What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-01 · 253 added, 207 removed, 401 unchanged (53% of the section changed)

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

Update on Select Key Operational Initiatives

Product Innovation and Delivery

To maintain our market leadership position, we are accelerating the pace of innovation and new feature delivery to our customers.

Our focus has been on two areas, generative artificial intelligence (AI) and enhancements that continue to improve the connectivity of our suite of solutions.

These enhancements are aimed at improving fundraising outcomes while reducing the administrative burden of our end users.

Some examples include:

• We have released a number of AI capabilities over the past few quarters, including new generative AI functionality for our JustGiving platform.

During the first quarter of 2024, we released generative AI capabilities for Raiser’s Edge NXT®, and we expect that Blackbaud Co-pilot will be available to our Raiser's Edge NXT customers soon.

Using Blackbaud Co-pilot, users can ask ad hoc questions such as “How can I improve my average donation size?” and the tool will provide intelligent responses as well as recommended actions intended to drive that outcome.

• During the first quarter of 2024, our Online Giving and Prospect Insights capabilities were natively integrated into Raiser's Edge NXT.

With these integrations, fundraising administrators can now drive a viral giving campaign, keep records of each donor interaction, identify new donation opportunities, and provide personalized messaging, all in one integrated experience.

• Last quarter, we announced our new optimized donation forms were coming to Raiser's Edge NXT.

We now have a few hundred customers up and running with nearly a thousand more experimenting.

We expect these forms to drive higher revenue for our customers and for Blackbaud.

We include these exciting new features in our products at no additional cost, to increase the value our customers receive from their existing subscription.

We are delivering more innovation, evolving our products and ensuring our customers receive more value from our solutions.

First Quarter 2024 Form 10-Q

Business Update

Our company has made significant strides over the past several years by executing on our five-point operating plan.

We have extended our position as the world's leading provider of software to power social impact through product innovation to better serve the very specific needs of non-profit customers, successfully implemented key revenue initiatives to enhance the predictability of our growth, all while maintaining keen attention to cost management and cash flow.

As a result of this work, we have accelerated our revenue growth, significantly improved our profitability, driven sustained EPS growth and generated significant cash flow, which we have used, in part, to fuel a material stock repurchase program, that was recently expanded and replenished to $800 million.

The company is approaching another inflection point.

In addition to improving our operations and go-to market capabilities, we have successfully addressed and nearly closed the book on many of the challenges the company faced over the past few years, allowing us to now focus primarily on the significant growth and value creation opportunities ahead in the near, mid and long term.

We believe Blackbaud is a compelling investment with multiple opportunities for strong stockholder returns.

As an industry leader with what we believe is the most comprehensive set of purpose-built and mission critical software and services, we have an inherent ability to penetrate even further into a rich market opportunity;

The strength of our financial model allows us to continue to aggressively invest in innovation, which provides great value for our customers and enhances our ability to attract new customers;

We generate strong cash flows and are committed to disciplined, value-maximizing capital returns.

We believe that at current valuations, Blackbaud is undervalued, and we plan to be aggressive in the repurchase of our stock to improve stockholder value.

Market Opportunity

charitable giving in 2023 was over $500 billion, of which roughly $100 billion was donated, granted and invested through our Blackbaud platforms globally.

• In our Social Sector, we continue to primarily focus on mid-sized and enterprise non-profits and, as market leader, we continue to see great opportunities to attract new customers as well expand our offerings to our existing customers.

We appreciate that our customers have choices, too.

For decades, we have enjoyed being the market leader, with

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Modernized Approach to Pricing and Multi-Year Contracts

In the summer of 2022, we put in place an updated renewal pricing policy primarily for our social sector customers that directly reflects the value we provide to them, is in-line with the broader market and reflects the inflationary pressures that all businesses are facing.

This program is designed to deliver sustained revenue growth beyond the initial three-year renewal cycle and will provide us with improved revenue visibility.

As previously disclosed, this new approach has three main components:

offering 3-year contract renewal terms as our standard, which the vast majority of customers are adopting;

embedded annual price increases within the 3-year renewal term, which we have not had previously and are beginning to take effect;

a larger first year price increase to bring our pricing in-line with the broader market.

The first two components, as well as a portion of the third, will continue on beyond the initial renewal cycle, creating what we believe will be a sustainable source of revenue growth.

Approximately one half of our 2024 total company revenue growth is expected to be impacted by this modernized contract and pricing initiative, and by the end of 2024, we anticipate we will renew approximately two-thirds of that base into the new model.

During the first and second quarters of 2024, we expect a larger contribution to our total revenue growth to come from this initiative.

strong brand recognition and significant breadth and depth of our product capabilities, but we are not relying on the success of our past.

Investments in Innovation

• We continue to invest aggressively in innovation and partner with our developer network through API’s to produce continuous product enhancements throughout our portfolio, including generative AI capabilities, which in turn enable our customers to raise more money while increasing operational efficiency—ultimately allowing them to spend more time executing on their charitable missions and less time on administrative tasks.

• We are a natural choice for new and existing customers alike.

The alternative for our customers is a disjointed, competitive landscape where we believe other companies do not offer the combined breadth and depth of our capabilities.

These include smaller, mostly disparate point solutions that address only single aspects of the complex, comprehensive technology needs of a nonprofit, or larger horizontal software companies that may lack the depth of nonprofit-specific functionality and often require complex, expensive customization and potentially additional vendors to meet customer needs.

Cash Flow Generation

During the first six months of 2024, we generated $118.4 million of operating cash flow, an increase of more than 50% compared to the first half of 2023.

Our robust cash flow generation gives us confidence to continue investment in a number of critical areas like product innovation and stock repurchases.

In March 2024, we announced that we intend to repurchase between 7% and 10% of our outstanding common stock as of December 31, 2023 under our stock repurchase program.

During the six months ended June 30, 2024, we repurchased 2,954,211 shares for $262.6 million, representing approximately 5.5% of the Company's common stock outstanding as of December 31, 2023.

In addition to our previously announced ASR Transaction, we plan to be aggressive in repurchasing our stock at the current valuations.

As previously disclosed, our board of directors reauthorized, expanded and replenished our existing stock repurchase program, raising the total capacity from $500 million to $800 million available for repurchases of our common stock.

We believe there is currently no better use of our capital than investing back into the business through product innovation and returning capital to stockholders around these valuation levels.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Financial Summary

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YoY Growth (%) YoY Growth (%)

Total revenue increased by $17.5 million during the three months ended March 31, 2024, when compared to the same period in 2023, driven largely by the following:

Total revenue increased by $16.2 million and $33.7 million, respectively, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, driven largely by the following:

+ Growth in recurring revenue primarily related to:

• an increase in contractual recurring revenue of $13.3 million related to the impact of our modernized contract initiative and pricing within the Social Sector as well as the performance of our cloud solutions;

partially offset by a decrease in revenue from EVERFI as discussed below

• an increase in transactional recurring revenue of $5.5 million primarily due to positive results related to pricing initiatives we implemented at the beginning of 2023 and, to a lesser extent, increases in volume for our Blackbaud Tuition Management and JustGiving solutions

- Decrease in one-time service and other revenue primarily related to:

• decrease in one-time consulting revenue due primarily due to less revenue from implementation and customization services, in line with our multi-year strategic shift from a license-based and one-time services business model to a cloud subscription business model.

Our cloud subscription offerings generally require less implementation and customization services

First Quarter 2024 Form 10-Q

Blackbaud, Inc.

