What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-02-24 compared with 2022-03-01 · 102 added, 89 removed, 270 unchanged (41% of the section changed)

4 unchanged sentences

Our market is highly competitive and rapidly evolving, and there are limited barriers to entry for many segments of this market.

The companies we compete with and other potential competitors may have greater financial, technical and marketing resources and generate greater revenue and better name recognition than we do.

The companies we compete with and other potential competitors may have greater financial, technical and marketing resources, generate greater revenue and have better name recognition than we do.

Also, a large, diversified software enterprise could decide to enter the market directly, including through acquisitions.

15 unchanged sentences

Blackbaud, Inc.

The market for software and services for the social good community might not grow and the organizations in that community might not continue to adopt our solutions and services.

Many organizations in the social good community, including nonprofits, foundations, companies, education institutions and healthcare organizations, have not traditionally used integrated and comprehensive software and services for their specific needs.

The market for software and services for the social impact community might not grow and the organizations in that community might not continue to adopt our solutions and services.

Many organizations in the social impact community, including nonprofits, foundations, companies, education institutions, and healthcare organizations, have not traditionally used integrated and comprehensive software and services for their specific needs.

We cannot be certain that the market for such solutions and services will continue to develop and grow or that these organizations will elect to adopt our solutions and services rather than continue to use traditional, less automated methods, attempt to develop software internally, rely upon legacy software systems, or use software solutions not specifically designed for this market.

Organizations that have already invested substantial resources in other fundraising methods or other non-integrated software solutions might be reluctant to adopt our solutions and services to supplement or replace their existing systems or methods.

In addition, the implementation of one or more of our software solutions can involve significant capital commitments by our customers, which they may be unwilling or unable to make, especially due to disruption in the social good community due to COVID-19.

In addition, the implementation of one or more of our software solutions can involve significant capital commitments by our customers, which they may be unwilling or unable to make.

If demand for and market acceptance of our solutions and services does not increase, we might not grow our business as we expect.

12 unchanged sentences

If we expand our international operations, exposures to gains and losses on foreign currency transactions may increase.

(See Foreign Currency Exchange Rates on page 58 for more information regarding the impact of foreign currency exchange rates on our operations.)

Doing business internationally involves additional risks that could harm our operating results.

25 unchanged sentences

• issues not discovered in due diligence, which may include product quality issues or legal or other contingencies.

Acquisitions, including for example our recent acquisition of EVERFI, Inc.

(as further described in Note 3), may also result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the expenditure of available cash, and amortization expenses or write-downs related to intangible assets such as goodwill, any of which could have a material adverse effect on our operating results or financial condition.

For example, following our acquisition of EVERFI, Inc.

(as further described in Note 3 to our consolidate financial statements in this report) we experienced the loss of certain employees and unexpected delays in realizing anticipated returns on our investment.

Acquisitions, including for example our recent acquisition of EVERFI, Inc., may also result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the expenditure of available cash, and amortization expenses or write-downs related to intangible assets such as goodwill, any of which could have a material adverse effect on our operating results or financial condition.

We may experience risks relating to the challenges and costs of closing a business combination and the risk that an announced business combination may not close.

There can be no assurance that we will be successful in making additional acquisitions in the future or in integrating or executing on our business plan for existing or future acquisitions.

A reduction in the growth or amount of charitable giving could adversely affect our operating results and financial condition.

A large percentage of our customers are nonprofits, foundations, education institutions, healthcare organizations and other members of the social good community that fully or partially rely on charitable donations.

A reduction in the growth or amount of charitable giving due to deteriorating general economic conditions, a recession or otherwise could adversely affect our operating results and financial condition.

A large percentage of our customers are nonprofits, foundations, education institutions, healthcare organizations and other members of the social impact community that fully or partially rely on charitable donations.

If charitable giving, including online giving, does not continue to grow or declines, it could limit our current and potential customers' ability to use and pay for our solutions and services, which could adversely affect our operating results and financial condition.

In addition, we derive a significant portion of our revenue from transaction-based payment processing fees that we collect from our customers through our Blackbaud Merchant Services solution, which enables our customers' donors to make donations and purchase goods and services using various payment options.

A reduction in the growth of, or a decline in, charitable giving to these customers, whether due to deteriorating general economic conditions, the impact of recent or future changes to applicable tax laws, or otherwise, could negatively impact the volume and size of such payment processing transactions and thereby adversely affect our operating results and financial condition.

A reduction in the growth of, or a decline in, charitable giving to these customers, whether due to deteriorating general economic conditions, the impact of past or future changes to applicable tax laws, or otherwise, could negatively impact the volume and size of such payment processing transactions and thereby adversely affect our operating results and financial condition.

2022 Form 10-K

10 unchanged sentences

Effective January 1, 2021, the relationship between the U.K.

is governed primarily by the Trade and Cooperation Agreement, which sets forth, among other things, terms regarding the trade of goods and services, workers’ rights and social and environmental matters, while separate negotiations have continued and agreements have been entered into regarding, among other things, data sharing, data privacy and financial services.

is governed primarily by certain trade and cooperation agreements, that set forth, among other things, terms regarding the trade of goods and services, workers’ rights, social and environmental matters, data sharing, data privacy and financial services.

Because we currently conduct business in the U.K.

3 unchanged sentences

Operational Risks

If the security of our software is breached, we fail to securely collect, store and transmit customer information, or we fail to safeguard confidential donor data, we could be exposed to liability, litigation, penalties and remedial costs and our reputation and business could suffer.

Breaches of our software, our failure to securely collect, store and transmit customer information, or our failure to safeguard confidential donor data, exposes us to liability, litigation, government investigations, penalties and remedial costs and our reputation and business could suffer.

Fundamental to the use of our solutions is the secure collection, storage and transmission of confidential donor and end user data and transaction data, including in our payment services.

Despite the network, application and physical security procedures and internal control measures we employ to safeguard our systems, we have been, and in the future may be, vulnerable to a security breach, intrusion, loss or theft of confidential donor data and transaction data, which has in the past harmed and may in the future harm our business, reputation and future financial results.

Furthermore, our reliance on remote access to information systems and global disruptions in response to COVID-19, as described above, increases our exposure to potential cybersecurity incidents.

Furthermore, our reliance on remote access to information systems increases our exposure to potential cybersecurity incidents.

Like many major businesses, we are, from time to time, a target of cyberattacks, phishing and social engineering schemes, such as the Security Incident (as described below and in Note 11 to our consolidated financial statements in this report), and we expect these threats to continue, some of which have been, and in the future may be, successful to varying degrees.

1 unchanged sentence

As these threats continue to evolve and increase, we have already devoted and expect to continue to devote significant resources in order to modify and enhance our security controls and to identify and remediate any security vulnerabilities.

A compromise of our data security, such as the Security Incident, that results in customer or customer constituent personal or payment card data being obtained by unauthorized persons could adversely affect our reputation with our customers and others, as well as our operations, results of operations, financial condition and liquidity has resulted in, and could in the future result in, litigation against us, government investigations or the imposition of fines and penalties.

(See Note 11 to our consolidated financial statements in this report for information regarding litigation, government investigations, fines and penalties related to the Security Incident.) We might be required to expend significant additional capital and other resources to rectify problems caused by a security breach, including notification under data privacy laws and regulations, and incur expenses related to remediating our information security systems.

2022 Form 10-K

Blackbaud, Inc.

A compromise of our data security, such as the Security Incident, that results in customer or customer constituent personal or payment card data being obtained by unauthorized persons could adversely affect our reputation with our customers and others, as well as our operations, results of operations, financial condition and liquidity and could result in litigation against us or the imposition of fines and penalties.

We might be required to expend significant additional capital and other resources to rectify problems caused by a security breach, including notification under data privacy laws and regulations, and incur expenses related to remediating our information security systems.

Even though we may carry cyber-technology insurance policies that provide insurance coverage under certain circumstances, we have in the past suffered losses and may in the future suffer losses as a result of a security breach that exceed the coverage available under our insurance policies or for which we do not have coverage.

8 unchanged sentences

Prior to our successfully preventing the cybercriminal from blocking our system access and fully encrypting files, and ultimately expelling them from our system with no significant disruption to our operations, the cybercriminal removed a copy of a subset of data from our self-hosted environment.

Although the nature of the incident, our research and third party (including law enforcement) investigation have provided no reason to believe that any data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly, our investigation into the Security Incident remains ongoing and may provide additional information.

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

and Canada related to the Security Incident (none of which have as yet been filed in court) and are in the process of assessing what liability may exist pursuant to such claims.

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

Based on the nature of the incident, our research and third party (including law enforcement) investigation we believe that no data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly.

However, our investigation into the Security Incident remains ongoing and may provide additional information.

To date, we have received approximately 260 customer reimbursement requests and approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K.

and Canada related to the Security Incident.

We have also received notices of proposed claims on behalf of a number of UK data subjects, which we are reviewing.

In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us, and certain insurance companies have filed subrogation claim in court.

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

2 unchanged sentences

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

To date, we also have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 48 state Attorneys General and the District of Columbia and separate Civil Investigative Demands from the offices of the Illinois Attorney General and the California Attorney General relating to the Security Incident.

In addition, we are subject to governmental actions or investigations by the U.S.

To date, we also have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 49 state Attorneys General and the District of Columbia and a separate Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident.

In addition, we are subject to pending governmental actions or investigations by the U.S.

Federal Trade Commission, the U.S.

Department of Health and Human Services, the U.S.

Securities and Exchange Commission, the Information Commissioner’s Office in the United Kingdom (the “ICO”) under the U.K.

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

Securities and Exchange Commission (the "SEC"), the Office of the Australian Information Commissioner and the Office of the Privacy Commissioner of Canada.

(See Note 11 to our consolidated financial statements included in this report for a more detailed description of the Security Incident and related matters.)

2021 Form 10-K

Blackbaud, Inc.

We may be named as a party in additional lawsuits, other claims may be asserted by or on behalf of our customers or their constituents, and we may be subject to additional governmental inquires, requests or investigations.

Responding to and resolving these current and any future lawsuits, claims and/or investigations could result in material remedial and other expenses that will not be covered by insurance.

Governmental authorities also may seek to impose undertakings, injunctive relief, consent decrees, or other civil or criminal penalties, which could, among other things, materially increase our data security costs or otherwise require us to alter how we operate our business.

For example, we have recorded approximately $23.0 million in aggregate liabilities for loss contingencies related to the Security Incident that we believe we can reasonably estimate as of December 31, 2022.

Certain governmental authorities are seeking to impose undertakings, injunctive relief, consent decrees, or other civil or criminal penalties, which could, among other things, materially increase our data security costs or otherwise require us to alter how we operate our business.

Although we intend to defend ourselves vigorously against the claims asserted against us, we cannot predict the potential outcomes, cost and expenses associated with current and any future claims, lawsuits, inquiries and investigations.

2022 Form 10-K

Blackbaud, Inc.

In addition, any legislative or regulatory changes adopted in reaction to the Security Incident or other companies’ data breaches could require us to make modifications to the operation of our business that could have an adverse effect and/or increase or accelerate our compliance costs.

Significant management time and Company resources have been, and are expected to continue to be, devoted to the Security Incident.

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

Although we carry insurance against certain losses related to the Security Incident, we exceeded the limit of that insurance coverage during the first quarter of 2022.

As a result, we will be responsible for all expenses or other losses (including penalties, fines or other judgements) or all types of claims that may arise in connection with t he Security Incident, which could materially and adversely affect our liquidity and results of operations .

(See Note 11 to our consolidated financial statements included in this report.) If any such fines or penalties were great enough that we could not pay them through funds generated from operating activities and/or cause a default under our credit facility, we may be forced to renegotiate or obtain a waiver under our credit facility and/or seek additional debt or equity financing.

For example, for full year 2022, we incurred net pre-tax expense of $32.7 million and had net cash outlays of $20.9 million for ongoing legal fees related to the Security Incident.

For full year 2023, we currently expect pre-tax expense of approximately $20 million to $30 million and net cash outlays of approximately $25 million to $35 million for ongoing legal fees related to the Security Incident.

Inclusive of accrued liabilities for loss contingencies discussed above, we incurred a total of $55.7 million of net pre-tax expense related to the Security Incident during 2022.

Although we carry insurance against certain losses related to the Security Incident, we have exceeded the limit of that insurance coverage.

As a result, we will be responsible for all expenses or other losses (including penalties, fines or other judgments) or all types of claims that may arise in connection with the Security Incident, which could materially and adversely affect our liquidity and results of operations.

(See Note 11 to our consolidated financial statements included in this report.) If any such fines or penalties were great enough that we could not pay them through funds generated from operating activities and/or cause a default under the 2020 Credit Facility, we may be forced to renegotiate or obtain a waiver under the 2020 Credit Facility and/or seek additional debt or equity financing.

Such renegotiation or financing may not be available on acceptable terms, or at all.

1 unchanged sentence

In addition, publicity or developments related to the Security Incident could in the future have a range of other adverse effects on our business or prospects, including causing or contributing to loss of customer confidence, reduced customer demand, reduced customer retention, strategic growth opportunities, and associated retention and recruiting difficulties, some or all of which could be material.

The COVID-19 pandemic has disrupted, and is expected to continue to disrupt, our business, which is likely to adversely affect our operations and financial performance.

The outbreak of COVID-19 in countries across the globe, including each country in which we currently operate, has adversely impacted the U.S.

and global economies.

We have experienced disruptions to our business thus far from COVID-19, and the pandemic continues to impact each of our markets.

Governmental authorities have taken, and continue to take, countermeasures to slow the outbreak, including shelter-in-place and business closure orders and large-scale restrictions on travel.

Furthermore, because the pandemic is a rapidly evolving situation, we cannot anticipate with certainty the length, scope or severity of such restrictions in the jurisdictions in which we operate.

Certain vertical markets we serve are especially vulnerable to the ongoing global business disruption.

• Many arts and cultural organizations, including museums, zoos, performing arts centers and theaters, among others, have had to cancel events or have seen a significant decline in attendance due to COVID-19.

Many of these organizations have also suspended their operations temporarily.

• We believe that a number of K-12 private schools, that would have ordinarily considered purchasing our cloud solutions for the 2021-2022 academic school year, have delayed their expenditure decisions due to the uncertainty of COVID-19.

• A number of our nonprofit customers have also been negatively impacted by the postponement or cancellation of mass-participation events, such as marathons and other endurance sporting events, galas, auctions and other fundraisers.

2021 Form 10-K

Blackbaud, Inc.

We believe that COVID-19 has impacted and will continue to impact all of our vertical markets across all of our geographies to some degree, but the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the duration of the outbreak, travel restrictions and business closures, the effectiveness of vaccination programs and other actions taken to contain the disease and other unforeseeable consequences.

This impact could include:

• further declines in customer demand and our ability to build pipeline of new customer contracts;

• continued elongated sales cycles;

• our relationship with, and the financial and operational capacities of, our service providers, suppliers and business partners, including their ability to fulfill their obligations to us;

• further declines in our customers' ability to pay for our solutions and services;

• reduced workforce availability and productivity due to potential health effects and concerns;

• risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms);

• the adequacy of our cash flows and earnings and other conditions that may affect our liquidity;

• disruptions to our technology network and other critical systems;

• impairment charges against our goodwill and other intangible assets, operating lease right-of-use assets and other long-lived assets.

We believe that business disruption relating to COVID-19 will continue to negatively impact the U.S.

and global economies and may continue to materially adversely impact our business, financial condition and results of operations.

Climate change and other natural disasters, new regulations and standards and climate-related goals have impacted, and may in the future impact, our operations and financial performance.

The long-term effects of climate change on the global economy and our industry may impact our business operations and those of our suppliers, customers and partners.

Climate change increases the severity and frequency of extreme weather events such as hurricanes, wildfires, floods, heat waves, or power shortages, all of which could lead to business disruptions.

The locations of our principal executive offices and our data centers are vulnerable to the effects of climate events and other natural disasters, including hurricanes, heat waves and earthquakes, which we have experienced in the past.

In addition, the effects of climate change are harder to mitigate for our remote-first workforce, which exposes the Company to business disruption.

Even though we carry business interruption insurance policies and typically have provisions in our commercial contracts that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage.

Any natural disaster or catastrophic event affecting us could have a significant negative impact on our operations.

Expected new regulations and standards relating to public disclosure, including those related to climate change, could adversely could impose significant costs on us to comply with such regulations.

Finally, a failure to meet our climate-related goals, such as our commitment and progress towards reduction of greenhouse gas emissions, could damage our reputation, affect our financial performance and ability to attract and retain talent.

Defects, delays or interruptions in our cloud solutions and hosting services could diminish demand for these services and subject us to substantial liability.

1 unchanged sentence

Any damage to, or failure of, these data center systems generally could result in interruptions in service to our customers, notwithstanding any business continuity or disaster recovery agreements that may currently be in place at these facilities.

As noted above, our executive offices and some of our data centers are located in areas that are vulnerable to the effects of climate change and could be subject to increased interruptions as a result of the severity and increased frequency of extreme weather events such as hurricanes, wildfires, floods, heat waves, or power shortages.

Because our cloud solutions and hosting service offerings are complex and we have incorporated a variety of new computer hardware and software systems at our data centers, our services might have errors or defects that users identify after they begin using our services.

1 unchanged sentence

Internet-based services sometimes contain undetected errors when first introduced or when new versions or enhancements are released.

We have from time to time found defects in our web-based services and new errors might again be detected in the future.

We have from time to time found defects in our web-based services and new errors

2022 Form 10-K

Blackbaud, Inc.

might again be detected in the future.

In addition, our customers might use our Internet-based offerings in unanticipated ways that cause a disruption in service for other customers attempting to access their data.

5 unchanged sentences

We have from time to time found defects in our software, and new errors in our existing software may be detected in the future.

2021 Form 10-K

Blackbaud, Inc.

After the release of our software, defects or errors may also be identified from time to time by our internal team and our customers.

11 unchanged sentences

Failure to conduct these voluntary data protection process and control reviews or to obtain and maintain audits or reports covering our data protection processes and controls may harm our reputation or our business prospects and our ability to market our solutions to our customers.

Our operations might be affected by the occurrence of a natural disaster or other catastrophic event.

We depend on our principal executive offices and other facilities for the continued operation of our business.

Although we have contingency plans in effect for natural disasters or other catastrophic events, these events, including terrorist attacks, computer hacker attacks and natural disasters such as hurricanes, flooding and earthquakes, could disrupt one or more of these facilities and adversely affect our operations.

Our principal executive offices are located in a coastal region that has experienced hurricanes and earthquakes in the past.

Any natural disaster or catastrophic event affecting us could have a significant negative impact on our operations.

Complications with the design or implementation of our new global enterprise resource planning ("ERP") system could adversely affect our operations and operating results

We rely extensively on information systems and technology to manage our business and summarize our operating results.

We have implemented a new ERP system, which replaced our previous core financial systems.

The new ERP system was designed to accurately maintain our financial records, enhance the flow of financial information, improve data management, and provide timely information to our management team.

Failure in the design and implementation of the new ERP system could harm our business, financial condition and operating results.

Additionally, failure in the design or implementation of the new ERP system as planned or if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be negatively affected.

We are subject to payment processing risk that could negatively impact our results of operation and business if not adequately controlled and managed.

Our solutions provide our customers payment processing capabilities that enable their constituents to make donations and purchase services using numerous payment options, including credit card and automated clearing house (“ACH”) checking transactions, through secure online transactions.

The provision of convenient, trusted, fast and effective payment processing services to our customers and potential customers is critical to our business, and revenue from payments processing constitutes a significant percentage of our total revenue.

Increases in payment processing fees, material changes in our payment processing systems, changes to rules or regulations concerning payments or disruptions or failures in our payment processing systems or payment products, including products we use to update payment information, could materially adversely impact our customer retention and results of operation.

In addition, from time to time, we encounter fraudulent use of payment methods that could result in substantial additional costs or delay, preclude planned transactions, product launches or improvements, require significant and costly operational changes, impose restrictions, limitations, or additional requirements on our business, products and services, prevent or limit us from providing our products or services in a given market and adversely impact customer retention.

Furthermore, we continue to undertake system upgrades designed to

2022 Form 10-K

Blackbaud, Inc.

improve the availability, reliability, resiliency and speed of our payments systems.

These efforts are costly and time-consuming, involve significant technical complexity and risk, may divert our resources from new features and products and may ultimately not be effective.

Financial Risks

11 unchanged sentences

Because of this characteristic of our business, if our customers choose not to renew their subscriptions or maintenance and support arrangements with us on beneficial terms or at all, our business, operating results and financial condition could be harmed.

Our customers' renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our solutions and services and their ability to continue their operations and spending levels due to COVID-19 or otherwise.

We significantly increased our leverage in connection with acquisitions.

We incurred a substantial amount of indebtedness in connection with acquisitions, including our recent acquisition of EVERFI, Inc.

(as described in Note 3) and the purchase of our global headquarters facility in 2020.

We significantly increased our leverage in connection with acquisition of EVERFI and may increase our leverage in the future in connection with additional acquisitions, Security Incident costs or other business purposes, which could adversely impact our business and financial performance, as described below.

We incurred a substantial amount of indebtedness in connection with acquisitions, including our acquisition of EVERFI, Inc.

(as described in Note 3 to our consolidated financial statements included in this report).

As a result of this indebtedness, our interest payment obligations have increased.

In addition, we have been named as a party in various lawsuits in connection with the Security Incident, other claims may be asserted by or on behalf of our customers or their constituents, and we are subject to various governmental inquires, requests or investigations.

In addition, we have been named as a party in various lawsuits in connection with the Security Incident, claims have been asserted by or on behalf of our customers or their constituents, and we are subject to various governmental inquires, requests or investigations.

Responding to and resolving these current and any future lawsuits, claims and/or investigations could result in material remedial and other expenses.

8 unchanged sentences

• Decreasing our ability to compete effectively or operate successfully under adverse economic and industry conditions.

If we incur additional debt, these risks may intensify.

Our ability to meet our debt service obligations will depend upon our future performance, which will be subject to the financial, business and other factors affecting our operations, many of which are beyond our control.

2022 Form 10-K

Blackbaud, Inc.

If we incur additional debt, these risks may intensify, particularly if interest rates increase in the future.

In addition, additional leverage could impact our ability to meet certain financial and other covenants contained in our 2020 Credit Facility.

(See Note 9 to our consolidated financial statements included in this report for a more detailed description of our 2020 Credit Facility.) There can be no assurance that we will be able to remain in compliance with the covenants to which we are now subject or may be subject in the future and, if we fail to do so, that we will be able to obtain waivers from our lenders or amend the covenants.

In the event of a default under our 2020 Credit Facility, we could be required to immediately repay all outstanding borrowings, which we might not be able to do and which would materially negatively affect our business, operations and financial condition.

Our balance sheet includes significant amounts of goodwill and intangible assets.

The impairment of a significant portion of these assets could negatively affect our operating results.

As of December 31, 2021, we had $1.1 billion and $698.1 million of goodwill and intangible assets, respectively, which reflects an increase of $422.8 million and $457.4 million, respectively, as a result of our recent acquisition of EVERFI.

As of December 31, 2022, we had $1.1 billion and $635.1 million of goodwill and intangible assets, respectively.

On at least an annual basis, we assess whether there have been impairments in the carrying value of goodwill and intangible assets.

19 unchanged sentences

Realization of our deferred tax assets is dependent upon our generating sufficient taxable income in future years to realize the tax benefit from those assets.

Deferred tax assets are reviewed at least annually for realizability.

Deferred tax assets

2022 Form 10-K

Blackbaud, Inc.

are reviewed at least annually for realizability.

A charge against our earnings would result if, based on the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized beyond our existing valuation allowance.

2 unchanged sentences

(See Note 12 to our consolidated financial statements in this report for additional details.) If a deferred tax asset net of our valuation allowance was determined to be not realizable in a future period, the charge to earnings would be recognized as an expense in our results of operations in the period the determination is made.

2021 Form 10-K

Blackbaud, Inc.

Additionally, if we are unable to utilize our deferred tax assets, our cash flow available to fund operations could be adversely affected.

47 unchanged sentences

While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose the source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release proprietary source code, pay damages for breach of contract, re-engineer our applications, discontinue sales in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business.

2021 Form 10-K

Blackbaud, Inc.

We rely upon trademark, copyright, patent and trade secret laws to protect our proprietary rights, which might not provide us with adequate protection.

1 unchanged sentence

We might not be successful in protecting our proprietary technology and our proprietary rights might not provide us with a meaningful competitive advantage.

To protect our core proprietary technology, we rely on a combination of patent, trademark, copyright and trade secret laws, as well as nondisclosure agreements, each of which affords only limited protection.

Changing domestic and international laws, government regulations and policies could adversely affect our business and operating results by increasing compliance costs, reducing customer demand for our solutions or damaging our reputation.

To protect our core proprietary technology, we rely on a combination of patent,

2022 Form 10-K

Blackbaud, Inc.

trademark, copyright and trade secret laws, as well as nondisclosure agreements, each of which affords only limited protection.

Changing domestic and international laws, government regulations and policies, including, without limitation, California AB488 and other similar laws and regulations, could adversely affect our business and operating results by increasing compliance costs, reducing customer demand for our solutions or damaging our reputation.

Certain of our solutions, in particular our financial management and payment services solutions, relate to activity heavily regulated by government agencies in the U.S., the U.K.

9 unchanged sentences

Repeal or significant modification of the CRA or the many government agency regulations and policies implementing its provisions could cause financial institutions to limit or eliminate their purchases of these EVERFI solutions and thereby negatively impact our operating results and financial condition.

Anti-takeover provisions in our charter documents and Delaware law may delay or prevent an acquisition of our Company.

Provisions of Delaware law, our certificate of incorporation and bylaws may have the effect of delaying or preventing a change in control of our company or deterring tender offers for our common stock that other stockholders may consider in their best interests.

Anti-takeover provisions in our charter documents, our Stockholder Rights Agreement (as described below, the "Rights Agreement") and Delaware law may delay or prevent an acquisition of our Company.

Provisions of Delaware law, our certificate of incorporation and bylaws and our Rights Agreement may have the effect of delaying or preventing a change in control of our company or deterring tender offers for our common stock that other stockholders may consider in their best interests.

Our certificate of incorporation authorizes “blank check” preferred stock, which could be issued by the board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock.

3 unchanged sentences

Our bylaws provide for an advance notice procedure for stockholders to nominate director candidates for election or to bring business before an annual meeting of stockholders, including proposed nominations of persons for election to our board of directors, and limit the persons who may call special meetings of stockholders.

The anti-takeover provisions of Delaware law and provisions in our organizational documents may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context.

On October 7, 2022, we declared a dividend of one preferred share purchase right (a “Right”) for each of our issued and outstanding shares of common stock.

Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from us one one-thousandth of a share of our Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Preferred Stock”) at a price of $313.00, subject to certain adjustments (as adjusted from time to time, the “Exercise Price”).

Under the Rights Agreement, the Rights will become exercisable if an entity, person or group acquires beneficial ownership of 20% or more of our outstanding common stock in a transaction not approved by our Board of Directors.

In the event that the Rights become exercisable due to the ownership threshold being crossed, each Right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase additional shares of common stock having a then-current market value of twice the Exercise Price.

Subject to the terms of the Rights Agreement, the Rights will expire on October 2, 2023.

Additional information regarding the Rights Agreement is contained in a Form 8-K filed with the SEC on October 11, 2022.

The anti-takeover provisions of Delaware law and provisions in our organizational documents and the Rights Agreement may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context.

Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

UNRESOLVED STAFF COMMENTS

2022 Form 10-K

Blackbaud, Inc.

Unanticipated changes in our effective tax rate and additional tax liabilities and global tax developments may impact our financial results.

We are subject to income taxes in the United States and various other jurisdictions.

Significant judgment is often required in the determination of our worldwide provision for income taxes.

Our effective tax rate could be impacted by changes in our earnings and losses in countries with differing statutory tax rates, changes in operations, changes in non-deductible expenses, changes in excess tax benefits of stock-based compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, effects from acquisitions, and changes in accounting principles and tax laws.

Any changes, ambiguity or uncertainty in taxing jurisdictions’ administrative interpretations, decisions, policies and positions could also materially impact our income tax liabilities.

We may also be subject to additional tax liabilities and penalties due to changes in non-income based taxes resulting from changes in federal, state, local or international tax laws, changes in taxing jurisdictions’ administrative interpretations, decisions, policies and positions, results of tax examinations, settlements or judicial decisions, changes in accounting principles, or changes to our business operations, including as a result of acquisitions.

Any resulting increase in our tax obligation or cash taxes paid could adversely affect our cash flows and financial results.

We are also subject to tax examinations or engaged in alternative resolutions in multiple jurisdictions.

While we regularly evaluate new information that may change our judgment resulting in recognition, derecognition or changes in measurement of a tax position taken, there can be no assurance that the final determination of any examinations will not have an adverse effect on our operating results or financial position.

As our business continues to grow, increasing our brand recognition and profitability, we may be subject to increased scrutiny and corresponding tax disputes, which may impact our cash flows and financial results.

Furthermore, our growing prominence may bring public attention to our tax profile, and if perceived negatively, may cause brand or reputational harm.

As we utilize our tax credits and net operating loss carryforwards, we may be unable to mitigate our tax obligations to the same extent as in prior years, which could have a material impact to our future cash flows.

In addition, changes to our operating structure, including changes related to acquisitions, may result in cash tax obligations.

Global tax developments applicable to multinational businesses may have a material impact to our business, cash flow from operating activities, or financial results.

Such developments, for example, may include certain United States’ proposals as well as the Organization for Economic Co-operation and Development’s, the European Commission’s and certain major jurisdictions’ heightened interest in and taxation of companies participating in the digital economy.

UNRESOLVED STAFF COMMENTS

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-K

Item 1A. Risk Factors