Quarter 2022 Form 10-Q

- Decreases in one-time analytics revenue as analytics are generally integrated in our cloud solutions

We currently expect that fluctuations in foreign currency exchange rates will have a significant negative impact on our total revenue for the full year 2022.

Our latest projections suggest some softness in our full year 2022 bookings plan for EVERFI, which has minimal impact on our full year 2022 revenues given the ratable revenue recognition.

We will be intently focused on closing the EVERFI bookings gap during the remainder of 2022.

Additionally, we currently expect one-time services and other revenue to be relatively flat during 2022 when compared to 2021, inclusive of incremental one-time revenue expected from EVERFI.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Income from operations decreased by $12.6 million during the three months ended March 31, 2022, when compared to the same period in 2021, driven largely by the following:

+ Increase in total revenue, as described above

+ Decrease in stock-based compensation expense of $2.1 million attributable to a change in the timing of our annual short-term incentive ("STI") equity award grants from the second quarter during 2020 to the first quarter beginning in 2021, which resulted in double-expense for STI awards during the first quarter of 2021

- Increase in compensation costs other than stock-based compensation of $23.7 million primarily due to increased employee headcount due to our acquisition of EVERFI

- Increases in third-party contractor and hosting costs of $7.8 million and $2.7 million, respectively, primarily attributable to our acquisition of EVERFI and, to a lesser extent, our continued migration of our cloud infrastructure to leading public cloud service providers and investments in security

- Increase in Security Incident-related expenses, net of insurance, of $7.2 million.

For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 46 .

Income from operations decreased by $13.0 million and $25.6 million during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, driven largely by the following:

- Increases in compensation costs other than stock-based compensation of $17.0 million and $40.8 million, respectively, primarily due to increased employee headcount due to our acquisition of EVERFI

- Increases in Security Incident-related expenses, net of insurance, of $7.9 million and $15.1 million, respectively.

See "Security Incident update" below.

- Increase in transaction-based costs of $5.1 million related to payment services integrated in our cloud solutions

- Increase in amortization of intangible assets from business combinations of $3.6 million due to our acquisition of EVERFI

- Increase in marketing costs of $2.1 million primarily due to our acquisition of EVERFI

- Increase in corporate IT costs of $1.2 million primarily related to our acquisition of EVERFI and investments in security tools

- Increases in third-party contractor costs of $7.0 million and $14.8 million, respectively, and hosting costs of $1.9 million and $4.6 million, respectively, primarily attributable to our acquisition of EVERFI and, to a lesser extent, our continued migration of our cloud infrastructure to leading public cloud service providers and investments in security

- Increases in transaction-based costs of $4.2 million and $9.3 million, respectively, related to the increase in the volume of transactions for which we process payments

- Increases in amortization of intangible assets from business combinations of $3.8 million and $7.4 million, respectively, due to our acquisition of EVERFI

- Increases in infrastructure and building costs of $3.0 million and $4.2 million, respectively, primarily related to our acquisition of EVERFI and investments in security tools

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

The impairment charge resulted primarily from our decision to end customer support for certain solutions

- Increases in acquisition and disposition-related costs of $2.2 million and $3.2 million, respectively, primarily related to a $2.0 million noncash impairment of certain insignificant intangible assets held for sale

- Increases in marketing costs of $1.8 million and $4.0 million, respectively, primarily due to our acquisition of EVERFI

- Increases in travel costs of $1.7 million and $2.6 million, respectively, due to our easing of restrictions on non-essential employee travel, which went into effect during March 2020 in response to the COVID-19 pandemic

+ Increases in total revenue, as described above

+ Decreases in stock-based compensation expense of $2.7 million and $4.8 million, respectively, attributable to:

• A decrease in the grant date fair value of our annual equity awards granted to employees during 2022 compared to 2021;

• As a one-time response to COVID-19, replacement of our 2020 base salary merit increases with one-year time-based equity awards, which vested and were recognized as expense between May 1, 2020 and May 1, 2021.

We are continuing to make critical investments in the business in areas such as digital marketing, engineering, security, customer success and our continued shift of cloud infrastructure to leading public cloud service providers.

Our profitability through the first quarter reflects the addition of EVERFI and some of these incremental investments that were pushed from 2021 into 2022, particularly in areas where we are increasing headcount.

Our profitability through the second quarter reflects the addition of EVERFI and some of these incremental investments that were pushed from 2021 into 2022, particularly in areas where we are increasing headcount.

We continuously seek opportunities to optimize our portfolio of solutions to focus time and resources on innovation that will have the greatest impact for our customers and the markets we serve, and drive the highest return on investment.

To that end, we will continue to simplify and rationalize our portfolio through product sunsets and divestitures of non-core businesses and technologies.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Customer retention

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In the long term, we also anticipate an increase in recurring subscription contract renewals as we continue focusing on innovation, quality and the integration of our cloud solutions, which we believe will provide value-adding capabilities to better address our customers' needs.

Due primarily to these factors, we believe a recurring revenue customer retention measure that combines recurring subscription, maintenance and service customer contracts provides a better representation of our customers' overall behavior.

For the twelve months ended March 31, 2022, approximately 92% of our customers with recurring revenue contracts were retained.

This customer retention rate is materially unchanged from our rate for the full year ended December 31, 2021 and reflects our efforts to rationalize our portfolio of solutions and migrate customers from legacy solutions towards our next generation solutions.

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Due primarily to these factors, we believe a recurring revenue customer retention measure that combines recurring subscription, maintenance and recurring service customer contracts provides a better representation of our customers' overall behavior.

For the twelve months ended June 30, 2022, approximately 92% of our customers with recurring revenue contracts were retained.

This customer retention rate is materially unchanged from our rate for the full year ended December 31, 2021 and reflects our continuing efforts to rationalize our portfolio of solutions and migrate customers from legacy solutions towards our next generation solutions.

Balance sheet and cash flow

At March 31, 2022, our cash and cash equivalents were $33.8 million and the carrying amount of our debt under the 2020 Credit Facility was $922.0 million.

At June 30, 2022, our cash and cash equivalents were $29.0 million and the carrying amount of our debt under the 2020 Credit Facility was $880.9 million.

Our net leverage ratio was 3.42 to 1.00.

During the three months ended March 31, 2022, we generated $24.5 million in cash from operations, had a net increase in borrowings of $25.6 million and had aggregate cash outlays of $16.9 million for purchases of property and equipment and capitalized software development costs.

During the six months ended June 30, 2022, we generated $81.8 million in cash from operations, had a net decrease in borrowings of $16.3 million, had aggregate cash outlays of $34.7 million for purchases of property and equipment and capitalized software and content development costs, and spent $19.0 million on the purchase of EVERFI solely due to the timing of the acquisition on the last day of 2021.

Security Incident update

As discussed in Note 10 to our unaudited, condensed consolidated financial statements included in this report, 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 .

Accordingly, we expect that the Security Incident will continue to negatively impact our GAAP profitability and GAAP cash flow for the foreseeable future (see discussion regarding our non-GAAP financial measures beginning on page 36 ).

For full year 2022, we currently expect net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident.

For full year 2022, we currently expect net pre-tax expense of approximately $30 million to $35 million for ongoing legal fees related to the Security Incident.

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

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 million to $25 million for ongoing legal fees related to the Security Incident.

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.

Results of Operations

Comparison of the three months ended March 31, 2022 and 2021

We have included the results of operations of EVERFI in our consolidated results of operations from the date of acquisition.

Comparison of the three and six months ended June 30, 2022 and 2021

We have included the results of operations of EVERFI in our consolidated results of operations from the date of acquisition on December 31, 2022.

We determined that the EVERFI acquisition was not material to our consolidated financial statements;

therefore, separate presentation of revenue and earnings since the acquisition date is not required.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Revenue and Cost of Revenue

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YoY Growth (%) YoY Growth (%)

Recurring revenue is comprised of fees for the use of our subscription-based software solutions, which includes providing access to cloud solutions, hosting services, payment services, online training programs, subscription-based analytic services.

Recurring revenue is comprised of fees for the use of our subscription-based software solutions, which includes providing access to cloud solutions, Impact-as-a-Service ™ digital educational content, hosting services, payment services, online training programs, subscription-based analytic services.

Recurring revenue also includes fees from maintenance services for our on-premises solutions, services included in our renewable subscription contracts, retained and managed services contracts that we expect to have a term consistent with our cloud solution contracts, and variable transaction revenue associated with the use of our solutions.

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

Cost of recurring revenue is primarily comprised of compensation costs for customer support and production IT personnel, hosting and data center costs, third-party contractor expenses, third-party royalty and data expenses, allocated depreciation, facilities and IT support costs, amortization of intangible assets from business combinations, amortization of software development costs, transaction-based costs related to payments services including remittances of amounts due to third-parties and other costs incurred in providing support and recurring services to our customers.

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We intend to continue focusing on innovation, quality and integration of our cloud solutions, which we believe will drive future revenue growth.

Recurring revenue increased by $37.9 million, or 18.3%, during the three months ended March 31, 2022, when compared to the same period in 2021, driven primarily by the following:

+ Increase in contractual recurring revenue of $27.7 million related to the performance of our cloud solutions, $24.1 million of which was attributable to EVERFI;

partially offset by a decrease in maintenance revenue as customers migrate to our cloud solutions

+ Increase in transactional revenue of $10.2 million primarily due to an increase in online charitable giving, the continued shift toward virtual fundraising and, to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events.

Cost of recurring revenue increased by $23.3 million, or 26.2%, during the three months ended March 31, 2022, when compared to the same period in 2021, driven primarily by the following:

+ Increase in compensation costs of $7.6 million primarily related to an increase in headcount due to our acquisition of EVERFI, and a continued shift in resources historically supporting one-time services and other towards recurring revenue

+ Increase in transaction-based costs of $5.1 million related to payment services integrated in our cloud solutions

+ Increase in amortization of intangible assets from business combinations of $3.5 million due to our acquisition of EVERFI

+ Increase in third-party contractor and hosting costs of $3.9 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security

+ Increase in overhead allocations of $1.6 million related to the increased headcount discussed above

+ Increase in amortization of software development costs of $1.1 million

Recurring gross margin decreased by 2.9% for the three months ended March 31, 2022, when compared to the same period in 2021, primarily due to the increase in cost of recurring revenue outpacing the increase in recurring revenue.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Recurring revenue increased by $35.5 million, or 16.4%, and $73.4 million, or 17.3%, during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, driven primarily by the following:

+ Increases in contractual recurring revenue of $26.2 million and $53.9 million, respectively, related to the performance of our cloud solutions, of which $23.4 million and $47.5 million, respectively, was attributable to EVERFI;

partially offset by decreases in maintenance revenue as customers migrate to our cloud solutions;

also offsetting the increases in contractual recurring revenue are decreases related to fluctuations in foreign currency exchange rates of $0.8 million and $1.1 million, respectively

+ Increases in transactional recurring revenue of $9.3 million and $19.5 million, respectively, primarily due to an increase in online charitable giving, the continued shift toward virtual fundraising and, to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events;

partially offset by decreases related to fluctuations in foreign currency exchange rates of $1.8 million and $2.3 million, respectively

For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 46 .

