What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-04 · 176 added, 121 removed, 566 unchanged (34% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2023 December 31,

2 unchanged sentences

Restricted cash 761,289 702,240

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

Accounts receivable, net of allowance of $ 8,081 and $ 7,318 at June 30, 2023 and December 31, 2022, respectively

168,908 102,809

28 unchanged sentences

Common stock, $ 0.001 par value;

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

180,000,000 shares authorized, 69,164,244 and 67,814,044 shares issued at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,138,553 1,075,264

Treasury stock, at cost;

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

15,311,367 and 14,745,230 shares at June 30, 2023 and December 31, 2022, respectively

( 570,547 ) ( 537,287 )

4 unchanged sentences

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

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three months ended

June 30, Six months ended

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

13 unchanged sentences

Total operating expenses 149,273 139,266 297,861 279,007

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

Income (loss) from operations 294 54 ( 9,653 ) ( 5,925 )

Interest expense ( 11,167 ) ( 8,976 ) ( 21,829 ) ( 16,575 )

2 unchanged sentences

Income tax benefit ( 10,200 ) ( 2,367 ) ( 14,101 ) ( 4,417 )

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

Loss per share

Net income (loss) $ 2,105 $ ( 3,422 ) $ ( 12,596 ) $ ( 13,829 )

Earnings (loss) per share

Basic $ 0.04 $ ( 0.07 ) $ ( 0.24 ) $ ( 0.27 )

3 unchanged sentences

Diluted weighted average shares 53,643,124 51,660,739 52,389,112 51,431,501

Other comprehensive (loss) income

Other comprehensive income (loss)

Foreign currency translation adjustment $ 3,055 $ ( 10,398 ) $ 5,213 $ ( 12,530 )

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

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

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

Unrealized gain (loss) on derivative instruments, net of tax 5,383 2,558 ( 5,309 ) 13,463

Total other comprehensive income (loss) 8,438 ( 7,840 ) ( 96 ) 933

Comprehensive income (loss) $ 10,543 $ ( 11,262 ) $ ( 12,692 ) $ ( 12,896 )

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

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Cash Flows

Three months ended

Six months ended

(dollars in thousands) 2023 2022

23 unchanged sentences

Payments on debt ( 171,824 ) ( 129,548 )

Stock issuance costs — ( 557 )

Employee taxes paid for withheld shares upon equity award settlement ( 33,687 ) ( 35,600 )

1 unchanged sentence

Change in customer funds receivable ( 3,359 ) ( 546 )

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

Net cash provided by (used in) financing activities 10,443 ( 194,052 )

Effect of exchange rate on cash, cash equivalents and restricted cash 2,489 ( 7,252 )

Net decrease in cash, cash equivalents and restricted cash ( 345,777 ) ( 338,382 )

Net increase (decrease) in cash, cash equivalents and restricted cash 56,399 ( 173,242 )

Cash, cash equivalents and restricted cash, beginning of period 733,931 651,762

1 unchanged sentence

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) March 31,

(dollars in thousands) June 30,

2023 December 31,

3 unchanged sentences

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

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

17 unchanged sentences

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

Net income — — — — — 2,105 2,105

Vesting of restricted stock units 23,550 — — — — — —

Employee taxes paid for 32,540 withheld shares upon equity award settlement

— — — ( 2,270 ) — — ( 2,270 )

Stock-based compensation — — 33,364 — — — 33,364

Restricted stock grants 6,031 — — — — — —

Restricted stock cancellations ( 20,200 ) — — — — — —

Other comprehensive income — — — — 8,438 — 8,438

Balance at June 30, 2023 69,164,244 $ 69 $ 1,138,553 $ ( 570,547 ) $ 8,842 $ 184,453 $ 761,370

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(dollars in thousands) Common stock Additional

18 unchanged sentences

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 — — ( 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 — — — — ( 7,840 ) — ( 7,840 )

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

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

For more information regarding our acquisition of EVERFI on December 31, 2021, please see Note 3 of the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 22, 2023.

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

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

8 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 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.

Operating results and cash flows for the six months ended June 30, 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.

12 unchanged sentences

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

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

10 unchanged sentences

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.

Earnings (Loss) Per Share

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

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

Diluted earnings (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 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:

Diluted loss per share for the three months ended June 30, 2022 and six months ended June 30, 2023 and 2022 was the same as basic loss per share as there were net losses each of those periods and inclusion of potentially dilutive securities was anti-dilutive.

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

Three months ended

Six months ended

(dollars in thousands, except per share amounts) 2023

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

Net income (loss) $ 2,105 $ ( 3,422 ) $ ( 12,596 ) $ ( 13,829 )

Weighted average common shares 52,642,411 51,660,739 52,389,112 51,431,501

2 unchanged sentences

Weighted average common shares assuming dilution 53,643,124 51,660,739 52,389,112 51,431,501

Loss per share

Earnings (loss) per share

Basic $ 0.04 $ ( 0.07 ) $ ( 0.24 ) $ ( 0.27 )

Diluted $ 0.04 $ ( 0.07 ) $ ( 0.24 ) $ ( 0.27 )

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

First Quarter 2023 Form 10-Q

Anti-dilutive shares excluded from calculations of diluted earnings (loss) per share 9,487 1,167,368 1,151,974 2,090,267

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

13 unchanged sentences

(Level 3) Total

Fair value as of March 31, 2023

Fair value as of June 30, 2023

Financial assets:

Interest rate swaps $ — $ 26,978 $ — $ 26,978

Foreign currency forward contracts — 96 — 96

Total financial assets $ — $ 26,978 $ — $ 26,978

Fair value as of March 31, 2023

Fair value as of June 30, 2023

Financial liabilities:

13 unchanged sentences

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

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

10 unchanged sentences

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.

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.

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 June 30, 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 June 30, 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 three months ended March 31, 2023.

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

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 .

There were no material non-recurring fair value adjustments to our long-lived assets, intangible assets, goodwill and operating lease ROU assets during the six months ended June 30, 2023.

Consolidated Financial Statement Details

Restricted cash

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2023 December 31,

2 unchanged sentences

Total restricted cash $ 761,289 $ 702,240

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

Prepaid expenses and other assets

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2023 December 31,

5 unchanged sentences

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

10,237 10,189

Prepaid insurance 8,340 4,902

6 unchanged sentences

Prepaid expenses and other current assets $ 81,597 $ 81,654

(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.

(1) Amortization expense from costs of obtaining contracts was $ 8.1 million and $ 16.4 million for the three and six months ended June 30, 2023, respectively, and $ 8.5 million and $ 17.0 million for the three and six months ended June 30, 2022, respectively.

(2) The current portion of costs of obtaining contracts as of June 30, 2023 and December 31, 2022 was $ 27.3 million and $ 29.1 million, respectively.

(3) The current portion of prepaid software maintenance and subscriptions as of June 30, 2023 and December 31, 2022 was $ 28.0 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 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.

(5) Amortization expense from capitalized cloud computing implementation costs was insignificant for the three months ended June 30, 2023 and 2022, respectively, and $ 1.1 million and $ 1.1 million for the six months ended June 30, 2023 and 2022, respectively.

Accumulated amortization for these costs was $ 6.3 million and $ 5.2 million as of June 30, 2023 and December 31, 2022, respectively.

Accrued expenses and other liabilities

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2023 December 31,

1 unchanged sentence

$ 55,888 $ 28,448

Derivative instruments 9,419 323

Taxes payable

14,305 16,667

Customer credit balances 7,588 8,257

1 unchanged sentence

Accrued commissions and salaries 4,329 6,944

Taxes payable

Contingent consideration liability

Accrued health care costs 2,932 2,467

Derivative instruments 2,467 323

Accrued vacation costs 2,004 2,156

Accrued transaction-based costs related to payments services 1,545 5,059

Contingent consideration liability

Other liabilities 7,736 9,542

3 unchanged sentences

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

First Quarter 2023 Form 10-Q

See Note 8 to these unaudited, condensed consolidated financial statements for additional information about our loss contingency accruals and other legal expenses.

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

2 unchanged sentences

Three months ended

Six months ended

(dollars in thousands) 2023

6 unchanged sentences

effective interest rate at

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2023 December 31,

2022 March 31,

2022 June 30,

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

At June 30, 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 March 31, 2023, we were in compliance with our debt covenants under the Real Estate Loans.

At June 30, 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.

First Quarter 2023 Form 10-Q

Second 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:

The following table summarizes our currently effective supplier financing agreements as of June 30, 2023:

(dollars in thousands) Term

6 unchanged sentences

(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:

The changes in supplier financing obligations during the six months ended June 30, 2023, consisted of the following:

(dollars in thousands) Total

Balance at December 31, 2022 $ 2,247

Balance at March 31, 2023 $ 3,632

Balance at June 30, 2023 $ 2,800

Derivative Instruments

4 unchanged sentences

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.

As of June 30, 2023 and December 31, 2022, we have presented the fair value of our derivative instruments at the gross amounts in the condensed consolidated balance sheets 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 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.

As of June 30, 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.

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 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.

We designated each of these foreign currency forward contracts as cash flow hedges at the inception of the contracts.

As of June 30, 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 $ 27.1 million CAD and $ 22.6 million CAD, respectively.

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

First Quarter 2023 Form 10-Q

Second 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 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.

As of June 30, 2023 and December 31, 2022, the aggregate notional values of the 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 was £ 11.5 million and £ 11.2 million, respectively.

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

Asset derivatives Liability derivatives

(dollars in thousands) Balance sheet location March 31,

(dollars in thousands) Balance sheet location June 30,

2023 December 31,

2022 Balance sheet location March 31,

2022 Balance sheet location June 30,

2023 December 31,

16 unchanged sentences

comprehensive

income (loss)

Gain (loss) reclassified from accumulated

other comprehensive income into loss

(dollars in thousands) March 31,

other comprehensive income into income (loss)

(dollars in thousands) June 30,

2023 Three months ended

March 31, 2023

June 30, 2023

Six months ended

June 30, 2023

Cash Flow Hedges

4 unchanged sentences

2022 Three months ended

March 31, 2022

June 30, 2022

Six months ended

June 30, 2022

Cash Flow Hedges

4 unchanged sentences

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 March 31, 2023 that is expected to be reclassified into earnings within the next twelve months is

First Quarter 2023 Form 10-Q

The estimated accumulated other

Second 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.

comprehensive income as of June 30, 2023 that is expected to be reclassified into earnings within the next twelve months is $ 20.9 million.

There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the six months ended June 30, 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.

2 unchanged sentences

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

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

As of June 30, 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

Six months ended

(dollars in thousands) 2023

11 unchanged sentences

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

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

As of June 30, 2023, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 270.4 million through 2027.

Solution and service indemnifications

1 unchanged sentence

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

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Legal proceedings

8 unchanged sentences

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

First Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Legal proceedings are inherently unpredictable.

4 unchanged sentences

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.

Our investigation into the Security Incident 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, inquiries and investigations in the future that might result in adverse judgments, settlements, fines, penalties or other resolution.

1 unchanged sentence

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

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

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

Three months ended

Six months ended

(dollars in thousands) 2023

Gross expense $ 26,777 $ 8,435 $ 44,560 $ 17,440

Offsetting probable insurance recoveries — ( 1,804 )

Offsetting insurance recoveries — ( 87 ) — ( 1,891 )

Net expense $ 26,777 $ 8,348 $ 44,560 $ 15,549

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2023 December 31,

5 unchanged sentences

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 and as operating activities on our consolidated statements of cash flows.

We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our consolidated statements of comprehensive income (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 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).

For the three and six months ended June 30, 2023, we incurred net pre-tax expenses of $ 26.8 million and $ 44.6 million, respectively, related to the Security Incident, which included $ 7.0 million and $ 14.6 million, respectively, for ongoing legal fees and additional accruals for loss contingencies of $ 19.8 million and $ 30.0 million, respectively.

During the six months ended June 30, 2023, we had net cash outlays of $ 15.8 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

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

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.

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.

As of June 30, 2023, we have recorded approximately $ 50.0 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 in accordance with our loss contingency procedures described above.

Our liabilities for loss contingencies are recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

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.

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 June 30, 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.

8 unchanged sentences

Our review of customer and subrogation claims includes analyzing individual customer contracts into which we have entered, the specific claims made and applicable law.

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Customer constituent class actions.

11 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.

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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.

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

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

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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:

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Effective income tax rate 126.0 % 40.9 % 52.8 % 24.2 %

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 increases in our effective income tax rate for the three and six months ended June 30, 2023, when compared to the same periods in 2022 were primarily attributable to unfavorable impact of non-deductible Security Incident accruals.

See Note 8 to these unaudited, condensed consolidated financial statements for additional information about our loss contingency accruals related to the Security Incident.

For the three and 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.

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

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

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

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.

For the three and six months ended June 30, 2023 we have utilized the annual effective tax rate method, as we believe it can now be reliably estimated.

This methodology requires us to apply our estimated annual effective tax rate to year-to-date pre-tax earnings.

During the second quarter of 2023, our estimated annual effective tax rate increased due to the unfavorable impacts of non-deductible Security Incident accruals and its impact on pre-tax earnings.

This increase, when applied to quarter-to-date and year-to-date date pre-tax losses, resulted in recognition of income tax benefits at 126.0 % and 52.8 %, respectively.

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

Notes to Condensed Consolidated Financial Statements

Stockholders' Equity

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(in thousands) 2023

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Accumulated other comprehensive income balance, beginning of period $ 13,141 $ 16,162 $ 23,833 $ 5,257

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

Other comprehensive income before reclassifications, net of tax effects of $( 3,238 ), $( 993 ) $( 672 ) and $( 4,782 )

9,231 2,796 1,942 13,437

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

Amounts reclassified from accumulated other comprehensive income ( 5,192 ) ( 323 ) ( 9,816 ) 35

Tax expense (benefit) included in provision for income taxes 1,344 85 2,565 ( 9 )

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

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

Total amounts reclassified from accumulated other comprehensive income ( 3,848 ) ( 238 ) ( 7,251 ) 26

Net current-period other comprehensive income (loss) 5,383 2,558 ( 5,309 ) 13,463

Accumulated other comprehensive income balance, end of period $ 18,524 $ 18,720 $ 18,524 $ 18,720

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Accumulated other comprehensive income, end of period $ 8,842 $ 7,455 $ 8,842 $ 7,455

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

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Transaction price allocated to the remaining performance obligations

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

As of June 30, 2023, approximately $ 1.2 billion of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 50 % of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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Contract balances

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

Our contract assets as of June 30, 2023 and December 31, 2022 were insignificant.

Our closing balances of deferred revenue were as follows:

(in thousands) March 31,

(in thousands) June 30,

2023 December 31,

Total deferred revenue $ 438,151 $ 385,236

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

The increase in deferred revenue during the six months ended June 30, 2023 was primarily due to a seasonal increase in customer contract renewals.

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

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

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 .

The amount of revenue recognized during the six months ended June 30, 2023 that was included in the deferred reven ue balance at the beginning of the period was approximately $ 252 million.

The amount of revenue recognized during the six months ended June 30, 2023 from performance obligations satisfied in prior periods was insignificant .

Disaggregation of revenue

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(dollars in thousands) 2023

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Total revenue $ 271,042 $ 264,927 $ 532,795 $ 522,051

First Quarter 2023 Form 10-Q

Second Quarter 2023 Form 10-Q

Blackbaud, Inc.

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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 March 31, 2023.

The Social Sector and Corporate Sector market groups comprised our go-to-market organizations as of June 30, 2023.

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

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(dollars in thousands) 2023

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Total revenue $ 271,042 $ 264,927 $ 532,795 $ 522,051

(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.

(1) Due to the market group change discussed above, we have recast our revenue by market group for the three and six months ended June 30, 2022 to present them on a consistent basis with the current year.

The following table presents our recurring revenue by type:

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Total recurring revenue $ 262,390 $ 252,507 $ 515,138 $ 497,173

First Quarter 2023 Form 10-Q

Subsequent Events

Fixed Asset Impairment

On July 31, 2023, we entered into a sublease for a portion of our Washington, DC office location, which we previously closed in February 2023 to align with our remote-first workforce strategy.

We considered our entry into the sublease an impairment indicator.

As a result, we currently expect to incur pre-tax costs between $ 6.0 million and $ 8.0 million in the third quarter of 2023, consisting of noncash impairment charges against certain operating lease right-of-use assets and property and equipment assets.

Second 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