What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-24 · 372 added, 351 removed, 1211 unchanged (37% of the section changed)

12 unchanged sentences

Opinion on the Financial Statements

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

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

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

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

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive loss, cash flows, and stockholders’ equity for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Critical Audit Matter

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive loss, cash flows, and stockholders' equity for the two years in the period ended December 31, 2023, and the related notes and our report dated February 21, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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Opinion on the Financial Statements

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

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

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

We have audited the consolidated statements of comprehensive (loss) income, of stockholders' equity and of cash flows of Blackbaud, Inc.

and its subsidiaries (the “Company”) for the year ended December 31, 2021 including the related notes (collectively referred to as the “consolidated financial statements”).

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

Basis for Opinion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

/s/ PricewaterhouseCoopers LLP

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Preferred stock;

20,000,000 shares authorized, no ne outstanding

20,000,000 shares authorized;

no ne outstanding

Common stock, $ 0.001 par value;

180,000,000 shares authorized, 67,814,044 and 66,165,666 shares issued at December 31, 2022 and December 31, 2021, respectively

180,000,000 shares authorized;

69,188,304 and 67,814,044 shares issued at December 31, 2023 and December 31, 2022, respectively;

53,625,440 and 53,068,814 shares outstanding at December 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,203,012 1,075,264

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( 591,557 ) ( 537,287 )

Accumulated other comprehensive income 8,938 6,522

Accumulated other comprehensive (loss) income ( 1,688 ) 8,938

Retained earnings 198,869 197,049

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Total operating expenses 558,539 581,201 459,639

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

Income (loss) from operations 44,705 ( 28,485 ) 24,906

Interest expense ( 39,922 ) ( 35,803 ) ( 18,003 )

Other income, net 12,861 8,713 180

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

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

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

(Loss) earnings per share

Income (loss) before provision for income taxes 17,644 ( 55,575 ) 7,083

Income tax provision (benefit) 15,824 ( 10,168 ) 1,385

Net income (loss) $ 1,820 $ ( 45,407 ) $ 5,698

Earnings (loss) per share

Basic $ 0.03 $ ( 0.88 ) $ 0.12

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Diluted weighted average shares 53,721,342 51,569,148 48,230,438

Other comprehensive income

Other comprehensive (loss) income

Foreign currency translation adjustment $ 5,049 $ ( 16,160 ) $ 661

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

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

Unrealized (loss) gain on derivative instruments, net of tax ( 15,675 ) 18,576 8,358

Total other comprehensive (loss) income ( 10,626 ) 2,416 9,019

Comprehensive (loss) income $ ( 8,806 ) $ ( 42,991 ) $ 14,717

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Cash flows from operating activities

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

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

Net income (loss) $ 1,820 $ ( 45,407 ) $ 5,698

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

Depreciation and amortization 109,487 102,369 82,410

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Cash received in sale of business — 6,426 —

Other investing activities ( 250 ) — —

Net cash used in investing activities ( 64,391 ) ( 85,549 ) ( 471,273 )

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Employee taxes paid for withheld shares upon equity award settlement ( 35,867 ) ( 36,376 ) ( 39,404 )

Proceeds from exercise of stock options — — 4

Change in due to customers ( 6,812 ) 111,386 ( 13,464 )

1 unchanged sentence

Purchase of treasury stock ( 18,831 ) — ( 108,416 )

Dividend payments to stockholders — — ( 5,960 )

Net cash (used in) provided by financing activities ( 142,965 ) ( 25,689 ) 264,108

Effect of exchange rate on cash, cash equivalents and restricted cash 2,048 ( 10,486 ) 297

Net increase in cash, cash equivalents and restricted cash 82,169 6,793 67,674

Net (decrease) increase in cash, cash equivalents and restricted cash ( 5,674 ) 82,169 6,793

Cash, cash equivalents and restricted cash, beginning of year 733,931 651,762 644,969

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Supplemental disclosure of cash flow information

Cash paid during the year for:

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

Taxes, net of refunds ( 9,670 ) ( 10,073 ) ( 3,563 )

Cash paid for interest $ ( 38,052 ) $ ( 33,371 ) $ ( 16,386 )

Cash (paid) for taxes, net of refunds ( 35,619 ) ( 9,670 ) ( 10,073 )

Non-cash investing and financing activities:

Purchase of EVERFI through the issuance of stock (see Note 3) — — ( 303,633 )

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

Purchase of software and services by assuming directly related liabilities ( 2,491 ) ( 1,710 ) —

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Consolidated Statements of Stockholders' Equity

(dollars in thousands) Common stock Additional

capital Treasury

stock Accumulated

(dollars in thousands) Common stock Treasury stock Additional

capital Accumulated

comprehensive

income (loss)

(loss) income

earnings Total stockholders' equity

Shares Amount

Shares Amount Shares Amount

Balance at December 31, 2020 60,904,638 $ 61 ( 12,054,268 ) $ ( 353,091 ) $ 544,963 $ ( 2,497 ) $ 236,714 $ 426,150

Net income — — — — — — 5,698 5,698

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

— — — — — ( 5,960 ) ( 5,960 )

Common stock issued in purchase of EVERFI (see Note 3) 3,844,423 4 — — 303,629 — — 303,633

Purchase of treasury shares under stock repurchase program — — ( 1,592,933 ) ( 108,416 ) — — — ( 108,416 )