Cost of recurring revenue increased by $20.1 million, or 21.2%, and $43.4 million, or 23.7%, during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, driven primarily by the following:

+ Increases in compensation costs of $5.2 million and $12.8 million, respectively, primarily related to an increase in headcount due to our acquisition of EVERFI, and a continued shift in resources historically supporting one-time services and other towards recurring revenue

+ Increases in transaction-based costs of $4.2 million and $9.2 million, respectively, related to the increase in the volume of transactions for which we process payments

+ Increases in amortization of intangible assets from business combinations of $3.6 million and $7.1 million, respectively, due to our acquisition of EVERFI

+ Increases in third-party contractor and hosting costs of $2.9 million and $6.9 million, respectively, as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security;

currently, we expect our cloud infrastructure migration efforts and increased level of security investments to continue through 2024

+ Increases in overhead allocations of $1.2 million and $2.8 million, respectively, related to the increased headcount discussed above

+ Increases in amortization of software development costs of $1.2 million and $2.3 million, respectively

Recurring gross margin decreased by 1.8% and 2.3% for the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, primarily due to the increase in cost of recurring revenue outpacing the increase in recurring revenue.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

One-time services and other

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Cost of one-time services and other is primarily comprised of compensation costs for professional services and onsite training personnel, other costs incurred in providing onsite customer training, third-party contractor expenses, data expense incurred to perform one-time analytic services, third-party software royalties, allocated depreciation, facilities and IT support costs and amortization of intangible assets from business combinations.

One-time services and other revenue during the three months ended March 31, 2022 remained relatively consistent with the same period in 2021, and included the following activity:

+ Increase in one-time consulting revenue of $1.0 million primarily attributable to EVERFI, largely offset by less revenue from implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model.

One-time services and other revenue decreased insignificantly, during the three and six months ended June 30, 2022, when compared to the same periods in 2021, driven primarily by the following:

+ Increases in one-time consulting revenue of $0.6 million and $1.6 million, respectively, primarily attributable to EVERFI, largely offset by less revenue from implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model.

Our cloud subscription offerings generally require less implementation and customization services.

- Decrease in one-time analytics revenue of $0.8 million as analytics are generally integrated in our cloud solutions

Cost of one-time services and other decreased by $3.3 million, or 22.9%, during the three months ended March 31, 2022, when compared to the same period in 2021, driven primarily by the following:

- Decrease in compensation costs of $2.7 million largely due to a continued shift in resources historically supporting one-time services and other towards recurring revenue

One-time services and other gross margin increased by 26.9% during the three months ended March 31, 2022, when compared to the same period in 2021, primarily due to the significant reductions in compensation costs discussed above.

First Quarter 2022 Form 10-Q

- Decreases in one-time analytics revenue of $0.9 million and $1.7 million, respectively, as analytics are generally integrated in our cloud solutions

Cost of one-time services and other decreased by $2.5 million, or 18.4%, and $5.8 million, or 20.8%, during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, driven primarily by the following:

- Decreases in compensation costs of $2.6 million and $5.3 million,respectively, largely due to a continued shift in resources historically supporting one-time services and other towards recurring revenue as well as a decrease in professional services headcount

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

One-time services and other gross margin increased by 19.9% and 23.4% during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, primarily due to the significant reductions in compensation costs discussed above.

Operating Expenses

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We have also implemented software tools to enhance our digital footprint and drive lead generation.

The enhancements we are making in our go-to-market approach are expected to significantly reduce our average customer acquisition cost as well as the related payback period while increasing sales velocity.

Sales, marketing and customer success expense increased by $6.4 million, or 13.2%, during the three months ended March 31, 2022, when compared to the same period in 2021, primarily driven by the following:

+ Increase in compensation costs of $3.7 million primarily related to increased employee headcount due to our acquisition of EVERFI

+ Increase in advertising costs of $2.1 million primarily due to our acquisition of EVERFI

The enhancements we are making in our go-to-market approach are expected to significantly reduce our average customer acquisition cost per customer as well as the related payback period while increasing sales velocity.

Sales, marketing and customer success expense increased by $7.3 million, or 16.0%, and $13.7 million, or 14.5%, during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, primarily driven by the following:

+ Increases in compensation costs of $4.0 million and $7.7 million, respectively, primarily related to increased employee headcount due to our acquisition of EVERFI

+ Increases in advertising costs of $1.8 million and $4.0 million, respectively, primarily due to our acquisition of EVERFI

+ Increases in travel costs of $0.6 million and $1.0 million due to our easing of restrictions on non-essential employee travel, which went into effect during March 2020 in response to the COVID-19 pandemic

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Research and development

Research and development expense includes compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support costs.

