What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 214 added, 162 removed, 461 unchanged (45% of the section changed)

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4 Focus on Employees, Culture and ESG Initiatives

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Expand Total Addressable Market ("TAM")

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Our TAM now stands at over $20 billion, and we remain active in the evaluation of opportunities to further expand our addressable market through acquisitions and internal product development.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Lead with World Class Teams and Operations

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).

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

Recently, we 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:

We believe these new roles will:

ensure consistency in our approach to the customer experience;

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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.

Additionally, we recently took steps to better align our workforce with our strategic priorities, including further elimination of open positions as well as the difficult decision to reduce our workforce (see additional discussion regarding our workforce reduction below).

We also 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 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.

During our recent annual user conference, bbcon, we shared how our purpose-built solutions bring together the capabilities essential to our customers in managing their data, making their teams more productive, motivating their audiences to act, and ultimately driving outcomes.

During the third quarter, we also acquired Kilter, an intuitive, gamified, activity-based engagement app.

We will initially pair Kilter with our Blackbaud TeamRaiser solution to serve nonprofits by expanding the ways they can engage with their supporters to prepare for their existing fundraising walks, runs and rides, and to create new types of engagement opportunities that are not tied to a specific date or place.

Kilter will also provide a unique solution with YourCause CSRConnect platform for companies as employers take a more active role in supporting their employees’ health and wellness pursuits across their remote and distributed workforces.

Focus on Employees, Culture and ESG Initiatives

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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.

Second Quarter 2022 Form 10-Q

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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YoY Growth (%) YoY Growth (%)

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:

Total revenue increased by $30.1 million and $103.5 million during the three and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021, driven largely by the following:

+ Growth in recurring revenue primarily related to:

• increases in contractual recurring revenue of $27.7 million and $81.6 million, respectively, related to the performance of our cloud solutions, of which $23.7 million and $71.2 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.

partially offset by decreases in maintenance revenue as customers migrate to our cloud solutions and decreases related to fluctuations in foreign currency exchange rates of $1.3 million and $2.3 million, respectively;

• increases in transactional recurring revenue of $3.2 million and $22.7 million, respectively, primarily due to an increase in online charitable giving, an increase in enrollment for our Blackbaud Tuition Management solution resulting in a higher transactional volumes and, to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events.

These increases in transactional recurring revenue were partially offset by decreases related to fluctuations in foreign currency exchange rates of $3.1 million and $5.5 million, respectively.

- Decreases in one-time service and other revenue primarily related to:

• decreases in one-time analytics revenue as analytics are generally integrated in our cloud solutions;

partially offset by

• 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.

- 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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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.

While our year-to-date bookings for EVERFI continue to be lighter than expected, we have taken action to bolster management and fill account executive vacancies, which are now fully staffed and ramping to drive future bookings.

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

We have a number of multi-year pricing initiatives underway, some to bring our pricing in line with the market while others are model changes that are expected to drive greater revenue for both us and our customers.

For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 47 .

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:

Income from operations decreased by $18.9 million and $44.5 million during the three and nine months ended September 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 $20.7 million and $61.5 million, respectively, primarily due to increased employee headcount due to our acquisition of EVERFI

- Increases in third-party contractor costs of $6.8 million and $21.6 million, respectively, and hosting costs of $1.0 million and $5.5 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 cybersecurity

- Increases in Security Incident-related expenses, net of insurance, of $12.8 million and $27.9 million, respectively.

See "Security Incident update" below.

- 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 $2.9 million and $12.2 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 $3.4 million and $10.8 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 infrastructure costs of $1.6 million and $5.8 million, respectively, primarily related to our acquisition of EVERFI and investments in security tools

- Increases in acquisition and disposition-related costs of $2.4 million and $5.6 million, respectively, primarily related to a $2.0 million noncash impairment of certain insignificant intangible assets held for sale

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- Increases in travel costs of $1.1 million and $3.7 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

- A $2.3 million noncash impairment charge during the nine months ended September 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 total revenue, as described above

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

Our profitability through the third quarter reflects the addition of EVERFI and some of these incremental investments.

We have taken steps to better align our workforce with our strategic priorities to drive efficiencies and minimize any potential impacts from the current uncertain macroeconomic environment.

This recently included further elimination of open positions as well as the decision to reduce our workforce.

As a result of the workforce targeted reduction, we expect to incur between $6 million and $8 million in pre-tax employee severance costs primarily during the fourth quarter of 2022.

We expect this workforce reduction and other cost actions will reduce our planned future pre-tax cost run rate by approximately $40 million

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

to $50 million beginning in 2023, partially offset by continued investments in cybersecurity and innovation.

We see further opportunity in 2023 and beyond to scale our infrastructure costs, reduce overhead and execute pricing initiatives.

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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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.

For the twelve months ended September 30, 2022, approximately 91% of our customers with recurring revenue contracts were retained.

This customer retention rate decreased 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 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.

At September 30, 2022, our cash and cash equivalents were $31.4 million and the carrying amount of our debt under the 2020 Credit Facility was $795.5 million.

Our net leverage ratio was 3.10 to 1.00.

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.

During the nine months ended September 30, 2022, we generated $189.8 million in cash from operations, had a net decrease in borrowings of $102.5 million, had aggregate cash outlays of $53.3 million for purchases of property and equipment and capitalized software and content development costs, and spent $20.9 million for our purchases of EVERFI and Kilter.

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 has exceeded the limit of our insurance coverage .

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 pre-tax expense of approximately $30 million to $35 million for ongoing legal fees related to the Security Incident.

As discussed in Note 10 to our unaudited, condensed consolidated financial statements included in this report, t otal costs related to the Security Incident have exceeded the limit of our insurance coverage .

Accordingly, we expect that the Security Incident will continue to negatively impact our GAAP profitab ility and GAAP cash flow for the foreseeable future (see discussion regarding our non-GAAP financial measures beginning on page 38 ).

Fo r 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 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.

As of September 30, 2022, we have recorded approximately $5.0 million in aggregate liabilities for a loss contingencies related to the Security Incident that we believe we can reasonably estimate.

Certain of these recorded charges reflect the low end of a range of estimated losses based on our determination that no estimate within that range was better than any other amount.

It is reasonably possible that actual losses in the future for those matters will be in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of September 30, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Results of Operations

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;

Comparison of the three and nine months ended September 30, 2022 and 2021

We have included the results of operations of acquired companies in our consolidated results of operations from the date of their respective acquisition.

We determined that the EVERFI and Kilter acquisitions were 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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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.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Our customers continue to prefer cloud subscription offerings with integrated analytics, training and payment services.

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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.

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:

Recurring revenue increased by $30.9 million, or 14.1%, and $104.3 million, or 16.2%, during the three and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021, driven primarily by the following:

+ Increases in contractual recurring revenue of $27.7 million and $81.6 million, respectively, related to the performance of our cloud solutions, of which $23.7 million and $71.2 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

also offsetting the increases in contractual recurring revenue were decreases related to fluctuations in foreign currency exchange rates of $1.3 million and $2.3 million, respectively

+ Increase in transactional recurring revenue of $3.2 million for the three months ended, September 30, 2022, primarily due to an increase in enrollment for our Blackbaud Tuition Management solution resulting in higher transactional volumes.

The increase in transactional recurring revenue during the three months ended September 30, 2022, was partially offset by a decrease related to fluctuations in foreign currency exchange rates of $3.1 million

+ Increase in transactional recurring revenue of $22.7 million for the nine months ended September 30, 2022, primarily due to:

• an increase in online charitable giving;

• an increase in enrollment for our Blackbaud Tuition Management solution resulting in a higher transactional volumes;

• to a lesser extent, increased transactional volume as our customer's constituents have begun to return to in-person events.

The increase in transactional recurring revenue during the nine months ended September 30, 2022, was partially offset by a decrease related to fluctuations in foreign currency exchange rates of $5.5 million

For additional information on the impact of foreign currency fluctuations on our financial results, see Foreign Currency Exchange Rates below on page 47 .

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:

Cost of recurring revenue increased by $15.7 million, or 16.3%, and $59.0 million, or 21.1%, during the three and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021, driven primarily by the following:

+ Increases in compensation costs of $4.6 million and $17.4 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

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+ Increases in amortization of intangible assets from business combinations of $3.4 million and $10.5 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

+ Increase in third-party contractor and hosting costs of $7.5 million for the nine months ended September 30, 2022 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 cybersecurity investments to continue for the foreseeable future

+ Increases in amortization of software development costs of $1.8 million and $4.1 million, respectively, due to our continued investments in the innovation and security of our solutions

+ Increase in allocated overhead costs of $3.2 million for the nine months ended September 30, 2022 related to the increased headcount discussed above

Recurring gross margin decreased by 0.9% and 1.8% for the three and nine months ended September 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.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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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 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:

One-time services and other revenue decreased by $0.8 million, or 6.1%, and $0.8 million, or 2.1%, during the three and nine months ended September 30, 2022, when compared to the same periods in 2021, driven primarily by the following:

- Decreases in one-time analytics revenue of $0.5 million and $2.2 million, respectively, as analytics are generally integrated in our cloud solutions

+ Increases in one-time consulting revenue of $0.2 million and $1.9 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.

- 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

Third 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.

Cost of one-time services and other decreased by $2.4 million, or 20.3%, and $8.3 million, or 20.6%, during the three and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021, driven primarily by the following:

- Decreases in compensation costs of $1.4 million and $6.7 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

- Decrease in allocated overhead costs of $1.4 million for the nine months ended September 30, 2022, primarily related to the decreased headcount discussed above

One-time services and other gross margin increased by 14.1% and 20.1% during the three and nine months ended September 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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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:

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Sales, marketing and customer success expense increased by $11.7 million, or 26.2%, and $25.4 million, or 18.3%, during the three and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021, primarily driven by the following:

+ Increases in compensation costs of $6.9 million and $14.6 million, respectively, primarily related to increased employee headcount due to our acquisition of EVERFI

+ Increases in third-party contractor costs of $2.5 million and $3.4 million, respectively, primarily related to strategic consulting

+ Increases in advertising costs of $1.1 million and $5.0 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.

+ Increase in travel costs of $1.6 million for the nine months ended September 30, 2022 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

+ Increase in software costs of $1.3 million for the nine months ended September 30, 2022 primarily related to our acquisition of EVERFI and our use of digital marketing tools

Research and development

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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:

Research and development expenses increased by $8.9 million, or 28.1%, and $27.8 million or 30.5%, during the three and nine months ended September 30, 2022, respectively, when compared to the same periods in 2021, primarily driven by the following:

+ Increases in compensation costs of $7.9 million and $22.0 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 $5.0 million and $16.0 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.

+ Increase in allocated overhead costs of $2.1 million for the nine months ended September 30, 2022, primarily related to increased headcount discussed above

- Increases in software development costs of $5.4 million and $14.5 million, respectively, that were required to be capitalized under GAAP, of which $5.2 million and $9.3 million was attributable to EVERFI software and content

Not included in research and development expense for the three months ended September 30, 2022 and 2021 were $15.1 million and $9.7 million, respectively, and for the nine months ended September 30, 2022 and 2021 were $43.6 million and $29.2 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.

Second Quarter 2022 Form 10-Q

Third 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

General and administrative expense increased by $15.1 million or 43.6%, and $43.7 million, or 44.9%, during the three and nine months ended September 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 $12.8 million and $27.9 million, respectively.

See "Security Incident update" below on page 43

+ Increases in compensation costs of $1.8 million and $8.4 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.

+ Increases in acquisition and disposition-related costs of $2.4 million and $5.6 million, respectively, primarily related to aggregate noncash impairment charges of $1.3 million against certain operating lease right-of-use assets and property and equipment assets resulting from our decision to cease using a portion of EVERFI's leased office space.

During the nine months ended September 30, 2022, we also recorded a $2.0 million noncash impairment of certain insignificant intangible assets that were held for sale

+ A $2.3 million noncash impairment charge during the nine months ended September 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

+ Increase in rent expense of $1.7 million during the nine months ended September 30, 2022 primarily related to leases assumed from our acquisition of EVERFI

+ Increase in third-party contractor costs of $1.4 million during the nine months ended September 30, 2022

+ Increase in travel costs of $1.2 million during the nine months ended September 30, 2022 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

- Increase in allocated corporate IT costs of $4.1 million during the nine months ended September 30, 2022 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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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Percentages indicate expenses as a percentage of total revenue

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.

The increases in interest expense in dollars and as a percentage of total revenue during the three and nine months ended September 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 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.

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

(dollars in millions) June 30,

(dollars in millions) September 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 increase in deferred revenue during the six months ended June 30, 2022 was primarily due to a seasonal increase in customer contract renewals.

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

Second Quarter 2022 Form 10-Q

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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Percentages indicate effective income tax rates

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.

For the six months ended June 30, 2022, we 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.

The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis.

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 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.

We believe that, at this time, the use of this discrete method is no longer more appropriate than the annual effective tax rate method.

The decreases in our effective income tax rate for the three and nine months ended September 30, 2022 when compared to the same periods in 2021 was primarily due to the effect of year-to-date losses relative to our forecasted permanent items, including foreign-derived intangible income deduction not generated in the prior year.

Furthermore, the 2022 effective income tax rate was negatively impacted by expenses attributable to stock-based compensation.

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.

Second Quarter 2022 Form 10-Q

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(dollars in millions, except per share amounts) 2022

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Non-GAAP gross margin 59.6 % 59.0 % 59.0 % 59.2 %

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

GAAP (loss) income from operations $ (7.0) $ 11.8 (159.2) % $ (12.9) $ 31.5 (141.0) %

GAAP operating margin (2.7) % 5.1 % (1.7) % 4.6 %

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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 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.

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

(3) Includes Security Incident-related costs incurred during the three and nine months ended September 30, 2022 of $13.7 million and $31.1 million, respectively, net of insurance recoveries during the same periods of $— million and $1.9 million, respectively, and during the three and nine months ended September 30, 2021 of $11.4 million and $35.9 million, respectively, net of insurance recoveries during the same periods of $10.6 million and $34.6 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 and accruals for certain loss contingencies.

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

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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.

There are some Security Incident-related matters for which we have not recorded a liability for a loss contingency as of September 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.

Second Quarter 2022 Form 10-Q

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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(dollars in millions) Three months ended

Six months ended

September 30,

Nine months ended

September 30,

GAAP revenue $ 261.3 $ 231.2 $ 783.3 $ 679.8

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— 26.0 — 77.1

Non-GAAP revenue from divested businesses (2)

— (0.4) — (0.4)

Total Non-GAAP adjustments — 25.6 — 76.7

Non-GAAP organic revenue (3)

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— 22.8 — 68.8

Non-GAAP recurring revenue from divested businesses (2)

— (0.3) — (0.3)

Total Non-GAAP adjustments — 22.5 — 68.4

Non-GAAP organic recurring revenue (3)

$ 249.4 $ 241.0 $ 746.6 $ 710.7

Non-GAAP organic recurring revenue growth 3.5 % 5.0 %

Non-GAAP organic recurring revenue (3)

$ 249.4 $ 241.0 $ 746.6 $ 710.7

Foreign currency impact on non-GAAP organic recurring revenue (4)

Non-GAAP organic recurring revenue on constant currency basis (4)

$ 253.8 $ 241.0 $ 754.4 $ 710.7

Non-GAAP organic recurring revenue growth on constant currency basis 5.3 % 6.1 %

(1) Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to companies acquired in the current fiscal year.

For companies acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period.

(2) Non-GAAP organic revenue for the prior year periods presented herein will not agree to non-GAAP organic revenue presented in the respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth is calculated.