— — — ( 41,001 ) — — ( 41,001 )

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

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

— — — ( 21,425 ) — — ( 21,425 )

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

Shares withheld to satisfy tax withholdings — — ( 535,604 ) ( 39,404 ) — — — ( 39,404 )

Stock-based compensation — — — — 120,335 — 44 120,379

3 unchanged sentences

Balance at December 31, 2021 66,165,666 $ 66 ( 14,182,805 ) $ ( 500,911 ) $ 968,927 $ 6,522 $ 242,456 $ 717,060

Net income — — — — — 5,698 5,698

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

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

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

— — — — ( 1,352 ) — — ( 1,352 )

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

Retirements of common stock (1)

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

Vesting of restricted stock units 1,015,304 — — — — — — —

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

— — — ( 39,404 ) — — ( 39,404 )

Shares withheld to satisfy tax withholdings — — ( 562,425 ) ( 36,376 ) — — — ( 36,376 )

Stock-based compensation — — — — 110,294 — — 110,294

3 unchanged sentences

Balance at December 31, 2022 67,814,044 $ 68 ( 14,745,230 ) $ ( 537,287 ) $ 1,075,264 $ 8,938 $ 197,049 $ 744,032

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

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

— — ( 1,352 ) — — — ( 1,352 )

Net income — — — — — — 1,820 1,820

Retirements of common stock (1)

( 143 ) — — — ( 14 ) — — ( 14 )

Purchase of treasury shares under stock repurchase program — — ( 221,836 ) ( 18,831 ) — — — ( 18,831 )

Vesting of restricted stock units 1,007,921 — — — — — — —

Employee taxes paid for 562,425 withheld shares upon equity award settlement

— — — ( 36,376 ) — — ( 36,376 )

Shares withheld to satisfy tax withholdings — — ( 595,798 ) ( 35,439 ) — — — ( 35,439 )

Stock-based compensation — — — — 127,762 — — 127,762

1 unchanged sentence

Restricted stock cancellations ( 106,859 ) — — — — — — —

Other comprehensive income — — — — 2,416 — 2,416

Other comprehensive loss — — — — — ( 10,626 ) — ( 10,626 )

Balance at December 31, 2023 69,188,304 $ 69 ( 15,562,864 ) $ ( 591,557 ) $ 1,203,012 $ ( 1,688 ) $ 198,869 $ 808,705

(1) Represents dividends paid in Q1 2020.

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

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

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Notes to Consolidated Financial Statements

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

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

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

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

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

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

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

Basis of Presentation

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Recently adopted accounting pronouncements

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

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

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

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

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

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

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

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

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

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

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

Recently issued accounting pronouncements

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Summary of significant accounting policies

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(ii) providing payment and transaction services;

(iii) providing software maintenance and support services;

and (iv) providing professional services, including implementation, consulting, training, analytic and other services.

Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

and (iii) providing Impact-as-a-Service ™ digital educational content.

Revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

We determine revenue recognition through the following steps:

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• Recognition of revenue when, or as, we satisfy a performance obligation.

Recurring revenue represents stand-ready performance obligations in which we are making our solutions or services available to our customers continuously over time or the value of the contract renews.

Our recurring revenue includes two components:

contractual recurring and transactional recurring.

Contractual recurring

Contractual recurring revenue is primarily comprised of fees for the use of our subscription-based software solutions, which includes providing access to cloud solutions, Impact-as-a-Service™ digital educational content, online training programs and subscription-based analytic services.

Contractual recurring revenue also includes fees from maintenance services for our on-premises solutions.

Contractual recurring revenue represents stand-ready performance obligations in which we are making our solutions or services available to our customers continuously over time or the value of the contract renews.

Therefore, recurring revenue is generally recognized over time on a ratable basis over the contract term, beginning on the date that the solution or service is made available to the customer.

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

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

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

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

Transactional recurring

Transactional recurring revenue is comprised of transaction fees associated with the use of our solutions, including donation processing, tuition management, consumer giving and event-based usage.

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

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Contracts with multiple performance obligations

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Standalone selling prices of our solutions and services are typically estimated based on observable transactions when the solutions or services are sold on a standalone basis.

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Costs of obtaining contracts, contract assets and deferred revenue

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

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

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

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

23 unchanged sentences

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

3 unchanged sentences

See Note 10 to these consolidated financial statements for further discussion of our derivative instruments.

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Cash and cash equivalents

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Repair and maintenance costs are expensed as incurred.

Construction-in-progress primarily related to purchases of facilities and information technology assets which had not been placed in service at the respective balance sheet dates.

Construction-in-progress primarily related to purchases of information technology assets which had not been placed in service at the respective balance sheet dates.

We transfer these assets to the applicable property and equipment category on the date they are placed in service.

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

6 unchanged sentences

Goodwill is not amortized, but tested annually for impairment on the first day of our fourth quarter, or more frequently if indicators of potential impairment arise.

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis to determine whether it is necessary to perform the quantitative impairment test.

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If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Based on our current internal reporting structure, we currently have one operating segment, one reportable segment, and one reporting unit.

Based on our current internal reporting structure, we have one operating segment, one reportable segment, and one reporting unit.

In each of 2023, 2022 and 2021, we performed the quantitative impairment test, which indicated that the estimated fair values of the identified reporting units significantly exceeded their respective carrying values.

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

There were no impairments of goodwill during 2023, 2022 and 2021.

Intangible assets other than goodwill

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Basis of amortization Amortization

Customer relationships Straight-line and accelerated (1)

Marketing assets Straight-line and accelerated (1)

Developed technology Straight-line and accelerated (1)

Customer relationships Straight-line and Curve of Economic Benefit (1)

Marketing assets Straight-line and Curve of Economic Benefit (1)

Developed technology Straight-line and Curve of Economic Benefit (1)

Content Straight-line

(1) Certain of the customer relationships, marketing assets and developed technology assets are amortized on an accelerated basis.

(1) Certain of the customer relationships, marketing assets and developed technology assets are amortized on a curve that represents the expected period of economic benefit.

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

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If the carrying amount of a finite-lived intangible asset is no longer recoverable based upon the undiscounted cash flows of the asset, the amount of impairment is the difference between the carrying amount and the fair value of the asset.

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

A ll of our intangible assets were acquired in business combinations.

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

There were no impairments of acquired intangible assets during 2023 and 2021.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Impairment of long-lived assets

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

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

22 unchanged sentences

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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

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

For the years ended December 31, 2023 and 2021, we recorded net foreign currency losses that were insignificant and $ 1.6 million, respectively.

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

Research and development

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Software and content development costs

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

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

the Company's cloud platform.

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

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

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

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

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

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

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

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

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

There were no impairments of capitalized software assets during 2023 and 2021.

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

Allowance for credit losses

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

6 unchanged sentences

9,016 4,483 ( 4,565 ) 441 9,375

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

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

The amount of write-offs during the year ended December 31, 2023 was lower than during the same periods in 2022 and 2021 as we experienced payment delays during those years related to the COVID-19 pandemic.

Allowance for sales returns

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1,276 6,967 ( 6,463 ) 1,780

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Advertising costs

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We determine if an arrangement is a lease at inception.

Operating leases are included in operating lease ROU assets, accrued expense and other current liabilities, and operating lease liabilities, net of current portion in our consolidated balance sheet as of December 31, 2022 and 2021.

Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expense and other current liabilities, and operating lease liabilities, net of current portion in our consolidated balance sheet as of December 31, 2023 and 2022.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Loss contingencies

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

(Loss) earnings per share

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

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

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

Earnings (loss) per share

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

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

Diluted earnings 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 and stock appreciation rights and vesting of restricted stock awards and units.

In periods where there are net losses and the inclusion of potentially dilutive securities would be anti-dilutive, diluted loss per share is the same as basic loss per share.

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Business Combinations and Dispositions

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

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

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

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

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

2022 Acquisition

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

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

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

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

As of December 31, 2023, a liability for the contingent consideration is recorded at its current estimated fair value of $ 1.4 million in other liabilities in our consolidated balance sheet.

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

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

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

We finalized the purchase price allocation of Kilter, including the valuation of assets acquired and liabilities assumed, during the third quarter of 2023.

Insignificant acquisition-related costs, which primarily consisted of legal services, were recorded as general and administrative expense during the year ended December 31, 2023.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

2021 Acquisition

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

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

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

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

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

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

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

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

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Goodwill and Other Intangible Assets

2 unchanged sentences

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

Additions related to business combination (1)

Adjustments related to prior year business combination (1)

Adjustments related to dispositions (3)

Effect of foreign currency translation 3,430

Balance at December 31, 2023 $ 1,053,738

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

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

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

(1) Represents immaterial measurement period adjustments during the year ended December 31, 2023 to the fair value of the Kilter assets acquired and liabilities assumed.

We have recorded intangible assets acquired in various business combinations based on their fair values at the date of acquisition.

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Intangible assets, net $ 581,937 $ 635,136

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

During the year ended December 31, 2023, changes to the gross carrying amounts of intangible asset classes were primarily related to write-offs of fully amortized intangible assets and the effect of foreign currency translation.

Amortization expense

Amortization expense related to finite-lived intangible assets acquired in business combinations is allocated to cost of revenue on the consolidated statements of comprehensive income based on the revenue stream to which the asset contributes, except for marketing assets and non-compete agreements, for which the associated amortization expense is included in operating expenses.

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table summarizes amortization expense of our finite-lived intangible assets:

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Total amortization of intangibles from business combinations $ 55,602 $ 51,417 $ 37,039

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table outlines the estimated future amortization expense for each of the next five years for our finite-lived intangible assets as of December 31, 2023:

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Total $ 305,021

(Loss) Earnings Per Share

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

Earnings (Loss) Per Share

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

Years ended December 31,

(dollars in thousands, except per share amounts) 2023 2022 2021

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

Net income (loss) $ 1,820 $ ( 45,407 ) $ 5,698

Weighted average common shares 52,546,406 51,569,148 47,412,306

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Weighted average common shares assuming dilution 53,721,342 51,569,148 48,230,438

(Loss) earnings per share:

Earnings (loss) per share

Basic $ 0.03 $ ( 0.88 ) $ 0.12

Diluted $ 0.03 $ ( 0.88 ) $ 0.12

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

Anti-dilutive shares excluded from calculations of diluted earnings (loss) per share 45,614 1,046,307 974,110

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

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Fair value as of December 31, 2023

Derivative instruments:

Financial assets:

Interest rate swaps $ — $ 16,198 $ — $ 16,198

Foreign currency forward contracts — 247 — 247

Total financial assets $ — $ 16,198 $ — $ 16,198

Fair value as of December 31, 2023

Derivative instruments:

Financial liabilities:

Interest rate swaps $ — $ 5,004 $ — $ 5,004

Foreign currency forward contracts — 536 — 536

2 unchanged sentences

Fair value as of December 31, 2022

Derivative instruments:

Financial assets:

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

Foreign currency forward contracts — 247 — 247

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

Fair value as of December 31, 2022

Financial liabilities:

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

Contingent consideration obligations — — 2,710 2,710

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

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

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Contingent consideration obligations arise from business acquisitions.

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

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

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

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

2023 Form 10-K

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Notes to Consolidated Financial Statements

time value of money.

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

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

We believe the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at December 31, 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 December 31, 2023 and December 31, 2022, as the debt bears interest rates that approximate market value.

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

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

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.

The fair value of our fixed rate debt does not exceed the carrying amount.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the years ended December 31, 2023, 2022 and 2021.

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

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

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

During the year ended December 31, 2023, we recorded noncash impairment charges of $ 5.6 million against certain operating lease ROU assets and $ 1.1 million impairment charges against certain property and equipment assets.

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

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

During the year ended December 31, 2022, we recorded noncash impairment charges of $ 2.3 million against certain previously capitalized software development costs, $ 2.0 million against certain insignificant customer relationship intangible assets that were held for sale, $ 1.0 million against certain operating lease ROU assets and insignificant impairment charges against certain property and equipment assets.

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

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

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

There were no other non-recurring fair value adjustments during 2023, 2022 and 2021 except for certain business combination accounting adjustments to the initial fair value estimates of the assets acquired and liabilities assumed at the acquisition date from updated estimates and assumptions during the measurement period.

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Depreciation expense was $ 13.0 million, $ 14.1 million and $ 14.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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

During the year ended December 31, 2023, we recorded noncash impairment charges of $ 1.1 million against certain property and equipment assets .

These impairment charges resulted primarily from our entry into a sublease in July 2023 for a portion of our Washington, DC office location, which we previously closed in February 2023 to align with our remote-first workforce strategy and are reflected in general and administrative expense on the statements of comprehensive income.

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

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

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

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

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

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$ 160,194 $ 141,023

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

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

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

2023 Form 10-K

1 unchanged sentence

Notes to Consolidated Financial Statements

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

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

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

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

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Restricted cash due to customers $ 695,489 $ 700,611

Letters of credit for operating leases — 2,186

Real estate escrow balances and other 1,517 1,629

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

10,189 11,892

Unbilled accounts receivable 5,615 5,775

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Deferred tax assets 644 1,153

Receivables for probable insurance recoveries (6)(7)

Other assets 13,702 10,929

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(3) The current portion of prepaid software maintenance and subscriptions as of December 31, 2023 and December 31, 2022 was $ 32.4 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.

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

(5) Amortization expense from capitalized cloud computing implementation costs was $ 2.5 million, $ 2.2 million and $ 1.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Accumulated amortization for these costs was $ 7.7 million and $ 5.2 million as of December 31, 2023 and 2022, respectively.

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

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

2023 Form 10-K

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2023 December 31,

Accrued legal costs (1)

$ 28,448 $ 11,724

Taxes payable $ 21,282 $ 16,667

16,667 19,777

Customer credit balances 10,238 8,257

Operating lease liabilities, current portion 6,701 7,723

Derivative instruments 5,540 323

Accrued commissions and salaries 4,413 6,944

Accrued transaction-based costs related to payments services 4,323 5,059

Contingent consideration liability (3)

Accrued health care costs 3,865 2,467

Accrued legal costs 3,659 28,448

Accrued vacation costs 2,452 2,156

Accrued bonuses 2,026 5,829

Unrecognized tax benefit 266 1,248

Amounts payable to former EVERFI option holders (4)

Contingent consideration liability

Other liabilities 10,704 9,542

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Accrued expenses and other current liabilities $ 64,322 $ 86,002

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

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

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

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

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

Other income, net

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Interest income $ 8,821 $ 1,746 $ 392

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

Currency revaluation (losses) gains ( 36 ) 4,635 ( 1,644 )

Other income, net 4,076 2,332 1,432

Other income, net $ 12,861 $ 8,713 $ 180

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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Debt, net of current portion $ 760,405 $ 840,241 4.17 % 4.48 %

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

2020 refinancing

We were previously party to a 5 -year $ 700.0 million credit facility entered into during June 2017.

The credit facility included:

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

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

The 2020 Credit Facility matures in October 2025 and replaced the 2017 Credit Facility by amending and restating it to include a $ 500.0 million revolving credit facility (the “2020 Revolving Facility”) and a $ 400.0 million term loan facility (the “2020 Term Loan”).

The 2020 Credit Facility matures in October 2025 and replaced our 5-year $700 million credit facility entered into during June 2017 (the "2017 Credit Facility") by amending and restating it to include a $ 500.0 million revolving credit facility (the “2020 Revolving Facility”) and a $ 400.0 million term loan facility (the “2020 Term Loan”).

Upon closing, we borrowed $ 400.0 million pursuant to the 2020 Term Loan and used the proceeds to repay the outstanding principal balance of the term loan under the 2017 Credit Facility, and repay $ 124.4 million of outstanding revolving credit loans under the 2017 Revolving Facility.

In connection with the amendment and restatement of the 2017 Credit Facility, the existing Pledge Agreement dated June 2, 2017, by us in favor of Bank of Am erica, N.A., as administrative agent, was likewise amended and restated.

Certain lenders of the 2020 Term Loan participated in the 2017 Term Loan and the change in present value of our future cash flows to these lenders under the 2017 Term Loan and under the 2020 Term Loan was less than 10%.

Accordingly, we accounted for the refinancing event as a debt modification.

Certain lenders of the 2017 Term Loan did not participate in the 2020 Term Loan.

Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment.

Certain lenders of the 2017 Revolving Facility participated in the 2020 Revolving Facility and provided increased borrowing capacities.

Accordingly, we accounted for the refinancing event for these lenders as a debt modification.

Certain lenders of the 2017 Revolving Facility did not participate in the 2020 Revolving Facility.

Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment.

We recorded an insignificant loss on debt extinguishment related to the write-off of debt discount and deferred financing costs for the portions of t he 2017 Credit Facility considered to be extinguished.

This loss was recognized in the consolidated statements of comprehensive income within other income, net.

Summary of the 2020 Credit Facility

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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

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

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

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

and (iii) Term SOFR plus 1.00 %.

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

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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As of December 31, 2023, deferred financing costs totaling $ 0.6 million were included in other assets on our consolidated balance sheets.

Financing for EVERFI acquisition

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

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

Real estate loans

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

As part of the purchase price, we assumed the Seller’s obligations under (i) a 5.12 % Senior Secured Note, Series A1, in the outstanding principal amount of $ 49.1 million, dated May 2, 2018, and (ii) a 5.61 % Senior Secured Note, Series A2, in the outstanding principal amount of $ 12.0 million, dated May 2, 2018, or an aggregate outstanding principal amount of $ 61.1 million (collectively, the “Real Estate Loans”).

The Series A1 Note provides that we will pay the remaining principal amount due thereunder together with interest thereon at the rate indicated above, in monthly installments until it matures in April 2038.

The Series A2 Note provides that we pay interest only in monthly installments at the rate indicated above with the principal amount due at maturity in April 2038.

The Real Estate Loans are secured by a first priority lien on the real property constituting the global headquarters facility.

Our assumption of the Real Estate Loans was a noncash investing and financing transaction and is reflected in our supplemental disclosure of cash flow information.

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”).

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

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

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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December 2022 39 3 January 2023 $ 1,710

December 2022 39 3 January 2023 1,710

January 2023 36 3 April 2023 2,491

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

The changes in supplier financing obligations during the years ended December 31, 2023, consisted of the following:

(dollars in thousands) Total

Balance at December 31, 2022 $ 2,247

Balance at December 31, 2023 $ 2,800

As of December 31, 2023, the required annual maturities related to the 2020 Credit Facility, the Real Estate Loans and our other debt were as follows:

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

("ISDA") master agreements with our counterparties.

master agreements with our counterparties.

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

2 unchanged sentences

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

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

As of December 31, 2023 and December 31, 2022, the aggregate notional

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

values of the interest rate swaps were $ 935.0 million and $ 435.0 million, respectively.

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

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

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

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

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

As of December 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 $ 29.9 million CAD and $ 22.6 million CAD, respectively.

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

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

Net investment hedges

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

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

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

As of December 31, 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 £ 13.2 million and £ 11.2 million, respectively.

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

5 unchanged sentences

Derivative instruments designated as hedging instruments:

Interest rate swaps, current portion Prepaid expenses

and other current assets $ 16,198 $ — Accrued expenses

and other current liabilities $ — $ —

Foreign currency forward contracts, current portion

5 unchanged sentences

Total derivative instruments designated as hedging instruments $ 16,198 $ 32,117 $ 5,540 $ 323

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

Gain (loss) recognized

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

Gain recognized

in accumulated other

comprehensive

of gain (loss)

(loss) income as of

reclassified from

1 unchanged sentence

comprehensive

(loss) income

Gain (loss) reclassified from accumulated

other comprehensive income into (loss) income

(loss) income into

income (loss)

Gain (loss) reclassified from

accumulated other

comprehensive (loss) income

into income (loss)

(dollars in thousands) December 31,

10 unchanged sentences

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

Foreign currency forward contracts $ 247 Revenue $ 165

Net Investment Hedges

Foreign currency forward contracts $ ( 323 ) $ —

2021 Year ended

December 31, 2021

Cash Flow Hedges

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

1 unchanged sentence

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

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

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

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

4 unchanged sentences

We did no t have any undesignated derivative instruments during 2023, 2022 and 2021.

Commitments and Contingencies

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

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

2023 Form 10-K

1 unchanged sentence

Notes to Consolidated Financial Statements

Commitments and Contingencies

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

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

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

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

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

At December 31, 2022, we had a standby letter of credit of $ 2.1 million for a security deposit for this lease.

The following table summarizes the components of our lease expense:

6 unchanged sentences

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

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

During the year ended December 31, 2023, we recorded noncash impairment charges of $ 5.6 million against certain operating lease ROU assets.

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

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

7 unchanged sentences

These impairment charges are reflected in general and administrative expense.

During the twelve months ended December 31, 2020, we reduced the estimated useful lives of our operating lease ROU assets for certain of our office locations we expected to exit.

We recorded $ 16.2 million in incremental operating lease costs during 2020 related to this change in accounting estimate, which accounts for a substantial portion of the increase in operating lease costs during 2020.

For these same office locations, we also reduced the estimated useful lives of certain facilities-related fixed assets, which resulted in incremental depreciation expense of $ 4.6 million during 2020 (see Note 7 to these consolidated financial statements).

During the twelve months ended December 31, 2020 , we also recorded $ 4.0 million in impairments of op erating lease ROU assets associated with certain leased office spaces we ceased using.

These impairment charges are reflected in general and administrative expense.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Maturities of our operating lease liabilities as of December 31, 2023 were as follows:

5 unchanged sentences

Present value of future payments $ 46,786

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Our ROU assets and lease liabilities are included in the following line items in our consolidated balance sheet:

21 unchanged sentences

Operating leases 2,765 — 5,358

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

Other commitments

2 unchanged sentences

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

9 unchanged sentences

if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range.

For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material.

For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material.

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

8 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.

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

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

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

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

4 unchanged sentences

Net expense $ 53,426 $ 55,723 $ 1,816

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

6 unchanged sentences

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

Recorded expenses have consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims and accruals for certain loss contingencies.

Recorded expenses have consisted primarily of payments to third-party service providers and consultants, including legal fees, settlement of the previously disclosed SEC and multi-state Attorneys General investigations (discussed below), settlements of customer claims and accruals for certain loss contingencies.

Not included in the expenses discussed above were costs associated with enhancements to our cybersecurity program.

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

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

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

For full year 2022, we 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 incurred net pre-tax

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

expense of $ 53.4 million related to the Security Incident, which included $ 22.4 million for ongoing legal fees.

It also includes settlements and additional accruals for loss contingencies of $ 31.0 million.

Also, for full year 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 multi-state Attorneys General settlement (discussed below).

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

For full year 2024, we currently expect net pre-tax expense of approximately $ 5.0 million to $ 10.0 million and net cash outlays of approximately $ 8.0 million to $ 13.0 million for ongoing legal fees related to the Security Incident.

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

As of December 31, 2023, we have recorded approximately $ 1.5 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain customers 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 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.

2 unchanged sentences

Customer claims.

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

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.

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

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

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 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.

2 unchanged sentences

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 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.

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Lawsuits that are putative class actions require a plaintiff to satisfy a number of procedural requirements before proceeding to trial.

4 unchanged sentences

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

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

2 unchanged sentences

Governmental investigations.

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

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

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

We have received a Civil Investigative Demand from the office of the California Attorney General relating to the Security Incident and are in discussions with the Attorney General about potential resolution of issues arising from this investigation.

Although we are hopeful that we can resolve this matter on acceptable terms, there is no assurance that we will be able to do so on terms acceptable to us and the State of California.

We also are subject to the following pending governmental actions:

• an investigation by the U.S.

Federal Trade Commission;

• a formal investigation by the SEC;

Federal Trade Commission (the "FTC"), as further described below;

• an investigation by the U.S.

Department of Health and Human Services.

• an investigation by the Office of the Australian Information Commissioner;

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

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

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

We also responded to inquiries from the Office of the Australian Information Commissioner in September 2020 and the Office of the Privacy Commissioner of Canada in October 2020.

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.

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

As previously disclosed, on October 5, 2023, we entered into separate, substantially similar Administrative Orders with each of 49 state Attorneys General and the District of Columbia relating to the previously announced 2020 Security Incident in which a cyber-criminal removed a copy of a subset of data from our self-housed environment.

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 (the “Multi-state Investigation”), 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 the Health Insurance Portability and Accountability Act of 1996 (“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.

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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 entered into the Administrative Orders without admitting fault or liability in connection with the matters subject to the Multi-state Investigation.

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

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

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

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

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

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

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

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

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

8 unchanged sentences

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

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

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.

2023 Form 10-K

18 unchanged sentences

Total deferred taxes ( 24,368 ) ( 26,644 ) ( 2,429 )

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

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

Total income tax provision (benefit) $ 15,824 $ ( 10,168 ) $ 1,385

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

Years ended December 31,

2 unchanged sentences

International 39,718 35,918 30,263

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

Income (loss) before provision for income taxes $ 17,644 $ ( 55,575 ) $ 7,083

2023 Form 10-K

1 unchanged sentence

Notes to Consolidated Financial Statements

A reconciliation between the effect of applying the federal statutory rate and the effective income tax rate used to calculate our income tax provision (benefit) is as follows:

A reconciliation between the effect of applying the federal statutory rate and the effective income tax rate used to calculate our income tax provision is as follows:

Years ended December 31,

5 unchanged sentences

Nondeductible security incident-related fines or penalties

35.7 ( 8.7 ) —

Section 162(m) limitation 30.1 ( 6.4 ) 75.0

2 unchanged sentences

GILTI inclusion 9.3 ( 2.6 ) —

Foreign tax rate 6.1 1.0 ( 6.0 )

Nondeductible meals, entertainment and transportation 4.4 ( 0.7 ) 1.1

Acquisition costs — 8.7 —

DTA Adjustment – NOLs — — ( 3.3 )

Unrecognized tax benefit 0.7 0.5 ( 32.7 )

Foreign tax rate 1.0 ( 6.0 ) ( 1.7 )

Acquisition costs — — 8.7

Return to accrual adjustment ( 8.3 ) 1.4 ( 4.2 )

FDII benefit 2.3 — —

State credits, net of federal benefit ( 9.1 ) 7.2 ( 32.6 )

FDII benefit ( 10.2 ) 2.3 —

Federal credits generated ( 42.3 ) 11.5 ( 54.5 )

1 unchanged sentence

Income tax provision effective rate 89.7 % 18.3 % 19.6 %

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

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

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

The increase in our effective income tax rate for year ended December 31, 2023, when compared to the same period in 2022, was primarily attributable to higher 2023 non-deductible accruals for loss contingencies related to the Security Incident and other non-deductible expenses and tax rate changes, partially offset by increased tax credits.

Furthermore, our 2023 effective tax rate was negatively impacted by higher tax rates in foreign jurisdictions in which we operate which were predominantly due to UK tax rate increases.

The year-on-year comparison is further impacted by 2023 pre-tax income versus prior year pre-tax loss.

2023 Form 10-K

4 unchanged sentences

Deferred tax assets relating to:

Federal and state and foreign net operating loss carryforwards $ 10,369 $ 21,456

Capitalized R&D and software costs

$ 47,351 $ 12,166

Federal, state and foreign tax credits 39,260 50,194

1 unchanged sentence

Operating leases 12,867 14,024

Federal and state and foreign net operating loss carryforwards 7,061 10,369

Deferred revenue 5,992 1,820

Allowance for credit losses 1,702 1,803

Intangible assets 1,050 561

Deferred revenue 1,820 1,057

Accrued bonuses 314 455

Capitalized R&D and software costs

Other 2,982 6,293

2 unchanged sentences

Intangible assets ( 160,172 ) ( 161,836 )

Capitalized software and content development costs

Costs of obtaining contracts ( 13,870 ) ( 16,287 )

9 unchanged sentences

If not utilized, the state net operating loss carryforwards will expire over various periods beginning in 2024.

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

Our federal tax credit carryforwards for income tax purposes were approximately $ 16.9 million.

Our foreign net operating loss carryforwards have an unlimited carryforward period.

Our state tax credit carryforwards for income tax purposes were approximately $ 40.9 million, net of federal benefit.

If not utilized, the federal tax credit carryforwards will begin to expire in 2039 and the state tax credit carryforwards will begin to expire in 2023.

If not utilized, the state tax credit carryforwards will begin to expire in 2024.

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

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

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

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

7 unchanged sentences

2021 29,184 893 1,897 31,974

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2023, 2022 and 2021:

2 unchanged sentences

Balance at beginning of year $ 3,083 $ 3,651 $ 4,625

Increases from current period positions 762 629 1,751

Increases from prior period positions 101 89 6

Decreases in prior year positions ( 118 ) ( 908 ) ( 57 )

Increases from current period positions 629 1,751 491

Settlements (payments) ( 160 ) — ( 1,192 )

10 unchanged sentences

The reasonably possible decrease at December 31, 2023 was insignificant.

For our undistributed earnings of foreign subsidiaries, which we do not consider to be significant, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States.

For our undistributed earnings of foreign subsidiaries, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States except to the extent that said earnings are of previously taxed income.

Accordingly, we have not provided for U.S.

state income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries.

If some or all of such earnings were to be remitted, the amount of taxes payable would be insignificant.

income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries.

Stock-based Compensation

15 unchanged sentences

Performance-based restricted stock units 1,209,515 1,104,260

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

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

Expense recognition

24 unchanged sentences

We have granted shares of common stock subject to certain restrictions under the 2016 Equity Plan.

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

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

Restricted stock awards granted to non-employee directors vest after one year from the date of grant or, if earlier, immediately prior to the next annual election of directors, provided the non-employee director is serving as a director at that time.

2 unchanged sentences

The following table summarizes our unvested restricted stock awards as of December 31, 2023, and changes during the year then ended:

Restricted stock awards Restricted

stock awards Weighted

12 unchanged sentences

We have also granted restricted stock units subject to certain restrictions under the 2016 Equity Plan.

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

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

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

1 unchanged sentence

The following table summarizes our unvested, time-based restricted stock units as of December 31, 2023, and changes during the year then ended:

Time-based restricted stock units Restricted

Time-based restricted

stock units Weighted

14 unchanged sentences

The following table summarizes our unvested, performance-based restricted stock units as of December 31, 2023, and changes during the year then ended:

Performance-based restricted stock units Restricted

Performance-based restricted

stock units Weighted

19 unchanged sentences

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

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

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

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

During the year ended December 31, 2023, we repurchased 221,836 shares for $ 18.8 million.

The remaining amount available to purchase stock under the then approved stock repurchase program was $ 231.2 million as of December 31, 2023.

On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by expanding the total capacity under the program from $ 250.0 million to $ 500.0 million available for purchase.

Between January 1, 2024 and January 17, 2024, we repurchased $ 22.3 million under the prior authorization.

Between January 18, 2024 and February 16, 2024, we repurchased an additional 7,114 shares for $ 0.6 million under the new authorization.

The remaining amount available to purchase stock under the stock repurchase program was $ 499.4 million as of February 16, 2024.

2023 Form 10-K

1 unchanged sentence

Notes to Consolidated Financial Statements

Changes in accumulated other comprehensive loss by component

The changes in accumulated other comprehensive loss by component, consisted of the following:

Changes in accumulated other comprehensive income (loss) by component

The changes in accumulated other comprehensive income (loss) by component, consisted of the following:

Years ended December 31,

6 unchanged sentences

( 271 ) 22,772 5,617

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

Amounts reclassified from accumulated other comprehensive (loss) income ( 20,806 ) ( 5,685 ) 3,714

Tax expense (benefit) included in provision for income taxes 5,402 1,489 ( 973 )

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

Net current-period other comprehensive income (loss) 18,576 8,358 ( 1,778 )

Accumulated other comprehensive income (loss) balance, end of period $ 23,833 $ 5,257 $ ( 3,101 )

Total amounts reclassified from accumulated other comprehensive (loss) income ( 15,404 ) ( 4,196 ) 2,741

Net current-period other comprehensive (loss) income ( 15,675 ) 18,576 8,358

Accumulated other comprehensive income balance, end of period $ 8,158 $ 23,833 $ 5,257

Foreign currency translation adjustment:

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

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

Translation adjustment 5,049 ( 16,160 ) 661

Accumulated other comprehensive (loss) income balance, end of period ( 9,846 ) ( 14,895 ) 1,265

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

Accumulated other comprehensive (loss) income, end of period $ ( 1,688 ) $ 8,938 $ 6,522

Defined Contribution Plan

3 unchanged sentences

The 401K Plan also provides for additional employer contributions to be made at our discretion.

We suspended our 401(k) match program between April 1, 2020 and December 31, 2020 in response to COVID-19.

Total matching contributions to the 401K Plan for the years ended December 31, 2023, 2022 and 2021 were $ 7.8 million, $ 9.3 million and $ 6.5 million, respectively.

In December 2020, we made a discretionary matching contribution to eligible employees 401(k) plans totaling $ 1.2 million, given our financial performance during the fourth quarter.

There were no discretionary contributions by us to the 401K Plan in 2023, 2022 and 2021.

Segment Information

Our chief operating decision maker is our chief executive officer ("CEO").

Our chief operating decision maker uses consolidated financial information to make operating decisions, assess financial performance and allocate resources.

We have one operating segment and one reportable segment.

2023 Form 10-K

1 unchanged sentence

Notes to Consolidated Financial Statements

Segment Information

Our chief operating decision maker is our chief executive officer ("CEO").

Our CEO uses consolidated financial information to make operating decisions, assess financial performance and allocate resources.

We have one operating segment and one reportable segment.

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

19 unchanged sentences

Total deferred revenue $ 394,927 $ 385,236

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

The increase in deferred revenue during 2023 was primarily due to new subscription sales of our cloud solutions and progress in initiatives to bring our pricing in line with the market.

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 2023 that was included in the deferred revenue balance at the beginning of the period was approximately $ 365 million .

The amount of revenue recognized during 2023 from performance obligations satisfied in prior periods was insignificant .

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Disaggregation of revenue

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Total revenue $ 1,105,432 $ 1,058,105 $ 927,740

2022 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

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

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

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

• The Social Sector market group focuses on sales to customers and prospects in the social sector, such as nonprofits, foundations, education institutions, healthcare organizations and other not-for-profit entities globally, and includes JustGiving from Blackbaud;

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

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

The following table presents our revenue by market group:

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Total revenue $ 1,105,432 $ 1,058,105 $ 927,740

(1) Due to the market group changes discussed above, we have recast our revenue by market group for the years ended December 31, 2021 and 2020 to present them on a consistent basis with the current year.

The following table presents our recurring revenue by type:

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Total recurring revenue $ 1,071,520 $ 1,011,733 $ 880,850

2023 Form 10-K

Blackbaud, Inc.

Notes to Consolidated Financial Statements

Subsequent Events

Stock Repurchase Program

On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our existing stock repurchase program.

The expansion raised the total capacity under the stock repurchase program from $ 250.0 million to $ 500.0 million available for repurchases.

The program does not have an expiration date.

During December 2023 and January 2024, prior to the replenishment on January 17, 2024, we repurchased $ 41.1 million of our common stock under the stock repurchase program.

Between January 18, 2024 and February 16, 2024, we repurchased $ 0.6 million.

As of February 16, 2024, the remaining amount available to purchase stock under our repurchase program was $ 499.4 million.

All of the Company's stock repurchases during the fourth quarter of 2023 and the first quarter of 2024 were made pursuant to an SEC Rule 10b5-1(c) trading arrangement.

Repurchases by the Company will be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors.

Stock repurchases may be made from time to time in open market transactions, in private transactions or otherwise in accordance with applicable securities laws and regulations and other legal requirements, including compliance with the Company’s finance agreements.

There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice.

All shares purchased will be held in the Company’s treasury for possible future use.

The Company anticipates funding any stock repurchases from its cash flow from operations.

Additional information regarding the stock repurchase program reauthorization is contained in the Company's Current Report on Form 8-K filed with the SEC on January 22, 2024.

FTC Settlement

On February 1, 2024, the FTC announced its approval of a Proposed Order evidencing its settlement with the Company, subject to public review and comment, relating to the Security Incident.

If finalized, this settlement will fully resolve the previously disclosed FTC investigation relating to the Security Incident, which is further described in the FTC’s Proposed Order.

Under the terms of the Proposed Order, the Company has agreed to certain conditions, which are reflected in their entirety in the Proposed Order.

As part of the Proposed Order, the Company has not been fined and is not otherwise required to make any payment.

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

For more information regarding this settlement or the Proposed Order, see Note 11 to these condensed consolidated financial statements.

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

2023 Form 10-K

Blackbaud, Inc.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data