We continue to make investments to delight our customers with innovative cloud solutions.

Research and development expenses increased by $10.8 million or 36.9%, during the three months ended March 31, 2022, when compared to the same period in 2021, primarily driven by the following:

+ Increase in compensation costs of $8.4 million primarily related to increased employee headcount due to our acquisition of EVERFI, and to a lesser extent, our increased hiring of engineers

+ Increase in third-party contractor costs of $5.5 million, primarily due to our acquisition of EVERFI and, to a lesser extent, an increase in our use of third-party software developers

+ Increase in overhead allocation costs of $1.0 million primarily related to increased headcount discussed above

- Increase in development costs of $4.7 million that were required to be capitalized under GAAP, of which $3.5 million was attributable to EVERFI software and content

Not included in research and development expense for the three months ended March 31, 2022 and 2021 were $13.8 million and $9.1 million, respectively, of qualifying costs associated with software and content development activities

First Quarter 2022 Form 10-Q

Blackbaud, Inc.

that are required to be capitalized under GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies.

We continue to make investments to delight our customers with innovative and secure cloud solutions.

Research and development expenses increased by $8.1 million, or 26.8%, and $18.9 million or 31.8%, during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, primarily driven by the following:

+ Increases in compensation costs of $5.8 million and $14.1 million, respectively, primarily related to increased employee headcount due to our acquisition of EVERFI, and to a lesser extent, our increased hiring of engineers

+ Increases in third-party contractor costs of $5.4 million and $11.0 million, respectively, primarily due to our acquisition of EVERFI and, to a lesser extent, an increase in our use of third-party software developers

+ Increases in overhead allocation costs of $0.8 million and $1.8 million, respectively, primarily related to increased headcount discussed above

- Increases in development costs of $4.3 million and $9.0 million, respectively, that were required to be capitalized under GAAP, of which $3.1 million and $6.6 million was attributable to EVERFI software and content

Not included in research and development expense for the three months ended June 30, 2022 and 2021 were $14.8 million and $10.4 million, respectively, and for the six months ended June 30, 2022 and 2021 were $28.5 million and $19.5 million, respectively, of qualifying costs associated with software and content development activities that are required to be capitalized under GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies.

Qualifying capitalized development costs associated with our cloud solutions are subsequently amortized to cost of subscriptions revenue over the related assets' estimated useful life, which generally range from three to seven years.

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General and administrative expense consists primarily of compensation costs for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development, third-party professional fees, insurance, allocated depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses.

General and administrative expense increased by $13.2 million, or 43.1%, during the three months ended March 31, 2022, when compared to the same period in 2021, primarily driven by the following:

+ Increase in Security Incident-related expenses, net of insurance, of $7.2 million, consisting primarily of legal fees, as 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.

+ Increase in compensation costs of $4.6 million primarily related to increased employee headcount due to our acquisition of EVERFI

+ Increase in third-party contractor costs of $1.2 million

+ Increase in acquisition-related expenses and integration costs of $1.0 million due to our acquisition of EVERFI

- Increase in allocated corporate IT costs of $1.8 million primarily related to investments in security tools.

Depreciation, facilities and IT support costs are pooled and recorded to general and administrative expense and allocated to other lines of our statements of comprehensive income based on headcount.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

General and administrative expense increased by $15.4 million or 48.1%, and $28.6 million, or 45.6%, during the three and six months ended June 30, 2022, respectively, when compared to the same periods in 2021, primarily driven by the following:

+ Increases in Security Incident-related expenses, net of insurance, of $7.9 million and $15.1 million, respectively, consisting primarily of legal fees, as t otal costs related to the Security Incident that we expect will be recoverable has exceeded the limit of our insurance coverage.

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

The impairment charge resulted primarily from our decision to end customer support for certain solutions

+ Increases in acquisition and disposition-related costs of $2.2 million and $3.2 million, respectively, primarily related to a $2.0 million noncash impairment of certain insignificant intangible assets held for sale

+ Increases in compensation costs of $2.0 million and $6.6 million, respectively, primarily related to increased employee headcount due to our acquisition of EVERFI

+ Increases in third-party contractor costs of $0.7 million and $1.9 million, respectively

+ Increases in rent expense of $0.7 million and $1.2 million, respectively, primarily related to leases assumed from our acquisition of EVERFI

+ Increases in travel costs of $0.6 million and $0.9 million due to our easing of restrictions on non-essential employee travel, which went into effect during March 2020 in response to the COVID-19 pandemic

- Increases in allocated corporate IT costs of $1.8 million and $3.6 million, respectively, primarily related to investments in security tools.

Depreciation, facilities and IT support costs are pooled and recorded to general and administrative expense and allocated to other lines of our condensed statements of comprehensive income based on headcount.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Interest Expense

1 unchanged sentence

Percentages indicate expenses as a percentage of total revenue

The increase in interest expense in dollars and as a percentage of total revenue during the three months ended March 31, 2022, when compared to the same period in 2021, was primarily due to the new borrowings used to finance our acquisition of EVERFI.

We currently expect interest expense for the full year 2022 to be approximately $30 million to $33 million although our interest expense in connection with the variable rate portion of our outstanding debt could increase in a rising interest rate environment.

