What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-03-01 · 494 added, 486 removed, 1068 unchanged (48% of the section changed)

2 unchanged sentences

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Reports of Independent Registered Public Accounting Firms (PCAOB IDs 42 and 238 )

Consolidated Balance Sheets

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Cash Flows

3 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Blackbaud, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Blackbaud, Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

To the Stockholders and the Board of Directors of Blackbaud, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Blackbaud, Inc.

(the Company) as of December 31, 2022, the related consolidated statements of comprehensive loss, cash flows, and stockholders’ equity for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2023, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded EVERFI, Inc.

from its assessment of internal control over financial reporting as of December 31, 2021, because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded EVERFI, Inc.

from our audit of internal control over financial reporting.

is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 6% and 0%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Revenue Recognition - Payment Processing Services

Description of

The Company recorded transactional recurring revenues of $302.6 million for the year ended December 31, 2022.

Included in transactional recurring revenues are revenues related to payment processing services provided to customers that enable donations and the purchase of goods and services.

As discussed in Note 2 to the consolidated financial statements, the Company recognizes revenue for payment processing services over time based on the amount billable to the customer since it has the right to invoice the customer in an amount that directly corresponds with the value to the customer for the Company’s performance to date.

The processing of transactions and recording of revenues for these services involves a significant volume of transactions that are highly automated and are based on contractual terms with the customer and the Company’s third-party vendors.

Auditing the revenues for these payment processing services is complex because the processes are highly automated and involve multiple IT systems with a significant volume of transactions and related underlying data.

Further, auditing the revenues for these payment processing services required the involvement of data professionals to assist in validating the integrity of the underlying data and recalculating the revenues recorded during the period.

2022 Form 10-K

How We Addressed the

Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its payment processing services provided to customers that enable donations and the purchase of goods and services.

We identified the relevant systems used in these payment processing services, including relevant third-party service organization systems, and evaluated the IT general controls over each of these systems.

We also tested the relevant automated controls and other business processes controls.

To test revenue recognized for payment processing services, our procedures included, among others, the involvement of data professionals to recalculate the revenue recognized.

For a selection of payment processing transactions, we also agreed the amount of revenues recognized for processing fees retained by the Company to source documents and tested the mathematical accuracy of the recorded revenue.

We also evaluated if the transactions were processed, and funds received prior to December 31, 2022, including sending confirmations directly to financial institutions.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2021.

Raleigh, North Carolina

February 24, 2023

2022 Form 10-K

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Blackbaud, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Blackbaud, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria).

In our opinion, Blackbaud, Inc.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of comprehensive loss, cash flows, and stockholders' equity for the year-ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated February 24, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition of EVERFI, Inc.

- Valuation of the Customer Relationships, Certain Developed Technology Assets, Marketing Assets, and Content Intangible Assets

As described in Notes 2 and 3 to the consolidated financial statements, on December 31, 2021, the Company acquired EVERFI, Inc.

for an aggregate purchase price of $743.8 million, which resulted in $326.6 million of customer relationships, $72.0 million of developed technology, $40.9 million of marketing assets, and $17.9 million of content intangible assets being recorded.

Management estimated the fair values of the customer relationships, marketing assets, and a substantial portion of the developed technology based on variations of the income approach, which estimates fair value based upon the present value of cash flows that the assets are expected to generate, and which included the relief-from-royalty method and multi-period excess earnings method, depending on the intangible asset being valued.

Management estimated the fair value of content and a portion of the developed technology using the replacement cost method.

Management applied significant judgment in estimating the fair value of intangible assets acquired, which involved the use of significant assumptions including future revenue and operating expenses, customer attrition rates, contributory asset charges, tax amortization benefit, and discount rates used in the valuation of customer relationships;

future revenue, proprietary technology obsolescence curve, royalty rate, and discount rate used in the valuation of certain developed technology assets;

assumptions about the period of time the brand will continue to be valuable, royalty rate, and discount rate used in the valuation of marketing assets;

and cost-based assumptions used in the valuation of content intangible assets.

The principal considerations for our determination that performing procedures relating to the valuation of customer relationships, certain developed technology assets, marketing assets, and content intangible assets related to the acquisition of EVERFI, Inc.

is a critical audit matter are the significant judgment by management in developing the fair value of the customer relationships, certain developed technology assets, marketing assets, and content intangible assets, which led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s aforementioned significant assumptions used in the valuation of the customer relationships, certain developed technology assets, marketing assets, and content intangible assets.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships, developed technology assets, marketing assets, and content intangible assets, as well as controls over the development

/s/ Ernst & Young LLP

Raleigh, North Carolina

February 24, 2023

2022 Form 10-K

of the aforementioned significant assumptions related to the valuation of these intangible assets.

These procedures also included, among others, reading the purchase agreement and testing management’s process for estimating the fair value of the customer relationships, certain developed technology assets, marketing assets, and content intangible assets.

Testing management’s process included (i) evaluating the appropriateness of the valuation methods, (ii) testing the completeness and accuracy of data provided by management, and (iii) evaluating the reasonableness of the aforementioned significant assumptions used in the valuation of the customer relationships, certain developed technology assets, marketing assets, and content intangible assets.

Evaluating the reasonableness of the future revenue used in the valuation of the customer relationships and certain developed technology assets, operating expenses, customer attrition rates, and contributory asset charges used in the valuation of the customer relationships, and the cost-based assumptions used in the valuation of content intangible assets involved considering the past performance of the acquired business, consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

Evaluating the reasonableness of the proprietary technology obsolescence curve used in the valuation of certain developed technology assets and royalty rates used in the valuation of certain developed technology assets and marketing assets involved evaluating the consistency of these assumptions with external market and industry data.

Evaluating the reasonableness of the discount rates used in the valuation of the customer relationships, certain developed technology assets, and marketing assets involved considering the cost of capital of comparable benchmark rates and other industry factors.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s relief-from-royalty, multi-period excess earnings, and replacement cost methods and in evaluating the reasonableness of the significant assumptions related to customer attrition rates and tax amortization benefit used in the valuation of the customer relationships, assumptions about the period of time the brand will continue to be valuable used in the valuation of marketing assets, cost-based assumptions used in the valuation of content intangible assets, royalty rates used in the valuation of certain developed technology assets and marketing assets, and discount rates used in the valuation of the customer relationships, certain developed technology assets, and marketing assets.

Revenue recognition - Contracts with Multiple Performance Obligations

As described in Note 2 to the consolidated financial statements, the Company has some contracts with customers that contain multiple performance obligations.

For these contracts, management accounts for individual performance obligations separately if they are distinct.

As described by management, management exercises judgment and uses estimates in order to (1) determine whether performance obligations are distinct and should be accounted for separately;

(2) determine the standalone selling price of each performance obligation;

(3) allocate the transaction price among the various performance obligations on a relative standalone selling price basis;

and (4) determine whether revenue for each performance obligation should be recognized at a point in time or over time.

For the year ended December 31, 2021, the Company’s total revenue was $927.7 million.

The principal considerations for our determination that performing procedures relating to revenue recognition, contracts with multiple performance obligations, is a critical audit matter are the significant judgment by management in identifying, evaluating and accounting for performance obligations in contracts with multiple performance obligations, which led to significant auditor judgment and effort in performing procedures and evaluating whether contracts with multiple performance obligations were appropriately identified, evaluated and accounted for by management.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the identification, evaluation and accounting for contracts with multiple performance obligations.

These procedures also included, among others, testing management’s process for identifying, evaluating and accounting for performance obligations.

Testing management’s process included, (i) examining revenue arrangements on a test basis, including evaluating the terms and conditions of the arrangements and testing the identification, evaluation and accounting of the performance obligations;

(ii) testing the allocation of the transaction price between performance obligations based on the estimated standalone selling prices on a test basis;

(iii) performing procedures to test the completeness and accuracy of the data used to determine stand-alone selling price;

and (iv) evaluating the reasonableness of the approach used to determine stand-alone selling price.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Blackbaud, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Blackbaud, Inc.

and its subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows for each of the two years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

1 unchanged sentence

March 1, 2022

We have served as the Company's auditor since 2000.

We served as the Company’s auditor from 2000 to 2022.

2022 Form 10-K

1 unchanged sentence

Consolidated Balance Sheets

(dollars in thousands) December 31,

(dollars in thousands, except per share amounts) December 31,

2022 December 31,

9 unchanged sentences

Operating lease right-of-use assets 45,899 53,883

Software development costs, net 121,377 111,827

Software and content development costs, net 141,023 121,377

Goodwill 1,050,272 1,058,640

26 unchanged sentences

( 537,287 ) ( 500,911 )

Accumulated other comprehensive income (loss) 6,522 ( 2,497 )

Accumulated other comprehensive income 8,938 6,522

Retained earnings 197,049 242,456

4 unchanged sentences

Blackbaud, Inc.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive (Loss) Income

(dollars in thousands, except per share amounts) Years ended December 31,

15 unchanged sentences

Total operating expenses 581,201 459,639 447,911

Income from operations 24,906 37,243 27,145

(Loss) income from operations ( 28,485 ) 24,906 37,243

Interest expense ( 35,803 ) ( 18,003 ) ( 17,287 )

Other income, net 8,713 180 1,658

Income before provision for income taxes 7,083 21,614 10,585

Income tax provision (benefit) 1,385 13,897 ( 1,323 )

Net income $ 5,698 $ 7,717 $ 11,908

Earnings per share

(Loss) income before provision for income taxes ( 55,575 ) 7,083 21,614

Income tax (benefit) provision ( 10,168 ) 1,385 13,897

Net (loss) income $ ( 45,407 ) $ 5,698 $ 7,717

(Loss) earnings per share

Basic $ ( 0.88 ) $ 0.12 $ 0.16

3 unchanged sentences

Diluted weighted average shares 51,569,148 48,230,438 48,696,341

Other comprehensive income (loss)

Other comprehensive income

Foreign currency translation adjustment $ ( 16,160 ) $ 661 $ 4,571

Unrealized gain (loss) on derivative instruments, net of tax 18,576 8,358 ( 1,778 )

Total other comprehensive income (loss) 9,019 2,793 ( 180 )

Comprehensive income $ 14,717 $ 10,510 $ 11,728

Total other comprehensive income 2,416 9,019 2,793

Comprehensive (loss) income $ ( 42,991 ) $ 14,717 $ 10,510

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

5 unchanged sentences

Cash flows from operating activities

Net income $ 5,698 $ 7,717 $ 11,908

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

Net (loss) income $ ( 45,407 ) $ 5,698 $ 7,717

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

Depreciation and amortization 102,369 82,410 92,735

13 unchanged sentences

Purchase of property and equipment ( 12,289 ) ( 11,664 ) ( 29,690 )

Capitalized software development costs ( 40,489 ) ( 42,157 ) ( 46,874 )

Capitalized software and content development costs ( 58,774 ) ( 40,489 ) ( 42,157 )

Purchase of net assets of acquired companies, net of cash and restricted cash acquired ( 20,912 ) ( 419,120 ) —

Other investing activities — — 500

Cash received in sale of business 6,426 — —

Net cash used in investing activities ( 85,549 ) ( 471,273 ) ( 71,847 )

3 unchanged sentences

Debt issuance costs — ( 3,106 ) ( 4,586 )

Stock issuance costs ( 1,339 ) — —

Employee taxes paid for withheld shares upon equity award settlement ( 36,376 ) ( 39,404 ) ( 21,425 )

4 unchanged sentences

Dividend payments to stockholders — — ( 5,960 )

Net cash provided by (used in) financing activities 264,108 ( 10,679 ) 111,213

Net cash (used in) provided by financing activities ( 25,689 ) 264,108 ( 10,679 )

Effect of exchange rate on cash, cash equivalents and restricted cash ( 10,486 ) 297 2,245

3 unchanged sentences

Supplemental disclosure of cash flow information

Cash (paid) received during the year for:

Cash paid during the year for:

Interest $ ( 33,371 ) $ ( 16,386 ) $ ( 15,716 )

3 unchanged sentences

Purchase of property and equipment by assuming directly related liabilities — — ( 61,064 )

Purchase of software and services by assuming directly related liabilities ( 1,710 ) — ( 5,620 )

Purchase of equipment and other assets included in accounts payable ( 158 ) ( 1,747 ) ( 840 )

Acquired restricted cash liabilities due to customers — — 46,838

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown above in the consolidated statements of cash flows:

12 unchanged sentences

comprehensive

loss Retained

income (loss)

earnings Total stockholders' equity

4 unchanged sentences

— — — — — ( 5,960 ) ( 5,960 )

Exercise of stock options and stock appreciation rights and vesting of restricted stock units 267,455 — 7 — — — 7

Purchase of 714,000 treasury shares under stock repurchase program

— — — ( 41,001 ) — — ( 41,001 )

Exercise of stock options and vesting of restricted stock units 218,141 — 4 — — — 4

Employee taxes paid for 273,914 withheld shares upon equity award settlement

3 unchanged sentences

Restricted stock cancellations ( 177,077 ) — — — — — —

Other comprehensive loss — — — — ( 180 ) — ( 180 )

Other comprehensive income — — — — 2,793 — 2,793

Balance at December 31, 2020 60,904,638 $ 61 $ 544,963 $ ( 353,091 ) $ ( 2,497 ) $ 236,714 $ 426,150

Net income — — — — — 5,698 5,698

Payment of dividends ($ 0.12 per share) (1)

Common stock issued in purchase of EVERFI (see Note 3)

3,844,423 4 303,629 — — — 303,633

1 unchanged sentence

— — — ( 108,416 ) — — ( 108,416 )

Exercise of stock options and vesting of restricted stock units 218,141 — 4 — — — 4

Vesting of restricted stock units 1,014,562 1 — — — — 1

Employee taxes paid for 535,604 withheld shares upon equity award settlement

5 unchanged sentences

Balance at December 31, 2021 66,165,666 $ 66 $ 968,927 $ ( 500,911 ) $ 6,522 $ 242,456 $ 717,060

Net income — — — — — 5,698 5,698

Common stock issued in purchase of EVERFI (see Note 3)

Net loss — — — — — ( 45,407 ) ( 45,407 )

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

— — ( 1,352 ) — — — ( 1,352 )

Purchase of 1,592,933 treasury shares under stock repurchase program

Retirements of common stock (2)

( 33,535 ) — ( 2,605 ) — — — ( 2,605 )

9 unchanged sentences

Refer to the discussion of our Board of Directors' decision to discontinue the declaration and payments of all cash dividends beginning in Q2 2020 in Note 14 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on February 23, 2021.

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

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

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

13 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

Risks and uncertainties related to COVID-19

We are subject to risks and uncertainties as a result of the global COVID-19 pandemic.

We believe that COVID-19 may continue to impact our vertical markets and geographies, but the magnitude of the impact on our business cannot be determined at this time due to numerous uncertainties, including the duration of the outbreak, the severity of variants which may develop, travel restrictions and business closures, the effectiveness of vaccination programs and other actions taken to contain the disease and other unforeseeable consequences.

Use of estimates

1 unchanged sentence

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

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

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could materially differ from these estimates.

Recently adopted accounting pronouncements

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08").

ASU 2021-08 requires that an entity recognize and measure contract assets and deferred revenue (a contract liability) acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts from Customers (“ASC 606”).

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts.

To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and deferred revenue consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree financial statements were prepared in accordance with GAAP).

We early adopted ASU 2021-08 as of October 1, 2021 and applied the guidance to the deferred revenue recorded for EVERFI as of December 31, 2021.

See Note 3 to these consolidated financial statements for further information on our acquisition of EVERFI.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") .

This update provides for optional financial reporting alternatives to reduce cost and complexity associated with accounting for contracts, hedging relationships, and other transactions affected by reference rate reform.

This update applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offer Rate ("LIBOR") or other reference rates expected to be discontinued because of reference rate reform.

The accommodations are available for all entities through December 31, 2022, with early adoption permitted.

We adopted ASU 2020-04 prospectively as of July 1, 2022, and the adoption did not have a material impact on our consolidated financial statements.

Recently issued accounting pronouncements

There are no recently issued accounting pronouncements that are expected to have a material impact on our financial position or results of operations when adopted in the future.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Summary of significant accounting policies

15 unchanged sentences

Our recurring revenue contracts are generally for a term of 3 years at contract inception with 1 to 3 -year renewals thereafter, billed annually in advance and non-cancelable.

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

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

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

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Our payment services are offered with the assistance of third-party vendors.

In general, when we are the principal in a transaction based on the factors identified in ASC 606-10-55-36 through 55-40, we record the revenue and related costs on a gross basis.

Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount billed to the customer) and record the net amount as revenue.

Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount withheld for the transaction fees) and record the net amount as revenue.

For payment and transaction services, we have the right to invoice the customer in an amount that directly corresponds with the value to the customer of our performance to date.

Therefore, we recognize revenue for these services over time based on the amount billable to the customer in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18.

Therefore, we recognize revenue for these services over time based on the amount we withhold for the transaction fees in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18.

One-time services and other

One-time services and other revenue is primarily comprised of fees for one-time consulting, analytic and onsite training services, fees for retained and managed services contracts that we do not expect to have a term consistent with our cloud solution contracts, and fees from user conferences.

One-time services and other revenue is primarily comprised of fees for one-time consulting, analytic and onsite training services and fees for retained and managed services contracts that we do not expect to have a term consistent with our cloud solution contracts.

We generally bill consulting services based on hourly rates plus reimbursable travel-related expenses.

1 unchanged sentence

Revenue for one-time consulting services is generally recognized over time as the services are performed.

We generally recognize analytic services revenue from donor prospect research engagements, the sale of lists of potential donors, data enrichment engagements and benchmarking studies at a point in time (upon delivery).

In certain cases, we sell training at a fixed rate for each specific class at a per attendee price or at a packaged price for several attendees, and recognize the related revenue upon the customer attending and completing training.

Fees for retained and managed services contracts are generally billed in advance and recognized over time on a ratable basis over the contract term, beginning on the date the service is made available to the customer.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Contracts with multiple performance obligations

6 unchanged sentences

Sales commissions and related fringe benefits earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer.

These costs are deferred and then amortized in a manner that aligns with the expected period of benefit, which we have determined to be 5 years.

These costs are deferred and then amortized in a manner that aligns with the expected period of benefit, which we have primarily determined to be 5 years.

We determined the period of benefit by taking into consideration our customer contracts, including renewals, retention, our technology and other factors.

We do not generally pay commissions for contract renewals.

We generally do not pay commissions for contract renewals that are commensurate with the commission paid on the initial contract.

The related amortization expense is included in sales, marketing and customer success expense in our consolidated statements of comprehensive income.

4 unchanged sentences

We present sales taxes and other taxes collected from customers and remitted to governmental authorities on a net basis and, as such, exclude them from revenues.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Fair value measurements

11 unchanged sentences

Derivative instruments

We generally use derivative instruments to manage interest rate risk.

We generally use derivative instruments to manage interest rate and foreign currency exchange risk.

We view derivative instruments as risk management tools and do not use them for trading or speculative purposes.

1 unchanged sentence

Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

We record all derivative instruments on our consolidated balance sheets at fair value as either an asset or liability.

If the derivative is designated as a cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions.

If the derivative is designated as a net investment hedge, the effective portions of the changes in fair value of the derivative are recorded to translation adjustment, a component of other comprehensive income, and recognized in earnings only when the hedged investment is liquidated.

Ineffective portions of the changes in the fair value of cash flow hedges are recognized currently in earnings.

5 unchanged sentences

Due to customers

Restricted cash due to customers consists of monies collected by us and payable to our customers, net of the associated transaction fees earned.

Restricted cash due to customers consists of monies collected by us (or in transit) and payable to our customers, net of the associated transaction fees earned.

Monies associated with amounts due to customers are segregated in separate bank accounts and used exclusively for the payment of amounts due to customers.

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Our cash and cash equivalents and restricted cash due to customers are placed with high credit-quality financial institutions.

Our accounts receivable is derived from sales to customers who primarily operate in the nonprofit sector.

Our accounts receivable is derived from sales to customers.

With respect to accounts receivable, we perform ongoing evaluations of our customers and maintain an allowance for credit losses based on historical experience and our expectations of future credit losses.

As of and for the years ended December 31, 2022, 2021 and 2020, there were no significant concentrations with respect to our consolidated revenues or accounts receivable.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Property and equipment

10 unchanged sentences

Goodwill as of the acquisition date represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible and intangible assets acquired and liabilities assumed.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

We apply significant judgement in estimating the fair value of intangible assets acquired, which involves the use of significant assumptions.

13 unchanged sentences

There was no impairment of goodwill during 2022, 2021 and 2020.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Intangible assets other than goodwill

10 unchanged sentences

Substantially all of our intangible assets were acquired in business combinations.

See Note 6 to these consolidated financial statements for a discussion of our impairment of certain intangible assets during 2022.

There were no impairments of acquired intangible assets during 2021 and 2020.

See Note 6 to these consolidated financial statements for a discussion of our impairment of certain acquired intangible assets during 2019.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Impairment of long-lived assets

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Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the extent or manner in which the business or asset acquired is used or significant adverse change in the business climate.

If such events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether the asset is impaired.

If such events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether the asset or asset group is impaired.

See Note 6 to these consolidated financial statements for a discussion of our impairment of certain long-lived assets during 2022, 2021 and 2020.

There were no impairments of long-lived assets during 2020.

Deferred financing costs and debt discount

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These costs are amortized ratably over the term of the credit facility as interest expense.

Other debt issuance costs, as well as the debt discount associated with our 2020 Credit facility (as defined below) and portions of the unamortized balances from prior facilities, are recorded as a direct deduction from debt.

Other debt issuance costs, as well as the debt discount associated with our 2021 Incremental Term Loan (as defined below), 2020 Credit facility (as defined below) and portions of the unamortized balances from prior facilities, are recorded as a direct deduction from debt.

These costs are amortized over the term of the credit facility as interest expense.

1 unchanged sentence

We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the requisite service period, which is the vesting period.

We determine the fair value of stock options and stock appreciation rights using a Black-Scholes option pricing model, which requires us to use significant judgment to make estimates regarding the life of the award, volatility of our stock price, the risk-free interest rate and the dividend yield of our stock over the life of the award.

We determine the fair value of awards that contain market conditions using a Monte Carlo simulation model.

Changes to these estimates would result in different fair values of awards.

We recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, we recognize the effect of forfeitures in compensation cost when they occur).

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Income tax benefits resulting from the vesting and exercise of stock-based compensation awards are recognized in the period the unit or award is vested or option or right is exercised.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

We make estimates and judgments in accounting for income taxes.

15 unchanged sentences

The resulting translation adjustments are recorded in accumulated other comprehensive income.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Gains and losses resulting from foreign currency transactions denominated in currency other than the functional currency are recorded at the approximate rate of exchange at the transaction date in other income, net.

For the years ended December 31, 2021, 2020 and 2019, we recorded net foreign currency losses that were $ 1.6 million, $ 1.1 million and insignificant, respectively.

For the year ended December 31, 2022, we recorded a net foreign currency gain of $ 4.6 million.

During the years ended December 31, 2021 and 2020, we recorded net foreign currency losses that were $ 1.6 million and $ 1.1 million, respectively.

Research and development

Research and development costs are expensed as incurred except as noted below under Software development costs .

Research and development costs are expensed as incurred except as noted below under Software and content development costs .

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

Software development costs

We incur certain costs associated with the development of internal-use software, which are primarily related to activities performed to develop our cloud solutions.

Internal and external costs incurred in the preliminary project stage of internal-use software development are expensed as incurred.

Once the software being developed has reached the application development stage, qualifying internal costs including payroll and payroll-related costs of employees who are directly associated with and devote time to the software project as well as external direct costs of materials and services are capitalized.

Capitalization ceases at the point at which the developed software is substantially complete and ready for its intended use, which is typically upon completion of all substantial testing.

Software and content development costs

We incur certain costs associated with the development of internal-use software and content, which are primarily related to activities performed to develop our cloud solutions and the development of online education curriculum to be delivered on the Company's cloud platform.

Internal and external costs incurred in the preliminary project stage of internal-use software development and content are expensed as incurred.

Once the software or content being developed has reached the application development stage, qualifying internal costs including payroll and payroll-related costs of employees who are directly associated with and devote time to the software or content project as well as external direct costs of materials and services are capitalized.

Capitalization ceases at the point at which the developed software or content is substantially complete and ready for its intended use, which is typically upon completion of all substantial testing.

Qualifying costs capitalized during the application development stage include those related to specific upgrades and enhancements when it is probable that those costs incurred will result in additional functionality.

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In addition, internal costs that cannot be reasonably separated between maintenance and relatively minor upgrades and enhancements are expensed as incurred.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Qualifying capitalized software development costs are amortized on a straight-line basis over the software asset's estimated useful life, which is generally 3 to 7 years.

In certain circumstances, content development costs are considered deferred costs, when ownership of developed content belongs to the customer.

Qualifying capitalized software and content development costs are amortized on a straight-line basis over the software asset's estimated useful life, which is generally 3 to 7 years.

We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

See Note 6 to these consolidated financial statements for a discussion of our impairment of certain capitalized software development costs during 2020.

There were no impairment charges related to capitalized software development costs during 2021 and 2019.

We write off the gross carrying amount and accumulated amortization balances for all fully amortized software development cost assets.

See Note 6 to these consolidated financial statements for a discussion of our impairment of certain capitalized software development costs during 2022 and 2020.

There were no impairment charges related to capitalized software or content development costs during 2021.

We write off the gross carrying amount and accumulated amortization balances for all fully amortized software and content development cost assets.

Allowance for credit losses

5 unchanged sentences

Provisions for credit losses are recorded in general and administrative expense.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Below is a summary of the changes in our allowance for credit losses.

6 unchanged sentences

4,011 6,787 ( 2,363 ) 581 9,016

(1) Upon adoption of ASU 2016-13 at January 1, 2020, we reclassified certain balances previously disclosed within the allowance for sales returns to the allowance for credit losses, as these amounts reflect the credit risk associated with our accounts receivable.

The amount reclassified was $ 2.1 million.

Our allowance for credit losses remained relatively unchanged during the year ended December 31, 2021.

Our allowance for credit losses decreased during the year ended December 31, 2022, primarily due to improvement in the aging of accounts receivable and write-offs during 2022 of aged receivables primarily generated during the COVID-19 pandemic.

The amount of write-offs during the year ended December 31, 2021 was higher than during 2020 as we temporarily suspended sending past due customer accounts to collections during the second and third quarters of 2020 due to payment delays related to COVID-19.

11 unchanged sentences

1,518 6,443 ( 6,685 ) 1,276

(1) As discussed above, we reclassified certain balances previously disclosed within the allowance for sales returns to the allowance for credit losses upon adoption of ASU 2016-13 at January 1, 2020.

The amount reclassified was $ 2.1 million.

Advertising costs

We expense advertising costs as incurred , which were $ 16.5 million, $ 7.1 million and $ 3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Restructuring costs

1 unchanged sentence

The liability for costs associated with exit or disposal activities is measured initially at fair value and only recognized when the liability is incurred.

For details of our restructuring activities, see Note 18 to these consolidated financial statements.

We determine if an arrangement is a lease at inception.

11 unchanged sentences

Variable lease payments, which are primarily comprised of common-area maintenance, utilities and real estate taxes that are passed on from the lessor in proportion to the space leased by us, are recognized in operating expenses in the period in which the obligation for those payments is incurred.

Contingencies

We are subject to the possibility of various loss contingencies in the normal course of business.

We record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Loss contingencies

We are subject to the possibility of various loss contingencies, including legal proceedings and claims, that arise in the normal course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described in Note 11 to these consolidated financial statements.

We record an accrual for a loss contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and the estimation of damages are difficult to ascertain.

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Although we believe we have substantial defenses in these matters, we could incur judgments or enter into settlements of claims that could have a material adverse effect on our consolidated financial position, results of operations or cash flows in any particular period.

Earnings per share

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

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

Diluted earnings per share reflect the assumed exercise, settlement and vesting of all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive.

(Loss) earnings per share

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

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

Diluted (loss) earnings per share reflect the assumed exercise, settlement and vesting of all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive.

Potentially dilutive securities consist of shares issuable upon the exercise of stock options and stock appreciation rights and vesting of restricted stock awards and units.

Business Combinations and Dispositions

2022 Disposition

Blackbaud FIMS™ and DonorCentral® NXT

On September 9, 2022, we sold our Foundation Information Management System ("FIMS") and DonorCentral NXT solutions to Fusion Laboratories, LLC for cash proceeds of approximately $ 6.4 million, subject to closing adjustments.

We expect the sale of these solutions to allow us to reduce complexity and focus on innovation within our core products as we execute our strategic growth plans.

During the year ended December 31, 2022, we recognized a noncash impairment charge of $ 2.0 million against certain insignificant FIMS customer relationship intangible assets that were then held for sale.

The impairment charge was recorded in general and administrative expense in our consolidated statements of comprehensive loss.

During the year ended December 31, 2022, we recognized an insignificant loss on the disposal of FIMS held for sale assets and liabilities.

2022 Acquisition

On August 19, 2022, we acquired all of the outstanding stock of Kilter, Inc., a Delaware corporation, pursuant to an agreement and plan of merger, for approximately $ 2.9 million in cash, subject to closing adjustments.

The acquisition of Kilter's mobile application will allow us to expand activity-based peer-to-peer fundraising engagement, to support activity-based health and wellness initiatives for socially responsible companies, and to grow the ways individuals can connect with the causes they care about most through the activities they love.

In addition to the consideration paid at closing, we may be required to pay up to a maximum of $ 3.0 million in additional cash consideration if during the two-year period commencing January 1, 2023 Kilter meets certain application participation targets.

A liability for the contingent consideration was recorded at its acquisition-date fair value of $ 2.7 million in other liabilities in our consolidated balance sheet.

Any change in the fair value of the contingent liability, or any change upon final settlement, will be recognized in income from operations.

Fair values were also assigned to the other assets acquired and liabilities assumed, primarily consisting of goodwill and a finite-lived developed technology intangible asset, which will be amortized over an estimated useful life of three years.

The fair values are based on our best estimates and assumptions as of the reporting date and are considered preliminary pending finalization.

Insignificant acquisition-related costs, which primarily consisted of legal services, were recorded as general and administrative expense during the year ended December 31, 2022.

2022 Form 10-K

1 unchanged sentence

Notes to Consolidated Financial Statements

Business Combinations

2021 Acquisition

On December 31, 2021, we acquired all of the outstanding equity securities, including all voting equity interests, of EVERFI, Inc., a Delaware corporation ("EVERFI"), pursuant to an agreement and plan of merger.

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

We acquired the equity securities for approximately $ 440.1 million in cash consideration and 3,844,423 shares of the company's common stock, valued at approximately $ 303.6 million, for an aggregate purchase price of approximately $ 743.8 million, subject to closing adjustments.

On December 31, 2021, we acquired all of the outstanding equity securities, including all voting equity interests, of EVERFI, Inc., a Delaware corporation, pursuant to an agreement and plan of merger.

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

We acquired the equity securities for approximately $ 441.8 million in cash consideration and 3,810,888 shares of our common stock, valued at approximately $ 301.0 million, for an aggregate purchase price of approximately $ 742.8 million, net of closing adjustments.

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

1 unchanged sentence

The operating results of EVERFI have been included in our consolidated financial statements from the date of acquisition.

During the year ended December 31, 2021, we incurred $ 2.9 million of acquisition-related expenses associated with the acquisition, which were recorded in general and administrative expense.

In accordance with applicable accounting rules, we determined that the impact of this acquisition was not material to our consolidated financial statements;

therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.

The fair values assigned to the assets acquired and liabilities assumed in the table below are based on our best estimates and assumptions as of the reporting date and are considered preliminary pending finalization.

The estimates and assumptions are subject to change as we obtain additional information during the measurement period, which may be up to one year from the acquisition date.

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

(in thousands) Purchase price allocation

Net working capital, excluding deferred revenue $ ( 3,279 )

Operating lease ROU assets 44,845

Other long-term assets 10,322

Identifiable intangible assets 457,449

Deferred tax liability ( 93,925 )

Deferred revenue ( 51,770 )

Operating lease liabilities, net of current portion ( 42,068 )

Other long-term liabilities ( 645 )

Goodwill 422,846

Total purchase price $ 743,775

The estimated fair value of accounts receivable acquired approximates the contractual value of $ 12.9 million and $ 14.7 million of EVERFI's historic carryover goodwill is deductible for income tax purposes.

The estimated goodwill recognized is attributable primarily to the opportunities for expected synergies from combining the operations and assembled workforce of EVERFI.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The EVERFI acquisition resulted in the identification of the following identifiable intangible assets:

Intangible assets acquired Weighted average amortization period

EVERFI (in thousands) (in years)

Developed technology $ 72,000 7

Customer relationships 326,649 16

Marketing assets 40,900 14

Content 17,900 9

Total intangible assets $ 457,449 14

The estimated fair values of the customer relationships, marketing assets, and a substantial portion of the developed technology were based on variations of the income approach, which estimates fair value based upon the present value of cash flows that the assets are expected to generate, and which included the relief-from-royalty method and multi-period excess earnings method, depending on the intangible asset being valued.

The estimated fair value of the content intangible asset and a small portion of the developed technology was based on the cost approach and included the replacement cost method.

The method of amortization of identifiable finite-lived intangible assets is based on the expected pattern in which the estimated economic benefits of the respective assets are consumed or otherwise used up.

Customer relationships, marketing assets and a substantial portion of the developed technology assets are being amortized on an accelerated basis.

A small portion of the developed technology and content assets are being amortized on a straight-line basis.

2019 Acquisition

On January 2, 2019, we acquired all of the outstanding equity securities, including all voting equity interests, of YourCause Holdings, LLC, a Delaware limited liability company ("YourCause"), pursuant to a purchase agreement and plan of merger.

The acquisition expanded our footprint in corporate social responsibility and employee engagement and enhanced our position as a leader in providing solutions to both nonprofit organizations and for-profit companies committed to addressing social issues.

We acquired the equity securities for an aggregate purchase price of $ 157.7 million in cash, net of closing adjustments.

The purchase price and related expenses were funded primarily through borrowings under the 2017 Credit Facility (as defined below).

As a result of the acquisition, YourCause became a wholly owned subsidiary of ours.

We finalized the purchase price allocation of YourCause, including the valuation of assets acquired and liabilities assumed, during the fourth quarter of 2019.

All measurement period adjustments were insignificant.

During the year ended December 31, 2021, we incurred insignificant acquisition-related expenses associated with the acquisition, which were recorded in general and administrative expense.

In accordance with applicable accounting rules, we determined that the impact of this acquisition was not material to our consolidated financial statements;

therefore, revenue and earnings since the acquisition date and pro forma information are not required or presented.

We finalized the purchase price allocation of EVERFI, including the valuation of assets acquired and liabilities assumed, during the fourth quarter of 2022.

Goodwill and Other Intangible Assets

The change in our goodwill during 2021 consisted of the following:

The change in goodwill during 2022 consisted of the following:

(dollars in thousands) Total

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

Additions related to current year business combinations 422,846

Additions related to business combination (1)

Adjustments related to prior year business combination (2)

Adjustments related to dispositions (3)

Effect of foreign currency translation ( 7,245 )

Balance at December 31, 2022 $ 1,050,272

(1) See Note 3 to these consolidated financial statements for a discussion of our acquisition of Kilter.

(2) See Note 3 to these consolidated financial statements for a discussion of the measurement period adjustments during the year ended December 31, 2022 to the estimated fair value of the EVERFI assets acquired and liabilities assumed.

(3) See Note 3 to these consolidated financial statements for a summary of our disposition of Blackbaud FIMS and DonorCentral NXT.

2022 Form 10-K

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Developed technology ( 46,571 ) ( 54,013 )

Content ( 1,989 ) —

Total accumulated amortization ( 203,879 ) ( 212,540 )

Intangible assets, net $ 635,136 $ 698,052

During the year ended December 31, 2021, changes to the gross carrying amounts of intangible asset classes were primarily related to our acquisition of EVERFI as described in Note 3 to these consolidated financial statements, write-offs of fully amortized intangible assets and the effect of foreign currency translation.

During the year ended December 31, 2019, we recorded an impairment charge of $ 0.9 million against an acquired marketing asset that reduced the carrying value of the asset to zero.

The impairment charge resulted from our decision during the year to rebrand the solution to which the asset related.

This impairment charge was recorded as amortization on our consolidated statements of comprehensive income.

During the year ended December 31, 2022, changes to the gross carrying amounts of intangible asset classes were primarily related to our business acquisitions and disposals as described in Note 3 to these consolidated financial statements, write-offs of fully amortized intangible assets and the effect of foreign currency translation.

Amortization expense

16 unchanged sentences

Total $ 306,663

Earnings Per Share

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

(Loss) Earnings Per Share

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

Years ended December 31,

(dollars in thousands, except per share amounts) 2022 2021 2020

Net income $ 5,698 $ 7,717 $ 11,908

Net (loss) income $ ( 45,407 ) $ 5,698 $ 7,717

Weighted average common shares 51,569,148 47,412,306 48,184,714

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Weighted average common shares assuming dilution 51,569,148 48,230,438 48,696,341

Earnings per share:

(Loss) earnings per share:

Basic $ ( 0.88 ) $ 0.12 $ 0.16

Diluted $ ( 0.88 ) $ 0.12 $ 0.16

Anti-dilutive shares excluded from calculations of diluted earnings per share 974,110 956,303 241,336

Anti-dilutive shares excluded from calculations of diluted (loss) earnings per share 1,046,307 974,110 956,303

Diluted loss per share for the year ended December 31, 2022 was the same as basic loss per share as there was a net loss in the period and inclusion of potentially dilutive securities was anti-dilutive.

2022 Form 10-K

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Recurring fair value measurements

Assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below:

Financial assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below:

Fair value measurement using

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

(dollars in thousands) Quoted Prices in Active Markets for Identical Assets and Liabilities

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Total

Fair value as of December 31, 2022

Financial assets:

Derivative instruments:

Interest rate swaps $ — $ 31,870 $ — $ 31,870

Foreign currency forward contracts — 247 — 247

Total financial assets $ — $ 32,117 $ — $ 32,117

Fair value as of December 31, 2022

Financial liabilities:

Derivative instruments:

Foreign currency forward contracts $ — $ 323 $ — $ 323

Contingent consideration obligations — — 2,710 2,710

Total financial liabilities $ — $ 323 $ 2,710 $ 3,033

Fair value as of December 31, 2021

Derivative instruments:

Interest rate swaps $ — $ 7,160 $ — $ 7,160

Total financial assets $ — $ 7,160 $ — $ 7,160

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

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

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

Accordingly, our interest rate swaps are classified within Level 2 of the fair value hierarchy.

The Financial Conduct Authority in the U.K.

has stated that it plans to phase out all tenors of LIBOR by June 2023.

We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as we expect that our financial contracts currently indexed to LIBOR will either expire or be modified without significant financial impact before the phase out occurs.

Our derivative instruments that are recorded at fair value include interest rate swaps and foreign currency forward contracts.

See Note 10 to these consolidated financial statements for additional information about our derivative instruments.

The fair value of our interest rate swaps and foreign currency forward contracts are based on model-driven valuations using Secured Overnight Financing Rate ("SOFR") rates and foreign currency forward rates, respectively, which are observable at commonly quoted intervals.

Accordingly, our interest rate swaps and foreign currency forward contracts are classified within Level 2 of the fair value hierarchy.

Our financial contracts that were indexed to LIBOR were modified to reference SOFR during the three months ended September 30, 2022.

These modifications did not have a significant financial impact.

Contingent consideration obligations arise from business acquisitions.

The fair values are based on discounted cash flow analyses reflecting a probability-weighted assessment approach derived from the likelihood of possible achievement of specified performance measures or events and captures the contractual nature of the contingencies, commercial risk, and the time value of money.

As the fair value measurements for our contingent consideration obligations contain significant unobservable inputs, they are classified within Level 3 of the fair value hierarchy.

See Note 3 to these consolidated financial statements for additional information about our contingent consideration obligations.

We believe the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at December 31, 2022 and December 31, 2021, due to the immediate or short-term maturity of these instruments.

We believe the carrying amount of our debt approximates its fair value at December 31, 2021 and December 31, 2020, as the debt bears interest rates that approximate market value.

As LIBOR rates are observable at commonly quoted intervals, our debt under the 2020 Credit Facility (as defined below) is classified within Level 2 of the fair value hierarchy.

Our fixed rate debt is classified within Level 2 of the fair value hierarchy.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the years ended December 31, 2021, 2020 and 2019.

Additionally, we did not hold any Level 3 assets or liabilities during the years ended December 31, 2021, 2020 and 2019.

2022 Form 10-K

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Notes to Consolidated Financial Statements

We believe the carrying amount of our debt approximates its fair value at December 31, 2022 and December 31, 2021, as the debt bears interest rates that approximate market value.

As SOFR and LIBOR rates are observable at commonly quoted intervals, our debt under the 2020 Credit Facility (as defined below) is classified within Level 2 of the fair value hierarchy.

Our fixed rate debt is also classified within Level 2 of the fair value hierarchy.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the years ended December 31, 2022, 2021 and 2020.

Non-recurring fair value measurements

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For goodwill impairment testing, we estimate fair value using market-based methods including the use of market capitalization and consideration of a control premium.

As more fully described in Note 7 and Note 11 to these consolidated financial statements, during the year ended December 31, 2021, we recorded impairment charges of $ 1.7 million against certain property and equipment assets and $ 3.6 million against our operating lease ROU assets.

During the year ended December 31, 2020, we recorded impairment charges of $ 4.3 million against certain previously capitalized software development costs and $ 4.0 million against our operating lease ROU assets.

As more fully described in Note 7 and Note 11 to these consolidated financial statements, during the year ended December 31, 2022, we recorded noncash impairment charges of $ 2.3 million against certain previously capitalized software development costs, $ 2.0 million against certain insignificant customer relationship intangible assets that were held for sale, $ 1.0 million against certain operating lease ROU assets and insignificant impairment charges against certain property and equipment assets.

During the year ended December 31, 2021, we recorded impairment charges of $ 1.7 million against certain property and equipment assets and $ 3.6 million against certain operating lease ROU assets.

See Notes 7 and 11, respectively, to these consolidated financial statements for additional details.

During the year ended December 31, 2019, we recorded impairment charges of $ 3.8 million against our operating lease ROU assets, $ 1.4 million against certain property and equipment assets and $ 0.9 million against certain finite-lived intangible assets.

See Notes 7 and 11, respectively, to these consolidated financial statements for additional details.

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

Property and Equipment and Software Development Costs

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Property and Equipment and Software and Content Development Costs

Property and equipment

5 unchanged sentences

Building improvements

10,874 10,874

Equipment 1 - 5

9 unchanged sentences

Property and equipment, net $ 107,426 $ 111,428

(1) Upon acquisition of our global headquarters facility in August 2020, we reclassified related leasehold improvement costs of $ 5.5 million to building improvements given the acquisition of the underlying assets.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Depreciation expense was $ 14.1 million, $ 14.4 million and $ 19.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

During the year ended December 31, 2022, we recorded insignificant noncash impairment char ges against certain property and equipment assets.

These impairment charges resulted primarily from our decision to cease using a portion of our leased office space and are reflected in general and administrative expense on the statements of comprehensive income.

During the year ended December 31, 2021, we recorded impairment char ges of $ 1.7 million against certain property and equipment assets.

These impairment charges resulted primarily from our decision to close our Austin office.

This impairment charge is reflected in general and administrative expense on the statements of comprehensive income.

During the year ended December 31, 2019, we recorded impairment charges of $ 1.4 million against certain property and equipment assets that reduced the carrying value of the assets to zero.

These impairment charges are reflected in restructuring on the statements of comprehensive income and resulted primarily from our facilities optimization restructuring as we wrote-off facilities-related fixed assets that we would no longer use.

See Note 18 to these consolidated financial statements for additional details regarding our facilities optimization restructuring.

Software development costs

Software development costs consisted of the following as of:

These impairment charges resulted primarily from our decision to close our Austin office and are reflected in general and administrative expense on the statements of comprehensive income.

Software and content development costs

Software and content development costs consisted of the following as of:

(years) December 31,

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$ 250,551 $ 196,337

Content development costs

accumulated amortization ( 112,937 ) ( 74,960 )

Software development costs, net $ 121,377 $ 111,827

During the year ended December 31, 2020, we recorded an impairment charge of $ 4.3 million against certain previously capitalized software development costs that reduced the carrying value of those assets to zero.

The impairment charge was reflected in cost of recurring revenue and resulted primarily from our decision to accelerate the end of customer support for certain solutions.

Other changes to the gross carrying amount of software development costs were primarily related to qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance such as those for our cloud solutions, write-offs of fully amortized assets, and the effect of foreign currency translation.

Amortization expense related to software development costs was $ 31.0 million, $ 31.7 million and $ 20.7 million for the years ended December 31, 2021, 2020 and 2019, respectively, and is included primarily in cost of recurring.

Software and content development costs, net

$ 141,023 $ 121,377

During the years ended December 31, 2022 and 2020, we recorded noncash impairment charges of $ 2.3 million and $ 4.3 million, respectively, against certain previously capitalized software development costs that reduced the carrying value of those assets to zero.

The impairment charges were reflected in general and administrative expense and cost of recurring revenue, respectively, on the statements of comprehensive income.

These impairment charges resulted primarily from our decision to accelerate the end of customer support for certain solutions.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Other changes to the gross carrying amount of software and content development costs were primarily related to qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance such as those for our cloud solutions and online education curriculum, write-offs of fully amortized assets, and the effect of foreign currency translation.

Amortization expense related to software and content development costs was $ 36.8 million, $ 31.0 million and $ 31.7 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is included primarily in cost of recurring.

Consolidated Financial Statement Details

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Letters of credit for operating leases — 2,186

Real estate escrow balances 1,064 1,276

Real estate escrow balances and other 1,629 1,134

Total restricted cash $ 702,240 $ 596,616

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Prepaid expenses and other assets

5 unchanged sentences

34,766 28,880

Receivables for probable insurance recoveries (4)

Derivative instruments 32,117 7,160

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

10,189 11,892

Derivative instruments 7,160 —

Unbilled accounts receivable 5,775 5,443

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Deferred tax assets 1,153 1,546

Receivables for probable insurance recoveries (6)(7)

Other assets 10,929 11,835

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(3) The current portion of prepaid software maintenance and subscriptions as of December 31, 2022 and December 31, 2021 was $ 31.7 million and $ 24.7 million, respectively.

(4) See discussion of the Security Incident at Note 11 to these consolidated financial statements.

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

(6) Amortization expense from capitalized cloud computing implementation costs was $ 1.9 million, $ 0.8 million and insignificant for the years ended December 31, 2021, 2020 and 2019, respectively.

(5) Amortization expense from capitalized cloud computing implementation costs was $ 2.2 million, $ 1.9 million and $ 0.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Accumulated amortization for these costs was $ 5.2 million and $ 3.0 million as of December 31, 2022 and 2021, respectively.

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

(7) See discussion of the Security Incident at Note 11 to these consolidated financial statements.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Accrued expenses and other liabilities

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2022 December 31,

Accrued legal costs (1)

$ 28,448 $ 11,724

Taxes payable (2)

16,667 19,777

Amounts payable to former EVERFI option holders (2)

Accrued legal costs (3)

Operating lease liabilities, current portion 9,170 9,359

Customer credit balances 8,257 8,403

Operating lease liabilities, current portion 7,723 9,170

Accrued commissions and salaries 6,944 7,872

Accrued bonuses 5,829 —

Accrued transaction-based costs related to payments services 5,059 5,427

Contingent consideration liability (3)

Accrued health care costs 2,467 3,042

Accrued vacation costs 2,156 2,234

Accrued bonuses 2,026 5,829

Unrecognized tax benefit 266 1,248

Derivative instruments — 4,159

Amounts payable to former EVERFI option holders (4)

Other liabilities 7,573 9,310

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Accrued expenses and other current liabilities $ 86,002 $ 100,096

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

(2) We deferred payments of the employer's portion of Social Security taxes during 2020 under the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), half of which was due by the end of calendar year 2021 with the remainder due by the end of calendar year 2022.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

(2) Represents amounts not yet 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.

(3) See discussion of our acquisition of Kilter at Note 3 to these consolidated financial statements.

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

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

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

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

See Note 11 to these consolidated financial statements.

Deferred revenue

(dollars in thousands) December 31,

2021 December 31,

Recurring $ 360,890 $ 303,840

One-time services and other 17,856 13,074

Total deferred revenue 378,746 316,914

Long-term portion 4,247 4,678

Deferred revenue, current portion $ 374,499 $ 312,236

Other income, net

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Interest income $ 1,746 $ 392 $ 1,660

Other (expense) income, net ( 212 ) ( 2 ) 1,256

Currency revaluation gains (losses) 4,635 ( 1,644 ) ( 1,065 )

Other income, net 2,332 1,432 1,063

Other income, net $ 8,713 $ 180 $ 1,658

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table summarizes our debt balances and the related weighted average effective interest rates, which includes the effect of interest rate swap agreements.

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a dollar and a designated currency revolving credit facility with sublimits for letters of credit, swingline loans and multicurrency borrowings (the “2017 Revolving Facility”) and a term loan (the “2017 Term Loan”) together, (the “2017 Credit Facility”).

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

In October 2020, we entered into a 5 -year $ 900.0 million Amended and Restated Credit Agreement (the “2020 Credit Facility”).

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Our obligations under the 2020 Credit Facility are secured by the stock and limited liability company interests of certain of our direct subsidiaries and any of our material domestic subsidiaries, if any, and the proceeds therefrom pledged pursuant to an Amended and Restated Pledge Agreement dated as of October 30, 2020, by us in favor of Bank of America, N.A., as administrative agent, for the ratable benefit of itself and the secured parties referred to therein.

Dollar tranche loans under the 2020 Revolving Facility and 2020 Term Loan bear interest at a rate per annum equal to (a) a base rate equal to the highest of (i) the Federal Funds Rate plus 0.50 %, (ii) the prime rate announced by Bank of America, N.A., and (iii) the Eurocurrency Rate (which varies depending on the currency in which the loan is denominated) plus 1.00 % (the “Base Rate”), plus (b) an applicable margin as specified in the 2020 Credit Facility (the “Applicable Margin”).

Each Eurocurrency Rate Loan under the 2020 Credit Facility shall bear interest at a rate per annum equal to the Eurocurrency Rate, plus the Applicable Margin.

The Applicable Margin shall be adjusted quarterly, varies based on our net leverage ratio and varies based on whether the loan is a Base Rate Loan ( 0.375 % to 1.125 %) or a Eurocurrency Rate Loan ( 1.375 % to 2.125 %).

We also pay a quarterly commitment fee on the unused portion of the 2020 Revolving Facility from 0.250 % to 0.375 % per annum, depending on our net leverage ratio.

At December 31, 2021, the commitment fee was 0.25 %.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The term loan under the 2020 Credit Facility requires periodic principal payments.

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

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Under the terms of the 2020 Credit Facility, we are entitled on one or more occasions, subject to the satisfaction of certain conditions, to request an increase in the commitments under the Revolving Credit Facility and/or request additional incremental term loans in the aggregate principal amount of up to $ 250.0 million plus an amount, if any, such that the net leverage ratio shall be no greater than 3.25 to 1.00.

At December 31, 2022, our available borrowing capacity under the 2020 Credit Facility was $ 319.8 million.

First Amendment to 2020 Credit Facility

On January 31, 2022, we entered into the First Amendment to Credit Agreement (the “Amendment”).

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

LIBOR Transition Amendment

On August 26, 2022, we entered into a LIBOR Transition Amendment (the "LIBOR Amendment").

The LIBOR Amendment amended the 2020 Credit Facility, as previously amended, to change the interest rate benchmark from LIBOR to SOFR (as defined therein).

The LIBOR Amendment did not change any terms of the 2020 Credit Facility unrelated to reference rate reform.

After giving effect to both the First Amendment and the LIBOR Transition Amendment, dollar denominated loans under the 2020 Revolving Facility and the 2020 Term Loan bear interest based on, at our election, either (a) the Base Rate (as defined below) or (b) Term SOFR (as defined below), in each case, plus an applicable margin.

"Base Rate" is defined as a rate per annum equal to the highest of (i) the Federal Funds Rate plus 0.50 %, (ii) the prime rate announced by Bank of America, N.A., and (iii) Term SOFR plus 1.00 %.

"Term SOFR" is defined as a rate per annum equal to the forward-looking term rate based on the secured overnight financing rate plus a credit sensitive adjustment of 0.11448 % for a one month tenor, 0.26161 % for a three month tenor or 0.42826 % for a six month tenor, as applicable, in each case, per annum.

The applicable margin is adjusted quarterly based on our net leverage ratio and ranges from 0.375 % to 1.50 % for Base Rate loans and 1.375 % to 2.50 % for Term SOFR loans, in each case, per annum.

Sterling denominated loans under the 2020 Revolving Facility bear interest based on SONIA plus an applicable margin.

"SONIA" is defined as a rate per annum equal to the Sterling Overnight Index Average Reference Rate published on the fifth Business Day preceding such date on the applicable Reuters screen page plus a credit sensitive adjustment of 0.0326 % per annum.

The applicable margin is adjusted quarterly based on our net leverage ratio and ranges from 1.375 % to 2.50 % per annum.

We also pay a quarterly commitment fee on the unused portion of the 2020 Revolving Facility from 0.250 % to 0.50 % per annum, depending on our net leverage ratio.

At December 31, 2022, the applicable margin for Term SOFR, SONIA and other Eurocurrency Rate loans under the 2020 Credit Facility was 2.125 % and the commitment fee applicable to the 2020 Revolving Facility was 0.375 %.

First Incremental Term Loan

In December 2021, we entered into the First Incremental Term Loan Agreement (the "Incremental Amendment").

On December 31, 2021, we entered into the First Incremental Term Loan Agreement (the "Incremental Amendment").

The Incremental Amendment amends the 2020 Credit Facility and, among other things, provides for a $ 250.0 million incremental term loan (the “2021 Incremental Term Loan”).

The 2021 Incremental Term Loan bears interest at a rate per annum equal to, at the option of the Company:

(a) a base rate equal to the highest of (i) the Federal Funds Rate plus 0.50 %, (ii) the prime rate announced by Bank of America, N.A., and (iii) the Daily SOFR rate plus 1.00 % (the “Base Rate”), plus an applicable margin as specified in the Incremental Amendment (the “Applicable Margin”);

(b) the Daily SOFR rate plus a SOFR adjustment rate as specified in the Incremental Amendment (the “SOFR Adjustment”) plus the Applicable Margin;

or (c) the Term SOFR rate plus the SOFR Adjustment plus the Applicable Margin.

The Applicable Margin shall be adjusted quarterly, varies based on our net leverage ratio and varies based on whether the loan is a Base Rate loan ( 0.375 % to 1.50 %) or a SOFR Rate loan ( 1.375 % to 2.50 %).

The SOFR Adjustment varies based on the applicable interest period and equals 0.10 % for Daily SOFR loans and for Term SOFR loans with a one-month interest period, 0.15 % for Term SOFR loans with a three-month interest period and 0.25 % for Term SOFR loans with a six-month interest period.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The 2021 Incremental Term Loan bears interest based on, at our election, either (a) the Base Rate (2021 Incremental) (as defined below), (b) Daily SOFR Rate (as defined below) or (c) Term SOFR (2021 Incremental) (as defined below), in each case, plus an applicable margin.

"Base Rate (2021 Incremental)" is defined as a rate per annum equal to the highest of (i) the Federal Funds Rate plus 0.50 %, (ii) the prime rate announced by Bank of America, N.A., and (iii) Daily SOFR Rate plus 1.00 %.

“Daily SOFR Rate” is defined as a rate per annum equal to secured overnight financing rate plus a credit sensitive adjustment of 0.10 %.

"Term SOFR (2021 Incremental)" is defined as a rate per annum equal to the forward-looking term rate based on the secured overnight financing rate plus a credit sensitive adjustment of 0.10 % for a one month tenor, 0.15 % for a three month tenor or 0.25 % for a six month tenor, as applicable, in each case, per annum.

The applicable margin is adjusted quarterly based on our net leverage ratio and ranges from 0.375 % to 1.50 % for Base Rate (2021 Incremental) loans and 1.375 % to 2.50 % for Daily SOFR Rate loans and Term SOFR (2021 Incremental) loans, in each case, per annum.

The 2021 Incremental Term Loan matures in October 2025, which is the maturity date of the existing term loan under the 2020 Credit Facility, and is otherwise subject to substantially the same terms and conditions as the existing term loan under the 2020 Credit Facility.

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Financing for EVERFI acquisition

On December 31, 2021, we acquired EVERFI for approximately $ 440.1 million in cash consideration and 3,844,423 shares of the company's common stock, valued at approximately $ 303.6 million, for an aggregate purchase price of approximately $ 743.8 million, subject to closing adjustments.

On December 31, 2021, we acquired EVERFI for approximately $ 441.8 million in cash consideration and 3,810,888 shares of the company's common stock, valued at approximately $ 301.0 million, for an aggregate purchase price of approximately $ 742.8 million, net of closing adjustments.

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

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Real estate loans

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Interest associated with the notes is imputed at the rate we would incur for amounts borrowed under our then-existing credit facility at the inception of the notes.

Our assumption of these loans are noncash financing transactions and are reflected in our supplemental disclosure of cash flow information.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table summarizes our currently effective financing agreements as of December 31, 2022:

5 unchanged sentences

December 2019 51 4 January 2020 $ 2,150

January 2020 39 3 March 2020 3,470

December 2022 39 3 January 2023 1,710

As of December 31, 2022, the required annual maturities related to the 2020 Credit Facility, the Real Estate Loans and our other debt were as follows:

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Derivative Instruments

We generally use derivative instruments to manage our interest rate and foreign currency exchange risk.

We currently have derivatives classified as cash flow hedges and net investment hedges.

We do not enter into any derivatives for trading or speculative purposes.

All of our derivative instruments are governed by International Swap Dealers Association, Inc.

("ISDA") master agreements with our counterparties.

As of December 31, 2022 and December 31, 2021, we have presented the fair value of our derivative instruments at the gross amounts in the consolidated balance sheet as the gross fair values of our derivative instruments equaled their net fair values.

Cash flow hedges

We generally use derivative instruments to manage our variable interest rate risk.

We have entered into interest rate swap agreements, which effectively convert portions of our variable rate debt under the 2020 Credit Facility to a fixed rate for the term of the swap agreements.

We designated each of the interest rate swap agreements as a cash flow hedge at the inception of the contracts.

We designated each of the interest rate swaps as cash flow hedges at the inception of the contracts.

As of December 31, 2022 and December 31, 2021, the aggregate notional values of the interest rate swaps were $ 435.0 million.

All of the contracts have maturities on or before October 2024.

During the three months ended September 30, 2022, we entered into foreign currency forward contracts to hedge revenues denominated in the Canadian Dollar ("CAD") against changes in the exchange rate with the United States Dollar ("USD").

We designated each of the forwards as cash flow hedges at the inception of the contracts.

As of December 31, 2022, the aggregate notional values of the foreign currency forward contracts designated as cash flow hedges that we held to buy USD in exchange for Canadian Dollars were $ 22.6 million CAD.

All of the contracts have maturities of 12 months or less.

We did not have foreign currency forward contracts as of December 31, 2021.

Net investment hedges

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 ("GBP") into USD.

We designated each of these foreign currency forward contracts as net investment hedges at the inception of the contracts.

As of December 31, 2022, we had £ 11.2 million of foreign currency forward contracts designated as net investment hedges to reduce the volatility of the U.S.

dollar value of a portion of our GBP-denominated investments.

2022 Form 10-K

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Notes to Consolidated Financial Statements

The terms and notional values of our derivative instruments were as follows as of December 31, 2021:

(dollars in thousands) Term of derivative instrument Notional

Derivative instruments designated as hedging instruments:

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

Interest rate swap November 2020 - October 2024 60,000

Interest rate swap June 2021 - October 2024 120,000

Interest rate swap July 2021 - October 2024 120,000

Interest rate swap July 2021 - October 2024 75,000

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

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Derivative instruments designated as hedging instruments:

Interest rate swaps, current portion Prepaid expenses

Foreign currency forward contracts, current portion

Prepaid expenses

and other current assets $ 247 $ — Accrued expenses

and other current liabilities $ 323 $ —

Interest rate swaps,

long-term portion

Interest rate swaps, long-term

Other assets 31,870 7,160 Other liabilities — —

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comprehensive

loss as of Location

of gain (loss)

2 unchanged sentences

comprehensive

loss into income Gain (loss) reclassified from accumulated

other comprehensive loss into income

(loss) income

Gain (loss) reclassified from accumulated

other comprehensive income into (loss) income

(dollars in thousands) December 31,

1 unchanged sentence

December 31, 2022

Cash Flow Hedges

Interest rate swaps $ 31,870 Interest expense $ 5,520

Foreign currency forward contracts $ 247 Revenue $ 165

Net Investment Hedge

Foreign currency forward contracts $ ( 323 ) $ —

2021 Year ended

December 31, 2021

Cash Flow Hedges

Interest rate swaps $ 7,160 Interest expense $ ( 3,714 )

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Interest rate swaps $ ( 4,159 ) Interest expense $ ( 3,827 )

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit.

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

The estimated accumulated other comprehensive income as of December 31, 2021 that is expected to be reclassified into earnings within the next twelve months is insignificant.

There were no ineffective portions of our interest rate swap derivatives during the years ended December 31, 2021, 2020 and 2019.

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

For net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to translation adjustment, a component of accumulated other comprehensive income (loss), and recognized in earnings only when the hedged GBP investment is liquidated.

The estimated accumulated other comprehensive income as of December 31, 2022 that is expected to be reclassified into earnings within the next twelve months is $ 19.5 million.

There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the years ended December 31, 2022, 2021 and 2020.

See Note 14 to these consolidated financial statements for a summary of the changes in accumulated other comprehensive income (loss) by component.

We classify cash flows related to derivative instruments as operating activities in the consolidated statements of cash flows.

We did no t have any undesignated derivative instruments during 2022, 2021 and 2020.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Commitments and Contingencies

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In August 2020, we completed the purchase of our global headquarters facility that we previously leased.

As of December 31, 2021, we did not have any operating leases that had not yet commenced.

As of December 31, 2022, we had operating leases for equipment that had not yet commenced with future rent payments of $ 3.1 million.

These operating leases are expected to commence during 2023 with lease terms of 3 years.

With the acquisition of EVERFI, we assumed a lease for office space in Washington, D.C.

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

During the twelve months ended December 31, 2022, we recorded noncash impairment charges of $ 1.0 million against certain operating lease ROU assets resulting primarily from our decision to cease using a portion of our leased office space.

These charges are reflected in general and administrative expense on the statements of comprehensive income.

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

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Notes to Consolidated Financial Statements

During the twelve months ended December 31, 2019, we recorded $ 3.8 million in impairments of operating lease ROU assets associated with certain leased office spaces we ceased using as part of our facilities optimization restructuring.

These impairments, which were based on our estimates about our inability to sublease the office spaces, were recorded as restructuring expense on our consolidated statements of comprehensive income.

See Note 18 to these consolidated financial statements for additional details regarding our facilities optimization restructuring.

Maturities of our operating lease liabilities as of December 31, 2022 were as follows:

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Total operating lease liabilities $ 52,641 $ 62,556

The increase in operating lease ROU assets and operating lease liabilities during 2021 was primarily due to leases for office space we assumed with our acquisition of EVERFI.

See Note 3 to these consolidated financial statements for details.

The weighted average remaining lease terms and discount rates were as follows:

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(1) The 2020 amount was revised to correct an immaterial disclosure error in the previously filed consolidated financial statements.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Other commitments

2 unchanged sentences

The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our solutions or services.

If we determine that it is probable that a loss has been incurred related to solution or service indemnifications, any such loss that could be reasonably estimated would be recognized.

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

We have not identified any losses that might be covered by these indemnifications

Legal proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and inquiries, as described below.

We make a provision for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated.

We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described below.

We record an accrual for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated.

If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome;

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If such a loss or range of losses is not reasonably estimable, we disclose that fact.

We review any such loss contingency provisions at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

We review any such loss contingency accruals at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

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

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As previously disclosed, we are subject to risks and uncertainties as a result of a ransomware attack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment (the "Security Incident").

Based on the nature of the Security Incident, our research and third party (including law enforcement) investigation, we have 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.

Based on the nature of the Security Incident, our research and third party (including law enforcement) investigation, we do not believe that any data went beyond the cybercriminal, has been misused, or has been disseminated or otherwise made available publicly.

Our investigation into the Security Incident by our cybersecurity team and third-party forensic advisors remains ongoing.

As a result of the Security Incident, we are currently subject to certain legal proceedings, claims, inquiries and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, inquires and investigations in the future that might result in adverse judgments, settlements, fines, penalties, or other resolution.

As a result of the Security Incident, we are currently subject to certain legal proceedings, claims and investigations, as discussed below, and could be the subject of additional legal proceedings, claims, inquiries and investigations in the future that might result in adverse judgments, settlements, fines, penalties or other resolution.

To limit our exposure to losses related to claims against us, including data breaches such as the Security Incident, we maintain $ 50 million of insurance abo ve a $ 250 thousand deductible payable by us.

As noted below, this coverage has reduced our financial exposure related to the Security Incident, and we will continue to seek recoveries under these insurance policies.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

As noted below, this coverage has reduced our financial exposure related to the Security Incident.

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

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Gross expense $ 57,614 $ 40,561 $ 9,830

$ 40,560 $ 9,831

Offsetting probable insurance recoveries ( 1,891 ) ( 38,745 ) ( 9,364 )

Net expense $ 55,723 $ 1,816 $ 466

(1) The 2020 amount has been revised to exclude costs associated with enhancements to our cybersecurity program.

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

(dollars in thousands) December 31,

2022 December 31,

2021 December 31, 2020

Cumulative gross expense $ 108,005 $ 50,391 $ 9,830

$ 50,391 $ 9,831

Cumulative offsetting insurance recoveries ( 48,109 ) ( 9,363 )

Cumulative offsetting insurance recoveries recognized ( 50,000 ) ( 48,109 ) ( 9,364 )

Cumulative net expense $ 58,005 $ 2,282 $ 466

Cumulative offsetting insurance recoveries paid $ ( 50,000 ) $ ( 29,968 ) $ ( 3,075 )

(1) The 2020 amount has been revised to exclude costs associated with enhancements to our cybersecurity program.

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

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

Recorded expenses have 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 the expenses discussed above were costs associated with enhancements to our cybersecurity program.

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

Based on our review of expenses incurred to date, total costs related to the Security Incident have exceeded the limit of our insurance coverage during the first quarter of 2022.

We expect to continue to experience significant expenses related to our response to the Security Incident, resolution of legal proceedings, claims, inquiries and investigations discussed below, and our efforts to further enhance our security measures.

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

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

Based on our analysis of the factors described above, we have not recorded a liability for a loss contingency related to the Security Incident as of December 31, 2021 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Total costs related to the Security Incident exceeded the limit of our insurance coverage during the first quarter of 2022.

We expect to continue to experience significant expenses related to our response to the Security Incident, resolution of legal proceedings, claims and investigations, including those discussed below, and our efforts to further enhance our cybersecurity measures.

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.

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

For full year 2023, we currently expect net pre-tax expense of approximately $ 20.0 million to $ 30.0 million and net cash outlays of approximately $ 25.0 million to $ 35.0 million for ongoing legal fees related to the Security Incident.

As of December 31, 2022, we have recorded approximately $ 23.0 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain governmental agencies related to the Security Incident that we believe we can reasonably estimate.

It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially 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 December 31, 2022 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Each of these matters could, separately or in the aggregate, result in an adverse judgement, settlement, fine, penalty or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.

Customer claims.

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

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

Of the Customer Reimbursement Requests received to date, approximately 180 have been fully resolved and closed.

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

One insurance company has filed a subrogation claim in court.

To date, we have received approximately 260 specific requests for reimbursement of expenses, approximately 200 (or 77 %) of which have been fully resolved and closed.

We have also received 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 claims 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.

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If these procedural requirements are not met, the lawsuit cannot proceed as a class action and the plaintiff may lose the financial incentive to proceed with the case.

We are currently engaged in court proceedings to determine whether this will proceed as a class action.

Frequently, a court’s determination as to these procedural requirements is subject to appeal to a higher court.

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

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

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

Generally, class actions involve a large number of people and raise complex legal and factual issues that result in uncertainty as to their outcome and, ultimately, making it difficult for us to estimate the amount of damages that a plaintiff might successfully prove.

This analysis is further complicated by the fact that the plaintiffs lack contractual privity with us.

Governmental inquiries and investigations.

To date, we 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.

Governmental investigations.

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

We have been in discussions, directly with certain Attorneys General or indirectly through an executive committee of the multi-state group of Attorneys General, about potential resolution of issues arising from these investigations.

Although we are hopeful that we can resolve these matters on acceptable terms, there is no assurance that we will be able to do so on terms acceptable to us and to any or all such states.

We also are subject to the following pending governmental actions:

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• an investigation by the Office of the Privacy Commissioner of Canada.

We have been in discussions with the SEC Staff about potential resolution of issues arising from their investigation.

Although we are hopeful that we can resolve the matter on acceptable terms, there is no assurance that we will be able to resolve the matter on terms acceptable to us and the SEC.

On September 28, 2021, the Information Commissioner’s Office in the United Kingdom under the U.K.

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

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

As noted above, each of these separate governmental inquiries and investigations could result in adverse judgements, settlements, fines, penalties, or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows, or financial condition.

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

As noted above, each of these separate governmental investigations could result in adverse judgements, settlements, fines, penalties or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.

2022 Form 10-K

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federal income tax examination for calendar tax years 2019 through 2022 as well as state and foreign income tax examinations for various years depending on statutes of limitations of those jurisdictions.

We entered into settlement with the IRS Appeals Office in relation to one of our uncertain tax positions which resulted in release of the corresponding liability for uncertain tax position.

The following summarizes the components of income tax expense (benefit):

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Total deferred taxes ( 26,644 ) ( 2,429 ) 8,837

Total income tax provision (benefit) $ 1,385 $ 13,897 $ ( 1,323 )

Total income tax (benefit) provision $ ( 10,168 ) $ 1,385 $ 13,897

The following summarizes the components of income before provision for income taxes:

14 unchanged sentences

Change in state income tax rate applied to deferred tax balances 1.8 2.3 0.1

Nondeductible security incident-related fines or penalties

Section 162(m) limitation ( 6.4 ) 75.0 17.5

Stock-based compensation ( 6.3 ) ( 36.2 ) ( 1.2 )

Change in valuation reserve (primarily state credit reserves) ( 5.4 ) 26.1 38.2

Acquisition costs 8.7 — —

Nondeductible meals, entertainment and transportation 1.1 3.3 11.3

GILTI inclusion ( 2.6 ) — 1.3

FDII benefit — — ( 1.5 )

Nondeductible meals, entertainment and transportation ( 0.7 ) 1.1 3.3

Acquisition costs — 8.7 —

DTA Adjustment – NOLs — — ( 3.3 )

Return to accrual adjustment ( 4.2 ) ( 4.1 ) ( 10.6 )

Unrecognized tax benefit 0.5 ( 32.7 ) 1.3

Foreign tax rate 1.0 ( 6.0 ) ( 1.7 )

Return to accrual adjustment 1.4 ( 4.2 ) ( 4.1 )

FDII benefit 2.3 — —

State credits, net of federal benefit 7.2 ( 32.6 ) ( 2.3 )

Unrecognized tax benefit ( 32.7 ) 1.3 4.4

Stock-based compensation ( 36.2 ) ( 1.2 ) ( 20.2 )

Federal credits generated 11.5 ( 54.5 ) ( 17.4 )

Other 0.1 4.6 1.7

Income tax provision (benefit) effective rate 19.6 % 64.3 % ( 12.5 ) %

The decrease in our effective income tax rate in 2021 when compared to 2020, was primarily due to prior year increase in valuation allowance attributable to state tax credit carryforwards for which we do not expect to realize benefit.

Furthermore, our 2021 effective income tax rate was positively impacted by increased benefit attributable to stock based compensation deduction and a reduction to the unrecognized tax benefit as a result of IRS audit settlement and statute of limitation lapses offset against negative impacts of the U.K.-enacted tax rate increase and an increase in non-deductible compensation.

Income tax provision effective rate 18.3 % 19.6 % 64.3 %

The decrease in our effective income tax rate for year ended December 31, 2022, when compared to the same period in 2021, was primarily attributable to current-year non-deductible accruals for loss contingencies related to the Security Incident, stock-based compensation shortfall partially offset by increased tax credits and impact of tax rate decreases.

The 2021 effective income tax rate was positively impacted by benefit attributable to stock-based compensation windfall net of tax expense resulting from impact of UK corporate rate increase.

The year-on-year comparison is further impacted by 2022 pre-tax loss versus income in prior periods.

2022 Form 10-K

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Accrued bonuses 455 218

Capitalized R&D and software costs

Other 6,293 13,515

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Intangible assets ( 161,836 ) ( 168,392 )

Capitalized software development costs ( 31,326 ) ( 28,804 )

Capitalized software and content development costs

Costs of obtaining contracts ( 16,287 ) ( 18,046 )

6 unchanged sentences

As of December 31, 2022, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $ 31.1 million, $ 5.3 million and $ 38.3 million, respectively.

The federal and state net operating loss carryforwards are subject to various Internal Revenue Code limitations and applicable state tax laws.

If not utilized, the federal net operating loss carryforwards will begin to expire in 2028 and the state net operating loss carryforwards will expire over various periods beginning in 2022.

Of our federal net operating loss carryforwards, $ 13.8 million are subject to expiration beginning in 2023 while the remainder have an unlimited carryforward period.

The state net operating loss carryforwards are subject to various applicable state tax laws.

If not utilized, the state net operating loss carryforwards will expire over various periods beginning in 2023.

Of our foreign net operating loss carryforwards, $ 62 thousand expires in 2024 with the remainder having an unlimited carryforward period.

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A portion of the foreign and state net operating loss carryforwards and state credit carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use such carryforwards.

The Tax Cuts and Jobs Act requires taxpayers to capitalize and amortize research and experimental expenditures under Section 174 of the Internal Revenue Code for tax years beginning after December 31, 2021.

Accordingly, our historic deferred tax liability attributable to capitalized software has become a deferred tax asset as a result of capitalization for tax purposes.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table illustrates the change in our deferred tax asset valuation allowance:

7 unchanged sentences

2020 6,453 — 22,731 29,184

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2022, 2021 and 2020:

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The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $ 3.1 million at December 31, 2022.

Certain prior period amounts relating to our 2014 acquisitions are covered under indemnification agreements and, therefore, we have recorded a corresponding indemnification asset.

Certain prior period amounts relating to our 2014 acquisitions were covered under indemnification agreements and, therefore, had a corresponding indemnification asset.

Due to lapse of statute of limitations, the indemnified unrecognized tax benefit was released in 2022 resulting in income tax benefit with offsetting expense included in pretax income from corresponding release of indemnification asset.

We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense.

The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2021 and December 31, 2020 was insignificant and $ 1.1 million, respectively.

The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2022 and December 31, 2021 was insignificant.

The total amount of interest and penalties included in the consolidated statements of comprehensive income as an increase or decrease in income tax expense for 2022, 2021 and 2020 was insignificant.

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Notes to Consolidated Financial Statements

Historically, we have issued four types of awards under our plans:

restricted stock awards, restricted stock units, stock options and stock appreciation rights ("SARs").

There have been no new stock options or SARs granted since 2005 and 2013, respectively.

Recently, we have issued three types of awards under our plans:

restricted stock awards, time-based restricted stock units, and performance-based restricted stock units.

The following table sets forth the number of awards outstanding for each award type as of:

2 unchanged sentences

Restricted stock awards 1,345,608 1,192,810

Restricted stock units 1,279,270 1,170,885

Options and SARs granted under the 2016 Equity Plan have a 10 -year contractual term.

Time-based restricted stock units 455,708 336,199

Performance-based restricted stock units 1,104,260 943,071

Awards granted to our executive officers and certain members of management are subject to accelerated vesting upon a change in control as defined in the employees’ retention agreement.

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It is expected that this amount will be recognized over a weighted average period of 1.3 years.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Restricted stock awards

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Recipients of restricted stock awards have the right to vote such shares and receive dividends, if declared.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table summarizes our unvested restricted stock awards as of December 31, 2022, and changes during the year then ended:

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Granted 846,295 60.90

Vested ( 486,342 ) 79.21

Forfeited ( 179,686 ) 69.29

Vested ( 513,811 ) 79.83

Unvested at December 31, 2022 1,345,608 68.09 $ 79,202

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Restricted stock units granted to employees vest in equal annual installments generally over 3 years from the grant date subject to the recipient’s continued employment with us.

We have also granted restricted stock units for which vesting is subject to meeting certain performance and/or market conditions.

Restricted stock units granted with a market condition had a fair market value assigned at the grant date based on the use of a Monte Carlo simulation model.

The fair market value of the stock at the time of the grant is amortized to expense on a straight-line basis over the period of vesting except for awards with market or performance conditions, which are amortized on an accelerated basis over the period of vesting.

The following table summarizes our unvested restricted stock units as of December 31, 2021, and changes during the year then ended:

Restricted stock units Restricted

We have also granted restricted stock units for which vesting is subject to meeting certain performance conditions.

The fair market value of the stock at the time of the grant is amortized to expense on a straight-line basis over the period of vesting except for awards with performance conditions, which are amortized on an accelerated basis over the period of vesting.

The following table summarizes our unvested, time-based restricted stock units as of December 31, 2022, and changes during the year then ended:

Time-based restricted stock units Restricted

stock units Weighted

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(1) The intrinsic value is calculated as the market value as of the end of the fiscal period.

The total fair value of restricted stock units that vested during the years ended December 31, 2021, 2020 and 2019 was $ 54.3 million, $ 18.9 million, and $ 19.2 million, respectively.

The weighted average grant date fair value of restricted stock units granted for the years ended December 31, 2020 and 2019 was $ 59.59 and $ 77.90 , respectively.

Stock appreciation rights

All SARs previously granted were fully vested as of December 31, 2017.

There were no SARs exercised during 2021 and 2020.

The total intrinsic value of SARs exercised during the year ended December 31, 2019 was $ 3.6 million.

SARs granted with a market condition had a fair market value assigned at the grant date based on the use of a Monte Carlo simulation model.

All other SARs granted had a fair market value assigned at the grant date based on the use of the Black-Scholes option pricing model.

The total fair value of time-based restricted stock units that vested during the years ended December 31, 2022, 2021 and 2020 was $ 9.3 million, $ 9.4 million and $ 1.7 million, respectively.

The weighted average grant date fair value of time-based restricted stock units granted for the years ended December 31, 2021 and 2020 was $ 77.74 and $ 56.66 , respectively.

2022 Form 10-K

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Notes to Consolidated Financial Statements

The following table summarizes our unvested, performance-based restricted stock units as of December 31, 2022, and changes during the year then ended:

Performance-based restricted stock units Restricted

stock units Weighted

fair value Aggregate

intrinsic value (1)

(in thousands)

Unvested at January 1, 2022 943,071 $ 73.62

Granted 977,377 61.79

Forfeited ( 114,071 ) 63.47

Vested ( 702,117 ) 71.93

Unvested at December 31, 2022 1,104,260 64.94 $ 64,997

(1) The intrinsic value is calculated as the market value as of the end of the fiscal period.

The total fair value of performance-based restricted stock units that vested during the years ended December 31, 2022, 2021 and 2020 was $ 50.5 million, $ 44.9 million, and $ 17.2 million, respectively.

The weighted average grant date fair value of performance-based restricted stock units granted for the years ended December 31, 2021 and 2020 was $ 71.91 and $ 60.21 , respectively.

Stockholders' Equity

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

During the year ended December 31, 2021, we purchased 1,592,933 shares for $ 108.4 million.

During the year ended December 31, 2022, we did no t purchase any shares.

In December 2021, our Board of Directors reauthorized and replenished our stock repurchase program that authorizes us to purchase up to $ 250.0 million of our outstanding shares of common stock.

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Changes in accumulated other comprehensive loss by component

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(in thousands) 2022 2021 2020

Accumulated other comprehensive loss, beginning of period $ ( 2,497 ) $ ( 5,290 ) $ ( 5,110 )

Accumulated other comprehensive income (loss), beginning of period $ 6,522 $ ( 2,497 ) $ ( 5,290 )

By component:

Gains and losses on cash flow hedges:

Accumulated other comprehensive (loss) income balance, beginning of period $ ( 3,101 ) $ ( 1,323 ) $ 1,498

Accumulated other comprehensive income (loss) balance, beginning of period $ 5,257 $ ( 3,101 ) $ ( 1,323 )

Other comprehensive (loss) income before reclassifications, net of tax effects of $( 8,068 ), $( 1,982 ) and $ 1,625

22,772 5,617 ( 4,602 )

Amounts reclassified from accumulated other comprehensive income (loss) to interest expense 3,714 3,827 ( 573 )

Tax (benefit) expense included in provision for income taxes ( 973 ) ( 1,003 ) 151

Amounts reclassified from accumulated other comprehensive income (loss) ( 5,685 ) 3,714 3,827

Tax expense (benefit) included in provision for income taxes 1,489 ( 973 ) ( 1,003 )

Total amounts reclassified from accumulated other comprehensive income (loss) ( 4,196 ) 2,741 2,824

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Accumulated other comprehensive income (loss) balance, beginning of period $ 1,265 $ 604 $ ( 3,967 )

Translation adjustments 661 4,571 2,641

Accumulated other comprehensive income (loss) balance, end of period 1,265 604 ( 3,967 )

Translation adjustment ( 16,160 ) 661 4,571

Accumulated other comprehensive (loss) income balance, end of period ( 14,895 ) 1,265 604

Accumulated other comprehensive income (loss), end of period $ 8,938 $ 6,522 $ ( 2,497 )

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Defined Contribution Plan

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We have one operating segment and one reportable segment.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table presents long-lived assets by geographic region based on the location of the assets.

For purposes of this disclosure, long-lived assets includes property and equipment, net and operating lease ROU assets.

(dollars in thousands) 2022 2021

1 unchanged sentence

Other countries 1,669 2,070

Total property and equipment $ 111,428 $ 105,177

Total long-lived assets

$ 153,325 $ 165,311

See Note 17 to these consolidated financial statements for information about our revenues by geographic region.

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We applied the practical expedient in ASC 606-10-50-14 and have excluded the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less (one-time services);

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

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

We also applied the practical expedient in ASC 606-10-65-1-(f)(3), whereby the transaction price allocated to the remaining performance obligations, or an explanation of when we expect to recognize that amount as revenue for all reporting periods presented before the date of the initial application, is not disclosed.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Contract balances

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

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

Our closing balances of deferred revenue were as follows:

(in thousands) December 31,

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Total deferred revenue $ 385,236 $ 378,746

Deferred revenue increased during 2021, primarily due to the inclusion of EVERFI deferred revenue balances and, to a much lesser extent, early progress in initiatives to bring our pricing in line with the market.

The amount of revenue recognized during the 2021 that was included in the deferred revenue balance at the beginning of the period was approximately $ 288 million .

The amount of revenue recognized during the 2021 from performance obligations satisfied in prior periods was insignificant .

The increase in deferred revenue during 2022 was primarily due to new subscription sales of our cloud solutions and, to a lesser extent, progress in initiatives to bring our pricing in line with the market.

The amount of revenue recognized during 2022 that was included in the deferred revenue balance at the beginning of the period was approximately $ 339 million .

The amount of revenue recognized during 2022 from performance obligations satisfied in prior periods was insignificant .

Disaggregation of revenue

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Total revenue $ 1,058,105 $ 927,740 $ 913,219

Beginning in the second quarter of 2021, we combined our General Markets Group and Enterprise Markets Group into a single U.S.

Markets Group ("UMG") and moved our Corporations vertical under our International Markets Group ("IMG").

This change was made to better align our resources toward customer retention and growth, which are key objectives as we progress toward our long-term aspirational goals.

The UMG and the IMG comprised our go-to-market organizations as of December 31, 2021 .

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

During the third quarter of 2022, we reorganized our market groups.

The Social Sector and Corporate Sector market groups comprised our go-to-market organizations as of December 31, 2022.

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

• The UMG focuses on sales primarily to all prospects and customers inside of the U.S.;

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

• The Social Sector market group focuses on sales to customers and prospects in the social sector, such as nonprofits, foundations, education institutions, healthcare organizations and other not-for-profit entities globally, and includes JustGiving from Blackbaud;

• The Corporate Sector market group focuses on sales to customers and prospects in the corporate sector globally, and includes EVERFI from Blackbaud and YourCause from Blackbaud.

The following table presents our revenue by market group:

(dollars in thousands) 2022

Social Sector

$ 907,197 $ 889,755 $ 873,878

IMG 193,632 181,948 147,147

Other 445 789 3,269

Corporate Sector

150,908 37,985 39,341

Total revenue $ 1,058,105 $ 927,740 $ 913,219

(1) Due to the market group changes discussed above, we have recast our revenue by market group for the years ended December 31, 2021 and 2020 to present them on a consistent basis with the current year.

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table presents our recurring revenue by type:

3 unchanged sentences

Total recurring revenue $ 1,011,733 $ 880,850 $ 850,745

Restructuring

During 2017, in an effort to further our organizational objectives, including improved operating efficiency, customer outcomes and employee satisfaction, we initiated a multi-year plan to consolidate and relocate some of our existing offices to highly modern and more collaborative workspaces with short-term financial commitments.

We substantially completed our facilities optimization restructuring plan as of December 2019.

During the year ended December 31, 2019, we incurred $ 5.8 million in before-tax restructuring charges related to these activities.

Such charges during the years ended December 31, 2021 and 2020 were insignificant.

Restructuring costs incurred prior to our adoption of ASU 2016-02 Leases (Topic 842) ("ASU 2016-02") on January 1, 2019 consisted primarily of costs to terminate lease agreements, contractual lease payments, net of estimated sublease income, upon vacating space as part of the plan, as well as insignificant costs to relocate affected employees and write-off facilities-related fixed assets that we would no longer use.

Upon adoption of ASU 2016-02 at January 1, 2019, we reduced our operating lease ROU assets recognized at transition by the carrying amounts of the restructuring liabilities for certain leased office spaces that we ceased using prior to December 31, 2018.

Restructuring costs incurred during the year ended December 31, 2019 consisted primarily of operating lease ROU asset impairment costs and, to a lesser extent, lease payments for offices we had ceased using and write-offs of facilities-related fixed assets that we would no longer use.

Subsequent Events

Shelf registration statement

As a well-known seasoned issuer, we filed an automatic shelf registration statement for an undetermined amount of debt and equity securities with the SEC on January 14, 2022.

Under this universal shelf registration statement we may offer, from time to time, debt securities, common stock, preferred stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

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

First amendment to 2020 Credit Facility

On January 31, 2022, we entered into the First Amendment to Credit Agreement (the “ Amendment ”).

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

2021 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Under the Amended Credit Agreement, revolving loans and term loans (other than the $ 250.0 million 2021 Incremental Term Loan incurred in December 2021 (as defined above)) bear interest at a rate per annum equal to, at the option of the Company:

(a) a base rate equal to the highest of (i) the Federal Funds Rate plus 0.50 %, (ii) the prime rate announced by Bank of America, N.A., and (iii) Eurocurrency Rate plus 1.00 % (the “Base Rate”), plus an applicable margin as specified in the Amendment (the “ Applicable Margin ”);

or (b) Eurocurrency Rate plus the Applicable Margin.

The Incremental Term Loan bear interest at a rate per annum equal to, at the option of the Company, the Base Rate, the Daily SOFR rate plus a SOFR adjustment rate as specified in the Amendment (the “ SOFR Adjustment ”) plus the Applicable Margin or the Term SOFR rate plus the SOFR Adjustment plus the Applicable Margin.

The Applicable Margin shall be adjusted quarterly, varies based on our net leverage ratio and varies based on whether the loan is a Base Rate loan ( 0.375 % to 1.50 %), a Eurocurrency Rate loan ( 1.375 % to 2.50 %) or, solely in the case of the Incremental Term Loan, a SOFR Rate loan ( 1.375 % to 2.50 %).

With respect to the Incremental Term Loan, the SOFR Adjustment varies based on the applicable interest period and equals 0.10 % for Daily SOFR loans and for Term SOFR loans with a one-month interest period, 0.15 % for Term SOFR loans with a three-month interest period and 0.25 % for Term SOFR loans with a six-month interest period.

2021 Form 10-K

Blackbaud, Inc.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On October 11, 2021, we decided to dismiss PricewaterhouseCoopers LLP (“PwC”), as our independent registered public accounting firm, effective upon the completion of PwC’s audit of our consolidated financial statements for the fiscal year ended December 31, 2021 (the “2021 Audit”), which occurred on March 1, 2022.

Also, on October 11, 2021, we decided to engage Ernst & Young LLP as our new independent registered public accountants for the fiscal year ending December 31, 2022, which became effective immediately following the completion by PwC of the 2021 Audit.

The disclosure required under this Item 9 was previously reported on a Current Report on Form 8-K filed with the SEC on October 14, 2021.

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 8. Financial Statements and Supplementary Data