(3) To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S.

(2) Non-GAAP revenue from divested businesses excludes revenue associated with divested businesses.

The exclusion of the prior period revenue is to present the results of the divested business with the results of the combined company for the same period of time in both the prior and current periods.

(3) Non-GAAP organic revenue and non-GAAP organic recurring revenue for the prior year periods presented herein may not agree to non-GAAP organic revenue and non-GAAP organic recurring revenue presented in the respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth and non-GAAP organic recurring revenue growth are calculated.

(4) To determine non-GAAP organic revenue growth and non-GAAP organic recurring revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S.

Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates.

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

Second Quarter 2022 Form 10-Q

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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Three months ended

Six months ended

September 30,

Nine months ended

September 30,

(dollars in millions) 2022

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(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.

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

(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.

Second Quarter 2022 Form 10-Q

See Non-GAAP organic revenue growth table above.

Third 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.

Six months ended

Nine months ended

September 30,

(dollars in millions) 2022

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Historically, due to lower revenues in our first quarter, combined with the payment of certain annual vendor contracts, our cash flow from operations has been lowest in our first quarter.

Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has been lower in our second quarter as compared to our third and fourth quarters.

Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has generally been lower in our second quarter as compared to our third and fourth quarters.

Partially, offsetting these favorable drivers of cash flow from operations in our third and fourth quarters are base salary merit increases, which occur in July.

In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract renewals and student enrollments.

In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract renewals and student enrollments or significant acquisitions.

Our cash flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards.

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.

Second Quarter 2022 Form 10-Q

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

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

(dollars in millions) June 30,

(dollars in millions) September 30,

2022 December 31,

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

Six months ended June 30,

Nine months ended September 30,

(dollars in millions) 2022

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Our principal sources of liquidity are our operating cash flow, funds available under the 2020 Credit Facility and cash on hand.

Our operating cash flow depends on continued customer renewal of our subscription and maintenance arrangements, market acceptance of our solutions and services and our customers' ability to pay.

Our operating cash flow depends on continued customer renewal of our subscription and maintenance arrangements, market acceptance of our solutions and services, the volume and size of transactions for which we process payments and our customers' ability to pay.

Based on current estimates of revenue and expenses, we believe that the currently available sources of funds and anticipated cash flows from operations will be adequate for at least the next twelve months to finance our operations, fund anticipated capital expenditures and meet our debt obligations.

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

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.

At September 30, 2022, our total cash and cash equivalents balance included approximately $15.9 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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and (ii) changes in our working capital.

Second Quarter 2022 Form 10-Q

Third 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 $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;

Net cash provided by operating activities increased by $20.0 million during the nine months ended September 30, 2022, when compared to the same period in 2021, primarily due to a $45.5 million decrease in net income adjusted for non-cash expenses and a $65.5 million increase in cash flow from operations associated with working capital.

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

• a seasonal increase in the collection of customer contract renewal billings and an increase in the collection of customer account balances from an aging improvement initiative;

• a decrease in probable insurance recoveries related to the Security Incident as we have received payment for all of the related insurance claims;

• an increase in taxes payable;

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.

• fluctuations in the timing of vendor payments.

Workforce reduction

We have taken steps to better align our workforce with our strategic priorities to drive efficiencies and minimize any potential impacts from the current uncertain macroeconomic environment.

This recently included further elimination of open positions as well as the decision to reduce our workforce.

As a result of the workforce targeted reduction, we expect to incur between $6 million and $8 million in pre-tax employee severance costs primarily during the fourth quarter of 2022.

We expect this workforce reduction and other cost actions will reduce our planned future pre-tax cost run rate by approximately $40 million to $50 million beginning in 2023, partially offset by continued investments in cybersecurity and innovation.

Security Incident update

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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.

As of September 30, 2022, we have recorded approximately $5.0 million in aggregate liabilities for a loss contingencies related to the Security Incident that we believe we can reasonably estimate.

Certain of these recorded charges reflect the low end of a range of estimated losses based on our determination that no estimate within that range was better than any other amount.

Investing Cash Flow

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.

Net cash used in investing activities of $67.8 million increased by $29.8 million during the nine months ended September 30, 2022, when compared to the same period in 2021.

During the nine months ended September 30, 2022, we used $20.9 million of net cash for our acquisitions of EVERFI and Kilter, 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;

(ii) $2.9 million that was paid to acquire Kilter;

and (iii) $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.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

We used $42.8 million for software development costs, which was up $13.1 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 $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.

We also spent $10.5 million of cash for purchases of property and equipment during the nine months ended September 30, 2022, which was an increase of $2.2 million when compared to the same period in 2021.

Financing Cash Flow

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.

During the nine months ended September 30, 2022, we had a net decrease in borrowings of $102.5 million.

We paid $36.1 million to satisfy tax obligations of employees upon settlement of equity awards during the nine months ended September 30, 2022 compared to $39.0 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 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.

During the nine months ended September 30, 2022, cash flow from financing activities associated with changes in restricted cash due to customers decreased $243.1 million, compared to a decrease of $387.0 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.

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

Stock repurchase program

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

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.

During the three and nine months ended September 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 September 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 June 30, 2022, our available borrowing capacity under the 2020 Credit Facility was $245.2 million.

At September 30, 2022, our available borrowing capacity under the 2020 Credit Facility was $326.9 million.

The 2020 Credit Facility matures in October 2025.

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.

At September 30, 2022, the carrying amount of our debt under the 2020 Credit Facility was $795.5 million.

Our average daily borrowings during the three and nine months ended September 30, 2022 were $834.7 million and $886.8 million, respectively.

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

Financial covenant Requirement Ratio as of June 30, 2022

Financial covenant Requirement Ratio as of September 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 June 30, 2022, we were in compliance with our debt covenants under the 2020 Credit Facility.

At September 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.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Commitments and Contingencies

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Operating leases 10.4 55.4 65.9

Contingent consideration — 2.7 2.7

Unrecorded contractual obligations:

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

Second Quarter 2022 Form 10-Q

Blackbaud, Inc.

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

As of September 30, 2022, we had total remaining principal payments of $857.5 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 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.

(i) that the amounts outstanding under the 2020 Credit Facility, our real estate loans and our other debt at September 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 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.

In addition to principal payments, as of September 30, 2022, we expect to pay interest expense over the life of our debt obligations of approximately $135.9 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 September 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 June 30, 2022, we had remaining operating lease payments of $69.0 million.

As of September 30, 2022, we had remaining operating lease payments of $65.9 million.

These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest of $11.3 million.

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Purchase obligations

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

As of September 30, 2022, we had remaining purchase obligations of $236.0 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 June 30, 2022, as we had not received the related services.

Our purchase obligations are not recorded as liabilities on our consolidated balance sheets as of September 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 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

The total liability for uncertain tax positions as of September 30, 2022 and December 31, 2021, was $4.1 million and $3.7 million , respectively.

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Contingent consideration

In connection with our acquisition of Kilter, we are obligated to pay contingent consideration upon the achievement of certain milestones.

For information regarding our contingent consideration obligations, see Note 3 to our unaudited, condensed consolidated financial statements in this report.

Foreign Currency Exchange Rates

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

Approximately 16% of our total revenue for the nine months ended September 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 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 accumulated currency translation adjustment, recorded within accumulated other comprehensive income (loss) as a component of stockholders’ equity, was a loss of $22.8 million as of September 30, 2022 and income of $1.3 million as of December 31, 2021.

We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds into U.S.

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

During the nine months ended September 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.

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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.

For the nine months ended September 30, 2022, the fluctuation in foreign currency exchange rates reduced our total revenue and our income from operations by $8.7 million and $2.2 million, respectively.

We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian dollar against changes in the exchange rate with the U.S.

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 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.

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 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.

Second Quarter 2022 Form 10-Q

Third 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