See Note 9 to our condensed consolidated financial statements in this report for more information regarding our derivative instruments, which we use to manage our variable interest rate risk.

The increases in interest expense in dollars and as a percentage of total revenue during the three and six months ended June 30, 2022, when compared to the same period in 2021, were primarily due to the new borrowings used to finance our acquisition of EVERFI.

We currently expect interest expense for the full year 2022 to be approximately $34 million million to $37 million although our interest expense in connection with the variable rate portion of our outstanding debt could increase in a rising interest rate environment.

See Note 9 to our condensed consolidated financial statements in this report for more information regarding our derivative instruments, which we use to manage our variable interest rate risk, and Item 3.

Quantitative and Qualitative Disclosures about Market Risk:

Interest Rate Risk (below) for more information about our variable interest rate exposure and related risk.

Deferred Revenue

The table below compares the components of deferred revenue from our consolidated balance sheets:

(dollars in millions) March 31,

(dollars in millions) June 30,

2022 December 31,

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We generally invoice our customers with recurring revenue contracts in annual cycles 30 days prior to the end of each one-year period.

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.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Percentages indicate effective income tax rates

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 its interim income tax provision.

For the 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 its 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 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.

Non-GAAP Financial Measures

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We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Three months ended

Six months ended

(dollars in millions, except per share amounts) 2022

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Amortization of intangibles from business combinations 12.4 8.9 39.7 % 24.9 18.0 38.2 %

Employee severance 0.4 — 2,440.0 % 0.4 — 2,440.0 %

16.5 14.1 17.1 % 33.2 28.6 16.0 %

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Non-GAAP gross margin 58.8 % 59.1 % 58.7 % 59.2 %

GAAP (loss) income from operations $ (6.0) $ 6.6 (190.0) %

GAAP income (loss) from operations $ 0.1 $ 13.0 (99.6) % $ (5.9) $ 19.7 (130.1) %

GAAP operating margin — % 5.7 % (1.1) % 4.4 %

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Stock-based compensation expense

27.9 30.5 (8.8) % 55.7 60.6 (8.0) %

Amortization of intangibles from business combinations

13.2 9.4 39.8 % 26.5 19.1 38.6 %

Employee severance

Acquisition-related integration costs 0.6 (0.1) (756.1) %

Acquisition-related expenses 0.3 0.1 383.1 %

0.5 0.5 2.4 % 0.5 1.4 (68.0) %

Acquisition and disposition-related costs (2)

2.3 0.1 3,481.3 % 3.2 — 10,380.6 %

Restructuring and other real estate activities

— 0.1 (100.0) % 0.1 — 914.3 %

Security Incident-related costs, net of insurance (3)

8.3 0.5 1,676.2 % 15.5 0.5 3,201.3 %

Impairment of capitalized software development costs

2.3 — 100.0 % 2.3 — 100.0 %

54.4 41.1 32.4 % 103.8 81.6 27.2 %

Non-GAAP income from operations (1)

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GAAP (loss) income before provision for income taxes $ (5.8) $ 8.5 (168.3) % $ (18.2) $ 9.0 (302.8) %

GAAP net loss $ (10.4) $ (0.2) 6,245.7 %

GAAP net (loss) income $ (3.4) $ 6.7 (150.8) % $ (13.8) $ 6.6 (310.6) %

Shares used in computing GAAP diluted (loss) earnings per share 51,660,739 48,444,874 6.6 % 51,431,501 48,444,658 6.2 %

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(1) The individual amounts for each year may not sum to non-GAAP gross profit, subtotal, non-GAAP income from operations or non-GAAP net income due to rounding.

(2) Includes Security Incident-related costs incurred during the three months ended March 31, 2022 of $9.0 million, net of probable insurance recoveries during the same period of $1.8 million.

(2) Includes a $2.0 million noncash impairment of intangible assets held for sale during the three and six months ended June 30, 2022.

(3) Includes Security Incident-related costs incurred during the three and six months ended June 30, 2022 of $8.4 million and $17.4 million, respectively, net of probable insurance recoveries during the same periods of $0.1 million and $1.9 million, respectively, and during the three and six months ended June 30, 2021 of $11.7 million and $24.5 million, respectively, net of probable insurance recoveries during the same periods of $11.2 million and $24.0 million, respectively.

Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims.

Not included in this adjustment were costs associated with enhancements to our cybersecurity program.

For full year 2022, we currently expect net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident.

For full year 2022, we currently expect net pre-tax expense of approximately $30 million to $35 million for ongoing legal fees related to the Security Incident.

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

For full year 2022, we currently expect net cash outlays of approximately $15 million to $25 million for ongoing legal fees related to the Security Incident.

We have not recorded a liability for a

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

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.

(4) We apply a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

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(dollars in millions) Three months ended

Six months ended

GAAP revenue $ 264.9 $ 229.4 $ 522.1 $ 448.6

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Non-GAAP acquisition-related revenue (1)

— 25.8 — 51.1

Non-GAAP organic revenue (2)

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Non-GAAP acquisition-related revenue (1)

— 23.2 — 45.9

Non-GAAP organic recurring revenue $ 252.5 $ 240.1 $ 497.2 $ 469.7

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The primary foreign currencies creating the impact are the Australian Dollar, British Pound, Canadian Dollar and EURO.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Rule of 40 is defined as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin.

We previously defined Rule of 40 as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin.

Non-GAAP adjusted EBITDA is defined as GAAP net income plus interest, net;

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amortization of intangible assets from business combinations;

amortization of software development costs;

amortization of software and content development costs;

stock-based compensation;

acquisition-related integration costs;

acquisition-related expenses;

employee severance;

acquisition and disposition-related costs;

restructuring and other real estate activities;

and Security Incident-related costs, net of insurance.

Security Incident-related costs, net of insurance;

and impairment of capitalized software development costs.

Beginning in the fiscal quarter ended June 30, 2022, we now also include in non-GAAP adjusted EBITDA impairment of capitalized software development costs because we believe it is not directly related to our operating performance in any particular period.

Three months ended

Six months ended

(dollars in millions) 2022

GAAP net loss $ (10.4) $ (0.2) 6,245.7 %

GAAP net (loss) income $ (3.4) $ 6.7 (150.8) % $ (13.8) $ 6.6 (310.6) %

Non-GAAP adjustments:

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GAAP income tax (benefit) provision (2.4) 1.7 (235.6) % (4.4) 2.4 (281.8) %

Depreciation 3.5 3.2 10.2 %

3.6 3.1 14.2 % 7.1 6.4 12.2 %

Amortization of intangibles from business combinations 13.2 9.4 39.8 % 26.5 19.1 38.6 %

Amortization of software development costs (1)

Amortization of software and content development costs (1)

9.5 8.1 16.9 % 18.7 16.1 16.5 %

5 unchanged sentences

Stock-based compensation expense

27.9 30.5 (8.8) % 55.7 60.6 (8.0) %

Employee severance

Acquisition-related integration costs 0.6 (0.1) (756.1) %

Acquisition-related expenses 0.3 0.1 383.1 %

0.5 0.5 2.4 % 0.5 1.4 (68.0) %

Acquisition and disposition-related costs (3)

2.3 0.1 3,481.3 % 3.2 — 10,380.6 %

Restructuring and other real estate activities

— 0.1 (100.0) % 0.1 — 914.3 %

Security Incident-related costs, net of insurance (3)

8.3 0.5 1,676.2 % 15.5 0.5 3,201.3 %

Impairment of capitalized software development costs

2.3 — 100.0 % 2.3 — 100.0 %

41.2 31.7 30.2 % 77.3 62.5 23.7 %

Non-GAAP Adjusted EBITDA (2)

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Rule of 40 (4)

30.4 % 29.0 %

Non-GAAP adjusted EBITDA 70.6 65.8 7.2 % 127.8 123.0 3.9 %

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Rule of 40 on constant currency basis (6)

31.9 % 29.9 %

(1) Includes amortization expense related to software development costs and amortization expense from capitalized cloud computing implementation costs.

(2) The individual amounts for each year may not sum to subtotal, non-GAAP EBITDA or non-GAAP adjusted EBITDA due to rounding.

(3) Includes Security Incident-related costs incurred, net of probable insurance recoveries.

(3) See additional details in the reconciliation of GAAP to Non-GAAP operating income above.

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(6) Measured by non-GAAP organic revenue growth on constant currency basis plus non-GAAP adjusted EBITDA margin on constant currency basis.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

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Non-GAAP adjusted free cash flow is not intended to represent and should not be viewed as the amount of residual cash flow available for discretionary expenditures.

Three months ended

Six months ended

(dollars in millions) 2022

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purchase of property and equipment (7.5) (6.1) 22.7 %

capitalized software development costs (12.7) (9.3) 36.3 %

capitalized software and content development costs (27.2) (19.9) 36.9 %

Non-GAAP free cash flow (1)

$ 47.1 $ 73.9 (36.3) %

Security Incident-related cash flows, net of insurance 5.2 3.8 36.1 %

Non-GAAP adjusted free cash flow (1)

$ 52.2 $ 77.7 (32.8) %

(1) The individual amounts for each year may not sum to non-GAAP free cash flow or non-GAAP adjusted free cash flow due to rounding.

Our revenues normally fluctuate as a result of certain seasonal variations in our business.

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These patterns may change as a result of the continued shift to online giving, growth in volume of transactions for which we process payments, or as a result of acquisitions, new market opportunities, new solution introductions, the COVID-19 pandemic or other factors.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

The following table presents selected financial information about our financial position:

(dollars in millions) March 31,

(dollars in millions) June 30,

2022 December 31,

1 unchanged sentence

Property and equipment, net 111.9 111.4 0.4 %

Software development costs, net 126.8 121.4 4.4 %

Software and content development costs, net 130.3 121.4 7.4 %

Total carrying value of debt 939.8 956.2 (1.7) %

1 unchanged sentence

The following table presents selected financial information about our cash flows:

Three months ended March 31,

Six months ended June 30,

(dollars in millions) 2022

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Subject to certain conditions, this registration statement will be effective through January 13, 2024.

At March 31, 2022, our total cash and cash equivalents balance included approximately $18.4 million of cash that was held by operations outside the U.S.

At June 30, 2022, our total cash and cash equivalents balance included approximately $17.4 million of cash that was held by operations outside the U.S.

While these funds may not be needed to fund our U.S.

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Our cash flows from operations are derived principally from:

(i) our earnings from on-going operations prior to non-cash expenses such as depreciation, amortization, stock-based compensation, amortization of deferred financing costs and debt discount and adjustments to our provision for credit losses and sales returns;

(i) our earnings from on-going operations prior to non-cash expenses such as depreciation, amortization, stock-based compensation, deferred taxes, amortization of deferred financing costs and debt discount and adjustments to our provision for credit losses and sales returns;

and (ii) changes in our working capital.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Working capital changes are composed of changes in accounts receivable, prepaid expenses and other assets, trade accounts payable, accrued expenses and other liabilities, and deferred revenue.

Net cash provided by operating activities decreased by $5.6 million during the three months ended March 31, 2022, when compared to the same period in 2021, primarily due to a $13.8 million decrease in net income adjusted for non-cash expenses and a $8.2 million increase in cash flow from operations associated with working capital.

The increase in cash flow from operations associated with working capital during the three months ended March 31, 2022 , when compared to the same period in 2021, was primarily due to:

Net cash provided by operating activities decreased by $18.1 million during the six months ended June 30, 2022, when compared to the same period in 2021, primarily due to a $27.9 million decrease in net income adjusted for non-cash expenses and a $9.8 million increase in cash flow from operations associated with working capital.

The increase in cash flow from operations associated with working capital during the six months ended June 30, 2022 , when compared to the same period in 2021, was primarily due to:

• fluctuations in the timing of vendor payments;

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partially offset by

• timing associated with customer contract renewal billings and the collection of those amounts;

• payment of assumed EVERFI accrued bonuses and other payroll-related liabilities during the first quarter of 2022.

Security Incident update

For full year 2022, we currently expect net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident.

For full year 2022, we currently expect net pre-tax expense of approximately $ 30 million to $ 35 million for ongoing legal fees related to the Security Incident.

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

For full year 2022, we currently expect net cash outlays of approximately $15 million to $25 million for ongoing legal fees related to the Security Incident.

Investing Cash Flow

Net cash used in investing activities of $36.9 million increased by $24.2 million during the three months ended March 31, 2022, when compared to the same period in 2021.

During the three months ended March 31, 2022, we used $20.0 million for our acquisition of EVERFI comprised of (i) $17.4 million 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;

Net cash used in investing activities of $53.7 million increased by $27.7 million during the six months ended June 30, 2022, when compared to the same period in 2021.

During the six months ended June 30, 2022, we used $19.0 million for our acquisition of EVERFI comprised primarily of (i) $17.4 million 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;

and (ii) $2.6 million that was paid to a number of EVERFI's selling shareholders after determining they would be paid in cash, rather than shares of our common stock.

We used $27.2 million for software development costs, which was up $7.3 million from cash spent during the same period in 2021, primarily due to the inclusion of EVERFI's software and content development activities.

We also spent $4.3 million of cash for purchases of property and equipment during the three months ended March 31, 2022, which was a decrease of $0.8 million when compared to the same period in 2021.

We also spent $7.5 million of cash for purchases of property and equipment during the six months ended June 30, 2022, which was an increase of $1.4 million when compared to the same period in 2021.

Financing Cash Flow

During the three months ended March 31, 2022, we had a net increase in borrowings of $25.6 million.

We paid $34.7 million to satisfy tax obligations of employees upon settlement of equity awards during the three months ended March 31, 2022 compared to $18.4 million during the same period in 2021.

The increase was primarily attributable to the timing of our annual short-term incentive (bonus) awards vesting during the first quarter of 2022, while similar awards vested during the second quarter of 2021.

During the six months ended June 30, 2022, we had a net decrease in borrowings of $16.3 million.

We paid $35.6 million to satisfy tax obligations of employees upon settlement of equity awards during the six months ended June 30, 2022 compared to $38.7 million during the same period in 2021.

The amount of taxes paid by us on behalf of employees related to the settlement of equity awards varies from period to period based upon the timing of grants and vesting, as well as the market price for shares of our common stock at the time of settlement.

Most of our equity awards currently vest in our first quarter.

During the three months ended March 31, 2022, cash flow from financing activities associated with changes in restricted cash due to customers decreased $315.3 million, compared to a decrease of $353.6 million during the same period in 2021.

During the six months ended June 30, 2022, cash flow from financing activities associated with changes in restricted cash due to customers decreased $141.0 million, compared to a decrease of $170.1 million during the same period in 2021.

This line in the statement of cash flows represents the change in the amount of restricted cash held and payable by us to customers from one period to the next.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

5 unchanged sentences

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

During the three months ended March 31, 2022, we did not purchase any shares.

The remaining amount available to purchase stock under the stock repurchase program was $250.0 million as of March 31, 2022.

During the three and six months ended June 30, 2022, we did not purchase any shares.

The remaining amount available to purchase stock under the stock repurchase program was $250.0 million as of June 30, 2022.

2020 Credit Facility

Historically, we have drawn on our credit facility from time to time to help us meet financial needs, primarily due to the seasonality of our cash flows from operations and financing for business acquisitions.

At March 31, 2022, our available borrowing capacity under the 2020 Credit Facility was $209.7 million.

At June 30, 2022, our available borrowing capacity under the 2020 Credit Facility was $245.2 million.

The 2020 Credit Facility matures in October 2025.

At March 31, 2022, the carrying amount of our debt under the 2020 Credit Facility was $922.0 million.

Our average daily borrowings during the three months ended March 31, 2022 were $909.4 million.

At June 30, 2022, the carrying amount of our debt under the 2020 Credit Facility was $880.9 million.

Our average daily borrowings during the three and six months ended June 30, 2022 were $917.3 million and $913.4 million, respectively.

The following is a summary of the financial covenants under the 2020 Credit Facility:

Financial covenant Requirement Ratio as of March 31, 2022

Financial covenant Requirement Ratio as of June 30, 2022

Net leverage ratio (1)

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(i) no default or event of default shall have occurred and be continuing under the 2020 Credit Facility, and (ii) our pro forma net leverage ratio, as set forth in the 2020 Credit Facility, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase.

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.

See Note 8 to our unaudited, condensed consolidated financial statements included in this report for additional information regarding the 2020 Credit Facility.

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(1) The individual amounts may not sum to the total due to rounding.

First Quarter 2022 Form 10-Q

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

As of March 31, 2022, we had total remaining principal payments of $985.7 million.

As of June 30, 2022, we had total remaining principal payments of $943.7 million.

These payments represent principal payments only, under the following assumptions:

(i) that the amounts outstanding under the 2020 Credit Facility, our real estate loans and our other debt at March 31, 2022 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the 2020 Revolving Facility for the purposes of determining minimum commitment amounts.

(i) that the amounts outstanding under the 2020 Credit Facility, our real estate loans and our other debt at June 30, 2022 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the 2020 Revolving Facility for the purposes of determining minimum commitment amounts.

See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.

Interest payments on debt

In addition to principal payments, as of March 31, 2022, we expect to pay interest expense over the life of our debt obligations of approximately $131.9 million.

These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of March 31, 2022, which includes the effect of interest rate swap agreements.

In addition to principal payments, as of June 30, 2022, we expect to pay interest expense over the life of our debt obligations of approximately $144.0 million.

These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of June 30, 2022, which includes the effect of interest rate swap agreements.

The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions on our remaining principal payments described above.

Operating leases

As of March 31, 2022, we had remaining operating lease payments of $72.3 million.

As of June 30, 2022, we had remaining operating lease payments of $69.0 million.

These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest of $11.9 million.

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Purchase obligations

As of March 31, 2022, we had remaining purchase obligations of $31.7 million.

As of June 30, 2022, we had remaining purchase obligations of $241.3 million.

These purchase obligations are for third-party technology used in our solutions and for other services we purchase as part of our normal operations.

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

Our purchase obligations are not recorded as liabilities on our consolidated balance sheets as of March 31, 2022, as we had not received the related services.

Our purchase obligations are not recorded as liabilities on our consolidated balance sheets as of June 30, 2022, as we had not received the related services.

See Note 10 to our unaudited, condensed consolidated financial statements in this report for more information.

The total liability for uncertain tax positions as of March 31, 2022 and December 31, 2021, was $3.8 million and $3.7 million , respectively.

Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of March 31, 2022 and December 31, 2021.

First Quarter 2022 Form 10-Q

The total liability for uncertain tax positions as of June 30, 2022 and December 31, 2021, was $3.9 million and $3.7 million , respectively.

Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of June 30, 2022 and December 31, 2021.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Foreign Currency Exchange Rates

Approximately 17% of our total revenue for the three months ended March 31, 2022 was generated from operations outside the U.S.

Approximately 16% of our total revenue for the six months ended June 30, 2022 was generated from operations outside the U.S.

We do not have significant operations in countries in which the economy is considered to be highly inflationary.

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dollars for purposes of reporting our consolidated financial results.

The accumulated currency translation adjustment, recorded within accumulated other comprehensive loss as a component of stockholders’ equity, was a loss of $0.9 million as of March 31, 2022 and a gain of $1.3 million as of December 31, 2021.

The accumulated currency translation adjustment, recorded within accumulated other comprehensive income (loss) as a component of stockholders’ equity, was a loss of $11.3 million as of June 30, 2022 and income of $1.3 million as of December 31, 2021.

The vast majority of our contracts are entered into by our U.S.

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dollar strengthened, foreign currency translation resulted in a decrease in our revenue and expenses denominated in non-U.S.

During the three months ended March 31, 2022, foreign translation resulted in decreases in our revenues and expenses denominated in non-U.S.

During the six months ended June 30, 2022, foreign translation resulted in decreases in our revenues and expenses denominated in non-U.S.

Though we have exposure to fluctuations in currency exchange rates, primarily those between the U.S.

dollar and both the British Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operations or financial position.

For the three months ended March 31, 2022, the fluctuation in foreign currency exchange rates reduced our total revenue and our income from operations by $0.9 million and $0.2 million, respectively.

However, we currently expect that fluctuations in foreign currency exchange rates will have a significant negative impact on our total revenue for the full year 2022.

For the six months ended June 30, 2022, the fluctuation in foreign currency exchange rates reduced our total revenue and our income from operations by $3.8 million and $0.9 million, respectively.

We will continue monitoring such exposure and take action as appropriate.

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Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2022 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2022 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Recently Issued Accounting Pronouncements

For a discussion of the impact that recently issued accounting pronouncements are expected to have on our financial position and results of operations when adopted in the future, see Note 2 to our unaudited, condensed consolidated financial statements in this report.

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 2. Management’s Discussion and Analysis