Blackbaud Annual Report 2023

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the ﬁscal year ended December 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transion period from to . Commission ﬁle number: 000-50600 Blackbaud, Inc. (Exact name of registrant as speciﬁed in its charter) Delaware (State or other jurisdicon of incorporaon or organizaon) 11-2617163 (I.R.S. Employer Idenﬁcaon No.) 65 Fairchild Street Charleston, South Carolina 29492 (Address of principal execuve oﬃces, including zip code) (843) 216-6200 (Registrant's telephone number, including area code) Securies Registered Pursuant to Secon 12(b) of the Act: Title of Each Class Common Stock, $0.001 Par Value Preferred Stock Purchase Rights Trading Symbol(s) Name of Each Exchange on which Registered BLKB N/A Nasdaq Global Select Market Nasdaq Global Select Market Securies Registered Pursuant to Secon 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securies Act. Yes ☑ No ☐ Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Secon 13 or Secon 15(d) of the Act. Yes ☐ No ☑ Indicate by check mark whether the registrant (1) has ﬁled all reports required to be ﬁled by Secon 13 or 15(d) of the Securies Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle such reports), and (2) has been subject to such ﬁling requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submied electronically every Interacve Data File required to be submied pursuant to Rule 405 of Regulaon S-T (Secon 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such ﬁles). Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler, a smaller reporng company, or an emerging growth company. See the deﬁnions of “large accelerated ﬁler,” “accelerated ﬁler,” “smaller reporng company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated ﬁler Non-accelerated ﬁler ☑ ☐ Accelerated ﬁler Smaller reporng company Emerging growth company ☐ ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transion period for complying with any new or revised ﬁnancial accounng standards provided pursuant to Secon 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has ﬁled a report on and aestaon to its management’s assessment of the eﬀecveness of its internal control over ﬁnancial reporng under Secon 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounng ﬁrm that prepared or issued its audit report. ☑ If securies are registered pursuant to Secon 12(b) of the Act, indicate by check mark whether the ﬁnancial statements of the registrant included in the ﬁling reﬂect the correcon of an error to previously issued ﬁnancial statements. ☐ Indicate by check mark whether any of those error correcons are restatements that required a recovery analysis of incenve-based compensaon received by any of the registrant’s execuve oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether registrant is a shell company (as deﬁned in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ The aggregate market value of the registrant's common stock held by non-aﬃliates of the registrant on June 30, 2023 (based on the closing sale price of $71.18 on that date) was approximately $2,292,286,984. Common stock held by each oﬃcer and director and by each person known to the registrant who owned 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be aﬃliates. This determinaon of aﬃliate status is not necessarily a conclusive determinaon for other purposes. The number of shares of the registrant’s common stock outstanding as of February 14, 2024 was 53,475,414. DOCUMENTS INCORPORATED BY REFERENCE Porons of the registrant's deﬁnive Proxy Statement for the 2024 Annual Meeng of Stockholders currently scheduled to be held June 12, 2024 are incorporated by reference into Part III hereof. Such deﬁnive Proxy Statement will be ﬁled with the U.S. Securies and Exchange Commission no later than 120 days aer the conclusion of the registrant's ﬁscal year ended December 31, 2023. TABLE OF CONTENTS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS PART I. Item 1. Business Item 1A. Risk factors Item 1B. Unresolved staﬀ comments Item 1C. Cybersecurity Item 2. Item 3. Item 4. PART II. Item 5. Item 6. Item 7. Properes Legal proceedings Mine safety disclosures Market for registrant's common equity, related stockholder maers and issuer purchases of equity securies [Reserved] Management's discussion and analysis of ﬁnancial condion and results of operaons Item 7A. Quantave and qualitave disclosures about market risk Item 8. Item 9. Financial statements and supplementary data Changes in and disagreements with accountants on accounng and ﬁnancial disclosure Item 9A. Controls and procedures Item 9B. Other informaon Item 9C. Disclosure regarding foreign jurisdicons that prevent inspecons PART III. Item 10. Directors, execuve oﬃcers and corporate governance Item 11. Execuve compensaon Item 12. Security ownership of certain beneﬁcial owners and management and related stockholder maers Item 13. Certain relaonships and related transacons, and director independence Item 14. Principal accountant fees and services PART IV. Item 15. Exhibits and ﬁnancial statement schedules Item 16. Form 10-K Summary SIGNATURES 2 3 3 16 30 30 32 32 32 33 33 34 35 64 65 112 112 113 113 114 114 114 114 114 114 115 115 119 120 2023 Form 10-K 1 Table of Contents Blackbaud, Inc. CAUTIONARY STATEMENT REGARDING FORWARD- LOOKING STATEMENTS This Annual Report on Form 10-K, including the documents incorporated herein by reference, contains forward-looking statements that ancipate results based on our esmates, assumpons and plans that are subject to uncertainty. These "forward-looking statements" are made subject to the safe-harbor provisions of the Private Securies Ligaon Reform Act of 1995, Secon 27A of the Securies Act of 1933, as amended, and Secon 21E of the Securies Exchange Act of 1934, as amended. Forward-looking statements consist of, among other things, trend analyses, statements regarding future events, future ﬁnancial performance, our ancipated growth, the eﬀect of general economic and market condions, our business strategy and our plan to build and grow our business, our operang results, our ability to successfully integrate developed and acquired businesses and technologies, including generave arﬁcial intelligence ("AI"), the eﬀect of our stock repurchase program, the eﬀect of foreign currency exchange rate and interest rate ﬂuctuaons on our ﬁnancial results, the impact of expensing stock-based compensaon, the suﬃciency of our capital resources, our ability to meet our ongoing debt and obligaons as they become due, cybersecurity and data protecon risks and related liabilies, and current or potenal legal proceedings involving us, all of which are based on current expectaons, esmates, and forecasts, and the beliefs and assumpons of our management. Words such as “believes,” “seeks,” “expects,” “may,” “might,” “should,” “intends,” “could,” “would,” “likely,” “will,” “targets,” “plans,” “ancipates,” “aims,” “projects,” “esmates,” or any variaons of such words and similar expressions are also intended to idenfy such forward-looking statements. These forward-looking statements are subject to risks, uncertaines and assumpons that are diﬃcult to predict. Accordingly, they should not be viewed as assurances of future performance, and actual results may diﬀer materially and adversely from those expressed in any forward-looking statements. Important factors that could cause actual results to diﬀer materially from our expectaons expressed in forward-looking statements include, but are not limited to, those summarized under “Item 1A. Risk factors” and elsewhere in this report and in our other SEC ﬁlings. Forward-looking statements represent our management's beliefs and assumpons only as of the date of this Annual Report on Form 10-K. We undertake no obligaon to update or revise any forward-looking statements, or to update the reasons actual results could diﬀer materially from those ancipated in any forward-looking statements, whether as a result of new informaon, future events or otherwise. 2 2023 Form 10-K Table of Contents Blackbaud, Inc. PART I. ITEM 1. BUSINESS Descripon of Business We are the leading soware provider exclusively dedicated to powering social impact. Serving the nonproﬁt and educaon sectors, companies commied to social responsibility and individual change makers, our essenal soware is built to accelerate impact in fundraising, nonproﬁt ﬁnancial management, digital giving, grantmaking, corporate social responsibility and educaon management. Blackbaud brings over four decades of leadership to this sector: since originally incorporang in New York in 1982 and later reincorporang as a South Carolina corporaon in 1991 and as a Delaware corporaon in 2004. Millions of people across more than 100 countries connect, give, learn and engage through Blackbaud plaorms. During 2023, we had nearly 100,000 customers that paid Blackbaud through transaconal fees and more than 40,000 customers with contractual billing arrangements. We are deeply proud to play a part in our customers’ success in their missions to provide healthcare and cure diseases, advance educaon, preserve and share arts and culture, protect the environment, support those in need and much more. Market Overview The social impact market is signiﬁcant, spanning far beyond philanthropy, and our addressable market is substanal and growing There are millions of organizaons globally focused on social impact including nonproﬁts, foundaons, educaon instuons and healthcare organizaons. In the corporate sector, demonstrang posive social impact has become a business imperave. Countless individuals also engage in social impact by donang funds, volunteering their me, advocang for a cause, receiving services from or otherwise engaging with social impact organizaons. Tradional methods of fundraising and organizaonal management are oen costly and ineﬃcient Many social impact organizaons use manual methods or soware applicaons not speciﬁcally designed for fundraising and organizaonal management for instuons like theirs. Such methods are oen costly and ineﬃcient because of the diﬃcules in eﬀecvely collecng, sharing and using donaon-related informaon. Furthermore, general purpose soware applicaons frequently have limited funconality for the unique needs of our customer base and do not eﬃciently integrate mulple databases. Some social impact organizaons have developed proprietary soware, but doing so is expensive, requiring on-site technical personnel for development, implementaon and maintenance. The nonproﬁt industry faces parcular operaonal challenges Nonproﬁt organizaons — and any other enty that includes fundraising as a revenue source, including educaon instuons, healthcare organizaons and houses of worship — must eﬃciently: • • Solicit funds and build relaonships with major and instuonal donors; Garner small cash contribuons from numerous contributors; • Manage and develop complex relaonships with large numbers of constuents; • • • • • Communicate their accomplishments and the importance of their mission online and oﬄine; Comply with complex accounng, tax and reporng requirements that diﬀer from those for for-proﬁt businesses; Solicit cash and in-kind contribuons from businesses to help raise money or deliver products and services; Provide a wide array of programs and services to individual constuents and beneﬁciaries; and Improve the data collecon and informaon sharing capabilies of their employees, volunteers and donors by creang and providing distributed access to centralized databases. 2023 Form 10-K 3 Table of Contents Blackbaud, Inc. Because of these challenges, we believe nonproﬁts, educaon instuons, healthcare organizaons and houses of worship can beneﬁt from soware applicaons and services speciﬁcally designed to serve their parcular needs and workﬂows to grow revenue, work eﬀecvely and accomplish their missions. Companies, grantmaking instuons and foundaons also face unique challenges Companies, grantmaking instuons and foundaons, face their own unique challenges in their social impact eﬀorts, including the need to: • Quanfy and improve the impact of their grants; • • • • • Culvate beer relaonships with grantees; Achieve beer internal collaboraon and alignment with board members, reviewers and other stakeholders; Illustrate the impact of their corporate philanthropy and educaon eﬀorts to the communies they serve; Engage employees in meaningful volunteering, giving and other acvies; Ensure that their philanthropic eﬀorts align with their business iniaves; • Manage all of a foundaon's acvies, including fundraising and accounng; • • Expand the reach of their fundraising eﬀorts; and Culvate new and exisng donors. Strategy Our objecve is to maintain and extend our posion as the leading provider of cloud soware and services for the global social impact community, supporng our customers' missions from securing resources and managing their operaons, to delivering their programs and measuring their impact. Our key strategies for achieving this objecve are described below. Execute on our Five Key Operaonal Iniaves In early 2023, we outlined ﬁve key operaonal iniaves targeted to drive innovaon, bookings growth, revenue expansion and lower costs. During 2023, we have executed on these key iniaves. 1. Product Innovaon and Delivery Product is core at Blackbaud, and we strive to bring increased value to our customers with improved and innovave capabilies. We have recently announced or released a number of product enhancements as well as new soluons that enable our customers to beer deliver on their missions. Some examples include: • Opmized Online Donaon Capabilies: New online donaon capabilies that fully integrate with Blackbaud’s payment processing and CRM soware and enable customers to raise more money while reducing processing costs. We recently began an early adopter program for the new donaon capabilies with a small sample of RE NXT customers across charity, educaon, and arts and cultural organizaons. We expect to make them generally available in the ﬁrst half of 2024. • • • • Prospect Insights Pro for Raiser’s Edge NXT®: New add-on capability within Raiser’s Edge NXT® that gives fundraisers access to AI-driven insights to support planned and major gi fundraising TM Impact Edge : A ﬁrst-of-its-kind AI-powered, social impact reporng and storytelling soluon for corporate social responsibility (CSR) and social impact teams of all sizes. This new soluon is currently in an early adopter program with our planned full roll out in the second half of 2024. JustGiving Storywriter: With new generave AI capabilies, fundraisers on JustGiving are able to quickly and easily create personal stories to share with their networks. Company research has shown that JustGiving pages that include a clear and personal story raise approximately 65% more than those that do not. TM Good Move : New development transformed the Good Move acvity-tracking mobile app into a powerful mobile parcipant center for Blackbaud TeamRaiser® peer-to-peer fundraising events. The new expansive feature for Blackbaud TeamRaiser® became generally available in the U.S. and Canada in March 2023. 4 2023 Form 10-K Table of Contents Blackbaud, Inc. • Intelligence for Good®: In summer 2023, we launched next generaon Intelligence for Good® strategy with an extensive agenda of iniaves and investments targeted at making arﬁcial intelligence more accessible, powerful and responsible across the social impact sector 2. Bookings Growth and Acceleraon We maintain a keen focus on accelerang bookings growth by signing new logos as well as upselling and cross-selling our exisng customer base. Our sales team is split between prospect account execuves dedicated to prospecng for new clients and customer account execuves who focus on selling addional products to current customers. Given the breadth of our product porolio, this “land and expand” model has proven successful for us over me. As previously disclosed, there can be volality quarter-to-quarter on bookings. 3. Transaconal Revenue Opmizaon and Expansion Transaconal revenue, which is about one-third of total revenue, is comprised of four primary components: donaon processing (~55% of total transaconal revenue); consumer giving (~20%); tuion management (~20%); and event-based usage (~5%). The diversity of the underlying transacon volumes from these four sources has resulted in consistent transaconal recurring revenue growth in the mid-to-high single digits over the past several years. Strong momentum in consumer giving and tuion management, rate increases on Blackbaud Merchant Services, and increased donaons ed to global events drove connued solid transaconal recurring revenue growth in 2023. Going forward we will connue to implement addional payments soluons opmizaon to drive enhanced donor experience. 4. Modernized Approach to Pricing and Mul-Year Contracts Last summer, we put in place an updated pricing policy primarily for our social sector customers that directly reﬂects the value we provide to them, is in- line with the broader market and reﬂects the inﬂaonary pressures that all businesses are facing. In November 2022, we started nofying customers with a March 2023 contract renewal that we would be making important contract changes. First, we are oﬀering 3-year contract renewal terms as our standard, replacing one-year renewal terms. This process was already being implemented outside of the pricing changes. Second, we are implemenng a more signiﬁcant rate increase on the 1-year renewal opon versus the 3-year renewal opon. And third, the 3-year renewal opon includes embedded annual rate increases. Our 3-year renewal opons did not historically include annual rate increases. We have now completed the 2023 renewal cohort, which represented approximately 35% of the total contractual revenue eligible for this program. Approximately another 30% of the renewable base is up for renewal in 2024, another 25% in 2025, and the remaining 10% in the beginning of 2026. The close day-to-day management of renewals, the mix of 3-year and 1-year contracts, and the impact of pricing are progressing well, and we expect more impact from the compounding eﬀect of these rate increases over me as we layer in future year contract renewals and annual rate increases. Addionally, the adopon of 3-year renewals as a standard, with more customers opng for this opon than we originally expected, are expected to have an added beneﬁt of higher retenon which provides greater revenue assurance and predictability. Looking even further ahead, the cycle starts fresh in 2026 as the 2023 signed contracts will begin to renew. We expect that this will be a sustainable and meaningful revenue growth stream for us. 5. Keen Aenon to Cost Management Cost management iniaves already completed drove a signiﬁcant improvement in proﬁtability during 2023. These iniaves included: • • • • A reducon in headcount from approximately 3,600 in the third quarter of 2022 to approximately 3,000 as of December 31, 2023 Connued IT consolidaon as we migrate customers from legacy private data centers to leading public cloud service providers. We closed four legacy data centers during 2022 and two in 2023. Renegoated key vendor contracts including Microso Azure and AWS Reduced our real estate footprint as part of the shi to a remote ﬁrst workforce 2023 Form 10-K 5 Table of Contents Blackbaud, Inc. Going forward, our goal is to run the business at about this headcount level for the foreseeable future, while connuing to drive eﬃciencies in other areas of the business. Delight Our Customers We intend to make our customers' experience with us eﬀecve, eﬃcient and sasfying from their inial interest in our soluons and services through their decision to purchase, engage with customer support and implement and use our soluons. We connue to focus on iniaves aimed at improving the consistency and quality of user experience across our oﬀerings. We also connue to evolve the way we package and sell our oﬀerings to provide high quality and value combined with ﬂexibility to meet the unique needs of our exisng and prospecve customers. In addion, we are connuing to integrate value- adding capabilies such as payment services, analycs and business intelligence into our suite of soluons to beer address our customers' needs to raise more revenue with comprehensive oﬀerings. We will connue to focus on providing the highest level of soluon support, enhancing our exisng soluons, extending our soluons through open APIs and developing new soluons and services designed to help our customers be more eﬀecve and achieve their missions. Aract and Retain Top Talent and Acvely Engage Employee Base Our employees are energized by our opportunity to fuel social impact. Collaboraon, innovaon, authenc passion for the customers we serve and high standards are core to our culture and help to enable the great work we do. We strive to hire, develop and retain the best employees and provide a supporve and inclusive environment where their talents and potenal are realized. In 2021, we formally adopted a "Remote First" model as a company, which supports Blackbaud's goal to aract top talent globally. For addional informaon, see “Human Capital Resources” below. Drive Strength in Our Sector as an Industry Thought Leader In our over 40 years of operaon, we have gained signiﬁcant insight into the overall market and industry segments in which we operate. We produce a wide range of thought leadership resources, including blogs, webinars and white papers, which provide insights and guidance to the social impact community. We also parcipate in and convene industry forums, where we exchange views and engage with industry and government leaders. Our annual user conference, bbcon®, serves in part as a forum to oﬀer thought leadership to our customers, as do other market-speciﬁc user conferences, events and customer gatherings. The Blackbaud Instute is a research lab that leverages Blackbaud's unique data resources, along with original research, to drive insight that accelerates the impact of the social impact community. The research and reports the Blackbaud Instute produces serve to strengthen the social impact community as a whole. ENGAGE, our blog and podcast, provides free best pracces resources that drive impact across the social impact community, as well. The Blackbaud Social Good Startup Program is a year-long accelerator designed to support innovave startups with the potenal to drive social impact. In alignment with our commitment to diversity in the tech community, we emphasize supporng founders from underrepresented backgrounds. Soluons and Services We build soware for our customers' essenal business operaons to free them to focus on what maers most: delivering impact. With powerful data intelligence and experse inside, and an ever-growing network of partners and developers outside, our soware is the foundaonal infrastructure that expands what is possible for anyone dedicated to purpose-driven work. We augment our soware with a range of payment processing, analyc and business intelligence services, consulng, training and professional services, as well as maintenance and technical support. The Blackbaud porolio is delivered primarily through cloud soluons tailored to the unique needs of nonproﬁts and foundaons, educaonal instuons, individual change makers and corporate social impact programs built speciﬁcally for fundraising and relaonship management, markeng and engagement, ﬁnancial management, grant and award management, educaon management, ckeng, social responsibility, payment services and analycs. 6 2023 Form 10-K Table of Contents Blackbaud, Inc. Our speciﬁc soluons and services include: Fundraising and Engagement Blackbaud Raiser's Edge NXT® is our ﬂagship fundraising and relaonship management soluon. Raiser's Edge NXT is the ﬁrst and only cloud fundraising and relaonship management soluon that is all-inclusive, fully integrated with data health, analycs, email markeng, donaon forms, event management, payment processing and process automaon to create tailored, user-speciﬁc experiences. Built on our Blackbaud SKY Plaorm, Raiser's Edge NXT is, we believe, the most advanced technology available to nonproﬁts seeking to operate more eﬃciently and raise more support for their missions. Raiser’s Edge NXT includes access to Blackbaud Online Express™, a simple, eﬃcient, cloud-based fundraising and markeng tool designed for smaller nonproﬁt organizaons. Blackbaud CRM™ is a comprehensive, conﬁgurable fundraising and relaonship management soluon. It is our lead oﬀering for enterprise-level organizaons seeking a powerful, yet adaptable soluon for fundraising, markeng and program management across the engagement lifecycle, specializing in supporng sophiscated major giving, membership and high-volume direct markeng programs. Blackbaud CRM helps organizaons build deeper and more personalized relaonships with constuents, build their brands through online engagement and mulchannel communicaon tools, and more eﬀecvely fundraise, leveraging campaign management, business intelligence and analycs. Blackbaud CRM can be sold as an integrated soluon with our enterprise online soluons to enable mul-channel markeng, online engagement and event fundraising. Blackbaud eTapestry® is a simple, cloud fundraising and donor management soluon built speciﬁcally for smaller, developing nonproﬁts in need of a cloud soluon to support basic fundraising needs. It oﬀers nonproﬁt organizaons a cost-eﬀecve way to manage donors, process gis, create reports, accept online donaons and communicate with constuents. This technology provides a system that is simple to maintain, eﬃcient to operate and is intuively easy to learn without extensive training. Blackbaud Luminate Online®, delivered in the cloud, helps our customers beer understand their online supporters, make the right ask at the right me and raise money online. It includes tools to build online fundraising campaigns as part of an organizaon's exisng website or as a stand-alone fundraising site. Donaon forms, gi processing and tools for communicang through web pages and email give our customers the essenals for building sustainable donor relaonships. Blackbaud TeamRaiser® is the industry’s most comprehensive cloud soluon designed speciﬁcally for peer-to-peer event fundraising. Powering thousands of major events each year, TeamRaiser allows nonproﬁts’ supporters to create personal or team fundraising web pages and send email donaon appeals in support of events such as walks, runs and rides. JustGiving® from Blackbaud® is one of the world's leading social plaorms for giving. JustGiving provides world-class technology and innovave tools to connect people with the causes they care about. By making giving more simple, social and rewarding, this plaorm helps all causes, charies and people in need to reach more people and raise more money. Blackbaud Fundraiser Performance Management™ is a mul-pronged soluon that combines easy to use data-driven soware for fundraisers and managers, predicve modeling insights, and high-touch strategic consulng. Built for higher educaon instuons, healthcare and large nonproﬁt organizaons, the SaaS tools increase transparency into fundraising performance, and direct fundraiser and talent manager acon. Both fundraisers and leaders beneﬁt from the tailored consulng to address weaknesses and enhance strengths to comprehensively improve the fundraising team performance. Blackbaud Altru® is a cloud soluon that helps arts and cultural organizaons consolidate admissions, membership, fundraising, merchandise, markeng and more, giving users a comprehensive view of their supporters. By helping general admissions arts and cultural organizaons gain a clear, 360-degree view of their organizaon, it enables them to operate more eﬃciently, engage and culvate patrons and supporters, streamline external and internal communicaon eﬀorts, and reduce IT costs. Blackbaud Altru contains tools for constuent and membership management, program sales, retail sales and ckeng, volunteer management and events management. It also has sophiscated reporng funconality and tools to manage markeng, communicaons and fundraising. Blackbaud Guided Fundraising™ and Blackbaud Volunteer Network Fundraising™ can work together with Fundraiser Performance Management or independently to help higher educaon instuons meet their advancement targets and development campaign goals. Blackbaud Guided Fundraising is used by instuons seeking to manage all the details behind the sophiscated, person-to-person solicitaon strategies that drive fundraising results. Blackbaud Volunteer Network Fundraising helps instuons manage volunteer fundraising campaigns with tools for project management, communicaon and reporng. 2023 Form 10-K 7 Table of Contents Financial Management Blackbaud, Inc. Blackbaud Financial Edge NXT® is the ﬁrst-of-its-kind cloud accounng soluon for nonproﬁts that is intuive, fully integrated, and built the way nonproﬁts need it. Blackbaud Financial Edge NXT is advanced technology with powerful reporng tools to help accounng teams drive transparency, stewardship, and compliance while enabling them to seamlessly manage transacons and eliminate manual processes. It seamlessly integrates with Raiser's Edge NXT to simplify gi entry processing and relates informaon from both systems in an informave manner to eliminate redundant tasks and manual processes. Financial Edge NXT provides nonproﬁt organizaons with the means to help manage ﬁscal and ﬁduciary responsibility, enabling them to be more accountable to their constuents. Blackbaud Tuion Management™ beneﬁts schools by giving administrators beer access to ﬁnancial data and payment services, and by giving parents more ways to remit tuion payments. The soluon helps ease the burden for administrave staﬀ by oﬀering invoicing, payment processing, customer service, enhanced communicaon with parents and later payer follow-up services. Blackbaud Financial Aid Management™ oﬀers schools the ability to accept online, customized applicaons for ﬁnancial aid and to make beer ﬁnancial aid decisions with a proprietary Hobbies, Interest and Lifestyles ("HIL") proﬁle. The HIL proﬁle provides in-depth informaon on an applicant, delivering to the school a way to make more informed decisions on how they distribute ﬁnancial aid awards. Blackbaud Billing Management™ makes it easy for school administrators to manage tuion and billing processes and for parents to manage their payments to the school. It gives families ﬂexible payment opons, provides the school visibility into payments and billing with metrics for supporng cash ﬂow, one view of ﬁnancial performance, 24/7 bill access on all devices, and removes manual processes from admissions to ﬁnance and merchant services. Grant and Award Management Blackbaud Grantmaking™ is a modern cloud soluon, built on our Blackbaud SKY Plaorm, that supports the end-to-end grantmaking process from applicaon through review and resoluon. Blackbaud Grantmaking provides core funconality to eﬃciently disperse funds, maintain compliance with due diligence requirements and measure and demonstrate impact. The system has collaborave tools to help strengthen relaonships with grantees and other community partners. Coupled with Blackbaud Outcomes™, funders and nonproﬁts are empowered to collaborate around their intended outcomes and work together to achieve impact. Both the funder and the nonproﬁt can tell an impact story using ROI-focused results and a common outcomes measurement language. Blackbaud Award Management™ is a comprehensive, integrated scholarship management plaorm for higher educaon and K-12 instuons and foundaons, allowing students to apply for all awards using one intuive and streamlined applicaon process and eliminang many me-consuming administrave tasks. This leads to improved awarding, reporng, compliance, communicaon and stewardship. Educaon Soluons Blackbaud Student Informaon System™ makes it easy for schools to manage schedules, transcripts and GPAs. A new Student Informaon System that works directly with Blackbaud Learning Management System™, Blackbaud Student Informaon System simpliﬁes the process of sharing student data and academic records securely. Blackbaud Learning Management System™ is a learning management system that makes it easy to manage, connect, and share informaon with students, parents, and an enre school community. Developed with direct input from our customers, Blackbaud Learning Management System gives teachers the tools to meet the demands of a modern private school. Blackbaud Enrollment Management System™ is an enrollment management system that simpliﬁes a school’s admissions process. Blackbaud Enrollment Management System helps admissions teams and prospecve families manage and track their progress, from inquiry and applicaon through acceptance and enrollment. Blackbaud School Website System™ is a content management system that gives schools the ﬂexibility to build and edit webpages, with easy access to content types including photos, videos, downloads, text and more. It allows users to share material and contribute content across an enre school community. 8 2023 Form 10-K Table of Contents Social Responsibility and ESG Blackbaud, Inc. YourCause GrantsConnect® and YourCause CSRconnect® are cloud soluons for employee giving, volunteering, and grantmaking used to support corporate philanthropy by building meaningful connecons between corporaons, employees and nonproﬁts. Aer implemenng YourCause soluons, customers typically show signiﬁcant growth in volunteers, donaons, engagement and more. These reported successes demonstrate a larger trend: overall ability to aract employees and customers alike by strengthening a company's reputaon. EVERFI® from Blackbaud® delivers educaonal content that transforms what is possible for learners while enabling companies to achieve their social impact and business goals. EVERFI’s robust library of courses connect students with real-world skills to navigate life’s most important challenges, from ﬁnancial capability to mental wellness — all made possible through the generous support of brands that believe in the lasng results of community investment. Trusted by educators at over 25,000 K-12 schools, EVERFI’s curriculum reaches over 7 million students a year. Thousands of the world’s leading brands have engaged with their communies and achieved their social impact goals by sponsoring EVERFI’s trusted courses to empower students with the knowledge they need to succeed in life. Payment Services Our soluons provide our customers payment processing capabilies that enable their donors to make donaons and purchase goods and services using numerous payment opons, including credit card and automated clearing house (“ACH”) checking transacons, through secure online transacons. Blackbaud Merchant Services™ is a value-added service integrated with our soluons that makes credit card processing simple and secure. Customers are charged one rate for credit card transacons, making Blackbaud Merchant Services a compeve opon. The service also provides customers with a payment card industry (“PCI”) compliant process and streamlined bank reconciliaon. We also provide our K-12 private school customers with student tuion payment processing services. Blackbaud Purchase Cards provide an eﬃcient and convenient alternave to tradional procurement methods and paper-based payables processes such as checks, purchase orders and invoices for travel and operaonal purchases. Organizaons can also set spend controls for individual cardholders, track business expenses across the organizaon and ensure that policies are being enforced—all managed online and integrated with Blackbaud Financial Edge NXT. Data Intelligence Our data intelligence oﬀerings provide soluons for data health, insights and performance, enabling nonproﬁts to deﬁne eﬀecve campaign strategies and maximize fundraising results. These services either integrate with or are already integrated into our soware soluons to give our customers a comprehensive view of their supporters and the market and provide informaon essenal to making well-informed operang decisions. Blackbaud’s Intelligence for Good® is our comprehensive strategy to deliver arﬁcial intelligence that is accessible, powerful and responsible. Our arﬁcial intelligence capabilies enable social impact organizaons to transform data into insights and outcomes. Blackbaud's data intelligence soluons and services use data science and AI to turn customer data into valuable insights that inform decision-making and help them achieve their goals eﬃciently. Blackbaud's data intelligence porolio consists of three key outcome areas: Data Health soluons enhance and maintain constuent data so the customer is always working with accurate and up-to-date informaon. Examples of these soluons include: idenfying outdated or invalid constuent addresses in the database and making correcons based on United States Postal Service data and using name and address matching to append addional contact or demographic data points to constuent records to support beer segmentaon and engagement. Insights inform strategic decision-making and acons that increase eﬃciency and drive successful outcomes. Insights are extracted by combining customer data with licensed and proprietary data before leveraging advanced AI capabilies and experse from Blackbaud’s dedicated team of data sciensts. Examples of constuent insights include: predicve modeling that indicates the likelihood and capacity of a constuent making a gi, wealth screening soware that uses publicly available records to build detailed wealth proﬁles of constuents and persona cluster segmentaon that groups constuents based on shared traits with guidance for opmizing messaging to each group. 2023 Form 10-K 9 Table of Contents Blackbaud, Inc. Performance soluons help customers to assess their fundraising performance across donor segments, benchmark themselves against peer organizaons and understand industry trends. These soluons provide a holisc view of donor performance that goes beyond standard campaign-based reporng, with key performance indicators related to acquision, upgrading, retenon and reacvaon. Customers use our performance soluons to idenfy areas of weakness and opportunies for improvement, track the donor impact of strategic iniaves, understand and respond to industry trends, set realisc benchmarks and fundraising goals and maintain a consistent reporng methodology to assess growth over me. Customer Success Our Customer Success organizaon is responsible for ensuring our customers achieve their desired outcomes through Blackbaud soluons, starng at onboarding and connuing through the customer lifecycle. Our Customer Success team develops and fosters relaonships within all levels of the customer organizaon to build more demonstrated value in our soluons and services, while helping customers achieve their desired outcomes. Our customer success resources work to proacvely communicate to drive overall sasfacon and retenon of our customers' business. They work to collect and analyze aconable informaon, whether that is through direct customer relaonships or through aggregated analycs that drives future one-to-one or one-to-many interacons. Their goal is to partner with customers to ensure that they are fully engaged and have an advocate within Blackbaud who works to meet their needs. Customer success resources bring industry knowledge and experse to the customer relaonship and strive to help our customers achieve posive growth and outcomes. Customer Support Customer Support provides assistance to customers using Blackbaud Soluons, helping them understand the capabilies of their subscripon, including how to navigate their subscripon and answering related quesons for core concepts of features and funconality. Beneﬁts, such as priority roung or addional support channels, are connuously enhanced. Customers enrolled in the programs enjoy fast, reliable customer support, receive regular soware updates, stay up-to-date with regular communicaon and can leverage a uniﬁed customer portal for quick and easy access to these resources. Customers also are empowered with self-help resources such as Knowledgebase arcles, user guides, Blackbaud Community, our on-demand library of enablement sessions and have around-the-clock access to support resources for mission-crical needs. Professional and Managed Services Our expert consultants, and those in our partner program, provide implementaon, opmizaon, data conversion and customizaon services for our soware soluons. These services include: • • • • System implementaon; Data conversion, business process analysis and applicaon customizaon; Database merging and enrichment, and secure credit card transacon processing; Database producon acvies; and • Website design services; • Outcome-based and prescripve services. In addion, we, and our delivery partners, apply our industry knowledge and experience, combined with expert knowledge of our soluons, to evaluate an organizaon's needs and consult on how to improve a business process. Training We provide a variety of onsite, instructor-led online and on-demand training services to our customers on our soluons and applicaon of best pracces. This includes our highly-rated Blackbaud University curriculum. Blackbaud University provides cerﬁcaons for our products and industry best pracces. These cerﬁcaons serve as important catalysts for professional growth in the nonproﬁt industry. Our instructors and designers have deep knowledge in the social impact arena and in the use of our soluons. Instructor-led courses are designed to include hands-on lab exercises, as well as course materials with examples and problems to solve. 10 2023 Form 10-K Table of Contents Customers Blackbaud, Inc. Millions of people across more than 100 countries connect, give, learn and engage through Blackbaud plaorms. During 2023, we had nearly 100,000 customers that paid Blackbaud through transaconal fees and more than 40,000 customers with contractual billing arrangements. Our largest single customer accounted for less than 1% of our 2023 consolidated revenue. Sales and Markeng Most of our soluons and related services are sold through our direct sales force. Our direct sales force is complemented by a team of sales development representaves responsible for sales lead generaon and qualiﬁcaon. In addion, lead generaon is supplemented by our customer success organizaon via employee-generated sales leads. These sales and customer success professionals are primarily located throughout the United States, the U.K., Canada and Australia. As of December 31, 2023, we had approximately 250 direct sales employees. Our markeng organizaon, which includes brand, digital, content, product, event and demand generaon markeng and corporate communicaons, develops and launches mul-channel campaigns designed to create brand recognion and market awareness for our soluons and services. Our digital demand generaon moon focuses on targeted account-based markeng plays, as well as intent-based programs including paid search, retargeng, social and content syndicaon programs. We supplement the digital moon with our annual user conference, bbcon® (which was held in November 2023 in-person for the ﬁrst me since the pandemic), select parcipaon at virtual and in-person third-party trade shows, technical conferences, and technology seminars. We also target publicaon of our thought leadership content and posion our subject maer experts in industry journals and publicaons. We have a large base of loyal customers and strategic partners that provide references and recommendaons oen featured in our adversing and promoonal acvies. Compeon The market for soware and related services targeng philanthropic-focused for-proﬁt and nonproﬁt organizaons is compeve and highly fragmented. For certain areas of the market, entry barriers are low, as general tools for small businesses can usually be conﬁgured to manage the most basic markeng, contact management, and accounng needs of social impact organizaons. In parallel, as soware development evolves from a highly-complex tradecra with nuanced understanding of architectural paerns and discrete languages, to click-to-code and drag-and-drop development with navely cloud-based infrastructure, it becomes easier for competors to quickly spin up basic applicaons to solve common problems. However, once basic needs are met, programs unique to social impact organizaons like the stewardship of relaonships and partnerships crical to major gi fundraising, community and employee educaon; the culvaon and management of gis, grants and K12 digital educaon sponsorship; the mul-level networking required for peer-to- peer acvism and employee engagement; and the sensive data and reporng behind crical programs run by and for healthcare and educaon instuons ensure the ongoing need for highly specialized tools. These specialized applicaons have a higher barrier of entry as they require industry insight to accurately arculate the business workﬂow that generates the requirements for soware products. Moreover, because social impact organizaons rely heavily on relaonships with and among their supporters, integraon of systems drives value beyond mere eﬃciency. Hence, we believe our insight, the full spectrum of our current soluons and our ability to deliver future soluons make us a strong competor. We expect to connue to see new entrants as focus on social investment soluons increases to sasfy Millennial and Gen Z donors, customers and employees, the barriers of entry connue to decline with navely cloud soluons and social impact organizaons more readily require digital transformaon of business processes and data-driven decision making. Our compeon falls into four primary categories: • Niche products are usually developed as a soluon for a single problem at an organizaon and are adopted by similar organizaons to solve a specialized need. These are typically oﬀered by vendors who may have deep industry experse but may not have the resources to expand beyond a specialized area. We believe we compete against these soluons by oﬀering a set of integrated soluons rather than a single point soluon, which we believe improves the overall customer experience. In addion, our open plaorm allows integraon to specialized applicaons so the opportunity for disrupon from these competors is minimized. 2023 Form 10-K 11 Table of Contents Blackbaud, Inc. • • • Vercal-speciﬁc soluons are oﬀered by competors seeking to meet the enterprise-wide needs of a speciﬁc sub-segment of the social impact community. Typically, these soluons are oﬀered by vendors who may oﬀer either a point soluon or integrated suite of products used by a vercal. We believe we compete successfully against these competors through a combinaon of our integrated suite of oﬀerings and naonwide community networks within vercals where we compete, oﬀering soluons with market leading robustness and reporng as well as the scale, reach, and reputaon of our organizaon. General business soware vendors, such as Microso, Oracle and Salesforce.com, compete with us in certain areas of our business. While there is a growing trend toward social investment that is prompng philanthropic soluons from these general business vendors, most do not have a complete nonproﬁt speciﬁc focus and, therefore, do not oﬀer, or to our knowledge do not intend to oﬀer, nonproﬁt-speciﬁc versions. However, there is a subset of general business soware competors who have introduced nonproﬁt-speciﬁc versions of their products. These products generally do not sasfy the needs of nonproﬁts from end-to-end as they were not designed to support the speciﬁc needs of nonproﬁts during the original architecture, design, and requirements elicitaon phases; therefore, we believe that because these products were not originally designed for nonproﬁts, they are not yet fully capable of meeng market needs without signiﬁcant customizaon. The signiﬁcant customizaon required to transform general business products into nonproﬁt soluons oen requires the use of consultants to guide the implementaon, without which, leave the adopon of general business soware limited to very basic operaons and simple needs. We believe our soluons compete successfully against general business soware as a nonproﬁt’s needs grow more complex. As a result, we believe we can compete successfully to meet nonproﬁt- speciﬁc requirements, oen integrang with general business plaorms used for their more generalized operaons. Consumer-oriented fundraising plaorms, such as GoFundMe and Facebook compete with our business where consumers raise funds directly. To drive adopon of their plaorms, these vendors rely on a combinaon of direct-to-consumer markeng, markeng to nonproﬁts who in turn market to their supporters, and markeng to intermediate enes such as an event sponsor who will market to parcipants. We believe we compete well in this market through a combinaon of posive brand recognion among all three of these groups and the combinaon of our consumer- and organizaon-oriented tools relave to those of the compeon. Less frequently, we compete with providers of tradional, non-automated fundraising service providers, including pares providing services in support of tradional direct mail or email campaigns, special events fundraising, peer-to-peer, telemarkeng and personal solicitaons. We believe we compete successfully against these tradional fundraising service providers, primarily because our soluons and services are more automated, more robust, more tailored to the needs of nonproﬁt organizaons and more eﬃcient. Technology and Architecture Our technology strategy consists of several key building blocks including cloud operaons, developer tools, data intelligence and core services. We leverage mulple clouds in our architectures (including AWS and Azure) and have both single and mul-tenant soluons. The best-in-class infrastructure enables rapid innovaon with high levels of reliability, availability and security, and lets Blackbaud evolve services over me at independent paces as tech trends and tools emerge. Blackbaud also provides a toolset for customers, partners, and developers to extend the Blackbaud SKY ecosystem. SKY API enables developers to augment Blackbaud soluons with industry-standard REST APIs, standards-based authencaon protocols, and a best-in-class developer experience. SKY UX allows developers to create applicaons with the same consistent, cohesive user interface as Blackbaud’s nave soluons using an open-source framework that implements Blackbaud design paerns and provides guidelines and tooling for the enre applicaon lifecycle. The development strategy for all Blackbaud cloud soluons emphasizes: • • • Flexibility: Customers and partners can extend our component-based architecture to accommodate changing demands without modifying source code. Adaptability: The architecture of our applicaons allows us to easily add funconality or integrate with third-party applicaons to adapt to customer needs and market demands. Scalability: Scalable architecture and the performance, capacity and load balancing of our customers' industry-standard web servers and databases ensure that applicaons can scale to meet the needs of large organizaons. 12 2023 Form 10-K Table of Contents Blackbaud, Inc. Intellectual Property and Other Proprietary Rights To protect our intellectual property, we rely on a combinaon of patent, trademark, copyright and trade secret laws in various jurisdicons, as well as employee and third-party nondisclosure agreements and conﬁdenality procedures. We maintain many trademarks, including, but not limited to “Blackbaud,” “Raiser's Edge NXT” and “Luminate.” We currently have two acve patents on our technology and have one pending patent applicaon. Human Capital Resources As of December 31, 2023, we had approximately 3,000 employees, none of whom are represented by unions or are covered by collecve bargaining agreements. We are not involved in any material disputes with any of our employees, and we believe that relaons with our employees are strong. We beneﬁt from an engaged and driven employee base movated to join the Company by our work to support organizaons and individuals driving social impact. Our purpose aracts and retains talented, compeve applicants, with approximately 90% of employees cing the fact that Blackbaud operates in a socially responsible manner is important to them. This diﬀerenator not only builds strong employee engagement, but also helps us provide a higher level of service to our customers. With over 70% of employees volunteering with nonproﬁts annually and one in seven serving on a nonproﬁt board or commiee, our direct experience enables our teams to beer serve our customer base. Blackbaud also aracts and promotes talented employees through eﬀecve and targeted recruing strategies. In 2020, Blackbaud announced the launch of a temporary workforce strategy, allowing employees to work from home or other geographic locaons within the country to further support their overall well- being during the COVID-19 pandemic. In 2021, we formally rolled out our Remote First Work-strategy as a company which expanded our pool of qualiﬁed applicants for roles and internal career progression and enabled Blackbaud's goal to aract and develop talent globally. Employee engagement is a focus at Blackbaud, and we connually work to understand what maers and to make our workplace beer to aract, develop, and retain talent. Every manager at Blackbaud is required to take a mul-course "Engagement Labs" training designed to equip them with the praccal skills to ensure their teams are highly engaged. We assess and measure progress on engagement and growth opportunies at the individual level through quarterly check-ins focused on impact and learnings, as well as through a global career framework that guides employee progression on both management and individual contributor career paths. We also assess engagement on the team and company level through regular employee surveys as well as "Ask Anything" sessions with senior leaders and dedicated Q&A sessions during our global, company-wide Connect and Engage meengs. We enable employees to have opportunies for career development through on-demand and company-led trainings in our Learning Management System plaorm: DevelopU. Our compensaon framework is designed so that employees are compensated equitably and compevely, including through base salary, variable pay, equity award opportunies and comprehensive beneﬁt oﬀerings. We also seek to support the whole person, through increased beneﬁts and focus on overall well- being. Ulmately, we believe that Blackbaud is an excellent place to work because we are energized by our opportunity to fuel social impact and commied to running our business in a way that ampliﬁes the diﬀerence we make in the world. We govern our business ethically and contribute to causes and communies that maer to our employees through corporate philanthropy. We pursue sustainability, and we work every day to ensure our workplace is supporve, inclusive and engaging. We oﬀer an array of philanthropy programs aimed at engaging our employees as agents of good, including matching gis, compeve grants that honor noteworthy examples of volunteerism, employee-led grant commiees, skills-based volunteerism iniaves, as well as science, technology, engineering and mathemacs (STEM) focused community programs. Our commitment to inclusion and sustainability supports our eﬀorts to aract, develop and retain a high-performing employee base. In 2023, we brought together the talent acquision team with Inclusion and Corporate Social Responsibility teams under one leader within People and Culture. The company believes that it is essenal to foster inclusion from the moment a candidate considers Blackbaud. This alignment connues our focus to amplify and accelerate the signiﬁcant iniaves already in place at Blackbaud, including: a focus on allyship, mentoring and aﬃnity groups. We have 11 employee-led aﬃnity groups, including, but not limited to those that represent veterans, LGBTQ+, women in technology, women in sales, Black employees, those interested in sustainability and those with a disability. 2023 Form 10-K 13 Table of Contents Blackbaud, Inc. We believe we have a responsibility to act in the ﬁght against climate change—it is both the right thing to do and necessary to ensure the future stability of our business and customers. For these reasons, Blackbaud takes proacve measures to protect the environment, both in our internal sustainable business pracces and our external engagements. As we did in 2021 and 2022, in 2023 we plan to achieve carbon neutrality across our business operaons. We are commied to our connued eﬀorts to reduce our emissions footprint and provide transparent annual social responsibility and sustainability reporng. Blackbaud was recognized by Newsweek as one of America's Most Responsible Companies 2024, Built In's Best Places to Work, Forbes' list of America's Best Employers 2023 and won Governance Team of the Year for small to mid-cap companies in Governance Intelligence's annual Corporate Governance Awards. Addional informaon related to our human capital strategy can be found in our 2022 ESG Report which is available on the Corporate Social Responsibility secon of our website. Informaon contained on or accessible through our websites is not incorporated into, and does not form a part of, this Annual Report or any other report or document we ﬁle with the SEC, and any references to our websites are intended to be inacve textual references only. Seasonality For a discussion of seasonal variaons in our business, see “Management’s Discussion and Analysis of Financial Condions and Results of Operaons — Seasonality” in Item 7 in this report. Working Capital For a discussion of our working capital pracces, see “Management’s Discussion and Analysis of Financial Condions and Results of Operaons — Liquidity and Capital Resources” in Item 7 in this report. Available Informaon Our website address is www.blackbaud.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports pursuant to Secon 13(a) or 15(d) of the Exchange Act as soon as reasonably praccable aer we electronically ﬁle such material with, or furnish it to, the SEC, but other informaon on our website is not incorporated into this report. The SEC maintains an Internet site that contains these reports, proxy and informaon statements, and other informaon regarding issuers that ﬁle electronically with the SEC at www.sec.gov. Informaon About Our Execuve Oﬃcers The following table sets forth informaon concerning our execuve oﬃcers as of February 15, 2024: Name Michael P. Gianoni Anthony W. Boor David J. Benjamin Kevin P. Gregoire Kevin R. McDearis Jon W. Olson 14 2023 Form 10-K Age 63 61 52 56 56 60 Title Chief Execuve Oﬃcer, President and Vice Chairman of the Board Execuve Vice President and Chief Financial Oﬃcer Execuve Vice President and Chief Commercial Oﬃcer Execuve Vice President and Chief Operang Oﬃcer Execuve Vice President and Chief Technology Oﬃcer Senior Vice President and General Counsel Table of Contents Blackbaud, Inc. Michael P. Gianoni joined us as Chief Execuve Oﬃcer and President in January 2014 and was appointed Vice Chairman of the Board in January 2024. Prior to joining us, he served as Execuve Vice President and Group President, Financial Instuons at Fiserv, Inc., a global technology provider serving the ﬁnancial services industry, from January 2010 to December 2013. He joined Fiserv as President of its Investment Services division in December 2007. Mr. Gianoni was Execuve Vice President and General Manager of CheckFree Investment Services, which provided investment management soluons to ﬁnancial services organizaons, from June 2006 unl December 2007 when CheckFree was acquired by Fiserv. From May 1994 to November 2005, he served as Senior Vice President of DST Systems Inc., a global provider of technology-based service soluons. Mr. Gianoni is a member of the Board of Directors of Teradata Corporaon, a publicly traded global big data analycs company, and has been Chairman of the Board since February 2020. Mr. Gianoni has served on several nonproﬁt boards across several segments, including relief organizaons, hospitals and higher educaon. He currently is a board member of the Internaonal African American Museum and a member of the President's Advisory Group at the Medical University of South Carolina. He holds an AS in electrical engineering from Waterbury State Technical College, a BS with a business concentraon from Charter Oak State College, and an MBA and an honorary Doctorate from the University of New Haven. Anthony W. Boor joined us as Execuve Vice President and Chief Financial Oﬃcer in November 2011 and served as our interim President and Chief Execuve Oﬃcer from August 2013 to January 2014. Prior to joining us, he served as an execuve with Brightpoint, Inc., a global provider of device lifecycle services to the wireless industry, beginning in 1999, most recently as its Execuve Vice President, Chief Financial Oﬃcer and Treasurer. He also served as the interim President of Europe, Middle East and Africa during Brightpoint's signiﬁcant restructuring of that region. Mr. Boor served as Director of Business Operaons for Brightpoint North America from August 1998 to July 1999. Prior to joining Brightpoint, Mr. Boor was employed in various ﬁnancial posions with Macmillan Computer Publishing, Inc., a Viacom owned book publishing company specializing in computer hardware and soware related topics, Day Dream Publishing, Inc., a publishing company specializing in calendars, posters and me management materials, Ernst & Young LLP, an accounng ﬁrm, Expo New Mexico, a state-owned fair and expo grounds and live pari-mutual horse racing venue, KPMG LLP, an accounng ﬁrm, and Ernst & Whinney LLP, an accounng ﬁrm. He holds a BS in Accounng from New Mexico State University. David J. Benjamin has served as our Execuve Vice President and Chief Commercial Oﬃcer since July 2022. He joined us as Execuve Vice President and President, Internaonal Markets Group in April 2018. Prior to joining us, Mr. Benjamin was Senior Vice President and General Manager at Box, a cloud content management plaorm for businesses, from October 2016 to March 2022. Prior to that, he was Vice President of Global Services at Brish Telecom, a mulnaonal telecommunicaons holding company, from October 2007 to September 2016. Prior to that, he was at Guardian Media Group, a mass media company owning various media operaons company, where he served as Divisional Chief Operang Oﬃcer, among other leadership roles, from June 1995 to September 2007. He holds a BA in European Business from London Metropolitan University and an MBA from The Manchester Metropolitan University. Kevin P. Gregoire has served as our Execuve Vice President and Chief Operang Oﬃcer since July 2022. Prior to that, he was the Execuve Vice President and President of U.S. Markets since April 2021. He joined us as Execuve Vice President and President, Enterprise Markets Group in April 2018. Prior to joining us, Mr. Gregoire was Group President of the Financial Instuons Group at Fiserv, a global technology provider serving the ﬁnancial services industry, from March 2014 unl February 2018. He joined Fiserv in December 2002 and served in other key leadership roles including Division President and Chief Operang Oﬃcer, Card Services, and Senior Vice President of Product and Network Strategy. Mr. Gregoire is also a veteran of the United States Army, where he served as Lieutenant in the Corps of Engineers and was awarded three Army Commendaon Medals. He holds a BS from the United States Military Academy at West Point, and an MBA from the F.W. Olin School of Business at Babson College. Kevin R. McDearis has served as our Execuve Vice President and Chief Technology Oﬃcer since October 2016 and is responsible for the company’s global product and technology porolio, including cybersecurity. He joined us in August 2014 as our Senior Vice President of Global Product Development. Prior to joining us, Mr. McDearis was the Chief Informaon Oﬃcer at Manhaan Associates, Inc., a technology leader in supply chain and omnichannel commerce, from August 2012 to July 2014. He was responsible for leading a global IT organizaon in strategy development, organizaon development, porolio and project management, soware and infrastructure engineering, service delivery and operaons. Prior to that, Mr. McDearis served as Chief Technology Oﬃcer for the Enterprise Technology Group and other key leadership posions at Fiserv (formerly CheckFree), a global technology provider serving the ﬁnancial services industry, from October 1996 to August 2012. Mr. McDearis serves on the Board of Directors for the USS Yorktown Foundaon. He also served on the Board of Directors of the Technology Associaon of Georgia from 2011 to 2016 and as Vice Chairman of the Board in 2014. He holds a BS in Management from The Georgia Instute of Technology. 2023 Form 10-K 15 Table of Contents Blackbaud, Inc. Jon W. Olson joined us as Senior Vice President and General Counsel in September 2008. Mr. Olson is responsible for Blackbaud's legal acvies. Prior to joining us, he was an aorney with Alcatel-Lucent USA, the U.S. subsidiary of Alcatel-Lucent (now owned by Nokia Corporaon) that designs, develops, and builds wireline, wireless, and converged communicaons networks, from July 1997 to September 2008. Prior to joining Alcatel-Lucent, Mr. Olson was employed in legal posions with MCI, Inc., a global business and residenal communicaons company, from September 1996 to July 1997, and Unisys Corporaon, a global informaon technology company, from July 1992 to September 1996. Mr. Olson is a member of the MUSC (Medical University of South Carolina) Hollings Cancer Center Advisory Board and is on the board of Charleston Jazz. He holds a BS from Georgetown University, a JD from Dickinson School of Law and an MBA from Seton Hall University. ITEM 1A. RISK FACTORS Our business operaons face a number of risks. These risks should be read and considered with other informaon provided in this report. Strategic Risks Our failure to compete successfully, including through technology innovaons or new and improved soluons, could cause our revenue or market share to decline. Our market is highly compeve and rapidly evolving, and there are limited barriers to entry for many segments of this market. The companies we compete with and other potenal competors may have greater ﬁnancial, technical and markeng resources, generate greater revenue and have beer name recognion than we do. Also, a large, diversiﬁed soware enterprise could decide to enter the market directly, including through acquisions. Compeve pressures can adversely impact our business by liming the prices we can charge our customers and making the adopon and renewal of our soluons more diﬃcult. Our competors might also establish or strengthen cooperave relaonships with resellers and third-party consulng ﬁrms or other pares with whom we have had relaonships, thereby liming our ability to promote our soluons. These compeve pressures could cause our revenue and market share to decline. In addion, the introducon of soluons encompassing new technologies can render exisng soluons obsolete and unmarketable. As a result, our future success will depend, in part, upon our ability to connue to enhance exisng soluons and develop and introduce in a mely manner or acquire new soluons that keep pace with technological developments, sasfy increasingly sophiscated customer requirements and achieve market acceptance. If we are unable to develop or acquire on a mely and cost-eﬀecve basis new soware soluons or enhancements to exisng soluons or if such new soluons or enhancements do not achieve market acceptance, we may be unable to compete successfully and our business, results of operaons and ﬁnancial condion may be materially adversely aﬀected. Because compeon for highly qualiﬁed personnel is intense, we might not be able to aract and retain key personnel needed to support our planned growth. To meet our objecves successfully, we must aract and retain highly qualiﬁed personnel with specialized skill sets. If we are unable to aract and retain suitably qualiﬁed management, there could be a material adverse impact on our business. Further, we use equity incenve programs and equity awards in lieu of cash as part of our overall employee compensaon agreements to both aract and retain personnel. A decline in our stock price could negavely impact the value of these equity incenve and related compensaon programs as retenon and recruing tools. We may need to create new or addional equity incenve programs and/or compensaon packages to remain compeve, which could be diluve to our exisng stockholders and/or adversely aﬀect our results of operaons. 16 2023 Form 10-K Table of Contents Blackbaud, Inc. The market for soware and services for the social impact community might not grow and the organizaons in that community might not connue to adopt, or renew their subscripons for, our soluons and services. Many organizaons in the social impact community, including nonproﬁts, foundaons, companies, educaon instuons, and healthcare organizaons, have not tradionally used integrated and comprehensive soware and services for their speciﬁc needs. We cannot be certain that the market for such soluons and services will connue to develop and grow or that these organizaons will elect to adopt our soluons and services rather than connue to use tradional, less automated methods, aempt to develop soware internally, rely upon legacy soware systems, or use soware soluons not speciﬁcally designed for this market. Organizaons that have already invested substanal resources in other fundraising methods or other non-integrated soware soluons might be reluctant to adopt our soluons and services to supplement or replace their exisng systems or methods. In addion, the implementaon of one or more of our soware soluons can involve signiﬁcant capital commitments by our customers, which they may be unwilling or unable to make. If demand for and market acceptance of our soluons and services does not increase, we might not grow our business as we expect. Furthermore, our subscripon arrangements are generally for a term of three years at contract incepon with three-year renewals thereaer. Our maintenance arrangement renewals are generally for a term of three years. As the end of the contract term approaches, we seek the renewal of the agreement with the customer. Historically, subscripon and maintenance renewals have represented a signiﬁcant poron of our total revenue. Because of this characterisc of our business, if our customers choose not to renew their subscripons or maintenance arrangements with us on beneﬁcial terms or at all, our business, operang results and ﬁnancial condion could be harmed. Our customers' renewal rates may decline or ﬂuctuate as a result of a number of factors, including their level of sasfacon with our soluons and services and their ability to connue their operaons and spending levels due to general economic condions, extraordinary business interrupons, client-speciﬁc ﬁnancial issues or otherwise. We are incorporang generave arﬁcial intelligence, or AI, technology into certain of our products and services. This technology is new and developing, and while we aim to adopt known best pracces, it may result in operaonal, ﬁnancial and reputaonal harm and other adverse consequences to our business. We are implemenng AI features in certain of our products and services. The technologies underpinning these features are in the early stages of commercial use and exist in an emerging regulatory environment, which presents regulatory, ligaon, ethical, reputaonal, operaonal and ﬁnancial risks. Many U.S. and internaonal governmental bodies and regulators have proposed, or are in the process of developing, new regulaons related to the use of AI and machine learning technologies. The ﬁnal form of these may impose obligaons related to our development, oﬀering and use of AI technologies and expose us to increased risk of regulatory enforcement and ligaon. We also expect that many of our generave AI features will include the processing of personal data and may be subject to laws, policies, legal obligaons and codes of conduct related to privacy and data protecon. There is uncertainty about the extent to which privacy and data protecon laws apply to AI technologies, and any delay in addressing privacy or data protecon concerns relang to our AI features may result in liability or regulatory invesgaons and ﬁnes, as well as harm to our sales and reputaon. In addion, issues relang to intellectual property rights in AI-generated content have not been fully addressed by the courts, laws or regulaons. Accordingly, the implementaon of generave AI technologies into our products and services may result in exposure to claims related to copyright infringement or other intellectual property misappropriaon. Furthermore, many of our AI features may rely on third-party service providers. As such, any improper processing of personal data by these service providers could harm our reputaon, business or customers, or expose us to legal liability. Any disrupon or failure in our AI systems or infrastructure could result in delays or errors in our operaons, which could harm our business and ﬁnancial results. Our generave AI technology features may also generate output that is misleading, insecure, inaccurate, harmful or otherwise ﬂawed, which may harm our reputaon, business or customers, or expose us to legal liability. Also, some AI scenarios present ethical issues. If we enable or oﬀer AI soluons that are controversial because of their purported or actual impact on human rights, privacy, employment or other social issues, we may experience reputaonal harm. New and emerging AI technologies may require addional investment in the development and maintenance of various models, approaches and processes, as well as development of protecons and safeguards for the use of AI technologies, which may be expensive and could impact our ﬁnancial results if we decide to further expand generave AI into our products and services. Likewise, the use of AI involves signiﬁcant technical complexity and requires specialized experse. The success of any enhancement or new product depends on many factors, including its relevance to our customers, mely implementaon and market acceptance. If our enhanced products and services do not achieve widespread market adopon 2023 Form 10-K 17 Table of Contents Blackbaud, Inc. or there is a reducon in demand due to a lack of customer acceptance, technology challenges, strengthening compeon, weakening economic condions, or security or privacy concerns, our business could be harmed and our ﬁnancial results could be adversely aﬀected. Although we aim to develop and use AI responsibly and aempt to idenfy and migate ethical and legal issues presented by its use, we may be unsuccessful in idenfying or resolving issues before they arise. If we do not successfully address the risks inherent in the expansion of our internaonal operaons, our business could suﬀer. We currently have non-U.S. operaons primarily in the U.K., Canada, Australia and Costa Rica, and we intend to expand further into internaonal markets. Expansion of our internaonal operaons will require a signiﬁcant amount of aenon from our management and substanal ﬁnancial resources and might require us to add qualiﬁed management in these markets. Our direct sales model requires us to aract, retain and manage qualiﬁed sales personnel capable of selling into markets outside the United States. In some cases, our costs of sales might increase if our customers require us to sell through local distributors. If we are unable to grow our internaonal operaons in a cost-eﬀecve and mely manner, our business and operang results could be harmed. Increases in our internaonal revenues denominated in foreign currencies subject us to ﬂuctuaons in foreign currency exchange rates. If we expand our internaonal operaons, exposures to gains and losses on foreign currency transacons may increase. (See Foreign Currency Exchange Rates on page 59 for more informaon regarding the impact of foreign currency exchange rates on our operaons.) Doing business internaonally involves addional risks that could harm our operang results. Along with risks similar to those faced by our U.S. operaons, our internaonal operaons are also subject to risks related to diﬀering legal, polical, social and regulatory requirements and economic condions, including: • • • • the imposion of addional withholding taxes or other tax on our foreign income, tariﬀs or restricons on foreign trade or investment, including currency exchange controls; greater risk of a failure of our employees and partners to comply with both U.S. and foreign laws, including antrust regulaons, the U.S. Foreign Corrupt Pracces Act, the U.K. Bribery Act of 2010, and any trade regulaons ensuring fair trade pracces; the imposion of, or unexpected adverse changes in, foreign laws or regulatory requirements, including those pertaining to export restricons, privacy and data protecon, trade and employment restricons and intellectual protecons; and general business disrupons caused by geopolical situaons and developments. Unfavorable media coverage related to peer-to-peer fundraising campaigns on our social plaorms could negavely impact our business. Our online social giving plaorms receive a high degree of media coverage for parcularly news-worthy or controversial fundraising campaigns, as well as for our fee-based business model. Although our terms of service provide express limitaons on the plaorms' user-iniated fundraising campaigns and reserve our right to remove content that violates our terms of service, it may not always be possible to remove such content prior to it receiving aenon in the media. Negave publicity related to our online social giving plaorms could have an adverse eﬀect on the size, engagement and loyalty of our user base and could result in decreased revenue, which could adversely aﬀect our business and ﬁnancial results. Acquisions could be diﬃcult to consummate and integrate into our operaons, and they could disrupt our business, dilute stockholder value or impair our ﬁnancial results. As part of our business strategy, we, from me to me, seek to grow our business through acquisions of new or complementary businesses, technologies or products that we believe can improve our ability to compete in our exisng customer markets or allow us to enter new markets. The potenal risks associated with acquisions and investment transacons include, but are not limited to: • • • failure to realize ancipated returns on investment, cost savings and synergies; diﬃculty in assimilang the operaons, policies and personnel of the acquired company; unancipated costs associated with acquisions; 18 2023 Form 10-K Table of Contents Blackbaud, Inc. • • • • • • challenges in combining product oﬀerings and entering into new markets in which we may not have experience; distracon of management’s aenon from normal business operaons; potenal loss of key employees of the acquired company; diﬃculty implemenng eﬀecve internal controls over ﬁnancial reporng, disclosure controls and procedures and cybersecurity and data protecon procedures; impairment of relaonships with customers or suppliers; and issues not discovered in due diligence, which may include product quality issues or legal or other conngencies. For example, following our acquision of EVERFI, Inc. (as further described in Note 3 to our consolidate ﬁnancial statements in this report) we experienced the loss of certain employees and unexpected delays in realizing ancipated returns on our investment. Acquisions, including for example our acquision of EVERFI, Inc., may also result in potenally diluve issuances of equity securies, the incurrence of debt and conngent liabilies, the expenditure of available cash, and amorzaon expenses or write-downs related to intangible assets such as goodwill, any of which could have a material adverse eﬀect on our operang results or ﬁnancial condion. We may experience risks relang to the challenges and costs of closing a business combinaon and the risk that an announced business combinaon may not close. There can be no assurance that we will be successful in making addional acquisions in the future or in integrang or execung on our business plan for exisng or future acquisions. A reducon in the growth or amount of charitable giving due to deteriorang general economic condions, a recession or otherwise could adversely aﬀect our operang results and ﬁnancial condion. A large percentage of our customers are nonproﬁts, foundaons, educaon instuons, healthcare organizaons and other members of the social impact community that fully or parally rely on charitable donaons. If charitable giving, including online giving, does not connue to grow or declines, it could limit our current and potenal customers' ability to use and pay for our soluons and services, which could adversely aﬀect our operang results and ﬁnancial condion. In addion, we derive a signiﬁcant poron of our revenue from transacon-based payment processing fees that we collect from our customers through our Blackbaud Merchant Services soluon, which enables our customers' donors to make donaons and purchase goods and services using various payment opons. A reducon in the growth of, or a decline in, charitable giving to these customers, whether due to deteriorang general economic condions, the impact of past or future changes to applicable tax laws, or otherwise, could negavely impact the volume and size of such payment processing transacons and thereby adversely aﬀect our operang results and ﬁnancial condion. Our failure to obtain licenses for, or our use of, third-party technologies could harm our business. We expect to connue licensing technologies from third pares, including applicaons used in our research and development acvies, technologies that are integrated into our soluons and soluons that we resell. We believe that the loss of any third-party technologies currently integrated into our soluons could have a material adverse eﬀect on our business. Our inability in the future to obtain any third-party licenses on commercially reasonable terms, or at all, could delay future soluon development unl equivalent technology can be idenﬁed, licensed or developed and integrated. This inability in turn could harm our business and operang results. Our use of third-party technologies also exposes us to increased risks including, but not limited to, risks associated with the integraon of new technology into our soluons, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology suﬃcient to oﬀset associated acquision and maintenance costs. Operaonal Risks Breaches of our soware, our failure to securely collect, store and transmit customer informaon, or our failure to safeguard conﬁdenal donor data, including, for example, the Security Incident described below, exposes us to liability, ligaon, government invesgaons, penales and remedial costs and our reputaon and business could suﬀer. Fundamental to the use of our soluons is the secure collecon, storage and transmission of conﬁdenal donor, customer and end user data, personally idenﬁable informaon and transacon data, including in our payment services. Despite the 2023 Form 10-K 19 Table of Contents Blackbaud, Inc. network, applicaon and physical security procedures and internal control measures we employ to safeguard our systems, we have been, and in the future may be, vulnerable to a security breach, intrusion, loss or the of conﬁdenal donor data and transacon data, which has in the past harmed and may in the future harm our business, reputaon and future ﬁnancial results. Furthermore, our reliance on remote access to informaon systems increases our exposure to potenal cybersecurity incidents. Like virtually all major businesses, we are, from me to me, a target of cyberaacks, such as the Security Incident (as described below and in Note 11 to our consolidated ﬁnancial statements in this report), informaon systems interrupons, phishing, social engineering schemes and other systems disrupons. We expect these threats to connue, some of which have been, and in the future may be, successful to varying degrees. Because the numerous and evolving cybersecurity threats used to obtain unauthorized access, disable, degrade or sabotage systems have become increasingly more complex and sophiscated, it may be diﬃcult to ancipate these acts or to detect them for periods of me, as with the Security Incident, and we may be unable to respond adequately or mely. As these threats connue to evolve and increase, we have already devoted and expect to connue to devote signiﬁcant resources in order to modify and enhance our security controls and to idenfy and remediate any security vulnerabilies. A compromise of our data security, such as the Security Incident, that results in customer or customer constuent personal or payment card data being obtained by unauthorized persons could adversely aﬀect our reputaon with our customers and others, as well as our operaons, results of operaons, ﬁnancial condion and liquidity and has resulted in, and could in the future result in, ligaon against us, government invesgaons or the imposion of ﬁnes and penales. (See Note 11 to our consolidated ﬁnancial statements in this report for informaon regarding ligaon, government invesgaons, ﬁnes and penales related to the Security Incident.) We have been, and in the future might be, required to expend signiﬁcant addional capital and other resources to recfy problems caused by a security breach, including noﬁcaon under data privacy laws and regulaons, and incur expenses related to remediang our informaon security systems. Even though we may carry cyber-technology insurance policies that provide insurance coverage under certain circumstances, we have in the past suﬀered losses and may in the future suﬀer losses as a result of a security breach that exceed the coverage available under our insurance policies or for which we do not have coverage. (See Note 11 to our consolidated ﬁnancial statements in this report for expense and insurance coverage informaon related to the Security Incident.) Furthermore, in the future such insurance may not be available on commercially reasonable terms, or at all. A security breach and any eﬀorts we make to address such breach could also result in a disrupon of our operaons, parcularly our online sales operaons. The occurrence of actual cyber security events, such as the Security Incident, could magnify the severity of the adverse eﬀects of future incidents on our business. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage informaon systems can be diﬃcult to detect for long periods of me and can involve diﬃcult or prolonged assessment or remediaon periods even once detected. We, therefore, cannot assure you that all potenal causes of past signiﬁcant incidents, including the Security Incident, have been fully idenﬁed and remediated. The steps we take may not be suﬃcient to prevent future signiﬁcant incidents and, as a result, such incidents may occur again. The Security Incident has had, and may connue to have, numerous adverse eﬀects on our business, results of operaons, ﬁnancial condion and cash ﬂows. As previously disclosed, on July 16, 2020, we contacted certain customers to inform them about the Security Incident, including that in May 2020 we discovered and stopped a ransomware aack. Prior to our successfully prevenng the cybercriminal from blocking our system access and fully encrypng ﬁles, and ulmately expelling them from our system with no signiﬁcant disrupon to our operaons, the cybercriminal removed a copy of a subset of data from our self-hosted environment that aﬀected over 13,000 customers. Based on the nature of the incident, our research and third party (including law enforcement) invesgaon we believe that no data went beyond the cybercriminal, was or will be misused, or will be disseminated or otherwise made available publicly. However, our invesgaon into the Security Incident remains ongoing and may provide addional informaon. To date, we have received approximately 260 speciﬁc requests for reimbursement of expenses, approximately 214 (or 82%) of which have been fully resolved and closed and approximately 39 (or 15%) are inacve and are considered by us to have been abandoned by the customers. We have also received approximately 400 reservaons of the right to seek expense recovery in the future from customers or their aorneys in the U.S., U.K. and Canada related to the Security Incident, none of which resulted in claims submied to us and are considered by us to have been abandoned by the customers. We have also received noces of proposed claims on behalf of a number of U.K. data subjects, which we are reviewing. In addion, insurance 20 2023 Form 10-K Table of Contents Blackbaud, Inc. companies represenng various customers’ interests through subrogaon claims have contacted us, and certain insurance companies have ﬁled subrogaon claims in court, of which 3 cases remain acve and unresolved. Customer and insurer subrogaon claims generally seek reimbursement of their costs and expenses associated with nofying their own customers of the Security Incident and taking steps to assure that personal informaon has not been compromised as a result of the Security Incident. In addion, presently, we are a defendant in putave consumer class acon cases in U.S. federal courts (most of which have been consolidated under mul district ligaon to a single federal court) and in Canadian courts alleging harm from the Security Incident. The plainﬀs in these cases, who generally purport to represent various classes of individual constuents of our customers, generally claim to have been harmed by alleged acons and/or omissions by us in connecon with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injuncve relief, costs and aorneys’ fees, and other related relief. We have received a Civil Invesgave Demand from the oﬃce of the California Aorney General relang to the Security Incident. In addion, we are subject to pending governmental acons or invesgaons by the U.S. Federal Trade Commission, the U.S. Department of Health and Human Services, the Oﬃce of the Australian Informaon Commissioner and the Oﬃce of the Privacy Commissioner of Canada. (See Note 11 to our consolidated ﬁnancial statements included in this report for a more detailed descripon of the Security Incident and related maers.) On March 9, 2023, the Company reached a selement with the SEC in connecon with the Security Incident. This selement fully resolves the previously disclosed SEC invesgaon of the Security Incident and is further described in the SEC Order. Under the terms of the SEC Order, the Company agreed to cease- and-desist from comming or causing any violaons or any future violaons of Secons 17(a)(2) and (3) of the Securies Act and Secon 13(a) of the Exchange Act, and Rules 12b-20, 13a-13 and 13a-15(a) thereunder. As part of the SEC Order, the Company also agreed to pay, and has paid, a civil penalty in the amount of $3.0 million. On October 5, 2023, the Company reached a selement with each of 49 state Aorneys General and the District of Columbia in connecon with the Security Incident. This selement fully resolves the previously disclosed mul-state Civil Invesgave Demand and the separate Civil Invesgave Demand from the Oﬃce of the Indiana Aorney General relang to the Security Incident, which is further described in the substanally similar Administrave Orders ﬁled in each of the 49 states and the District of Columbia. Under the terms of the Administrave Orders, we have agreed: (i) to comply with state consumer protecon laws, data breach noﬁcaon laws, and HIPAA; (ii) not to make misleading misrepresentaons to our customers or the individuals whose data is stored by us concerning (a) the extent to which we protect the privacy, security, conﬁdenality, or integrity of certain data, (b) the likelihood that data impacted by a security incident may be subject to unauthorized access, disclosure, or other misuse, or (c) the data breach noﬁcaon requirements; and (iii) to implement and improve certain cybersecurity programs and tools. As part of the Administrave Orders, we also agreed to pay, and have paid, a total of $49.5 million to the 49 states and District of Columbia. We paid the full selement amount to each state and the District of Columbia during the fourth quarter of 2023 from our exisng liquidity. This amount was fully accrued as a conngent liability in our ﬁnancial statements as of June 30, 2023. We entered into the Administrave Orders without adming fault of liability in connecon with the maers subject to the Mulstate Invesgaon. The form of Administrave Order was furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K ﬁled with the SEC on October 5, 2023. As previously disclosed, on February 1, 2024, the FTC announced its approval of an Agreement Containing Consent Order (the “Proposed Order”) evidencing its selement with the Company in connecon with the Security Incident. Pursuant to its rules, the FTC placed the Proposed Order and related dra complaint on the public record for a period of 30 days for the receipt of public comments aer which the FTC will consider any comments received from interested persons prior to determining whether and in what form to ﬁnalize the Proposed Order. The 30-day comment period is scheduled to expire on March 14, 2024. As part of the FTC’s proposed order, the Company has not been ﬁned and is not otherwise required to make any payment. Furthermore, the Company has agreed to the FTC’s proposed order without adming or denying any of the FTC’s allegaons, except as expressly stated otherwise in the Proposed Order. If ﬁnalized, the selement described in the Proposed Order will fully resolve the FTC invesgaon. Although we believe the Proposed Order will be ﬁnalized in substanally its current form, there can be no assurances as to whether that will occur or its ming. Under the terms of the Proposed Order, we have agreed (i) to not misrepresent (a) the extent to which we maintain, use, delete or disclose certain customer informaon, (b) the extent to which we protect the privacy, security, availability, conﬁdenality or integrity of such informaon or (c) the extent of any security incident or unauthorized disclosure, misuse, loss, the, alteraon, destrucon or other compromise of such informaon, and (ii) to delete certain data, adopt and make public certain record retenon limits, establish, implement and maintain a speciﬁed informaon security program, obtain regular independent assessments of the mandated informaon security program, provide to the FTC speciﬁed cerﬁcaons regarding our compliance with the Proposed Order, provide to the FTC reports of any future security incidents and create and maintain speciﬁed recordkeeping. The form of Proposed Order was furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K ﬁled with the SEC on February 2, 2024. 2023 Form 10-K 21 Table of Contents Blackbaud, Inc. As noted above, the terms of the FTC Proposed Order, the Aorneys General Administrave Orders and our selement with the SEC require that we implement and maintain certain processes and programs and comply with certain legal requirements related to cybersecurity and data protecon. Any future regulatory invesgaon or ligaon selements may also contain such requirements. Eﬀecvely implemenng, monitoring and updang these requirements is expected to be expensive and me-consuming over an extended period. Our failure to do so in accordance with the terms of our agreements with FTC, the Aorneys General and with the SEC, and possibly others, could expose us to addional material liability under the terms of the Administrave Orders, the SEC selement, or otherwise. We may be named as a party in addional lawsuits, other claims may be asserted by or on behalf of our customers or their constuents, and we may be subject to addional governmental inquires, requests or invesgaons. Responding to and resolving these current and any future lawsuits, claims and/or invesgaons could result in material remedial and other expenses that will not be covered by insurance. It is reasonably possible that our esmated or actual losses may change in the near term for those maers and be materially more than the amounts accrued. Certain governmental authories are seeking to impose undertakings, injuncve relief, consent decrees, or other civil or criminal penales, which could, among other things, materially increase our data security costs or otherwise require us to alter how we operate our business. Although we intend to defend ourselves vigorously against the claims asserted against us, we cannot predict the potenal outcomes, cost and expenses associated with current and any future claims, lawsuits, inquiries and invesgaons. In addion, any legislave or regulatory changes adopted in reacon to the Security Incident or other companies’ data breaches could require us to make modiﬁcaons to the operaon of our business that could have an adverse eﬀect and/or increase or accelerate our compliance costs. Signiﬁcant management me and Company resources have been, and are expected to connue to be, devoted to the Security Incident. For example, for full year 2023, we incurred net pre-tax expenses of $53.4 million related to the Security Incident, which included $22.4 million for ongoing legal fees and $31.0 million for selements and recorded liabilies for loss conngencies. During 2023, we had net cash outlays of $78.0 million related to the Security Incident, which included ongoing legal fees, the $3.0 million civil penalty paid during the ﬁrst quarter of 2023 related to the SEC selement and the $49.5 million civil penalty paid during the fourth quarter of 2023 related to the Mulstate Invesgaon (as discussed in Note 11). Although we carry insurance against certain losses related to the Security Incident, we exceeded the limit of that insurance coverage in the ﬁrst quarter of 2022. As a result, we will be responsible for all expenses or other losses (including penales, ﬁnes or other judgments) or all types of claims that may arise in connecon with the Security Incident, which could materially and adversely aﬀect our liquidity and results of operaons. (See Note 11 to our consolidated ﬁnancial statements included in this report.) If any such ﬁnes or penales were great enough that we could not pay them through funds generated from operang acvies and/or cause a default under the 2020 Credit Facility, we may be forced to renegoate or obtain a waiver under the 2020 Credit Facility and/or seek addional debt or equity ﬁnancing. Such renegoaon or ﬁnancing may not be available on acceptable terms, or at all. In these circumstances, if we were unable to obtain suﬃcient ﬁnancing, we may not be able to meet our obligaons as they come due. In addion, publicity or developments related to the Security Incident could in the future have a range of other adverse eﬀects on our business or prospects, including causing or contribung to loss of customer conﬁdence, reduced customer demand, reduced customer retenon, strategic growth opportunies, and associated retenon and recruing diﬃcules, some or all of which could be material. Climate change and other natural disasters, new regulaons and standards and climate-related goals have impacted, and may in the future impact, our operaons and ﬁnancial performance. The long-term eﬀects of climate change on the global economy and our industry may impact our business operaons and those of our suppliers, customers and partners. Climate change increases the severity and frequency of extreme weather events such as hurricanes, wildﬁres, ﬂoods, heat waves, or power shortages, all of which could lead to business disrupons. The locaons of our principal execuve oﬃces and our data centers are vulnerable to the eﬀects of climate events and other natural disasters, including hurricanes, heat waves and earthquakes, which we have experienced in the past. In addion, the eﬀects of climate change are harder to migate for our remote-ﬁrst workforce, which exposes the Company to business disrupon. Even though we carry business interrupon insurance policies and typically have provisions in our commercial contracts that protect us in certain events, we might suﬀer losses as a result of business interrupons that exceed the coverage available under our insurance policies or for which we do not have coverage. Any natural disaster or catastrophic event aﬀecng us could have a signiﬁcant negave impact on our operaons. 22 2023 Form 10-K Table of Contents Blackbaud, Inc. Expected new regulaons and standards relang to public disclosure, including those related to climate change, could adversely impose signiﬁcant costs on us to comply with such regulaons. Finally, a failure to meet our climate-related goals, such as our commitment and progress towards reducon of greenhouse gas emissions, could damage our reputaon, aﬀect our ﬁnancial performance and impact our ability to aract and retain talent. Defects, delays or interrupons in our cloud soluons and hosng services could diminish demand for these services and subject us to substanal liability. We currently ulize data center hosng facilies to provide cloud soluons to a signiﬁcant number of our subscripon customers and hosng services to our on-premise license customers. Any damage to, or failure of, these data center systems generally could result in interrupons in service to our customers, notwithstanding any business connuity or disaster recovery agreements that may currently be in place at these facilies. As noted above, our execuve oﬃces and some of our data centers are located in areas that are vulnerable to the eﬀects of climate change and could be subject to increased interrupons as a result of the severity and increased frequency of extreme weather events such as hurricanes, wildﬁres, ﬂoods, heat waves, or power shortages. Because our cloud soluons and hosng service oﬀerings are complex and we have incorporated a variety of new computer hardware and soware systems at our data centers, our services might have errors or defects that users idenfy aer they begin using our services. This could result in unancipated downme for our customers and harm to our reputaon and business results. Internet-based services somemes contain undetected errors when ﬁrst introduced or when new versions or enhancements are released. We have from me to me found defects in our web-based services and new errors might again be detected in the future. In addion, our customers might use our Internet-based oﬀerings in unancipated ways that cause a disrupon in service for other customers aempng to access their data. Because our customers use these services for important aspects of their businesses, any defects, delays or disrupons in service or other performance problems with our services could hurt our reputaon and damage our customers' businesses. If that occurs, customers could elect to cancel their service, delay or withhold payment to us, not purchase from us in the future or make claims against us, which could result in an increase in our provision for credit losses, an increase in collecon cycles for accounts receivable or the expense and risk of ligaon. Any of these could harm our business and reputaon. Material defects or errors in the soware we use to deliver our services could harm our reputaon, result in signiﬁcant costs to us and impair our ability to sell our services. The soware applicaons underlying our services are inherently complex and may contain material defects or errors, parcularly when ﬁrst introduced or when new versions or enhancements are released. We have from me to me found defects in our soware, and new errors in our exisng soware may be detected in the future. Aer the release of our soware, defects or errors may also be idenﬁed from me to me by our internal team and our customers. The costs incurred in correcng any material defects or errors in our soware may be substanal and could harm our operang results. Furthermore, our customers may use our soware together with soluons from other companies. As a result, when problems occur, it might be diﬃcult to idenfy the source of the problem. Even when our soware does not cause these problems, the existence of these errors might cause us to incur signiﬁcant costs, divert the aenon of our technical personnel from our soluon development eﬀorts, impact our reputaon and cause signiﬁcant customer relaons problems. If we are unable, or our customers believe we may be unable, to detect and prevent unauthorized use of payment card or other private ﬁnancial or personal informaon, or are otherwise unable to eﬀecvely manage our payment processing business, we could be subject to ﬁnancial liability, our reputaon could be harmed and customers may be reluctant to use our soluons and services. Our soluons provide our customers payment processing capabilies that enable their constuents to make donaons and purchase services using numerous payment opons, including credit card and automated clearing house (“ACH”) checking transacons, through secure online transacons. The provision of convenient, trusted, fast and eﬀecve payment processing services to our customers and potenal customers is crical to our business, and revenue from payments processing constutes a signiﬁcant percentage of our total revenue. Increases in payment processing fees, material changes in our payment processing systems, changes to rules or regulaons concerning payments or disrupons or failures in our payment processing systems or payment products, including products we use to update payment informaon, could materially adversely impact our customer retenon and results of operaon. In addion, from me to me, we encounter fraudulent 2023 Form 10-K 23 Table of Contents Blackbaud, Inc. use of payment methods that could result in substanal addional costs or delay, preclude planned transacons, product launches or improvements, require signiﬁcant and costly operaonal changes, impose restricons, limitaons, or addional requirements on our business, products and services, prevent or limit us from providing our products or services in a given market and adversely impact customer retenon. Furthermore, we connue to undertake system upgrades designed to improve the availability, reliability, resiliency and speed of our payments systems. These eﬀorts are costly and me-consuming, involve signiﬁcant technical complexity and risk, may divert our resources from new features and products and may ulmately not be eﬀecve. The rules of payment card associaons in which we parcipate require that we comply with Payment Card Industry Data Security Standard ("PCI DSS") in order to preserve security of payment card data. Under PCI DSS, we are required to adopt and implement internal controls over the use, storage and security of payment card data to help prevent card fraud. Conforming our soluons and services to PCI DSS or other payment services related regulaons or requirements imposed by payment networks or our customers or payment processing partners is expensive and me-consuming. However, failure to comply may subject us to ﬁnes, penales, damages and civil liability, may impair the security of payment card data in our possession, and may harm our reputaon and our business prospects, including by liming our ability to process transacons. All Blackbaud products in scope for PCI DSS compliance meet applicable PCI DSS security requirements. In addion, we rounely subject our various data protecon processes and controls to voluntary third-party review, audit or reporng, including, for example, the American Instute of Cerﬁed Public Accountants’ System and Organizaon Controls reporng. Failure to conduct these voluntary data protecon process and control reviews or to obtain and maintain audits or reports covering our data protecon processes and controls may harm our reputaon or our business prospects and our ability to market our soluons to our customers. Financial Risks Because a signiﬁcant poron of our revenue is recognized over me on a ratable basis over the contract term, downturns in sales may not be immediately reﬂected in our revenue. We generally recognize our subscripon and maintenance revenue ratably over me over the contract term. Our subscripon arrangements are generally for a term of three years at contract incepon with three-year renewals thereaer. Our maintenance arrangement renewals are generally for a term of three years. As a result, much of the revenue we report in each quarter is aributable to arrangements entered into during previous quarters. Consequently, a decline in sales to new customers, renewals by exisng customers or market acceptance of our soluons in any one quarter will not necessarily be fully reﬂected in the revenues in that quarter and could negavely aﬀect our revenues and proﬁtability in future quarters. We signiﬁcantly increased our leverage in connecon with acquision of EVERFI and may increase our leverage in the future in connecon with addional acquisions, Security Incident costs or other business purposes, which could adversely impact our business and ﬁnancial performance. We incurred a substanal amount of indebtedness in connecon with acquisions, including our acquision of EVERFI, Inc. (as described in Note 3 to our consolidated ﬁnancial statements included in this report). As a result of this indebtedness, our interest payment obligaons have increased. In addion, we have been named as a party in various lawsuits in connecon with the Security Incident, claims have been asserted by or on behalf of our customers or their constuents, and we are subject to various governmental inquires, requests or invesgaons. Responding to and resolving these current and any future lawsuits, claims and/or invesgaons could result in material remedial and other expenses. Although we intend to defend ourselves vigorously against the claims asserted against us, we cannot predict the potenal outcomes, cost and expenses associated with current and any future claims, lawsuits, inquiries and invesgaons, which could require that we incur addional indebtedness to fund. (See Note 11 to our consolidated ﬁnancial statements in this report for addional informaon regarding the Security Incident.) The degree to which we are leveraged could have adverse eﬀects on our business, including the following: • • • Requiring us to dedicate a substanal poron of our cash ﬂow from operaons to payments on our indebtedness, thereby reducing the availability of our cash ﬂow to fund working capital, capital expenditures, acquisions, dividends, stock repurchases and other general corporate purposes; Increasing the amount of interest we pay, parcularly if interest rates increase; Liming our ﬂexibility in planning for, or reacng to, changes in our business and the industries in which we operate; 24 2023 Form 10-K Table of Contents Blackbaud, Inc. • • • • Restricng us from making addional strategic acquisions or exploing business opportunies; Placing us at a compeve disadvantage compared to our competors that have less debt; Reducing our currently available borrowing capacity or liming our ability to borrow addional funds; and Decreasing our ability to compete eﬀecvely or operate successfully under adverse economic and industry condions. If we incur addional debt, these risks may intensify. Our ability to meet our debt service obligaons will depend upon our future performance, which will be subject to the ﬁnancial, business and other factors aﬀecng our operaons, many of which are beyond our control. In addion, addional leverage could impact our ability to meet certain ﬁnancial and other covenants contained in our 2020 Credit Facility. (See Note 9 to our consolidated ﬁnancial statements included in this report for a more detailed descripon of our 2020 Credit Facility.) There can be no assurance that we will be able to remain in compliance with the covenants to which we are now subject or may be subject in the future and, if we fail to do so, that we will be able to obtain waivers from our lenders or amend the covenants. In the event of a default under our 2020 Credit Facility, we could be required to immediately repay all outstanding borrowings, which we might not be able to do and which would materially negavely aﬀect our business, operaons and ﬁnancial condion. Our balance sheet includes signiﬁcant amounts of goodwill and intangible assets. The impairment of a signiﬁcant poron of these assets could negavely aﬀect our operang results. As of December 31, 2023, we had $1.1 billion and $581.9 million of goodwill and intangible assets, respecvely. On at least an annual basis, we assess whether there have been impairments in the carrying value of goodwill and intangible assets. If the carrying value of an asset is determined to be impaired, then it is wrien down to fair value by a non-cash charge to operang earnings. Changes in circumstances that could indicate that the carrying value of goodwill or intangible assets may not be recoverable include declines in our stock price, market capitalizaon, cash ﬂows and slower growth rates in our industry. We cannot accurately predict the likelihood or potenal amount and ming of any impairment of goodwill or other intangible assets. An impairment of a signiﬁcant poron of goodwill or intangible assets could materially and negavely aﬀect our results of operaons and ﬁnancial condion. Restricons in our credit facility limit certain of our acvies, including dividend payments, stock repurchases and acquisions. Our credit facility contains restricons, including covenants liming our ability to incur addional debt, grant liens, make acquisions and other investments, prepay speciﬁed debt, consolidate, merge or acquire other businesses, sell assets, pay dividends and other distribuons, repurchase stock and enter into transacons with aﬃliates. There can be no assurance that we will be able to remain in compliance with the covenants to which we are subject in the future and, if we fail to do so, that we will be able to obtain waivers from our lenders or amend the covenants. In the event of a default under our credit facility, we could be required to immediately repay all outstanding borrowings, which we might not be able to do. In addion, certain of our material domesc subsidiaries are required to guarantee amounts borrowed under the credit facility, and we have pledged the shares of certain of our subsidiaries as collateral for our obligaons under the credit facility. Any such default could have a material adverse eﬀect on our ability to operate, including allowing lenders under the credit facility to enforce guarantees of our subsidiaries, if any, or exercise their rights with respect to the shares pledged as collateral. We cannot guarantee that our stock repurchase program will be fully consummated or that it will enhance long-term stockholder value. Stock repurchases could also increase the volality of the trading price of our stock and will diminish our cash reserves. Although our board of directors has authorized a stock repurchase program that does not have an expiraon date, the program does not obligate us to repurchase any speciﬁc dollar amount or to acquire any speciﬁc number of shares of our common stock. We have, from me to me, repurchased stock under this program and re-iniated repurchases under the program in the fourth quarter of 2023 aer a two-year hiatus. We cannot guarantee that the program will be fully consummated or that it will enhance long-term stockholder value. The program could aﬀect the trading price of our stock and increase volality, and any announcement of a terminaon of this program may result in a decrease in the trading price of our 2023 Form 10-K 25 Table of Contents Blackbaud, Inc. stock. In addion, implementaon of some or all of this program diminishes our cash reserves, which may impact our ability to ﬁnance future growth, to pursue possible future strategic opportunies and acquisions and fund liabilies and expenses related to the Security Incident. (See Note 14 to our consolidated ﬁnancial statements in this report for addional informaon related to our stock repurchase program.) We have recorded signiﬁcant deferred tax assets, and we might never realize their full value, which would result in a charge against our earnings. As of December 31, 2023, we had deferred tax assets of $143.3 million. Realizaon of our deferred tax assets is dependent upon our generang suﬃcient taxable income in future years to realize the tax beneﬁt from those assets. Deferred tax assets are reviewed at least annually for realizability. A charge against our earnings would result if, based on the available evidence, it is more likely than not that some poron of the deferred tax asset will not be realized beyond our exisng valuaon allowance. This could be caused by, among other things, deterioraon in performance, adverse market condions, adverse changes in applicable laws or regulaons, including changes that restrict the acvies of or aﬀect the soluons sold by our business and a variety of other factors. If a deferred tax asset net of our valuaon allowance was determined to be not realizable in a future period, the charge to earnings would be recognized as an expense in our results of operaons in the period the determinaon is made. Addionally, if we are unable to ulize our deferred tax assets, our cash ﬂow available to fund operaons could be adversely aﬀected. Depending on future circumstances, it is possible that we might never realize the full value of our deferred tax assets. Any future impairment charges related to a signiﬁcant poron of our deferred tax assets would have an adverse eﬀect on our ﬁnancial condion and results of operaons. Legal and Compliance Risks Privacy and data protecon concerns, including evolving domesc and internaonal government regulaon in the area of consumer data privacy or data protecon, could adversely aﬀect our business and operang results. The eﬀecveness of our soware soluons relies on our customers' storage and use of data concerning their customers, including ﬁnancial, personally idenfying or other sensive data. Our customers' collecon and use of this data for donor proﬁling, data analycs or communicaons outreach might raise privacy and data protecon concerns and negavely impact the demand for our soluons and services. For example, our custom modeling and analycal services rely heavily on processing and using of data we gather from customers and various sources. Privacy and data protecon laws could add restricons or regulatory burdens, which could limit our ability to market and proﬁt from those services. Governments in some jurisdicons have enacted or are considering enacng consumer data privacy or data protecon legislaon, including laws and regulaons applying to the solicitaon, collecon, transfer, processing and use of personal data. This legislaon could reduce the demand for our soware soluons if we fail to design or enhance our soluons to enable our customers to comply with the privacy and data protecon measures required by the legislaon. Moreover, we may be exposed to liability under exisng or new consumer privacy or data protecon legislaon. For example, when providing our soluons to certain customers in the healthcare industry, we must comply with applicable provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and might be subject to similar provisions of other legislaon, including, without limitaon, the Gramm-Leach-Bliley Act and related regulaons, and the California Consumer Privacy Act of 2018, which became eﬀecve January 1, 2020, and may apply to some of our customers and areas of business. Even technical violaons of these laws may result in penales that are assessed for each non-compliant transacon. We, and some of our customers, are subject to the E.U. General Data Protecon Regulaon (“GDPR”) and U.K. data protecon law, known as the "U.K. GDPR." The law requires companies to meet requirements regarding the handling of personal data, including rights such as the portability of personal data. All soluons we sell to customers subject to GDPR must include GDPR features. The implementaon of GDPR has aﬀected our ability to oﬀer some features and services to customers in the E.U. and U.K. Furthermore, acons and invesgaons by regulatory authories related to data security incidents and privacy violaons connue to increase, which have impacted us, and could in the future further impact us, through increased costs or restricons on our business, and noncompliance could result in signiﬁcant regulatory penales and legal liability. If our customers or we were found to be subject to and in violaon of any privacy or data protecon laws or regulaons, our business may be materially and adversely impacted and we and/or our customers would likely have to change our business pracces. In addion, these laws and regulaons could impose signiﬁcant costs on our customers and us and make it more 26 2023 Form 10-K Table of Contents Blackbaud, Inc. diﬃcult for donors to make online donaons. (See Note 11 to our consolidated ﬁnancial statements included in this report for a descripon of the Security Incident and related legal proceedings and regulatory maers.) We are in the informaon technology business, and our soluons and services store, retrieve, transfer, manipulate and manage our customers’ informaon and data. The eﬀecveness of our soware soluons relies on our customers’ storage and use of data concerning their donors, including ﬁnancial, personally idenfying and other sensive data and our business uses similar systems that require us to store and use data with respect to our customers and personnel. Our collecon and our customers’ collecon and use of this data might raise privacy and data protecon concerns and negavely impact our business or the demand for our soluons and services. If a breach of data security, such as the Security Incident, were to occur, or other violaon of privacy or data protecon laws and regulaons were to be alleged, our business may be materially and adversely impacted and soluons may be perceived as less desirable, which would negavely aﬀect our business and operang results. Claims that we or our technologies infringe upon the intellectual property or other proprietary rights of a third party may require us to incur signiﬁcant costs, enter into royalty or licensing agreements or develop or license substute technology. We have been, and may in the future be, subject to claims that the technologies in our soluons and services infringe upon the intellectual property or other proprietary rights of a third party. In addion, the vendors providing us with technology that we use in our own soluons could become subject to similar infringement claims. Although we believe that our soluons and services do not infringe any intellectual property or other proprietary rights, we cannot be certain that our soluons and services do not, or that they will not in the future, infringe intellectual property or other proprietary rights held by others. Any claims of infringement could cause us to incur substanal costs to defend against the claim, even if the claim is without merit, and could distract our management from our business. Moreover, any selement or adverse judgment resulng from the claim could require us to pay substanal amounts, or obtain a license to connue to use the technology and services that are the subject of the claim, and/or otherwise restrict or prohibit our use of the same. There can be no assurance that we would be able to obtain a license on commercially reasonable terms from the third party asserng any parcular claim, or that we would be able to successfully develop alternave technology on a mely basis, or that we would be able to obtain a license from another provider of suitable alternave technology to permit us to connue oﬀering, and our customers to connue using, the soluons and services. In addion, we generally provide in our customer arrangements for certain soluons and services that we will indemnify our customers against third-party infringement claims relang to technology we provide to those customers, which could obligate us to pay damages if the soluons and services were found to be infringing. Infringement claims asserted against us, our vendors or our customers may have a material adverse eﬀect on our business, prospects, ﬁnancial condion and results of operaons. Our soluons ulize open source soware, which may subject us to ligaon, require us to re-engineer our soluons, or otherwise divert resources away from our development eﬀorts. We use open source soware in connecon with certain of our soluons. Such open source soware is generally licensed by its authors or other third pares under open source licenses, including, for example, the GNU General Public License, the GNU Lesser General Public License, “Apache-style” licenses, “BSD- style” licenses and other open source licenses. There is lile legal precedent governing the interpretaon of many of the terms of some of these licenses and, therefore, the potenal impact of these terms on our business is currently unable to be determined and may result in unancipated obligaons regarding our soluons and technologies. From me to me, companies that incorporate open source soware into their products have faced claims challenging the ownership of open source soware and/or compliance with open source license terms. Therefore, we could be subject to ligaon by pares claiming ownership of open source soware or noncompliance with open source licensing terms. Some open source soware licenses require users who distribute open source soware as part of their own soware to publicly disclose all or part of the source code to such soware and/or make available any derivave works of the open source code on unfavorable terms or at no cost. While we monitor our use of open source soware and try to ensure that none is used in a manner that would require us to disclose the source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release proprietary source code, pay damages for breach of contract, re-engineer our applicaons, disconnue sales in the event re-engineering cannot be accomplished on a mely basis, or take other remedial acon that may divert resources away from our development eﬀorts, any of which could adversely aﬀect our business. 2023 Form 10-K 27 Table of Contents Blackbaud, Inc. We rely upon trademark, copyright, patent and trade secret laws to protect our proprietary rights, which might not provide us with adequate protecon. Our success and ability to compete depends to a signiﬁcant degree upon the protecon of our proprietary technology rights. We might not be successful in protecng our proprietary technology and our proprietary rights might not provide us with a meaningful compeve advantage. To protect our core proprietary technology, we rely on a combinaon of patent, trademark, copyright and trade secret laws, as well as nondisclosure agreements, each of which aﬀords only limited protecon. Changing domesc and internaonal laws, government regulaons and policies, laws liming or restricng our ability to pass card charges on to customers and other similar laws and regulaons, could adversely aﬀect our business and operang results by increasing compliance costs, reducing customer demand for our soluons or damaging our reputaon. Certain of our soluons, in parcular our ﬁnancial management and payment services soluons, relate to acvity heavily regulated by government agencies in the U.S., the U.K. and other countries in which we operate. The laws and regulaons enforced by these agencies are proposed or enacted to deter fraud and other illicit ﬁnancial transacons and to protect consumers and the ﬁnancial system and are oen revised or increased in scope. We have procedures and controls in place to monitor compliance with numerous federal, state and foreign laws and regulaons. However, because these laws and regulaons are complex, diﬀer between jurisdicons, and are oen subject to interpretaon, or as a result of unintended errors, we may, from me to me, inadvertently violate these laws and regulaons. Compliance with these laws and regulaons is expensive and requires the me and aenon of management. These costs divert capital and focus away from eﬀorts intended to grow our business. If we do not successfully comply with laws, regulaons, or policies, we could incur ﬁnes or penales, be subject to ligaon, lose exisng or new customer contracts or other business, and suﬀer damage to our reputaon. In addion, changes in certain laws, regulaons or policies could impact our customers, alter our business environment and limit our operaons. For example, various ﬁnancial instuons subscribe to our EVERFI training soluon, which they may then provide free of charge to schools in low-income and moderate- income communies as a means of sasfying their obligaons under the Community Reinvestment Act of 1977, as amended (the “CRA”). Repeal or signiﬁcant modiﬁcaon of the CRA or the many government agency regulaons and policies implemenng its provisions could cause ﬁnancial instuons to limit or eliminate their purchases of these EVERFI soluons and thereby negavely impact our operang results and ﬁnancial condion. Provisions in our organizaonal documents, our Stockholder Rights Agreement (as described below, the "Rights Agreement"), certain oﬃcer compensaon arrangements and Delaware law may delay or prevent an acquision or change of control of our Company that could be deemed beneﬁcial to our stockholders. Certain provisions in our organizaonal documents, the Rights Agreement, compensaon arrangements with our oﬃcers and Delaware law (as summarized below) may have the eﬀect of delaying, deferring, discouraging or prevenng an acquision or change in control of the Company or a change in our management. This includes tender oﬀers for our common stock, proxy contests or other takeover aempts. These an-takeover eﬀects may discourage transacons that might result in the payment of a premium over the market price for shares of our common stock. Even in the absence of a takeover aempt, the existence of these provisions may adversely aﬀect the prevailing market price of our common stock if they are viewed as discouraging takeover aempts in the future. Cerﬁcate of Incorporaon and Bylaw provisions. The Board of Directors is divided into three classes of directors, as nearly equal in number as possible, with each class serving a staggered term of three years. The classiﬁcaon of directors will have the eﬀect of making it more diﬃcult and me-consuming for stockholders to change the composion of the Board of Directors, could discourage a third-party from making a tender oﬀer or otherwise aempng to obtain control of the Company and may maintain the incumbency of the Board of Directors. Our Bylaws contain an advance noce procedure for stockholders' proposals to be brought before a meeng of stockholders, including any proposed nominaons of persons for elecon to the Board of Directors. The Bylaws may have the eﬀect of precluding the conduct of business at a meeng if the proper procedures are not followed and may discourage or deter a potenal acquirer from conducng a solicitaon of proxies to elect its own slate of directors or otherwise aempng to obtain control of the Company. 28 2023 Form 10-K Table of Contents Blackbaud, Inc. The Board of Directors has the authority to issue up to an aggregate of 20,000,000 shares of preferred stock in one or more classes or series and to determine, with respect to any such class or series, the designaons, powers, preferences and rights of such class or series, and the qualiﬁcaons, limitaons and restricons thereof, including dividend rights, dividend rates, conversion rights, vong rights, terms of redempon (including sinking fund provisions), redempon prices, liquidaon preferences, and the number of shares constung any class or series or the designaon of such class or series, without further vote or acon by the stockholders. This preferred stock, including the Series A Preferred Stock described below, could have terms that may discourage a potenal acquirer from making, without ﬁrst negoang with the Board of Directors, an acquision aempt through which such acquirer may be able to change the composion of the Board of Directors, including a tender oﬀer or other takeover aempt. The Board of Directors possesses the authority to call and hold emergency special meengs of the Board of Directors with less than forty-eight hours’ noce. This power to hold an emergency special meeng of the Board of Directors on short noce could discourage a potenal acquirer from launching a bid to acquire majority ownership of the Company, a proxy solicitaon in order to replace the current Board of Directors, or otherwise aempng to obtain control of the Company. Stockholder Rights Agreement. On October 7, 2022, the Company declared a dividend of one preferred share purchase right (a "Right") for each of the Company’s issued and outstanding shares of our common stock. The descripon and terms of these Rights are set forth in the Rights Agreement by and between the Company and American Stock Transfer & Trust Company, LLC. Each Right entles the registered holder, subject to the terms of the Rights Agreement, to purchase from us one one-thousandth of a share of the Series A Junior Parcipang Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) at a price of $313.00, subject to certain adjustments (as adjusted from me to me, the “Exercise Price”). Under the Rights Agreement, the Rights will become exercisable if an enty, person or group acquires beneﬁcial ownership of 20% or more of the outstanding common stock in a transacon not approved by the Board of Directors. In the event that the Rights become exercisable due to the ownership threshold being crossed, each Right will entle its holder (other than the person, enty or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase addional shares of our common stock having a then-current market value of twice the Exercise Price, which would likely make any takeover or change of control aempt by such enty, person or group prohibively expensive. Subject to the terms of the Rights Agreement, the Rights were scheduled to expire on October 2, 2023. On October 2, 2023, the Company amended the Rights Agreement to extend the ﬁnal expiraon date from October 2, 2023 to October 2, 2024. The Company expects to submit this amendment to the Company’s stockholders for raﬁcaon at the Company’s 2024 annual meeng of stockholders. On January 26, 2024, the Company amended the Rights Agreement to reﬂect a change in rights agent. Addional informaon regarding the Rights Agreement and it amendments, including copies thereof, is contained in the Company’s Current Reports on Form 8-K ﬁled with the SEC on October 7, 2022, October 2, 2023 and January 26, 2024. Oﬃcer Compensaon Arrangements. We have entered into an employment agreement with our Chief Execuve Oﬃcer and retenon agreements with certain of our oﬃcers, which provide that, upon the occurrence of a change in control of us and either the terminaon of their employment without cause (as deﬁned) or their resignaon for good reason (as deﬁned), such persons would be entled to certain terminaon or severance payments made by us (which may include a lump sum payment equal to deﬁned percentages of compensaon and accelerated vesng of certain equity stock awards paid in accordance with the terms and condions of the respecve agreement). Such provisions could signiﬁcantly increase the costs to a third-party acquirer and/or deter such third-party from acquiring us. Delaware an-takeover law. We are subject to Secon 203 of the Delaware General Corporaon Law, an an-takeover law. In general, Secon 203 prohibits a publicly held Delaware corporaon, such as the Company, from engaging in a “business combinaon” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless certain criteria are met. Generally, a “business combinaon” includes a merger, asset or stock sale, or other transacon resulng in a ﬁnancial beneﬁt to the interested stockholder. Generally, an “interested stockholder” is a person who, together with aﬃliates and associates, owns, or is an aﬃliate or associate of the corporaon, and within three years prior to the determinaon of interested stockholder status did own, 15% or more of a corporaon’s vong stock. Changes in our eﬀecve tax rate and addional tax liabilies and global tax developments may impact our ﬁnancial results. We are subject to income taxes in the United States and various other jurisdicons. Signiﬁcant judgment is oen required in the determinaon of our worldwide provision for income taxes. Our eﬀecve tax rate could be impacted by changes in our earnings and losses in countries with diﬀering statutory tax rates, changes in operaons, changes in non-deducble expenses, changes in excess tax beneﬁts of stock-based compensaon, changes in the valuaon of deferred tax assets and liabilies and our ability to ulize them, the applicability of withholding taxes, eﬀects from acquisions, and changes in accounng 2023 Form 10-K 29 Table of Contents Blackbaud, Inc. principles and tax laws. Any changes, ambiguity or uncertainty in taxing jurisdicons’ administrave interpretaons, decisions, policies and posions could also materially impact our income tax liabilies. We may also be subject to addional tax liabilies and penales due to changes in non-income-based taxes resulng from changes in federal, state, local or internaonal tax laws, changes in taxing jurisdicons’ administrave interpretaons, decisions, policies and posions, results of tax examinaons, selements or judicial decisions, changes in accounng principles, or changes to our business operaons, including as a result of acquisions. For example, the U.S. Inﬂaon Reducon Act of 2022 created an excise tax of 1% on the value of any stock repurchased by us aer December 31, 2022. We could be subject to this excise tax, but the amount will vary depending on various factors, including the amount and frequency of any stock repurchases and any permied reducons or excepons to the amount subject to the tax. Any resulng increase in our tax obligaon or cash taxes paid could adversely aﬀect our ﬁnancial posion and cash ﬂows. We are also subject to tax examinaons or engaged in alternave resoluons in mulple jurisdicons. While we regularly evaluate new informaon that may change our judgment resulng in recognion, derecognion or changes in measurement of a tax posion taken, there can be no assurance that the ﬁnal determinaon of any examinaons will not have an adverse eﬀect on our operang results or ﬁnancial posion. As we ulize our tax credits and net operang loss carryforwards, we may be unable to migate our tax obligaons to the same extent as in prior years, which could have a material impact to our future cash ﬂows. In addion, changes to our operang structure, including changes related to acquisions, may result in cash tax obligaons. Global tax developments applicable to mulnaonal businesses may have a material impact to our business, cash ﬂow from operang acvies, or ﬁnancial results. Such developments, for example, may include certain United States’ proposals as well as the Organizaon for Economic Co-operaon and Development’s, the European Commission’s and certain major jurisdicons’ heightened interest in and taxaon of companies parcipang in the digital economy. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 1C. CYBERSECURITY Risk Management and Strategy Because technology, data and informaon security is a top priority at Blackbaud, we maintain and connuously assess and strengthen our cybersecurity program. Comprehensive cybersecurity risk management, including idenﬁcaon, analysis and response to risks aﬀecng our business and its customers, provides the foundaon for our program. We ulize a four-prong strategy for assessing, idenfying and managing material risks from cybersecurity threats: 1. Operaonal security: We leverage the industry standard CIA Triad Model in conjuncon with comprehensive industry control frameworks, compliance regulaons, privacy requirements and best pracces, including: the Naonal Instute of Standards and Technology ("NIST") Cybersecurity Framework, PCI DSS, System and Organizaon Controls ("SOC") 1, SOC 2, GDPR, HIPAA, the Trans-Atlanc Data Privacy Framework and Cloud Security Alliance. 2. Product security: Our development teams take part in regular training and use industry best pracces to build security into our soluons. 3. Incident response: We monitor the threat landscape 24/7 in coordinaon with a third-party ﬁrm, rounely test our incident response capabilies and preparedness and maintain proacve relaonships with law enforcement. 4. Ongoing landscape analysis: We connually evaluate upcoming and changing data privacy regulaons and provide thought leadership for our customers on the operaonal impacts of these regulaons and compliance requirements. We believe that informaon and technology security is a shared responsibility and, therefore, incorporate data and privacy protecon educaon into the customer experience through ongoing resources such as best pracces content, one-on-one consultaons with customer success managers and bbcon® sessions. We also parcipate in global communies and 30 2023 Form 10-K Table of Contents Blackbaud, Inc. conference plaorms to share informaon and present on best pracces to improve the industry’s security awareness posture. In addion, Blackbaud employees are all engaged in on-going security and privacy awareness training campaigns to ensure they are empowered to protect both Blackbaud’s and our customers’ data. Blackbaud also maintains a deﬁned program and dedicated team that provides security oversight of its third-party service providers. This program assesses and manages risk at the onboarding phase of engagement with third-party vendors and partners as well as oversight throughout the lifecycle of the vendor relaonship. We regularly engage outside consultants and experts to assist us regarding our cybersecurity program. Engagements include an annual NIST Cybersecurity Framework assessment to ensure a reasonable cybersecurity program and retained leading external cybersecurity Incident Response (IR) experts. Consistent with our priorizaon of informaon and technology protecon, cybersecurity risk management has been and remains a key aspect of our overall business strategy, ﬁnancial planning and capital allocaon and a point of ongoing emphasis at all levels of our Company. In addion, we connuously learn from and leverage experience gained from previous cybersecurity incidents that we, like many other companies, have experienced. As previously disclosed, we have been and remain subject to risks and uncertaines as a result of a ransomware aack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment. As a result of the Security Incident, we are currently subject to certain legal proceedings, claims and invesgaons and could be the subject of addional legal proceedings, claims, inquiries and invesgaons in the future that might result in adverse judgments, selements, ﬁnes, penales or other resoluon. See Note 11 to the consolidated audited ﬁnancial statements contained in this Annual Report on Form 10-K for addional informaon regarding the Security Incident and its past and potenal impact on the Company. Notwithstanding our strong commitment to cybersecurity, we may not be successful in prevenng or migang a cybersecurity incident that could have a material adverse eﬀect on us. See Item 1A. "Risk Factors" for a discussion of our cybersecurity risks. Governance Our mul-level cybersecurity governance and risk management structure begins with our Operaonal Risk Compliance and Security (“ORCAS”) Commiee consisng of cross-funconal management representaves throughout our Company. The ORCAS Commiee receives detailed cybersecurity informaon from key security personnel and reports at least quarterly up through our Risk Steering Commiee, which is made up of execuves and senior management from various Blackbaud departments: Chief Execuve Oﬃcer, Chief Operang Oﬃcer, Chief Financial Oﬃcer, Chief Technology Oﬃcer, General Counsel, Chief Privacy Oﬃcer and Chief Informaon Security Oﬃcer ("CISO"), who has extensive informaon technology and program management experience. Our CISO has served in various roles of increasing responsibility in informaon technology and informaon security for more than 25 years, including serving in various cybersecurity leadership roles within public and private companies. He holds two undergraduate degrees—one in business administraon and the other in computer informaon systems, a graduate degree in informaon systems and maintains two cybersecurity industry recognized cerﬁcaons: Cerﬁed Informaon Systems Security Professional (CISSP) and Cerﬁed Cloud Security Professional (CCSP), both from the Internaonal Informaon System Security Cerﬁcaon Consorum. Cybersecurity leaders reporng to our CISO also have signiﬁcant informaon technology and informaon security experience and industry recognized cerﬁcaons. The Risk Steering Commiee reports to the Risk Oversight Commiee of our Board of Directors at the regular quarterly meengs, or more frequently as needed. The Risk Oversight Commiee's dues include, among other things, oversight of risks related to informaon technology security. The Risk Oversight Commiee communicates as appropriate with the full Board of Directors, which is ulmately responsible for cybersecurity risk oversight. Addionally, our cybersecurity Incident Response plan mely informs our Cybersecurity Incident Subcommiee on acve cybersecurity incidents that are potenally material. The Cybersecurity Subcommiee determines cybersecurity materiality and is made up of our General Counsel, Chief Informaon Security Oﬃcer, Chief Accounng Oﬃcer and Director of SEC Reporng. Our Cybersecurity Incident Subcommiee is part of our Disclosure Commiee, which is appointed by Chief Execuve Oﬃcer and Chief Financial Oﬃcer to assist our execuves in their responsibility for oversight of the accuracy and meliness of the disclosures made by Blackbaud. 2023 Form 10-K 31 Table of Contents Blackbaud, Inc. ITEM 2. PROPERTIES We own our LEED Gold cerﬁed global headquarters facility in Charleston, South Carolina, which consists of approximately 172,000 square feet. We believe that it is in good operang condion and adequately serves our current business operaons. In December 2021, we acquired EVERFI and assumed a lease for oﬃce space in Washington, D.C. and an oﬃce in London, U.K. In February 2023, we closed our Washington, DC oﬃce locaon to align with our remote-ﬁrst workforce strategy and have since that me subleased a poron of the space. We connue to pursue strategic alternaves for our Washington, DC oﬃce space, including addional subleases. We have the intent and ability to sublease this oﬃce space. ITEM 3. LEGAL PROCEEDINGS For a discussion of our legal proceedings, see Note 11 to our consolidated ﬁnancial statements in this report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 32 2023 Form 10-K Table of Contents Blackbaud, Inc. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “BLKB.” According to the records of our transfer agent, as of February 14, 2024, there were approximately 109 stockholders of record of our common stock. Because many of our shares of common stock are held by brokers and other instuons on behalf of stockholders, this number is not representave of the total number of beneﬁcial owners of our stock. On February 14, 2024, the closing price of our common stock was $71.61. Stock Performance Graph The following performance graph shall not be deemed to be “solicing material” or “ﬁled” or incorporated by reference in future ﬁlings with the SEC, or subject to the liabilies of Secon 18 of the Exchange Act except as shall be expressly set forth by speciﬁc reference in such ﬁling. The performance graph compares the performance of our common stock to the Nasdaq Composite Index and the Nasdaq Computer Index. The graph covers the most recent ﬁve- year period ended December 31, 2023. The graph assumes that the value of the investment in our common stock and each index was $100.00 at December 31, 2018, and that all dividends are reinvested. December 31, Blackbaud, Inc. Nasdaq Composite Index Nasdaq Computer Index 2018 $100.00 100.00 100.00 2019 $127.30 136.69 148.27 2020 $92.21 198.10 233.26 2021 $126.53 242.03 296.23 2022 $94.30 163.28 192.48 2023 $138.90 236.17 315.60 2023 Form 10-K 33 Table of Contents Blackbaud, Inc. Issuer Purchases of Equity Securies The following table provides informaon about shares of common stock acquired or repurchased during the three months ended December 31, 2023 under our stock repurchase program as then in eﬀect, as well as common stock withheld by us to sasfy the minimum tax obligaons of employees due upon vesng of restricted stock awards and units. Period Beginning balance, October 1, 2023 October 1, 2023 through October 31, 2023 November 1, 2023 through November 30, 2023 December 1, 2023 through December 31, 2023 Total Total number of shares (1) purchased — $ 3,194 222,593 225,787 $ Average price paid per share — 73.02 84.89 84.72 Total number of shares purchased as part of publicly announced plans or (2) programs $ — — 221,836 221,836 $ Approximate dollar value of shares that may yet be purchased under the plans or programs (2) (in thousands) 250,000 250,000 250,000 231,169 231,169 (1) (2) Includes 3,951 shares (3,194 in November and 757 in December) withheld by us to sasfy the minimum tax obligaons of employees due upon vesng of restricted stock awards and units. The level of this acquision acvity varies from period to period based upon the ming of award grants and vesng. In December 2021, our Board of Directors reauthorized and replenished our stock repurchase program to authorize us to purchase up to $250.0 million of our outstanding shares of common stock. On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by raising the total capacity under the program from $250.0 million to $500.0 million available for repurchases. The program does not have an expiraon date. Dividends We have not declared or paid any cash dividends on our common stock since the ﬁrst quarter of 2020, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will be at the discreon of our board of directors aer taking into account various factors, including our ﬁnancial condion, operang results, current and ancipated cash needs, outstanding indebtedness, plans for expansion and restricons imposed by our debt arrangements, if any. ITEM 6. [RESERVED] 34 2023 Form 10-K Table of Contents Blackbaud, Inc. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our ﬁnancial condion and results of operaons should be read in conjuncon with Item 1A Risk factors and our consolidated ﬁnancial statements and related notes included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis presents ﬁnancial informaon denominated in millions of dollars which can lead to diﬀerences from rounding when compared to similar informaon contained in the consolidated ﬁnancial statements and related notes, which are primarily denominated in thousands of dollars. Execuve Summary We are the leading soware provider exclusively dedicated to powering social impact. Serving the nonproﬁt and educaon sectors, companies commied to social responsibility and individual change makers, our essenal soware is built to accelerate impact in fundraising, nonproﬁt ﬁnancial management, digital giving, grantmaking, corporate social responsibility and educaon management. A remote-ﬁrst company, we have operaons in the United States, Australia, Canada, Costa Rica and the United Kingdom, supporng users in 100+ countries. Millions of people across more than 100 countries connect, give, learn and engage through Blackbaud plaorms. During 2023, we had nearly 100,000 customers that paid Blackbaud through transaconal fees and more than 40,000 customers with contractual billing arrangements. Our revenue is primarily generated from the following sources: (i) charging for the use of our soware soluons in cloud and hosted environments; (ii) providing payment and transacon services; and (iii) providing Impact-as-a-Service™ digital educaonal content. Update on Five Key Operaonal Iniaves 1 2 3 4 5 Product Innovaon and Delivery Bookings Growth and Acceleraon Transaconal Revenue Opmizaon and Expansion Modernized Approach to Pricing and Mul-Year Customer Contracts Keen Aenon to Cost Management 1. Product Innovaon and Delivery Product is core at Blackbaud, and we strive to bring increased value to our customers with improved and innovave capabilies. We have recently announced or released a number of product enhancements as well as new soluons that enable our customers to beer deliver on their missions. Some examples include: • Opmized Online Donaon Capabilies: New online donaon capabilies that fully integrate with Blackbaud’s payment processing and CRM soware and enable customers to raise more money while reducing processing costs. We recently began an early adopter program for the new donaon capabilies with a small sample of RE NXT customers across charity, educaon, and arts and cultural organizaons. We expect to make them generally available in the ﬁrst half of 2024. • • Prospect Insights Pro for Raiser’s Edge NXT®: New add-on capability within Raiser’s Edge NXT® that gives fundraisers access to AI-driven insights to support planned and major gi fundraising TM Impact Edge : A ﬁrst-of-its-kind AI-powered, social impact reporng and storytelling soluon for corporate social responsibility (CSR) and social impact teams of all sizes. This new soluon is currently in an early adopter program with our planned full roll out in the second half of 2024. 2023 Form 10-K 35 Table of Contents Blackbaud, Inc. • • • JustGiving Storywriter: With new generave AI capabilies, fundraisers on JustGiving are able to quickly and easily create personal stories to share with their networks. Company research has shown that JustGiving pages that include a clear and personal story raise approximately 65% more than those that don’t. TM Good Move : New development transformed the Good Move acvity-tracking mobile app into a powerful mobile parcipant center for Blackbaud TeamRaiser® peer-to-peer fundraising events. The new expansive feature for Blackbaud TeamRaiser® became generally available in the U.S. and Canada in March 2023. Intelligence for Good®: In summer 2023, we launched next generaon Intelligence for Good® strategy with an extensive agenda of iniaves and investments targeted at making arﬁcial intelligence more accessible, powerful and responsible across the social impact sector 2. Bookings Growth and Acceleraon We maintain a keen focus on accelerang bookings growth by signing new logos as well as upselling and cross-selling our exisng customer base. Our sales team is split between prospect account execuves dedicated to prospecng for new clients and customer account execuves who focus on selling addional products to current customers. Given the breadth of our product porolio, this “land and expand” model has proven successful for us over me. As previously disclosed, there can be volality quarter-to-quarter on bookings. 3. Transaconal Revenue Opmizaon and Expansion Transaconal revenue, which is about one-third of total revenue, is comprised of four primary components: donaon processing (~55% of total transaconal revenue); consumer giving (~20%); tuion management (~20%); and event-based usage (~5%). The diversity of the underlying transacon volumes from these four sources has resulted in consistent transaconal recurring revenue growth in the mid-to-high single digits over the past several years. Strong momentum in consumer giving and tuion management, rate increases on Blackbaud Merchant Services, and increased donaons ed to global events drove connued solid transaconal recurring revenue growth in 2023. Going forward we will connue to implement addional payments soluons opmizaon to drive enhanced donor experience. 4. Modernized Approach to Pricing and Mul-Year Contracts Last summer, we put in place an updated pricing policy primarily for our social sector customers that directly reﬂects the value we provide to them, is in- line with the broader market and reﬂects the inﬂaonary pressures that all businesses are facing. In November 2022, we started nofying customers with a March 2023 contract renewal that we would be making important contract changes. First, we are oﬀering 3-year contract renewal terms as our standard, replacing one-year renewal terms. This process was already being implemented outside of the pricing changes. Second, we are implemenng a more signiﬁcant rate increase on the 1-year renewal opon versus the 3-year renewal opon. And third, the 3-year renewal opon includes embedded annual rate increases. Our 3-year renewal opons did not historically include annual rate increases. These eﬀorts are well on their way and we have now completed the 2023 renewal cohort, which represented approximately 35% of the total contractual revenue eligible for this program. Approximately another 30% of the renewable base is up for renewal in 2024, another 25% in 2025, and the remaining 10% in the beginning of 2026. The close day-to-day management of renewals, the mix of 3-year and 1-year contracts, and the impact of pricing are progressing well, and we expect more impact from the compounding eﬀect of these rate increases over me as we layer in future year contract renewals and annual rate increases. Addionally, the adopon of 3-year renewals as a standard, with more customers opng for this opon than we originally expected, are expected to have an added beneﬁt of higher retenon which provides greater revenue assurance and predictability. Looking even further ahead, the cycle starts fresh in 2026 as the 2023 signed contracts will begin to renew. We expect that this will be a sustainable and meaningful revenue growth stream for us. 5. Keen Aenon to Cost Management Cost management iniaves already completed drove a signiﬁcant improvement in proﬁtability during 2023. These iniaves included: • A reducon in headcount from approximately 3,600 in the third quarter of 2022 to approximately 3,000 as of December 31, 2023 36 2023 Form 10-K Table of Contents Blackbaud, Inc. • • • Connued IT consolidaon as we migrate customers from legacy private data centers to leading public cloud service providers. We closed four legacy data centers during 2022 and two in 2023. Renegoated key vendor contracts including Microso Azure and AWS Reduced our real estate footprint as part of the shi to a remote ﬁrst workforce Going forward, our goal is to run the business at about this headcount level for the foreseeable future, while connuing to drive eﬃciencies in other areas of the business. Financial Summary Total Revenue ($M) YoY Growth (%) Income from Operaons ($M) YoY Growth (%) Total revenue increased by $47.3 million during 2023, driven largely by the following: + - Growth in recurring revenue primarily related to:  an increase in transaconal recurring revenue of $30.5 million primarily due to posive results related to pricing iniaves we implemented during 2023 and increases in volume for our Blackbaud Tuion Management, JustGiving and Blackbaud Merchant Services soluons; and  an increase in contractual revenue of $29.3 million related to the performance of our cloud soluons and, to a lesser extent, the early impact of our pricing iniaves; parally oﬀset by a decrease in maintenance revenue as customers migrate to our cloud soluons. Decrease in one-me services and other revenue primarily related to:  decrease in one-me consulng revenue due primarily to less sales of creave services and implementaon and customizaon services. Also contribung is an increase in ulizaon of third-party service delivery partners. For several years, we have been strategically shiing away from a one-me services business model towards sales of retained and managed services and also embedding services in our renewable cloud soluon contracts. Retained and managed services contracts that we expect to have a term consistent with our cloud soluon contracts, and embedded services are recorded as recurring revenue; and  decrease in one-me analycs revenue as analycs now are generally integrated in our cloud soluons. For informaon on the impact of foreign currency ﬂuctuaons on our ﬁnancial results, see Foreign Currency Exchange Rates below on page 59. We have a number of mul-year pricing iniaves underway, some to bring our pricing in line with the market while others are model changes that are expected to drive greater revenue for both us and our customers. As a result, we expect to see a connued acceleraon in revenue growth during 2024 as we begin to see the full-year eﬀect of some of these pricing iniaves. We expect that the decline in our non-strategic one-me services and other revenue will slow in 2024 compared to the previous two years. 2023 Form 10-K 37 Table of Contents Blackbaud, Inc. Income from operaons increased by $73.2 million during 2023, driven largely by the following: + + + + + + - - - - Increase in total revenue, as described above Net decreases in the following costs primarily due to our targeted workforce reducons discussed below: • • Decrease in compensaon costs other than stock-based compensaon of $35.4 million; and Decrease in commission expense of $1.1 million Decrease in third-party contractor costs of $12.2 million primarily due to our focus on cost management Decrease in hosng and data center costs of $5.0 million as we connue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migraon eﬀorts and increased level of cybersecurity investments to connue for the foreseeable future Decrease in Security Incident-related expenses, net of insurance, of $2.3 million. See "Security Incident update" below on page 39. Decrease in cost of revenue from a $2.3 million impairment charge during the three months ended June 30, 2022, against previously capitalized soware development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to end customer support for certain soluons Increase in stock-based compensaon expense of $17.5 million aributable to primarily due to overall Company performance against 2023 goals and 2022 performance-based equity award adjustments, parally oﬀset by the targeted workforce reducons during the fourth quarter of 2022 and ﬁrst quarter of 2023 Increase in transacon-based costs of $9.2 million related to the increase in the volume of transacons for which we process payments and, to a lesser extent, increases in vendor rates Increase in amorzaon of intangible assets from business combinaons of $4.2 million due to our acquision of EVERFI Net decrease of $4.0 million due to an increase in amorzaon of capitalized soware and content development costs, parally oﬀset by an increase in soware and content development costs that were required to be capitalized under the internal-use soware guidance We are connuing to make investments in the business in areas such as innovaon, arﬁcial intelligence, cybersecurity, and our connued shi of cloud infrastructure to leading public cloud service providers. Our proﬁtability during 2023 reﬂects some of these incremental investments. We plan to accelerate some of the cybersecurity investments during 2024, which is expected to modestly impact our proﬁtability in the near term. We connuously seek opportunies to opmize our porolio of soluons to focus me and resources on innovaon that will have the greatest impact for our customers and the markets we serve, and drive the highest return on investment. To that end, we will connue to simplify and raonalize our porolio through product sunsets and divestures of non-core businesses and technologies. 38 2023 Form 10-K Table of Contents Blackbaud, Inc. Gross dollar retenon Our recurring subscripon contracts are typically for a term of three years at contract incepon with standard three year renewals thereaer. A key factor to our overall success is the renewal and expansion of our exisng subscripon agreements with our customers. Management uses gross dollar retenon in analyzing our success at delighng our customers with innovave and cloud soluons. Gross dollar retenon is deﬁned as contracted annual recurring revenue ("CARR") divided by beginning CARR with a measurement period of twelve months. During 2023, our gross dollar retenon was approximately 90%. This gross dollar retenon rate was slightly lower than our rate for the full year ended December 31, 2022 primarily due to the inclusion of EVERFI beginning in 2023. Excluding EVERFI, our gross dollar retenon during 2023 was slightly higher than our rate for the full year ended December 31, 2022. We are connually invesng in innovaon, which we believe will increase gross dollar retenon over the long-term. Although some customer arion is normal, our new contract pricing and renewal model (as described above on page 36) does not appear to have had a signiﬁcant impact on customer arion to date. Balance sheet and cash ﬂow At December 31, 2023, our cash and cash equivalents were $31.3 million. Under the 2020 Credit Facility, the carrying amount of our debt was $720.6 million and our net leverage rao was 1.97 to 1.00. During 2023, we generated $199.6 million in cash ﬂow from operaons, had a net decrease in borrowings of $81.4 million and had aggregate cash outlays of $64.1 million for purchases of property and equipment and capitalized soware and content development costs. We resumed stock repurchases during the fourth quarter of 2023 under our then exisng stock repurchase program that authorized us to purchase up to $250.0 million of our outstanding shares of common stock. On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by raising the total capacity under the program from $250.0 million to $500.0 million available for repurchases. We plan to repurchase shares going forward to at least oﬀset the diluon from our annual stock-based compensaon and possibly beyond that amount as market condions and our strategic plans permit. See addional details regarding our stock repurchase program below on page 56. Security Incident update As discussed in Note 11 to our consolidated ﬁnancial statements included in this report, total costs related to the Security Incident exceeded the limit of our insurance coverage in the ﬁrst quarter of 2022. Accordingly, the Security Incident has negavely impacted, and we expect it to connue for the foreseeable future to negavely impact, our GAAP proﬁtability and GAAP cash ﬂow (see discussion regarding non-GAAP free cash ﬂow and non-GAAP adjusted free cash ﬂow on page 53). For full year 2023, we incurred net pre-tax expenses of $53.4 million related to the Security Incident, which included $22.4 million for ongoing legal fees. It also includes selements and recorded liabilies for loss conngencies of $31.0 million. Also, for full year 2023, we had net cash outlays of $78.0 million related to the Security Incident, which included ongoing legal fees, the $3.0 million civil penalty paid during the ﬁrst quarter of 2023 related to the SEC selement and the $49.5 million civil penalty paid during the fourth quarter of 2023 related to the mul-state Aorneys General selement (as discussed in Note 11). In line with our policy, legal fees are expensed as incurred. For full year 2024, we currently expect net pre-tax expense of approximately $5.0 million to $10.0 million and net cash outlays of approximately $8.0 million to $13.0 million for ongoing legal fees related to the Security Incident. 2023 Form 10-K 39 Table of Contents Blackbaud, Inc. As of December 31, 2023, we have recorded approximately $1.5 million in aggregate liabilies for loss conngencies based primarily on recent negoaons with certain customers related to the Security Incident that we believe we can reasonably esmate in accordance with our loss conngency procedures described in Note 11. It is reasonably possible that our esmated or actual losses may change in the near term for those maers and be materially in excess of the amounts accrued, but we are unable at this me to reasonably esmate the possible addional loss. There are other Security Incident-related maers, including customer claims, customer constuent class acons and governmental invesgaons, for which we have not recorded a liability for a loss conngency as of December 31, 2023 because we are unable at this me to reasonably esmate the possible loss or range of loss. Each of these maers could, separately or in the aggregate, result in an adverse judgement, selement, ﬁne, penalty or other resoluon, the amount, scope and ming of which we are currently unable to predict, but could have a material adverse impact on our results of operaons, cash ﬂows or ﬁnancial condion. Results of Operaons Reportable segment We report our operang results and ﬁnancial informaon in one operang and reportable segment. See Note 16 of our consolidated ﬁnancial statements in this report for addional informaon. Comparison of 2023 vs. 2022 For informaon regarding the comparison of 2022 to 2021, please refer to Part II Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 ﬁled with the SEC on February 24, 2023. Acquisions During 2022 and 2021, we acquired companies that provided us with strategic opportunies to expand our TAM and share of the philanthropic giving market through the integraon of complementary soluons and services to serve the changing needs of our customers. The following are the companies we acquired and their respecve acquision dates: • Kilter, Inc. ("Kilter") on August 19, 2022 • EVERFI, Inc. on December 31, 2021 We have included the results of operaons of acquired companies in our consolidated results of operaons from the date of their respecve acquisions. In accordance with applicable accounng rules, we determined that the Kilter and EVERFI acquisions were not material to our consolidated ﬁnancial statements; therefore, revenue and earnings since the acquision date and pro forma informaon are not required or presented. See Note 3 to our consolidated ﬁnancial statements in this report for a summary of these acquisions. 40 2023 Form 10-K Table of Contents Blackbaud, Inc. Revenue and Cost of Revenue Recurring Revenue ($M) YoY Growth (%) Cost of revenue ($M) YoY Growth (%) Gross proﬁt ($M) and gross margin (%) Recurring revenue includes two components: contractual recurring and transaconal recurring. Contractual recurring revenue is primarily comprised of fees for the use of our subscripon-based soware soluons, which includes providing access to cloud soluons, Impact-as-a-Service™ digital educaonal content, online training programs and subscripon-based analyc services. Contractual recurring revenue also includes fees from maintenance services for our on-premises soluons. Transaconal recurring revenue is comprised of transacon fees associated with the use of our soluons, including donaon processing, tuion management, consumer giving and event-based usage. Cost of recurring revenue is primarily comprised of compensaon costs for customer support and producon IT personnel, hosng and data center costs, third-party contractor expenses, third-party royalty and data expenses, allocated depreciaon, facilies and IT support costs, amorzaon of intangible assets from business combinaons, amorzaon of soware development costs, transacon-based costs related to payments services including remiances of amounts due to third-pares and other costs incurred in providing support and recurring services to our customers. Our customers connue to prefer cloud subscripon oﬀerings with integrated analycs, training and payment services. We intend to connue focusing on innovaon, quality and integraon of our cloud soluons, which we believe will drive future revenue growth. 2023 vs. 2022 Recurring revenue increased by $59.8 million, or 5.9%, driven primarily by the following: + + Increase in transaconal recurring revenue of $30.5 million primarily due to posive results related to pricing iniaves we implemented during 2023 and increases in volume for our Blackbaud Tuion Management, JustGiving and Blackbaud Merchant Services soluons; and Increase in contractual recurring revenue of $29.3 million related to the performance of our cloud soluons and, to a lesser extent, the early impact of our pricing iniaves; parally oﬀset by a decrease in maintenance revenue as customers migrate to our cloud soluons. 2023 Form 10-K 41 Table of Contents Blackbaud, Inc. For addional informaon on the impact of foreign currency ﬂuctuaons on our ﬁnancial results, see Foreign Currency Exchange Rates below on page 59. Cost of recurring revenue increased by $7.0 million, or 1.5%, driven primarily by the following: + + + + - - - Increase in transacon-based costs of $9.2 million related to the increase in the volume of transacons for which we process payments and, to a lesser extent, increases in vendor rates Increase in amorzaon of soware development costs of $5.6 million due to our connued investments in the innovaon and security of our soluons Increase in amorzaon of intangible assets from business combinaons of $4.0 million primarily due to our acquision of EVERFI in December 2021 Increase in stock-based compensaon costs of $2.8 million primarily due to overall Company performance against 2023 goals and 2022 performance-based equity award adjustments, parally oﬀset by the targeted workforce reducons during the fourth quarter of 2022 and ﬁrst quarter of 2023 Decrease in compensaon costs other than stock-based compensaon of $8.7 million primarily due to our targeted workforce reducons discussed above Decrease in hosng and data center costs of $5.1 million as we connue to migrate our cloud infrastructure to leading public cloud service providers and make investments in security; currently, we expect our cloud infrastructure migraon eﬀorts and increased level of cybersecurity investments to connue for the foreseeable future Decrease in third-party contractor costs of $1.1 million primarily due to our focus on cost management Recurring gross margin increased by 190 basis points primarily due to the increase in recurring revenue outpacing the increase in cost of recurring revenue. One-me services and other Revenue ($M) YoY Growth (%) Cost of revenue ($M) YoY Growth (%) Gross proﬁt ($M) and gross margin (%) One-me services and other revenue is comprised of fees for one-me consulng (including creave services), analyc 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 soluon contracts. Cost of one-me services and other is primarily comprised of compensaon costs for professional services and onsite training personnel, other costs incurred in providing onsite customer training, third-party contractor expenses, data expense incurred to perform one-me analyc services, third-party soware royales, allocated depreciaon, facilies and IT support costs and amorzaon of intangible assets from business combinaons. 42 2023 Form 10-K Table of Contents 2023 vs. 2022 Blackbaud, Inc. One-me services and other revenue decreased by $12.5 million, or 26.9%, driven primarily by the following: - - Decrease in one-me consulng revenue of $9.2 million primarily due to less sales of creave services and implementaon and customizaon services. Also contribung is an increase in ulizaon of third-party service delivery partners. For several years, we have been strategically shiing away from a one-me services business model towards sales of retained and managed services and also embedding services in our renewable cloud soluon contracts. Retained and managed services contracts that we expect to have a term consistent with our cloud soluon contracts, and embedded services are recorded as recurring revenue. Decrease in one-me analycs revenue of $3.0 million as analycs are generally integrated in our cloud soluons Cost of one-me services and other decreased $10.2 million or 24.3%, primarily driven by the following: - - - + Decrease in compensaon costs of $7.9 million primarily related to our targeted workforce reducons during the fourth quarter of 2022 and ﬁrst quarter of 2023 and a connued shi in resources historically supporng one-me services and other towards recurring revenue Decrease in employee severance of $1.2 million primarily due to our targeted workforce reducons discussed above, the majority of which were recorded in cost of one-me services and other in the fourth quarter of 2022 Decrease in direct costs of revenue of $1.2 million primarily related to our decrease in sales of creave services Increase in third-party contractor costs of $1.2 million primarily due to an increase in partners delivering services One-me services and other gross margin decreased by 320 basis points primarily due to the decrease in one-me services and other revenue outpacing the decrease in cost of one-me services and other revenue. Operang Expenses Sales, markeng and customer success ($M) Research and development ($M) General and administrave ($M) Percentages indicate expenses as a percentage of total revenue Sales, markeng and customer success Sales, markeng and customer success expense includes compensaon costs, variable sales commissions, travel-related expenses, adversing and markeng materials, public relaons costs, variable reseller commissions and allocated depreciaon, facilies and IT support costs. We see a large market opportunity in the long-term and will connue to make investments to drive sales eﬀecveness. We have also implemented soware tools to enhance our digital footprint and drive lead generaon. The enhancements we are making in our go-to-market approach are expected to reduce our average customer acquision cost per customer as well as the related payback period while increasing sales velocity. 2023 Form 10-K 43 Table of Contents 2023 vs. 2022 Blackbaud, Inc. Sales, markeng and customer success expenses decreased by $9.3 million, or 4.2%. The decreases in dollars and as a percentage of total revenue were primarily driven by the following: - Net decreases in the following costs primarily due to our targeted workforce reducons discussed above: • • • Decrease in compensaon costs other than stock-based compensaon of $10.5 million; and Decrease in commissions expense of $1.3 million; parally oﬀset by Increase in severance costs of $1.5 million - + + Decrease in third-party contractor costs of $3.1 million primarily related to strategic consulng costs incurred during 2022 Increase in stock-based compensaon costs of $3.5 million primarily due to overall Company performance against 2023 goals and 2022 performance-based equity award adjustments, parally oﬀset by the targeted workforce reducons during the fourth quarter of 2022 and ﬁrst quarter of 2023 Increase in conference and travel costs of $1.0 million primarily due to our annual user conference, bbcon®, which was held in-person in November 2023 for the ﬁrst me since the pandemic Research and development Research and development expense includes compensaon costs for engineering and product management personnel, third-party contractor expenses, soware development tools and other expenses related to developing new soluons or upgrading and enhancing exisng soluons that do not qualify for capitalizaon, and allocated depreciaon, facilies and IT support costs. 2023 vs. 2022 We connue to make investments to delight our customers with innovave cloud soluons. We also connue to invest heavily in the security of our soluons. Research and development expense decreased by $3.6 million, or 2.3%. The decreases in dollars and as a percentage of total revenue were primarily driven by the following: - - + Decrease in third-party contractor costs of $6.5 million primarily due to a decrease in our use of third-party soware developers Decrease in compensaon costs other than stock-based compensaon of $3.9 million primarily due to our targeted workforce reducons discussed above Increase in stock-based compensaon of $6.6 million primarily due to overall Company performance against 2023 goals and 2022 performance- based equity award adjustments, parally oﬀset by the targeted workforce reducons during the fourth quarter of 2022 and ﬁrst quarter of 2023 Not included in research and development expense for 2023 and 2022 were $60.7 million and $58.5 million, respecvely, of qualifying costs associated with soware and content development acvies that are required to be capitalized under GAAP, such as those for our cloud soluons, as well as development costs associated with acquired companies. Qualifying capitalized soware and content development costs associated with our cloud soluons and online educaonal courses are subsequently amorzed to cost of recurring revenue over the related asset's esmated useful life, which generally range from three to seven years. We expect that the amount of soware and content development costs capitalized will be relavely consistent in the near-term as we connue making investments in innovaon, quality, security and the integraon of our soluons, which we believe will drive long-term revenue growth. 44 2023 Form 10-K Table of Contents General and administrave Blackbaud, Inc. General and administrave expense consists primarily of compensaon costs for general corporate funcons, including senior management, ﬁnance, accounng, legal, human resources and corporate development, Security Incident-related expenses (including legal fees, selements and loss conngency accruals), third-party professional fees, insurance, allocated depreciaon, facilies and IT support costs, acquision-related expenses and other administrave expenses. 2023 vs. 2022 General and administrave expenses decreased by $10.0 million, or 5.0%. The decreases in dollars and as a percentage of total revenue were primarily driven by the following: - - - - - - + + Decrease in compensaon costs other than stock-based compensaon of $5.0 million primarily due to our targeted workforce reducons discussed above Decrease in third-party contractor costs of $2.7 million primarily due to our focus on cost management Decrease in Security Incident-related expenses of $2.3 million. See "Security Incident update" above on page 39 A $2.3 million noncash impairment charge during the second quarter of 2022 against previously capitalized soware development costs that reduced the carrying value of those assets to zero. The impairment charge resulted primarily from our decision to end customer support for certain soluons and did not reoccur in 2023 Decrease in corporate costs of $1.3 million primarily related to the release of certain accrued tax liabilies due to favorable sales tax rulings, parally oﬀset by an increase in bad debt expense Decrease in rent expense of $1.1 million Increase in stock-based compensaon costs of $5.2 million primarily due to overall Company performance against 2023 goals and 2022 performance-based equity award adjustments, parally oﬀset by the targeted workforce reducons during the fourth quarter of 2022 and ﬁrst quarter of 2023 Increase in acquision and disposion-related costs of $1.3 million primarily related to the noncash impairment charges against certain operang lease right-of-use assets and property and equipment assets resulng from the sublease of our Washington, DC oﬃce locaon; parally oﬀset by the release of $1.4 million in accrued conngent consideraon related to our Kilter acquision during the second quarter of 2023 and a $2.0 million noncash impairment of certain insigniﬁcant intangible assets that were held for sale during the second quarter of 2022 which did not reoccur in 2023 2023 Form 10-K 45 Blackbaud, Inc. Table of Contents Interest Expense Interest expense ($M) Percentages indicate expenses as a percentage of total revenue 2023 vs. 2022 Interest expense increased in dollars and as a percentage of total revenue during 2023 when compared to 2022, primarily due to an increase in our weighted average eﬀecve interest rates. We currently expect interest expense for the full year 2024 to be approximately $34 million to $38 million although our interest expense in connecon with the variable rate poron of our outstanding debt could increase in a rising interest rate environment. See Note 10 to our consolidated ﬁnancial statements in this report for more informaon regarding our derivave instruments, which we use to manage our variable interest rate risk, and Item 7A. Quantave and Qualitave Disclosures about Market Risk: Interest Rate Risk on page 64 for more informaon about our variable interest rate exposure and related risk. Other Income Other income ($M) Percentages indicate expenses as a percentage of total revenue 2023 vs. 2022 Other income increased in dollars and as a percentage of total revenue during 2023 when compared to 2022, primarily due to an increase in interest income. Interest income increased primarily due to higher interest earned on restricted cash held and payable by us to customers for our payment processing soluons. See Note 8 to our consolidated ﬁnancial statements in this report for more informaon regarding our other income. 46 2023 Form 10-K Table of Contents Deferred Revenue Blackbaud, Inc. The table below compares the components of deferred revenue from our consolidated balance sheets: (dollars in millions) Total deferred revenue (1) Less: Long-term poron Current poron (1) December 31, 2023 December 31, 2022 394.9 2.4 392.5 $ 385.2 2.8 382.4 $ Change 2.5 % (14.9)% 2.6 % (1) The individual amounts for each year may not sum to total deferred revenue or current poron of deferred revenue due to rounding. To the extent that our customers are billed for our soluons and services in advance of delivery, we record such amounts in deferred revenue. Our recurring revenue contracts are generally for a term of three years at contract incepon with three-year renewals thereaer, billed annually in advance and non- cancelable. We generally invoice our customers with recurring revenue contracts in annual cycles 30 days prior to the end each one-year period. The increase in deferred revenue during the year ended December 31, 2023 was primarily due to new subscripon sales of our cloud soluons and progress in iniaves to bring our pricing in line with the market. Historically, due to the ming of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our ﬁrst quarter. Income Taxes Income tax provision (beneﬁt) ($M) Percentages indicate eﬀecve income tax rates Our eﬀecve income tax rate may ﬂuctuate quarterly and annually as a result of factors, including changes in tax law in jurisdicons where we conduct business, transacons entered into, changes in the geographic distribuon of our earnings or losses, and our assessment of certain tax conngencies and valuaon allowances. We have deferred tax assets for federal, state, and internaonal net operang loss carryforwards and tax credits. The federal and state net operang loss carryforwards are subject to various Internal Revenue Code limitaons and applicable state tax laws. A poron of the foreign and state net operang loss carryforwards and a poron of state tax credits have a valuaon reserve due to the uncertainty of realizing such carryforwards and credits in the future. We ﬁle income tax returns in the U.S. for federal and various state jurisdicons as well as in foreign jurisdicons including Canada, the U.K., Australia, Ireland and Costa Rica. We are generally subject to U.S. federal income tax examinaon for calendar tax years ending 2020 through 2023, as well as state and foreign income tax examinaons for various years depending on statute of limitaons of those jurisdicons. We have taken federal and state tax posions for which it is reasonably possible that the total amount of unrecognized tax beneﬁts may decrease within the next twelve months. The possible decrease could result from the expiraon of statutes of limitaons. The reasonably possible decrease at December 31, 2023 was insigniﬁcant. 2023 Form 10-K 47 Table of Contents Blackbaud, Inc. We recognize accrued interest and penales, if any, related to unrecognized tax beneﬁts as a component of income tax expense. 2023 vs. 2022 The increase in our eﬀecve income tax rate for year ended December 31, 2023, when compared to the same period in 2022, was primarily aributable to higher 2023 non-deducble accruals for loss conngencies related to the Security Incident and other non-deducble expenses and tax rate changes, parally oﬀset by increased tax credits. Furthermore, our 2023 eﬀecve tax rate was negavely impacted by higher tax rates in foreign jurisdicons in which we operate which were predominantly due to UK tax rate increases. 48 2023 Form 10-K Table of Contents Blackbaud, Inc. Non-GAAP Financial Measures The operang results analyzed below are presented on a non-GAAP basis. We use non-GAAP ﬁnancial measures internally in analyzing our operaonal performance. Accordingly, we believe these non-GAAP measures are useful to investors, as a supplement to GAAP measures, in evaluang our ongoing operaonal performance. While we believe these non-GAAP measures provide useful supplemental informaon, non-GAAP ﬁnancial measures should not be considered in isolaon from, or as a substute for, ﬁnancial informaon prepared in accordance with GAAP. In addion, these non-GAAP ﬁnancial measures may not be completely comparable to similarly tled measures of other companies due to potenal diﬀerences in the exact method of calculaon between companies. The non-GAAP ﬁnancial measures discussed below exclude the impact of certain transacons because we believe they are not directly related to our operang performance in any parcular period, but are for our long-term beneﬁt over mulple periods. We believe that these non-GAAP ﬁnancial measures reﬂect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business. (dollars in millions, except per share amounts) GAAP Revenue GAAP gross proﬁt GAAP gross margin Non-GAAP adjustments: Add: Stock-based compensaon expense Add: Amorzaon of intangibles from business combinaons Add: Employee severance Subtotal (1) Non-GAAP gross proﬁt (1) Non-GAAP gross margin GAAP income (loss) from operaons GAAP operang margin Non-GAAP adjustments: Add: Stock-based compensaon expense Add: Amorzaon of intangibles from business combinaons Add: Employee severance Add: Acquision and disposion-related costs (2)(3) Add: Restructuring and other real estate acvies Add: Security Incident-related costs, net of insurance (4) Add: Impairment of capitalized soware development costs Subtotal (1) Non-GAAP income from operaons (1) Non-GAAP operang margin GAAP income (loss) before provision (beneﬁt) for income taxes GAAP net income (loss) Shares used in compung GAAP diluted earnings (loss) per share GAAP diluted earnings (loss) per share Non-GAAP adjustments: Add: GAAP income tax provision (beneﬁt) Add: Total non-GAAP adjustments aﬀecng income from operaons Non-GAAP income before provision for income taxes Assumed non-GAAP income tax provision (5) Non-GAAP net income (1) Shares used in compung Non-GAAP diluted earnings per share Non-GAAP diluted earnings per share Years ended December 31, 2023 2022 1,105.4 $ 1,058.1 603.2 $ 54.6 % 16.7 52.5 0.8 69.9 673.2 $ 60.9 % 44.7 $ 4.0 % 127.8 55.6 5.1 7.5 — 53.4 — 249.4 294.1 $ 26.6 % 17.6 $ 1.8 $ 552.7 52.2 % 14.4 48.5 2.1 65.1 617.8 58.4 % (28.5) (2.7)% 110.3 51.4 5.2 6.1 0.1 55.7 2.3 231.1 202.6 19.1 % (55.6) (45.4) 53,721,342 51,569,148 0.03 $ 15.8 249.4 267.0 53.4 213.6 $ (0.88) (10.2) 231.1 175.5 35.1 140.4 53,721,342 52,207,573 3.98 $ 2.69 $ $ $ $ $ $ $ $ $ $ 2023 Form 10-K 49 Table of Contents Blackbaud, Inc. (1) (2) (3) (4) The individual amounts for each year may not sum to subtotal, non-GAAP gross proﬁt, non-GAAP income from operaons, non-GAAP income before provision for income taxes or non- GAAP net income due to rounding. Includes a $2.0 million noncash impairment of certain intangible assets held for sale during the twelve months ended December 31, 2022. Includes noncash impairment charges incurred during the twelve months ended December 31, 2023 related to the sublease of our Washington, DC oﬃce locaon the lease of which was acquired during the EVERFI acquision. Includes Security Incident-related costs incurred during the twelve months ended December 31, 2023 of $53.4 million, which includes approximately $31.0 million in selements and recorded aggregate liabilies for loss conngencies, net of insurance recoveries during the same period of $0.0 million and during the twelve months ended December 31, 2022 of $57.6 million, which included approximately $23.0 million in recorded aggregate liabilies for loss conngencies, net of insurance recoveries during the same period of $1.9 million. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as selements of customer claims, negoated selements and accruals for certain loss conngencies. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year 2024, we currently expect net pre-tax expense of approximately $5 million to $10 million and net cash outlays of approximately $8 million to $13 million for ongoing legal fees related to the Security Incident. In line with our policy, legal fees, are expensed as incurred. As of December 31, 2023, we have recorded approximately $1.5 million in aggregate liabilies for loss conngencies based primarily on recent negoaons with certain customers related to the Security Incident that we believe we can reasonably esmate. In connecon with the selement of the mul-state Aorneys General invesgaon (as previously disclosed on October 5, 2023), we paid $49.5 million during the fourth quarter of 2023. There are other Security Incident-related maers, including customer claims, customer constuent class acons and governmental invesgaons, for which we have not recorded a liability for a loss conngency as of December 31, 2023 because we are unable at this me to reasonably esmate the possible loss or range of loss. Each of these maers could, separately or in the aggregate, result in an adverse judgement, selement, ﬁne, penalty or other resoluon, the amount, scope and ming of which we are currently unable to predict, but could have a material adverse impact on our results of operaons, cash ﬂows or ﬁnancial condion. (5) We apply a non-GAAP eﬀecve tax rate of 20.0% when calculang non-GAAP net income and non-GAAP diluted earnings per share. Beginning in 2024, we intend to update the non-GAAP tax rate we apply when calculang non-GAAP net income and non-GAAP diluted earnings per share in future periods. Since the ﬁrst quarter of 2018, for the purposes of determining non-GAAP net income, we have ulized a non-GAAP tax rate of 20.0% in our calculaon of the assumed non-GAAP income tax provision. We intend to adjust this rate to 24.5% to beer reﬂect our periodic eﬀecve tax rate calculated in accordance with GAAP and our current expectaons. The increase in our non-GAAP tax rate is primarily driven by increases in income tax rates in jurisdicons we operate in. Furthermore, as proﬁtability increases, the eﬀect of tax impacng items, including research and development credits, lessens such that our assumed non-GAAP tax rate moves closer to the statutory rate. The increase in our non-GAAP tax rate is primarily driven by increases in income tax rates in jurisdicons we operate in. Furthermore, as our non-GAAP proﬁtability increases, the eﬀect of tax impacng items lessens such that our assumed non-GAAP tax rate moves closer to the statutory tax rate. The non-GAAP tax rate ulized in future periods will be reviewed annually to determine whether it remains appropriate in consideraon of our ﬁnancial results including our periodic eﬀecve tax rate calculated in accordance with GAAP, our operang environment and related tax legislaon in eﬀect and other factors deemed necessary. All measures of the tax impact related to non-GAAP net income and non-GAAP diluted earnings per share included above are calculated under our historical methodology. 50 2023 Form 10-K Table of Contents Blackbaud, Inc. Non-GAAP organic revenue growth In addion, we use non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis, non-GAAP organic recurring revenue growth and non-GAAP organic recurring revenue growth on a constant currency basis in analyzing our operang performance. We believe that these non- GAAP measures are useful to investors, as a supplement to GAAP measures, for evaluang the periodic growth of our business on a consistent basis. Each of these measures of non-GAAP organic revenue growth excludes incremental acquision-related revenue aributable to companies acquired in the current ﬁscal year. For companies, if any, acquired in the immediately preceding ﬁscal year, each of these non-GAAP organic revenue growth measures reﬂects presentaon of full year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period. In addion, each of these non-GAAP organic revenue growth measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of me in both the prior and current periods. We believe this presentaon provides a more comparable representaon of our current business’ organic revenue growth and revenue run-rate. (dollars in millions) GAAP revenue GAAP revenue growth Less: Non-GAAP revenue from divested businesses (1) Non-GAAP organic revenue (2) Non-GAAP organic revenue growth Non-GAAP organic revenue (2) Foreign currency impact on Non-GAAP organic revenue (3) Non-GAAP organic revenue on constant currency basis (3) Non-GAAP organic revenue growth on constant currency basis GAAP recurring revenue GAAP recurring revenue growth Less: Non-GAAP recurring revenue from divested businesses (1) Non-GAAP organic recurring revenue Non-GAAP organic recurring revenue growth Non-GAAP organic recurring revenue (2) Foreign currency impact on non-GAAP organic recurring revenue (3) Non-GAAP organic recurring revenue on constant currency basis (3) Non-GAAP organic recurring revenue growth on constant currency basis $ $ $ $ $ $ $ Years ended December 31, 2023 1,105.4 $ 4.5 % — 1,105.4 $ 4.8 % 1,105.4 0.4 1,105.9 $ 4.9 % 2022 1,058.1 (3.5) 1,054.6 1,054.6 — 1,054.6 1,071.5 $ 1,011.7 5.9 % — 1,071.5 $ 6.3 % 1,071.5 $ 0.5 1,072.0 $ 6.3 % (3.4) 1,008.3 1,008.3 — 1,008.3 (1) Non-GAAP revenue from divested businesses excludes revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested business with the results of the combined company for the same period of me in both the prior and current periods. (2) Non-GAAP organic revenue and non-GAAP organic recurring revenue for the prior year periods presented herein may not agree to non-GAAP organic revenue and non-GAAP organic recurring revenue presented in the respecve prior period quarterly ﬁnancial informaon solely due to the manner in which non-GAAP organic revenue growth and non-GAAP organic recurring revenue growth are calculated. To determine non-GAAP organic revenue growth and non-GAAP organic recurring revenue growth on a constant currency basis, revenues from enes reporng in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creang the impact are the Australian Dollar, Brish Pound, Canadian Dollar and Euro. (3) 2023 Form 10-K 51 Table of Contents Rule of 40 Blackbaud, Inc. We previously deﬁned Rule of 40 as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. Non-GAAP adjusted EBITDA is deﬁned as GAAP net income plus interest, net; income tax provision (beneﬁt); depreciaon; amorzaon of intangible assets from business combinaons; amorzaon of soware and content development costs; stock-based compensaon; employee severance; acquision and disposion-related costs; restructuring and other real estate acvies; Security Incident-related costs, net of insurance; and impairment of capitalized soware development costs. Beginning in the ﬁscal quarter ended June 30, 2022, we now also include in non-GAAP adjusted EBITDA impairment of capitalized soware and content development costs because we believe it is not directly related to our operang performance in any parcular period. Years ended December 31, (dollars in millions) GAAP net income (loss) Non-GAAP adjustments: Add: Interest, net Add: GAAP income tax provision (beneﬁt) Add: Depreciaon Add: Amorzaon of intangibles from business combinaons Add: Amorzaon of soware and content development costs (1) Subtotal (2) Non-GAAP EBITDA (2) Non-GAAP EBITDA margin (3) Non-GAAP adjustments: Add: Stock-based compensaon expense Add: Employee severance Add: Acquision and disposion-related costs (4) Add: Restructuring and other real estate acvies Add: Security Incident-related costs, net of insurance (4) Add: Impairment of capitalized soware development costs Subtotal (2) Non-GAAP Adjusted EBITDA (2) Non-GAAP Adjusted EBITDA margin (5) Rule of 40 (6) Non-GAAP adjusted EBITDA Foreign currency impact on Non-GAAP adjusted EBITDA Non-GAAP adjusted EBITDA on constant currency basis (7) Non-GAAP adjusted EBITDA margin on constant currency basis (7) Rule of 40 on constant currency basis (8) $ $ $ 2023 1.8 $ 31.1 15.8 13.0 55.6 45.3 160.9 162.7 $ 14.7 % 127.8 5.1 7.5 — 53.4 — 193.8 356.5 $ 32.2 % 37.0 % 356.5 — 356.5 32.2 % 37.1 % 2022 (45.4) 34.1 (10.2) 14.1 51.4 39.0 128.4 83.0 110.3 5.2 6.1 0.1 55.7 2.3 179.7 262.6 262.6 6.3 268.9 Includes amorzaon expense related to soware and content development costs and amorzaon expense from capitalized cloud compung implementaon costs. The individual amounts for each year may not sum to subtotal, non-GAAP EBITDA, non-GAAP adjusted EBITDA or non-GAAP adjusted EBITDA on a constant currency basis due to rounding. (1) (2) (3) Measured by GAAP revenue divided by non-GAAP EBITDA. (4) (5) Measured by non-GAAP organic revenue divided by non-GAAP adjusted EBITDA. (6) Measured by non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. See Non-GAAP organic revenue growth table above. (7) See addional details in the reconciliaon of GAAP to Non-GAAP operang income above. To determine non-GAAP adjusted EBITDA on a constant currency basis, non-GAAP adjusted EBITDA from enes reporng in foreign currencies were translated to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creang the impact are the Australian Dollar, Brish Pound, Canadian Dollar and Euro. (8) Measured by non-GAAP organic revenue growth on constant currency basis plus non-GAAP adjusted EBITDA margin on constant currency basis. See Non-GAAP organic revenue growth table above. 52 2023 Form 10-K Table of Contents Blackbaud, Inc. Non-GAAP free cash ﬂow and non-GAAP adjusted free cash ﬂow Non-GAAP free cash ﬂow is deﬁned as operang cash ﬂow less capital expenditures, including costs required to be capitalized for soware and content development, and capital expenditures for property and equipment. Non-GAAP adjusted free cash ﬂow is deﬁned as operang cash ﬂow less capital expenditures, including costs required to be capitalized for soware and content development and capital expenditures for property and equipment, plus cash oulows, net of insurance, related to the Security Incident. We believe non-GAAP free cash ﬂow and non-GAAP adjusted free cash ﬂow provides useful measures of the Company's operang performance. Non-GAAP adjusted free cash ﬂow is not intended to represent and should not be viewed as the amount of residual cash ﬂow available for discreonary expenditures. (dollars in millions) GAAP net cash provided by operang acvies GAAP operang cash ﬂow margin Non-GAAP adjustments: Less: purchase of property and equipment Less: capitalized soware and content development costs Non-GAAP free cash ﬂow (1) Non-GAAP free cash ﬂow margin Non-GAAP adjustments: Add: Security Incident-related cash ﬂows, net of insurance Non-GAAP adjusted free cash ﬂow (1) Non-GAAP adjusted free cash ﬂow margin $ $ $ Years ended December 31, 2023 199.6 $ 18.1 % (4.7) (59.4) 135.5 $ 12.3 % 78.0 213.5 $ 19.3 % 2022 203.9 19.3 % (12.3) (58.8) 132.8 12.6 % 20.9 153.7 14.5 % (1) The individual amounts for each year may not sum to non-GAAP free cash ﬂow or non-GAAP adjusted free cash ﬂow due to rounding. Seasonality Our revenues normally ﬂuctuate as a result of certain seasonal variaons in our business. Our ﬁrst quarter has historically been the seasonal low for bookings, with the second and fourth quarters historically being seasonally higher, and our bookings tend to be back-end loaded within individual quarters given our quarterly quota plans. Transaconal revenue is non-contractual and less predictable given the suscepbility to certain drivers such as ming and number of events and markeng campaigns, as well as ﬂuctuaons in donaon volumes and tuion payments. Our transaconal revenue has historically been at its lowest in the ﬁrst quarter due to the ming of customer fundraising iniaves and events. We have historically experienced seasonal highs during the fourth quarter due to year-end giving campaigns and during the second quarter when a large number of events are held. Our revenue from professional services has historically been lower in the ﬁrst quarter when many of those services commence and in the fourth quarter due to the holiday season. As a result of these and other factors, our total revenue has historically been lower in the ﬁrst quarter than in the remainder of our ﬁscal year, with the fourth quarter historically achieving the highest total revenue. Our expenses, other than transacon-based costs related to our payments services, do not vary signiﬁcantly as a result of these factors, but do ﬂuctuate on a quarterly basis due to varying ming of expenditures. Our cash ﬂow from operaons normally ﬂuctuates quarterly due to the combinaon of the ming of customer contract renewals including renewals associated with customers of acquired companies, delivery of professional services and occurrence of customer events, as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our ﬁrst quarter, combined with the payment of certain annual vendor contracts, our cash ﬂow from operaons has been lowest in our ﬁrst quarter. Due to the ming of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash ﬂow from operaons has generally been lower in our second quarter as compared to our third and fourth quarters. Parally oﬀseng these favorable drivers of cash ﬂow from operaons in our third and fourth quarters are base salary merit increases, which occur in July. In addion, deferred revenues can vary on a seasonal basis due to the ming of customer contract renewals and student enrollments or signiﬁcant acquisions. Our cash ﬂow from ﬁnancing is negavely impacted in our ﬁrst quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the selement or exercise of equity awards. 2023 Form 10-K 53 Table of Contents Blackbaud, Inc. These paerns may change as a result of the connued shi to online giving, growth in volume of transacons for which we process payments, large dollar customer bookings and contract renewals, or as a result of acquisions, new market opportunies, new soluon introducons or other factors. Liquidity and Capital Resources The following table presents selected ﬁnancial informaon about our ﬁnancial posion: (dollars in millions) Cash and cash equivalents Property and equipment, net Soware and content development costs, net Total carrying value of debt Working capital The following table presents selected ﬁnancial informaon about our cash ﬂows: (dollars in millions) Net cash provided by operang acvies Net cash used in invesng acvies Net cash used in ﬁnancing acvies December 31, 2023 December 31, 2022 $ 31.3 $ 98.7 160.2 779.7 (267.4) 2023 199.6 $ (64.4) (143.0) $ 31.7 107.4 141.0 859.0 (312.0) 2022 203.9 (85.5) (25.7) Change (1.4)% (8.1)% 13.6 % (9.2)% 14.3 % Years ended December 31, Change (2.1)% (24.7)% 456.5 % Our principal sources of liquidity are our operang cash ﬂow, funds available under the 2020 Credit Facility and cash on hand. Our operang cash ﬂow depends on connued customer renewal of our subscripon and maintenance arrangements, market acceptance of our soluons and services, the volume and size of transacons for which we process payments and our customers' ability to pay. Based on current esmates of revenue and expenses, we believe that the currently available sources of funds and ancipated cash ﬂows from operaons will be adequate for at least the next twelve months to ﬁnance our operaons, fund ancipated capital expenditures and meet our debt obligaons. We also believe that we will be able to connue to meet our long-term cash requirements due to our ancipated cash ﬂow from operaons, solid ﬁnancial posion and ability to access capital from ﬁnancial markets. To the extent we undertake future material acquisions, investments or unancipated capital or operang expenditures, including in connecon with the Security Incident, we may require addional capital. In that context, we regularly evaluate opportunies to enhance our capital structure, including through potenal debt or equity issuances. As a well-known seasoned issuer, we ﬁled an automac shelf registraon statement for an undetermined amount of debt and equity securies with the SEC on January 14, 2022. Under this universal shelf registraon statement we may oﬀer and sell, from me to me, debt securies, common stock, preferred stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Subject to certain condions, this registraon statement will be eﬀecve through January 13, 2025. We resumed stock repurchases during the fourth quarter of 2023 under our then exisng stock repurchase program that authorized us to purchase up to $250.0 million of our outstanding shares of common stock. On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by raising the total capacity under the program from $250.0 million to $500.0 million available for repurchases. The remaining amount available to purchase stock under the stock repurchase program was $499.4 million as of February 16, 2024. We plan to repurchase shares going forward to at least oﬀset the diluon from our annual stock-based compensaon and possibly beyond that amount as market condions and our strategic plans permit. See addional details regarding our stock repurchase program below on page 56. At December 31, 2023, our total cash and cash equivalents balance included approximately $13.2 million of cash that was held by operaons outside the U.S. While these funds may not be needed to fund our U.S. operaons for at least the next twelve months, if we need these funds, we may be required to accrue and pay taxes to repatriate the funds. We currently do not intend nor ancipate a need to repatriate our cash held outside the U.S. 54 2023 Form 10-K Table of Contents Operang Cash Flow Blackbaud, Inc. Throughout 2023 and 2022, our cash ﬂows from operaons were derived principally from: (i) our earnings from on-going operaons prior to non-cash expenses such as depreciaon, amorzaon, stock-based compensaon, deferred income taxes, amorzaon of deferred ﬁnancing costs and debt discount and adjustments to our provision for credit losses and sales returns; and (ii) changes in our working capital. Working capital changes are comprised of changes in accounts receivable, prepaid expenses and other assets, trade accounts payable, accrued expenses and other liabilies and deferred revenue. 2023 vs. 2022 Net cash provided by operang acvies decreased by $4.3 million during the year ended December 31, 2023, when compared to the same period in 2022, primarily due to a $71.3 million increase in net income adjusted for non-cash expenses and a $75.5 million decrease in cash ﬂow from operaons associated with working capital. The decrease in cash ﬂow from operaons associated with working capital during 2023, when compared to 2022, was primarily due to: • • ﬂuctuaons in the ming of vendor payments; and a decrease in accrued expenses related to the Security Incident. Security Incident update As discussed in Note 11 to our consolidated ﬁnancial statements included in this report, total costs related to the Security Incident exceeded the limit of our insurance coverage in the ﬁrst quarter of 2022. Accordingly, the Security Incident has negavely impacted, and we expect it to connue for the foreseeable future to negavely impact, our GAAP proﬁtability and GAAP cash ﬂow (see discussion regarding non-GAAP free cash ﬂow and non-GAAP adjusted free cash ﬂow on page 53). For full year 2023, we had net cash outlays of $78.0 million related to the Security Incident, which included ongoing legal fees, the $3.0 million civil penalty paid during the ﬁrst quarter of 2023 related to the SEC selement and the $49.5 million civil penalty paid during the fourth quarter of 2023 related to the mul-state Aorneys General selement. For full year 2024, we currently expect net pre-tax expense of approximately $5.0 million to $10.0 million and net cash outlays of approximately $8.0 million to $13.0 million for ongoing legal fees related to the Security Incident. As of December 31, 2023, we have recorded approximately $1.5 million in aggregate liabilies for loss conngencies based primarily on recent negoaons with certain customers related to the Security Incident that we believe we can reasonably esmate in accordance with our loss conngency procedures described in Note 11. It is reasonably possible that our esmated or actual losses may change in the near term for those maers and be materially in excess of the amounts accrued, but we are unable at this me to reasonably esmate the possible addional loss. There are other Security Incident-related maers, including customer claims, customer constuent class acons and governmental invesgaons, for which we have not recorded a liability for a loss conngency as of December 31, 2023 because we are unable at this me to reasonably esmate the possible loss or range of loss. Each of these maers could, separately or in the aggregate, result in an adverse judgement, selement, ﬁne, penalty or other resoluon, the amount, scope and ming of which we are currently unable to predict, but could have a material adverse impact on our results of operaons, cash ﬂows or ﬁnancial condion. 2023 Form 10-K 55 Table of Contents Invesng Cash Flow Blackbaud, Inc. During 2024, we expect our total capital expenditures, including esmated outlays for capitalized soware development costs, to be between approximately $65.0 million and $75.0 million. 2023 vs. 2022 Net cash used in invesng acvies of $64.4 million decreased by $21.2 million during 2023, when compared to 2022. During 2022, we received net cash of $6.4 million related to our disposion of Blackbaud FIMS™ and DonorCentral® NXT. During 2022, we used $20.9 million of net cash for our acquisions of EVERFI and Kilter, comprised primarily of (i) $17.4 million that had not been paid by EVERFI to its former opon holders as of December 31, 2021, solely due to the ming of the acquision on the last day of 2021; (ii) $2.9 million that was paid to acquire Kilter; and (iii) $2.6 million that was paid to a number of EVERFI's selling shareholders aer determining they would be paid in cash, rather than shares of our common stock. During 2023, we used $59.4 million for soware and content development costs, which was up $0.7 million from cash spent during 2022. We also spent $4.7 million of cash for purchases of property and equipment during 2023, which was a decrease of $7.6 million from cash spent in 2022. Financing Cash Flow 2023 vs. 2022 During 2023, we had a net decrease in borrowings of $81.4 million. During 2023, we repurchased $18.8 million of our common stock while we did not repurchase any of our common stock during 2022 (see addional details below regarding our stock repurchase program). We paid $35.9 million to sasfy tax obligaons of employees upon selement or exercise of equity awards during 2023 compared to $36.4 million during 2022. The amount of taxes paid by us on behalf of employees related to the selement or exercise of equity awards varies from period to period based upon the ming of grants and vesng, as well as the market price for shares of our common stock at the me of selement. Most of our equity awards currently vest in our ﬁrst quarter. During 2023, cash ﬂow from ﬁnancing acvies associated with changes in restricted cash due to customers decreased $6.8 million, compared to an increase of $111.4 million during 2022. This line in the statement of cash ﬂows represents the change in the amount of restricted cash held and payable by us to customers from one period to the next. This restricted cash due to customers is not available to us for operaonal purposes. Stock repurchase program In December 2021, our Board of Directors reauthorized, expanded and replenished our stock repurchase program that authorizes us to purchase up to $250.0 million of our outstanding shares of common stock. The program does not have an expiraon date. Under the stock repurchase program, we are authorized to repurchase shares from me to me in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securies Exchange Act of 1934, as amended, and in privately negoated transacons. The ming and amount of repurchases depends on several factors, including market and business condions, the trading price of our common stock and the nature of other investment opportunies. The repurchase program may be limited, suspended or disconnued at any me without prior noce. During the year ended December 31, 2023, we repurchased 221,836 shares for $18.8 million. The remaining amount available to purchase stock under the then approved stock repurchase program was $231.2 million as of December 31, 2023. On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by raising the total capacity under the program from $250.0 million to $500.0 million available for repurchases. Between January 1, 2024 and January 17, 2024, we repurchased $22.3 million under the prior authorizaon. Between January 18, 2024 and February 16, 2024, we repurchased an addional 7,114 shares for $0.6 million under the new authorizaon. The remaining amount available to purchase stock under the stock repurchase program was $499.4 million as of February 16, 2024. We plan 56 2023 Form 10-K Table of Contents Blackbaud, Inc. to repurchase shares going forward to at least oﬀset the diluon from our annual stock-based compensaon and possibly beyond that amount as market condions and our strategic plans permit. 2020 Credit Facility Historically, we have drawn on our credit facility from me to me to help us meet ﬁnancial needs primarily due to the seasonality of our cash ﬂows from operaons and ﬁnancing for business acquisions. At December 31, 2023, our available borrowing capacity under the 2020 Credit Facility was $384.5 million. The 2020 Credit Facility matures in October 2025. At December 31, 2023, the carrying amount of our debt under the 2020 Credit Facility was $720.6 million. Our average daily borrowings were $760.2 million during 2023. The term loans under the 2020 Credit Facility and our other debt 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 2020 Credit Facility in October 2025. Certain real estate loans (as described in Note 9 to our audited consolidated ﬁnancial statements included in this report) also require periodic principal payments and the balances of the real estate loans are due upon maturity in April 2038. The following is a summary of the ﬁnancial covenants under the 2020 Credit Facility: Financial Covenant Net Leverage Rao (1) Interest Coverage Rao Requirement ≤ 4.00 to 1.00 ≥ 2.50 to 1.00 Rao as of December 31, 2023 1.97 to 1.00 9.67 to 1.00 (1) Under the terms of the 2020 Credit Facility, the Net Leverage Rao requirement may be increased by up to 0.50 provided we sasfy certain requirements, including a permied business acquision, and provided that the maximum Net Leverage Rao shall not exceed 4.25 to 1.00. Under the 2020 Credit Facility, we also have restricons on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (i) no default or event of default shall have occurred and be connuing under the 2020 Credit Facility, and (ii) our pro forma net leverage rao, as set forth in the 2020 Credit Facility, must be 0.25 less than the net leverage rao requirement at the me of dividend declaraon or stock repurchase. At December 31, 2023, we were in compliance with our debt covenants under the 2020 Credit Facility. See Note 9 to our consolidated ﬁnancial statements included in this report for addional informaon regarding the 2020 Credit Facility. Commitments and Conngencies As of December 31, 2023, we had contractual obligaons with future minimum commitments as follows: (in millions) Recorded contractual obligaons: Debt Operang leases Interest payments on debt Conngent consideraon Unrecorded contractual obligaons: Purchase obligaons Interest payments on debt Total contractual obligaons (1) (1) The individual amounts may not sum to the total due to rounding. Payments due by period Less than 1 year More than 1 year $ 19.3 $ 761.9 $ 8.7 — — 88.1 35.1 46.8 5.5 1.4 169.5 55.9 Total (1) 781.1 55.5 5.5 1.4 257.6 90.9 $ 151.1 $ 1,040.9 $ 1,192.0 2023 Form 10-K 57 Table of Contents Debt Blackbaud, Inc. As of December 31, 2023, we had total remaining principal payments of $781.1 million. These payments represent principal payments only, under the following assumpons: (i) that the amounts outstanding under the 2020 Credit Facility, our real estate loans and our other debt at December 31, 2023 will remain outstanding unl maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the 2020 Revolving Facility for the purposes of determining minimum commitment amounts. See Note 9 to our consolidated ﬁnancial statements in this report for more informaon. Interest payments on debt In addion to principal payments, as of December 31, 2023, we expect to pay interest expense over the life of our debt obligaons of approximately $96.4 million. These payments represent our esmated future interest payments on debt using our debt balances and the related weighted average eﬀecve interest rates as of December 31, 2023, which includes the eﬀect of interest rate swap agreements. The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of me the debt is outstanding and the interest rate, which could be diﬀerent from our assumpons on our remaining principal payments described above. Operang leases As of December 31, 2023, we had remaining operang lease payments of $55.5 million. These payments have not been reduced by sublease income, incenve payments, reimbursement of leasehold improvements or the amount represenng imputed interest of $8.7 million. Our operang leases are generally for corporate oﬃces, subleased oﬃces and certain equipment and furniture. Given our remote-ﬁrst workforce strategy and real estate footprint opmizaon eﬀorts, as discussed above, we do not ancipate entering any new, material operang leases for oﬃces for the foreseeable future. See Note 11 to our consolidated ﬁnancial statements in this report for more informaon. Purchase obligaons As of December 31, 2023, we had remaining purchase obligaons of $257.6 million. These purchase obligaons are for third-party technology used in our soluons and for other services we purchase as part of our normal operaons. In certain cases, these arrangements require a minimum annual purchase commitment by us. Our purchase obligaons are not recorded as liabilies on our consolidated balance sheets as of December 31, 2023, as we had not received the related services. See Note 11 to our consolidated ﬁnancial statements in this report for more informaon. The total liability for uncertain tax posions as of December 31, 2023 was $3.2 million. Our accrued interest and penales related to tax posions taken on our tax returns was insigniﬁcant as of December 31, 2023. In connecon with the selement of the mul-state Aorneys General invesgaon relang to the Security Incident, as discussed in Note 11 to our consolidated ﬁnancial statements in this report, we have agreed to implement and improve certain of our cybersecurity programs and tools through October 2030. The currently ancipated costs in connecon with these eﬀorts are expected to be expensed as incurred. Conngent consideraon In connecon with our acquision of Kilter, we are obligated to pay conngent consideraon upon the achievement of certain milestones. For informaon regarding our conngent consideraon obligaons, see Note 3 to our consolidated ﬁnancial statements in this report. 58 2023 Form 10-K Table of Contents Blackbaud, Inc. Foreign Currency Exchange Rates Approximately 14% of our total revenue for 2023 was generated from operaons outside the U.S. We do not have signiﬁcant operaons in countries in which the economy is considered to be highly inﬂaonary. Our consolidated ﬁnancial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between foreign currencies and the U.S. dollar will aﬀect the translaon of our subsidiaries’ ﬁnancial results into U.S. dollars for purposes of reporng our consolidated ﬁnancial results. The accumulated currency translaon adjustment, recorded within accumulated other comprehensive (loss) income as a component of stockholders’ equity, was a loss of $9.8 million as of December 31, 2023 and a loss of $14.9 million as of December 31, 2022. We have entered into foreign currency forward contracts to hedge a poron of the foreign currency exposure that arises on translaon of our investments denominated in Brish Pounds into U.S. dollars. The vast majority of our contracts are entered into by our U.S. or U.K. enes. The contracts entered into by the U.S. enty are almost always denominated in U.S. dollars or Canadian dollars, and contracts entered into by our U.K., Australian and Irish subsidiaries are generally denominated in Brish Pounds, Australian dollars and Euros, respecvely. Historically, as the U.S. dollar weakened, foreign currency translaon resulted in an increase in our revenues and expenses denominated in non-U.S. currencies. Conversely, as the U.S. dollar strengthened, foreign currency translaon resulted in a decrease in our revenues and expenses denominated in non-U.S. currencies. During 2023, foreign translaon had an insigniﬁcant impact on our revenues and expenses denominated in non-U.S. currencies. Though we have exposure to ﬂuctuaons in currency exchange rates, primarily those between the U.S. dollar and both the Brish Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operaons or ﬁnancial posion. During 2023, the ﬂuctuaon in foreign currency exchange rates impacted our total revenue and our income from operaons by insigniﬁcant amounts. We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian dollar against changes in the exchange rate with the U.S. dollar. We will connue monitoring such exposure and take acon as appropriate. To determine the impacts on revenue (or income from operaons) from ﬂuctuaons in currency exchange rates, current period revenues (or income from operaons) from enes reporng in foreign currencies were translated into U.S. dollars using the comparable prior year period's weighted average foreign currency exchange rates. These impacts are non-GAAP ﬁnancial informaon and are not in accordance with, or an alternave to, informaon prepared in accordance with GAAP. Crical Accounng Esmates Our discussion and analysis of ﬁnancial condion and results of operaons are based upon our consolidated ﬁnancial statements, which have been prepared in accordance with accounng principles generally accepted in the United States ("GAAP"). The preparaon of these ﬁnancial statements requires us to make esmates and assumpons that aﬀect the reported amounts of assets and liabilies and disclosure of conngent assets and liabilies at the date of the ﬁnancial statements, as well as the reported amounts of revenues and expenses during the reporng periods. On an ongoing basis, we reconsider and evaluate our esmates and assumpons. We base our esmates on historical experience, current trends and various other assumpons that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilies that are not readily apparent from other sources. Actual results could materially diﬀer from any of our esmates under diﬀerent assumpons or condions. Our signiﬁcant accounng policies are discussed in Note 2 to our consolidated ﬁnancial statements in this report. We believe the accounng esmates listed below are the most crical to aid in fully understanding and evaluang our reported ﬁnancial results, and they require our most diﬃcult, subjecve or complex judgments, resulng from the need to make esmates about the eﬀect of maers that are inherently uncertain. 2023 Form 10-K 59 Table of Contents Revenue Recognion Blackbaud, Inc. Descripon Judgments and Uncertaines Eﬀect if Actual Results Diﬀer From Assumpons See Note 2 to our consolidated ﬁnancial statements in this report for a complete discussion of our revenue recognion policies. Our revenue recognion accounng methodology may contain uncertaines because it could require us to make signiﬁcant esmates and assumpons, and to apply judgment for certain customer contracts. If we were to change any of these judgments or esmates, it could cause a material increase or decrease in the amount of revenue or deferred revenue that we report in a parcular period. For example, for certain arrangements that have mulple performance obligaons, we may need to exercise judgment and use esmates in order to (1) determine whether performance obligaons are disnct and should be accounted for separately; (2) determine the standalone selling price of each performance obligaon; (3) allocate the transacon price among the various performance obligaons on a relave standalone selling price basis; and (4) determine whether revenue for each performance obligaon should be recognized at a point in me or over me. Revenues are recognized when control of our services is transferred to our customers, in an amount that reﬂects the consideraon we expect to be entled to in exchange for those services. We determine revenue recognion through the following steps: (1) Idenﬁcaon of the contract, or contracts, with a customer; (2) Idenﬁcaon of the performance obligaons in the contract; (3) Determinaon of the transacon price; (4) Allocaon of the transacon price to the performance obligaons in the contract; and (5) Recognion of revenue when, or as, we sasfy a performance obligaon. We have not made any material changes in the accounng methodology we use to recognize revenue during the year ended December 31, 2023. 60 2023 Form 10-K Table of Contents Business Combinaons Blackbaud, Inc. Descripon Judgments and Uncertaines We allocate the purchase price of an acquired business to its idenﬁable assets acquired and liabilies assumed at the acquision date based upon their esmated fair values. The excess of the purchase price over the amount allocated to the idenﬁable assets acquired and liabilies assumed, if any, is recorded as goodwill. Our purchase price allocaon methodology contains uncertaines because it requires us to make signiﬁcant esmates and assumpons, and to apply judgment to esmate the fair value of assets acquired and liabilies assumed, especially with respect to long-lived and intangible assets. We use available informaon to esmate fair values. We typically engage outside appraisal ﬁrms to assist in the fair value determinaon of long-lived and idenﬁable intangible assets, and any other signiﬁcant assets or liabilies. We adjust the preliminary purchase price allocaon, as necessary, up to one year aer the acquision closing date as we obtain new informaon about facts and circumstances that existed as of the closing date. We have not made any material changes in the accounng methodology we use for business combinaons during the year ended December 31, 2023. Management esmates the fair value of assets acquired and liabilies assumed based on quoted market prices, the carrying value of the acquired assets and widely accepted valuaon techniques, including discounted cash ﬂows, market mulple analyses and replacement cost. We apply signiﬁcant judgement in esmang the fair value of intangible assets acquired, which involves the use of signiﬁcant assumpons. Signiﬁcant assumpons used in the valuaon of customer relaonships include future revenue and operang expenses, customer arion rates, contributory asset charges, tax amorzaon beneﬁt, and discount rates. Signiﬁcant assumpons used in the valuaon of certain developed technology assets include future revenue, proprietary technology obsolescence curve, royalty rate, and discount rate. Signiﬁcant assumpons used in the valuaon of markeng assets include assumpons about the period of me the brand will connue to be valuable, royalty rate, and discount rate. Signiﬁcant assumpons used in the valuaon of content intangible assets include cost-based assumpons. Our esmates of fair value are based upon assumpons we believe to be reasonable, but which are inherently uncertain and unpredictable, and unancipated events and changes in circumstances may occur. Eﬀect if Actual Results Diﬀer From Assumpons If actual results are materially diﬀerent than the assumpons we used to determine fair value of the assets acquired and liabilies assumed through a business combinaon as well as the esmated useful lives of the acquired intangible assets, it is possible that adjustments to the carrying values of such assets and liabilies will have a material impact on our ﬁnancial posion and results of operaons. See Note 3 to our consolidated ﬁnancial statements in this report for informaon regarding our business acquisions. 2023 Form 10-K 61 Table of Contents Income Taxes Blackbaud, Inc. Descripon Judgments and Uncertaines We make esmates and judgments in accounng for income taxes. Our income tax returns, like those of most companies, are periodically audited by domesc and foreign tax authories. We measure and recognize uncertain tax posions. To recognize uncertain tax posions, we must ﬁrst determine if it is more likely than not that the posion 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 ulmate selement. We make esmates in determining tax assets and liabilies, which arise from diﬀerences in the ming of recognion of revenue and expense for tax and ﬁnancial reporng purposes. We record valuaon allowances to reduce our deferred tax assets to the amount expected to be realized. We have not made any material changes in the accounng methodology we use to assess income tax during the year ended December 31, 2023. The calculaon of our income tax provision requires esmates due to transacons, credits and calculaons where the ulmate tax determinaon is uncertain. Uncertaines arise as a consequence of the actual source of taxable income between domesc and foreign locaons, the outcome of tax audits and the ulmate ulizaon of tax credits. Our eﬀecve income tax rate is also aﬀected by changes in the geographic distribuon of our earnings or losses, changes in tax law in jurisdicons where we conduct business. Signiﬁcant judgment is required in the idenﬁcaon and measurement of uncertain tax posions. Our liability for unrecognized tax beneﬁts contains uncertaines because management is required to make assumpons and to apply judgment to esmate the exposures associated with our various ﬁling posions. In assessing the adequacy of a recorded valuaon allowance signiﬁcant judgment is required. We consider all posive and negave evidence and a variety of factors including the scheduled reversal of deferred tax liabilies, historical and projected future taxable income, and prudent and feasible tax planning strategies. Long-lived Assets and Intangible Assets Other Than Goodwill Descripon Judgments and Uncertaines In esmang future cash ﬂows, assets are grouped at the lowest level for which there is idenﬁable cash ﬂows that are largely independent of cash ﬂows from other asset groups. When measuring impairment of an asset or asset group using discounted cash ﬂows, we make assumpons and apply judgment in esmang future cash ﬂows and asset or asset group fair values, including annual revenue growth rates, a terminal year growth rate and selecng a discount rate that reﬂects the risk inherent in future cash ﬂows. We review our long-lived assets and intangible assets other than goodwill for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. If such events or changes in circumstances occur, we use the undiscounted cash ﬂow method to determine whether our long-lived and intangible assets other than goodwill are impaired. To the extent that the carrying value of the asset or asset group exceeds the undiscounted cash ﬂows over the esmated remaining life of the asset, we measure the impairment using discounted cash ﬂows. We have not made any material changes in the accounng methodology we use to assess impairment loss during the year ended December 31, 2023. 62 2023 Form 10-K Eﬀect if Actual Results Diﬀer From Assumpons Although we believe that the judgments and esmates discussed herein are reasonable, actual results could diﬀer, and we may be exposed to losses or gains that could be material. To the extent actual results diﬀer from esmated amounts recorded, such diﬀerences will impact the income tax provision in the period in which the determinaon is made. 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 valuaon allowance is made to increase income tax expense, thereby reducing net income in the period such determinaon was made. Eﬀect if Actual Results Diﬀer From Assumpons During 2023, we recorded immaterial noncash impairment charges against certain operang lease ROU assets and certain property and equipment assets. For addional informaon, see Notes 7 and 11 to our consolidated ﬁnancial statements in this report. We do not believe there is a reasonable likelihood that there will be a material change in the future esmates or assumpons we use to assess impairment losses. However, if actual results are not consistent with our esmates or assumpons, we may be exposed to an impairment charge that could materially adversely impact our consolidated ﬁnancial posion and results of operaons. Table of Contents Loss Conngencies Blackbaud, Inc. Descripon Judgments and Uncertaines We review any such loss conngency accruals at least quarterly and adjust them to reﬂect the impacts of negoaons, selements, rulings, advice of legal counsel and other informaon and events pertaining to a parcular case. Oen these issues are subject to substanal uncertaines and, therefore, the probability of loss and the esmaon of damages are diﬃcult to ascertain. These assessments can involve a series of complex judgments about future events and can rely heavily on esmates and assumpons that have been deemed reasonable by us. We are subject to the possibility of various loss conngencies, including legal proceedings and claims, that arise in the normal course of business, as well as certain other non-ordinary course proceedings, claims and invesgaons, as described in Note 11 to the consolidated ﬁnancial statements in this report. We record an accrual for a loss conngency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably esmated. If only a range of esmated losses can be determined, we accrue an amount within the range that, in our judgment, reﬂects the most likely outcome; if none of the esmates within that range is a beer esmate 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 esmate of the loss or range of losses arising from the proceeding can be made, we disclose such an esmate, if material. If such a loss or range of losses is not reasonably esmable, we disclose that fact. We have not made any material changes in the accounng methodology we use to assess loss conngencies during the year ended December 31, 2023. Eﬀect if Actual Results Diﬀer From Assumpons With the excepon of the 2020 Security Incident, we do not believe there is a reasonable likelihood that there will be a material change in the future esmates or assumpons we use to determine loss conngencies. However, if facts and circumstances change in the future that change our belief regarding assumpons used to determine our esmates, we may be exposed to losses that could be material. Although we believe we have substanal defenses in these maers, we could incur judgments or enter into selements of claims that could have a material adverse eﬀect on our consolidated ﬁnancial posion, results of operaons or cash ﬂows in any parcular period. For addional informaon, see Note 11 to our consolidated ﬁnancial statements in this report. Recently Issued Accounng Pronouncements For a discussion of the impact that recently issued accounng pronouncements are expected to have on our ﬁnancial posion and results of operaons when adopted in the future, see Note 2 to our consolidated ﬁnancial statements in this report. 2023 Form 10-K 63 Table of Contents Blackbaud, Inc. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have market rate sensivity for interest rates and foreign currency exchange rates. Interest Rate Risk Our variable rate debt is our primary ﬁnancial instrument with market risk exposure for changing interest rates. We manage our variable rate interest rate risk through a combinaon of short-term and long-term borrowings and the use of derivave instruments entered into for hedging purposes. Addionally, our interest income that we primarily earn on restricted cash held and payable by us to customers for our payment processing soluons acts as a paral natural hedge against our interest rate risk. Our interest rate exposure includes SOFR rates. Because the Financial Conduct Authority in the U.K. previously stated that it would phase out all tenors of LIBOR by June 2023, we modiﬁed our ﬁnancial contracts that were indexed to LIBOR to reference SOFR during 2022. These modiﬁcaons did not have a signiﬁcant ﬁnancial impact. Due to the nature of our debt, the materiality of the fair values of the derivave instruments and the highly liquid, short-term nature and level of our cash and cash equivalents as of December 31, 2023, we believe that the risk of exposure to changing interest rates for those posions is immaterial. There were no signiﬁcant changes in how we manage interest rate risk between December 31, 2022 and December 31, 2023. Foreign Currency Risk For a discussion of our exposure to foreign currency exchange rate ﬂuctuaons, see “Management’s Discussion and Analysis of Financial Condion and Results of Operaons — Foreign Currency Exchange Rates” in Item 7 of this report. 64 2023 Form 10-K Table of Contents Blackbaud, Inc. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA BLACKBAUD, INC. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounng Firms (PCAOB IDs 42 and 238) Consolidated Balance Sheets Consolidated Statements of Comprehensive (Loss) Income Consolidated Statements of Cash Flows Consolidated Statements of Stockholders’ Equity Notes to Consolidated Financial Statements Page No. 66 70 71 72 73 74 65 2023 Form 10-K To the Stockholders and the Board of Directors of Blackbaud, Inc. Opinion on the Financial Statements Report of Independent Registered Public Accounng Firm We have audited the accompanying consolidated balance sheets of Blackbaud, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive loss, cash ﬂows, and stockholders’ equity for each of the two years in the period ended December 31, 2023, and the related notes (collecvely referred to as the “consolidated ﬁnancial statements”). In our opinion, the consolidated ﬁnancial statements present fairly, in all material respects, the ﬁnancial posion of the Company at December 31, 2023 and 2022, and the results of its operaons and its cash ﬂows for each of the two years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounng principles. We also have audited, in accordance with the standards of the Public Company Accounng Oversight Board (United States) (PCAOB), the Company's internal control over ﬁnancial reporng as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Commiee of Sponsoring Organizaons of the Treadway Commission (2013 framework) and our report dated February 21, 2024, 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 accounng ﬁrm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securies laws and the applicable rules and regulaons of the Securies 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 audits to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the ﬁnancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the ﬁnancial statements. Our audits also included evaluang the accounng principles used and signiﬁcant esmates made by management, as well as evaluang the overall presentaon of the ﬁnancial statements. We believe that our audits provide a reasonable basis for our opinion. Crical Audit Maer The crical audit maer communicated below is a maer arising from the current period audit of the ﬁnancial statements that was communicated or required to be communicated to the audit commiee and that: (1) relates to accounts or disclosures that are material to the ﬁnancial statements and (2) involved our especially challenging, subjecve or complex judgments. The communicaon of the crical audit maer does not alter in any way our opinion on the consolidated ﬁnancial statements, taken as a whole, and we are not, by communicang the crical audit maer below, providing a separate opinion on the crical audit maer or on the account or disclosure to which it relates. Descripon of the Maer Revenue Recognion - Payment Processing Services The Company recorded transaconal recurring revenues of $333 million for the year ended December 31, 2023. Included in transaconal recurring revenues are revenues related to payment processing services provided to customers that enable donaons and the purchase of goods and services. As discussed in Note 2 to the consolidated ﬁnancial statements, the Company recognizes revenue for payment processing services over me 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 transacons and recording of revenues for these services involves a signiﬁcant volume of transacons that are highly automated and are based on contractual terms with the customer and the Company’s third-party vendors. Auding the revenues for these payment processing services is complex because the processes are highly automated and involve mulple IT systems with a signiﬁcant volume of transacons and related underlying data. Further, auding the revenues for these payment processing services required the involvement of data professionals to assist in validang the integrity of the underlying data and recalculang the revenues recorded during the period. 66 2023 Form 10-K How We Addressed the Maer in Our Audit We obtained an understanding, evaluated the design, and tested the operang eﬀecveness of the Company’s controls over its payment processing services provided to customers that enable donaons and the purchase of goods and services. We idenﬁed the relevant systems used in these payment processing services, including relevant third-party service organizaon 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 selecon of payment processing transacons, we also agreed the amount of revenues recognized for processing fees retained by the Company to source documents and tested the mathemacal accuracy of the recorded revenue. We also evaluated if the transacons were processed, and funds received prior to December 31, 2023, including sending conﬁrmaons directly to ﬁnancial instuons. /s/ Ernst & Young LLP We have served as the Company's auditor since 2021. Raleigh, North Carolina February 21, 2024 2023 Form 10-K 67 Report of Independent Registered Public Accounng Firm To the Stockholders and the Board of Directors of Blackbaud, Inc. Opinion on Internal Control Over Financial Reporng We have audited Blackbaud, Inc.’s internal control over ﬁnancial reporng as of December 31, 2023, based on criteria established in Internal Control— Integrated Framework issued by the Commiee of Sponsoring Organizaons of the Treadway Commission (2013 Framework) (the COSO criteria). In our opinion, Blackbaud, Inc. (the Company) maintained, in all material respects, eﬀecve internal control over ﬁnancial reporng as of December 31, 2023, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounng Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive loss, cash ﬂows, and stockholders' equity for the two years in the period ended December 31, 2023, and the related notes and our report dated February 21, 2024 expressed an unqualiﬁed opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining eﬀecve internal control over ﬁnancial reporng and for its assessment of the eﬀecveness of internal control over ﬁnancial reporng included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporng. Our responsibility is to express an opinion on the Company’s internal control over ﬁnancial reporng based on our audit. We are a public accounng ﬁrm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securies laws and the applicable rules and regulaons of the Securies 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 eﬀecve internal control over ﬁnancial reporng was maintained in all material respects. Our audit included obtaining an understanding of internal control over ﬁnancial reporng, assessing the risk that a material weakness exists, tesng and evaluang the design and operang eﬀecveness 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. Deﬁnion and Limitaons of Internal Control Over Financial Reporng A company’s internal control over ﬁnancial reporng is a process designed to provide reasonable assurance regarding the reliability of ﬁnancial reporng and the preparaon of ﬁnancial statements for external purposes in accordance with generally accepted accounng principles. A company’s internal control over ﬁnancial reporng includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the transacons and disposions of the assets of the company; (2) provide reasonable assurance that transacons are recorded as necessary to permit preparaon of ﬁnancial statements in accordance with generally accepted accounng principles, and that receipts and expenditures of the company are being made only in accordance with authorizaons of management and directors of the company; and (3) provide reasonable assurance regarding prevenon or mely detecon of unauthorized acquision, use, or disposion of the company’s assets that could have a material eﬀect on the ﬁnancial statements. Because of its inherent limitaons, internal control over ﬁnancial reporng may not prevent or detect misstatements. Also, projecons of any evaluaon of eﬀecveness to future periods are subject to the risk that controls may become inadequate because of changes in condions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Raleigh, North Carolina February 21, 2024 68 2023 Form 10-K Report of Independent Registered Public Accounng Firm To the Board of Directors and Stockholders of Blackbaud, Inc. Opinion on the Financial Statements We have audited the consolidated statements of comprehensive (loss) income, of stockholders' equity and of cash ﬂows of Blackbaud, Inc. and its subsidiaries (the “Company”) for the year ended December 31, 2021 including the related notes (collecvely referred to as the “consolidated ﬁnancial statements”). In our opinion, the consolidated ﬁnancial statements present fairly, in all material respects, the results of operaons and cash ﬂows of the Company for the year ended December 31, 2021 in conformity with accounng principles generally accepted in the United States of America. Basis for Opinion These consolidated ﬁnancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated ﬁnancial statements based on our audit. We are a public accounng ﬁrm registered with the Public Company Accounng Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securies laws and the applicable rules and regulaons of the Securies and Exchange Commission and the PCAOB. We conducted our audit of these consolidated ﬁnancial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁnancial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated ﬁnancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated ﬁnancial statements. Our audit also included evaluang the accounng principles used and signiﬁcant esmates made by management, as well as evaluang the overall presentaon of the consolidated ﬁnancial statements. We believe that our audit provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Atlanta, Georgia March 1, 2022 We served as the Company’s auditor from 2000 to 2022. 2023 Form 10-K 69 Blackbaud, Inc. Consolidated Balance Sheets (dollars in thousands, except per share amounts) Assets Current assets: Cash and cash equivalents Restricted cash Accounts receivable, net of allowance of $6,907 and $7,318 at December 31, 2023 and December 31, 2022, respecvely Customer funds receivable Prepaid expenses and other current assets Total current assets Property and equipment, net Operang lease right-of-use assets Soware and content development costs, net Goodwill Intangible assets, net Other assets Total assets Liabilies and stockholders’ equity Current liabilies: Trade accounts payable Accrued expenses and other current liabilies Due to customers Debt, current poron Deferred revenue, current poron Total current liabilies Debt, net of current poron Deferred tax liability Deferred revenue, net of current poron Operang lease liabilies, net of current poron Other liabilies Total liabilies Commitments and conngencies (see Note 11) Stockholders’ equity: Preferred stock; 20,000,000 shares authorized; none outstanding Common stock, $0.001 par value; 180,000,000 shares authorized; 69,188,304 and 67,814,044 shares issued at December 31, 2023 and December 31, 2022, respecvely; 53,625,440 and 53,068,814 shares outstanding at December 31, 2023 and December 31, 2022, respecvely Addional paid-in capital Treasury stock, at cost; 15,562,864 and 14,745,230 shares at December 31, 2023 and December 31, 2022, respecvely Accumulated other comprehensive (loss) income Retained earnings Total stockholders’ equity Total liabilies and stockholders’ equity $ $ $ December 31, 2023 December 31, 2022 31,251 $ 697,006 101,862 353 99,285 929,757 98,689 36,927 160,194 1,053,738 581,937 51,037 2,912,279 $ 25,184 $ 64,322 695,842 19,259 392,530 1,197,137 760,405 93,292 2,397 40,085 10,258 31,691 702,240 102,809 249 81,654 918,643 107,426 45,899 141,023 1,050,272 635,136 94,304 2,992,703 42,559 86,002 700,860 18,802 382,419 1,230,642 840,241 125,759 2,817 44,918 4,294 2,103,574 2,248,671 — — 69 1,203,012 (591,557) (1,688) 198,869 808,705 $ 2,912,279 $ 68 1,075,264 (537,287) 8,938 197,049 744,032 2,992,703 The accompanying notes are an integral part of these consolidated ﬁnancial statements. 70 2023 Form 10-K Blackbaud, Inc. Consolidated Statements of Comprehensive (Loss) Income (dollars in thousands, except per share amounts) 2023 2022 2021 Years ended December 31, Revenue Recurring One-me services and other Total revenue Cost of revenue Cost of recurring Cost of one-me services and other Total cost of revenue Gross proﬁt Operang expenses Sales, markeng and customer success Research and development General and administrave Amorzaon Restructuring Total operang expenses Income (loss) from operaons Interest expense Other income, net Income (loss) before provision for income taxes Income tax provision (beneﬁt) Net income (loss) Earnings (loss) per share Basic Diluted Common shares and equivalents outstanding Basic weighted average shares Diluted weighted average shares Other comprehensive (loss) income Foreign currency translaon adjustment Unrealized (loss) gain on derivave instruments, net of tax Total other comprehensive (loss) income Comprehensive (loss) income $ 1,071,520 $ 33,912 1,011,733 $ 46,372 1,105,432 1,058,105 470,455 31,733 502,188 603,244 212,158 153,304 189,938 3,139 — 558,539 44,705 (39,922) 12,861 17,644 15,824 463,449 41,940 505,389 552,716 221,455 156,913 199,908 2,925 — 581,201 (28,485) (35,803) 8,713 (55,575) (10,168) 1,820 $ (45,407) $ 0.03 $ 0.03 $ (0.88) $ (0.88) $ 880,850 46,890 927,740 390,803 52,392 443,195 484,545 186,314 124,573 146,262 2,227 263 459,639 24,906 (18,003) 180 7,083 1,385 5,698 0.12 0.12 52,546,406 53,721,342 51,569,148 51,569,148 47,412,306 48,230,438 5,049 $ (15,675) (10,626) (16,160) $ 18,576 2,416 (8,806) $ (42,991) $ 661 8,358 9,019 14,717 $ $ $ $ $ The accompanying notes are an integral part of these consolidated ﬁnancial statements. 2023 Form 10-K 71 Blackbaud, Inc. Consolidated Statements of Cash Flows (dollars in thousands) Cash ﬂows from operang acvies Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operang acvies: Depreciaon and amorzaon Provision for credit losses and sales returns Stock-based compensaon expense Deferred taxes Amorzaon of deferred ﬁnancing costs and discount Other non-cash adjustments Changes in operang assets and liabilies, net of acquision and disposal of businesses: Accounts receivable Prepaid expenses and other assets Trade accounts payable Accrued expenses and other liabilies Deferred revenue Net cash provided by operang acvies Cash ﬂows from invesng acvies Purchase of property and equipment Capitalized soware and content development costs Purchase of net assets of acquired companies, net of cash and restricted cash acquired Cash received in sale of business Other invesng acvies Net cash used in invesng acvies Cash ﬂows from ﬁnancing acvies Proceeds from issuance of debt Payments on debt Debt issuance costs Stock issuance costs Employee taxes paid for withheld shares upon equity award selement Change in due to customers Change in customer funds receivable Purchase of treasury stock Net cash (used in) provided by ﬁnancing acvies Eﬀect of exchange rate on cash, cash equivalents and restricted cash Net (decrease) increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of year Cash, cash equivalents and restricted cash, end of year Supplemental disclosure of cash ﬂow informaon Cash paid for interest Cash (paid) for taxes, net of refunds Non-cash invesng and ﬁnancing acvies: Purchase of EVERFI through the issuance of stock (see Note 3) Purchase of soware and services by assuming directly related liabilies Purchase of equipment and other assets included in accounts payable Years ended December 31, 2023 2022 2021 $ 1,820 $ (45,407) $ 5,698 109,487 4,500 127,762 (24,368) 1,775 5,023 (3,237) 16,851 (18,576) (30,275) 8,872 199,634 (4,685) (59,443) (13) — (250) (64,391) 293,200 (374,595) — — (35,867) (6,812) (60) (18,831) (142,965) 2,048 (5,674) 733,931 102,369 6,066 110,294 (26,644) 2,364 5,676 (7,340) 26,235 21,607 (2,386) 11,059 82,410 11,450 120,379 (2,429) 1,570 10,490 (6,525) (2,048) (9,670) (8,190) 10,526 203,893 213,661 (12,289) (58,774) (20,912) 6,426 — (85,549) 211,000 (310,740) — (1,339) (36,376) 111,386 380 — (25,689) (10,486) 82,169 651,762 (11,664) (40,489) (419,120) — — (471,273) 582,200 (152,971) (3,106) — (39,404) (13,464) (731) (108,416) 264,108 297 6,793 644,969 651,762 $ $ 728,257 $ 733,931 $ (38,052) $ (35,619) (33,371) $ (9,670) (16,386) (10,073) — (2,491) (837) — (1,710) (158) (303,633) — (1,747) The following table provides a reconciliaon 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) Cash and cash equivalents Restricted cash Total cash, cash equivalents and restricted cash in the statement of cash ﬂows December 31, 2023 December 31, 2022 $ $ 31,251 $ 697,006 728,257 $ 31,691 702,240 733,931 The accompanying notes are an integral part of these consolidated ﬁnancial statements. 72 2023 Form 10-K Blackbaud, Inc. Consolidated Statements of Stockholders' Equity (dollars in thousands) Balance at December 31, 2020 Net income Common stock issued in purchase of EVERFI (see Note 3) Purchase of treasury shares under stock repurchase program Vesng of restricted stock units Shares withheld to sasfy tax withholdings Stock-based compensaon Restricted stock grants Restricted stock cancellaons Other comprehensive income Balance at December 31, 2021 Net loss Stock issuance costs related to purchase of EVERFI (see Note 3) (1) Rerements of common stock Vesng of restricted stock units Shares withheld to sasfy tax withholdings Stock-based compensaon Restricted stock grants Restricted stock cancellaons Other comprehensive income Balance at December 31, 2022 Net income Rerements of common stock Purchase of treasury shares under stock repurchase program (1) Vesng of restricted stock units Shares withheld to sasfy tax withholdings Stock-based compensaon Restricted stock grants Restricted stock cancellaons Other comprehensive loss Balance at December 31, 2023 Common stock Treasury stock Shares Amount Shares Amount Addional paid-in capital Accumulated other comprehensive (loss) income Retained earnings Total stockholders' equity 60,904,638 $ — 3,844,423 — 1,014,562 — — 596,763 (194,720) — 66,165,666 $ — — (33,535) 1,015,304 — — 846,295 (179,686) — 67,814,044 $ — (143) — 1,007,921 — — 473,341 (106,859) — 61 — 4 — 1 — — — — — 66 — — — — — — 2 — — 68 — — — — — — 1 — — (12,054,268) $ (353,091) $ 544,963 $ (2,497) $ 236,714 $ — — — — (1,592,933) — (535,604) — — — (108,416) — (39,404) — — — — — — 303,629 — — — 120,335 — — — — — — — — — — — 9,019 5,698 — — — — 44 — — — (14,182,805) $ (500,911) $ 968,927 $ 6,522 $ 242,456 $ — — — — (45,407) — — — (562,425) — — — — — — — (36,376) — — — — (1,352) (2,605) — — 110,294 — — — — — — — — — — 2,416 — — — — — — — — (14,745,230) $ (537,287) $ 1,075,264 $ 8,938 $ 197,049 $ — — — — — (14) (221,836) — (595,798) — — — — (18,831) — (35,439) — — — — — — — 127,762 — — — — — — — — — — — (10,626) 1,820 — — — — — — — — 426,150 5,698 303,633 (108,416) 1 (39,404) 120,379 — — 9,019 717,060 (45,407) (1,352) (2,605) — (36,376) 110,294 2 — 2,416 744,032 1,820 (14) (18,831) — (35,439) 127,762 1 — (10,626) 69,188,304 $ 69 (15,562,864) $ (591,557) $ 1,203,012 $ (1,688) $ 198,869 $ 808,705 (1) Represents shares rered aer determining certain EVERFI's selling shareholders would be paid in cash, rather than shares of our common stock. See Note 3 for addional informaon regarding our acquision of EVERFI. The accompanying notes are an integral part of these consolidated ﬁnancial statements. 2023 Form 10-K 73 Table of Contents 1. Organizaon Blackbaud, Inc. Notes to Consolidated Financial Statements We are the leading soware provider exclusively dedicated to powering social impact. Serving the nonproﬁt and educaon sectors, companies commied to social responsibility and individual change makers, our essenal soware is built to accelerate impact in fundraising, nonproﬁt ﬁnancial management, digital giving, grantmaking, corporate social responsibility and educaon management. A remote-ﬁrst company, we have operaons in the United States, Australia, Canada, Costa Rica and the United Kingdom, supporng users in 100+ countries. 2. Basis of Presentaon Basis of presentaon The consolidated ﬁnancial statements have been prepared in accordance with accounng principles generally accepted in the United States (“GAAP”). Basis of consolidaon The consolidated ﬁnancial statements include the accounts of Blackbaud, Inc. and its wholly owned subsidiaries. All intercompany balances and transacons have been eliminated in consolidaon. Use of esmates The preparaon of ﬁnancial statements in conformity with GAAP requires management to make esmates and assumpons that aﬀect the reported amounts of assets and liabilies and disclosure of conngent assets and liabilies at the date of the ﬁnancial statements, as well as the reported amounts of revenues and expenses during the reporng periods. On an ongoing basis, we reconsider and evaluate our esmates and assumpons, including those that impact revenue recognion, long-lived and intangible assets, income taxes, business combinaons, stock-based compensaon, capitalizaon of soware development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuaon of derivave instruments, loss conngencies and insurance recoveries, among others. Changes in the facts or circumstances underlying these esmates could result in material changes and actual results could materially diﬀer from these esmates. Recently adopted accounng pronouncements In September 2022, the Financial Accounng Standards Board issued Accounng Standards Update 2022-04, Liabilies-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligaons ("ASU 2022-04"). This update requires enes that use supplier ﬁnance programs in connecon with the purchase of goods and services to disclose key terms of the programs and informaon about obligaons outstanding at the end of the reporng period, including a rollforward of those obligaons. The guidance does not aﬀect the recognion, measurement, or ﬁnancial statement presentaon of supplier ﬁnance programs. We adopted ASU 2022-04 on January 1, 2023 and the adopon did not have a material impact on our condensed consolidated ﬁnancial statements. Recently issued accounng pronouncements There are no recently issued accounng pronouncements that are expected to have a material impact on our ﬁnancial posion or results of operaons when adopted in the future. Summary of signiﬁcant accounng policies Revenue recognion Our revenue is primarily generated from the following sources: (i) charging for the use of our soware soluons in cloud and hosted environments; (ii) providing payment and transacon services; and (iii) providing Impact-as-a-Service™ digital educaonal content. Revenue is recognized when control of these services is transferred to our customers, in an amount that reﬂects the consideraon we expect to be entled to in exchange for those services. 74 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements We determine revenue recognion through the following steps: • • • • • Idenﬁcaon of the contract, or contracts, with a customer; Idenﬁcaon of the performance obligaons in the contract; Determinaon of the transacon price; Allocaon of the transacon price to the performance obligaons in the contract; and Recognion of revenue when, or as, we sasfy a performance obligaon. Our recurring revenue includes two components: contractual recurring and transaconal recurring. Contractual recurring Contractual recurring revenue is primarily comprised of fees for the use of our subscripon-based soware soluons, which includes providing access to cloud soluons, Impact-as-a-Service™ digital educaonal content, online training programs and subscripon-based analyc services. Contractual recurring revenue also includes fees from maintenance services for our on-premises soluons. Contractual recurring revenue represents stand-ready performance obligaons in which we are making our soluons or services available to our customers connuously over me or the value of the contract renews. Therefore, recurring revenue is generally recognized over me on a ratable basis over the contract term, beginning on the date that the soluon or service is made available to the customer. Our recurring revenue contracts are generally for a term of three years at contract incepon with three-year renewals thereaer, billed annually in advance and non-cancelable. Transaconal recurring Transaconal recurring revenue is comprised of transacon fees associated with the use of our soluons, including donaon processing, tuion 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 transacon based on the factors idenﬁed 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 transacon fees) and record the net amount as revenue. For payment and transacon 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 me based on the amount we withhold for the transacon fees in accordance with the 'as invoiced' praccal expedient in ASC 606-10-55-18. One-me services and other One-me services and other revenue is primarily comprised of fees for one-me consulng, analyc 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 soluon contracts. We generally bill consulng services based on hourly rates plus reimbursable travel-related expenses. Fixed price consulng engagements are generally billed as milestones towards compleon are reached. Revenue for one-me consulng services is generally recognized over me as the services are performed. Fees for retained and managed services contracts are generally billed in advance and recognized over me on a ratable basis over the contract term, beginning on the date the service is made available to the customer. Contracts with mulple performance obligaons Some of our contracts with customers contain mulple performance obligaons. For these contracts, we account for individual performance obligaons separately if they are disnct. The transacon price is allocated to the separate performance obligaons on a relave standalone selling price basis. Standalone selling prices of our soluons and services are typically esmated based on observable transacons when the soluons or services are sold on a standalone basis. 2023 Form 10-K 75 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 me contracts with customers are signed or shortly thereaer, depending on the size and duraon 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 amorzed in a manner that aligns with the expected period of beneﬁt, which we have historically determined to be ﬁve years. We determined the period of beneﬁt by taking into consideraon our customer contracts, including renewals, retenon, our technology and other factors. We generally do not pay commissions for contract renewals that are commensurate with the commission paid on the inial contract. The related amorzaon expense is included in sales, markeng and customer success expense in our consolidated statements of comprehensive income. A contract asset is recorded when revenue is recognized in advance of our right to receive consideraon (i.e., we must sasfy addional performance obligaons in order to receive consideraon). Amounts are recorded as receivables when our right to consideraon is uncondional (i.e., only the passage of me is required before payment of the consideraon 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 soluons and services in advance of us sasfying the related performance obligaons, we record such amounts in deferred revenue. Sales taxes We present sales taxes and other taxes collected from customers and remied to governmental authories on a net basis and, as such, exclude them from revenues. Fair value measurements We measure certain ﬁnancial assets and liabilies at fair value on a recurring basis, including derivave 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 transacon between market parcipants at the measurement date. An acve market is deﬁned as a market in which transacons for the asset or liability take place with suﬃcient frequency and volume to provide pricing informaon on an ongoing basis. We use a three-er fair value hierarchy to measure fair value. This hierarchy priorizes the inputs into three broad levels as follows: • • • Level 1 - Quoted prices for idencal assets or liabilies in acve markets; Level 2 - Quoted prices for similar assets and liabilies in acve markets, quoted prices for idencal or similar assets in markets that are not acve, and model-derived valuaons in which all signiﬁcant inputs and signiﬁcant value drivers are observable in acve markets; and Level 3 - Valuaons derived from valuaon techniques in which one or more signiﬁcant inputs are unobservable. Our ﬁnancial assets and liabilies are classiﬁed in their enrety 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 reporng period. All methods of assessing fair value result in a general approximaon of value, and such value may never actually be realized. Derivave instruments We generally use derivave instruments to manage interest rate and foreign currency exchange risk. We view derivave instruments as risk management tools and do not use them for trading or speculave purposes. Our policy requires that derivaves used for hedging purposes be designated and eﬀecve as a hedge of the idenﬁed risk exposure at the incepon of the contract. Accordingly, changes in fair value of the derivave contract must be highly correlated with changes in the fair value of the underlying hedged item at incepon of the hedge and over the life of the hedge contract. We record all derivave instruments on our consolidated balance sheets at fair value as either an asset or liability. If the derivave is designated as a cash ﬂow hedge, the eﬀecve porons of the changes in fair value of the derivave are recorded in other comprehensive income and reclassiﬁed to earnings in a manner that matches the ming of the earnings impact of the hedged transacons. If the derivave is designated as a net investment hedge, the eﬀecve porons of the changes in fair value of the derivave are recorded to translaon adjustment, a component of other comprehensive income, and recognized in earnings only when the hedged investment is liquidated. Ineﬀecve porons 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 derivave instruments. 76 2023 Form 10-K Table of Contents Cash and cash equivalents Blackbaud, Inc. Notes to Consolidated Financial Statements 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 by us (or in transit) and payable to our customers, net of the associated transacon 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 restricon is either legally or internally imposed and reﬂects our intenon with regard to such deposits. Customer funds receivable consists of monies we expect to collect and remit to our customers. Concentraon of credit risk Financial instruments that potenally subject us to concentraons 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 instuons. Our accounts receivable is derived from sales to customers. With respect to accounts receivable, we perform ongoing evaluaons of our customers and maintain an allowance for credit losses based on historical experience and our expectaons of future credit losses. As of and for the years ended December 31, 2023, 2022 and 2021, there were no signiﬁcant concentraons 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 esmated useful lives using the straight-line method. Leasehold improvements are depreciated over the lesser of the term of the lease or the esmated useful life of the asset. Upon rerement or sale, the cost of assets disposed of and the related accumulated depreciaon are removed from the accounts and any resulng gain or loss is credited or charged to earnings. Repair and maintenance costs are expensed as incurred. Construcon-in-progress primarily related to purchases of informaon technology assets which had not been placed in service at the respecve 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 construcon-in-progress for the years ended December 31, 2023 and 2022. Business combinaons We include the operang results of acquired companies as well as the net assets acquired and liabilies assumed in our consolidated ﬁnancial statements from the date of acquision. We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilies assumed at the acquision date based upon their esmated fair values. Goodwill as of the acquision date represents the excess of the purchase consideraon of an acquired business over the fair value of the underlying net tangible and intangible assets acquired and liabilies assumed. We apply signiﬁcant judgement in esmang the fair value of intangible assets acquired, which involves the use of signiﬁcant assumpons. Signiﬁcant assumpons used in the valuaon of customer relaonships include future revenue and operang expenses, customer arion rates, contributory asset charges, tax amorzaon beneﬁt, and discount rates. Signiﬁcant assumpons used in the valuaon of certain developed technology assets include future revenue, proprietary technology obsolescence curve, royalty rate, and discount rate. Signiﬁcant assumpons used in the valuaon of markeng assets include assumpons about the period of me the brand will connue to be valuable, royalty rate, and discount rate. Signiﬁcant assumpons used in the valuaon of content intangible assets include cost-based assumpons. Our esmates of fair value are based upon assumpons we believe to be reasonable, but which are inherently uncertain and unpredictable, and unancipated events and changes in circumstances may occur. Goodwill Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilies assumed by us in a business combinaon. Goodwill is not amorzed, but tested annually for impairment on the ﬁrst day of our fourth quarter, or more frequently if indicators of potenal impairment arise. 2023 Form 10-K 77 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Accounng guidance permits enes to ﬁrst assess qualitave factors to determine whether it is more likely than not that the fair value of a reporng unit is less than its carrying amount as a basis to determine whether it is necessary to perform the quantave impairment test. Signiﬁcant judgment is required in the assessment of qualitave factors, including but not limited to an evaluaon of macroeconomic condions as they relate to our business, industry and market trends, as well as the overall future ﬁnancial performance of idenﬁed reporng units and future opportunies in the markets in which we operate. The quantave impairment test compares the fair values of idenﬁed reporng units with their respecve carrying amounts. If the carrying amount of a reporng unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Based on our current internal reporng structure, we have one operang segment, one reportable segment, and one reporng unit. In each of 2023, 2022 and 2021, we performed the quantave impairment test, which indicated that the esmated fair values of the idenﬁed reporng units signiﬁcantly exceeded their respecve carrying values. There were no impairments of goodwill during 2023, 2022 and 2021. Intangible assets other than goodwill We amorze ﬁnite-lived intangible assets over their esmated useful lives as follows. Customer relaonships Markeng assets Developed technology Content Basis of amorzaon Straight-line and Curve of Economic Beneﬁt (1) Straight-line and Curve of Economic Beneﬁt (1) Straight-line and Curve of Economic Beneﬁt (1) Straight-line Amorzaon period (in years) 10-17 14-15 3-14 9 (1) Certain of the customer relaonships, markeng assets and developed technology assets are amorzed on a curve that represents the expected period of economic beneﬁt. We write oﬀ the gross carrying amount and accumulated amorzaon balances for all fully amorzed intangible assets. We evaluate the esmated useful lives and the potenal for impairment of ﬁnite and indeﬁnite-lived intangible assets on an annual basis or more frequently if events or circumstances indicate revised esmates 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 combinaons. See Note 6 to these consolidated ﬁnancial statements for a discussion of our impairment of certain intangible assets during 2022. There were no impairments of acquired intangible assets during 2023 and 2021. 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 2023, 2022 and 2021. 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) poron of our credit facility in October 2020 and porons of the unamorzed deferred ﬁnancing costs from prior facilies. These costs are amorzed ratably over the term of the credit facility as interest expense. 78 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Other debt issuance costs, as well as the debt discount associated with our 2021 Incremental Term Loan (as deﬁned below), 2020 Credit facility (as deﬁned below) and porons of the unamorzed balances from prior facilies, are recorded as a direct deducon from debt. These costs are amorzed over the term of the credit facility as interest expense. Stock-based compensaon We measure stock-based compensaon 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 vesng 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 compensaon cost when they occur). Previously recognized compensaon cost for an award is reversed in the period that the award is forfeited. Income tax beneﬁts resulng from the vesng and exercise of stock-based compensaon awards are recognized in the period the unit or award is vested or opon or right is exercised. Income taxes We make esmates and judgments in accounng for income taxes. The calculaon of the income tax provision requires esmates due to transacons, credits and calculaons where the ulmate tax determinaon is uncertain. Uncertaines arise as a consequence of the actual source of taxable income between domesc and foreign locaons, the outcome of tax audits and the ulmate ulizaon of tax credits. To the extent actual results diﬀer from esmated amounts recorded, such diﬀerences will impact the income tax provision in the period in which the determinaon is made. We make esmates in determining tax assets and liabilies, which arise from diﬀerences in the ming of recognion of revenue and expense for tax and ﬁnancial statement purposes. We record valuaon allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of a recorded valuaon allowance signiﬁcant judgment is required. We consider all posive and negave evidence and a variety of factors including the scheduled reversal of deferred tax liabilies, 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 valuaon allowance is made to increase income tax expense, thereby reducing net income in the period such determinaon was made. We measure and recognize uncertain tax posions. To recognize such posions, we must ﬁrst determine if it is more likely than not that the posion 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 ulmate selement. Signiﬁcant judgment is required in the idenﬁcaon and measurement of uncertain tax posions. 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 resulng translaon adjustments are recorded in accumulated other comprehensive income. Gains and losses resulng from foreign currency transacons denominated in currency other than the funconal currency are recorded at the approximate rate of exchange at the transacon date in other income, net. For the years ended December 31, 2023 and 2021, we recorded net foreign currency losses that were insigniﬁcant and $1.6 million, respecvely. During the year ended December 31, 2022, we recorded a net foreign currency gain of $4.6 million. Research and development Research and development costs are expensed as incurred except as noted below under Soware and content development costs. These costs include compensaon costs for engineering and product management personnel, third-party contractor expenses, soware development tools and other expenses related to researching and developing new soluons or upgrading and enhancing exisng soluons that do not qualify for capitalizaon, and allocated depreciaon, facilies and IT support costs. Soware and content development costs We incur certain costs associated with the development of internal-use soware and content, which are primarily related to acvies performed to develop our cloud soluons and the development of online educaon curriculum to be delivered on 2023 Form 10-K 79 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements the Company's cloud plaorm. Internal and external costs incurred in the preliminary project stage of internal-use soware development and content are expensed as incurred. Once the soware or content being developed has reached the applicaon development stage, qualifying internal costs including payroll and payroll-related costs of employees who are directly associated with and devote me to the soware or content project as well as external direct costs of materials and services are capitalized. Capitalizaon ceases at the point at which the developed soware or content is substanally complete and ready for its intended use, which is typically upon compleon of all substanal tesng. Qualifying costs capitalized during the applicaon development stage include those related to speciﬁc upgrades and enhancements when it is probable that those costs incurred will result in addional funconality. Overhead costs, including general and administrave costs, as well as maintenance, training and all other costs associated with post-implementaon stage acvies are expensed as incurred. In addion, internal costs that cannot be reasonably separated between maintenance and relavely 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 soware and content development costs are amorzed on a straight-line basis over the soware asset's esmated 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 soware development costs during 2022. There were no impairments of capitalized soware assets during 2023 and 2021. We write oﬀ the gross carrying amount and accumulated amorzaon balances for all fully amorzed capitalized soware and content development cost assets. Allowance for credit losses Our accounts receivable consist of a single porolio segment. Accounts receivable are recorded at original invoice amounts less an allowance for credit losses, an amount we esmate to be suﬃcient to provide adequate protecon against lifeme expected losses resulng from extending credit to our customers. In judging the adequacy of the allowance for credit losses, we consider mulple factors including historical bad debt experience, the current aging of our receivables and current economic condions 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 addional provision for credit losses could be required. Accounts are wrien oﬀ aer all means of collecon are exhausted and recovery is considered remote. Provisions for credit losses are recorded in general and administrave 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 2023 2022 2021 $ 6,022 $ 9,375 9,016 2,012 $ 1,281 4,483 Write-oﬀ (2,539) $ (5,162) (4,565) Recovery 601 $ 528 441 Balance at end of year 6,096 6,022 9,375 The amount of write-oﬀs during the year ended December 31, 2023 was lower than during the same periods in 2022 and 2021 as we experienced payment delays during those years related to the COVID-19 pandemic. Allowance for sales returns We maintain a reserve for returns and credits which is esmated 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 2023 2022 2021 $ 1,296 $ 1,780 1,276 80 2023 Form 10-K Provision/ adjustment 2,488 $ 4,785 6,967 Deducon (2,973) $ (5,269) (6,463) Balance at end of year 811 1,296 1,780 Table of Contents Adversing costs Blackbaud, Inc. Notes to Consolidated Financial Statements We expense adversing costs as incurred, which were $14.0 million, $16.5 million and $7.1 million for the years ended December 31, 2023, 2022 and 2021, respecvely. Restructuring costs Restructuring costs include charges for the costs of exit or disposal acvies. The liability for costs associated with exit or disposal acvies is measured inially at fair value and only recognized when the liability is incurred. Leases We determine if an arrangement is a lease at incepon. Operang leases are included in operang lease right-of-use ("ROU") assets, accrued expense and other current liabilies, and operang lease liabilies, net of current poron in our consolidated balance sheet as of December 31, 2023 and 2022. ROU assets represent our right to use an underlying asset for the lease term and lease liabilies represent our obligaon to make lease payments arising from the lease. Operang lease ROU assets and liabilies 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 esmated 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 operang lease ROU asset also includes any inial direct costs and lease payments made and excludes lease incenves. Our lease terms may include opons to extend or terminate the lease when it is reasonably certain that we will exercise that opon. Lease expense for lease payments related to our operang 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, ulies and real estate taxes that are passed on from the lessor in proporon to the space leased by us, are recognized in operang expenses in the period in which the obligaon for those payments is incurred. Loss conngencies We are subject to the possibility of various loss conngencies, including legal proceedings and claims, that arise in the normal course of business, as well as certain other non-ordinary course proceedings, claims and invesgaons, as described in Note 11 to these consolidated ﬁnancial statements. We record an accrual for a loss conngency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably esmated. Oen these issues are subject to substanal uncertaines and, therefore, the probability of loss and the esmaon of damages are diﬃcult to ascertain. These assessments can involve a series of complex judgments about future events and can rely heavily on esmates and assumpons that have been deemed reasonable by us. Although we believe we have substanal defenses in these maers, we could incur judgments or enter into selements of claims that could have a material adverse eﬀect on our consolidated ﬁnancial posion, results of operaons or cash ﬂows in any parcular period. Earnings (loss) per share We compute basic earnings (loss) per share by dividing net (loss) income aributable 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 aributable to common stockholders by the weighted average number of common shares and diluve potenal common shares outstanding during the period. Diluted earnings per share reﬂects the assumed exercise, selement and vesng of all diluve securies using the “treasury stock method” except when the eﬀect is an-diluve. Potenally diluve securies consist of shares issuable upon the exercise of stock opons and stock appreciaon rights and vesng of restricted stock awards and units. In periods where there are net losses and the inclusion of potenally diluve securies would be an-diluve, diluted loss per share is the same as basic loss per share. 2023 Form 10-K 81 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 3. Business Combinaons and Disposions 2022 Disposion Blackbaud FIMS™ and DonorCentral® NXT On September 9, 2022, we sold our Foundaon Informaon Management System ("FIMS") and DonorCentral NXT soluons to Fusion Laboratories, LLC for cash proceeds of approximately $6.4 million, subject to closing adjustments. During the year ended December 31, 2022, we recognized a noncash impairment charge of $2.0 million against certain insigniﬁcant FIMS customer relaonship intangible assets that were then held for sale. The impairment charge was recorded in general and administrave expense in our consolidated statements of comprehensive loss. 2022 Acquision Kilter On August 19, 2022, we acquired all of the outstanding stock of Kilter, Inc., a Delaware corporaon, pursuant to an agreement and plan of merger, for approximately $2.9 million in cash, net of closing adjustments. In addion to the consideraon paid at closing, we may be required to pay up to a maximum of $3.0 million in addional cash consideraon if during the two-year period commencing January 1, 2023 Kilter meets certain applicaon parcipaon targets. As of December 31, 2023, a liability for the conngent consideraon is recorded at its current esmated fair value of $1.4 million in other liabilies in our consolidated balance sheet. Any change in the fair value of the conngent liability, or any change upon ﬁnal selement, will be recognized in income from operaons. Fair values were also assigned to the other assets acquired and liabilies assumed, primarily consisng of goodwill and a ﬁnite-lived developed technology intangible asset, which will be amorzed over an esmated useful life of three years. We ﬁnalized the purchase price allocaon of Kilter, including the valuaon of assets acquired and liabilies assumed, during the third quarter of 2023. Insigniﬁcant acquision-related costs, which primarily consisted of legal services, were recorded as general and administrave expense during the year ended December 31, 2023. 2021 Acquision EVERFI On December 31, 2021, we acquired all of the outstanding equity securies, including all vong equity interests, of EVERFI, Inc., a Delaware corporaon, pursuant to an agreement and plan of merger. We acquired the equity securies for approximately $441.8 million in cash consideraon and 3,810,888 shares of our common stock, valued at approximately $301.0 million, for an aggregate purchase price of approximately $742.8 million, net of closing adjustments. The cash consideraon and related expenses were funded primarily through cash on hand and new borrowings under the 2020 Credit Facility (as deﬁned below). As a result of the acquision, EVERFI became a wholly owned subsidiary of ours. The operang results of EVERFI have been included in our consolidated ﬁnancial statements from the date of acquision. During the year ended December 31, 2021, we incurred insigniﬁcant acquision-related expenses associated with the acquision, which were recorded in general and administrave expense. In accordance with applicable accounng rules, we determined that the impact of this acquision was not material to our consolidated ﬁnancial statements; therefore, revenue and earnings since the acquision date and pro forma informaon are not required or presented. We ﬁnalized the purchase price allocaon of EVERFI, including the valuaon of assets acquired and liabilies assumed, during the fourth quarter of 2022. 82 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 4. Goodwill and Other Intangible Assets The change in goodwill during 2023 consisted of the following: (dollars in thousands) Balance at December 31, 2022 Adjustments related to prior year business combinaon (1) Eﬀect of foreign currency translaon Balance at December 31, 2023 Total $ 1,050,272 36 3,430 $ 1,053,738 (1) Represents immaterial measurement period adjustments during the year ended December 31, 2023 to the fair value of the Kilter assets acquired and liabilies assumed. We have recorded intangible assets acquired in various business combinaons based on their fair values at the date of acquision. The table below sets forth the balances of each class of intangible asset and related amorzaon as of: (dollars in thousands) Finite-lived gross carrying amount Customer relaonships Markeng assets Developed technology Content Total ﬁnite-lived gross carrying amount Accumulated amorzaon Customer relaonships Markeng assets Developed technology Content Total accumulated amorzaon Intangible assets, net December 31, 2023 2022 $ 570,104 $ 71,308 182,956 17,900 842,268 569,009 69,643 182,463 17,900 839,015 (174,982) (146,948) (11,985) (69,386) (3,978) (260,331) $ 581,937 $ (8,371) (46,571) (1,989) (203,879) 635,136 During the year ended December 31, 2023, changes to the gross carrying amounts of intangible asset classes were primarily related to write-oﬀs of fully amorzed intangible assets and the eﬀect of foreign currency translaon. Amorzaon expense Amorzaon expense related to ﬁnite-lived intangible assets acquired in business combinaons 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 markeng assets and non-compete agreements, for which the associated amorzaon expense is included in operang expenses. 2023 Form 10-K 83 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The following table summarizes amorzaon expense of our ﬁnite-lived intangible assets: (dollars in thousands) Included in cost of revenue: Cost of recurring Cost of one-me services and other Total included in cost of revenue Included in operang expenses Total amorzaon of intangibles from business combinaons Years ended December 31, 2023 2022 2021 $ $ 51,079 $ 47,085 $ 1,384 52,463 3,139 1,407 48,492 2,925 55,602 $ 51,417 $ 33,132 1,680 34,812 2,227 37,039 The following table outlines the esmated future amorzaon expense for each of the next ﬁve years for our ﬁnite-lived intangible assets as of December 31, 2023: Years ending December 31, (dollars in thousands) 2024 2025 2026 2027 2028 Total 5. Earnings (Loss) Per Share The following table sets forth the computaon of basic and diluted earnings (loss) per share: (dollars in thousands, except per share amounts) Numerator: Net income (loss) Denominator: Weighted average common shares Add eﬀect of diluve securies: Stock-based awards Weighted average common shares assuming diluon Earnings (loss) per share Basic Diluted Amorzaon expense 62,332 65,873 64,234 60,038 52,544 $ 305,021 Years ended December 31, 2023 2022 2021 $ 1,820 $ (45,407) $ 5,698 52,546,406 51,569,148 47,412,306 1,174,936 — 818,132 53,721,342 51,569,148 48,230,438 $ $ 0.03 $ 0.03 $ (0.88) $ (0.88) $ 0.12 0.12 An-diluve shares excluded from calculaons of diluted earnings (loss) per share 45,614 1,046,307 974,110 Diluted loss per share for the year ended December 31, 2022 was the same as basic loss per share as there was a net loss in the period and inclusion of potenally diluve securies was an-diluve. 84 2023 Form 10-K Table of Contents 6. Fair Value Measurements Recurring fair value measurements Blackbaud, Inc. Notes to Consolidated Financial Statements Financial assets and liabilies that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below: (dollars in thousands) Fair value as of December 31, 2023 Financial assets: Interest rate swaps Total ﬁnancial assets Fair value as of December 31, 2023 Financial liabilies: Interest rate swaps Foreign currency forward contracts Conngent consideraon obligaons Total ﬁnancial liabilies Fair value as of December 31, 2022 Financial assets: Interest rate swaps Foreign currency forward contracts Total ﬁnancial assets Fair value as of December 31, 2022 Financial liabilies: Foreign currency forward contracts Conngent consideraon obligaons Total ﬁnancial liabilies Fair value measurement using Quoted Prices in Acve Markets for Idencal Assets and Liabilies (Level 1) Signiﬁcant Other Observable Inputs (Level 2) Signiﬁcant Unobservable Inputs (Level 3) Total $ $ $ $ $ $ $ $ — $ — $ 16,198 $ 16,198 $ — $ — $ 16,198 16,198 — $ — — — $ — $ — — $ — $ — — $ 5,004 $ — $ 536 — — 1,403 5,540 $ 1,403 $ 31,870 $ 247 32,117 $ — $ — — $ 323 $ — 323 $ — $ 2,710 2,710 $ 5,004 536 1,403 6,943 31,870 247 32,117 323 2,710 3,033 Our derivave instruments within the scope of Accounng Standards Codiﬁcaon ("ASC") 815, Derivaves and Hedging, are required to be recorded at fair value. Our derivave 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 addional informaon about our derivave instruments. The fair value of our interest rate swaps and foreign currency forward contracts are based on model-driven valuaons using Secured Overnight Financing Rate ("SOFR") rates and foreign currency forward rates, respecvely, 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. Our ﬁnancial contracts that were indexed to LIBOR were modiﬁed to reference SOFR during the three months ended September 30, 2022. These modiﬁcaons did not have a signiﬁcant ﬁnancial impact. Conngent consideraon obligaons arise from business acquisions. The fair values are based on discounted cash ﬂow analyses reﬂecng 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 conngencies, commercial risk, and the 2023 Form 10-K 85 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements me value of money. As the fair value measurements for our conngent consideraon obligaons contain signiﬁcant unobservable inputs, they are classiﬁed within Level 3 of the fair value hierarchy. See Note 3 to these consolidated ﬁnancial statements for addional informaon about our conngent consideraon obligaons. We believe the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, accrued expenses and other current liabilies and due to customers approximate their fair values at December 31, 2023 and December 31, 2022, due to the immediate or short-term maturity of these instruments. We believe the carrying amount of our debt approximates its fair value at December 31, 2023 and December 31, 2022, as the debt bears interest rates that approximate market value. As SOFR rates are observable at commonly quoted intervals, our debt under the 2020 Credit Facility (as deﬁned below) is classiﬁed within Level 2 of the fair value hierarchy. The fair value of our ﬁxed rate debt does not exceed the carrying amount. We did not transfer any assets or liabilies among the levels within the fair value hierarchy during the years ended December 31, 2023, 2022 and 2021. Non-recurring fair value measurements Assets and liabilies that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, goodwill and operang lease ROU assets. These assets are recognized at fair value during the period in which an acquision is completed or at lease commencement, from updated esmates and assumpons 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 operang 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 projecons and a discount rate. For goodwill impairment tesng, we esmate fair value using market-based methods including the use of market capitalizaon and consideraon of a control premium. During the year ended December 31, 2023, we recorded noncash impairment charges of $5.6 million against certain operang lease ROU assets and $1.1 million impairment charges against certain property and equipment assets. See Notes 11 and 7, respecvely, to these consolidated ﬁnancial statements for addional details. During the year ended December 31, 2022, we recorded noncash impairment charges of $2.3 million against certain previously capitalized soware development costs, $2.0 million against certain insigniﬁcant customer relaonship intangible assets that were held for sale, $1.0 million against certain operang lease ROU assets and insigniﬁcant impairment charges against certain property and equipment assets. See Notes 11 and 7, respecvely, to these consolidated ﬁnancial statements for addional details. During the year ended December 31, 2021, we recorded noncash impairment charges of $3.6 million against certain operang lease ROU assets and $1.7 million against certain property and equipment assets. See Notes 11 and 7, respecvely, to these consolidated ﬁnancial statements for addional details. There were no other non-recurring fair value adjustments during 2023, 2022 and 2021 except for certain business combinaon accounng adjustments to the inial fair value esmates of the assets acquired and liabilies assumed at the acquision date from updated esmates and assumpons during the measurement period. See Note 3 to these consolidated ﬁnancial statements for addional details. 86 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements 7. Property and Equipment and Soware and Content Development Costs Property and equipment Property and equipment consisted of the following as of: (dollars in thousands) Land Building Building improvements Equipment Computer hardware Computer soware Construcon in progress Furniture and ﬁxtures Leasehold improvements Total property and equipment Less: accumulated depreciaon Property and equipment, net Esmated useful life (years) — $ 39 7 - 20 1 - 5 1 - 5 1 - 5 — 2 - 7 Lesser of lease term or esmated useful life 2023 9,548 $ 61,284 11,720 2,646 50,064 21,982 1,611 3,187 10,345 172,387 (73,698) $ 98,689 $ December 31, 2022 9,548 61,284 10,874 2,312 47,886 20,299 3,500 3,264 11,822 170,789 (63,363) 107,426 Depreciaon expense was $13.0 million, $14.1 million and $14.4 million for the years ended December 31, 2023, 2022 and 2021, respecvely. During the year ended December 31, 2023, we recorded noncash impairment charges of $1.1 million against certain property and equipment assets. These impairment charges resulted primarily from our entry into a sublease in July 2023 for a poron of our Washington, DC oﬃce locaon, which we previously closed in February 2023 to align with our remote-ﬁrst workforce strategy and are reﬂected in general and administrave expense on the statements of comprehensive income. During the year ended December 31, 2022, we recorded insigniﬁcant noncash impairment charges against certain property and equipment assets. These impairment charges resulted primarily from our decision to cease using a poron of our leased oﬃce space and are reﬂected in general and administrave expense on the statements of comprehensive income. During the year ended December 31, 2021, we recorded noncash impairment charges of $1.7 million against certain property and equipment assets. These impairment charges resulted primarily from our decision to close our Ausn oﬃce and are reﬂected in general and administrave expense on the statements of comprehensive income. Soware and content development costs Soware and content development costs consisted of the following as of: (dollars in thousands) Soware development costs Content development costs Less: accumulated amorzaon Soware and content development costs, net Esmated useful life (years) December 31, 2023 2022 3 - 7 $ 287,519 $ 250,551 5 6,945 (134,270) 3,409 (112,937) $ 160,194 $ 141,023 2023 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 soware development costs that reduced the carrying value of those assets to zero. The impairment charges were reﬂected in general and administrave expense and cost of recurring revenue, respecvely, on the statements of comprehensive income. These impairment charges resulted primarily from our decision to accelerate the end of customer support for certain soluons. Other changes to the gross carrying amount of soware and content development costs were primarily related to qualifying costs associated with development acvies that are required to be capitalized under the internal-use soware accounng guidance such as those for our cloud soluons and online educaon curriculum, write-oﬀs of fully amorzed assets, and the eﬀect of foreign currency translaon. Amorzaon expense related to soware and content development costs was $42.8 million, $36.8 million and $31.0 million for the years ended December 31, 2023, 2022 and 2021, respecvely, and is included primarily in cost of recurring. 8. Consolidated Financial Statement Details Restricted cash (dollars in thousands) Restricted cash due to customers Real estate escrow balances and other Total restricted cash Prepaid expenses and other assets (dollars in thousands) Costs of obtaining contracts (1)(2) Prepaid soware maintenance and subscripons (3) Derivave instruments Implementaon costs for cloud compung arrangements, net (4)(5) Unbilled accounts receivable Prepaid insurance Taxes, prepaid and receivable Deferred tax assets Other assets Total prepaid expenses and other assets Less: Long-term poron Prepaid expenses and other current assets December 31, 2023 December 31, 2022 695,489 $ 1,517 697,006 $ 700,611 1,629 702,240 December 31, 2023 December 31, 2022 $ $ $ 62,377 $ 35,169 16,198 9,259 5,615 3,940 3,418 644 13,702 150,322 51,037 $ 99,285 $ 74,272 34,766 32,117 10,189 5,775 4,902 1,855 1,153 10,929 175,958 94,304 81,654 (1) Amorzaon expense from costs of obtaining contracts was $31.9 million, $33.6 million and $35.5 million for the years ended December 31, 2023, 2022 and 2021, respecvely, and is included in sales, markeng and customer success expense in our consolidated statements of comprehensive income. The current poron of costs of obtaining contracts as of December 31, 2023 and 2022 was $25.3 million and $29.1 million, respecvely. The current poron of prepaid soware maintenance and subscripons as of December 31, 2023 and December 31, 2022 was $32.4 million and $31.7 million, respecvely. These costs primarily relate to the mul-year implementaons of our global enterprise resource planning and customer relaonship management systems. (2) (3) (4) (5) Amorzaon expense from capitalized cloud compung implementaon costs was $2.5 million, $2.2 million and $1.9 million for the years ended December 31, 2023, 2022 and 2021, respecvely. Accumulated amorzaon for these costs was $7.7 million and $5.2 million as of December 31, 2023 and 2022, respecvely. 88 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Accrued expenses and other liabilies (dollars in thousands) Taxes payable Customer credit balances Operang lease liabilies, current poron Derivave instruments Accrued commissions and salaries Accrued transacon-based costs related to payments services Accrued health care costs Accrued legal costs Accrued vacaon costs Conngent consideraon liability Other liabilies Total accrued expenses and other liabilies Less: Long-term poron Accrued expenses and other current liabilies Other income, net (dollars in thousands) Interest income Currency revaluaon (losses) gains Other income, net Other income, net 9. Debt December 31, 2023 21,282 $ 10,238 6,701 5,540 4,413 4,323 3,865 3,659 2,452 1,403 10,704 74,580 10,258 64,322 $ December 31, 2022 16,667 8,257 7,723 323 6,944 5,059 2,467 28,448 2,156 2,710 9,542 90,296 4,294 86,002 $ $ $ $ 2023 8,821 $ (36) 4,076 12,861 $ Years ended December 31, 2022 1,746 $ 4,635 2,332 8,713 $ 2021 392 (1,644) 1,432 180 The following table summarizes our debt balances and the related weighted average eﬀecve interest rates, which includes the eﬀect of interest rate swap agreements. (dollars in thousands) Credit facility: Revolving credit loans Term loans Real estate loans Other debt Total debt Less: Unamorzed discount and debt issuance costs Less: Debt, current poron Debt, net of current poron December 31, 2023 Debt balance at December 31, 2022 Weighted average eﬀecve interest rate at December 31, 2023 December 31, 2022 $ 114,100 $ 607,500 56,745 2,800 781,145 1,481 19,259 $ 760,405 $ 177,800 623,750 58,189 2,247 861,986 2,943 18,802 840,241 7.52 % 3.51 % 5.22 % 8.42 % 4.24 % 7.02 % 4.17 % 5.18 % 4.26 % 5.22 % 7.38 % 4.52 % 6.45 % 4.48 % 2023 Form 10-K 89 Table of Contents 2020 reﬁnancing Blackbaud, Inc. Notes to Consolidated Financial Statements In October 2020, we entered into a 5-year $900.0 million Amended and Restated Credit Agreement (the “2020 Credit Facility”). The 2020 Credit Facility matures in October 2025 and replaced our 5-year $700 million credit facility entered into during June 2017 (the "2017 Credit Facility") by amending and restang it to include a $500.0 million revolving credit facility (the “2020 Revolving Facility”) and a $400.0 million term loan facility (the “2020 Term Loan”). Upon closing, we borrowed $400.0 million pursuant to the 2020 Term Loan and used the proceeds to repay the outstanding principal balance of the term loan under the 2017 Credit Facility, and repay $124.4 million of outstanding revolving credit loans under the 2017 Revolving Facility. In connecon with the amendment and restatement of the 2017 Credit Facility, the exisng Pledge Agreement dated June 2, 2017, by us in favor of Bank of America, N.A., as administrave agent, was likewise amended and restated. Summary of the 2020 Credit Facility The 2020 Revolving Facility includes (i) a $50.0 million sublimit available for the issuance of standby leers of credit, (ii) a $50.0 million sublimit available for swingline loans, and (iii) a $100.0 million sublimit available for mulcurrency borrowings. Our obligaons under the 2020 Credit Facility are secured by the stock and limited liability company interests of certain of our direct subsidiaries and any of our material domesc subsidiaries, if any, and the proceeds therefrom pledged pursuant to an Amended and Restated Pledge Agreement dated as of October 30, 2020, by us in favor of Bank of America, N.A., as administrave agent, for the ratable beneﬁt of itself and the secured pares referred to therein. The term loan under the 2020 Credit Facility requires periodic principal payments. The balance of the term loan and any amounts drawn on the revolving credit loans are due upon maturity of the 2020 Credit Facility in October 2025. We evaluate the classiﬁcaon of our debt as current or non-current based on the required annual maturies of the 2020 Credit Facility. We may prepay the 2020 Credit Facility in whole or in part at any me without premium or penalty, other than customary breakage costs with respect to certain types of loans. The 2020 Credit Facility contains various representaons, warranes and aﬃrmave, negave and ﬁnancial covenants customary for ﬁnancings of this type. Financial covenants include a net leverage rao and an interest coverage rao. At December 31, 2023, we were in compliance with our debt covenants under the 2020 Credit Facility. Under the terms of the 2020 Credit Facility, we are entled on one or more occasions, subject to the sasfacon of certain condions, to request an increase in the commitments under the Revolving Credit Facility and/or request addional incremental term loans in the aggregate principal amount of up to $250.0 million plus an amount, if any, such that the net leverage rao shall be no greater than 3.25 to 1.00. At December 31, 2023, our available borrowing capacity under the 2020 Credit Facility was $384.5 million. First Amendment to 2020 Credit Facility On January 31, 2022, we entered into the First Amendment to Credit Agreement (the “Amendment”). The Amendment amended the 2020 Credit Facility to, among other things, (i) modify the deﬁnion of “Applicable Margin”, (ii) modify the net leverage rao ﬁnancial covenant to require a net leverage rao of (A) 4.00:1.00 or less for the ﬁscal quarter ended December 31, 2021 and for ﬁscal quarters ending thereaer through December 31, 2023 and (B) 3.75:1.00 or less for the ﬁscal quarters ending March 31, 2024 and thereaer, (iii) reset the $250.0 million ﬁxed dollar basket with respect to the accordion feature and (iv) modify certain negave covenants to provide addional operaonal ﬂexibility. LIBOR Transion Amendment On August 26, 2022, we entered into a LIBOR Transion Amendment (the "LIBOR Amendment"). The LIBOR Amendment amended the 2020 Credit Facility, as previously amended, to change the interest rate benchmark from LIBOR to SOFR (as deﬁned therein). The LIBOR Amendment did not change any terms of the 2020 Credit Facility unrelated to reference rate reform. Aer giving eﬀect to both the First Amendment and the LIBOR Transion Amendment, dollar denominated loans under the 2020 Revolving Facility and the 2020 Term Loan bear interest based on, at our elecon, either (a) the Base Rate (as deﬁned below) or (b) Term SOFR (as deﬁned below), in each case, plus an applicable margin. "Base Rate" is deﬁned as a rate per annum equal to the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate announced by Bank of America, N.A., 90 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements and (iii) Term SOFR plus 1.00%. "Term SOFR" is deﬁned as a rate per annum equal to the forward-looking term rate based on the secured overnight ﬁnancing rate plus a credit sensive adjustment of 0.11448% for a one month tenor, 0.26161% for a three month tenor or 0.42826% for a six month tenor, as applicable, in each case, per annum. The applicable margin is adjusted quarterly based on our net leverage rao and ranges from 0.375% to 1.50% for Base Rate loans and 1.375% to 2.50% for Term SOFR loans, in each case, per annum. Sterling denominated loans under the 2020 Revolving Facility bear interest based on SONIA plus an applicable margin. "SONIA" is deﬁned as a rate per annum equal to the Sterling Overnight Index Average Reference Rate published on the ﬁh Business Day preceding such date on the applicable Reuters screen page plus a credit sensive adjustment of 0.0326% per annum. The applicable margin is adjusted quarterly based on our net leverage rao and ranges from 1.375% to 2.50% per annum. We also pay a quarterly commitment fee on the unused poron of the 2020 Revolving Facility from 0.250% to 0.50% per annum, depending on our net leverage rao. At December 31, 2023, the applicable margin for Term SOFR, SONIA and other Eurocurrency Rate loans under the 2020 Credit Facility was 1.625% and the commitment fee applicable to the 2020 Revolving Facility was 0.250%. First Incremental Term Loan On December 31, 2021, we entered into the First Incremental Term Loan Agreement (the "Incremental Amendment"). The Incremental Amendment amends the 2020 Credit Facility and, among other things, provides for a $250.0 million incremental term loan (the “2021 Incremental Term Loan”). The 2021 Incremental Term Loan bears interest based on, at our elecon, either (a) the Base Rate (2021 Incremental) (as deﬁned below), (b) Daily SOFR Rate (as deﬁned below) or (c) Term SOFR (2021 Incremental) (as deﬁned below), in each case, plus an applicable margin. "Base Rate (2021 Incremental)" is deﬁned as a rate per annum equal to the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate announced by Bank of America, N.A., and (iii) Daily SOFR Rate plus 1.00%. “Daily SOFR Rate” is deﬁned as a rate per annum equal to secured overnight ﬁnancing rate plus a credit sensive adjustment of 0.10%. "Term SOFR (2021 Incremental)" is deﬁned as a rate per annum equal to the forward-looking term rate based on the secured overnight ﬁnancing rate plus a credit sensive adjustment of 0.10% for a one month tenor, 0.15% for a three month tenor or 0.25% for a six month tenor, as applicable, in each case, per annum. The applicable margin is adjusted quarterly based on our net leverage rao and ranges from 0.375% to 1.50% for Base Rate (2021 Incremental) loans and 1.375% to 2.50% for Daily SOFR Rate loans and Term SOFR (2021 Incremental) loans, in each case, per annum. The 2021 Incremental Term Loan matures in October 2025, which is the maturity date of the exisng term loan under the 2020 Credit Facility, and is otherwise subject to substanally the same terms and condions as the exisng term loan under the 2020 Credit Facility. Financing costs In connecon with our entry into the 2020 Credit Facility, we paid $4.0 million in ﬁnancing costs, of which $1.2 million were capitalized in other assets and, together with a poron of the unamorzed deferred ﬁnancing costs from the 2017 Credit Facility and prior facilies, are being amorzed into interest expense over the term of the new facility. We recorded aggregate ﬁnancing costs of $2.0 million as a direct deducon from the carrying amount of our debt liability, which related to debt discount (fees paid to lenders) and debt issuance costs for the 2020 Term Loan. In connecon with our entry into the 2021 Incremental Term Loan, we paid $3.1 million in ﬁnancing costs which were recorded as a direct deducon from the carrying amount of our debt liability. As of December 31, 2023, deferred ﬁnancing costs totaling $0.6 million were included in other assets on our consolidated balance sheets. 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 obligaons under two senior secured notes with a then-aggregate outstanding principal amount of $61.1 million (collecvely, the “Real Estate Loans”). The Real Estate Loans require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038. At December 31, 2023, we were in compliance with our debt covenants under the Real Estate Loans. 2023 Form 10-K 91 Table of Contents Other debt Blackbaud, Inc. Notes to Consolidated Financial Statements From me to me, we enter into third-party ﬁnancing agreements for purchases of soware 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-exisng credit facility at the incepon of the notes. Our assumpon of these loans are noncash ﬁnancing transacons and are reﬂected in our supplemental disclosure of cash ﬂow informaon. The following table summarizes our currently eﬀecve ﬁnancing agreements as of December 31, 2023: (dollars in thousands) (1) Eﬀecve dates of agreements : December 2022 January 2023 Term in Months Number of Annual Payments First Annual Payment Due Original Loan Value 39 36 3 3 January 2023 $ April 2023 1,710 2,491 (1) Represent noncash invesng and ﬁnancing transacons during the periods indicated as we purchased soware and services by assuming directly related liabilies. The changes in supplier ﬁnancing obligaons during the years ended December 31, 2023, consisted of the following: (dollars in thousands) Balance at December 31, 2022 Addions Payments Balance at December 31, 2023 $ $ Total 2,247 2,491 (1,938) 2,800 As of December 31, 2023, the required annual maturies related to the 2020 Credit Facility, the Real Estate Loans and our other debt were as follows: Years ending December 31, (dollars in thousands) 2024 2025 2026 2027 2028 Thereaer Total required maturies 10. Derivave Instruments Annual maturies 19,259 708,534 1,969 2,166 2,374 46,843 781,145 $ $ We generally use derivave instruments to manage our interest rate and foreign currency exchange risk. We currently have derivaves classiﬁed as cash ﬂow hedges and net investment hedges. We do not enter into any derivaves for trading or speculave purposes. All of our derivave instruments are governed by Internaonal Swap Dealers Associaon, Inc. master agreements with our counterpares. As of December 31, 2023 and December 31, 2022, we have presented the fair value of our derivave instruments at the gross amounts in the consolidated balance sheet as the gross fair values of our derivave instruments equaled their net fair values. Cash ﬂow hedges We have entered into interest rate swap agreements, which eﬀecvely convert porons of our variable rate debt under the 2020 Credit Facility 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 incepon of the contracts. As of December 31, 2023 and December 31, 2022, the aggregate noonal 92 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements values of the interest rate swaps were $935.0 million and $435.0 million, respecvely. All of the contracts have maturies on or before October 2028. We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian Dollar ("CAD") against changes in the exchange rate with the United States Dollar ("USD"). We designated each of these foreign currency forward contracts as cash ﬂow hedges at the incepon of the contracts. As of December 31, 2023 and December 31, 2022, the aggregate noonal values of the foreign currency forward contracts designated as cash ﬂow hedges that we held to buy USD in exchange for Canadian Dollars were $29.9 million CAD and $22.6 million CAD, respecvely. All of the contracts have maturies of 12 months or less. Net investment hedges We have entered into foreign currency forward contracts to hedge a poron of the foreign currency exposure that arises on translaon of our investments denominated in Brish Pounds ("GBP") into USD. We designated each of these foreign currency forward contracts as net investment hedges at the incepon of the contracts. As of December 31, 2023 and December 31, 2022, the aggregate noonal values of the foreign currency forward contracts designated as net investment hedges to reduce the volality of the U.S. dollar value of a poron of our GBP-denominated investments was £13.2 million and £11.2 million, respecvely. The fair values of our derivave instruments were as follows as of: (dollars in thousands) Balance sheet locaon Asset derivaves December 31, 2023 December 31, 2022 Balance sheet locaon Liability Derivaves December 31, 2023 December 31, 2022 Derivave instruments designated as hedging instruments: Interest rate swaps, current poron Prepaid expenses and other current Accrued expenses and other current assets $ 16,198 $ — liabilies $ — $ — Foreign currency forward contracts, current poron Prepaid expenses and other current assets Interest rate swaps, long-term Other assets — — 247 31,870 Accrued expenses and other current liabilies Other liabilies 536 5,004 Total derivave instruments designated as hedging instruments $ 16,198 $ 32,117 $ 5,540 $ 2023 Form 10-K 323 — 323 93 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The eﬀects of derivave instruments in cash ﬂow and net investment hedging relaonships were as follows: (dollars in thousands) Cash Flow Hedges Interest rate swaps Foreign currency forward contracts Net Investment Hedge Foreign currency forward contracts Cash Flow Hedges Interest rate swaps Foreign currency forward contracts Net Investment Hedges Foreign currency forward contracts Cash Flow Hedges Interest rate swaps Gain recognized in accumulated other comprehensive (loss) income as of December 31, 2023 Locaon of gain reclassiﬁed from accumulated other comprehensive (loss) income into income (loss) Gain (loss) reclassiﬁed from accumulated other comprehensive (loss) income into income (loss) Year ended December 31, 2023 $ $ $ $ $ $ $ 11,194 (235) Interest expense $ Revenue $ (301) December 31, 2022 $ 31,870 247 Interest expense $ Revenue $ (323) December 31, 2021 $ 20,418 388 — Year ended December 31, 2022 5,520 165 — Year ended December 31, 2021 7,160 Interest expense $ (3,714) Our policy requires that derivaves used for hedging purposes be designated and eﬀecve as a hedge of the idenﬁed risk exposure at the incepon of the contract. Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivave instruments each reporng period and the related income tax expense or beneﬁt. Excluding net investment hedges, changes in the fair value measurements of the derivave instruments and the related income tax expense or beneﬁt are reﬂected as adjustments to accumulated other comprehensive income (loss) unl the actual hedged expense is incurred or unl 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 derivave instruments and the related income tax expense or beneﬁt are reﬂected as adjustments to translaon adjustment, a component of accumulated other comprehensive income (loss), and recognized in earnings only when the hedged GBP investment is liquidated. The esmated accumulated other comprehensive income as of December 31, 2023 that is expected to be reclassiﬁed into earnings within the next twelve months is $16.4 million. There were no ineﬀecve porons of our interest rate swap or foreign currency forward derivaves during the years ended December 31, 2023, 2022 and 2021. 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 derivave instruments as operang acvies in the consolidated statements of cash ﬂows. We did not have any undesignated derivave instruments during 2023, 2022 and 2021. 11. Commitments and Conngencies Leases We have operang leases for corporate oﬃces, subleased oﬃces and certain equipment and furniture. As of December 31, 2023, we did not have any operang leases that had not yet commenced. 94 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The following table summarizes the components of our lease expense: (dollars in thousands) Operang lease cost (1) Variable lease cost Sublease income Net lease cost (1) Includes short-term lease costs, which were immaterial. 2023 8,812 $ 1,431 (3,356) 6,887 $ $ $ Year ended December 31, 2021 9,636 2,478 (1,516) 10,598 2022 9,501 $ 1,670 (2,763) 8,408 $ During the year ended December 31, 2023, we recorded noncash impairment charges of $5.6 million against certain operang lease ROU assets. These impairment charges resulted primarily from our entry into a sublease in July 2023 for a poron of our Washington, DC oﬃce locaon, which we previously closed in February 2023 to align with our remote-ﬁrst workforce strategy and are reﬂected in general and administrave expense on the statements of comprehensive income. During the year ended December 31, 2022, we recorded noncash impairment charges of $1.0 million against certain operang lease ROU assets resulng primarily from our decision to cease using a poron of our leased oﬃce space. These charges are reﬂected in general and administrave expense on the statements of comprehensive income. In October 2021, we made the decision to permanently close our ﬁxed oﬃce locaons (with the excepon of our global headquarters facility in Charleston, South Carolina), eﬀecve in December 2021. This change was intended to align our real estate footprint with our transion to a remote-ﬁrst workforce. We enter into arrangements for smaller more ﬂexible workspaces where necessary. As a result, during the twelve months ended December 31, 2021, we reduced the esmated useful lives of our operang lease ROU assets for certain of our oﬃce locaons we expected to exit. We recorded $5.3 million in incremental operang lease costs during 2021 related to this change in accounng esmate. For these same oﬃce locaons, we also reduced the esmated useful lives of certain facilies-related ﬁxed assets, which resulted in incremental depreciaon expense of $1.7 million during 2021 (see Note 7 to these consolidated ﬁnancial statements). During the twelve months ended December 31, 2021, we also recorded $3.6 million in impairments of operang lease ROU assets associated with certain leased oﬃce spaces we have ceased using as a result of our adjusted workforce strategy. These impairment charges are reﬂected in general and administrave expense. Maturies of our operang lease liabilies as of December 31, 2023 were as follows: Years ending December 31, (dollars in thousands) 2024 2025 2026 2027 2028 Thereaer Total lease payments Less: Amount represenng interest Present value of future payments Operang leases 8,662 7,703 6,107 6,207 6,101 20,689 55,469 8,683 46,786 $ $ 2023 Form 10-K 95 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Our ROU assets and lease liabilies are included in the following line items in our consolidated balance sheet: (dollars in thousands) Operang leases Operang lease ROU assets Accrued expenses and other current liabilies Operang lease liabilies, net of current poron Total operang lease liabilies The weighted average remaining lease terms and discount rates were as follows: (dollars in thousands) Operang leases Weighted average remaining lease term (years) Weighted average discount rate Supplemental cash ﬂow informaon related to leases was as follows: December 31, 2023 December 31, 2022 $ $ $ 36,927 $ 45,899 6,701 $ 40,085 46,786 $ 7,723 44,918 52,641 December 31, 2023 December 31, 2022 December 31, 2021 7.7 4.70 % 8.5 4.63 % 8.9 4.68 % Year ended December 31, (dollars in thousands) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilies: Operang cash ﬂows from operang leases (1) $ 10,983 $ 11,439 $ 11,338 Right-of-use assets obtained in exchange for lease obligaons (non-cash): Operang leases Other commitments 2,765 — 5,358 The term loans under the 2020 Credit Facility 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 2020 Credit Facility in October 2025. 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 obligaons for third-party technology used in our soluons and for other services we purchase as part of our normal operaons. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of December 31, 2023, the remaining aggregate minimum purchase commitment under these arrangements was approximately $257.6 million through 2027. Soluon and service indemniﬁcaons In the ordinary course of business, we provide certain indemniﬁcaons of varying scope to customers against claims of intellectual property infringement made by third pares arising from the use of our soluons or services. We have not idenﬁed any losses that might be covered by these indemniﬁcaons 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 invesgaons, as described below. We record an accrual for a loss conngency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably esmated. If only a range of esmated losses can be determined, we accrue an amount within the range that, in our judgment, reﬂects the most likely outcome; if none of the esmates within that range is a beer esmate 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 esmate of 96 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements the loss or range of losses arising from the proceeding can be made, we disclose such an esmate, if material. If such a loss or range of losses is not reasonably esmable, we disclose that fact. We review any such loss conngency accruals at least quarterly and adjust them to reﬂect the impacts of negoaons, selements, rulings, advice of legal counsel and other informaon and events pertaining to a parcular 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 maers pending or threatened against us and intend to defend ourselves vigorously against all claims asserted. It is possible that our consolidated ﬁnancial posion, results of operaons or cash ﬂows could be materially negavely aﬀected in any parcular period by an unfavorable resoluon of one or more of such legal proceedings. Security incident As previously disclosed, we are subject to risks and uncertaines as a result of a ransomware aack 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) invesgaon, we do not believe that any data went beyond the cybercriminal, has been misused, or has been disseminated or otherwise made available publicly. Our invesgaon into the Security Incident remains ongoing. As a result of the Security Incident, we are currently subject to certain legal proceedings, claims and invesgaons, as discussed below, and could be the subject of addional legal proceedings, claims, inquiries and invesgaons in the future that might result in adverse judgments, selements, ﬁnes, penales or other resoluon. 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 above a $250 thousand deducble payable by us. As noted below, this coverage reduced our ﬁnancial exposure related to the Security Incident in prior years. We recorded expenses and oﬀseng probable insurance recoveries related to the Security Incident as follows: (dollars in thousands) Gross expense Oﬀseng probable insurance recoveries Net expense $ $ 2023 53,426 $ — 53,426 $ Years ended December 31, 2022 57,614 $ (1,891) 55,723 $ 2021 40,561 (38,745) 1,816 The following summarizes our cumulave expenses, insurance recoveries recognized and insurance recoveries paid as of: (dollars in thousands) Cumulave gross expense Cumulave oﬀseng insurance recoveries recognized Cumulave net expense Cumulave oﬀseng insurance recoveries paid December 31, 2023 December 31, 2022 December 31, 2021 161,431 $ (50,000) 111,431 $ 108,005 $ (50,000) 58,005 $ 50,391 (48,109) 2,282 (50,000) $ (50,000) $ (29,968) $ $ $ Recorded expenses have consisted primarily of payments to third-party service providers and consultants, including legal fees, selement of the previously disclosed SEC and mul-state Aorneys General invesgaons (discussed below), selements of customer claims and accruals for certain loss conngencies. 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 administrave expense on our consolidated statements of comprehensive (loss) income and as operang acvies 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 connue to experience signiﬁcant expenses related to our response to the Security Incident, resoluon of legal proceedings, claims and invesgaons, including those discussed below, and our eﬀorts to further enhance our cybersecurity measures. For full year 2023, we incurred net pre-tax 2023 Form 10-K 97 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements expense of $53.4 million related to the Security Incident, which included $22.4 million for ongoing legal fees. It also includes selements and addional accruals for loss conngencies of $31.0 million. Also, for full year 2023, we had net cash outlays of $78.0 million related to the Security Incident, which included ongoing legal fees, the $3.0 million civil penalty paid during the ﬁrst quarter of 2023 related to the SEC selement and the $49.5 million civil penalty paid during the fourth quarter of 2023 related to the mul-state Aorneys General selement (discussed below). In line with our policy, legal fees are expensed as incurred. For full year 2024, we currently expect net pre-tax expense of approximately $5.0 million to $10.0 million and net cash outlays of approximately $8.0 million to $13.0 million for ongoing legal fees related to the Security Incident. As of December 31, 2023, we have recorded approximately $1.5 million in aggregate liabilies for loss conngencies based primarily on recent negoaons with certain customers related to the Security Incident that we believe we can reasonably esmate in accordance with our loss conngency procedures described above. Our liabilies for loss conngencies are recorded in accrued expenses and other current liabilies on our consolidated balance sheets. It is reasonably possible that our esmated or actual losses may change in the near term for those maers and be materially in excess of the amounts accrued, but we are unable at this me to reasonably esmate the possible addional loss. There are other Security Incident-related maers, including customer claims, customer constuent class acons and governmental invesgaons, for which we have not recorded a liability for a loss conngency as of December 31, 2023 because we are unable at this me to reasonably esmate the possible loss or range of loss. Each of these maers could, separately or in the aggregate, result in an adverse judgement, selement, ﬁne, penalty or other resoluon, the amount, scope and ming of which we are currently unable to predict, but could have a material adverse impact on our results of operaons, cash ﬂows or ﬁnancial condion. Customer claims. To date, we have received approximately 260 speciﬁc requests for reimbursement of expenses, approximately 214 (or 82%) of which have been fully resolved and closed and approximately 39 (or 15%) are inacve and are considered by us to have been abandoned by the customers. We have also received approximately 400 reservaons of the right to seek expense recovery in the future from customers or their aorneys in the U.S., U.K. and Canada related to the Security Incident, none of which resulted in claims submied to us and are considered by us to have been abandoned by the customers. We have also received noces of proposed claims on behalf of a number of U.K. data subjects, which we are reviewing. In addion, insurance companies represenng various customers’ interests through subrogaon claims have contacted us, and certain insurance companies have ﬁled subrogaon claims in court, of which 3 cases remain acve and unresolved. Customer and insurer subrogaon claims generally seek reimbursement of their costs and expenses associated with nofying their own customers of the Security Incident and taking steps to assure that personal informaon has not been compromised as a result of the Security Incident. Our review of customer and subrogaon claims includes analyzing individual customer contracts into which we have entered, the speciﬁc claims made and applicable law. Customer constuent class acons. Presently, we are a defendant in putave consumer class acon cases in U.S. federal courts (most of which have been consolidated under mul district ligaon to a single federal court) and in Canadian courts alleging harm from the Security Incident. The plainﬀs in these cases, who purport to represent various classes of individual constuents of our customers, generally claim to have been harmed by alleged acons and/or omissions by us in connecon with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injuncve relief, costs and aorneys’ fees and other related relief. Lawsuits that are putave class acons require a plainﬀ to sasfy a number of procedural requirements before proceeding to trial. These requirements include, among others, demonstraon to a court that the law proscribes in some manner our acvies, the making of factual allegaons suﬃcient to suggest that our acvies exceeded the limits of the law and a determinaon by the court—known as class cerﬁcaon—that the law permits a group of individuals to pursue the case together as a class. If these procedural requirements are not met, the lawsuit cannot proceed as a class acon and the plainﬀ may lose the ﬁnancial incenve to proceed with the case. We are currently engaged in court proceedings to determine whether this will proceed as a class acon. Frequently, a court’s determinaon as to these procedural requirements is subject to appeal to a higher court. As a result of these uncertaines, we may be unable to determine the probability of loss unl, or aer, a court has ﬁnally determined that a plainﬀ has sasﬁed the applicable class acon procedural requirements. 98 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Furthermore, for putave class acons, it is oen not possible to reasonably esmate the possible loss or a range of loss amounts, even where we have determined that a loss is reasonably possible. Generally, class acons involve a large number of people and raise complex legal and factual issues that result in uncertainty as to their outcome and, ulmately, making it diﬃcult for us to esmate the amount of damages that a plainﬀ might successfully prove. This analysis is further complicated by the fact that the plainﬀs lack contractual privity with us. Governmental invesgaons. We have received a Civil Invesgave Demand from the oﬃce of the California Aorney General relang to the Security Incident and are in discussions with the Aorney General about potenal resoluon of issues arising from this invesgaon. Although we are hopeful that we can resolve this maer on acceptable terms, there is no assurance that we will be able to do so on terms acceptable to us and the State of California. We also are subject to the following pending governmental acons: • • an invesgaon by the U.S. Federal Trade Commission (the "FTC"), as further described below; and an invesgaon by the U.S. Department of Health and Human Services. We also responded to inquiries from the Oﬃce of the Australian Informaon Commissioner in September 2020 and the Oﬃce of the Privacy Commissioner of Canada in October 2020. As previously disclosed, on February 1, 2024, the FTC announced its approval of an Agreement Containing Consent Order (the “Proposed Order”) evidencing its selement with the Company in connecon with the Security Incident. Pursuant to its rules, the FTC placed the Proposed Order and related dra complaint on the public record for a period of 30 days for the receipt of public comments aer which the FTC will consider any comments received from interested persons prior to determining whether and in what form to ﬁnalize the Proposed Order. The 30-day comment period is scheduled to expire on March 14, 2024. As part of the FTC’s proposed order, the Company has not been ﬁned and is not otherwise required to make any payment. Furthermore, the Company has agreed to the FTC’s proposed order without adming or denying any of the FTC’s allegaons, except as expressly stated otherwise in the Proposed Order. If ﬁnalized, the selement described in the Proposed Order will fully resolve the FTC invesgaon. Although we believe the Proposed Order will be ﬁnalized in substanally its current form, there can be no assurances as to whether that will occur or its ming. Under the terms of the Proposed Order, we have agreed (i) to not misrepresent (a) the extent to which we maintain, use, delete or disclose certain customer informaon, (b) the extent to which we protect the privacy, security, availability, conﬁdenality or integrity of such informaon or (c) the extent of any security incident or unauthorized disclosure, misuse, loss, the, alteraon, destrucon or other compromise of such informaon, and (ii) to delete certain data, adopt and make public certain record retenon limits, establish, implement and maintain a speciﬁed informaon security program, obtain regular independent assessments of the mandated informaon security program, provide to the FTC speciﬁed cerﬁcaons regarding our compliance with the Proposed Order, provide to the FTC reports of any future security incidents and create and maintain speciﬁed recordkeeping. For more informaon, see the form of Proposed Order that was furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K ﬁled with the SEC on February 2, 2024. As previously disclosed, on October 5, 2023, we entered into separate, substanally similar Administrave Orders with each of 49 state Aorneys General and the District of Columbia relang to the previously announced 2020 Security Incident in which a cyber-criminal removed a copy of a subset of data from our self-housed environment. This selement fully resolves the previously disclosed mul-state Civil Invesgave Demand and the separate Civil Invesgave Demand from the Oﬃce of the Indiana Aorney General relang to the Security Incident (the “Mul-state Invesgaon”), which is further described in the substanally similar Administrave Orders ﬁled in each of the 49 states and the District of Columbia. Under the terms of the Administrave Orders, we have agreed: (i) to comply with state consumer protecon laws, data breach noﬁcaon laws, and the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”); (ii) not to make misleading misrepresentaons to our customers or the individuals whose data is stored by us concerning (a) the extent to which we protect the privacy, security, conﬁdenality, or integrity of certain data, (b) the likelihood that data impacted by a security incident may be subject to unauthorized access, disclosure, or other misuse, or (c) the data breach noﬁcaon requirements; and (iii) to implement and improve certain cybersecurity programs and tools. 2023 Form 10-K 99 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements As part of the Administrave Orders, we also agreed to pay, and have paid, a total of $49.5 million to the 49 states and District of Columbia. We entered into the Administrave Orders without adming fault or liability in connecon with the maers subject to the Mul-state Invesgaon. The form of Administrave Order was furnished as Exhibit 99.2 to our Current Report on Form 8-K ﬁled with the SEC on October 5, 2023. As previously disclosed, on March 9, 2023, we reached a selement with the SEC in connecon with the Security Incident. This selement fully resolves the previously disclosed SEC invesgaon of the Security Incident and is further described in an SEC cease-and-desist order (the “SEC Order”). Under the terms of the SEC Order, we have agreed to cease-and-desist from comming or causing any violaons or any future violaons of Secons 17(a)(2) and (3) of the Securies Act of 1933, as amended (the “Securies Act”), and Secon 13(a) of the Securies Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 12b-20, 13a-13 and 13a-15(a) thereunder. No other violaons of the securies laws are alleged in the SEC Order. As part of the SEC Order, we also agreed to pay, and have paid, a civil penalty in the amount of $3.0 million. We consented to the entry of the SEC Order without adming or denying the ﬁndings of the SEC Order, other than with respect to the SEC’s jurisdicon over the Company and the subject maer of the SEC Order. The SEC Order describing the selement was furnished as Exhibit 99.1 and the SEC’s press release announcing this resoluon was furnished as Exhibit 99.2 to our Current Report on Form 8-K ﬁled with the SEC on March 9, 2023. On September 28, 2021, the Informaon Commissioner’s Oﬃce in the United Kingdom under the U.K. Data Protecon Act 2018 (the "ICO") noﬁed us that it has closed its invesgaon of the Security Incident. Based on its invesgaon and having considered our acons before, during and aer the Security Incident, the ICO issued our European subsidiary a reprimand in accordance with Arcle 58(2)(b) of the U.K. General Data Protecon Regulaon ("U.K. GDPR") due to our non-compliance, in the ICO's view, with the requirements set out in Arcle 32 of the U.K. GDPR regarding the processing of personal data. The ICO did not impose a penalty related to the Security Incident, nor did it impose any requirements for further acon by us. On September 24, 2021, we received noce from the Spanish Data Protecon Authority that it has concluded its invesgaon of the Security Incident, pursuant to which our European subsidiary paid a penalty of €60,000 in relaon to the alleged late noﬁcaon of two Spanish data controllers regarding the Security Incident. On January 15, 2021, we were noﬁed by the Data Protecon Commission of Ireland that it has concluded its invesgaon of the Security Incident without taking any acon against us. We connue to cooperate with all ongoing invesgaons, which include various requests for documents, policies, narraves and communicaons, as well as requests to interview or depose various Company-related personnel. As noted above, each of these separate governmental invesgaons could result in adverse judgments, selements, ﬁnes, penales or other resoluon, the amount, scope and ming of which we are currently unable to predict, but could have a material adverse impact on our results of operaons, cash ﬂows or ﬁnancial condion. 100 2023 Form 10-K Table of Contents 12. Income Taxes Blackbaud, Inc. Notes to Consolidated Financial Statements We ﬁle income tax returns in the U.S. for federal and various state jurisdicons as well as in foreign jurisdicons including Canada, the U.K., Australia, Ireland and Costa Rica. We are generally subject to U.S. federal income tax examinaon for calendar tax years 2020 through 2023 as well as state and foreign income tax examinaons for various years depending on statutes of limitaons of those jurisdicons. The following summarizes the components of income tax expense (beneﬁt): (dollars in thousands) Current taxes: U.S. Federal U.S. State and local Internaonal Total current taxes Deferred taxes: U.S. Federal U.S. State and local Internaonal Total deferred taxes Total income tax provision (beneﬁt) The following summarizes the components of income (loss) before provision for income taxes: (dollars in thousands) U.S. Internaonal Income (loss) before provision for income taxes $ $ $ 2023 2022 2021 Years ended December 31, $ 18,879 $ 3,485 $ 12,331 8,982 40,192 (18,303) (5,895) (170) (24,368) 5,708 7,283 16,476 (16,880) (9,319) (445) (26,644) 15,824 $ (10,168) $ (2,499) (257) 6,570 3,814 (4,615) 222 1,964 (2,429) 1,385 Years ended December 31, 2023 (22,074) $ 39,718 17,644 $ 2022 (91,493) $ 35,918 (55,575) $ 2021 (23,180) 30,263 7,083 2023 Form 10-K 101 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements A reconciliaon between the eﬀect of applying the federal statutory rate and the eﬀecve income tax rate used to calculate our income tax provision is as follows: Federal statutory rate Eﬀect of: State income taxes, net of federal beneﬁt Change in foreign income tax rate applied to deferred tax balances Change in state income tax rate applied to deferred tax balances Nondeducble security incident-related ﬁnes or penales Secon 162(m) limitaon Stock-based compensaon Change in valuaon reserve (primarily state credit reserves) GILTI inclusion Foreign tax rate Nondeducble meals, entertainment and transportaon Unrecognized tax beneﬁt Acquision costs Return to accrual adjustment State credits, net of federal beneﬁt FDII beneﬁt Federal credits generated Other Income tax provision eﬀecve rate Years ended December 31, 2023 21.0 % 2022 21.0 % 2021 21.0 % 20.0 — 7.1 35.7 30.1 13.4 10.8 9.3 6.1 4.4 0.7 — (8.3) (9.1) (10.2) (42.3) 1.0 89.7 % 1.5 0.1 1.8 (8.7) (6.4) (6.3) (5.4) (2.6) 1.0 (0.7) 0.5 — 1.4 7.2 2.3 11.5 0.1 18.3 % 4.4 42.6 2.3 — 75.0 (36.2) 26.1 — (6.0) 1.1 (32.7) 8.7 (4.2) (32.6) — (54.5) 4.6 19.6 % The increase in our eﬀecve income tax rate for year ended December 31, 2023, when compared to the same period in 2022, was primarily aributable to higher 2023 non-deducble accruals for loss conngencies related to the Security Incident and other non-deducble expenses and tax rate changes, parally oﬀset by increased tax credits. Furthermore, our 2023 eﬀecve tax rate was negavely impacted by higher tax rates in foreign jurisdicons in which we operate which were predominantly due to UK tax rate increases. The year-on-year comparison is further impacted by 2023 pre-tax income versus prior year pre-tax loss. 102 2023 Form 10-K Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements The signiﬁcant components of our deferred tax assets and liabilies were as follows: (dollars in thousands) Deferred tax assets relang to: Capitalized R&D and soware costs Federal, state and foreign tax credits Stock-based compensaon Operang leases Federal and state and foreign net operang loss carryforwards Deferred revenue Allowance for credit losses Intangible assets Accrued bonuses Other Total deferred tax assets Deferred tax liabilies relang to: Intangible assets Costs of obtaining contracts Operang leases Fixed assets Other Total deferred tax liabilies Valuaon allowance Net deferred tax liability 2023 December 31, 2022 $ 47,351 $ 39,260 24,717 12,867 7,061 5,992 1,702 1,050 314 2,982 143,296 (160,172) (13,870) (9,865) (5,833) (8,342) (198,082) (37,862) $ (92,648) $ 12,166 50,194 21,166 14,024 10,369 1,820 1,803 561 455 6,293 118,851 (161,836) (16,287) (11,721) (9,827) (9,016) (208,687) (34,769) (124,605) As of December 31, 2023, our federal, foreign and state net operang loss carryforwards for income tax purposes were approximately $14.9 million, $3.8 million and $50.8 million, respecvely. Of our federal net operang loss carryforwards, $12.4 million are subject to expiraon beginning in 2024 while the remainder have an unlimited carryforward period. The state net operang loss carryforwards are subject to various applicable state tax laws. If not ulized, the state net operang loss carryforwards will expire over various periods beginning in 2024. Our foreign net operang loss carryforwards have an unlimited carryforward period. Our state tax credit carryforwards for income tax purposes were approximately $40.9 million, net of federal beneﬁt. If not ulized, the state tax credit carryforwards will begin to expire in 2024. A poron of the foreign and state net operang loss carryforwards and state credit carryforwards have a valuaon 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 valuaon allowance: Years ended December 31, (dollars in thousands) 2023 2022 2021 $ Balance at beginning of year 34,769 $ 31,974 29,184 Acquision- related change — $ — 893 Charges to expense 3,093 $ 2,795 1,897 Balance at end of year 37,862 34,769 31,974 2023 Form 10-K 103 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, 2023, 2022 and 2021: (dollars in thousands) Balance at beginning of year Increases from current period posions Increases from prior period posions Decreases in prior year posions Selements (payments) Lapse of statute of limitaons Balance at end of year Years ended December 31, 2023 3,083 $ 762 101 (118) (160) (428) 2022 3,651 $ 629 89 (908) — (378) 3,240 $ 3,083 $ 2021 4,625 1,751 6 (57) (1,192) (1,482) 3,651 $ $ The total amount of unrecognized tax beneﬁt that, if recognized, would favorably aﬀect the eﬀecve tax rate was $3.2 million at December 31, 2023. Certain prior period amounts relang to our 2014 acquisions were covered under indemniﬁcaon agreements and, therefore, had a corresponding indemniﬁcaon asset. Due to lapse of statute of limitaons, the indemniﬁed unrecognized tax beneﬁt was released in 2022 resulng in income tax beneﬁt with oﬀseng expense included in pretax income from corresponding release of indemniﬁcaon asset. We recognize accrued interest and penales, if any, related to unrecognized tax beneﬁts as a component of income tax expense. The total amount of accrued interest and penales included in the consolidated balance sheet as of December 31, 2023 and December 31, 2022 was insigniﬁcant. The total amount of interest and penales included in the consolidated statements of comprehensive income as an increase or decrease in income tax expense for 2023, 2022 and 2021 was insigniﬁcant. We have taken federal and state tax posions 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 expiraon of statutes of limitaons. The reasonably possible decrease at December 31, 2023 was insigniﬁcant. For our undistributed earnings of foreign subsidiaries, we concluded that these earnings would be permanently reinvested in the local jurisdicons 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 Compensaon Employee stock-based compensaon plans Under the 2016 Equity and Incenve Compensaon Plan Amended and Restated as of June 14, 2023 (the "2016 Equity Plan"), we may grant incenve stock opons, nonstatutory stock opons, stock appreciaon rights, restricted stock, restricted stock units, other stock awards and cash incenve awards to employees, directors and consultants. Our Compensaon Commiee 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 3,363,270 as of December 31, 2023. We issue common stock from our pool of authorized stock upon exercise of stock opons and stock appreciaon rights, vesng of restricted stock units or upon granng of restricted stock. 104 2023 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, me-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: Award type Restricted stock awards Time-based restricted stock units Performance-based restricted stock units Outstanding at December 31, 2023 1,101,702 607,100 1,209,515 2022 1,345,608 455,708 1,104,260 Awards granted to our execuve oﬃcers and certain members of management are subject to accelerated vesng upon a change in control as deﬁned in the employees’ employment agreement or retenon agreement. Expense recognion We recognize compensaon expense associated with stock opons and awards with performance or market based vesng condions on an accelerated basis over the requisite service period of the individual grantees, which generally equals the vesng period. We recognize compensaon 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 vesng 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 compensaon cost when they occur). Previously recognized compensaon cost for an award is reversed in the period that the award is forfeited. Stock-based compensaon expense is allocated to cost of revenue and operang expenses on the consolidated statements of comprehensive income based on where the associated employee’s compensaon is recorded. The following table summarizes stock-based compensaon expense: (in thousands) Included in cost of revenue: Cost of recurring Cost of one-me services and other Total included in cost of revenue Included in operang expenses: Sales, markeng and customer success Research and development General and administrave Total included in operang expenses Total stock-based compensaon expense 2023 2022 2021 Years ended December 31, $ $ 14,052 $ 2,606 16,658 24,892 30,780 55,432 111,104 127,762 $ 11,258 $ 3,178 14,436 21,409 24,207 50,242 95,858 110,294 $ 12,405 7,547 19,952 20,283 27,080 53,064 100,427 120,379 The total amount of compensaon cost related to unvested awards not recognized was $77.4 million at December 31, 2023. It is expected that this amount will be recognized over a weighted average period of 1.2 years. 2023 Form 10-K 105 Table of Contents Restricted stock awards Blackbaud, Inc. Notes to Consolidated Financial Statements We have granted shares of common stock subject to certain restricons 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 connued employment with us. Restricted stock awards granted to non-employee directors vest aer one year from the date of grant or, if earlier, immediately prior to the next annual elecon of directors, provided the non-employee director is serving as a director at that me. The fair market value of the stock at the me of the grant is amorzed on a straight-line basis to expense over the period of vesng. 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, 2023, and changes during the year then ended: Unvested at January 1, 2023 Granted Forfeited Vested Unvested at December 31, 2023 Restricted stock awards 1,345,608 $ 473,341 (106,634) (610,613) 1,101,702 Aggregate (1) intrinsic value (in thousands) Weighted average grant-date fair value 68.09 62.59 66.37 69.86 64.92 $ 95,518 (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, 2023, 2022 and 2021 was $42.7 million, $41.0 million and $38.5 million, respecvely. The weighted average grant-date fair value of restricted stock awards granted during the years ended December 31, 2022 and 2021 was $60.90 and $77.39, respecvely. Restricted stock units We have also granted restricted stock units subject to certain restricons 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 connued employment with us. We have also granted restricted stock units for which vesng is subject to meeng certain performance condions. The fair market value of the stock at the me of the grant is amorzed to expense on a straight-line basis over the period of vesng except for awards with performance condions, which are amorzed on an accelerated basis over the period of vesng. The following table summarizes our unvested, me-based restricted stock units as of December 31, 2023, and changes during the year then ended: Unvested at January 1, 2023 Granted Forfeited Vested Unvested at December 31, 2023 Time-based restricted stock units 455,708 $ 367,913 (24,686) (191,835) 607,100 Aggregate (1) intrinsic value (in thousands) Weighted average grant-date fair value 68.81 61.37 64.57 70.53 64.01 $ 52,636 (1) The intrinsic value is calculated as the market value as of the end of the ﬁscal period. The total fair value of me-based restricted stock units that vested during the years ended December 31, 2023, 2022 and 2021 was $13.5 million, $9.3 million and $9.4 million, respecvely. The weighted average grant date fair value of me-based restricted stock units granted for the years ended December 31, 2022 and 2021 was $62.38 and $77.74, respecvely. 106 2023 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, 2023, and changes during the year then ended: Unvested at January 1, 2023 Granted Forfeited Vested Unvested at December 31, 2023 Performance-based restricted stock units 1,104,260 $ 967,252 (72,428) (789,569) 1,209,515 Aggregate (1) intrinsic value (in thousands) Weighted average grant-date fair value 64.94 59.62 60.12 64.45 61.29 $ 104,849 (1) The intrinsic value is calculated as the market value as of the end of the ﬁscal period. The total fair value of performance-based restricted stock units that vested during the years ended December 31, 2023, 2022 and 2021 was $50.9 million, $50.5 million, and $44.9 million, respecvely. The weighted average grant date fair value of performance-based restricted stock units granted for the years ended December 31, 2022 and 2021 was $61.79 and $71.91, respecvely. 14. Stockholders' Equity Preferred stock Our Board of Directors may ﬁx the relave rights and preferences of each series of preferred stock in a resoluon of the Board of Directors. Stock repurchase program Under our stock repurchase program, we are authorized to repurchase shares from me to me in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securies Exchange Act of 1934, as amended, and in privately negoated transacons. The ming and amount of repurchases depends on several factors, including market and business condions, the trading price of our common stock and the nature of other investment opportunies. The repurchase program does not have an expiraon date and may be limited, suspended or disconnued at any me without prior noce. Under the 2020 Credit Facility, we have restricons 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. During the year ended December 31, 2023, we repurchased 221,836 shares for $18.8 million. The remaining amount available to purchase stock under the then approved stock repurchase program was $231.2 million as of December 31, 2023. On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by expanding the total capacity under the program from $250.0 million to $500.0 million available for purchase. Between January 1, 2024 and January 17, 2024, we repurchased $22.3 million under the prior authorizaon. Between January 18, 2024 and February 16, 2024, we repurchased an addional 7,114 shares for $0.6 million under the new authorizaon. The remaining amount available to purchase stock under the stock repurchase program was $499.4 million as of February 16, 2024. 2023 Form 10-K 107 Table of Contents Blackbaud, Inc. Notes to Consolidated Financial Statements Changes in accumulated other comprehensive income (loss) by component The changes in accumulated other comprehensive income (loss) by component, consisted of the following: (in thousands) Accumulated other comprehensive income (loss), beginning of period By component: Gains and losses on cash ﬂow hedges: Accumulated other comprehensive income (loss) balance, beginning of period Other comprehensive (loss) income before reclassiﬁcaons, net of tax eﬀects of $201, $(8,068) and $(1,982) Amounts reclassiﬁed from accumulated other comprehensive (loss) income Tax expense (beneﬁt) included in provision for income taxes Total amounts reclassiﬁed from accumulated other comprehensive (loss) income Net current-period other comprehensive (loss) income Accumulated other comprehensive income balance, end of period Foreign currency translaon adjustment: Accumulated other comprehensive (loss) income balance, beginning of period Translaon adjustment Accumulated other comprehensive (loss) income balance, end of period Accumulated other comprehensive (loss) income, end of period 2023 8,938 $ Years ended December 31, 2022 6,522 $ 2021 (2,497) 23,833 $ 5,257 $ (3,101) (271) (20,806) 5,402 (15,404) (15,675) 22,772 (5,685) 1,489 (4,196) 18,576 8,158 $ 23,833 $ (14,895) $ 1,265 $ 5,049 (9,846) (16,160) (14,895) (1,688) $ 8,938 $ 5,617 3,714 (973) 2,741 8,358 5,257 604 661 1,265 6,522 $ $ $ $ $ 15. Deﬁned Contribuon Plan We have a deﬁned contribuon 401(k) plan (the "401K Plan") covering substanally all employees. Employees were able to contribute between 1% and 75% of their salaries in 2023, 2022 and 2021. We match 50% of qualiﬁed employees’ contribuons up to 6% of their salary. The 401K Plan also provides for addional employer contribuons to be made at our discreon. Total matching contribuons to the 401K Plan for the years ended December 31, 2023, 2022 and 2021 were $7.8 million, $9.3 million and $6.5 million, respecvely. There were no discreonary contribuons by us to the 401K Plan in 2023, 2022 and 2021. 108 2023 Form 10-K Table of Contents 16. Segment Informaon Blackbaud, Inc. Notes to Consolidated Financial Statements Our chief operang decision maker is our chief execuve oﬃcer ("CEO"). Our CEO uses consolidated ﬁnancial informaon to make operang decisions, assess ﬁnancial performance and allocate resources. We have one operang segment and one reportable segment. The following table presents long-lived assets by geographic region based on the locaon of the assets. For purposes of this disclosure, long-lived assets includes property and equipment, net and operang lease ROU assets. (dollars in thousands) United States Other countries Total long-lived assets 2023 134,316 $ 1,300 135,616 $ $ $ Years ended December 31, 2022 151,656 1,669 153,325 See Note 17 to these consolidated ﬁnancial statements for informaon about our revenues by geographic region. 17. Revenue Recognion Transacon price allocated to the remaining performance obligaons As of December 31, 2023, approximately $1.2 billion of revenue is expected to be recognized from remaining performance obligaons. We expect to recognize revenue on approximately 50% of these remaining performance obligaons over the next 12 months, with the remainder recognized thereaer. We applied the praccal expedient in ASC 606-10-50-14 and have excluded the value of unsasﬁed performance obligaons for (i) contracts with an original expected length of one year or less (one-me services); and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (transaconal revenue). We also applied the praccal expedient in ASC 606-10-65-1-(f)(3), whereby the transacon price allocated to the remaining performance obligaons, or an explanaon of when we expect to recognize that amount as revenue for all reporng periods presented before the date of the inial applicaon, is not disclosed. Contract balances Our contract assets as of December 31, 2023 and December 31, 2022 were insigniﬁcant. Our closing balances of deferred revenue were as follows: (in thousands) Total deferred revenue December 31, 2023 $ 394,927 $ December 31, 2022 385,236 The increase in deferred revenue during 2023 was primarily due to new subscripon sales of our cloud soluons and progress in iniaves to bring our pricing in line with the market. Historically, due to the ming of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our ﬁrst quarter. The amount of revenue recognized during 2023 that was included in the deferred revenue balance at the beginning of the period was approximately $365 million. The amount of revenue recognized during 2023 from performance obligaons sasﬁed in prior periods was insigniﬁcant. 2023 Form 10-K 109 Table of Contents Disaggregaon of revenue Blackbaud, Inc. Notes to Consolidated Financial Statements We sell our cloud soluons 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 address of our customers: (dollars in thousands) United States United Kingdom Other countries Total revenue Years ended December 31, 2023 2022 2021 $ 945,580 $ 896,116 $ 777,333 100,833 59,019 101,026 60,963 89,688 60,719 $ 1,105,432 $ 1,058,105 $ 927,740 The Social Sector and Corporate Sector market groups comprised our go-to-market organizaons as of December 31, 2023. The following is a descripon 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, foundaons, educaon instuons, healthcare organizaons and other not-for-proﬁt enes globally, and includes JustGiving; and The Corporate Sector market group focuses on sales to customers and prospects in the corporate sector globally, and includes EVERFI and YourCause. The following table presents our revenue by market group: (dollars in thousands) Social Sector Corporate Sector Total revenue The following table presents our recurring revenue by type: (dollars in thousands) Contractual recurring Transaconal recurring Total recurring revenue 110 2023 Form 10-K Years ended December 31, 2023 2022 2021 954,845 $ 907,197 $ 889,755 150,587 150,908 37,985 1,105,432 $ 1,058,105 $ 927,740 2023 2022 738,351 $ 709,097 $ 333,169 302,636 1,071,520 $ 1,011,733 $ Years ended December 31, 2021 601,397 279,453 880,850 $ $ $ $ Table of Contents 18. Subsequent Events Stock Repurchase Program Blackbaud, Inc. Notes to Consolidated Financial Statements On January 17, 2024, our Board of Directors reauthorized, expanded and replenished our exisng stock repurchase program. The expansion raised the total capacity under the stock repurchase program from $250.0 million to $500.0 million available for repurchases. The program does not have an expiraon date. During December 2023 and January 2024, prior to the replenishment on January 17, 2024, we repurchased $41.1 million of our common stock under the stock repurchase program. Between January 18, 2024 and February 16, 2024, we repurchased $0.6 million. As of February 16, 2024, the remaining amount available to purchase stock under our repurchase program was $499.4 million. All of the Company's stock repurchases during the fourth quarter of 2023 and the ﬁrst quarter of 2024 were made pursuant to an SEC Rule 10b5-1(c) trading arrangement. Repurchases by the Company will be subject to available liquidity, general market and economic condions, alternate uses for the capital and other factors. Stock repurchases may be made from me to me in open market transacons, in private transacons or otherwise in accordance with applicable securies laws and regulaons and other legal requirements, including compliance with the Company’s ﬁnance agreements. There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or disconnued at any me without prior noce. All shares purchased will be held in the Company’s treasury for possible future use. The Company ancipates funding any stock repurchases from its cash ﬂow from operaons. Addional informaon regarding the stock repurchase program reauthorizaon is contained in the Company's Current Report on Form 8-K ﬁled with the SEC on January 22, 2024. FTC Selement On February 1, 2024, the FTC announced its approval of a Proposed Order evidencing its selement with the Company, subject to public review and comment, relang to the Security Incident. If ﬁnalized, this selement will fully resolve the previously disclosed FTC invesgaon relang to the Security Incident, which is further described in the FTC’s Proposed Order. Under the terms of the Proposed Order, the Company has agreed to certain condions, which are reﬂected in their enrety in the Proposed Order. As part of the Proposed Order, the Company has not been ﬁned and is not otherwise required to make any payment. The Company has agreed to the Proposed Order without adming or denying any of the FTC's allegaons, except as expressly stated otherwise in the Proposed Order. For more informaon regarding this selement or the Proposed Order, see Note 11 to these condensed consolidated ﬁnancial statements. See also the Proposed Order, which was furnished as Exhibit 99.2 to the Company’s Current Report on Form 8-K ﬁled with the SEC on February 2, 2024. 2023 Form 10-K 111 Table of Contents Blackbaud, Inc. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluaon of Disclosure Controls and Procedures Disclosure controls and procedures (as deﬁned in Exchange Act Rule 13a-15(e) and 15d-15(e)) are designed only to provide reasonable assurance that they will meet their objecves. As of the end of the period covered by this report, we carried out an evaluaon, under the supervision and with the parcipaon of our management, including our Chief Execuve Oﬃcer (principal execuve oﬃcer) and Chief Financial Oﬃcer (principal ﬁnancial and accounng oﬃcer), of the eﬀecveness of our disclosure controls and procedures (as deﬁned in Rule 13a-15(e) and 15d-15(e)) pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluaon, our Chief Execuve Oﬃcer and Chief Financial Oﬃcer have concluded that our disclosure controls and procedures are eﬀecve to provide the reasonable assurance discussed above. Changes in Internal Control Over Financial Reporng No changes in internal control over ﬁnancial reporng occurred during the most recent ﬁscal quarter ended December 31, 2023 with respect to our operaons that has materially aﬀected, or is reasonably likely to materially aﬀect, our internal control over ﬁnancial reporng. Management’s Report on Internal Control Over Financial Reporng Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial reporng (as deﬁned in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act). Internal control over ﬁnancial reporng is a process designed to provide reasonable assurance regarding the reliability of ﬁnancial reporng and the preparaon of ﬁnancial statements for external purposes in accordance with U.S. GAAP. Our internal control over ﬁnancial reporng includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the transacons and disposions of our assets; (ii) provide reasonable assurance that transacons are recorded as necessary to permit preparaon of ﬁnancial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizaons of our management and directors; and (iii) provide reasonable assurance regarding prevenon or mely detecon of unauthorized acquision, use, or disposion of our assets that could have a material eﬀect on the ﬁnancial statements. Our management conducted an evaluaon of the eﬀecveness of our internal control over ﬁnancial reporng as of December 31, 2023, based on the framework in Internal Control - Integrated Framework issued by the Commiee of Sponsoring Organizaons of the Treadway Commission (2013 framework). Based on this evaluaon under the Internal Control - Integrated Framework, management concluded that our internal control over ﬁnancial reporng was eﬀecve as of December 31, 2023. The eﬀecveness of our internal control over ﬁnancial reporng as of December 31, 2023, has been audited by our independent registered public accounng ﬁrm, as stated in their aestaon report, which is included in Item 8 of this Annual Report on Form 10-K. 112 2023 Form 10-K Table of Contents Blackbaud, Inc. ITEM 9B. OTHER INFORMATION Trading Plans Adopted or Terminated The following table provides informaon about trading arrangements adopted or terminated by certain of our oﬃcers and directors during the three months ended December 31, 2023. Name and Title Michael P. Gianoni Chief Execuve Oﬃcer, President and Vice Chairman of the Board Anthony W. Boor Execuve Vice President and Chief Financial Oﬃcer Kevin P. Gregoire Execuve Vice President and Chief Operang Oﬃcer Kevin R. McDearis Execuve Vice President and Chief Technology Oﬃcer Jon W. Olson Senior Vice President and General Counsel Acon Date of Adopon Plan eﬀecve date Plan end date Plan duraon (months) Rule 10b5-1 Non-Rule 10b5-1 Trading arrangement (1) Adopon 11/07/23 2/26/24 8/09/24 Adopon 11/07/23 2/26/24 8/09/24 Six Six Adopon 11/15/23 2/26/24 11/01/24 Nine Adopon 11/17/23 3/06/24 6/04/24 Three Adopon 11/21/23 3/06/24 9/27/24 Seven X X X X X Aggregate number of securies to be sold under plan 50,000 30,000 13,000 5,253 (2) 9,200 (1) An SEC "Rule 10b5-1(c) trading arrangement" is a trading arrangement made by a person through entering into a binding contract, verbal instrucon or adopon of a wrien plan prior to becoming aware of material non-public informaon. The contract, instrucon or wrien plan must specify the amount, price and date of securies to be sold; include the means for determining the amount, price and date of the sale or sales; and not permit the person to have subsequent inﬂuence over the sale or sales. The compliant plan must be entered into and operated in good faith, include a speciﬁed cooling oﬀ period, be cerﬁed by an authorized oﬃcer and is restricted from having mulple or overlapping plans. A non-compliant trading arrangement, or a "non-Rule 10b5-1 trading arrangement," is a trading arrangement that has similar requirements to a Rule 10b5-1(c) trading arrangement except that it must be in wrien form and does not require a cooling oﬀ period or cerﬁcaon of an authorized oﬃcer and there is no restricon from having mulple or overlapping plans. Represents the target quanty of Performance Share Awards which may be subject to a performance mulplier; therefore, the aggregate number of shares to be sold may be equal to, greater than or less than the target quanty. (2) None of our oﬃcers or directors adopted or terminated a non-Rule 10b5-1 trading arrangement during the three months ended December 31, 2023. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 2023 Form 10-K 113 Table of Contents Blackbaud, Inc. PART III. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The informaon required by Item 10 with respect to Directors and Execuve Oﬃcers is incorporated by reference from the informaon under the capons “Elecon of Directors,” “Informaon Regarding Meengs of the Board and Commiees,” “Delinquent Secon 16(a) Reports,” and “Code of Business Conduct and Ethics and Code of Ethics,” contained in Blackbaud’s Proxy Statement for the 2024 Annual Meeng of Stockholders expected to be held on June 12, 2024, except for "Informaon About Our Execuve Oﬃcers" which is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The informaon required by Item 11 is incorporated by reference from the informaon under the capons "Director Compensaon," “Execuve Compensaon,” “Compensaon Discussion and Analysis,” “2023 Summary Compensaon Table,” "CEO Pay Rao" and "Pay Versus Performance" contained in Blackbaud’s Proxy Statement for the 2024 Annual Meeng of Stockholders expected to be held on June 12, 2024. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The informaon required by Item 12 is incorporated by reference from informaon under the capons “Stock Ownership” and "Equity Compensaon Plan Informaon" contained in Blackbaud’s Proxy Statement for the 2024 Annual Meeng of Stockholders expected to be held on June 12, 2024. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The informaon required by Item 13 is incorporated by reference from the informaon under the capons “Transacons with Related Persons,” and “Independence of Directors” contained in Blackbaud’s Proxy Statement for the 2024 Annual Meeng of Stockholders expected to be held on June 12, 2024. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The informaon required by Item 14 is incorporated by reference from the informaon under the capon “Audit Commiee Report,” contained in Blackbaud’s Proxy Statement for the 2024 Annual Meeng of Stockholders expected to be held on June 12, 2024. 114 2023 Form 10-K Table of Contents Blackbaud, Inc. PART IV. ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are included as part of the Annual Report on Form 10-K: 1. Financial statements See the "Index to consolidated ﬁnancial statements" in Part II Item 8 of this report. There were no retrospecve changes to the Consolidated Statement of Operaons for any quarters in the two most recent ﬁscal years that would require disclosure under Item 302, as amended. 2. Financial statement schedules Schedules not listed above have been omied because the informaon required to be set forth therein is not applicable or is shown in the ﬁnancial statements thereto. 3. Exhibits The exhibits listed below are ﬁled or incorporated by reference as part of this report: Exhibit Number 2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 4.1 4.2 Descripon of Document Agreement and Plan of Merger and Reincorporaon dated April 6, 2004 Purchase Agreement, dated August 30, 2014, by and among MicroEdge Holdings, LLC, Blackbaud, Inc, direct and indirect holders of all of the outstanding equity interests of MicroEdge Holdings, LLC, and VFF I AIV I, L.P., as Sellers’ Representave Unit Purchase Agreement, dated as of August 10, 2015, by and between Smart Tuion Holdings, LLC and Blackbaud, Inc. Amendment, Consent and Waiver, Agreement dated as of October 2, 2015, by and between Smart Tuion Holdings, LLC and Blackbaud, Inc. Agreement and Plan of Merger, dated as of December 30, 2021, by and among Blackbaud, Inc., Project Montessori Acquision, Inc., EverFi, Inc. and Eon Stockholder Representave, LLC Amended and Restated Cerﬁcate of Incorporaon of Blackbaud, Inc. Cerﬁcate of Designaon of Series A Junior Parcipang Preferred Stock of Blackbaud, Inc. Amended and Restated Bylaws of Blackbaud, Inc. dated December 7, 2023 Descripon of Capital Stock Stockholder Rights Agreement, dated as of October 7, 2022, between Blackbaud, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent Registrant’s Form S-1/A 8-K 8-K 8-K 8-K Filed In Dated 4/6/2004 10/2/2014 10/8/2015 10/8/2015 Exhibit Number Filed Herewith 2.1 10.76 10.78 10.79 1/3/2022 2.1 DEF 14A 4/30/2009 8-K 8-K 8-K 10/11/2022 12/11/2023 10/11/2022 3.1 3.1 4.1 X 2023 Form 10-K 115 Table of Contents Blackbaud, Inc. Exhibit Number 4.3 4.4 10.1 † 10.2 † 10.3 10.4 10.5 10.6 10.7 10.8 † 10.9 † 10.10 10.11 10.12 10.13 10.14 Descripon of Document Amendment to Stockholder Rights Agreement, dated as of October 2, 2023, between Blackbaud, Inc. and Equini Trust Company, LLC (f/k/a American Stock Transfer & Trust Company, LLC), as Rights Agent. Amendment to Stockholder Rights Agreement, dated as of January 26, 2024, between Blackbaud, Inc. and Broadridge Corporate Issuer Soluons, LLC, as Rights Agent. Form of Employment Agreement between Blackbaud, Inc. and each of Anthony W. Boor and Kevin W. Mooney Form of Employment Agreement between Blackbaud, Inc. and Jon W. Olson Lease Agreement dated May 16, 2016 between BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) and HPBB1, LLC First Amendment to Lease Agreement, dated as of August 22, 2016, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Second Amendment to Lease Agreement, dated as of May 18, 2017, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Third Amendment to Lease Agreement, dated as of December 11, 2017, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Fourth Amendment to Lease Agreement, dated as of February 28, 2018, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Oﬀer Leer Agreement between Blackbaud, Inc. and Kevin P. Gregoire Form of Employee Agreement between Blackbaud, Inc. and Kevin P. Gregoire Fih Amendment to Lease Agreement, dated as of February 18, 2020, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Sixth Amendment to Lease Agreement, dated as of March 17, 2020, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Seventh Amendment to Lease Agreement, dated as of April 14, 2020, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Eighth Amendment to Lease Agreement, dated as of May 26, 2020, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Ninth Amendment to Lease Agreement, dated as of June 8, 2020, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) 116 2023 Form 10-K 10-K 10-K 10-Q 10-Q 10-K 10-K 10-Q 10-Q 10-Q 10-Q 10-Q 10-Q 10-Q 10-Q Registrant’s Form 8-K Filed In Dated 10/2/2023 8-K 1/26/2024 Exhibit Number Filed Herewith 4.2 4.3 10.65 10.65 10.84 10.87 2/27/2013 2/27/2013 8/4/2016 11/4/2016 2/20/2018 10.93 2/20/2018 10.94 5/4/2018 10.95 5/3/2019 5/3/2019 8/4/2020 8/4/2020 8/4/2020 8/4/2020 8/4/2020 10.96 10.97 10.1 10.2 10.3 10.4 10.5 Table of Contents Blackbaud, Inc. Exhibit Number 10.15 10.16 10.17 10.18 10.19 † 10.20 10.21 10.22 10.23 10.24 10.25 † Descripon of Document Tenth Amendment to Lease Agreement, dated as of June 26, 2020, between HPBB1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Eleventh Amendment to Lease Agreement, dated as of August 13, 2020, between BBHQ1, LLC and BBHQ1, LLC (a subsidiary of Blackbaud, Inc.) Amended and Restated Credit Agreement, dated as of October 30, 2020, by and among Blackbaud, Inc., and certain of its subsidiaries, as Borrowers, the lenders referred to therein, Bank of America, N.A., as Administrave Agent, Swingline Lender and Issuing Lender, PNC Bank, Naonal Associaon, as Syndicaon Agent, and Regions Bank, BBVA USA and Fih Third Bank, Naonal Associaon, as Co-Documentaon Agents, with BofA Securies, Inc., PNC Bank, Naonal Associaon, Regions Capital Markets, BBVA USA and Fih Third Bank, Naonal Associaon as Joint Lead Arrangers and Joint Bookrunners Amended and Restated Pledge Agreement, dated as of October 30, 2020, by Blackbaud, Inc. in favor of Bank of America, N.A., as Administrave Agent, for the ratable beneﬁt of itself and the secured pares referred to therein Form of Employment Agreement between Blackbaud, Inc. and Kevin McDearis LIBOR Transion Amendment, dated as of September 20, 2021, between Blackbaud, Inc. and Bank of America, N.A. First Incremental Term Loan Agreement, dated as of December 31, 2021, by and among Blackbaud, Inc., the lenders party thereto and Bank of America N.A., as administrave agent Registraon Rights Agreement, dated as of December 31, 2021, by and among Blackbaud, Inc., EverFi, Inc., TPG Eon, L.P., each other shareholder party thereto and Eon Stockholder Representave, LLC First Amendment to Credit Agreement, dated as of January 31, 2022, by and among Blackbaud, Inc., the lenders party thereto and Bank of America N.A., as administrave agent LIBOR Transion Amendment, dated as of August 26, 2022, between Blackbaud, Inc. and Bank of America, N.A. Amended and Restated Employment and Noncompeon Agreement dated September 20, 2022 between Blackbaud, Inc. and Michael P. Gianoni Registrant’s Form 10-Q Filed In Dated 8/4/2020 10-Q 11/3/2020 10-Q 11/3/2020 Exhibit Number Filed Herewith 10.7 10.3 10.4 10-Q 11/3/2020 10.5 10-Q 10-Q 8-K 8-K 8-K 10-Q 8-K 5/4/2021 11/4/2021 1/3/2022 1/3/2022 2/3/2022 3/1/2022 9/21/2022 10.1 10.1 10.1 10.2 10.1 10.2 10.1 2023 Form 10-K 117 Table of Contents Blackbaud, Inc. Exhibit Number 10.26 10.27 † 10.28 Descripon of Document Consent Agreement, dated as of January 23, 2023, between Blackbaud, Inc. and Bank of America, N.A. Amended and Restated Blackbaud, Inc. 2016 Equity and Incenve Compensaon Plan Form of Retenon Agreement dated as of April 24, 2023 between Blackbaud, Inc. and each of Anthony W. Boor, David J. Benjamin, Kevin P. Gregoire, Kevin R. McDearis, Kevin W. Mooney and Jon W. Olson Registrant’s Form 10-K Filed In Dated 2/24/2023 Exhibit Number Filed Herewith 10.30 DEF 14A 4/25/2023 Appendix B 10-Q 5/4/2023 10.1 10.29 Relocaon Agreement dated June 8, 2023 between Blackbaud, Inc. and David J. Benjamin. 8-K 6/12/2023 10.1 21.1 23.1 23.2 23.3 31.1 31.2 32.1 32.2 97.1 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE 104 Subsidiaries of Blackbaud, Inc. Consent of Independent Registered Public Accounng Firm Consent of Independent Registered Public Accounng Firm Consent of Sidley Ausn LLP 8-K 4/1/2022 23.1 Cerﬁcaon by the Chief Execuve Oﬃcer pursuant to Secon 302 of the Sarbanes-Oxley Act of 2002 Cerﬁcaon by the Chief Financial Oﬃcer pursuant to Secon 302 of the Sarbanes-Oxley Act of 2002 Cerﬁcaon by the Chief Execuve Oﬃcer pursuant to 18 U.S.C. 1350 as adopted pursuant to Secon 906 of the Sarbanes-Oxley Act of 2002 Cerﬁcaon by the Chief Financial Oﬃcer pursuant to 18 U.S.C. 1350 as adopted pursuant to Secon 906 of the Sarbanes-Oxley Act of 2002 Blackbaud, Inc. Execuve Incenve Compensaon Clawback Policy Inline XBRL Instance Document - the Instance Document does not appear in the interacve data ﬁle because its XBRL tags are embedded within the Inline XBRL Document. Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculaon Linkbase Document Inline XBRL Taxonomy Extension Deﬁnion Linkbase Document Inline XBRL Taxonomy Extension Label Linkbase Document Inline XBRL Taxonomy Extension Presentaon Linkbase Document Cover Page Interacve Data File (formaed as Inline XBRL and contained in Exhibit 101). X X X X X X X X X X X X X X X † Indicates management contract or compensatory plan, contract or arrangement. 118 2023 Form 10-K Table of Contents Blackbaud, Inc. ITEM 16. FORM 10-K SUMMARY Not applicable. 2023 Form 10-K 119 Table of Contents Blackbaud, Inc. SIGNATURES Pursuant to the requirements of Secon 13 or 15(d) of the Securies Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Signed: February 21, 2024 Blackbaud, Inc. /S/ MICHAEL P. GIANONI Chief Execuve Oﬃcer, President and Vice Chairman of the Board (Principal Execuve Oﬃcer) Pursuant to the requirements of the Securies Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the Registrant and on the dates indicated. /S/ MICHAEL P. GIANONI Michael P. Gianoni /S/ ANTHONY W. BOOR Anthony W. Boor /S/ ANDREW M. LEITCH Andrew M. Leitch /S/ DENEEN DEFIORE Deneen DeFiore /S/ GEORGE H. ELLIS George H. Ellis /S/ YOGESH K. GUPTA Yogesh K. Gupta Chief Execuve Oﬃcer, President and Vice Chairman of the Board (Principal Execuve Oﬃcer) Date: February 21, 2024 Execuve Vice President and Chief Financial Oﬃcer (Principal Financial and Accounng Oﬃcer) Date: February 21, 2024 Chairman of the Board of Directors Date: February 21, 2024 Director Director Director Date: February 21, 2024 Date: February 21, 2024 Date: February 21, 2024 /S/ RUPAL S. HOLLENBECK Director Date: February 21, 2024 Rupal S. Hollenbeck /S/ D. ROGER NANNEY D. Roger Nanney /S/ SARAH E. NASH Sarah E. Nash /S/ KRISTIAN P. TALVITIE Krisan P. Talvie 120 2023 Form 10-K Director Director Director Date: February 21, 2024 Date: February 21, 2024 Date: February 21, 2024 DESCRIPTION OF THE COMPANY’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 EXHIBIT 4.1 General The following is a summary of information concerning the capital stock of Blackbaud, Inc (the "Company"), which consists of (i) up to 180,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”), (ii) up to 20,000,000 shares of preferred stock in one or more classes or series as may be determined by the Company’s board of directors (the “Board of Directors”) in its discretion, and (iii) preferred share purchase rights (the “Rights”). The Common Stock and the Rights are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and are more fully described below. The summaries and descriptions below do not purport to be complete statements of the relevant provisions of the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), Amended and Restated Bylaws (the “Bylaws”) and Rights Agreement (as defined below), each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.1 is a part and are entirely qualified by these documents. We encourage you to read the Certificate of Incorporation, Bylaws, Rights Agreement and the applicable provisions of the Delaware General Corporation Law (the “DGCL”) for additional information. Common Stock Voting rights The holders of Common Stock are entitled to one vote per share on all matters to be voted on by the stockholders, and there are no cumulative voting rights. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of Common Stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any preferred stock; provided, however, that in all director elections that are contested, the nominees for election as a director shall be elected by a plurality of the votes cast. For purposes of the foregoing, an election shall be “contested” if, as of the tenth day preceding the date of the filing of the Company’s definitive proxy statement for such meeting of stockholders, the number of nominees for director exceeds the number of directors to be elected. The Board of Directors is divided into three classes of directors, as described below. Dividend rights The holders of Common Stock are entitled to receive ratable dividends, if any, payable in cash, in stock or otherwise, as and when declared from time to time by the Board of Directors out of funds legally available for the payment of dividends, subject to any preferential rights that may be applicable to any outstanding preferred stock. Other rights and preferences In the event of a liquidation, dissolution, or winding up of the Company, after payment in full of all outstanding debts and other liabilities, the holders of Common Stock are entitled to share ratably in all remaining assets, subject to prior distribution rights of preferred stock, if any, then outstanding. No shares of Common Stock have preemptive rights or other subscription rights to purchase additional shares of Common Stock. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and nonassessable. The rights, preferences, and privileges of holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future, as described below. All shares of Common Stock that are acquired by the Company shall be available for reissuance by the Company, at the sole-discretion of the Board of Directors at any time. Transfer agent and registrar The transfer agent and registrar for the Common Stock is Broadridge Corporate Issuer Solutions, LLC, and its telephone number is (877) 830-4936. EXHIBIT 4.1 Nasdaq listing The Common Stock is listed for trading on Nasdaq Global Select Market under the ticker symbol “BLKB.” Anti-takeover Effects of Delaware Law, Provisions of the Certificate of Incorporation, Bylaws and the Rights Agreement Certain provisions of the DGCL, the Certificate of Incorporation, Bylaws and the Rights Agreement may have the effect of delaying, deferring or preventing a change in control of the Company or deterring tender offers for Common Stock, proxy contests or other takeover attempts, including discouraging attempts that might result in the payment of a premium over the market price for the shares of Common Stock. Delaware anti-takeover law We are subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless: • the board of directors approved the transaction in which the stockholder became an interested stockholder prior to the date the interested stockholder attained that status; • when the stockholder became an interested stockholder, he or she or it owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers, as well as certain shares owned by employee benefits plans; or • on or subsequent to the date the business combination is approved by the board of directors, the business combination is authorized by the affirmative vote of at least 66 2/3% of the voting stock of the corporation at an annual or special meeting of stockholders. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or is an affiliate or associate of the corporation, and within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Certificate of Incorporation and Bylaw provisions Classified Board of Directors. The Board of Directors is divided into three classes of directors, as nearly equal in number as possible, with each class serving a staggered term of three years. Any vacancy on the Board of Directors, regardless of the reason for the vacancy, may be filled by vote of the majority of the directors then in office, except in the case of a vacancy caused by action of the stockholders, which vacancy may only be filled by the stockholders. Directors may be removed from office at any time with or without cause, but only by the holders of a majority of the shares entitled to vote at an election of directors. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of the Board of Directors and could also discourage a third-party from making a tender offer or otherwise attempting to obtain control of the Company, and may maintain the incumbency of the Board of Directors. Advance notice requirement for stockholder proposals, including director nominations. The Bylaws contain an advance notice procedure for stockholders proposals to be brought before a meeting of stockholders, including any proposed nominations of persons for election to the Board of Directors. Stockholders at a meeting may only consider proposals or nominations specified in the notice of meeting, or brought before the meeting by or at the direction of the Board of Directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting, who has given to the Company’s Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting, and who has otherwise complied with the Bylaws. Although the Bylaws do not give the Board of Directors the power to approve or disapprove stockholder nominations of candidates for election to the Board of Directors or proposals regarding other business to be conducted at a special or annual meeting of the stockholders, the Bylaws may have the effect of precluding the conduct of business at a meeting if the proper procedures are not followed, or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company. “Blank” Preferred Stock. The Board of Directors has the authority to issue up to an aggregate of 20,000,000 shares of preferred stock in one or more classes or series and to determine, with respect to any such class or series, the designations, powers, preferences and rights of such class or series, and the qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences, and the number of shares constituting any class EXHIBIT 4.1 or series or the designation of such class or series, without further vote or action by the stockholders. This preferred stock could have terms that may discourage a potential acquirer from making, without first negotiating with the Board of Directors, an acquisition attempt through which such acquirer may be able to change the composition of the Board of Directors, including a tender offer or other takeover attempt. No shares of preferred stock are currently outstanding. Emergency Special Meeting of the Board of Directors. The Board of Directors possesses the authority to call and hold emergency special meetings of the Board of Directors with less than forty-eight hours’ notice. This power to hold an emergency special meeting of the Board of Directors on short notice could discourage a potential acquirer from launching a bid to acquire majority ownership of the Company, a proxy solicitation in order to replace the current Board of Directors, or otherwise attempting to obtain control of the Company, as such attempts could quickly be thwarted or denied by the Board of Directors. Stockholder Rights Agreement As more fully described below, on October 7, 2022, the Company declared a dividend of one preferred share purchase right for each of the Company’s issued and outstanding shares of Common Stock. The description and terms of these Rights are set forth in the Stockholder Rights Agreement, dated as of October 7, 2022, as amended on October 2, 2023 and January 26, 2024 (the “Rights Agreement”), by and between the Company and Broadridge Corporate Issuer Solutions, LLC, as successor rights agent to American Stock Transfer & Trust Company, LLC (the “Rights Agent”). Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from us one one-thousandth of a share of the Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) at a price of $313.00, subject to certain adjustments (as adjusted from time to time, the “Exercise Price”). Under the Rights Agreement, the Rights will become exercisable if an entity, person or group acquires beneficial ownership of 20% or more of the outstanding Common Stock in a transaction not approved by the Board of Directors. In the event that the Rights become exercisable due to the ownership threshold being crossed, each Right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase additional shares of Common Stock having a then-current market value of twice the Exercise Price. Subject to the terms of the Rights Agreement, the Rights will expire on October 2, 2024. Additional information regarding the Rights Agreement is contained in Forms 8-K filed with the SEC on October 11, 2022, October 2, 2023 and January 26, 2024. Preferred Stock Purchase Rights Voting and dividend rights Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. Other rights and preferences As stated above, on October 7, 2022, the Company declared a dividend of one preferred share purchase right for each of the Company’s issued and outstanding shares of Common Stock. The dividend will be paid to the stockholders of record at the close of business on October 17, 2022 (the “Record Date”). Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company one one-thousandth of a share of the Company’s Series A Preferred Stock at a price of $313.00, subject to certain adjustments. Subject to certain exceptions, the Rights will not be exercisable until the earlier to occur of (i) the close of business on the tenth business day after a public announcement or filing that a person has, or group of affiliated or associated persons have, become an “Acquiring Person,” which is defined as a person or group of affiliated or associated persons who, at any time after the date of the Rights Agreement, have acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the Company’s outstanding shares of Common Stock, subject to certain exceptions, or (ii) the close of business on the tenth business day after the date that a tender offer or exchange offer is first published or sent or given by any person, the consummation of which would result in such person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Time”). The Rights Agreement provides that, until the Distribution Time (or earlier expiration or redemption of the Rights), the Rights will be transferred with and only with the Common Stock. Until the Distribution Time (or earlier expiration or redemption of the Rights), new Common Stock certificates issued after the Record Date upon transfer or new issuances of Common Stock will contain a legend incorporating the Rights Agreement by reference, and notice of such legend will be furnished to holders of book entry shares. Until the Distribution Time (or earlier expiration or redemption of the Rights), the surrender for transfer of any certificates for shares of Common Stock (or book entry shares of Common Stock) outstanding as of the Record Date will also constitute the transfer of the Rights associated EXHIBIT 4.1 with the shares of Common Stock represented by such certificate or registered in book entry form. As soon as practicable following the Distribution Time, separate certificates evidencing the Rights (the “Rights Certificates”) will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Time, and such separate Rights Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Time. The Rights will expire prior to the earliest of (i) the close of business on October 2, 2024, or such later date as may be established by the Board as long as the extension is submitted to the stockholders of the Company for ratification at the next annual meeting of stockholders succeeding such extension; (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement; (iii) the time at which the Rights are exchanged pursuant to the Rights Agreement; and (iv) upon the occurrence of certain transactions (the earliest of (i), (ii), (iii) and (iv) is referred to as the “Expiration Date”). Each share of Series A Preferred Stock will be entitled, when, as and if declared, to a minimum preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share and (ii) an amount equal to 1,000 times the dividend declared per share of Common Stock. In the event of liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock will be entitled to a minimum preferential payment of the greater of (i) $1,000.00 per share (plus any accrued but unpaid dividends), and (ii) an amount equal to 1,000 times the payment made per share of Common Stock. Each share of Series A Preferred Stock will have 1,000 votes, voting together with the Common Stock. In the event of any merger, consolidation or other transaction in which outstanding shares of Common Stock are converted or exchanged, each share of Series A Preferred Stock will be entitled to receive 1,000 times the amount received per share of Common Stock. These Rights are protected by customary anti-dilution provisions as further described in the Certificate of Incorporation and Bylaws. The Exercise Price payable, and the number of shares of Series A Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series A Preferred Stock, (ii) upon the grant to holders of the Series A Preferred Stock of certain rights or warrants to subscribe for or purchase Series A Preferred Stock at a price, or securities convertible into Series A Preferred Stock with a conversion price, less than the then-current market price of the Series A Preferred Stock or (iii) upon the distribution to holders of the Series A Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in Series A Preferred Stock) or of subscription rights or warrants (other than those referred to above). In the event that any person or group of persons becomes an Acquiring Person, each holder of a Right, other than the Rights beneficially owned by the Acquiring Person, affiliates and associates of the Acquiring Person and certain transferees thereof (which will thereupon become null and void), will, following the Distribution Time, have the right to receive upon exercise of a Right that number of shares of Common Stock (or at the option of the Company, other securities of the Company) having a market value of two times the Exercise Price, unless the Rights were earlier redeemed or exchanged. In the event that, after a person or group of persons has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of the Company’s consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Right (other than Rights beneficially owned by an Acquiring Person, affiliates and associates of the Acquiring Person and certain transferees thereof which will have become null and void) will thereafter have the right to receive upon the exercise of a Right that number of shares of Common Stock of the person with whom the Company has engaged in the foregoing transaction (or its parent) that at the time of such transaction have a market value of two times the Exercise Price of the Right. With certain exceptions, no adjustment in the Exercise Price will be required until cumulative adjustments require an adjustment of at least 1% in such Exercise Price. No fractional shares of Series A Preferred Stock or Common Stock will be issued (other than fractions of shares of Series A Preferred Stock which are integral multiples of one one-thousandth of a share of Series A Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), and in lieu thereof an adjustment in cash will be made based on the current market price of the Series A Preferred Stock or the Common Stock. At any time after any person or group of persons becomes an Acquiring Person and prior to the acquisition of beneficial ownership by such Acquiring Person of 50% or more of shares of Common Stock then outstanding, the Board of Directors, at its option, may exchange all or part of the Rights (other than Rights beneficially owned by such Acquiring Person and certain transferees thereof which will have become null and void) at an exchange ratio of one share of Common Stock per outstanding Right (subject to adjustment). At any time before the Distribution Time, the Board of Directors may authorize the redemption of the Rights in whole, but not in part, at a price of $0.001 per Right (subject to certain adjustments) (the “Redemption Price”). The EXHIBIT 4.1 redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors, in its sole discretion, may establish. Immediately upon the action of the Board of Directors electing to redeem or exchange the Rights, the Company shall make announcement thereof, and upon such election, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. In the event the Company receives a Qualifying Offer (as defined in the Rights Agreement) and the Company does not redeem the outstanding Rights, the Company may exempt such Qualifying Offer from the Rights Agreement, or call a special meeting of stockholders to vote on whether or not to exempt such Qualifying Offer from the Rights Agreement, in each case within 90 days of the commencement of the Qualifying Offer (the “Board Evaluation Period”). The holders of record of 20% or more of the outstanding Common Stock (excluding shares of Common Stock that are beneficially owned by the person making the Qualifying Offer and such person’s related persons) may submit a written demand directing the Board of Directors to submit a resolution exempting the Qualifying Offer from the Rights Agreement to be voted upon at a special meeting to be convened within 90 days following the receipt of the written demand (the “Special Meeting Period”). Subject to the terms of the Rights Agreement, the Board of Directors must take the necessary actions to cause such resolution to be submitted to a vote of stockholders at a special meeting within the Special Meeting Period; however, the Board of Directors may recommend in favor of or against or take no position with respect to the adoption of the resolution, as it determines to be appropriate in the exercise of the Board of Directors’ fiduciary duties. For so long as the Rights are redeemable, the Company may from time to time in its sole discretion supplement or amend the Rights Agreement in any respect without the approval of any holders of Rights, and the Rights Agent shall, if the Company so directs, execute such supplement or amendment. However, from and after the time when the Rights are no longer redeemable, the Rights Agreement may not be amended or supplemented in any manner that would, among other things, adversely affect the interests of the holders of Rights (other than holders of Rights that have become null and void). Transfer agent and registrar The transfer agent and registrar for the Series A Preferred Stock is Broadridge Corporate Issuer Solutions, LLC, and its telephone number is (877) 830-4936. Nasdaq listing The Series A Preferred Stock is listed for trading on Nasdaq Global Select Market. SUBSIDIARIES OF BLACKBAUD, INC. As of February 21, 2024 EXHIBIT 21.1 Organized Under Laws of: Delaware Australia Delaware Delaware Delaware Delaware Hong Kong Canada Scotland England and Wales Costa Rica Australia Virginia Australia England and Wales Delaware Canada England and Wales England and Wales Australia England and Wales England and Wales Delaware Delaware CA C-Corp Ireland Delaware Delaware Delaware Texas Blackbaud, Inc. Subsidiaries ACN 161 644 328 Pty. Ltd. BB Real Property Development, LLC BBHQ1, LLC BB US-DCL, LLC BB US-SIS, LLC Blackbaud Asia, Ltd. Blackbaud Canada, Inc. Blackbaud Europe Ltd. Blackbaud Global Ltd. Blackbaud Lan America, S.R.L. Blackbaud Paciﬁc Pty. Ltd. Click 4 Compliance, LLC Ed Comms Pty Ltd. Educaonal Communicaons Ltd. EverFi, Inc. EverFi Canada, Inc. EVERFI Internaonal Ltd. EVERFI Middle East Ltd. Everyday Hero Pty. Ltd. Giving.com Limited Giving Limited JGCrowdfunding USA, LLC JG US Inc. Lawroom.com MyCharity, Ltd. Blackbaud Tuion Management, LLC YC Blocker 1, LLC YourCause Holdings, LLC YourCause, LLC EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporaon by reference in the following Registraon Statements: 1. Registraon Statement (Form S-8 No. 333-272678 pertaining to the Blackbaud, Inc. 2016 Equity and Incenve Compensaon Plan Amended and Restated as of June 14, 2023, 2. Registraon Statement (Form S-8 No. 333-265527) pertaining to the Blackbaud, Inc. 2016 Equity and Incenve Compensaon Plan Amended and Restated as of June 9, 2022, 3. Registraon Statement (Form S-3 No. 333-262190) of Blackbaud, Inc., 4. Registraon Statement (Form S-8 No. 333-257030) pertaining to the Blackbaud, Inc. 2016 Equity and Incenve Compensaon Plan Amended and Restated as of June 10, 2021, 5. Registraon Statement (Form S-8 No. 333-232111) pertaining to the Blackbaud, Inc. 2016 Equity and Incenve Compensaon Plan Amended and Restated as of June 13, 2019, and 6. Registraon Statement (Form S-8 No. 333-212057) pertaining to the Blackbaud, Inc. 2016 Equity and Incenve Compensaon Plan; of our reports dated February 21, 2024, with respect to the consolidated ﬁnancial statements of Blackbaud, Inc. and the eﬀecveness of internal control over ﬁnancial reporng of Blackbaud, Inc. included in this Annual Report (Form 10-K) of Blackbaud, Inc. for the year ended December 31, 2023. /S/ Ernst & Young LLP Raleigh, North Carolina February 21, 2024 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporaon by reference in the Registraon Statements on Form S-3 (No. 333-262190) and Form S-8 (No. 333-272678, No. 333- 212057, No. 333-232111, No. 333-257030 and No. 333-265527) of Blackbaud, Inc. of our report dated March 1, 2022 relang to the ﬁnancial statements, EXHIBIT 23.2 which appears in this Form 10-K. /S/ PricewaterhouseCoopers LLP Atlanta, Georgia February 21, 2024 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Blackbaud, Inc. EXHIBIT 31.1 I, Michael P. Gianoni, cerfy that: 1. I have reviewed this annual report on Form 10-K of Blackbaud, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial informaon included in this report, fairly present in all material respects the ﬁnancial condion, results of operaons and cash ﬂows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other cerfying oﬃcer and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over ﬁnancial reporng (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informaon relang to the registrant, including its consolidated subsidiaries, is made known to us by others within those enes, parcularly during the period in which this report is being prepared; b. designed such internal control over ﬁnancial reporng, or caused such internal control over ﬁnancial reporng to be designed under our supervision, to provide reasonable assurance regarding the reliability of ﬁnancial reporng and the preparaon of ﬁnancial statements for external purposes in accordance with generally accepted accounng principles; c. evaluated the eﬀecveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the eﬀecveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluaon; and d. disclosed in this report any change in the registrant’s internal control over ﬁnancial reporng that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal quarter in the case of an annual report) that has materially aﬀected, or is reasonably likely to materially aﬀect, the registrant’s internal control over ﬁnancial reporng; and 5. The registrant’s other cerfying oﬃcer and I have disclosed, based on our most recent evaluaon of internal control over ﬁnancial reporng, to the registrant’s auditors and the audit commiee of the registrant’s board of directors (or persons performing the equivalent funcons): a. b. all signiﬁcant deﬁciencies and material weaknesses in the design or operaon of internal control over ﬁnancial reporng which are reasonably likely to adversely aﬀect the registrant’s ability to record, process, summarize and report ﬁnancial informaon; and any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant’s internal control over ﬁnancial reporng. Date: February 21, 2024 By: /s/ Michael P. Gianoni Michael P. Gianoni Chief Execuve Oﬃcer, President and Vice Chairman of the Board (Principal Execuve Oﬃcer) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Blackbaud, Inc. EXHIBIT 31.2 I, Anthony W. Boor, cerfy that: 1. I have reviewed this annual report on Form 10-K of Blackbaud, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial informaon included in this report, fairly present in all material respects the ﬁnancial condion, results of operaons and cash ﬂows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other cerfying oﬃcer and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over ﬁnancial reporng (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informaon relang to the registrant, including its consolidated subsidiaries, is made known to us by others within those enes, parcularly during the period in which this report is being prepared; b. designed such internal control over ﬁnancial reporng, or caused such internal control over ﬁnancial reporng to be designed under our supervision, to provide reasonable assurance regarding the reliability of ﬁnancial reporng and the preparaon of ﬁnancial statements for external purposes in accordance with generally accepted accounng principles; c. evaluated the eﬀecveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the eﬀecveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluaon; and d. disclosed in this report any change in the registrant’s internal control over ﬁnancial reporng that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal quarter in the case of an annual report) that has materially aﬀected, or is reasonably likely to materially aﬀect, the registrant’s internal control over ﬁnancial reporng; and 5. The registrant’s other cerfying oﬃcer and I have disclosed, based on our most recent evaluaon of internal control over ﬁnancial reporng, to the registrant’s auditors and the audit commiee of the registrant’s board of directors (or persons performing the equivalent funcons): a. b. all signiﬁcant deﬁciencies and material weaknesses in the design or operaon of internal control over ﬁnancial reporng which are reasonably likely to adversely aﬀect the registrant’s ability to record, process, summarize and report ﬁnancial informaon; and any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant’s internal control over ﬁnancial reporng. Date: February 21, 2024 By: /s/ Anthony W. Boor Anthony W. Boor Execuve Vice President and Chief Financial Oﬃcer (Principal Financial and Accounng Oﬃcer) Blackbaud, Inc. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.1 In connecon with the Annual Report on Form 10-K of Blackbaud, Inc. (the “Company”) for the period ended December 31, 2023 as ﬁled with the Securies and Exchange Commission on or about the date hereof (the “Report”), I, Michael P. Gianoni, Chief Execuve Oﬃcer, President and Vice Chairman of the Board, hereby cerfy, pursuant to 18 U.S.C. 1350, as adopted pursuant to Secon 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Report fully complies with the requirements of Secon 13(a) or 15(d) of the Securies Exchange Act of 1934; and 2. The informaon contained in the Report fairly presents, in all material respects, the ﬁnancial condion and results of operaons of the Company. Date: February 21, 2024 By: /s/ Michael P. Gianoni Michael P. Gianoni Chief Execuve Oﬃcer, President and Vice Chairman of the Board (Principal Execuve Oﬃcer) Blackbaud, Inc. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.2 In connecon with the Annual Report on Form 10-K of Blackbaud, Inc. (the “Company”) for the period ended December 31, 2023 as ﬁled with the Securies and Exchange Commission on or about the date hereof (the “Report”), I, Anthony W. Boor, Execuve Vice President and Chief Financial Oﬃcer, hereby cerfy, pursuant to 18 U.S.C. 1350, as adopted pursuant to Secon 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Report fully complies with the requirements of Secon 13(a) or 15(d) of the Securies Exchange Act of 1934; and 2. The informaon contained in the Report fairly presents, in all material respects, the ﬁnancial condion and results of operaons of the Company. Date: February 21, 2024 By: /s/ Anthony W. Boor Anthony W. Boor Execuve Vice President and Chief Financial Oﬃcer (Principal Financial and Accounng Oﬃcer) EXHIBIT 97.1 BLACKBAUD, INC. EXECUTIVE INCENTIVE COMPENSATION CLAWBACK POLICY Introducon Blackbaud is commied to upholding the highest standards of governance, ethics and business integrity, which includes our philosophy of pay-for- performance as it relates to execuve compensaon. The Blackbaud Board of Directors (the “Board”) has, therefore, adopted this policy, which provides for the recoupment of certain incenve-based execuve compensaon in the event of an accounng restatement resulng from material noncompliance with ﬁnancial reporng requirements under the federal securies laws (this “Policy”). This Policy is designed to comply with Secon 10D of the Securies Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated under the Exchange Act (“Rule 10D-1”) and applicable Nasdaq lisng standards. This Policy applies to all of Blackbaud’s current and former execuve oﬃcers, as determined by the Board in accordance with Secon 10D of the Exchange Act, Rule 10D-1 and applicable Nasdaq lisng standards (the “Execuve Oﬃcers”). This Policy is administered by the Compensaon Commiee of the Board (the “Commiee”), which is authorized to interpret and construe this Policy and to make all determinaons necessary, appropriate or advisable for the administraon of this Policy. It is intended that this Policy be interpreted in a manner consistent with the requirements of Secon 10D of the Exchange Act and applicable rules or standards adopted by the Securies and Exchange Commission (the “SEC”) or Nasdaq. Any determinaons made by the Commiee shall be ﬁnal and binding on all aﬀected individuals. Required Recoupment of Excess Compensaon In the event Blackbaud is required to prepare an accounng restatement to restate its ﬁnancial statements due material noncompliance with any ﬁnancial reporng requirement under the federal securies laws (whether or not fault or misconduct is present), each Execuve Oﬃcer will be required, subject to certain excepons speciﬁed below, to reimburse or forfeit any excess Incenve Compensaon (as deﬁned below) received (as described below) by any such Execuve Oﬃcer during the three completed ﬁscal years immediately preceding the date on which Blackbaud is required to prepare such accounng restatement. The date on which Blackbaud is required to prepare an accounng restatement is the earlier of: • • The date the Board concludes, or reasonably should have concluded, that Blackbaud’s previously issued ﬁnancial statements must be restated, or The date a court, regulator, or other legally authorized body directs Blackbaud to restate its previously issued ﬁnancial statements . For purposes of this Policy, “Incenve Compensaon” means any compensaon that is granted, earned or vested based wholly or in part on the aainment of a Financial Reporng Measure (as deﬁned below), including but not limited to: • Non-equity incenve plan awards that are earned solely or in part by sasfying a Financial Reporng Measure performance goal, such as bonuses paid from a bonus pool where the size of the pool is determined solely or in part by sasfying a Financial Reporng Measure performance goal or other annual or special bonuses, short-term or long-term cash incenves or other cash awards earned by sasfying a Financial Reporng Measure performance goal; • • Restricted stock, restricted stock units, stock opons, stock appreciaon rights, performance shares and performance units that are granted or vest solely or in part on sasfying a Financial Reporng Measure performance goal; and Proceeds from the sale of shares acquired through an incenve plan that were granted or vested solely or in part on sasfying a Financial Reporng Measure performance goal. Incenve Compensaon generally does not include salaries that are not based on sasfying a Financial Reporng Measure, bonuses paid solely by sasfying subjecve standards unrelated to Financial Reporng Measures, non-equity incenve plan awards earned solely by sasfying strategic or operaonal measures, wholly me-based equity awards and other compensaon that is paid on a discreonary basis and unrelated to a Financial Reporng Measure performance goal. “Financial Reporng Measure” means (1) stock price, (2) total stockholder return and (3) any measure that is determined and presented in accordance with the accounng principles used in preparing Blackbaud’s ﬁnancial statements, and any measure derived wholly or in part from such measures, including without limitaon: EXHIBIT 97.1 • Revenues • Operang income • Net income • EBITDA • Working capital, cash ﬂow funds from operaons or other liquidity measures • • Return on invested capital or return on assets or other return measures Earnings per share or other earnings measures Incenve Compensaon will be deemed “received” for purposes of this Policy in the ﬁscal period during which the applicable Financial Reporng Measure is aained, even if the payment or grant occurs aer the end of that period. For example, an award that is granted based on the achievement of a Financial Reporng Measure would be received in the ﬁscal period that the measure was sasﬁed. However, if an equity award vests only on the achievement of a Financial Reporng Measure, the equity award would be received in the ﬁscal period that it vests. Recoupment is required even if the Incenve Compensaon was awarded pursuant to a pre-exisng contract or arrangement. Amount and Method of Recoupment The amount to be recouped will be the excess of the Incenve Compensaon paid to an Execuve Oﬃcer based on the erroneous data over the Incenve Compensaon that would have been paid to the Execuve Oﬃcer had it been based on the restated results, calculated on a pre-tax basis, as determined by the Commiee. For Incenve Compensaon based on stock price or total stockholder return, if the Commiee cannot determine the amount of excess Incenve Compensaon received by the Execuve Oﬃcer directly from the informaon in the ﬁnancial restatement, then it will make its determinaon based on a reasonable esmate of the eﬀect of the restatement on the stock price or total stockholder return on which the Incenve Compensaon was received. This Policy does not apply to Incenve Compensaon received by an individual: • Before beginning service as an Execuve Oﬃcer; • Who did not serve as an Execuve Oﬃcer at any me during the three-year recovery period; or • Before the eﬀecve date of the applicable Nasdaq lisng standard (October 2, 2023). The Commiee will determine, in its sole discreon, the method for recouping Incenve Compensaon pursuant to this Policy. This may include, without limitaon: • Execuve Oﬃcer reimbursement of cash Incenve Compensaon previously paid or any gain realized on the vesng, exercise, selement, sale, transfer or other disposion of any equity-based awards; • Oﬀseng the recouped amount from any compensaon otherwise owed by Blackbaud to the Execuve Oﬃcer; • • Cancelling outstanding vested or unvested equity awards; and/or Taking any other remedial and recovery acon permied by law, as determined by the Commiee. EXHIBIT 97.1 Blackbaud will endeavor to recoup excess Incenve Compensaon reasonably promptly in compliance with this Policy, Rule 10D-1 and applicable Nasdaq’s lisng standards, except to the extent the pursuit of such recoupment would be impraccable because: • • • The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered, provided however, before such conclusion of impraccability is made, the Commiee must ﬁrst (a) make a reasonable aempt to recoup the excess Incenve Compensaon and (b) document this aempt and provide such documentaon to Nasdaq; The recovery would violate home country law, where that law was adopted prior to November 28, 2022, based on an opinion of home country counsel in compliance with Rule 10D-1 and applicable Nasdaq lisng standards; or The recovery would cause an otherwise tax-qualiﬁed rerement plan, under which the beneﬁts are broadly available to Blackbaud employees, to fail to meet qualiﬁcaon requirements. In the event that an Execuve Oﬃcer fails to repay Incenve Compensaon when due as required by this Policy, the Execuve Oﬃcer will be required to reimburse Blackbaud for any and all expenses reasonably incurred (including legal fees) by Blackbaud in recovering such Incenve Compensaon. Other Blackbaud will not indemnify any Execuve Oﬃcer against the loss of any incorrectly awarded or received Incenve Compensaon, including by paying or reimbursing the Execuve Oﬃcer for premiums for any insurance policy covering any potenal losses. The Board may amend this Policy from me to me in its discreon as it deems necessary to comply with new or amended rules or standards adopted by the SEC, Nasdaq or otherwise. The Board may terminate this Policy at any me. The Board may require that any employment agreement, equity award agreement or similar agreement, as a condion to the grant of any beneﬁt thereunder, require an Execuve Oﬃcer to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addion to, and not in lieu of, any other remedies or rights of recoupment that may be available to Blackbaud pursuant to the terms of any employment agreement, equity award agreement or similar agreement and any other legal remedies available to Blackbaud, including but not limited to rights of recoupment provided by Secon 304 of the Sarbanes Oxley Act of 2002, as amended. This Policy is binding on, and enforceable against, all Execuve Oﬃcers and their beneﬁciaries, heirs, executors, administrators or other legal representaves. A copy of this Policy and any amendments thereto will be posted on Blackbaud’s website and ﬁled as an exhibit to Blackbaud’s Annual Report on Form 10-K.

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