• increases in contractual recurring revenue of $12.3 million and $25.6 million, respectively, related to the impact of our modernized contract initiative and pricing within the Social Sector as well as the performance of our cloud solutions;

partially offset by decreases in revenue from EVERFI and maintenance revenue;

• increases in transactional recurring revenue of $6.7 million and $12.2 million, respectively, primarily due to positive results related to pricing initiatives we have implemented in the past twelve months and increases in volume for our JustGiving, Blackbaud Merchant Services and Blackbaud Tuition Management solutions.

- Decreases in one-time service and other revenue primarily related to:

• decreases in one-time consulting revenue of $2.4 million and $3.4 million, respectively, primarily due to decreases of $1.9 million and $2.5 million, respectively, resulting from our sale of EVERFI Limited as discussed in Note 3 to our unaudited, condensed consolidated financial statements in this report and less sales of implementation and customization services.

Also contributing to the decrease in one-time consulting revenue is an increase in utilization of third-party service delivery partners.

For several years, we have been strategically shifting away from a one-time services business model towards sales of retained and managed services and also embedding services in our renewable cloud solution contracts.

Retained and managed services contracts that we expect to have a term consistent with our cloud solution contracts, and embedded services are recorded as recurring revenue.

As previously disclosed and discussed above, we have a number of multi-year pricing initiatives underway, some to bring our pricing in line with the market while others are model changes that are expected to drive greater revenue for both us and our customers.

We expect that the decline in our non-strategic one-time services and other revenue will slow in 2024 compared to the previous two years.

Our Social Sector revenue (which represents approximately 88% of our total revenue) increased $19.5 million, or 8.7%, during the three months ended March 31, 2024, when compared to the same period in 2023, driven primarily by the increases in contractual recurring revenue and transactional recurring revenue discussed above.

Our Corporate Sector revenue (which represents approximately 12% of our total revenue) decreased $2.1 million, or 5.6%, during the three months ended March 31, 2024, when compared to the same period in 2023, driven primarily by EVERFI.

EVERFI has faced macroeconomic challenges in the form of tightening corporate CSR budgets, especially in the financial services market where EVERFI has a significant position.

While we expect our Corporate Sector revenue to decline for the full year 2024, we are working on plans to ensure it contributes to shareholder value.

Income from operations increased by $20.7 million during the three months ended March 31, 2024, when compared to the same period in 2023, driven largely by the following:

+ Increase in total revenue, as described above

+ Decrease in Security Incident-related expenses of $7.5 million.

Excluding the impact from our sale of EVERFI Limited in the first quarter of 2024, we expect that the decline in our non-strategic one-time services and other revenue will slow in 2024 compared to the previous two years.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Our Social Sector revenue (which represents approximately 88% of our total year-to-date revenue) increased $19.8 million, or 8.5%, and $39.3 million, or 8.6%, respectively, during the three and six months ended June 30, 2024, when compared to the same periods in 2023, driven primarily by the increases in contractual recurring revenue and transactional recurring revenue discussed above.

The Social Sector has proven to be very resilient as demonstrated through the last several economic downturns and the COVID-19 pandemic, and we have great confidence in the long-term trajectory of this portion of our business.

Our Corporate Sector revenue (which represents approximately 12% of our total year-to-date revenue) decreased $3.5 million, or 9.2%, and $5.6 million, or 7.4%, respectively, during the three and six months ended June 30, 2024, when compared to the same periods in 2023, driven primarily by the performance of EVERFI and our disposition of EVERFI Limited in March 2024 (see Note 3 to our unaudited, condensed consolidated financial statements in this report for more information).

EVERFI has unique and valuable assets, including a comprehensive catalog of content, great customer relationships and a deep talent pool.

However, EVERFI has faced a number of external challenges and while we have taken decisive actions, including changes to Corporate Sector leadership and the disposition of a non-recurring revenue component (EVERFI Limited discussed above), EVERFI continues to be a drag on our overall performance, and we expect that to continue.

Accordingly, we are actively considering a range of strategic alternatives for EVERFI, one of which includes a potential divestiture of the business.

This work is in early stages, and EVERFI remains well positioned to support its customers.

We will continue to provide updates as progress is made on this initiative.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Income from operations increased by $41.8 million and $62.5 million, respectively, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, driven largely by the following:

+ Decreases in Security Incident-related expenses of $25.0 million and $32.4 million, respectively.

See "Security Incident update" below.

+ Decrease in employee severance costs of $4.3 million primarily due to our targeted workforce reductions during the fourth quarter of 2022 and the first quarter of 2023

+ Decrease in commission expense of $3.4 million due to fewer sales headcount and a prospective increase in the period of benefit over which we amortized costs of obtaining contracts with customers from 5 to 6 years beginning in the year ending December 31, 2024

+ Decrease in corporate costs of $2.2 million primarily related to the release of certain accrued tax liabilities due to favorable sales tax rulings and a decrease in bad debt expense

- Increase in stock-based compensation expense of $3.6 million primarily due to overall Company performance against targets for certain performance-based equity awards

- Increase in advertising costs of $2.0 million primarily due to timing differences compared to 2023

- Decrease of $2.0 million due to an increase in amortization of capitalized software and content development costs and a decrease in software and content development costs that were required to be capitalized under the internal-use software guidance

- Increase in amortization of intangible assets from business combinations of $1.7 million due to our acquisition of EVERFI

- Increase in acquisition and disposition-related costs of $1.6 million primarily related to the disposition of EVERFI Limited;

see Note 3 of our unaudited, condensed consolidated financial statements in this report for more information

- Increase in transaction-based costs of $1.4 million related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates

- Increase in hosting and data center costs of $1.3 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security;

+ Increases in total revenue, as described above

+ Decreases in stock-based compensation expense of $9.1 million and $5.4 million, respectively, primarily due to overall Company performance against targets for certain performance-based equity awards, and a decrease in the grant date fair value of equity award grants

+ Decrease in employee severance costs of $5.0 million, during the six months ended June 30, 2024, primarily due to prior period targeted workforce reductions during the fourth quarter of 2022 and the first quarter of 2023

+ Decreases in commission expense of $3.1 million and $6.5 million, respectively, due to fewer sales headcount and a prospective increase in the period of benefit over which we amortized costs of obtaining contracts with customers from 5 to 6 years beginning in the year ending December 31, 2024

+ Decrease in corporate costs of $2.3 million, during the six months ended June 30, 2024, primarily related to the release of certain accrued tax liabilities due to favorable sales tax rulings and a decrease in bad debt expense

- Increases in acquisition and disposition-related costs of $3.2 million and $4.9 million, respectively, primarily related to the noncash impairment charges against certain operating lease right-of-use assets and property and equipment assets resulting from the sublease of our Washington, DC office location and the disposition of EVERFI Limited;

see Note 5 and Note 3, respectively, to our unaudited, condensed consolidated financial statements in this report for more information.

These increases were partially offset by the release of $1.4 million in accrued contingent consideration related to our Kilter acquisition as discussed in Note 3 to the consolidated financial statements in our Annual Report on From 10-K for the year ended December 31, 2023

- Increases in compensation costs other than stock-based compensation of $2.3 million and $2.9 million, respectively, primarily due to an increase in resources dedicated to our cybersecurity program

- Decrease of $2.3 million, during the six months ended June 30, 2024, due to an increase in amortization of capitalized software and content development costs and a decrease in software and content development costs that were required to be capitalized under the internal-use software guidance

- Increases in third-party contractor costs of $2.1 million and $2.8 million, respectively, largely related to enhancements to our cybersecurity program

- Increases in amortization of intangible assets from business combinations of $1.6 million and $3.3 million, respectively, due to our acquisition of EVERFI.

Most of the acquired intangible assets are amortized on a curve that represents the expected period of economic benefit.

- Increases in transaction-based costs of $1.2 million and $2.7 million, respectively, related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates

- Increases in advertising costs of $1.0 million and $3.0 million, respectively, primarily due to timing differences compared to 2023 and, to a lesser extent, increased digital marketing spend to drive fundraising page creation for JustGiving

- Increases in hosting and data center costs of $1.0 million and $2.3 million, respectively, as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security;

currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future

We are continuing to make critical investments in the business in areas such as innovation, cybersecurity, and our continued shift of cloud infrastructure to leading public cloud service providers.

Our profitability during the first quarter of 2024 reflects some of these incremental investments.

Our profitability during the first half of 2024 reflects some of these incremental investments.

We continuously seek opportunities to optimize our portfolio of solutions to focus time and resources on innovation that will have the greatest impact for our customers and the markets we serve, and drive the highest return on investment.

To that end, we will continue to simplify and rationalize our portfolio through product sunsets and divestitures of non-core businesses and technologies.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

As a remote-first workforce company, we also continuously evaluate opportunities to shift various business units or functions to lower-cost jurisdictions, including internationally, and may do so if and when we determine that it would reduce costs without negatively impacting the quality of our products and services.

Gross dollar retention

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Gross dollar retention is defined as contracted annual recurring revenue ("CARR") divided by beginning CARR with a measurement period of twelve months.

For the twelve months ended March 31, 2024, our gross dollar retention was approximately 89%.

This gross dollar retention rate was slightly lower than our rate for the full year ended December 31, 2023, primarily due to EVERFI.

Excluding EVERFI, our gross dollar retention during the twelve months ended March 31, 2024 was slightly higher than our rate for the full year ended December 31, 2023.

For the twelve months ended June 30, 2024, our gross dollar retention was approximately 90%.

This gross dollar retention rate was consistent with our rate for the full year ended December 31, 2023.

We are continually investing in innovation, which we believe will increase gross dollar retention over the long-term.

Balance sheet and cash flow

At March 31, 2024, our cash and cash equivalents were $26.4 million.

Under the 2020 Credit Facility, the carrying amount of our debt was $981.7 million and our net leverage ratio was 2.72 to 1.00 .

During the three months ended March 31, 2024, we generated $64.6 million in cash from operations, had a net increase in borrowings of $260.5 million, returned $262.6 million to stockholders by way of share repurchases and had aggregate cash outlays of $13.3 million for purchases of property and equipment and capitalized software and content development costs.

At June 30, 2024, our cash and cash equivalents were $30.4 million.

Under the 2024 Credit Facilities, the carrying amount of our debt was $963.6 million and our net leverage ratio was 2.51 to 1.00 .

During the six months ended June 30, 2024, we generated $118.4 million in cash from operations, had a net increase in borrowings of $244.9 million, returned $262.6 million to stockholders by way of share repurchases and had aggregate cash outlays of $34.5 million for purchases of property and equipment and capitalized software and content development costs.

Security Incident update

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Accordingly, the Security Incident has negatively impacted, and we expect it to continue for the foreseeable future to negatively impact, our GAAP profitab ility and GAAP cash flow (see discussion regarding non-GAAP free cash flow and non-GAAP adjusted free cash flow on page 43 ).

For the three months ended March 31, 2024, we incurred net pre-tax expenses of $10.3 million related to the Security Incident, which included $3.3 million for ongoing legal fees and additional accruals for loss contingencies of $7.0 million.

During the three months ended March 31, 2024, we had cash outlays of $2.0 million related to the Security Incident for ongoing legal fees.

For the three and six months ended June 30, 2024, we incurred net pre-tax expenses of $1.8 million and $12.1 million, respectively, related to the Security Incident, which included $1.8 million and $5.1 million, respectively, for ongoing legal fees and additional accruals for loss contingencies of $0.0 million and $7.0 million, respectively.

During the six months ended June 30, 2024, we had cash outlays of $5.8 million related to the Security Incident for ongoing legal fees.

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

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

As of March 31, 2024, we have recorded approximately $8.5 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain customers and governmental agencies related to the Security Incident that we believed we could reasonably estimate in accordance with our loss contingency procedures described above and as more fully described in Note 9.

As of June 30, 2024, we have recorded approximately $8.5 million in aggregate liabilities for loss contingencies, which included $6.8 million for our settlement with the Attorney General of the State of California on June 13, 2024 that we paid in the third quarter of 2024, and other accruals based primarily on recent negotiations with certain customers related to the Security Incident that we believed we could reasonably estimate in accordance with our loss contingency procedures described above and as more fully described in Note 9.

It is reasonably possible that our estimated actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of March 31, 2024 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.

Termination of stockholder rights agreement

On March 18, 2024, the Company and Broadridge Corporate Issuer Solutions, LLC, a Pennsylvania limited liability company, entered into the Third Amendment to Stockholder Rights Agreement, dated as of March 18, 2024 (as amended, the “Rights Agreement”).

The third amendment terminated the Rights Agreement by accelerating the expiration time of the Company’s preferred share purchase rights (each, a “Right” and, collectively, the “Rights”) to 5:00 P.M., New York City time, on March 18, 2024.

At the time of the termination of the Rights Agreement, all of the Rights, which were previously distributed to holders of the Company’s issued and outstanding common stock, par value $0.001, pursuant to the Rights Agreement, expired.

April 2024 credit agreement refinancing

On April 30, 2024, we entered into the Amendment, which amended the Existing Credit Agreement to, among other things, (a) refinance the credit facilities under the Existing Credit Agreement to provide for (i) a $700.0 million revolving credit facility with a $50.0 million letter of credit subfacility, a $50.0 million swingline subfacility and a $150.0 million sublimit available for multicurrency borrowings (the “2024 Revolving Facility”) and (ii) a $800.0 million term loan facility (the “2024 Term Facility” and together with the 2024 Revolving Facility, the “2024 Credit Facilities”), (b) extend the maturity date to April 30, 2029, (c) modify the definition of Applicable Margin (as defined below) and (iv) modify certain negative and financial covenants to provide additional operational flexibility.

See Part II, Item 5.

“Other Information” for a summary of the terms of the 2024 Credit Agreement.

There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of June 30, 2024 because we are unable at this time to reasonably estimate the possible loss or range of loss.

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

Results of Operations

Comparison of the three months ended March 31, 2024 and 2023

Comparison of the three and six months ended June 30, 2024 and 2023

Revenue and Cost of Revenue

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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.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

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We intend to continue focusing on innovation, quality and integration of our cloud solutions, which we believe will drive future revenue growth.

Recurring revenue increased by $18.8 million, or 7.4%, during the three months ended March 31, 2024, when compared to the same period in 2023, driven primarily by the following:

+ Increase in contractual recurring revenue of $13.3 million related to the impact of our modernized contract initiative and pricing within the Social Sector as well as the performance of our cloud solutions;

partially offset by a decrease in revenue from EVERFI as discussed above

+ Increase in transactional recurring revenue of $5.5 million primarily due to positive results related to pricing initiatives we implemented at the beginning of 2023 and, to a lesser extent, increases in volume for our Blackbaud Tuition Management and JustGiving solutions.

Cost of recurring revenue increased by $4.7 million, or 4.1%, during the three months ended March 31, 2024, when compared to the same period in 2023, driven primarily by the following:

+ Increase in amortization of intangible assets from business combinations of $1.6 million primarily due to our acquisition of EVERFI in December 2021

+ Increase in transaction-based costs of $1.5 million related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates

+ Increase in hosting and data center costs of $1.3 million as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security;

Recurring revenue increased by $19.0 million, or 7.2%, and $37.8 million, or 7.3%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, driven primarily by the following:

+ Increases in contractual recurring revenue of $12.3 million and $25.6 million, respectively, related to the impact of our modernized contract initiative and pricing within the Social Sector as well as the performance of our cloud solutions;

partially offset by decreases in revenue from EVERFI (as discussed above) and maintenance revenue;

+ Increases in transactional recurring revenue of $6.7 million and $12.2 million, respectively, primarily due to positive results related to pricing initiatives we have implemented in the past twelve months and increases in volume for our JustGiving, Blackbaud Merchant Services and Blackbaud Tuition Management solutions.

Cost of recurring revenue increased by $5.9 million, or 5.2%, and $10.6 million, or 4.6%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, driven primarily by the following:

+ Increases in amortization of intangible assets from business combinations of $1.5 million and $3.1 million, respectively, primarily due to our acquisition of EVERFI in December 2021.

Most of the acquired intangible assets are amortized on a curve that represents the expected period of economic benefit.

+ Increases in third-party contractor costs of $1.2 million and $1.8 million, respectively, largely related to enhancements to our cybersecurity program

+ Increases in transaction-based costs of $1.1 million and $2.6 million, respectively, related to the increase in the volume of transactions for which we process payments and, to a lesser extent, increases in vendor rates

+ Increases in hosting and data center costs of $1.0 million and $2.3 million, respectively, as we continue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security;

currently, we expect our cloud infrastructure migration efforts and increased level of cybersecurity investments to continue for the foreseeable future

Recurring gross margin increased by 140 basis points for the three months ended March 31, 2024, when compared to the same period in 2023, primarily due to the increases in recurring revenue outpacing the increases in cost of recurring revenue.

Recurring gross margin increased by 80 basis points and 110 basis points for the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, primarily due to the increases in recurring revenue outpacing the increases in cost of recurring revenue.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

One-time services and other

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

First Quarter 2024 Form 10-Q

Blackbaud, Inc.

Cost of one-time services and other is primarily comprised of compensation costs for professional services and onsite training personnel, other costs incurred in providing onsite customer training, third-party contractor expenses, data expense incurred to perform one-time analytic services, third-party software royalties, allocated depreciation, facilities and IT support costs and amortization of intangible assets from business combinations.

One-time services and other revenue decreased by $1.3 million, or 14.1%, during the three months ended March 31, 2024, when compared to the same period in 2023, driven primarily by the following:

- Decrease in one-time consulting revenue of $1.1 million primarily due to less sales of creative services and implementation and customization services.

As discussed in Note 3 to our unaudited, condensed consolidated financial statements in this report, our sale of EVERFI Limited contributed to the decrease in creative services revenue.

One-time services and other revenue decreased by $2.7 million, or 31.7%, and $4.0 million, or 22.7%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, driven primarily by the following:

- Decreases in one-time consulting revenue of $2.4 million and $3.4 million, respectively, primarily due to decreases of $1.9 million and $2.5 million, respectively, resulting from our sale of EVERFI Limited as discussed in Note 3 to our unaudited, condensed consolidated financial statements in this report and less sales of implementation and customization services.

Also contributing to the decrease in one-time consulting revenue is an increase in utilization of third-party service delivery partners.

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Retained and managed services contracts that we expect to have a term consistent with our cloud solution contracts, and embedded services are recorded as recurring revenue.

Cost of one-time services and other decreased by $1.6 million, or 18.5%, during the three months ended March 31, 2024, when compared to the same period in 2023, driven primarily by the following:

- Decrease in compensation costs of $1.2 million primarily related to our prior period targeted workforce reductions discussed above and a continued shift in resources historically supporting one-time services and other towards recurring revenue

One-time services and other gross margin increased by 480 basis points during the three months ended March 31, 2024, when compared to the same period in 2023, primarily due to the decrease in compensation costs discussed above outpacing the decrease of one-time services and other revenue.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Cost of one-time services and other decreased by $2.7 million, or 35.2%, and $4.3 million, or 26.3%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, driven primarily by the following:

- Decreases in compensation costs of $1.5 million and $2.7 million, respectively, primarily related to our sale of EVERFI Limited as discussed above and a continued shift in resources historically supporting one-time services and other towards recurring revenue

- Decreases in direct costs of revenue of $0.8 million and $0.9 million, respectively, primarily due to our sale of EVERFI Limited as discussed above

One-time services and other gross margin increased by 450 basis points and 420 basis points during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, primarily due to the decrease in compensation costs discussed above outpacing the decrease of one-time services and other revenue.

Operating Expenses

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The enhancements we are making in our go-to-market approach are expected to reduce our average customer acquisition cost per customer as well as the related payback period while increasing sales velocity.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Sales, marketing and customer success expense decreased by $3.5 million or 6.5%, during the three months ended March 31, 2024, when compared to the same period in 2023.

Sales, marketing and customer success expense decreased by $6.1 million, or 11.5%, and $9.6 million or 9.0%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023.

The decreases in dollars and as a percentage of total revenue were primarily driven by the following:

- Decrease in commission expense of $3.5 million due to fewer sales headcount and a prospective increase in the period of benefit over which we amortized costs of obtaining contracts with customers from 5 to 6 years beginning in the year ending December 31, 2024

- Decrease in employee severance costs of $1.6 million primarily due to our prior period targeted workforce reductions discussed above

+ Increase in advertising costs of $2.0 million primarily due to timing differences compared to 2023

- Decreases in compensation costs of $3.4 million and $3.8 million, respectively, primarily related to our prior period targeted workforce reductions

- Decreases in commissions expense of $3.2 million and $6.7 million, respectively, due to fewer sales headcount and a prospective increase in the period of benefit over which we amortized costs of obtaining contracts with customers from 5 to 6 years beginning in the year ending December 31, 2024

- Decrease in severance costs of $2.1 million, during the six months ended June 30, 2024, related to our prior period targeted workforce reductions

+ Increases in advertising costs of $1.0 million and $3.0 million, respectively, primarily due to timing differences compared to 2023 and, to a lesser extent, increased digital marketing spend to drive fundraising page creation for JustGiving

Research and development

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We continue to make investments to delight our customers with innovative and secure cloud solutions.

Research and development expenses increased by $2.2 million or 5.4%, during the three months ended March 31, 2024, when compared to the same period in 2023, primarily driven by the following:

+ Increase in compensation costs of $2.4 million primarily related to an increase in resources dedicated to the security-related compliance of our solutions

- Decrease in employee severance costs of $1.1 million primarily due to our prior period targeted workforce reductions discussed above

Not included in research and development expense for the three months ended March 31, 2024 and 2023 were $13.7 million and $14.2 million, respectively, of qualifying costs associated with software and content development activities that are required to be capitalized under GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies.

Research and development expenses increased by $2.9 million, or 8.1%, and $5.1 million or 6.7%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, primarily driven by the following:

+ Increase in compensation costs of $2.7 million, during the six months ended June 30, 2024, primarily related to an increase in resources dedicated to the security-related compliance of our solutions

+ Increases in third-party contractor costs of $1.4 million and $1.3 million, respectively, largely related to enhancements to our cybersecurity program

+ Decrease in software development costs of $1.1 million, during the six months ended June 30, 2024, that were required to be capitalized under GAAP

Not included in research and development expense for the three months ended June 30, 2024 and 2023 were $14.8 million and $15.4 million, respectively, and for the six months ended June 30, 2024 and 2023 were $28.5 million and $29.6 million, respectively, of qualifying costs associated with software and content development activities that are required to be capitalized under GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies.

Qualifying capitalized development costs associated with our cloud solutions are subsequently amortized to cost of recurring revenue over the related assets' estimated useful life, which generally range from three to seven years.

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General and administrative expense consists primarily of compensation costs for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development, Security Incident-related expenses (including legal fees, settlements and loss contingency accruals), third-party professional fees, insurance, allocated depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses.

General and administrative expense decreased by $5.1 million or 9.6%, during the three months ended March 31, 2024, when compared to the same period in 2023.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

General and administrative expense decreased by $25.7 million, or 43.5%, and $30.8 million, or 27.5%, three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023.

The decreases in dollars and as a percentage of total revenue were primarily driven by the following:

- Decrease in Security Incident-related expenses of $7.5 million.

- Decreases in Security Incident-related expenses of $25.0 million and $32.4 million, respectively.

See "Security Incident update" on page 31

- Decrease in corporate costs of $2.2 million primarily related to the release of certain accrued tax liabilities due to favorable sales tax rulings and a decrease in bad debt expense

- Decrease in employee severance costs of $0.8 million due to our prior period targeted workforce reductions discussed above

+ Increase in compensation costs of $4.7 million primarily related to an increase in stock-based compensation due to overall Company performance against targets for certain performance-based equity awards

+ Increase in acquisition and disposition-related costs of $1.6 million primarily related to the disposition of EVERFI Limited;

see Note 3 to our unaudited, condensed consolidated financial statements in this report for more information

First Quarter 2024 Form 10-Q

Blackbaud, Inc.

- Decrease in stock-based compensation costs of $3.8 million, during the three months ended June 30, 2024, primarily due to estimated overall Company performance against 2024 goals for certain performance-based equity awards

- Decrease in corporate costs of $2.4 million, during the six months ended June 30, 2024, primarily related to the release of certain accrued tax liabilities due to favorable sales tax rulings and a decrease in bad debt expense

- Decreases in rent expense, net of allocated costs, of $1.7 million and $2.6 million, respectively

+ Increases in acquisition and disposition-related costs of $3.2 million and $4.9 million, respectively, primarily related to the noncash impairment charges against certain operating lease right-of-use assets and property and equipment assets resulting from the sublease of our Washington, DC office location and the disposition of EVERFI Limited;

see Note 5 and Note 3 to our unaudited, condensed consolidated financial statements in this report for more information.

+ Increases in compensation costs other than stock-based compensation of $1.5 million and $2.5 million, respectively, primarily due to an increase in resources dedicated to our cybersecurity program

Interest Expense

1 unchanged sentence

Percentages indicate expenses as a percentage of total revenue

Interest expense in dollars and as a percentage of total revenue during the three months ended March 31, 2024, was relatively in line with the same period in 2023.

We currently expect interest expense for the full year 2024 to be approximately $48 million to $52 million as we had incremental borrowings to fund our ASR Transaction (as defined on page 40 ).

We also expect interest rates to remain higher throughout 2024 than we originally anticipated.

The increases in interest expense in dollars and as a percentage of total revenue during the three and six months ended June 30, 2024, when compared to the same periods in 2023, were primarily due to our incremental borrowings to fund our ASR Transaction.

We currently expect interest expense for the full year 2024 to be approximately $52 million to $56 million.

Our interest expense in connection with the variable rate portion of our outstanding debt could increase in a rising interest rate environment.

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Interest Rate Risk (below) for more information about our variable interest rate exposure and related risk.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Other income ($M)

Percentages indicate other income as a percentage of total revenue

Other income increased in dollars and as a percentage of total revenue during the three months ended March 31, 2024 when compared to the same period in 2023, primarily due to an increase in interest income.

The increases in other income in dollars and as a percentage of total revenue during the three and six months ended June 30, 2024, when compared to the same periods in 2023, were primarily due to an increase in interest income.

Interest income increased primarily due to higher interest earned on restricted cash held and payable by us to customers for our payment processing solutions.

See Note 6 to our unaudited, condensed consolidated financial statements in this report for more information regarding our other income.

First Quarter 2024 Form 10-Q

Blackbaud, Inc.

Deferred Revenue

The table below compares the components of deferred revenue from our unaudited, condensed consolidated balance sheets:

(dollars in millions) March 31,

(dollars in millions) June 30,

2024 December 31,

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We generally invoice our customers with recurring revenue contracts in annual cycles 30 days prior to the end of each one-year period.

The decrease in deferred revenue during the three months ended March 31, 2024 was primarily due to a seasonal decrease in customer contract renewals .

The increase in deferred revenue during the six months ended June 30, 2024 was primarily due to a seasonal increase in customer contract renewals .

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

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

Income tax benefit ($M)

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Income tax provision (benefit) ($M)

Percentages indicate effective income tax rates

The change in our effective income tax rate for the three months ended March 31, 2024 when compared to the same period in 2023 was primarily attributable to favorable impacts of benefits attributable to stock-based compensation and research and development tax credits.

The change in our effective income tax rate for the three and six months ended June 30, 2024, when compared to the same periods in 2023 were largely driven by prior year pre-tax losses versus current year pre-tax income.

Additionally, the 2024 periods were favorably impacted by benefits attributable to stock-based compensation and research and development tax credits whereas stock-based compensation negatively impacted our effective income tax rates for the 2023 periods.

Lastly, the 2023 periods were negatively impacted by non-deductible accruals related to security incident, which have impacted the 2024 periods to a much lesser degree.

Non-GAAP Financial Measures

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We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Three months ended

Six months ended

(dollars in millions, except per share amounts) 2024

6 unchanged sentences

Employee severance — 0.1 — 0.8

18.0 17.3 36.5 35.1

Non-GAAP gross profit (1)

5 unchanged sentences

Stock-based compensation expense

24.3 33.4 57.9 63.3

Amortization of intangibles from business combinations

15.5 13.9 31.1 27.8

Employee severance

Acquisition and disposition-related costs

2.4 (0.8) 4.7 (0.2)

Security Incident-related costs (2)

1.8 26.8 12.1 44.6

44.0 73.8 105.8 140.4

Non-GAAP income from operations (1)

1 unchanged sentence

Non-GAAP operating margin 30.0 % 27.4 % 28.0 % 24.5 %

GAAP income (loss) before benefit for income taxes $ 3.8 $ (18.6)

GAAP income (loss) before provision (benefit) for income taxes $ 29.7 $ (8.1) $ 33.5 $ (26.7)

GAAP net income (loss) $ 21.8 $ 2.1 $ 27.1 $ (12.6)

2 unchanged sentences

Non-GAAP adjustments:

GAAP income tax benefit (1.5) (3.9)

GAAP income tax provision (benefit) 7.9 (10.2) 6.4 (14.1)

Total non-GAAP adjustments affecting income from operations 44.0 73.8 105.8 140.4

1 unchanged sentence

Assumed non-GAAP income tax provision (3)

18.1 13.2 34.1 22.7

Non-GAAP net income (1)

3 unchanged sentences

(1) The individual amounts for each year may not sum to subtotal, non-GAAP gross profit, non-GAAP income from operations, non-GAAP income before provision for income taxes or non-GAAP net income due to rounding.

(2) Includes Security Incident-related costs incurred during the three months ended March 31, 2024 of $10.3 million which includes approximately $7.0 million in recorded liabilities for loss contingencies and during the three months ended March 31, 2023 of $17.8 million which included approximately $10.2 million in recorded liabilities for loss contingencies.

(2) Includes Security Incident-related costs incurred during the three and six months ended June 30, 2024 of $1.8 million and $12.1 million, respectively, which includes approximately $0.0 million and $7.0 million, respectively, in recorded liabilities for loss contingencies and during the three and six months ended June 30, 2023 of $26.8 million and $44.6 million, respectively, which included approximately $19.8 million and $30.0 million, respectively, in recorded aggregate liabilities for loss contingencies.

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

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

It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of June 30, 2024 because we are unable at this time to reasonably estimate the possible loss or range of loss.

(3) Beginning in 2024, we now apply a non-GAAP effective tax rate of 24.5% when calculating non-GAAP net income and non-GAAP diluted earnings per share.

For the three months ended March 31, 2023, the tax impact related to non-GAAP adjustments is calculated under our historical non-GAAP effective tax rate of 20.0%.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

(3) Beginning in 2024, we now apply a non-GAAP effective tax rate of 24.5% when calculating non-GAAP net income and non-GAAP diluted earnings per share.

For the three and six months ended June 30, 2023, the tax impact related to non-GAAP adjustments is calculated under our historical non-GAAP effective tax rate of 20.0%.

Non-GAAP organic revenue growth

7 unchanged sentences

(dollars in millions) Three months ended

Six months ended

GAAP revenue (1)

$ 287.3 $ 271.0 $ 566.5 $ 532.8

GAAP revenue growth 6.0 % 6.3 %

Non-GAAP revenue from divested businesses (2)

— (1.9) — (2.5)

Non-GAAP organic revenue (3)

4 unchanged sentences

Foreign currency impact on Non-GAAP organic revenue (4)

(0.2) — (1.1) —

Non-GAAP organic revenue on constant currency basis (4)

10 unchanged sentences

Foreign currency impact on non-GAAP organic recurring revenue (4)

(0.2) — (1.1) —

Non-GAAP organic recurring revenue on constant currency basis (4)

1 unchanged sentence

Non-GAAP organic recurring revenue growth on constant currency basis 7.2 % 7.1 %

(1) Includes EVERFI revenue of $23.8 million and $27.3 million for the three months ended June 30, 2024 and 2023, respectively, and $47.3 million and $54.2 million for the six months ended June 30, 2024 and 2023, respectively.

(2) Non-GAAP revenue from divested businesses excludes revenue associated with divested businesses.

4 unchanged sentences

The primary foreign currencies creating the impact are the Australian Dollar, British Pound, Canadian Dollar and Euro.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

12 unchanged sentences

Three months ended

Six months ended

(dollars in millions) 2024

2 unchanged sentences

Interest, net 12.9 8.9 21.1 18.3

GAAP income tax benefit

GAAP income tax provision (benefit)

7.9 (10.2) 6.4 (14.1)

3.3 3.3 6.3 6.6

Amortization of intangibles from business combinations 15.5 13.9 31.1 27.8

Amortization of software and content development costs (1)

12.6 10.9 24.7 21.5

52.2 26.8 89.7 60.1

Non-GAAP EBITDA (2)

1 unchanged sentence

Non-GAAP EBITDA margin (3)

25.8 % 20.6 %

Non-GAAP adjustments:

Stock-based compensation expense

24.3 33.4 57.9 63.3

Employee severance

Acquisition and disposition-related costs

2.4 (0.8) 4.7 (0.2)

Security Incident-related costs (4)

1.8 26.8 12.1 44.6

28.5 59.9 74.7 112.6

Non-GAAP Adjusted EBITDA (2)

1 unchanged sentence

Non-GAAP Adjusted EBITDA margin (5)

35.7 % 33.8 %

Rule of 40 (6)

42.4 % 40.6 %

Non-GAAP adjusted EBITDA 102.5 88.8 191.4 160.1

Foreign currency impact on Non-GAAP adjusted EBITDA (7)

(0.1) 0.6 (0.5) 1.9

Non-GAAP adjusted EBITDA on constant currency basis (7)

2 unchanged sentences

Rule of 40 on constant currency basis (8)

42.3 % 40.4 %

(1) Includes amortization expense related to software development costs and amortization expense from capitalized cloud computing implementation costs.

10 unchanged sentences

See Non-GAAP organic revenue growth table above.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

4 unchanged sentences

Non-GAAP adjusted free cash flow is not intended to represent and should not be viewed as the amount of residual cash flow available for discretionary expenditures.

Three months ended

Six months ended

(dollars in millions) 2024

5 unchanged sentences

Non-GAAP free cash flow (1)

$ 83.9 $ 43.5

Non-GAAP free cash flow margin 14.8 % 8.2 %

18 unchanged sentences

In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract renewals and student enrollments or significant acquisitions.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

1 unchanged sentence

These patterns may change as a result of the continued shift to online giving, growth in volume of transactions for which we process payments, large dollar customer bookings and contract renewals, fluctuations in the timing of vendor payments, or as a result of acquisitions, new market opportunities, new solution introductions or other factors.

For example, we currently do not expect that our operating cash flow in the second quarter of 2024 will be higher than that of our first quarter primarily due to fluctuations in the timing of vendor and tax payments.

Liquidity and Capital Resources

The following table presents selected financial information about our financial position:

(dollars in millions) March 31,

(dollars in millions) June 30,

2024 December 31,

5 unchanged sentences

The following table presents selected financial information about our cash flows:

Three months ended March 31,

Six months ended June 30,

(dollars in millions) 2024

1 unchanged sentence

Net cash used in investing activities (40.7) (31.5) 29.1 %

Net cash used in financing activities (394.6) (353.2) 11.7 %

Our principal sources of liquidity are our operating cash flow, funds available under the 2024 Credit Facility and cash on hand.

Net cash provided by financing activities 25.7 10.4 145.7 %

Our principal sources of liquidity are our operating cash flow, funds available under the 2024 Credit Facilities and cash on hand.

Our operating cash flow depends on continued customer renewal of our subscription and maintenance arrangements, market acceptance of our solutions and services, the volume and size of transactions for which we process payments and our customers' ability to pay.

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Subject to certain conditions, this registration statement will be effective through January 13, 2025.

At March 31, 2024, our total cash and cash equivalents balance included approximately $14.3 million of cash that was held by operations outside the U.S.

At June 30, 2024, our total cash and cash equivalents balance included approximately $16.5 million of cash that was held by operations outside the U.S.

While these funds may not be needed to fund our U.S.

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We currently do not intend nor anticipate a need to repatriate our cash held outside the U.S.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

4 unchanged sentences

Working capital changes are composed of changes in accounts receivable, prepaid expenses and other assets, trade accounts payable, accrued expenses and other liabilities, and deferred revenue.

Net cash provided by operating activities increased by $42.8 million during the three months ended March 31, 2024, when compared to the same period in 2023, primarily due to a $5.3 million increase in net income adjusted for non-cash expenses and a $37.5 million increase in cash flow from operations associated with working capital.

The increase in cash flow from operations associated with working capital during the three months ended March 31, 2024, when compared to the same period in 2023, was primarily due to:

Net cash provided by operating activities increased by $43.4 million during the six months ended June 30, 2024, when compared to the same period in 2023, primarily due to a $57.8 million increase in net income adjusted for non-cash expenses and a $14.3 million decrease in cash flow from operations associated with working capital.

The decrease in cash flow from operations associated with working capital during the six months ended June 30, 2024, when compared to the same period in 2023, was primarily due to:

• a decrease in accrued expenses related to the Security Incident;

• a decrease in taxes payable;

partially offset by

• fluctuations in the timing of vendor payments.

• an increase in taxes payable.

Security Incident update

4 unchanged sentences

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

There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of June 30, 2024 because we are unable at this time to reasonably estimate the possible loss or range of loss.

Investing Cash Flow

Net cash used in investing activities of $14.5 million decreased by $0.8 million during the three months ended March 31, 2024, when compared to the same period in 2023.

During the three months ended March 31, 2024, we used $13.1 million for software and content development costs, which was down $0.9 million from cash spent during the same period in 2023.

We also spent $0.3 million of cash for purchases of property and equipment during the three months ended March 31, 2024, which was a decrease of $1.1 million when compared to the same period in 2023.

In addition, we used net cash of $1.2 million in the disposition of a business during the three months ended March 31, 2024.

First Quarter 2024 Form 10-Q

Net cash used in investing activities of $40.7 million increased by $9.2 million during the six months ended June 30, 2024, when compared to the same period in 2023.

During the six months ended June 30, 2024, we used $28.4 million for software and content development costs, which was down $0.4 million from cash spent during the same period in 2023.

We also spent $6.1 million of cash for purchases of property and equipment during the six months ended June 30, 2024, which was an increase of $3.3 million when compared to the same period in 2023.

In addition, we used net cash of $1.2 million in the disposition of a business and $5.0 million for a minor investment in a business during the six months ended June 30, 2024.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Financing Cash Flow

During the three months ended March 31, 2024, we had a net increase in borrowings of $260.5 million, primarily due to our ASR Transaction (as defined below) in March 2024.

We paid $52.7 million to satisfy tax obligations of employees upon settlement of equity awards during the three months ended March 31, 2024 compared to $31.4 million during the same period in 2023.

During the six months ended June 30, 2024, we had a net increase in borrowings of $244.9 million, primarily due to our ASR Transaction (as defined below) in March 2024.

We also paid $6.5 million in debt issuance costs in conjunction with our April 2024 refinancing.

We paid $54.5 million to satisfy tax obligations of employees upon settlement of equity awards during the six months ended June 30, 2024 compared to $33.7 million during the same period in 2023.

The amount of taxes paid by us on behalf of employees related to the settlement of equity awards varies from period to period based upon the timing of grants and vesting, as well as the market price for shares of our common stock at the time of settlement.

Most of our equity awards currently vest in our first quarter.

During the three months ended March 31, 2024, cash flow from financing activities associated with changes in restricted cash due to customers decreased $336.6 million, compared to a decrease of $337.2 million during the same period in 2023.

During the six months ended June 30, 2024, cash flow from financing activities associated with changes in restricted cash due to customers increased $106.9 million, compared to an increase of $61.3 million during the same period in 2023.

This line in the statement of cash flows represents the change in the amount of restricted cash held and payable by us to customers from one period to the next.

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The repurchase program may be limited, suspended or discontinued at any time without prior notice.

In March 2024, we announced that we intend to repurchase between 7% and 10% of our outstanding common stock as of December 31, 2023 under our existing $500 million stock repurchase program.

Consistent with that commitment, in March 2024, we entered into an issuer forward repurchase transaction with a large financial institution to repurchase an aggregate $200 million of shares of our common stock (the "ASR Transaction").

In March 2024, we announced that we intend to repurchase between 7% and 10% of our outstanding common stock as of December 31, 2023 under our repurchase program.

Consistent with that commitment, in March 2024, we entered into the ASR Transaction to repurchase an aggregate $200 million of shares of our common stock.

Pursuant to the terms of the ASR Transaction, we provided the financial institution with a prepayment of $200 million and received an initial delivery of 2.1 million shares of our common stock, representing approximately 70% of the total shares then-expected to be repurchased under the ASR Transaction.

2 unchanged sentences

The difference of $52.2 million between the prepayment of $200 million and the value of the shares repurchased on the ASR Transaction date represents an unsettled prepaid forward contract indexed to our common stock and met all of the applicable criteria for equity classification;

therefore, it was not accounted for as a derivative instrument as of March 31, 2024.

therefore, it was not accounted for as a derivative instrument as of June 30, 2024.

Because of our ability to settle in shares, the $52.2 million prepaid forward contract was classified as a reduction to additional paid-in capital within our unaudited, condensed consolidated statement of stockholders' equity in this report.

We funded the ASR Transaction prepayment with borrowings pursuant to a revolving credit loan under the 2020 Credit Facility.

During the three months ended March 31, 2024, we repurchased 2,954,211 shares for $262.6 million.

The remaining amount available to purchase stock under the stock repurchase program was $259.7 million as of March 31, 2024.

We funded the ASR Transaction prepayment with borrowings pursuant to a revolving credit loan under the 2024 Credit Facilities.

During the three months ended June 30, 2024, we did not repurchase any shares.

During the six months ended June 30, 2024, we repurchased 2,954,211 shares for $262.6 million, representing approximately 5.5% of the Company's common stock outstanding as of December 31, 2023.

The remaining amount available to purchase stock under the stock repurchase program was $259.7 million as of June 30, 2024.

After 2024, we plan to repurchase shares to at least offset the dilution from our annual stock-based compensation and possibly beyond that amount as market conditions and our strategic plans permit.

2020 Credit Facility

Historically, we have drawn on our credit facility from time to time to help us meet financial needs, primarily due to the seasonality of our cash flows from operations and financing for business acquisitions.

At March 31, 2024, our available borrowing capacity under the 2020 Credit Facility was $119.6 million.

The 2020 Credit Facility matures in October 2025.

At March 31, 2024, the carrying amount of our debt under the 2020 Credit Facility was $981.7 million.

Our average daily borrowings during the three months ended March 31, 2024 were $806.1 million.

First Quarter 2024 Form 10-Q

On July 16, 2024, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by expanding the total capacity under the program from $500.0 million to $800.0 million available for repurchases.

As of July 16, 2024, the amount available to purchase stock under the Company's repurchase program was $800.0 million.

See Note 13 to our unaudited, condensed financial statements in this report for additional information.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

The following is a summary of the financial covenants under the 2020 Credit Facility:

Financial covenant Requirement Ratio as of March 31, 2024

2024 Credit Facilities

At June 30, 2024, our available borrowing capacity under the 2024 Credit Facilities was $531.3 million.

The 2024 Credit Facilities mature in April 2029.

At June 30, 2024, the carrying amount of our debt under the 2024 Credit Facilities was $963.6 million.

Our average daily borrowings during the three and six months ended June 30, 2024 were $994.7 million and $900.4 million, respectively.

The following is a summary of the financial covenants under the 2024 Credit Facilities:

Financial covenant Requirement Ratio as of June 30, 2024

Net leverage ratio (1)

1 unchanged sentence

Interest coverage ratio ≥ 2.50 to 1.00 9.20 to 1.00

(1) Under the terms of the 2020 Credit Facility, the Net Leverage Ratio requirement may be increased by up to 0.50 provided we satisfy certain requirements, including a permitted business acquisition, and provided that the maximum Net Leverage Ratio shall not exceed 4.25 to 1.00.

Under the 2020 Credit Facility, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock.

(1) Under the terms of the 2024 Credit Facilities, the Net Leverage Ratio requirement may be increased by up to 0.50 provided we satisfy certain requirements, including a permitted business acquisition, and provided that the maximum Net Leverage Ratio shall not exceed 4.25 to 1.00.

Under the 2024 Credit Facilities, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock.

In order to pay any cash dividends and/or repurchase shares of stock:

(i) no default or event of default shall have occurred and be continuing under the 2020 Credit Facility, and (ii) our pro forma net leverage ratio, as set forth in the 2020 Credit Facility, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase.

At March 31, 2024, we were in compliance with our debt covenants under the 2020 Credit Facility.

See Note 7 to our unaudited, condensed consolidated financial statements in this report for additional information regarding the 2020 Credit Facility.

Debt refinancing

On April 30, 2024, we refinanced our debt.

See Part II, Item 5.

“Other Information” for detailed information relating to the terms of the 2024 Credit Agreement.

(i) no default or event of default shall have occurred and be continuing under the 2024 Credit Facilities, and (ii) our pro forma net leverage ratio, as set forth in the 2024 Credit Facilities, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase.

At June 30, 2024, we were in compliance with our debt covenants under the 2024 Credit Facilities.

See Note 7 to our unaudited, condensed consolidated financial statements in this report for additional information regarding the 2024 Credit Facilities.

Commitments and Contingencies

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Operating leases 6.5 42.2 48.7

Contingent consideration 1.4 — 1.4

Unrecorded contractual obligations:

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(1) The individual amounts may not sum to the total due to rounding.

As of March 31, 2024, we had total remaining principal payments of $1.0 billion.

As of June 30, 2024, we had total remaining principal payments of $1.0 billion.

These payments represent principal payments only, under the following assumptions:

(i) that the amounts outstanding under the 2020 Credit Facility, our real estate loans and our other debt at March 31, 2024 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the revolving credit loans under the 2020 Credit Facility for the purposes of determining minimum commitment amounts.

(i) that the amounts outstanding under the 2024 Credit Facilities, our real estate loans and our other debt at June 30, 2024 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the revolving credit loans under the 2024 Credit Facilities for the purposes of determining minimum commitment amounts.

See Note 7 to our unaudited, condensed consolidated financial statements in this report for more information.

Interest payments on debt

In addition to principal payments, as of March 31, 2024, we expect to pay interest expense over the life of our debt obligations of approximately $122.0 million.

These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of March 31, 2024, which includes the effect of interest rate swap agreements.

In addition to principal payments, as of June 30, 2024, we expect to pay interest expense over the life of our debt obligations of approximately $324.5 million.

These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of June 30, 2024, which includes the effect of interest rate swap agreements.

The actual interest expense recognized in our unaudited, condensed consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions on our remaining principal payments described above.

First Quarter 2024 Form 10-Q

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Operating leases

As of March 31, 2024, we had remaining operating lease payments of $53.4 million.

As of June 30, 2024, we had remaining operating lease payments of $48.7 million.

These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest of $7.6 million.

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Purchase obligations

As of March 31, 2024, we had remaining purchase obligations of $239.8 million.

As of June 30, 2024, we had remaining purchase obligations of $228.0 million.

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

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

Our purchase obligations are not recorded as liabilities on our unaudited, condensed consolidated balance sheets as of March 31, 2024, as we had not received the related services.

Our purchase obligations are not recorded as liabilities on our unaudited, condensed consolidated balance sheets as of June 30, 2024, as we had not received the related services.

See Note 9 to our unaudited, condensed consolidated financial statements in this report for more information.

The total liability for uncertain tax positions as of March 31, 2024 was $3.5 million.

Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of March 31, 2024.

In connection with the settlement of the multi-state Attorneys General investigation relating to the Security Incident, as discussed in Note 11 to our audited consolidated financial statements contained in our Annual Report on Form 10-K filed with the SEC on February 21, 2024, we have agreed to implement and improve certain of our cybersecurity programs and tools through October 2030.

The total liability for uncertain tax positions as of June 30, 2024 was $3.7 million.

Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant as of June 30, 2024.

In connection with the settlement of the multi-state Attorneys General investigation, the California Attorney General investigation and the FTC investigation relating to the Security Incident, as discussed in Note 11 to our audited consolidated financial statements contained in our Annual Report on Form 10-K filed with the SEC on February 21, 2024, we have agreed to implement and improve certain of our cybersecurity programs and tools through May 2044.

The currently anticipated costs in connection with these efforts are expected to be expensed as incurred.

Contingent consideration

In connection with our acquisition of Kilter in August 2022, 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.

As of March 31, 2024, a liability for the contingent consideration is recorded at its current estimated fair value of $1.4 million in accrued expenses and other current liabilities on our unaudited, condensed consolidated balance sheets.

Foreign Currency Exchange Rates

Approximately 15% of our total revenue for the three months ended March 31, 2024 was generated from operations outside the U.S.

Approximately 15% of our total revenue for the six months ended June 30, 2024 was generated from operations outside the U.S.

We do not have significant operations in countries in which the economy is considered to be highly inflationary.

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dollars for purposes of reporting our consolidated financial results.

The accumulated currency translation adjustment, recorded within accumulated other comprehensive income (loss) as a component of stockholders’ equity, was a loss of $11.0 million as of March 31, 2024 and a loss of $9.8 million as of December 31, 2023.

The accumulated currency translation adjustment, recorded within accumulated other comprehensive income (loss) as a component of stockholders’ equity, was a loss of $10.7 million as of June 30, 2024 and a loss of $9.8 million as of December 31, 2023.

We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds into U.S.

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dollar strengthened, foreign currency translation resulted in a decrease in our revenue and expenses denominated in non-U.S.

During the three months ended March 31, 2024, foreign translation resulted in increases in our revenues and expenses denominated in non-U.S.

During the six months ended June 30, 2024, foreign translation resulted in increases in our revenues and expenses denominated in non-U.S.

Though we have exposure to fluctuations in currency exchange rates, primarily those between the U.S.

dollar and both the British Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operations or financial position.

For the three months ended March 31, 2024, the fluctuation in foreign currency exchange rates increased our total revenue and our income from operations by $0.9 million and $0.3 million, respectively.

We have entered into foreign currency forward contracts to hedge

First Quarter 2024 Form 10-Q

Blackbaud, Inc.

revenues denominated in the Canadian dollar against changes in the exchange rate with the U.S.

For the six months ended June 30, 2024, the fluctuation in foreign currency exchange rates increased our total revenue and our income from operations by $1.1 million and an insignificant amount, respectively.

We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian dollar against changes in the exchange rate with the U.S.

We will continue monitoring such exposure and take action as appropriate.

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These impacts are non-GAAP financial information and are not in accordance with, or an alternative to, information prepared in accordance with GAAP.

Second Quarter 2024 Form 10-Q

Blackbaud, Inc.

Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2024 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2024 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Recently Issued Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis