What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-04 compared with 2022-11-03 · 205 added, 386 removed, 482 unchanged (55% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

2 unchanged sentences

Restricted cash 364,071 702,240

Accounts receivable, net of allowance of $ 7,444 and $ 11,155 at September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance of $ 7,688 and $ 7,318 at March 31, 2023 and December 31, 2022, respectively

100,253 102,809

28 unchanged sentences

Common stock, $ 0.001 par value;

180,000,000 shares authorized, 67,830,914 and 66,165,666 shares issued at September 30, 2022 and December 31, 2021, respectively

180,000,000 shares authorized, 69,154,863 and 67,814,044 shares issued at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,105,189 1,075,264

Treasury stock, at cost;

14,739,744 and 14,182,805 shares at September 30, 2022 and December 31, 2021, respectively

15,278,827 and 14,745,230 shares at March 31, 2023 and December 31, 2022, respectively

( 568,277 ) ( 537,287 )

4 unchanged sentences

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

Third Quarter 2022 Form 10-Q

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

Condensed Consolidated Statements of Comprehensive Loss

Three months ended

September 30, Nine months ended

September 30,

(dollars in thousands, except per share amounts) 2023 2022

12 unchanged sentences

Amortization 774 811

Restructuring — 131 — 263

Total operating expenses 148,588 139,741

(Loss) income from operations ( 7,012 ) 11,846 ( 12,937 ) 31,533

Loss from operations ( 9,947 ) ( 5,979 )

Interest expense ( 10,662 ) ( 7,599 )

Other income, net 2,007 1,121

(Loss) income before provision for income taxes ( 11,895 ) 8,705 ( 30,141 ) 17,701

Income tax (benefit) provision ( 1,576 ) 2,517 ( 5,993 ) 4,946

Net (loss) income $ ( 10,319 ) $ 6,188 $ ( 24,148 ) $ 12,755

(Loss) earnings per share

Loss before provision for income taxes ( 18,602 ) ( 12,457 )

Income tax benefit ( 3,901 ) ( 2,050 )

Net loss $ ( 14,701 ) $ ( 10,407 )

Loss per share

Basic $ ( 0.28 ) $ ( 0.20 )

5 unchanged sentences

Foreign currency translation adjustment $ 2,158 $ ( 2,132 )

Unrealized gain on derivative instruments, net of tax 6,797 262 20,260 4,756

Unrealized (loss) gain on derivative instruments, net of tax ( 10,692 ) 10,905

Total other comprehensive (loss) income ( 8,534 ) 8,773

Comprehensive (loss) income $ ( 15,058 ) $ 3,216 $ ( 27,954 ) $ 18,571

Comprehensive loss $ ( 23,235 ) $ ( 1,634 )

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

Third Quarter 2022 Form 10-Q

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Cash Flows

Nine months ended

September 30,

Three months ended

(dollars in thousands) 2023 2022

Cash flows from operating activities

Net (loss) income $ ( 24,148 ) $ 12,755

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

Net loss $ ( 14,701 ) $ ( 10,407 )

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

Depreciation and amortization 27,272 25,545

15 unchanged sentences

Purchase of net assets of acquired companies, net of cash and restricted cash acquired — ( 19,985 )

Cash received in sale of business 6,426 —

Net cash used in investing activities ( 15,331 ) ( 36,934 )

2 unchanged sentences

Payments on debt ( 75,403 ) ( 33,765 )

Stock issuance costs ( 1,205 ) —

Employee taxes paid for withheld shares upon equity award settlement ( 31,417 ) ( 34,674 )

1 unchanged sentence

Change in customer funds receivable ( 1,859 ) ( 1,115 )

Purchase of treasury stock — ( 98,353 )

Net cash used in financing activities ( 353,238 ) ( 325,448 )

4 unchanged sentences

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

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

3 unchanged sentences

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

Third Quarter 2022 Form 10-Q

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

4 unchanged sentences

comprehensive

loss (income)

earnings Total

3 unchanged sentences

Net loss — — — — — ( 14,701 ) ( 14,701 )

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

— — ( 983 ) — — — ( 983 )

Retirements of common stock (1)

( 33,075 ) — ( 2,581 ) — — — ( 2,581 )

Vesting of restricted stock units 954,147 — — — — — —

4 unchanged sentences

Restricted stock cancellations ( 41,269 ) — — — — — —

Other comprehensive income — — — — 8,773 — 8,773

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

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

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

— — ( 223 ) — — — ( 223 )

Retirements of common stock (1)

( 395 ) — ( 19 ) — — — ( 19 )

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

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

— — — ( 926 ) — — ( 926 )

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

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

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

Other comprehensive loss — — — — ( 8,534 ) — ( 8,534 )

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

Net loss — — — — — ( 10,319 ) ( 10,319 )

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

— — ( 87 ) — — — ( 87 )

Retirements of common stock (1)

( 65 ) — ( 5 ) — — — ( 5 )

Vesting of restricted stock units 12,655 — — — — — —

Employee taxes paid for 8,260 withheld shares upon equity award settlement

— — — ( 457 ) — — ( 457 )

Stock-based compensation — — 27,945 — — — 27,945

Restricted stock grants 107,906 — — — — — —

Restricted stock cancellations ( 44,956 ) — — — — — —

Other comprehensive loss — — — — ( 4,739 ) — ( 4,739 )

Balance at September 30, 2022 67,830,914 $ 68 $ 1,048,688 $ ( 536,968 ) $ 2,716 $ 218,308 $ 732,812

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

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

Balance at March 31, 2023 69,154,863 $ 69 $ 1,105,189 $ ( 568,277 ) $ 404 $ 182,348 $ 719,733

(dollars in thousands) Common stock Additional

2 unchanged sentences

comprehensive

income (loss)

earnings Total

3 unchanged sentences

Net loss — — — — — ( 10,407 ) ( 10,407 )

Purchase of 465,821 treasury shares under stock repurchase program

Stock issuance costs related to purchase of EVERFI — — ( 983 ) — — — ( 983 )

Retirements of common stock (1)

( 33,075 ) — ( 2,581 ) — — — ( 2,581 )

7 unchanged sentences

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

Net income — — — — — 6,731 6,731

Purchase of 405,047 treasury shares under stock repurchase program

( 30,008 ) — — ( 30,008 )

Vesting of restricted stock units 804,323 — — — — — —

Employee taxes paid for 285,521 withheld shares upon equity award settlement

— — — ( 20,286 ) — — ( 20,286 )

Stock-based compensation — — 30,528 — — 21 30,549

Restricted stock grants 9,431 — — — — — —

Restricted stock cancellations ( 76,316 ) — — — — — —

Other comprehensive income — — — — 2,128 — 2,128

Balance at June 30, 2021 62,332,714 $ 62 $ 605,486 $ ( 449,877 ) $ 6,291 $ 243,312 $ 405,274

Net income — — — — — 6,188 6,188

Purchase of 583,280 treasury shares under stock repurchase program

( 40,279 ) — — ( 40,279 )

Vesting of restricted stock units 908 — — — — — —

Employee taxes paid for 4,313 withheld shares upon equity award settlement

— — — ( 300 ) — — ( 300 )

Stock-based compensation — — 28,920 — — 6 28,926

Restricted stock grants 54,132 — — — — — —

Restricted stock cancellations ( 34,111 ) — — — — — —

Other comprehensive loss — — — — ( 2,972 ) — ( 2,972 )

Balance at September 30, 2021 62,353,643 $ 62 $ 634,406 $ ( 490,456 ) $ 3,319 $ 249,506 $ 396,837

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

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

Third Quarter 2022 Form 10-Q

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

We are the world’s leading cloud software company powering social good.

Serving the entire social good community—nonprofits, higher education institutions, K–12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies and individual change agents—we connect and empower organizations to increase their impact through cloud software, services, expertise and data intelligence.

Our portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility (CSR) and environmental, social and governance (ESG), school management, ticketing, grantmaking, financial management, payment processing and analytics.

Serving the industry for more than four decades, we are a remote-first company headquartered in Charleston, South Carolina, with operations in the United States, Australia, Canada, Costa Rica and the United Kingdom.

We are the leading software provider exclusively dedicated to powering social impact.

Serving the nonprofit and education sectors, companies committed to social responsibility and individual change makers, our essential software is built to accelerate impact in fundraising, nonprofit financial management, digital giving, grantmaking, corporate social responsibility and education management.

A remote-first company, we have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom, supporting users in 100+ countries.

Basis of Presentation

3 unchanged sentences

The consolidated balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date.

Operating results and cash flows for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022, or any other future period.

Operating results and cash flows for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023, or any other future period.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations for interim reporting of the SEC.

8 unchanged sentences

Our chief operating decision maker is our chief executive officer.

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

During the third quarter of 2022, we reorganized our market groups and EVERFI is now included in the Corporate Sector market group.

See Note 13 to these condensed consolidated financial statements for additional information about our market groups.

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.

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.

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 and content 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 could result in material changes and actual results could materially differ from these estimates.

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Recently adopted accounting pronouncements

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.

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-04, Liabilities-Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations ("ASU 2022-04").

This update requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations.

The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance programs.

We adopted ASU 2022-04 on January 1, 2023 and the adoption did not have a material impact on our condensed consolidated financial statements.

Recently issued accounting pronouncements

1 unchanged sentence

Summary of significant accounting policies

There have been no material changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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 three months ended June 30, 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 condensed consolidated statements of comprehensive income.

During the three and nine months ended September 30, 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.

("Kilter"), 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 condensed 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 nine months ended September 30, 2022.

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 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).

As a result of the acquisition, EVERFI has become a wholly owned subsidiary of ours.

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

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 to be presented.

The fair values assigned to the assets acquired and liabilities assumed in our acquisition of EVERFI 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.

During the nine months ended September 30, 2022, we recorded insignificant measurement period adjustments to the estimated fair value of the EVERFI assets acquired and liabilities

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

assumed following the receipt of new information.

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

Goodwill and Other Intangible Assets

The change in goodwill during the nine months ended September 30, 2022, consisted of the following:

(dollars in thousands) Total

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

Additions related to business combination (1)

Adjustments related to prior year business combination (2)

Adjustments related to dispositions (3)

Effect of foreign currency translation ( 11,460 )

Balance at September 30, 2022 $ 1,047,178

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

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

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

(Loss) Earnings Per Share

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

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

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

There have been no material changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023.

Loss Per Share

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

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

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

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

Diluted loss per share for the three and nine months ended September 30, 2022 was the same as basic loss per share as there was a net loss in the period and inclusion of potentially dilutive securities was anti-dilutive.

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

Diluted loss per share for the three months ended March 31, 2023 and 2022 was the same as basic loss per share as there were net losses in both periods and inclusion of potentially dilutive securities was anti-dilutive.

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

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands, except per share amounts) 2023

Net (loss) income $ ( 10,319 ) $ 6,188 $ ( 24,148 ) $ 12,755

Net loss $ ( 14,701 ) $ ( 10,407 )

Weighted average common shares 52,132,999 51,199,717

2 unchanged sentences

Weighted average common shares assuming dilution 52,132,999 51,199,717

(Loss) earnings per share:

Loss per share

Basic $ ( 0.28 ) $ ( 0.20 )

Diluted $ ( 0.28 ) $ ( 0.20 )

Anti-dilutive shares excluded from calculations of diluted (loss) earnings per share 936,214 904,100 1,195,709 1,034,091

Third Quarter 2022 Form 10-Q

Anti-dilutive shares excluded from calculations of diluted loss per share 1,638,453 1,558,751

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

13 unchanged sentences

(Level 3) Total

Fair value as of September 30, 2022

Derivative instruments:

Fair value as of March 31, 2023

Financial assets:

Interest rate swaps $ — $ 26,514 $ — $ 26,514

1 unchanged sentence

Total financial assets $ — $ 26,610 $ — $ 26,610

Fair value as of September 30, 2022

Fair value as of March 31, 2023

Financial liabilities:

Interest rate swaps $ — $ 8,920 $ — $ 8,920

Foreign currency forward contracts — 499 — 499

Contingent consideration obligations — — 2,710 2,710

1 unchanged sentence

Fair value as of December 31, 2022

Derivative instruments:

Financial assets:

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:

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

Contingent consideration obligations — — 2,710 2,710

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

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

5 unchanged sentences

These modifications did not have a significant financial impact.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Contingent consideration obligations arise from business acquisitions.

1 unchanged sentence

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 condensed 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 September 30, 2022 and December 31, 2021, due to the immediate or short-term maturity of these instruments.

We believe the carrying amount of our debt approximates its fair value at September 30, 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.

We believe the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at March 31, 2023 and December 31, 2022, due to the immediate or short-term maturity of these instruments.

We believe the carrying amount of our debt approximates its fair value at March 31, 2023 and December 31, 2022, as the debt bears interest rates that approximate market value.

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

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

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

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the three months ended March 31, 2023.

Non-recurring fair value measurements

5 unchanged sentences

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

During the three and nine months ended September 30, 2022, we recorded noncash impairment charges of $ 1.0 million against certain operating lease ROU assets and $ 0.3 million 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 the charges are reflected in general and administrative expense on the statements of comprehensive income.

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

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

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

Those assets were subsequently sold during the third quarter as part of our disposition of FIMS.

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

The impairment charge is reflected in general and administrative expense.

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

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

There were no material non-recurring fair value adjustments to our long-lived assets, intangible assets, goodwill and operating lease ROU assets during the three months ended March 31, 2023 .

Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

Restricted cash due to customers $ 362,261 $ 700,611

Letters of credit for operating leases — 2,186

Real estate escrow balances and other

Total restricted cash $ 364,071 $ 702,240

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Prepaid expenses and other assets

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

1 unchanged sentence

$ 71,956 $ 74,272

Derivative instruments 34,584 7,160

Prepaid software maintenance and subscriptions (3)

37,125 34,766

Derivative instruments 26,610 32,117

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

10,461 11,892

Receivables for probable insurance recoveries (6)(7)

Prepaid insurance 9,962 4,902

6 unchanged sentences

Prepaid expenses and other current assets $ 88,779 $ 81,654

(1) Amortization expense from costs of obtaining contracts was $ 8.4 million and $ 25.4 million for the three and nine months ended September 30, 2022, respectively, and $ 8.8 million and $ 26.9 million for the three and nine months ended September 30, 2021.

(2) The current portion of costs of obtaining contracts as of September 30, 2022 and December 31, 2021 was $ 28.6 million and $ 30.2 million, respectively.

(3) The current portion of prepaid software maintenance and subscriptions as of September 30, 2022 and December 31, 2021 was $ 24.8 million and $ 24.7 million, respectively.

(1) Amortization expense from costs of obtaining contracts was $ 8.3 million and $ 8.5 million for the three months ended March 31, 2023 and 2022, respectively.

(2) The current portion of costs of obtaining contracts as of March 31, 2023 and December 31, 2022 was $ 28.5 million and $ 29.1 million, respectively.

(3) The current portion of prepaid software maintenance and subscriptions as of March 31, 2023 and December 31, 2022 was $ 32.6 million and $ 31.7 million, respectively.

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

(5) Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended September 30, 2022 and 2021, respectively, and $ 1.6 million and $ 1.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Accumulated amortization for these costs was $ 4.6 million and $ 3.0 million as of September 30, 2022 and December 31, 2021, respectively.

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

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(5) Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended March 31, 2023 and 2022, respectively.

Accumulated amortization for these costs was $ 5.7 million and $ 5.2 million as of March 31, 2023 and December 31, 2022, respectively.

Accrued expenses and other liabilities

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

Taxes payable (1)

$ 28,133 $ 19,777

Accrued legal costs (1)

$ 35,705 $ 28,448

Operating lease liabilities, current portion 8,144 9,170

Derivative instruments 9,419 323

Customer credit balances 7,990 8,257

Operating lease liabilities, current portion 7,962 7,723

Accrued commissions and salaries 5,407 6,944

Taxes payable

Contingent consideration liability

Accrued vacation costs 2,369 2,234

Accrued health care costs 2,213 2,467

Accrued vacation costs 2,019 2,156

Accrued transaction-based costs related to payments services 1,882 5,059

Accrued bonuses 1,705 5,829

Unrecognized tax benefit 1,671 1,248

Amounts payable to former EVERFI option holders (4)

Other liabilities 7,146 9,542

2 unchanged sentences

Accrued expenses and other current liabilities $ 72,799 $ 86,002

(1) We deferred payments of the employer's portion of Social Security taxes during 2020 under the Coronavirus, Aid, Relief and Economic Security Act, half of which was due by t he end of calendar year 2021 with the remainder due by the end of calendar year 2022.

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

(3) See discussion of our acquisition of Kilter at Note 3 to these condensed 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 condensed consolidated financial statements for additional information regarding our acquisition of EVERFI.

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Other income, net

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2023

Interest income $ 1,236 $ 123

Currency revaluation gains (losses) 2,991 609 5,843 ( 558 )

Currency revaluation (losses) gains ( 245 ) 582

Other income, net 1,016 416

Other income, net $ 2,007 $ 1,121

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed 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.

1 unchanged sentence

effective interest rate at

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

2021 September 30,

2022 March 31,

2023 December 31,

10 unchanged sentences

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

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

First incremental term loan

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

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

Financing for EVERFI acquisition

On December 31, 2021, we acquired EVERFI 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.

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

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.

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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 in the LIBOR Amendment.

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

At March 31, 2023, we were in compliance with our debt covenants under the 2020 Credit Facility.

Real estate loans

1 unchanged sentence

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

At September 30, 2022, we were in compliance with our debt covenants under the Real Estate Loans.

At March 31, 2023, we were in compliance with our debt covenants under the Real Estate Loans.

From time to time, we enter into third-party financing agreements for purchases of software and related services for our internal use.

1 unchanged sentence

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

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

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

The following table summarizes our currently effective supplier financing agreements as of March 31, 2023:

(dollars in thousands) Term

4 unchanged sentences

December 2022 39 3 January 2023 $ 1,710

January 2023 36 3 April 2023 2,491

(1) Represent noncash investing and financing transactions during the periods indicated as we purchased software and services by assuming directly related liabilities.

The changes in supplier financing obligations during the three months ended March 31, 2023, consisted of the following:

(dollars in thousands) Total

Balance at December 31, 2022 $ 2,247

Balance at March 31, 2023 $ 3,632

Derivative Instruments

3 unchanged sentences

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

("ISDA") master agreements with our counterparties.

As of September 30, 2022 and December 31, 2021, we have presented the fair value of our derivative instruments at the gross amounts in the condensed consolidated balance sheet as the gross fair values of our derivative instruments equaled their net fair values.

master agreements with our counterparties.

As of March 31, 2023 and December 31, 2022, we have presented the fair value of our derivative instruments at the gross amounts in the condensed consolidated balance sheet as the gross fair values of our derivative instruments equaled their net fair values.

Cash flow hedges

1 unchanged sentence

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

As of September 30, 2022 and December 31, 2021, the aggregate notional values of the interest rate swaps were $ 435.0 million.

As of March 31, 2023 and December 31, 2022, the aggregate notional values of the interest rate swaps were $ 935.0 million and $ 435.0 million, respectively.

All of the contracts have maturities on or before October 2028.

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 have 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 September 30, 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 $ 23.6 million CAD.

As of March 31, 2023 and 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 $ 27.7 million CAD and $ 22.6 million CAD, respectively.

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

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

Third Quarter 2022 Form 10-Q

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

3 unchanged sentences

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

As of September 30, 2022, we had £ 10.7 million of foreign currency forward contracts designated as net investment hedges to reduce the volatility of the U.S.

As of March 31, 2023 and December 31, 2022, we had £ 14.0 million and £ 11.2 million, respectively, 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.

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

Asset derivatives

(dollars in thousands) Balance sheet location September 30,

Asset derivatives Liability derivatives

(dollars in thousands) Balance sheet location March 31,

2023 December 31,

2022 Balance sheet location March 31,

2023 December 31,

Derivative instruments designated as hedging instruments:

2 unchanged sentences

and other current assets

$ 96 $ 247 Accrued expenses

current liabilities $ 499 $ 323

Interest rate swaps, long-term

Other assets 33,120 7,160

Other assets 26,514 31,870 Other liabilities 8,920 —

Total derivative instruments designated as hedging instruments $ 26,610 $ 32,117 $ 9,419 $ 323

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

Gain recognized

Gain (loss) recognized

in accumulated other

comprehensive

of gain (loss)

reclassified from

1 unchanged sentence

comprehensive

(loss) income

Gain (loss) reclassified from accumulated

other comprehensive income into (loss) income

(dollars in thousands) September 30,

other comprehensive income into loss

(dollars in thousands) March 31,

2023 Three months ended

September 30, 2022

Nine months ended

September 30, 2022

March 31, 2023

Cash Flow Hedges

3 unchanged sentences

Foreign currency forward contracts $ ( 417 ) $ —

September 30,

2022 Three months ended

September 30, 2021

Nine months ended

September 30, 2021

March 31, 2022

Cash Flow Hedges

2 unchanged sentences

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.

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.

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) and related tax effects are 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 September 30, 2022 that is expected to be reclassified into earnings within the next twelve months is $ 17.1 million.

There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the nine months ended September 30, 2022 and 2021.

See Note 12 to these condensed 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 condensed consolidated statements of cash flows.

Third Quarter 2022 Form 10-Q

The estimated accumulated other comprehensive income as of March 31, 2023 that is expected to be reclassified into earnings within the next twelve months is

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

$ 18.6 million.

There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the three months ended March 31, 2023 and 2022.

See Note 10 to these condensed 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 condensed consolidated statements of cash flows.

Commitments and Contingencies

We have operating leases for corporate offices, subleased offices and certain equipment and furniture.

As of September 30, 2022, we had operating leases for equipment that had not yet commenced with future rent payments of $ 3.0 million.

These operating leases are expected to commence during 2022 with lease terms of 3 years.

As of March 31, 2023, we did not have any operating leases that had not yet commenced.

The following table summarizes the components of our lease expense:

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2023

11 unchanged sentences

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

As of September 30, 2022, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 236.0 million through 2027.

As of March 31, 2023, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 280.7 million through 2027.

Solution and service indemnifications

11 unchanged sentences

All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred.

Third Quarter 2022 Form 10-Q

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

5 unchanged sentences

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 do not 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 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 above a $ 250 thousand deductible payable by us.

2 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2023

3 unchanged sentences

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

(dollars in thousands) September 30,

(dollars in thousands) March 31,

2023 December 31,

3 unchanged sentences

Cumulative offsetting insurance recoveries paid $ ( 50,000 ) $ ( 50,000 )

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.

Recorded expenses have consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlement of the previously disclosed SEC investigation (as discussed below), 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 our consolidated statements of comprehensive (loss) income and as operating activities on our consolidated statements of cash flows.

Total costs related to the Security Incident have exceeded the limit of our insurance coverage.

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

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 currently expect net pre-tax expense of approximately $ 30.0 million to $ 35.0 million for ongoing legal fees related to the Security Incident.

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

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

Third Quarter 2022 Form 10-Q

For the three months ended March 31, 2023, we incurred net pre-tax expense of $ 17.8 million related to the Security Incident, which included $ 7.6 million for ongoing legal fees and an additional accrual for loss contingencies of $ 10.2 million.

During the three months ended March 31, 2023, we had net cash outlays of $ 9.2 million related to the Security Incident, which included ongoing legal fees and the $ 3.0 million civil penalty paid related to the SEC settlement (as discussed below).

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

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

In accordance with our policy described above, certain of these recorded charges reflect the low end of a range of estimated losses based on our determination that no estimate within that range was better than any other amount.

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

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

$ 25.0 million to $ 35.0 million for ongoing legal fees related to the Security Incident.

Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.

As of March 31, 2023, we have recorded approximately $ 30.2 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 in accordance with our loss contingency procedures described above.

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 March 31, 2023 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 judgment, 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 190 have been fully resolved and closed.

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

To date, we have received approximately 260 specific requests for reimbursement of expenses, approximately 205 (or 79 %) 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 U.K.

data subjects, which we are reviewing.

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

One insurance company has filed a subrogation claim in court.

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.

7 unchanged sentences

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.

3 unchanged sentences

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

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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 and a separate Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident.

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:

1 unchanged sentence

Federal Trade Commission;

• a formal investigation by the SEC;

• an investigation by the U.S.

2 unchanged sentences

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

While 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 Data Protection Act 2018 (the "ICO") notified us that it has closed its investigation of the Security Incident.

As previously disclosed, on March 9, 2023, the Company reached a settlement with the SEC in connection with the Security Incident.

This settlement fully resolves the previously disclosed SEC investigation of the Security Incident and is further described in an SEC cease-and-desist order (the “SEC Order”).

Under the terms of the SEC Order, the Company has agreed to cease-and-desist from committing or causing any violations or any future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended (the “Securities Act”), and Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 12b-20, 13a-13 and 13a-15(a) thereunder.

No other violations of the securities laws are alleged in the SEC Order.

As part of the SEC Order, the Company also agreed to pay, and has paid, a civil penalty in the amount of $ 3.0 million.

The Company consented to the entry of the SEC Order without admitting or denying the findings of the SEC Order, other than with respect to the SEC’s jurisdiction over the Company and the subject matter of the SEC Order.

The SEC Order describing the settlement was furnished as Exhibit 99.1 and the SEC’s press release announcing this resolution is furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2023.

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

Data Protection Act 2018 (the "ICO") notified us that it has closed its investigation of the Security Incident.

Based on its investigation and having considered our actions before, during and after the Security Incident, the ICO issued our European subsidiary a reprimand in accordance with Article 58(2)(b) of the U.K.

6 unchanged sentences

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.

Our income tax (benefit) provision and effective income tax rates, including the effects of period-specific events, were:

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

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Our income tax benefit and effective income tax rates, including the effects of period-specific events, were:

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2023

Income tax (benefit) provision $ ( 1,576 ) $ 2,517 $ ( 5,993 ) $ 4,946

Income tax benefit $ ( 3,901 ) $ ( 2,050 )

Effective income tax rate 21.0 % 16.5 %

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

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

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

1 unchanged sentence

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

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

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

The increase in our effective income tax rate for the three months ended March 31, 2023 when compared to the same period in 2022 was primarily attributable to unfavorable impact of non-deductible Security Incident accruals, lower foreign-derived intangible income deduction and an increase to the UK corporate tax rate offset against benefit attributable to valuation allowance reduction.

Stockholders' Equity

2 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2022

Accumulated other comprehensive income (loss), beginning of period $ 7,455 $ 6,291 $ 6,522 $ ( 2,497 )

(in thousands) 2023

Accumulated other comprehensive income, beginning of period $ 8,938 $ 6,522

By component:

Gains and losses on cash flow hedges:

Accumulated other comprehensive income (loss) balance, beginning of period $ 18,720 $ 1,393 $ 5,257 $ ( 3,101 )

Other comprehensive income (loss) before reclassifications, net of tax effects of $( 2,926 ), $ 38 , $( 7,708 ) and $( 818 )

Accumulated other comprehensive income balance, beginning of period $ 23,833 $ 5,257

Other comprehensive (loss) income before reclassifications, net of tax effects of $ 2,566 and $( 3,789 )

( 7,289 ) 10,641

Amounts reclassified from accumulated other comprehensive income (loss) ( 1,957 ) 505 ( 1,922 ) 3,289

Amounts reclassified from accumulated other comprehensive (loss) income ( 4,624 ) 358

Tax expense (benefit) included in provision for income taxes 1,221 ( 94 )

Total amounts reclassified from accumulated other comprehensive income (loss) ( 1,444 ) 371 ( 1,418 ) 2,427

Net current-period other comprehensive income 6,797 262 20,260 4,756

Total amounts reclassified from accumulated other comprehensive (loss) income ( 3,403 ) 264

Net current-period other comprehensive (loss) income ( 10,692 ) 10,905

Accumulated other comprehensive income balance, end of period $ 13,141 $ 16,162

2 unchanged sentences

Translation adjustment 2,158 ( 2,132 )

Accumulated other comprehensive (loss) income balance, end of period ( 22,801 ) 1,664 ( 22,801 ) 1,664

Accumulated other comprehensive loss balance, end of period ( 12,737 ) ( 867 )

Accumulated other comprehensive income, end of period $ 404 $ 15,295

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Revenue Recognition

Transaction price allocated to the remaining performance obligations

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

As of March 31, 2023, approximately $ 1.1 billion of revenue is expected to be recognized from remaining performance obligations.

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

1 unchanged sentence

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

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Contract balances

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

Our contract assets as of March 31, 2023 and December 31, 2022 were insignificant.

Our closing balances of deferred revenue were as follows:

(in thousands) September 30,

(in thousands) March 31,

2023 December 31,

Total deferred revenue $ 367,959 $ 385,236

The increase in deferred revenue during the nine months ended September 30, 2022 was primarily due to a seasonal increase in customer contract renewals .

The decrease in deferred revenue during the three months ended March 31, 2023 was primarily due to a seasonal decrease in customer contract renewals.

Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter.

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

The amount of revenue recognized during the nine months ended September 30, 2022 that was included in the deferred reven ue balance at the beginning of the period was approximately $ 303 million.

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

The amount of revenue recognized during the three months ended March 31, 2023 that was included in the deferred reven ue balance at the beginning of the period was approximately $ 162 million.

The amount of revenue recognized during the three months ended March 31, 2023 from performance obligations satisfied in prior periods was insignificant .

Disaggregation of revenue

3 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2023

3 unchanged sentences

Total revenue $ 261,753 $ 257,124

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed 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 September 30, 2022.

The Social Sector and Corporate Sector market groups comprised our go-to-market organizations as of March 31, 2023.

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

• 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 Corporate Sector market group focuses on sales to customers and prospects in the corporate sector globally, and includes EVERFI and YourCause.

The following table presents our revenue by market group:

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2023

2 unchanged sentences

36,856 37,129

Other 154 1,428 ( 468 ) 1,359

Total revenue $ 261,753 $ 257,124

Third Quarter 2022 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

(1) Due to the market group change discussed above, we have recast our revenue by market group for the three months ended March 31, 2022 to present them on a consistent basis with the current year.

The following table presents our recurring revenue by type:

Three months ended

September 30,

Nine months ended

September 30,

(dollars in thousands) 2023

2 unchanged sentences

Total recurring revenue $ 252,748 $ 244,666

Subsequent Events

Rights Agreement

On October 7, 2022 , our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each of our issued and outstanding shares of common stock, which was paid to the stockholders of record at the close of business on October 17, 2022 (the “Record Date”).

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

The description and terms of the Rights are set forth in the Stockholder Rights Agreement, dated as of October 7, 2022 (the “Rights Agreement”), by and between us and American Stock Transfer & Trust Company, LLC.

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

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

Each share of Preferred Stock will be entitled, when, as and if declared, to a minimum preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share and (ii) an amount equal to 1,000 times the dividend declared per share of common stock.

In the event of liquidation, dissolution or winding up of the Company, the holders of the Preferred Stock will be entitled to a minimum preferential payment of the greater of (i) $1,000.00 per share (plus any accrued but unpaid dividends), and (ii) an amount equal to 1,000 times the payment made per share of common stock.

Each share of Preferred Stock will have 1,000 votes, voting together with the common stock.

In the event of any merger, consolidation or other transaction in which outstanding shares of common stock are converted or exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the amount received per share of common stock.

These Rights are protected by customary antidilution provisions.

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

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

Third Quarter 2022 Form 10-Q

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements