BLACKBAUD INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA BLACKBAUD, INC. Index to Consolidated Financial Statements Page No. Reports of Independent Registered Public Accounting Firms (PCAOB ID 42 ) 66 Consolidated Balance Sheets 69 Consolidated Statements of Comprehensive Loss 70 Consolidated Statements of Cash Flows 71 Consolidated Statements of Stockholders’ Equity 72 Notes to Consolidated Financial Statements 73 2024 Form 10-K 65 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Blackbaud, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Blackbaud, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of comprehensive loss, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 21, 2025 expressed an unqualified opinion thereon. Basis for Opinion 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 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 audits 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 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 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 The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Revenue Recognition - Payment Processing Services Description of the Matter The Company recorded transactional recurring revenues of $354 million for the year ended December 31, 2024. Included in transactional recurring revenues are revenues related to payment processing services. As discussed in Note 2 to the consolidated financial statements, the Company recognizes revenue for payment processing services over time based on the amount billable to the customer, since it has the right to invoice the customer in an amount that directly corresponds with the value to the customer for the Company’s performance to date. The processing of transactions and recording of revenues for these services involves a significant volume of transactions that are highly automated and are based on contractual terms with the customer and the Company’s third-party vendors. Auditing the revenues for these payment processing services is complex because the processes are highly automated and involve multiple IT systems with a significant volume of transactions and related underlying data. Further, auditing the revenues for these payment processing services required the involvement of data professionals to assist in validating the integrity of the underlying data and recalculating the revenues recorded during the period. 66 2024 Form 10-K How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its payment processing services. We identified the relevant systems used in these payment processing services, including relevant third-party service organization systems, and evaluated the IT general controls over each of these systems. We also tested the relevant automated controls and other business processes controls. To test revenue recognized for payment processing services, our procedures included, among others, the involvement of data professionals to recalculate the revenue recognized. For a selection of payment processing transactions, we also agreed the amount of revenues recognized for processing fees retained by the Company to source documents and tested the mathematical accuracy of the recorded revenue. We also evaluated if the transactions were processed, and funds received, including sending confirmations directly to financial institutions. /s/ Ernst & Young LLP We have served as the Company's auditor since 2021. Raleigh, North Carolina February 21, 2025 2024 Form 10-K 67 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Blackbaud, Inc. Opinion on Internal Control Over Financial Reporting We have audited Blackbaud, Inc.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, Blackbaud, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, 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 sheets of the Company as of December 31, 2024 and 2023, and the related consolidated statements of comprehensive loss, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2024, and the related notes and our report dated February 21, 2025 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Raleigh, North Carolina February 21, 2025 68 2024 Form 10-K Blackbaud, Inc. Consolidated Balance Sheets (dollars in thousands, except per share amounts) December 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 67,628 $ 31,251 Restricted cash 741,884 697,006 Accounts receivable, net of allowance of $ 5,228 and $ 6,907 at December 31, 2024 and December 31, 2023, respectively 83,539 101,862 Customer funds receivable 1,970 353 Prepaid expenses and other current assets 81,287 99,285 Total current assets 976,308 929,757 Property and equipment, net 91,926 98,689 Operating lease right-of-use assets 26,554 36,927 Software and content development costs, net 148,319 160,194 Goodwill 1,052,506 1,053,738 Intangible assets, net 132,881 581,937 Other assets 67,221 51,037 Total assets $ 2,495,715 $ 2,912,279 Liabilities and stockholders’ equity Current liabilities: Trade accounts payable $ 50,810 $ 25,184 Accrued expenses and other current liabilities 75,543 64,322 Due to customers 742,340 695,842 Debt, current portion 23,875 19,259 Deferred revenue, current portion 359,529 392,530 Total current liabilities 1,252,097 1,197,137 Debt, net of current portion 1,051,110 760,405 Deferred tax liability 9,518 93,292 Deferred revenue, net of current portion 2,015 2,397 Operating lease liabilities, net of current portion 34,186 40,085 Other liabilities 4,796 10,258 Total liabilities 2,353,722 2,103,574 Commitments and contingencies (see Note 11) Stockholders’ equity: Preferred stock; 20,000,000 shares authorized; no ne outstanding — — Common stock, $ 0.001 par value; 180,000,000 shares authorized; 70,943,373 and 69,188,304 shares issued at December 31, 2024 and December 31, 2023, respectively; 49,245,588 and 53,625,440 shares outstanding at December 31, 2024 and December 31, 2023, respectively 71 69 Additional paid-in capital 1,291,442 1,203,012 Treasury stock, at cost; 21,697,785 and 15,562,864 shares at December 31, 2024 and December 31, 2023, respectively ( 1,060,348 ) ( 591,557 ) Accumulated other comprehensive loss ( 4,869 ) ( 1,688 ) (Accumulated deficit) retained earnings ( 84,303 ) 198,869 Total stockholders’ equity 141,993 808,705 Total liabilities and stockholders’ equity $ 2,495,715 $ 2,912,279 The accompanying notes are an integral part of these consolidated financial statements. 2024 Form 10-K 69 Blackbaud, Inc. Consolidated Statements of Comprehensive Loss (dollars in thousands, except per share amounts) Years ended December 31, 2024 2023 2022 Revenue Recurring $ 1,129,114 $ 1,071,520 $ 1,011,733 One-time services and other 26,381 33,912 46,372 Total revenue 1,155,495 1,105,432 1,058,105 Cost of revenue Cost of recurring 494,588 470,455 463,449 Cost of one-time services and other 21,704 31,733 41,940 Total cost of revenue 516,292 502,188 505,389 Gross profit 639,203 603,244 552,716 Operating expenses Sales, marketing and customer success 197,499 212,158 221,455 Research and development 160,586 153,304 156,913 General and administrative 142,723 189,938 199,908 Amortization 3,541 3,139 2,925 EVERFI disposition 405,360 — — Total operating expenses 909,709 558,539 581,201 (Loss) income from operations ( 270,506 ) 44,705 ( 28,485 ) Interest expense ( 55,634 ) ( 39,922 ) ( 35,803 ) Other income, net 14,549 12,861 8,713 (Loss) income before (benefit) provision for income taxes ( 311,591 ) 17,644 ( 55,575 ) Income tax (benefit) provision ( 28,419 ) 15,824 ( 10,168 ) Net (loss) income $ ( 283,172 ) $ 1,820 $ ( 45,407 ) (Loss) earnings per share Basic $ ( 5.60 ) $ 0.03 $ ( 0.88 ) Diluted $ ( 5.60 ) $ 0.03 $ ( 0.88 ) Common shares and equivalents outstanding Basic weighted average shares 50,560,538 52,546,406 51,569,148 Diluted weighted average shares 50,560,538 53,721,342 51,569,148 Other comprehensive (loss) income Foreign currency translation adjustment $ ( 2,822 ) $ 5,049 $ ( 16,160 ) Unrealized (loss) gain on derivative instruments, net of tax ( 359 ) ( 15,675 ) 18,576 Total other comprehensive (loss) income ( 3,181 ) ( 10,626 ) 2,416 Comprehensive loss $ ( 286,353 ) $ ( 8,806 ) $ ( 42,991 ) The accompanying notes are an integral part of these consolidated financial statements. 70 2024 Form 10-K Blackbaud, Inc. Consolidated Statements of Cash Flows Years ended December 31, (dollars in thousands) 2024 2023 2022 Cash flows from operating activities Net (loss) income $ ( 283,172 ) $ 1,820 $ ( 45,407 ) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 121,665 109,487 102,369 Provision for credit losses and sales returns 4,932 4,500 6,066 Stock-based compensation expense 104,968 127,762 110,294 Deferred taxes ( 85,011 ) ( 24,368 ) ( 26,644 ) Amortization of deferred financing costs and discount 2,538 1,775 2,364 Loss on disposition of businesses 16,847 — — EVERFI impairment charges 390,204 — — Other non-cash adjustments 2,462 5,023 5,676 Changes in operating assets and liabilities, net of acquisition and disposal of businesses: Accounts receivable 4,729 ( 3,237 ) ( 7,340 ) Prepaid expenses and other assets 3,339 16,851 26,235 Trade accounts payable 28,336 ( 18,576 ) 21,607 Accrued expenses and other liabilities ( 13,328 ) ( 30,275 ) ( 2,386 ) Deferred revenue ( 2,541 ) 8,872 11,059 Net cash provided by operating activities 295,968 199,634 203,893 Cash flows from investing activities Purchase of property and equipment ( 7,443 ) ( 4,685 ) ( 12,289 ) Capitalized software and content development costs ( 59,757 ) ( 59,443 ) ( 58,774 ) Purchase of net assets of acquired companies, net of cash and restricted cash acquired — ( 13 ) ( 20,912 ) Cash (used) received in disposition of business ( 1,179 ) — 6,426 Other investing activities ( 5,029 ) ( 250 ) — Net cash used in investing activities ( 73,408 ) ( 64,391 ) ( 85,549 ) Cash flows from financing activities Proceeds from issuance of debt 1,441,400 293,200 211,000 Payments on debt ( 1,144,709 ) ( 374,595 ) ( 310,740 ) Debt issuance costs ( 6,458 ) — — Stock issuance costs — — ( 1,339 ) Employee taxes paid for withheld shares upon equity award settlement ( 56,828 ) ( 35,867 ) ( 36,376 ) Change in due to customers 46,957 ( 6,812 ) 111,386 Change in customer funds receivable ( 1,679 ) ( 60 ) 380 Purchase of treasury stock ( 418,034 ) ( 18,831 ) — Net cash used in financing activities ( 139,351 ) ( 142,965 ) ( 25,689 ) Effect of exchange rate on cash, cash equivalents and restricted cash ( 1,954 ) 2,048 ( 10,486 ) Net increase (decrease) in cash, cash equivalents and restricted cash 81,255 ( 5,674 ) 82,169 Cash, cash equivalents and restricted cash, beginning of year 728,257 733,931 651,762 Cash, cash equivalents and restricted cash, end of year $ 809,512 $ 728,257 $ 733,931 Supplemental disclosure of cash flow information Cash paid for interest $ ( 51,881 ) $ ( 38,052 ) $ ( 33,371 ) Cash (paid) for taxes, net of refunds ( 60,668 ) ( 35,619 ) ( 9,670 ) Non-cash investing and financing activities: Purchase of software and services by assuming directly related liabilities ( 2,073 ) ( 2,491 ) ( 1,710 ) Purchase of equipment and other assets included in accounts payable ( 31 ) ( 837 ) ( 158 ) The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown above in the consolidated statements of cash flows: (dollars in thousands) December 31, 2024 December 31, 2023 Cash and cash equivalents $ 67,628 $ 31,251 Restricted cash 741,884 697,006 Total cash, cash equivalents and restricted cash in the statement of cash flows $ 809,512 $ 728,257 The accompanying notes are an integral part of these consolidated financial statements. 2024 Form 10-K 71 Blackbaud, Inc. Consolidated Statements of Stockholders' Equity (dollars in thousands) Common stock Treasury stock Additional paid-in capital Accumulated other comprehensive (loss) income (Accumulated deficit) retained earnings Total stockholders' equity Shares Amount Shares Amount Balance at December 31, 2021 66,165,666 $ 66 ( 14,182,805 ) $ ( 500,911 ) $ 968,927 $ 6,522 $ 242,456 $ 717,060 Net loss — — — — — — ( 45,407 ) ( 45,407 ) Common stock issued in purchase of EVERFI — — — — ( 1,352 ) — — ( 1,352 ) Retirements of common stock (1) ( 33,535 ) — — — ( 2,605 ) — — ( 2,605 ) Vesting of restricted stock units 1,015,304 — — — — — — — Shares withheld to satisfy tax withholdings — — ( 562,425 ) ( 36,376 ) — — — ( 36,376 ) Stock-based compensation — — — — 110,294 — — 110,294 Restricted stock grants 846,295 2 — — — — — 2 Restricted stock cancellations ( 179,686 ) — — — — — — — Other comprehensive income — — — — — 2,416 — 2,416 Balance at December 31, 2022 67,814,044 $ 68 ( 14,745,230 ) $ ( 537,287 ) $ 1,075,264 $ 8,938 $ 197,049 $ 744,032 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 — — — — — — — Shares withheld to satisfy tax withholdings — — ( 595,798 ) ( 35,439 ) — — — ( 35,439 ) Stock-based compensation — — — — 127,762 — — 127,762 Restricted stock grants 473,341 1 — — — — — 1 Restricted stock cancellations ( 106,859 ) — — — — — — — 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 Net loss — — — — — — ( 283,172 ) ( 283,172 ) Purchase of treasury shares under stock repurchase program, inclusive of excise tax — — ( 5,362,439 ) ( 411,963 ) ( 9,246 ) — — ( 421,209 ) Vesting of restricted stock units 1,410,169 — — — — — — — Shares withheld to satisfy tax withholdings — — ( 772,482 ) ( 56,828 ) — — — ( 56,828 ) Stock-based compensation — — — — 97,676 — — 97,676 Restricted stock grants 422,685 2 — — — — — 2 Restricted stock cancellations ( 77,785 ) — — — — — — — Other comprehensive loss — — — — — ( 3,181 ) — ( 3,181 ) Balance at December 31, 2024 70,943,373 $ 71 ( 21,697,785 ) $ ( 1,060,348 ) $ 1,291,442 $ ( 4,869 ) $ ( 84,303 ) $ 141,993 (1) Represents shares retired after determining certain EVERFI's selling shareholders would be paid in cash, rather than shares of our common stock. The accompanying notes are an integral part of these consolidated financial statements. 72 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 1. Organization 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, India and the United Kingdom, supporting users in 100+ countries. 2. Basis of Presentation Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Basis of consolidation The consolidated financial statements include the accounts of Blackbaud, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, income taxes, business combinations, stock-based compensation, capitalization of software development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuation of derivative instruments, loss contingencies and insurance recoveries, among others. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could materially differ from these estimates. Recently adopted accounting pronouncements In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This update requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. We adopted ASU 2023-07 on December 31, 2024 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. Summary of significant accounting policies Revenue recognition Our revenue is primarily generated from the following sources: (i) charging for the use of our software solutions in cloud and hosted environments; and (ii) providing payment and transaction services. 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. 2024 Form 10-K 73 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements We determine revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, we satisfy a performance obligation. 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, 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, contractual 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 contractual 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. In general, when we are the principal in a transaction based on the factors identified in ASC 606-10-55-36 through 55-40, we record the revenue and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount withheld for the transaction fees) and record the net amount as revenue. For payment and transaction services, we have the right to invoice the customer in an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount we withhold for the transaction fees in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18. One-time services and other One-time services and other revenue is primarily 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. We generally bill consulting services based on hourly rates plus reimbursable travel-related expenses. Fixed price consulting engagements are generally billed as milestones towards completion are reached. Revenue for one-time consulting services is generally recognized over time as the services are performed. 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. Contracts with multiple performance obligations Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. 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. 74 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Costs of obtaining contracts, contract assets and deferred revenue We pay sales commissions at the time contracts with customers are signed or shortly thereafter, depending on the size and duration of the sales contract. 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 determined to be six years . We determined the period of benefit by taking into consideration our customer contracts, including renewals, retention, our technology and other factors. We generally do not pay commissions for contract renewals that are commensurate with the commission paid on the initial contract. The related amortization expense is included in sales, marketing and customer success expense in our consolidated statements of comprehensive loss. A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must satisfy additional performance obligations in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Our contract assets are recorded within prepaid expenses and other current assets on our consolidated balance sheets. To the extent that our customers are billed for our solutions and services in advance of us satisfying the related performance obligations, we record such amounts in deferred revenue. Sales taxes We present sales taxes and other taxes collected from customers and remitted to governmental authorities on a net basis and, as such, exclude them from revenues. Fair value measurements We measure certain financial assets and liabilities at fair value on a recurring basis, including derivative instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An active market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: • Level 1 - Quoted prices for identical assets or liabilities in active markets; • Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and • Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable. Our financial assets and liabilities are classified in their entirety within the hierarchy based on the lowest level of input that is significant to fair value measurement. Changes to a financial asset's or liability's level within the fair value hierarchy are determined as of the end of a reporting period. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. Derivative instruments We generally use derivative instruments to manage interest rate and foreign currency exchange risk. We view derivative instruments as risk management tools and do not use them for trading or speculative purposes. Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. 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. We record all derivative instruments on our consolidated balance sheets at fair value as either an asset or liability. If the derivative is designated as a cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive loss and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. If the derivative is designated as a net investment hedge, the effective portions of the changes in fair value of the derivative are recorded to translation adjustment, a component of other comprehensive loss, and recognized in earnings only when the hedged investment is liquidated. Ineffective portions of the changes in the fair value of cash flow hedges are recognized currently in earnings. See Note 10 to these consolidated financial statements for further discussion of our derivative instruments. 2024 Form 10-K 75 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Cash and cash equivalents We consider all highly liquid investments purchased with an original maturity of three months or less and cash items in transit to be cash equivalents. Restricted cash due to customers; Customer funds receivable; Due to customers Restricted cash due to customers consists of monies collected and held at banks, payment processors, or other financial institutions (or in transit) and payable to our customers, net of the associated transaction fees earned. Monies associated with amounts due to customers are segregated in separate bank accounts and used exclusively for the payment of amounts due to customers. This usage restriction is either legally or internally imposed and reflects our intention with regard to such deposits. Customer funds receivable consists of monies we expect to collect and remit to our customers. Concentration of credit risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted cash due to customers and accounts receivable. Our cash and cash equivalents and restricted cash due to customers are placed with high credit-quality financial institutions. Our accounts receivable is derived from sales to customers. With respect to accounts receivable, we perform ongoing evaluations of our customers and maintain an allowance for credit losses based on historical experience and our expectations of future credit losses. As of and for the years ended December 31, 2024, 2023 and 2022, there were no significant concentrations with respect to our consolidated revenues or accounts receivable. Property and equipment We record property and equipment assets at cost and depreciate them over their estimated useful lives using the straight-line method. Leasehold improvements are depreciated over the lesser of the term of the lease or the estimated useful life of the asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. Repair and maintenance costs are expensed as incurred. 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. There was no capitalized interest applicable to construction-in-progress for the years ended December 31, 2024 and 2023. Business combinations We include the operating results of acquired companies as well as the net assets acquired and liabilities assumed in our consolidated financial statements from the date of acquisition. We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values. 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. We apply significant judgement in estimating the fair value of intangible assets acquired, which involves the use of significant assumptions. Significant assumptions used in the valuation of customer relationships include future revenue and operating expenses, customer attrition rates, contributory asset charges, tax amortization benefit, and discount rates. Significant assumptions used in the valuation of certain developed technology assets include future revenue, proprietary technology obsolescence curve, royalty rate, and discount rate. Significant assumptions used in the valuation of marketing assets include assumptions about the period of time the brand will continue to be valuable, royalty rate, and discount rate. Significant assumptions used in the valuation of content intangible assets include cost-based assumptions. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable, and unanticipated events and changes in circumstances may occur. Goodwill Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by us in a business combination. 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. 76 2024 Form 10-K Table of Contents 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. Significant judgment is required in the assessment of qualitative factors, including but not limited to an evaluation of macroeconomic conditions as they relate to our business, industry and market trends, as well as the overall future financial performance of identified reporting units and future opportunities in the markets in which we operate. The quantitative impairment test compares the fair values of identified reporting units with their respective carrying amounts. 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 have one operating segment, one reportable segment, and one reporting unit. In each of 2024, 2023 and 2022, 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 were no impairments of goodwill during 2024, 2023 and 2022. Intangible assets other than goodwill We amortize finite-lived intangible assets over their estimated useful lives as follows. Basis of amortization Amortization period (in years) Customer relationships Straight-line and Curve of Economic Benefit (1) 10 - 17 Marketing assets Straight-line and Curve of Economic Benefit (1) 15 Developed technology Straight-line and Curve of Economic Benefit (1) 3 - 14 (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. We evaluate the estimated useful lives and the potential for impairment of finite and indefinite-lived intangible assets on an annual basis or more frequently if events or circumstances indicate revised estimates of useful lives may be appropriate or that the carrying amount may be impaired. 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. All 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 2024 and 2022. There were no impairments of acquired intangible assets during 2023. Impairment of long-lived assets We review long-lived assets for impairment when events change or circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the extent or manner in which the business or asset acquired is used or significant adverse change in the business climate. If such events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether the asset or asset group is impaired. See Note 6 to these consolidated financial statements for a discussion of our impairment of certain long-lived assets during 2024, 2023 and 2022. Deferred financing costs and debt discount Deferred financing costs included in other assets represent the direct third-party costs of entering into the revolving (line-of-credit) portion of our credit facility in April 2024 and portions of the unamortized deferred financing costs from prior facilities. These costs are amortized ratably over the term of the credit facility as interest expense. 2024 Form 10-K 77 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Other debt issuance costs, as well as the debt discount associated with the 2024 Credit Facilities (as defined below) and portions of the unamortized balances from prior facilities, are recorded as a direct deduction from debt. These costs are amortized over the term of the credit facility as interest expense. Stock-based compensation We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the requisite service period, which is the vesting period. We recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, we recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award is reversed in the period that the award is forfeited. Income tax benefits resulting from the vesting and exercise of stock-based compensation awards are recognized in the period the unit or award is vested or option or right is exercised. Income taxes We make estimates and judgments in accounting for income taxes. The calculation of the income tax provision requires estimates due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. To the extent actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is made. We make estimates in determining tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of a recorded valuation allowance significant judgment is required. We consider all positive and negative evidence and a variety of factors including the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning strategies. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax asset in the future in excess of its net carrying value, then an adjustment to the deferred tax asset valuation allowance is made to increase income tax expense, thereby reducing net income in the period such determination was made. We measure and recognize uncertain tax positions. To recognize such positions, we must first determine if it is more likely than not that the position will be sustained upon audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Significant judgment is required in the identification and measurement of uncertain tax positions. Foreign currency Net assets recorded in a foreign currency are translated at the exchange rate on the balance sheet date. Revenue and expense items are translated using an average of monthly exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive income. 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 years ended December 31, 2024 and 2022, we recorded net foreign currency gains that were insignificant and $ 4.6 million, respectively. During the year ended December 31, 2023, we recorded a net foreign currency loss that was insignificant. Research and development Research and development costs are expensed as incurred except as noted below under Software and content development costs . These costs include compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to researching and developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support costs. 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 78 2024 Form 10-K Table of Contents 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. Once the software or content being developed has reached the application development stage, qualifying internal costs including payroll and payroll-related costs of employees who are directly associated with and devote time to the software or content project as well as external direct costs of materials and services are capitalized. Capitalization ceases at the point at which the developed software or content is substantially complete and ready for its intended use, which is typically upon completion of all substantial testing. Qualifying costs capitalized during the application development stage include those related to specific upgrades and enhancements when it is probable that those costs incurred will result in additional functionality. Overhead costs, including general and administrative costs, as well as maintenance, training and all other costs associated with post-implementation stage activities are expensed as incurred. In addition, internal costs that cannot be reasonably separated between maintenance and relatively minor upgrades and enhancements are expensed as incurred. 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 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 and content development costs during 2024 and 2022. There were no impairments of capitalized software assets during 2023. 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 Our accounts receivable consist of a single portfolio segment. Accounts receivable are recorded at original invoice amounts less an allowance for credit losses, an amount we estimate to be sufficient to provide adequate protection against lifetime expected losses resulting from extending credit to our customers. In judging the adequacy of the allowance for credit losses, we consider multiple factors including historical bad debt experience, the current aging of our receivables and current economic conditions that may affect our customers' ability to pay. A considerable amount of judgment is required in assessing these factors and if any receivables were to deteriorate, an additional provision for credit losses could be required. Accounts are written off after all means of collection are exhausted and recovery is considered remote. Provisions for credit losses are recorded in general and administrative expense. Below is a summary of the changes in our allowance for credit losses. Years ended December 31, (in thousands) Balance at beginning of year Provision/ adjustment Write-off Recovery Balance at end of year 2024 $ 6,096 $ 3,010 $ ( 4,833 ) $ 215 $ 4,488 2023 6,022 2,012 ( 2,539 ) 601 6,096 2022 9,375 1,281 ( 5,162 ) 528 6,022 Allowance for sales returns We maintain a reserve for returns and credits which is estimated based on several factors including historical experience, known credits yet to be issued, the aging of customer accounts and the nature of service level commitments. A considerable amount of judgment is required in assessing these factors. Provisions for sales returns and credits are charged against the related revenue items. Below is a summary of the changes in our allowance for sales returns. Years ended December 31, (in thousands) Balance at beginning of year Provision/ adjustment Deduction Balance at end of year 2024 $ 811 $ 2,966 $ ( 3,037 ) $ 740 2023 1,296 2,488 ( 2,973 ) 811 2022 1,780 4,785 ( 5,269 ) 1,296 2024 Form 10-K 79 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Advertising costs We expense advertising costs as incurred , which were $ 16.0 million, $ 14.0 million and $ 16.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. Restructuring costs Restructuring costs include charges for the costs of exit or disposal activities. The liability for costs associated with exit or disposal activities is measured initially at fair value and only recognized when the liability is incurred. Leases We determine if an arrangement is a lease at inception. 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, 2024 and 2023. 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. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in determining the present value of lease payments. Our incremental borrowing rate is based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any initial direct costs and lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments related to our operating leases is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. We do not recognize short-term leases (those that, at the commencement date, have a lease term of 12 months or less) on our consolidated balance sheets. 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. Loss contingencies We are subject to the possibility of various loss contingencies, including legal proceedings and claims, that arise in the normal course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described in Note 11 to these consolidated financial statements. We record an accrual for a loss contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and the estimation of damages are difficult to ascertain. These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions that have been deemed reasonable by us. 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 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. 80 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 3. Business Combinations and Dispositions 2024 dispositions EVERFI, LLC On December 31, 2024, we disposed of our EVERFI business, formerly a wholly-owned subsidiary of Blackbaud, Inc, to a private investment firm that is unaffiliated with Blackbaud for nominal cash consideration. We incurred $ 14.0 million of costs associated with the disposition of this business, all of which were recorded as accrued expenses and other liabilities as of December 31, 2024. As a result of the disposition, we recorded a loss of $ 15.2 million, which included direct costs to sell the business. This loss on disposition together with EVERFI impairment charges are recorded within EVERFI disposition on our consolidated statements of comprehensive loss for the year ended December 31, 2024. See Note 4 to these consolidated financial statements for additional information about the EVERFI impairment charges. EVERFI Limited On March 2, 2024, we completed a transaction to divest our U.K.-based creative services business EVERFI Limited, formerly a wholly-owned subsidiary of EVERFI, Inc, which was a wholly-owned subsidiary of Blackbaud, Inc. EVERFI Limited's total revenue during 2023 was $ 8.4 million. We incurred an insignificant amount of legal costs associated with the disposition of this business. As a result of the disposition, we recorded a $ 1.6 million loss, which was recorded in general and administrative expense on our consolidated statements of comprehensive loss for the year ended December 31, 2024. 2022 disposition Blackbaud FIMS™ and DonorCentral® NXT On September 9, 2022, we sold our Foundation Information Management System ("FIMS") and DonorCentral NXT solutions to Fusion Laboratories, LLC for cash proceeds of approximately $ 6.4 million, net of closing adjustments. 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 on our consolidated statements of comprehensive loss. 2022 acquisition Kilter 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, net of closing adjustments. In addition to the consideration paid at closing, the agreement and plan of merger included cash consideration payable, up to a maximum of $ 3.0 million, if during the two-year period commencing January 1, 2023 Kilter met certain application participation targets. These targets were not met and, therefore, no liability is recorded as of December 31, 2024. 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. 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. 2024 Form 10-K 81 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 4. Goodwill and Other Intangible Assets The change in goodwill during 2024 consisted of the following: (dollars in thousands) Total Balance at December 31, 2023 $ 1,053,738 Effect of foreign currency translation ( 1,232 ) Balance at December 31, 2024 $ 1,052,506 We have recorded intangible assets acquired in various business combinations based on their fair values at the date of acquisition. The table below sets forth the balances of each class of intangible asset and related amortization as of: December 31, (dollars in thousands) 2024 2023 Finite-lived gross carrying amount Customer relationships $ 243,203 $ 570,104 Marketing assets 29,876 71,308 Developed technology 110,606 182,956 Content — 17,900 Total finite-lived gross carrying amount 383,685 842,268 Accumulated amortization Customer relationships ( 173,720 ) ( 174,982 ) Marketing assets ( 11,660 ) ( 11,985 ) Developed technology ( 65,424 ) ( 69,386 ) Content — ( 3,978 ) Total accumulated amortization ( 250,804 ) ( 260,331 ) Intangible assets, net $ 132,881 $ 581,937 During the year ended December 31, 2024, changes to the gross carrying amounts of intangible asset classes were primarily related to the EVERFI impairment charges and subsequent disposition discussed below, write-offs of fully amortized intangible assets and the effect of foreign currency translation. EVERFI impairment charges In July 2024, we hired a strategic advisor to assist us in considering a range of alternatives for EVERFI, one of which included a potential divestiture of the business. As part of evaluating alternatives for EVERFI, during the fourth quarter of 2024, we prepared a revised business forecast that included a new level of detail, including separately identifiable cash flows for EVERFI. The Company then reassessed its asset groupings under ASC 360-10 and determined there was a new asset group for EVERFI and evaluated this asset group for potential impairment. On December 9, 2024, the Company concluded that a material impairment charge was required related to its EVERFI asset group, which primarily included finite-lived intangible assets and capitalized software and content development costs. On December 29, 2024, we classified EVERFI's assets and liabilities as held for sale and we determined there would be an additional impairment charge to record the EVERFI disposal group at its estimated fair value less costs to sell resulting in total noncash impairment charges of $ 390.2 million. On December 31, 2024, we disposed of EVERFI for a nominal amount that resulted in a loss on disposition of $ 15.2 million, which together with the impairment charges, is recorded within EVERFI disposition on our consolidated statements of 82 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements comprehensive loss. See Note 3 to these consolidated financial statements for additional information about the disposition of EVERFI. 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. The following table summarizes amortization expense of our finite-lived intangible assets: Years ended December 31, (dollars in thousands) 2024 2023 2022 Included in cost of revenue: Cost of recurring $ 55,659 $ 51,079 $ 47,085 Cost of one-time services and other 1,298 1,384 1,407 Total included in cost of revenue 56,957 52,463 48,492 Included in operating expenses 3,541 3,139 2,925 Total amortization of intangibles from business combinations $ 60,498 $ 55,602 $ 51,417 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, 2024: Years ending December 31, (dollars in thousands) Amortization expense 2025 29,498 2026 23,771 2027 20,518 2028 15,484 2029 14,061 Total $ 103,332 2024 Form 10-K 83 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 5. (Loss) Earnings Per Share The following table sets forth the computation of basic and diluted (loss) earnings per share: Years ended December 31, (dollars in thousands, except per share amounts) 2024 2023 2022 Numerator: Net (loss) income $ ( 283,172 ) $ 1,820 $ ( 45,407 ) Denominator: Weighted average common shares 50,560,538 52,546,406 51,569,148 Add effect of dilutive securities: Restricted stock and units — 1,174,936 — Weighted average common shares assuming dilution 50,560,538 53,721,342 51,569,148 (Loss) earnings per share Basic $ ( 5.60 ) $ 0.03 $ ( 0.88 ) Diluted $ ( 5.60 ) $ 0.03 $ ( 0.88 ) Anti-dilutive shares excluded from calculations of diluted (loss) earnings per share 54,236 45,614 1,046,307 Diluted loss per share for the years ended December 31, 2024 and 2022 was the same as basic loss per share as there were net losses in each period and inclusion of potentially dilutive securities was anti-dilutive. 84 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 6. Fair Value Measurements Recurring fair value measurements Financial assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below: Fair value measurement using (dollars in thousands) Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair value as of December 31, 2024 Financial assets: Interest rate swaps $ — $ 9,262 $ — $ 9,262 Foreign currency forward contracts — 1,288 — 1,288 Total financial assets $ — $ 10,550 $ — $ 10,550 Fair value as of December 31, 2023 Financial assets: Interest rate swaps $ — $ 16,198 $ — $ 16,198 Total financial assets $ — $ 16,198 $ — $ 16,198 Fair value as of December 31, 2023 Financial liabilities: Interest rate swaps $ — $ 5,004 $ — $ 5,004 Foreign currency forward contracts — 536 — 536 Contingent consideration obligations — — 1,403 1,403 Total financial liabilities $ — $ 5,540 $ 1,403 $ 6,943 Our derivative instruments within the scope of Accounting Standards Codification ("ASC") 815, Derivatives and Hedging , are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate swaps and foreign currency forward contracts. See Note 10 to these consolidated financial statements for additional information about our derivative instruments. The fair value of our interest rate swaps and foreign currency forward contracts are based on model-driven valuations using Secured Overnight Financing Rate ("SOFR") rates and foreign currency forward rates, respectively, which are observable at commonly quoted intervals. Accordingly, our interest rate swaps and foreign currency forward contracts are classified within Level 2 of the fair value hierarchy. 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, 2024 and December 31, 2023, due to the immediate or short-term maturity of these instruments. 2024 Form 10-K 85 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements We believe the carrying amount of our debt approximates its fair value at December 31, 2024 and December 31, 2023, as the debt bears interest rates that approximate market value. As SOFR rates are observable at commonly quoted intervals, our debt under the 2024 Credit Facilities (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, 2024, 2023 and 2022. Non-recurring fair value measurements Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, goodwill and operating lease ROU assets. These assets are recognized at fair value during the period in which an acquisition is completed or at lease commencement, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for long-lived assets, intangible assets acquired and operating lease ROU assets, are based on Level 3 unobservable inputs. In the event of an impairment, we determine the fair value of these assets other than goodwill using a discounted cash flow approach, which contains significant unobservable inputs and, therefore, is considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate. For goodwill impairment testing, we estimate fair value using market-based methods including the use of market capitalization and consideration of a control premium. During the year ended December 31, 2024, we recorded noncash impairment charges of $ 367.5 million against certain intangible assets, noncash impairment charges of $ 22.6 million against certain previously capitalized software and content development costs, noncash impairment charges of $ 3.1 million against certain operating lease ROU assets and noncash impairment charges against certain property and equipment assets which were insignificant. See Notes 4, 7, and 11, respectively, to these consolidated financial statements for additional details. 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, 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. There were no other non-recurring fair value adjustments during 2024, 2023 and 2022 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. See Note 3 to these consolidated financial statements for additional details. 86 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 7. Property and Equipment and Software and Content Development Costs Property and equipment Property and equipment consisted of the following as of: Estimated useful life (years) December 31, (dollars in thousands) 2024 2023 Land — $ 9,548 $ 9,548 Building 39 61,284 61,284 Building improvements 4 - 20 12,112 11,720 Equipment 1 - 5 2,448 2,646 Computer hardware 1 - 5 36,632 50,064 Computer software 1 - 5 20,455 21,982 Construction in progress — — 1,611 Furniture and fixtures 1 - 7 4,849 3,187 Leasehold improvements Lesser of lease term or estimated useful life 10,206 10,345 Total property and equipment 157,534 172,387 Less: accumulated depreciation ( 65,608 ) ( 73,698 ) Property and equipment, net $ 91,926 $ 98,689 Depreciation expense was $ 12.8 million, $ 13.0 million and $ 14.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. During the years ended December 31, 2024 and 2022, we recorded insignificant noncash impairment charges 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. Each of th ese impairment charges resulted from our entry into subleases for different portions of our Washington, DC office location, which we closed in February 2023 to align with our remote-first workforce strategy. These charges are included in general and administrative expense on our consolidated statements of comprehensive loss. Software and content development costs Software and content development costs consisted of the following as of: Estimated useful life (years) December 31, (dollars in thousands) 2024 2023 Software development costs 3 - 7 $ 268,510 $ 287,519 Content development costs 5 — 6,945 Less: accumulated amortization ( 120,191 ) ( 134,270 ) Software and content development costs, net $ 148,319 $ 160,194 During the year ended December 31, 2024, we recorded noncash impairment charges of $ 22.6 million against certain previously capitalized software and content development costs. The impairment charges are includ ed in EVERFI impairment charges within EVERFI disposition on our consolidated statements of comprehensive loss. For additional information, see the discussion of the EVERFI impairment charges in Note 4 to these consolidated financial statements . 2024 Form 10-K 87 Table of Contents Blackbaud, Inc. 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 on the statements of comprehensive loss. 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. Amortization expense related to software and content development costs was $ 48.3 million, $ 42.8 million and $ 36.8 million for the years ended December 31, 2024, 2023 and 2022, respectively, and is included primarily in cost of recurring. 8. Consolidated Financial Statement Details Restricted cash (dollars in thousands) December 31, 2024 December 31, 2023 Restricted cash due to customers $ 740,370 $ 695,489 Real estate escrow balances and other 1,514 1,517 Total restricted cash $ 741,884 $ 697,006 Prepaid expenses and other assets (dollars in thousands) December 31, 2024 December 31, 2023 Costs of obtaining contracts (1)(2) $ 57,911 $ 62,377 Prepaid software maintenance and subscriptions (3) 36,277 35,169 Derivative instruments 10,550 16,198 Implementation costs for cloud computing arrangements, net (4)(5) 10,450 9,259 Unbilled accounts receivable 7,067 5,615 Investment in equity securities (6) 4,943 — Taxes, prepaid and receivable 4,257 3,418 Prepaid insurance 3,027 3,940 Other assets 14,026 14,346 Total prepaid expenses and other assets 148,508 150,322 Less: Long-term portion 67,221 51,037 Prepaid expenses and other current assets $ 81,287 $ 99,285 (1) Amortization expense from costs of obtaining contracts was $ 20.1 million, $ 31.9 million and $ 33.6 million for the years ended December 31, 2024, 2023 and 2022, respectively, and is included in sales, marketing and customer success expense in our consolidated statements of comprehensive loss. (2) The current portion of costs of obtaining contracts as of December 31, 2024 and 2023 was $ 18.4 million and $ 25.3 million, respectively. (3) The current portion of prepaid software maintenance and subscriptions as of December 31, 2024 and December 31, 2023 was $ 34.0 million and $ 32.4 million, respectively. (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 $ 2.9 million, $ 2.5 million and $ 2.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. Accumulated amortization for these costs was $ 10.6 million and $ 7.7 million as of December 31, 2024 and 2023, respectively. (6) Represents a strategic investment that did not result in Blackbaud having significant influence over the investee. 88 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Accrued expenses and other liabilities (dollars in thousands) December 31, 2024 December 31, 2023 Taxes payable $ 15,844 $ 21,282 Accrued costs to sell EVERFI (1) 13,985 — Customer credit balances 8,779 10,238 Stock-based compensation liability (2) 7,292 — Operating lease liabilities, current portion 4,489 6,701 Unrecognized tax benefit 4,285 2,954 Accrued commissions and salaries 4,012 4,413 Accrued transaction-based costs related to payments services 3,903 4,323 Accrued health care costs 3,151 3,865 Accrued legal costs (3) 2,504 3,659 Accrued vacation costs 2,060 2,452 Derivative instruments — 5,540 Contingent consideration liability — 1,403 Other liabilities 10,035 7,750 Total accrued expenses and other liabilities 80,339 74,580 Less: Long-term portion 4,796 10,258 Accrued expenses and other current liabilities $ 75,543 $ 64,322 (1) See Note 3 for a discussion of our sale of EVERFI on December 31, 2024. (2) This stock-based compensation liability will be settled during 2025 using shares of the Company’s common stock. (3) All accrued legal costs are classified as current. See Note 11 to these consolidated financial statements for additional information about our loss contingency accruals and other legal expenses. Other income, net Years ended December 31, (dollars in thousands) 2024 2023 2022 Interest income $ 9,846 $ 8,821 $ 1,746 Currency revaluation gains (losses) 487 ( 36 ) 4,635 Other income, net 4,216 4,076 2,332 Other income, net $ 14,549 $ 12,861 $ 8,713 2024 Form 10-K 89 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 9. Debt The following table summarizes our debt balances and the related weighted average effective interest rates, which includes the effect of interest rate swap agreements. Debt balance at Weighted average effective interest rate at (dollars in thousands) December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 Credit facility: Revolving credit loans $ 229,900 $ 114,100 6.37 % 7.52 % Term loans 790,000 607,500 5.59 % 3.51 % Real estate loans 55,135 56,745 5.23 % 5.22 % Other debt 2,783 2,800 8.77 % 8.42 % Total debt 1,077,818 781,145 5.75 % 4.24 % Less: Unamortized discount and debt issuance costs 2,833 1,481 Less: Debt, current portion 23,875 19,259 6.21 % 7.02 % Debt, net of current portion $ 1,051,110 $ 760,405 5.73 % 4.17 % 2024 refinancing On April 30, 2024, we entered into the Third Amendment to Credit Agreement (the "Amendment"), by and among us, the lenders party thereto and Bank of America N.A., as administrative agent (the "Agent"). The Amendment amends the Amended and Restated Credit Agreement, dated as of October 30, 2020 (as previously amended, the "2020 Credit Agreement" and the 2020 Credit Agreement as amended by the Amendment, the “2024 Credit Agreement”), by and among us, the lenders from time-to-time party thereto and the Agent. The Amendment amends the 2020 Credit Agreement to, among other things, (a) refinance the existing $ 1.1 billion credit facilities under the 2020 Credit Agreement to provide for new credit facilities in the aggregate principal amount of $ 1.5 billion consisting of (i) a $ 700.0 million revolving credit facility (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. Upon closing, we borrowed $ 800.0 million pursuant to the 2024 Term Facility and $ 208.2 million pursuant to the 2024 Revolving Facility and used the proceeds to repay the outstanding principal balances of the term loans under the 2020 Credit Agreement (the "2020 Term Facilities"), and repay $ 196.6 million of outstanding revolving credit loans under the 2020 Credit Agreement (the "2020 Revolving Facility"). Certain lenders of the 2024 Term Facility participated in the 2020 Term Facilities and the change in present value of our future cash flows to these lenders under the 2020 Term Facilities and under the 2024 Term Facility was less than 10%. Accordingly, we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2020 Term Facilities did not participate in the 2024 Term Facility. Accordingly, we accounted for the refinancing event for these lenders as a debt extinguishment. Certain lenders of the 2020 Revolving Facility participated in the 2024 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 2020 Revolving Facility did not participate in the 2024 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 the 2020 Credit Agreement considered to be extinguished. This loss was recognized in the consolidated statements of comprehensive loss within other income, net. In connection with our entry into the 2024 Credit Agreement, we paid $ 6.5 million in financing costs, of which $ 1.6 million were capitalized in other assets and, together with a portion of the unamortized deferred financing costs from the 2020 Credit Agreement and prior agreements, are being amortized into interest expense over the term of the new facility. As of December 31, 2024, deferred financing costs totaling $ 1.7 million were included in other assets on our consolidated balance sheets. We recorded aggregate financing costs of $ 3.6 million as a direct deduction from the carrying amount of our debt liability, which related to debt discount (fees paid to lenders) and debt issuance costs for the 2024 Term Facility. 90 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Summary of the 2024 Credit Facilities The 2024 Revolving Facility includes (i) a $ 50.0 million letter of credit subfacility, (ii) a $ 50.0 million swingline subfacility and (iii) a $ 150.0 million sublimit available for multicurrency borrowings. Under the 2024 Credit Facilities, dollar tranche revolving loans and term loans bear interest at a rate per annum equal to, at the option of the Company: (a) a base rate 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 % (the “Base Rate”), plus an applicable margin as specified in the 2024 Credit Agreement (the “Applicable Margin”); (b) Term SOFR plus the Applicable Margin; or (c) the Daily SOFR Rate plus the Applicable Margin. The Applicable Margin shall be adjusted quarterly, varies based on our net leverage ratio and varies based on whether the loan is a Base Rate Loan ( 0.375 % to 1.500 %), or a Term SOFR Loan/Daily SOFR Loan ( 1.375 % to 2.500 %). The 2024 Credit Agreement also provides for a commitment fee of between 0.250 % and 0.500 % of the unused commitment under the 2024 Revolving Facility depending on our net leverage ratio. Under the 2024 Credit Facilities, designated currency tranche revolving loans bear interest at a rate per annum equal to, at the option of the Company: (a) the Designated Currency Daily Rate (as defined in the 2024 Credit Agreement) plus the Applicable Margin; or (b) the Designated Currency Term Rate (as defined in the 2024 Credit Agreement) plus the Applicable Margin. The Applicable Margin shall be adjusted quarterly and varies based on our net leverage ratio for both Designated Currency Daily Rate Loans and Designated Currency Term Rate Loans ( 1.375 % to 2.500 %). We may prepay the 2024 Credit Agreement in whole or in part at any time without premium or penalty, other than customary breakage costs with respect to certain types of loans. Under the terms of the 2024 Credit Agreement, we are entitled on one or more occasion, subject to the satisfaction of certain conditions, to request an increase in the commitments under the 2024 Revolving Facility and/or request additional incremental term loans in the aggregate principal amount of up to the sum of (i) the greater of (A) $ 360.0 million and (B) 100 % of EBITDA (as defined in the 2024 Credit Agreement), plus (ii) at our option, up to an amount such that the net leverage ratio shall be no greater than 3.50 to 1.00. At December 31, 2024, our available borrowing capacity under the 2024 Credit Agreement was $ 468.7 million. The 2024 Credit Agreement contains various representations, warranties and affirmative, negative and financial covenants customary for financings of this type. Financial covenants include a net leverage ratio and an interest coverage ratio. At December 31, 2024, we were in compliance with our debt covenants under the 2024 Credit Facilities. 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 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, 2024, we were in compliance with our debt covenants under the Real Estate Loans. Other debt From time to time, we enter into third-party financing agreements for purchases of software and related services for our internal use. Generally, the agreements are non-interest-bearing notes requiring annual payments. Interest associated with the notes is imputed at the rate we would incur for amounts borrowed under our then-existing credit facility at the inception of the notes. Our assumption of these loans are noncash financing transactions and are reflected in our supplemental disclosure of cash flow information. 2024 Form 10-K 91 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The following table summarizes our currently effective financing agreements as of December 31, 2024: (dollars in thousands) Term in Months Number of Annual Payments First Annual Payment Due Original Loan Value Effective dates of agreements (1) : December 2022 39 3 January 2023 $ 1,710 January 2023 36 3 April 2023 2,491 April 2024 36 3 May 2024 2,073 (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, 2024, consisted of the following: (dollars in thousands) Total Balance at December 31, 2023 $ 2,800 Additions 2,073 Payments ( 2,090 ) Balance at December 31, 2024 $ 2,783 As of December 31, 2024, the required annual maturities related to the 2024 Credit Facilities, the Real Estate Loans and our other debt were as follows: Years ending December 31, (dollars in thousands) Annual maturities 2025 $ 23,875 2026 22,660 2027 22,166 2028 22,375 2029 942,496 Thereafter 44,246 Total required maturities $ 1,077,818 10. Derivative Instruments We generally use derivative instruments to manage our interest rate and foreign currency exchange risk. We currently have derivatives classified as cash flow hedges and net investment hedges. We do not enter into any derivatives for trading or speculative purposes. All of our derivative instruments are governed by International Swap Dealers Association, Inc. master agreements with our counterparties. As of December 31, 2024 and December 31, 2023, 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. Cash flow hedges We have entered into interest rate swap agreements, which effectively convert portions of our variable rate debt under the 2024 Credit Facilities to a fixed rate for the term of the swap agreements. We designated each of the interest rate swaps as cash flow hedges at the inception of the contracts. Our entry into the 2024 Credit Agreement in April 2024 did not affect our interest rate swap agreements, including their designation as cash flow hedges, as the 2024 Credit Agreement has substantially the same critical terms as the 2020 Credit Agreement. As of December 31, 2024 and December 31, 2023, the aggregate notional values of the interest rate swaps were $ 700.0 million and $ 935.0 million, respectively. All of the contracts have maturities on or before October 2028. 92 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 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, 2024 and December 31, 2023, 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 $ 32.8 million CAD and $ 29.9 million CAD, respectively. All of the contracts have maturities of 12 months or less. Net investment hedges 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 ("GBP") into USD. We designated each of these foreign currency forward contracts as net investment hedges at the inception of the contracts. As of December 31, 2024 and December 31, 2023, 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 £ 12.9 million and £ 13.2 million, respectively. The fair values of our derivative instruments were as follows as of: Asset derivatives Liability Derivatives (dollars in thousands) Balance sheet location December 31, 2024 December 31, 2023 Balance sheet location December 31, 2024 December 31, 2023 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 Prepaid expenses and other current assets 1,288 — Accrued expenses and other current liabilities — 536 Interest rate swaps, long-term Other assets 9,262 — Other liabilities — 5,004 Total derivative instruments designated as hedging instruments $ 10,550 $ 16,198 $ — $ 5,540 2024 Form 10-K 93 Table of Contents 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 loss as of Location of gain reclassified from accumulated other comprehensive loss into (loss) income Gain reclassified from accumulated other comprehensive loss into (loss) income (dollars in thousands) December 31, 2024 Year ended December 31, 2024 Cash Flow Hedges Interest rate swaps $ 9,262 Interest expense $ 19,134 Foreign currency forward contracts $ 937 Revenue $ 479 Net Investment Hedge Foreign currency forward contracts $ 351 $ — December 31, 2023 Year ended December 31, 2023 Cash Flow Hedges Interest rate swaps $ 11,194 Interest expense $ 20,418 Foreign currency forward contracts $ ( 235 ) Revenue $ 388 Net Investment Hedges Foreign currency forward contracts $ ( 301 ) $ — December 31, 2022 Year ended December 31, 2022 Cash Flow Hedges Interest rate swaps $ 31,870 Interest expense $ 5,520 Foreign currency forward contracts $ 247 Revenue $ 165 Net Investment Hedges Foreign currency forward contracts $ ( 323 ) $ — Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. 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) and related tax effects are reclassified from accumulated other comprehensive income (loss) to current earnings. For net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to translation adjustment, a component of accumulated other comprehensive income (loss), and recognized in earnings only when the hedged GBP investment is liquidated. The estimated accumulated other comprehensive income as of December 31, 2024 that is expected to be reclassified into earnings within the next twelve months is $ 5.0 million. There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the years ended December 31, 2024, 2023 and 2022. See Note 14 to these consolidated financial statements for a summary of the changes in accumulated other comprehensive income (loss) by component. We classify cash flows related to derivative instruments as operating activities in the consolidated statements of cash flows. We did no t have any undesignated derivative instruments during 2024, 2023 and 2022. 11. Commitments and Contingencies Leases We have operating leases for corporate offices, subleased offices and certain equipment and furniture. As of December 31, 2024, we did not have any operating leases that had not yet commenced. 94 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The following table summarizes the components of our lease expense: Year ended December 31, (dollars in thousands) 2024 2023 2022 Operating lease cost (1) $ 6,430 $ 8,812 $ 9,501 Variable lease cost 1,131 1,431 1,670 Sublease income ( 3,400 ) ( 3,356 ) ( 2,763 ) Net lease cost $ 4,161 $ 6,887 $ 8,408 (1) Includes short-term lease costs, which were immaterial. During the years ended December 31, 2024, 2023, and 2022, we recorded noncash impairment charges of $ 3.1 million, $ 5.6 million, and $ 1.0 million, respectively, against certain operating lease ROU assets. These impairment charges resulted from our entry into subleases for different portions of our Washington, DC office location, which we closed in February 2023 to align with our remote-first workforce strategy. These charges are reflected in general and administrative expense on the statements of comprehensive loss. Maturities of our operating lease liabilities as of December 31, 2024 were as follows: Years ending December 31, (dollars in thousands) Operating leases 2025 $ 6,254 2026 6,106 2027 6,207 2028 6,101 2029 5,457 Thereafter 15,232 Total lease payments 45,357 Less: Amount representing interest ( 6,682 ) Present value of future payments $ 38,675 Our ROU assets and lease liabilities are included in the following line items in our consolidated balance sheet: (dollars in thousands) December 31, 2024 December 31, 2023 Operating leases Operating lease ROU assets $ 26,554 $ 36,927 Accrued expenses and other current liabilities $ 4,489 $ 6,701 Operating lease liabilities, net of current portion 34,186 40,085 Total operating lease liabilities $ 38,675 $ 46,786 The weighted average remaining lease terms and discount rates were as follows: (dollars in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Operating leases Weighted average remaining lease term (years) 7.3 7.7 8.5 Weighted average discount rate 4.53 % 4.70 % 4.63 % 2024 Form 10-K 95 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Supplemental cash flow information related to leases was as follows: Year ended December 31, (dollars in thousands) 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 7,511 $ 10,983 $ 11,439 Right-of-use assets obtained in exchange for lease obligations (non-cash): Operating leases — 2,765 — Other commitments The term loans under the 2024 Credit Facilities require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the 2024 Credit Facilities in April 2029. The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038. We have contractual obligations 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. As of December 31, 2024, the remaining aggregate minimum purchase commitment under these arrangements was approximately $ 184.4 million through 2029. Solution and service indemnifications In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our solutions or services. We have not identified any losses that might be covered by these indemnifications Legal proceedings We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described below. We record an accrual for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; 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. If such a loss or range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency accruals at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. We recognize insurance recoveries, if any, when they are probable of receipt. All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred. Legal proceedings are inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending or threatened against us and intend to defend ourselves vigorously against all claims asserted. It is possible that our consolidated financial position, results of operations or cash flows could be materially negatively affected in any particular period by an unfavorable resolution of one or more of such legal proceedings. Security incident As previously disclosed, we are subject to risks and uncertainties as a result of a ransomware attack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment (the "Security Incident"). Based on the nature of the Security Incident, our research and third party (including law enforcement) investigation, we do not believe that any data went beyond the cybercriminal, has been misused, or has been disseminated or otherwise made available publicly. As a result of the Security Incident, we are currently subject to certain legal proceedings and claims, as discussed below, and could be the subject of additional legal proceedings, claims, inquiries and investigations in the future that might result in 96 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 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 reduced our financial exposure related to the Security Incident in prior years. We recorded expenses and offsetting insurance recoveries related to the Security Incident as follows: Years ended December 31, (dollars in thousands) 2024 2023 2022 Gross expense $ 13,700 $ 53,426 $ 57,614 Offsetting insurance recoveries — — ( 1,891 ) Net expense $ 13,700 $ 53,426 $ 55,723 The following summarizes our cumulative expenses, insurance recoveries recognized and insurance recoveries paid as of: (dollars in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Cumulative gross expense $ 175,131 $ 161,431 $ 108,005 Cumulative offsetting insurance recoveries recognized ( 50,000 ) ( 50,000 ) ( 50,000 ) Cumulative net expense $ 125,131 $ 111,431 $ 58,005 Cumulative offsetting insurance recoveries paid $ ( 50,000 ) $ ( 50,000 ) $ ( 50,000 ) 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 investigation and Attorney General of the State of California investigation (discussed below), settlements of customer claims and accruals for certain loss contingencies. Not included in the expenses discussed above were costs associated with enhancements to our cybersecurity program. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our consolidated statements of comprehensive loss 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 incur expenses related to our response to the Security Incident, resolution of legal proceedings, claims and investigations, including those discussed below, and our efforts to further enhance our cybersecurity measures. For the year ended December 31, 2024, we incurred net pre-tax expense of $ 13.7 million related to the Security Incident, which included $ 7.0 million for ongoing legal fees. It also includes a settlement of loss contingencies of $ 6.8 million. Also, for the year ended December 31, 2024, we had net cash outlays of $ 15.9 million related to the Security Incident, which included ongoing legal fees and the $ 6.8 million paid during the third quarter of 2024 related to our settlement with the Attorney General of the State of California (discussed below). In line with our policy, legal fees are expensed as incurred. For the year ended December 31, 2025, we currently expect net pre-tax expense of approximately $ 2.0 million to $ 3.0 million and net cash outlays of approximately $ 3.0 million to $ 4.0 million for ongoing legal fees related to the Security Incident. As of December 31, 2024, we have recorded approximately $ 0.7 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. There are other Security Incident-related matters for which we have not recorded a liability for a loss contingency as of December 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 which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition. 2024 Form 10-K 97 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Customer claims. To date, we have received approximately 260 specific requests from customers for reimbursement of expenses incurred by them related to the Security Incident, all of which have been fully resolved and closed or are inactive and are considered by us to have been abandoned by the customers. We have also received approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident, none of which resulted in claims submitted to us and are considered by us to have been abandoned by the customers. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, which have been fully resolved and closed or are inactive and are considered by us to have been abandoned by the data subjects. 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 two cases remain active and unresolved. Customer constituent class actions . 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) 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. On May 14, 2024, the United States District Court for the District of South Carolina (the "Court") issued a memorandum opinion and order (1) denying the multi district litigation plaintiffs' motion for class certification because of the plaintiffs' failure to meet their burden of proof as to ascertainability, (2) granting our motion to exclude the multi district litigation plaintiffs' expert on the issue of ascertainability, and (3) denying the multi district litigation plaintiffs' motion to exclude our expert on the issue of ascertainability. Further, the Court denied as moot all other pending motions. On July 30, 2024, the Fourth Circuit Court of Appeals denied the plaintiffs' petition for permission to appeal the Court's ruling. This litigation remains ongoing. In December 2024 and January 2025, judges in Ontario and British Columbia, respectively, approved a settlement between us and plaintiffs in putative consumer class actions cases in Canada. In January 2025, the insignificant settlement was paid to Canadian charities designated in the settlement agreement as cy pres recipients. Governmental investigations. As previously disclosed, we were subject to an investigation by the U.S. Department of Health and Human Services. 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. Although we have not received notices of the termination of any of these inquiries and investigations, we believe that they are no longer active. On June 13, 2024, we agreed to a Final Judgment and Permanent Injunction with the Attorney General of the State of California (the "Final Judgment") relating to the Security Incident. This settlement fully resolved the last remaining U.S. state attorney general investigation into the Security Incident. Under the terms of the settlement, we agreed to comply with applicable laws; not to make misleading statements related to our data protection, privacy, security, confidentiality, integrity, breach notification requirements, and similar matters; and to implement and improve certain cybersecurity programs and tools. The terms of the settlement with California are generally consistent with those to which we agreed in settling with the other 49 state Attorneys General and the District of Columbia on October 5, 2023, as discussed below. As part of the settlement, we also paid a total of $ 6.8 million to the State of California. Nothing contained in the Final Judgment is intended to be, and shall not in any event be construed or deemed to be, an admission or concession or evidence of any liability or wrongdoing whatsoever on the part of Blackbaud or any fact or violation of law, rule, or regulation. For more information, see the Final Judgment and Permanent Injunction of the State of California, County of San Diego that was furnished as Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on June 14, 2024. On May 20, 2024, the U.S. Federal Trade Commission (the "FTC") finalized an Order (the “FTC Order”) evidencing its settlement with us in connection with the Security Incident. As part of the FTC Order, we were not fined and were not otherwise required to make any payment. Furthermore, we agreed to the FTC Order without admitting or denying any of the FTC’s allegations, except as expressly stated otherwise in the FTC Order. The settlement described in the FTC Order fully resolved the FTC investigation. For more information, see the form of proposed order that was furnished as Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on February 2, 2024 and is identical in substance to the final FTC Order, and 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. 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 Security Incident which fully resolved the previously disclosed multi-state 98 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Civil Investigative Demand and the separate Civil Investigative Demand from the Office of the Indiana Attorney General relating to the Security Incident. On March 9, 2023, we reached a settlement with the SEC in connection with the Security Incident that fully resolved the previously disclosed SEC investigation of the Security Incident. On September 28, 2021, the Information Commissioner’s Office in the United Kingdom under the U.K. Data Protection Act 2018 notified us that it has closed its investigation of the Security Incident. On September 24, 2021, we received notice from the Spanish Data Protection Authority that it has concluded its investigation of the Security Incident. On January 15, 2021, we were notified by the Data Protection Commission of Ireland that it has concluded its investigation of the Security Incident. For more information about these completed government investigations and related actions, see 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. 12. Income Taxes We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including Canada, the U.K., Australia, Ireland and Costa Rica. We are generally subject to U.S. federal income tax examination for calendar tax years 2021 through 2024 as well as state and foreign income tax examinations for various years depending on statutes of limitations of those jurisdictions. The following summarizes the components of income tax (benefit) expense: Years ended December 31, (dollars in thousands) 2024 2023 2022 Current taxes: U.S. Federal $ 36,367 $ 18,879 $ 3,485 U.S. State and local 8,433 12,331 5,708 International 11,792 8,982 7,283 Total current taxes 56,592 40,192 16,476 Deferred taxes: U.S. Federal ( 65,559 ) ( 18,303 ) ( 16,880 ) U.S. State and local ( 18,472 ) ( 5,895 ) ( 9,319 ) International ( 980 ) ( 170 ) ( 445 ) Total deferred taxes ( 85,011 ) ( 24,368 ) ( 26,644 ) Total income tax (benefit) provision $ ( 28,419 ) $ 15,824 $ ( 10,168 ) The following summarizes the components of (loss) income before provision for income taxes: Years ended December 31, (dollars in thousands) 2024 2023 2022 U.S. $ ( 365,356 ) $ ( 22,074 ) $ ( 91,493 ) International 53,765 39,718 35,918 (Loss) income before provision for income taxes $ ( 311,591 ) $ 17,644 $ ( 55,575 ) 2024 Form 10-K 99 Table of Contents Blackbaud, Inc. 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 is as follows: Years ended December 31, 2024 2023 2022 Federal statutory rate 21.0 % 21.0 % 21.0 % Effect of: State income taxes, net of federal benefit 2.2 20.0 1.5 Change in foreign income tax rate applied to deferred tax balances — — 0.1 Change in state income tax rate applied to deferred tax balances ( 0.1 ) 7.1 1.8 Federal credits generated 1.9 ( 42.3 ) 11.5 Stock-based compensation 1.3 13.4 ( 6.3 ) Sale of subsidiary 1.0 — — FDII benefit 0.6 ( 10.2 ) 2.3 State credits, net of federal benefit 0.5 ( 9.1 ) 7.2 Return to accrual adjustment ( 0.1 ) ( 8.3 ) 1.4 Nondeductible meals, entertainment and transportation ( 0.2 ) 4.4 ( 0.7 ) GILTI inclusion ( 0.4 ) 9.3 ( 2.6 ) Nondeductible security incident-related fines or penalties ( 0.5 ) 35.7 ( 8.7 ) Foreign tax rate ( 0.5 ) 6.1 1.0 Unrecognized tax benefit ( 0.7 ) 0.7 0.5 Section 162(m) limitation ( 1.7 ) 30.1 ( 6.4 ) Change in valuation reserve ( 15.1 ) 10.8 ( 5.4 ) Other ( 0.1 ) 1.0 0.1 Income tax provision effective rate 9.1 % 89.7 % 18.3 % The decrease in our effective income tax rate for year ended December 31, 2024, when compared to the same period in 2023, was primarily attributable to the valuation allowance recorded in the current period. As of December 31, 2024, we recorded a valuation allowance against all of our U.S. deferred tax assets in excess of deferred tax liabilities due to the combination of our cumulative pretax loss position and net deferred tax asset position resulting from our divestiture of EVERFI. We intend to continue maintaining a full valuation allowance on our U.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Furthermore, the effect of our various rate drivers is reversed by the Company’s 2024 loss position versus income in 2023. 100 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The significant components of our deferred tax assets and liabilities were as follows: December 31, (dollars in thousands) 2024 2023 Deferred tax assets relating to: Capitalized R&D and software costs $ 78,809 $ 47,351 Federal, state and foreign tax credits 31,495 39,260 Stock-based compensation 17,176 24,717 Operating leases 10,751 12,867 Deferred revenue 7,633 5,992 Capital loss carryforward 7,282 — Federal and state and foreign net operating loss carryforwards 4,825 7,061 Allowance for credit losses 1,441 1,702 Intangible assets 969 1,050 Accrued bonuses 316 314 Other 1,615 2,982 Total deferred tax assets 162,312 143,296 Deferred tax liabilities relating to: Intangible assets ( 50,530 ) ( 160,172 ) Costs of obtaining contracts ( 13,136 ) ( 13,870 ) Operating leases ( 7,338 ) ( 9,865 ) Fixed assets ( 4,716 ) ( 5,833 ) Other ( 9,010 ) ( 8,342 ) Total deferred tax liabilities ( 84,730 ) ( 198,082 ) Valuation allowance ( 86,672 ) ( 37,862 ) Net deferred tax liability $ ( 9,090 ) $ ( 92,648 ) As of December 31, 2024, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $ 11.8 million, $ 0.7 million and $ 42.7 million, respectively. Of our federal net operating loss carryforwards, $ 9.4 million are subject to expiration beginning in 2025 while the remainder have an unlimited carryforward period. The state net operating loss carryforwards are subject to various applicable state tax laws. If not utilized, the state net operating loss carryforwards will expire over various periods beginning in 2025. Our foreign net operating loss carryforwards have an unlimited carryforward period. Our state tax credit carryforwards for income tax purposes were approximately $ 31.3 million, net of federal benefit. If not utilized, the state tax credit carryforwards will begin to expire in 2025. We also have federal and state capital loss carryforwards of $ 30.2 million expiring in 2029. The foreign and state net operating loss carryforwards, capital loss carryforward and state credit carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use such carryforwards. The following table illustrates the change in our deferred tax asset valuation allowance: Years ended December 31, (dollars in thousands) Balance at beginning of year Charges to expense Balance at end of year 2024 $ 37,862 $ 48,810 $ 86,672 2023 34,769 3,093 37,862 2022 31,974 2,795 34,769 2024 Form 10-K 101 Table of Contents 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, 2024, 2023 and 2022: Years ended December 31, (dollars in thousands) 2024 2023 2022 Balance at beginning of year $ 3,240 $ 3,083 $ 3,651 Increases from prior period positions 1,249 101 89 Increases from current period positions 706 762 629 Decreases in prior year positions — ( 118 ) ( 908 ) Settlements (payments) — ( 160 ) — Lapse of statute of limitations — ( 428 ) ( 378 ) Balance at end of year $ 5,195 $ 3,240 $ 3,083 The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $ 5.2 million at December 31, 2024. Certain prior period amounts relating to our 2014 acquisitions were covered under indemnification agreements and, therefore, had a corresponding indemnification asset. Due to lapse of statute of limitations, the indemnified unrecognized tax benefit was released in 2022 resulting in income tax benefit with offsetting expense included in pretax income from corresponding release of indemnification asset. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2024 and December 31, 2023 was $ 0.9 million and insignificant, respectively. The total amount of interest and penalties included in the consolidated statements of comprehensive loss as an increase or decrease in income tax expense for 2024 was $ 0.8 million and for 2023 and 2022 was insignificant. We have taken federal and state tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits might decrease within the next twelve months. This possible decrease could result from the expiration of statutes of limitations. The reasonably possible decrease at December 31, 2024 was insignificant. 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. income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries. 13. Stock-based Compensation Employee stock-based compensation plans Under the 2016 Equity and Incentive Compensation Plan Amended and Restated as of June 12, 2024 (the "2016 Equity Plan"), we may grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards and cash incentive awards to employees, directors and consultants. Our Compensation Committee of the Board of Directors administers this plan and the stock-based awards are granted under terms determined by it. The total number of authorized stock-based awards available under our plan was 3,823,058 as of December 31, 2024. We issue common stock from our pool of authorized stock upon exercise of stock options and stock appreciation rights, vesting of restricted stock units or upon granting of restricted stock. 102 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Recently, we have issued three types of awards under our plans: restricted stock awards, time-based restricted stock units, and performance-based restricted stock units. The following table sets forth the number of awards outstanding for each award type as of: Outstanding at December 31, Award type 2024 2023 Restricted stock awards 814,336 1,101,702 Time-based restricted stock units 616,035 607,100 Performance-based restricted stock units 1,029,214 1,209,515 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 We recognize compensation expense associated with stock options and awards with performance or market based vesting conditions on an accelerated basis over the requisite service period of the individual grantees, which generally equals the vesting period. We recognize compensation expense associated with restricted stock awards and SARs on a straight-line basis over the requisite service period of the individual grantees, which generally equals the vesting period. We recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, we recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award is reversed in the period that the award is forfeited. Stock-based compensation expense is allocated to cost of revenue and operating expenses on the consolidated statements of comprehensive loss based on where the associated employee’s compensation is recorded. The following table summarizes stock-based compensation expense: Years ended December 31, (in thousands) 2024 2023 2022 Included in cost of revenue: Cost of recurring $ 12,606 $ 14,052 $ 11,258 Cost of one-time services and other 1,486 2,606 3,178 Total included in cost of revenue 14,092 16,658 14,436 Included in operating expenses: Sales, marketing and customer success 17,946 24,892 21,409 Research and development 26,488 30,780 24,207 General and administrative 46,442 55,432 50,242 Total included in operating expenses 90,876 111,104 95,858 Total stock-based compensation expense $ 104,968 $ 127,762 $ 110,294 The total amount of compensation cost related to unvested awards not recognized was $ 67.6 million at December 31, 2024. It is expected that this amount will be recognized over a weighted average period of 1.2 years. 2024 Form 10-K 103 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Restricted stock awards 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 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. The fair market value of the stock at the time of the grant is amortized on a straight-line basis to expense over the period of vesting. Recipients of restricted stock awards have the right to vote such shares and receive dividends, if declared. The following table summarizes our unvested restricted stock awards as of December 31, 2024, and changes during the year then ended: Restricted stock awards Weighted average grant-date fair value Aggregate intrinsic value (1) (in thousands) Unvested at January 1, 2024 1,101,702 $ 64.92 Granted 422,685 69.86 Forfeited ( 77,785 ) 65.27 Vested ( 632,266 ) 67.47 Unvested at December 31, 2024 814,336 66.27 $ 60,196 (1) The intrinsic value is calculated as the market value as of the end of the fiscal period. The total fair value of restricted stock awards that vested during the years ended December 31, 2024, 2023 and 2022 was $ 42.7 million, $ 42.7 million and $ 41.0 million, respectively. The weighted average grant-date fair value of restricted stock awards granted during the years ended December 31, 2023 and 2022 was $ 62.59 and $ 60.90 , respectively. Restricted stock units 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 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. The fair market value of the stock at the time of the grant is amortized to expense on a straight-line basis over the period of vesting except for awards with performance conditions, which are amortized on an accelerated basis over the period of vesting. The following table summarizes our unvested, time-based restricted stock units as of December 31, 2024, and changes during the year then ended: Time-based restricted stock units Weighted average grant-date fair value Aggregate intrinsic value (1) (in thousands) Unvested at January 1, 2024 607,100 $ 64.01 Granted 330,913 67.73 Forfeited ( 30,834 ) 70.03 Vested ( 291,144 ) 66.54 Unvested at December 31, 2024 616,035 65.08 $ 45,537 (1) The intrinsic value is calculated as the market value as of the end of the fiscal period. The total fair value of time-based restricted stock units that vested during the years ended December 31, 2024, 2023 and 2022 was $ 19.4 million, $ 13.5 million and $ 9.3 million, respectively. The weighted average grant date fair value of time-based restricted stock units granted for the years ended December 31, 2023 and 2022 was $ 61.37 and $ 62.38 , respectively. 104 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The following table summarizes our unvested, performance-based restricted stock units as of December 31, 2024, and changes during the year then ended: Performance-based restricted stock units Weighted average grant-date fair value Aggregate intrinsic value (1) (in thousands) Unvested at January 1, 2024 1,209,515 $ 61.29 Granted 778,467 67.90 Forfeited ( 51,271 ) 66.66 Vested (2) ( 907,497 ) 61.17 Unvested at December 31, 2024 1,029,214 66.92 $ 76,079 (1) The intrinsic value is calculated as the market value as of the end of the fiscal period. (2) This amount represents the target number of shares that were eligible to be earned and vested. The number of shares earned and vested based on actual results when compared to the performance conditions was 1,119,025 and those shares had a weighted average grant date fair value of $ 61.17 . The total fair value of performance-based restricted stock units that vested during the years ended December 31, 2024, 2023 and 2022 was $ 55.5 million, $ 50.9 million, and $ 50.5 million, respectively. The weighted average grant date fair value of performance-based restricted stock units granted for the years ended December 31, 2023 and 2022 was $ 59.62 and $ 61.79 , respectively. 14. Stockholders' Equity Preferred stock Our Board of Directors may fix the relative rights and preferences of each series of preferred stock in a resolution of the Board of Directors. Stock repurchase program Under our stock repurchase program, we are authorized to repurchase shares from time to time in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The timing and amount of repurchases depends on several factors, including market and business conditions, the trading price of our common stock and the nature of other investment opportunities. The repurchase program does not have an expiration date and may be limited, suspended or discontinued at any time without prior notice. Under the 2024 Credit Agreement, we have restrictions on our ability to repurchase shares of our common stock, which are summarized on page 56 in this report. We account for purchases of treasury stock under the cost method. 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 repurchases. 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"). 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. The final number of shares of common stock delivered to us under the ASR Transaction was based on the average of the daily volume-weighted average prices of the common stock during the term of the ASR Transaction, less a discount and subject to customary adjustments upon events affecting the common stock (e.g., dilutive or concentrative events, mergers and acquisitions, and market disruptions). We funded the ASR Transaction prepayment with borrowings pursuant to a revolving credit loan under the then effective 2020 Credit Agreement. On October 29, 2024, in connection with the settlement of the ASR Transaction, we received approximately 490,000 shares of our common stock, in addition to the 2.1 million shares received in March 2024. The difference of $ 9.2 million be tween the prepayment of $ 200 million and the value of the shares repurchased on the ASR Transaction is classified as a reduction to additional paid-in capital within our consolidated statement of stockholders' equity. No cash was exchanged as part of the settlement of the ASR Transaction. 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. 2024 Form 10-K 105 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements During the year ended December 31, 2024, we repurchased an aggregate of 5,362,439 shares for $ 418.0 million, including the shares repurchased pursuant to the ASR Transaction. The remaining amount available to purchase stock under the approved stock repurchase program was $ 644.6 million as of December 31, 2024. Changes in accumulated other comprehensive (loss) income by component The changes in accumulated other comprehensive (loss) income by component, consisted of the following: Years ended December 31, (in thousands) 2024 2023 2022 Accumulated other comprehensive (loss) income, beginning of period $ ( 1,688 ) $ 8,938 $ 6,522 By component: Gains and losses on cash flow hedges: Accumulated other comprehensive income balance, beginning of period $ 8,158 $ 23,833 $ 5,257 Other comprehensive income (loss) before reclassifications, net of tax effects of $( 5,080 ), $ 201 and $( 8,068 ) 14,047 ( 271 ) 22,772 Amounts reclassified from accumulated other comprehensive income (loss) ( 19,613 ) ( 20,806 ) ( 5,685 ) Tax expense included in provision for income taxes 5,207 5,402 1,489 Total amounts reclassified from accumulated other comprehensive income (loss) ( 14,406 ) ( 15,404 ) ( 4,196 ) Net current-period other comprehensive (loss) income ( 359 ) ( 15,675 ) 18,576 Accumulated other comprehensive income balance, end of period $ 7,799 $ 8,158 $ 23,833 Foreign currency translation adjustment: Accumulated other comprehensive (loss) income balance, beginning of period $ ( 9,846 ) $ ( 14,895 ) $ 1,265 Translation adjustment ( 2,822 ) 5,049 ( 16,160 ) Accumulated other comprehensive loss balance, end of period ( 12,668 ) ( 9,846 ) ( 14,895 ) Accumulated other comprehensive (loss) income, end of period $ ( 4,869 ) $ ( 1,688 ) $ 8,938 15. Defined Contribution Plan We have a defined contribution 401(k) plan (the "401K Plan") covering substantially all employees. Employees were able to contribute between 1 % and 75 % of their salaries in 2024, 2023 and 2022. We match 50 % of qualified employees’ contributions up to 6 % of their salary. The 401K Plan also provides for additional employer contributions to be made at our discretion. Total matching contributions to the 401K Plan for the years ended December 31, 2024, 2023 and 2022 were $ 8.2 million, $ 7.8 million and $ 9.3 million, respectively. There were no discretionary contributions by us to the 401K Plan in 2024, 2023 and 2022. 16. Segment Information We have one operating segment and one reportable segment. Our CODM is our chief executive officer ("CEO"), who reviews financial information presented on a consolidated basis, accompanied by disaggregated information about our revenue, for purposes of making decisions about assessing financial performance and allocating resources. Our CEO considers costs of revenue, sales, marketing and customer success, research and development, and general and administrative expense categories on our consolidated statements of comprehensive loss as significant. Our CEO uses consolidated operating margin and net income as the primary measures of profit or loss. These financial metrics are used by our CEO to make key operating decisions, such as the allocation of budget between costs of revenues and our different operating expense categories. Our other segment items include amortization, interest expense, other income, net, and income tax (benefit) provision on our consolidated statements of comprehensive loss. 106 2024 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The following table presents long-lived assets by geographic region based on the location of the assets. For purposes of this disclosure, long-lived assets includes property and equipment, net and operating lease ROU assets. Years ended December 31, (dollars in thousands) 2024 2023 United States $ 117,582 $ 134,316 Other countries 898 1,300 Total long-lived assets $ 118,480 $ 135,616 See Note 17 to these consolidated financial statements for information about our revenues by geographic region. 17. Revenue Recognition Transaction price allocated to the remaining performance obligations As of December 31, 2024, approximately $ 1.2 billion of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 55 % of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter. We applied the practical expedient in ASC 606-10-50-14 and have excluded the value of unsatisfied performance obligations for which we recognize revenue at the amount to which we have the right to invoice for services performed (transactional revenue). Contract balances Our contract assets as of December 31, 2024 and December 31, 2023 were insignificant. Our closing balances of deferred revenue were as follows: (in thousands) December 31, 2024 December 31, 2023 Total deferred revenue $ 361,544 $ 394,927 The decrease in deferred revenue during 2024 was primarily due to our divestiture of EVERFI on December 31, 2024. 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 2024 that was included in the deferred revenue balance at the beginning of the period was approximately $ 376 million . The amount of revenue recognized during 2024 from performance obligations satisfied in prior periods was insignificant . Disaggregation of revenue We sell our cloud solutions and related services in three primary geographical markets: to customers in the United States, to customers in the United Kingdom and to customers located in other countries. The following table presents our revenue by geographic area based on the location of our customers: Years ended December 31, (dollars in thousands) 2024 2023 2022 United States $ 988,536 $ 945,580 $ 896,116 United Kingdom 104,028 100,833 101,026 Other countries 62,931 59,019 60,963 Total revenue $ 1,155,495 $ 1,105,432 $ 1,058,105 2024 Form 10-K 107 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The Social Sector and Corporate Sector market groups comprised our go-to-market organizations as of December 31, 2024. 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; and • The Corporate Sector market group focuses on sales to customers and prospects in the corporate sector globally, and included EVERFI and YourCause. The following table presents our revenue by market group: Years ended December 31, (dollars in thousands) 2024 2023 2022 Social Sector $ 1,022,215 $ 954,845 $ 907,197 Corporate Sector 133,280 150,587 150,908 Total revenue $ 1,155,495 $ 1,105,432 $ 1,058,105 The following table presents our recurring revenue by type: Years ended December 31, (dollars in thousands) 2024 2023 2022 Contractual recurring $ 775,075 $ 738,351 $ 709,097 Transactional recurring 354,039 333,169 302,636 Total recurring revenue $ 1,129,114 $ 1,071,520 $ 1,011,733 18. Subsequent Events Release from Washington, DC lease In February 2025, we made a one-time cash release payment of $ 28 million to the lessor in connection with a release from our lease for office space in Washington, DC (which was acquired as part of our acquisition of EVERFI in December 2021). Due to our remote-first workforce strategy, we had not used the office space since February 2023 and had subleased a portion of the space. 108 2024 Form 10-K Table of Contents Blackbaud, Inc. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.