What changed in this filing

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Item 1A. Risk Factors

2024-02-21 compared with 2023-02-24 · 183 added, 127 removed, 245 unchanged (56% of the section changed)

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Strategic Risks

Our failure to compete successfully could cause our revenue or market share to decline.

Our failure to compete successfully, including through technology innovations or new and improved solutions, could cause our revenue or market share to decline.

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

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These competitive pressures could cause our revenue and market share to decline.

In addition, the introduction of solutions encompassing new technologies can render existing solutions obsolete and unmarketable.

As a result, our future success will depend, in part, upon our ability to continue to enhance existing solutions and develop and introduce in a timely manner or acquire new solutions that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance.

If we are unable to develop or acquire on a timely and cost-effective basis new software solutions or enhancements to existing solutions or if such new solutions or enhancements do not achieve market acceptance, we may be unable to compete successfully and our business, results of operations and financial condition may be materially adversely affected.

Because competition for highly qualified personnel is intense, we might not be able to attract and retain key personnel needed to support our planned growth.

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We may need to create new or additional equity incentive programs and/or compensation packages to remain competitive, which could be dilutive to our existing stockholders and/or adversely affect our results of operations.

More rapid than expected success in implementing our strategic shift from a license-based and one-time services business model to a cloud subscription business model with partners delivering some of our services could negatively impact our total revenue growth and financial performance.

We continue to intentionally shift our focus towards selling cloud subscription solutions, which generally require less customization services.

Also, our cloud solution contracts now frequently include subscription-based professional, analytic and training services or those services can be delivered through our partner program.

This strategic shift to migrate our existing customers, sell new customers our cloud subscription solutions and have some services delivered by our partners results in a decrease in our one-time services contracts and revenue.

Although our business model seeks to anticipate the rate of migration and resulting negative impact on our total revenue growth, more rapid than expected success in implementing this strategic shift could negatively impact our total revenue growth and financial performance.

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Blackbaud, Inc.

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

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

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

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

If we fail to respond to technological changes or successfully introduce new and improved solutions, our competitive position may be harmed and our business may suffer.

The introduction of solutions encompassing new technologies can render existing solutions obsolete and unmarketable.

If we are unable to develop or acquire on a timely and cost-effective basis new software solutions or enhancements to existing solutions or if such new solutions or enhancements do not achieve market acceptance, our business, results of operations and financial condition may be materially adversely affected.

Furthermore, our subscription arrangements are generally for a term of three years at contract inception with three-year renewals thereafter.

Our maintenance arrangement renewals are generally for a term of three years.

As the end of the contract term approaches, we seek the renewal of the agreement with the customer.

Historically, subscription and maintenance renewals have represented a significant portion of our total revenue.

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

Our customers' renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our solutions and services and their ability to continue their operations and spending levels due to general economic conditions, extraordinary business interruptions, client-specific financial issues or otherwise.

We are incorporating generative artificial intelligence, or AI, technology into certain of our products and services.

This technology is new and developing, and while we aim to adopt known best practices, it may result in operational, financial and reputational harm and other adverse consequences to our business.

We are implementing AI features in certain of our products and services.

The technologies underpinning these features are in the early stages of commercial use and exist in an emerging regulatory environment, which presents regulatory, litigation, ethical, reputational, operational and financial risks.

and international governmental bodies and regulators have proposed, or are in the process of developing, new regulations related to the use of AI and machine learning technologies.

The final form of these may impose obligations related to our development, offering and use of AI technologies and expose us to increased risk of regulatory enforcement and litigation.

We also expect that many of our generative AI features will include the processing of personal data and may be subject to laws, policies, legal obligations and codes of conduct related to privacy and data protection.

There is uncertainty about the extent to which privacy and data protection laws apply to AI technologies, and any delay in addressing privacy or data protection concerns relating to our AI features may result in liability or regulatory investigations and fines, as well as harm to our sales and reputation.

In addition, issues relating to intellectual property rights in AI-generated content have not been fully addressed by the courts, laws or regulations.

Accordingly, the implementation of generative AI technologies into our products and services may result in exposure to claims related to copyright infringement or other intellectual property misappropriation.

Furthermore, many of our AI features may rely on third-party service providers.

As such, any improper processing of personal data by these service providers could harm our reputation, business or customers, or expose us to legal liability.

Any disruption or failure in our AI systems or infrastructure could result in delays or errors in our operations, which could harm our business and financial results.

Our generative AI technology features may also generate output that is misleading, insecure, inaccurate, harmful or otherwise flawed, which may harm our reputation, business or customers, or expose us to legal liability.

Also, some AI scenarios present ethical issues.

If we enable or offer AI solutions that are controversial because of their purported or actual impact on human rights, privacy, employment or other social issues, we may experience reputational harm.

New and emerging AI technologies may require additional investment in the development and maintenance of various models, approaches and processes, as well as development of protections and safeguards for the use of AI technologies, which may be expensive and could impact our financial results if we decide to further expand generative AI into our products and services.

Likewise, the use of AI involves significant technical complexity and requires specialized expertise.

The success of any enhancement or new product depends on many factors, including its relevance to our customers, timely implementation and market acceptance.

If our enhanced products and services do not achieve widespread market adoption

2023 Form 10-K

Blackbaud, Inc.

or there is a reduction in demand due to a lack of customer acceptance, technology challenges, strengthening competition, weakening economic conditions, or security or privacy concerns, our business could be harmed and our financial results could be adversely affected.

Although we aim to develop and use AI responsibly and attempt to identify and mitigate ethical and legal issues presented by its use, we may be unsuccessful in identifying or resolving issues before they arise.

If we do not successfully address the risks inherent in the expansion of our international operations, our business could suffer.

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If we are unable to grow our international operations in a cost-effective and timely manner, our business and operating results could be harmed.

We expect that an increasing portion of our international revenues will be denominated in foreign currencies, subjecting us to fluctuations in foreign currency exchange rates.

Increases in our international revenues denominated in foreign currencies subject us to fluctuations in foreign currency exchange rates.

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

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• the imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements, including those pertaining to export restrictions, privacy and data protection, trade and employment restrictions and intellectual protections;

2022 Form 10-K

Blackbaud, Inc.

• general business disruptions caused by geopolitical situations and developments.

Unfavorable media coverage related to peer-to-peer fundraising campaigns on our social platforms could negatively impact our business.

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Acquisitions could be difficult to consummate and integrate into our operations, and they could disrupt our business, dilute stockholder value or impair our financial results.

As part of our business strategy, we will continue from time to time to seek to grow our business through acquisitions of new or complementary businesses, technologies or products that we believe can improve our ability to compete in our existing customer markets or allow us to enter new markets.

As part of our business strategy, we, from time to time, seek to grow our business through acquisitions of new or complementary businesses, technologies or products that we believe can improve our ability to compete in our existing customer markets or allow us to enter new markets.

The potential risks associated with acquisitions and investment transactions include, but are not limited to:

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• unanticipated costs associated with acquisitions;

2023 Form 10-K

Blackbaud, Inc.

• challenges in combining product offerings and entering into new markets in which we may not have experience;

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• potential loss of key employees of the acquired company;

• difficulty implementing effective internal controls over financial reporting, disclosure controls and procedures and data protection procedures;

• difficulty implementing effective internal controls over financial reporting, disclosure controls and procedures and cybersecurity and data protection procedures;

• impairment of relationships with customers or suppliers;

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

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

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

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

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

2022 Form 10-K

Blackbaud, Inc.

Our failure to obtain licenses for, or our use of, third-party technologies could harm our business.

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Our use of third-party technologies also exposes us to increased risks including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs.

The U.K.'s departure from the European Union ("E.U.") could adversely affect us.

Effective January 31, 2020, the U.K.

is no longer a member of the E.U.

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

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

Because we currently conduct business in the U.K.

and in Europe, the U.K.’s exit from the E.U.

under such circumstances creates uncertainty and could affect the business of and/or our relationships with our customers and partners as well as the value of the British Pound and the Euro relative to the U.S.

The effects of Brexit on us, including those mentioned above and others we cannot now anticipate, are difficult to predict and could adversely affect our business, business opportunities, results of operations or financial condition in both the short-term and thereafter.

Operational Risks

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

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

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

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

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

2023 Form 10-K

Blackbaud, Inc.

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

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

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

Like virtually all major businesses, we are, from time to time, a target of cyberattacks, such as the Security Incident (as described below and in Note 11 to our consolidated financial statements in this report), information systems interruptions, phishing, social engineering schemes and other systems disruptions.

We expect these threats to continue, some of which have been, and in the future may be, successful to varying degrees.

Because the numerous and evolving cybersecurity threats used to obtain unauthorized access, disable, degrade or sabotage systems have become increasingly more complex and sophisticated, it may be difficult to anticipate these acts or to detect them for periods of time, as with the Security Incident, and we may be unable to respond adequately or timely.

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

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

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

2022 Form 10-K

Blackbaud, Inc.

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

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

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

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As previously disclosed, on July 16, 2020, we contacted certain customers to inform them about the Security Incident, including that in May 2020 we discovered and stopped a ransomware attack.

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

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

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

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

and Canada related to the Security Incident.

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

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

To date, we have received approximately 260 specific requests for reimbursement of expenses, approximately 214 (or 82%) of which have been fully resolved and closed and approximately 39 (or 15%) are inactive and are considered by us to have been abandoned by the customers.

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, none of which resulted in claims submitted to us and are considered by us to have been abandoned by the customers.

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

2023 Form 10-K

Blackbaud, Inc.

companies representing various customers’ interests through subrogation claims have contacted us, and certain insurance companies have filed subrogation claims in court, of which 3 cases remain active and unresolved.

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.

In addition, presently, we are a defendant in putative consumer class action cases in U.S.

federal courts (which have been consolidated under multi district litigation to a single federal court) and 2 in Canadian courts] alleging harm from the Security Incident.

federal courts (most of which have been consolidated under multi district litigation to a single federal court) and in Canadian courts alleging harm from the Security Incident.

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

To date, we also have received a consolidated, multi-state Civil Investigative Demand issued on behalf of 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.

We have received a Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident.

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

Federal Trade Commission, the U.S.

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

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

Department of Health and Human Services, the Office of the Australian Information Commissioner and the Office of the Privacy Commissioner of Canada.

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

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 the SEC Order.

Under the terms of the SEC Order, the Company 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 and Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-13 and 13a-15(a) thereunder.

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.

On October 5, 2023, the Company reached a settlement with each of 49 state Attorneys General and the District of Columbia in connection with the Security Incident.

This settlement fully resolves the previously disclosed multi-state Civil Investigative Demand and the separate Civil Investigative Demand from the Office of the Indiana Attorney General relating to the Security Incident, which is further described in the substantially similar Administrative Orders filed in each of the 49 states and the District of Columbia.

Under the terms of the Administrative Orders, we have agreed:

(i) to comply with state consumer protection laws, data breach notification laws, and HIPAA;

(ii) not to make misleading misrepresentations to our customers or the individuals whose data is stored by us concerning (a) the extent to which we protect the privacy, security, confidentiality, or integrity of certain data, (b) the likelihood that data impacted by a security incident may be subject to unauthorized access, disclosure, or other misuse, or (c) the data breach notification requirements;

and (iii) to implement and improve certain cybersecurity programs and tools.

As part of the Administrative Orders, we also agreed to pay, and have paid, a total of $49.5 million to the 49 states and District of Columbia.

We paid the full settlement amount to each state and the District of Columbia during the fourth quarter of 2023 from our existing liquidity.

This amount was fully accrued as a contingent liability in our financial statements as of June 30, 2023.

We entered into the Administrative Orders without admitting fault of liability in connection with the matters subject to the Multistate Investigation.

The form of Administrative Order was furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 5, 2023.

As previously disclosed, on February 1, 2024, the FTC announced its approval of an Agreement Containing Consent Order (the “Proposed Order”) evidencing its settlement with the Company in connection with the Security Incident.

Pursuant to its rules, the FTC placed the Proposed Order and related draft complaint on the public record for a period of 30 days for the receipt of public comments after which the FTC will consider any comments received from interested persons prior to determining whether and in what form to finalize the Proposed Order.

The 30-day comment period is scheduled to expire on March 14, 2024.

As part of the FTC’s proposed order, the Company has not been fined and is not otherwise required to make any payment.

Furthermore, the Company has agreed to the FTC’s proposed order without admitting or denying any of the FTC’s allegations, except as expressly stated otherwise in the Proposed Order.

If finalized, the settlement described in the Proposed Order will fully resolve the FTC investigation.

Although we believe the Proposed Order will be finalized in substantially its current form, there can be no assurances as to whether that will occur or its timing.

Under the terms of the Proposed Order, we have agreed (i) to not misrepresent (a) the extent to which we maintain, use, delete or disclose certain customer information, (b) the extent to which we protect the privacy, security, availability, confidentiality or integrity of such information or (c) the extent of any security incident or unauthorized disclosure, misuse, loss, theft, alteration, destruction or other compromise of such information, and (ii) to delete certain data, adopt and make public certain record retention limits, establish, implement and maintain a specified information security program, obtain regular independent assessments of the mandated information security program, provide to the FTC specified certifications regarding our compliance with the Proposed Order, provide to the FTC reports of any future security incidents and create and maintain specified recordkeeping.

The form of Proposed Order was furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2024.

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Blackbaud, Inc.

As noted above, the terms of the FTC Proposed Order, the Attorneys General Administrative Orders and our settlement with the SEC require that we implement and maintain certain processes and programs and comply with certain legal requirements related to cybersecurity and data protection.

Any future regulatory investigation or litigation settlements may also contain such requirements.

Effectively implementing, monitoring and updating these requirements is expected to be expensive and time-consuming over an extended period.

Our failure to do so in accordance with the terms of our agreements with FTC, the Attorneys General and with the SEC, and possibly others, could expose us to additional material liability under the terms of the Administrative Orders, the SEC settlement, or otherwise.

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

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

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

It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially more than the amounts accrued.

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

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

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Blackbaud, Inc.

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

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

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

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

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

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

For example, for full year 2023, we incurred net pre-tax expenses of $53.4 million related to the Security Incident, which included $22.4 million for ongoing legal fees and $31.0 million for settlements and recorded liabilities for loss contingencies.

During 2023, we had net cash outlays of $78.0 million related to the Security Incident, which included ongoing legal fees, the $3.0 million civil penalty paid during the first quarter of 2023 related to the SEC settlement and the $49.5 million civil penalty paid during the fourth quarter of 2023 related to the Multistate Investigation (as discussed in Note 11).

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

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

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

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

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

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Blackbaud, Inc.

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

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

We currently utilize data center hosting facilities to provide cloud solutions to most of our subscription customers and hosting services to our on-premise license customers.

We currently utilize data center hosting facilities to provide cloud solutions to a significant number of our subscription customers and hosting services to our on-premise license customers.

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

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

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

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Blackbaud, Inc.

might again be detected in the future.

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

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

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Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our solution development efforts, impact our reputation and cause significant customer relations problems.

If we are unable, or our customers believe we may be unable, to detect and prevent unauthorized use of payment card or other private financial or personal information, we could be subject to financial liability, our reputation could be harmed and customers may be reluctant to use our solutions and services.

If we are unable, or our customers believe we may be unable, to detect and prevent unauthorized use of payment card or other private financial or personal information, or are otherwise unable to effectively manage our payment processing business, we could be subject to financial liability, our reputation could be harmed and customers may be reluctant to use our solutions and services.

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

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

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

In addition, from time to time, we encounter fraudulent

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Blackbaud, Inc.

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

Furthermore, we continue to undertake system upgrades designed to improve the availability, reliability, resiliency and speed of our payments systems.

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

The rules of payment card associations in which we participate require that we comply with Payment Card Industry Data Security Standard ("PCI DSS") in order to preserve security of payment card data.

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

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

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

Furthermore, we continue to undertake system upgrades designed to

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Blackbaud, Inc.

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

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

Financial Risks

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We generally recognize our subscription and maintenance revenue ratably over time over the contract term.

Our subscription arrangements are generally for a term of three years at contract inception with one to three-year renewals thereafter.

Most of our maintenance arrangements are for a one-year term.

Our subscription arrangements are generally for a term of three years at contract inception with three-year renewals thereafter.

Our maintenance arrangement renewals are generally for a term of three years.

As a result, much of the revenue we report in each quarter is attributable to arrangements entered into during previous quarters.

Consequently, a decline in sales to new customers, renewals by existing customers or market acceptance of our solutions in any one quarter will not necessarily be fully reflected in the revenues in that quarter and could negatively affect our revenues and profitability in future quarters.

If our customers do not renew their subscriptions for our solutions or annual maintenance and support arrangements or if they do not renew them on terms that are favorable to us, our business might suffer.

Our subscription arrangements are generally for a term of three years at contract inception with one to three-year renewals thereafter.

Most of our maintenance arrangements are for a one-year term.

As the end of the contract term approaches, we seek the renewal of the agreement with the customer.

Historically, subscription and maintenance renewals have represented a significant portion of our total revenue.

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

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

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

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The degree to which we are leveraged could have adverse effects on our business, including the following:

• Requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends, share repurchases and other general corporate purposes;

• Requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends, stock repurchases and other general corporate purposes;

• Increasing the amount of interest we pay, particularly if interest rates increase;

• Limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;

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Blackbaud, Inc.

• Restricting us from making additional strategic acquisitions or exploiting business opportunities;

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

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Blackbaud, Inc.

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

If we incur additional debt, these risks may intensify.

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

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An impairment of a significant portion of goodwill or intangible assets could materially and negatively affect our results of operations and financial condition.

Restrictions in our credit facility may limit our activities, including dividend payments, share repurchases and acquisitions.

Restrictions in our credit facility limit certain of our activities, including dividend payments, stock repurchases and acquisitions.

Our credit facility contains restrictions, including covenants limiting our ability to incur additional debt, grant liens, make acquisitions and other investments, prepay specified debt, consolidate, merge or acquire other businesses, sell assets, pay dividends and other distributions, repurchase stock and enter into transactions with affiliates.

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We cannot guarantee that our stock repurchase program will be fully consummated or that it will enhance long-term stockholder value.

Share repurchases could also increase the volatility of the trading price of our stock and will diminish our cash reserves.

Stock repurchases could also increase the volatility of the trading price of our stock and will diminish our cash reserves.

Although our board of directors has authorized a stock repurchase program that does not have an expiration date, the program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares of our common stock.

We have, from time to time, repurchased stock under this program and re-initiated repurchases under the program in the fourth quarter of 2023 after a two-year hiatus.

We cannot guarantee that the program will be fully consummated or that it will enhance long-term stockholder value.

The program could affect the trading price of our stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our stock.

In addition, this program will diminish our cash reserves, which may impact our ability to finance future growth, to pursue possible future strategic opportunities and acquisitions and fund liabilities and expenses related to the Security Incident.

The program could affect the trading price of our stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our

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Blackbaud, Inc.

In addition, implementation of some or all of this program diminishes our cash reserves, which may impact our ability to finance future growth, to pursue possible future strategic opportunities and acquisitions and fund liabilities and expenses related to the Security Incident.

(See Note 14 to our consolidated financial statements in this report for additional information related to our stock repurchase program.)

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

Deferred tax assets

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Blackbaud, Inc.

are reviewed at least annually for realizability.

Deferred tax assets are reviewed at least annually for realizability.

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

This could be caused by, among other things, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the solutions sold by our business and a variety of other facto rs.

For example, during 2020, we recorded an increase in our valuation allowance attributable to state tax credit carryforwards for which we do not expect to realize benefit.

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

If a deferred tax asset net of our valuation allowance was determined to be not realizable in a future period, the charge to earnings would be recognized as an expense in our results of operations in the period the determination is made.

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

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Even technical violations of these laws may result in penalties that are assessed for each non-compliant transaction.

Blackbaud, and some of our customers, are subject to the E.U.

General Data Protection Regulation (“GDPR”), which became effective in the E.U.

in May 2018 and its provisions continue to apply in the U.K.

after Brexit by virtue of legislation incorporating the GDPR into U.K.

We, and some of our customers, are subject to the E.U.

General Data Protection Regulation (“GDPR”) and U.K.

data protection law, known as the "U.K.

GDPR." The law requires companies to meet requirements regarding the handling of personal data, including rights such as the portability of personal data.

We completed an extensive program of product and operational changes to address GDPR requirements and all future solutions sold to customers subject to GDPR must include GDPR features.

All solutions we sell to customers subject to GDPR must include GDPR features.

The implementation of GDPR has affected our ability to offer some features and services to customers in the E.U.

Furthermore, actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase, which could impact us through increased costs or restrictions on our business, and noncompliance could result in significant regulatory penalties and legal liability.

Furthermore, actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase, which have impacted us, and could in the future further impact us, through increased costs or restrictions on our business, and noncompliance could result in significant regulatory penalties and legal liability.

If our customers or we were found to be subject to and in violation of any privacy or data protection laws or regulations, our business may be materially and adversely impacted and we and/or our customers would likely have to change our business practices.

In addition, these laws and regulations could impose significant costs on our customers and us and make it more difficult for donors to make online donations.

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

In addition, these laws and regulations could impose significant costs on our customers and us and make it more

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Blackbaud, Inc.

difficult for donors to make online donations.

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

We are in the information technology business, and our solutions and services store, retrieve, transfer, manipulate and manage our customers’ information and data.

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

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Blackbaud, Inc.

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

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

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

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Blackbaud, Inc.

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

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

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

Changing domestic and international laws, government regulations and policies, laws limiting or restricting our ability to pass card charges on to customers and other similar laws and regulations, could adversely affect our business and operating results by increasing compliance costs, reducing customer demand for our solutions or damaging our reputation.

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

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

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

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

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

Stockholder approval is not necessary to issue preferred stock in this manner.

Issuance of these shares of preferred stock could have the effect of making it more difficult and more expensive for a person or group to acquire control of us and could effectively be used as an anti-takeover device.

Currently there are no shares of our preferred stock issued or outstanding.

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

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

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

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

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

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

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

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

Provisions in our organizational documents, our Stockholder Rights Agreement (as described below, the "Rights Agreement") , certain officer compensation arrangements and Delaware law may delay or prevent an acquisition or change of control of our Company that could be deemed beneficial to our stockholders.

Certain provisions in our organizational documents, the Rights Agreement, compensation arrangements with our officers and Delaware law (as summarized below) may have the effect of delaying, deferring, discouraging or preventing an acquisition or change in control of the Company or a change in our management.

This includes tender offers for our common stock, proxy contests or other takeover attempts.

These anti-takeover effects may discourage transactions that might result in the payment of a premium over the market price for shares of our common stock.

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

Certificate of Incorporation and Bylaw provisions.

The Board of Directors is divided into three classes of directors, as nearly equal in number as possible, with each class serving a staggered term of three years.

The classification of directors will have the effect of making it more difficult and time-consuming for stockholders to change the composition of the Board of Directors, could discourage a third-party from making a tender offer or otherwise attempting to obtain control of the Company and may maintain the incumbency of the Board of Directors.

Our Bylaws contain an advance notice procedure for stockholders' proposals to be brought before a meeting of stockholders, including any proposed nominations of persons for election to the Board of Directors.

The Bylaws may have the effect of precluding the conduct of business at a meeting if the proper procedures are not followed and may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company.

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Blackbaud, Inc.

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

The Board of Directors has the authority to issue up to an aggregate of 20,000,000 shares of preferred stock in one or more classes or series and to determine, with respect to any such class or series, the designations, powers, preferences and rights of such class or series, and the qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences, and the number of shares constituting any class or series or the designation of such class or series, without further vote or action by the stockholders.

This preferred stock, including the Series A Preferred Stock described below, could have terms that may discourage a potential acquirer from making, without first negotiating with the Board of Directors, an acquisition attempt through which such acquirer may be able to change the composition of the Board of Directors, including a tender offer or other takeover attempt.

The Board of Directors possesses the authority to call and hold emergency special meetings of the Board of Directors with less than forty-eight hours’ notice.

This power to hold an emergency special meeting of the Board of Directors on short notice could discourage a potential acquirer from launching a bid to acquire majority ownership of the Company, a proxy solicitation in order to replace the current Board of Directors, or otherwise attempting to obtain control of the Company.

Stockholder Rights Agreement.

On October 7, 2022, the Company declared a dividend of one preferred share purchase right (a "Right") for each of the Company’s issued and outstanding shares of our common stock.

The description and terms of these Rights are set forth in the Rights Agreement by and between the Company and American Stock Transfer & Trust Company, LLC.

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

Under the Rights Agreement, the Rights will become exercisable if an entity, person or group acquires beneficial ownership of 20% or more of the outstanding common stock in a transaction not approved by the 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 our common stock having a then-current market value of twice the Exercise Price, which would likely make any takeover or change of control attempt by such entity, person or group prohibitively expensive.

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

On October 2, 2023, the Company amended the Rights Agreement to extend the final expiration date from October 2, 2023 to October 2, 2024.

The Company expects to submit this amendment to the Company’s stockholders for ratification at the Company’s 2024 annual meeting of stockholders.

On January 26, 2024, the Company amended the Rights Agreement to reflect a change in rights agent.

Additional information regarding the Rights Agreement and it amendments, including copies thereof, is contained in the Company’s Current Reports on Form 8-K filed with the SEC on October 7, 2022, October 2, 2023 and January 26, 2024.

Officer Compensation Arrangements.

We have entered into an employment agreement with our Chief Executive Officer and retention agreements with certain of our officers, which provide that, upon the occurrence of a change in control of us and either the termination of their employment without cause (as defined) or their resignation for good reason (as defined), such persons would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of compensation and accelerated vesting of certain equity stock awards paid in accordance with the terms and conditions of the respective agreement).

Such provisions could significantly increase the costs to a third-party acquirer and/or deter such third-party from acquiring us.

Delaware anti-takeover law .

We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law.

In general, Section 203 prohibits a publicly held Delaware corporation, such as the Company, from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless certain criteria are met.

Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder.

Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or is an affiliate or associate of the corporation, and within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock.

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

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

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

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

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Blackbaud, Inc.

principles and tax laws.

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

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

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

For example, the U.S.

Inflation Reduction Act of 2022 created an excise tax of 1% on the value of any stock repurchased by us after December 31, 2022.

We could be subject to this excise tax, but the amount will vary depending on various factors, including the amount and frequency of any stock repurchases and any permitted reductions or exceptions to the amount subject to the tax.

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

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

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

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

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

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

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

UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors