Blackbaud(BLKB) - 2025 Q2 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements This section outlines that the report contains forward-looking statements based on estimates and assumptions, subject to uncertainties and not guarantees of future performance - The report contains forward-looking statements based on estimates, assumptions, and plans, subject to uncertainties and made under safe-harbor provisions. These statements are not assurances of future performance, and actual results may differ materially[8][9] Part I. Financial Information Item 1. Financial Statements This section presents Blackbaud, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of comprehensive income, cash flows, and stockholders' equity, along with detailed notes explaining accounting policies, earnings per share, fair value measurements, debt, derivatives, commitments, income taxes, segment information, and revenue recognition for the periods ended June 30, 2025 and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited) This section presents the company's unaudited condensed consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited) - Key Figures | (dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Assets | | | | Total current assets | $1,153,969 | $976,308 | | Total assets | $2,629,393 | $2,495,715 | | Liabilities | | | | Total current liabilities | $1,380,057 | $1,252,097 | | Total liabilities | $2,541,443 | $2,353,722 | | Stockholders' Equity | | | | Total stockholders' equity | $87,950 | $141,993 | - Total assets increased by $133.68 million from December 31, 2024, to June 30, 2025, primarily driven by increases in restricted cash and accounts receivable[12] - Total stockholders' equity decreased by $54.043 million from December 31, 2024, to June 30, 2025[12] Condensed Consolidated Statements of Comprehensive Income (Unaudited) This section presents the company's unaudited condensed consolidated statements of comprehensive income, including revenue, gross profit, income from operations, net income, and EPS for specified periods Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Key Figures | (dollars in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $281,382 | $287,286 | $552,043 | $566,536 | | Gross profit | $167,749 | $162,586 | $323,595 | $315,630 | | Income from operations | $56,686 | $42,092 | $77,116 | $52,811 | | Net income | $25,980 | $21,804 | $30,847 | $27,050 | | Basic EPS | $0.54 | $0.43 | $0.64 | $0.53 | | Diluted EPS | $0.54 | $0.42 | $0.63 | $0.52 | - Net income for the three months ended June 30, 2025, increased by $4.176 million (19.15%) compared to the same period in 2024[14] - Diluted EPS for the three months ended June 30, 2025, increased by $0.12 (28.57%) compared to the same period in 2024[14] Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents the company's unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities for specified periods Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures (Six months ended June 30) | (dollars in thousands) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Net cash provided by operating activities | $68,329 | $118,435 | | Net cash used in investing activities | $(41,333) | $(40,718) | | Net cash provided by financing activities | $68,094 | $25,657 | | Net increase in cash, cash equivalents and restricted cash | $102,302 | $102,851 | | Cash, cash equivalents and restricted cash, end of period | $911,814 | $831,108 | - Net cash provided by operating activities decreased by $50.106 million (42.3%) for the six months ended June 30, 2025, compared to the same period in 2024[17] - Net cash provided by financing activities increased significantly by $42.437 million (165.4%) for the six months ended June 30, 2025, compared to the same period in 2024[17] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section presents the company's unaudited condensed consolidated statements of stockholders' equity, detailing changes in equity components for specified periods Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - Key Changes (Six months ended June 30, 2025) | (dollars in thousands) | Balance at Dec 31, 2024 | Net Income | Treasury Stock Purchases | Stock-based Compensation | Other Comprehensive Loss | Balance at Jun 30, 2025 | | :--------------------- | :---------------------- | :--------- | :----------------------- | :----------------------- | :----------------------- | :---------------------- | | Total stockholders' equity | $141,993 | $30,847 | $(101,292) | $55,792 | $(1,423) | $87,950 | - Total stockholders' equity decreased from $141.993 million at December 31, 2024, to $87.950 million at June 30, 2025, primarily due to treasury stock purchases and other comprehensive loss, partially offset by net income and stock-based compensation[19][21] - The company repurchased 1,513,022 shares for $100.425 million under its stock repurchase program during the six months ended June 30, 2025[19] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies and specific financial items Note 1. Organization This note describes Blackbaud, Inc.'s business as a software provider for social impact and its global operational footprint - Blackbaud, Inc. is a leading software provider exclusively dedicated to powering social impact, serving nonprofit, education, and socially responsible sectors globally[24] - The company operates as a remote-first entity with operations in the U.S., Australia, Canada, Costa Rica, India, and the U.K., supporting users in over 100 countries[24] Note 2. Basis of Presentation This note explains the basis of preparation for the unaudited condensed consolidated interim financial statements and any significant accounting policy changes - The condensed consolidated interim financial statements are unaudited and prepared in accordance with SEC rules for interim reporting and U.S. GAAP, including all necessary recurring adjustments[25] - Revenue from 'recurring' and 'one-time services and other' has been combined into 'revenue' starting in 2025 due to immateriality of one-time services, with prior periods reclassified for comparability[26] - No material changes to significant accounting policies were reported compared to the Annual Report on Form 10-K for the year ended December 31, 2024[32] Note 3. Earnings Per Share This note details the computation of basic and diluted earnings per share for the reported periods Earnings Per Share (EPS) Computation | (dollars in thousands, except per share amounts) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $25,980 | $21,804 | $30,847 | $27,050 | | Basic weighted average shares | 47,784,062 | 50,747,337 | 48,104,780 | 51,399,853 | | Diluted weighted average shares | 48,248,057 | 51,677,418 | 48,786,793 | 52,371,927 | | Basic EPS | $0.54 | $0.43 | $0.64 | $0.53 | | Diluted EPS | $0.54 | $0.42 | $0.63 | $0.52 | - Diluted EPS increased to $0.54 for Q2 2025 from $0.42 for Q2 2024, and to $0.63 for the six months ended June 30, 2025, from $0.52 for the same period in 2024[34] Note 4. Fair Value Measurements This note describes the company's fair value hierarchy and measurements for financial assets and liabilities - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial assets and liabilities, with interest rate swaps and foreign currency forward contracts classified as Level 2[36][37][40] Recurring Fair Value Measurements (June 30, 2025) | (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | | :--------------------- | :------ | :------ | :------ | :---- | | Financial assets: | | | | | | Interest rate swaps | $— | $1,321 | $— | $1,321| | Total financial assets | $— | $1,321 | $— | $1,321| | Financial liabilities: | | | | | | Interest rate swaps | $— | $2,497 | $— | $2,497| | Foreign currency forward contracts | $— | $1,359 | $— | $1,359| | Total financial liabilities | $— | $3,856 | $— | $3,856| - There were no significant non-recurring fair value adjustments to long-lived assets, intangible assets, goodwill, or operating lease ROU assets during the six months ended June 30, 2025[45] Note 5. Consolidated Financial Statement Details This note provides additional details on specific line items within the consolidated financial statements, such as restricted cash and other income Restricted Cash (dollars in thousands) | (dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Restricted cash due to customers | $869,061 | $740,370 | | Total restricted cash | $870,248 | $741,884 | Prepaid Expenses and Other Assets (dollars in thousands) | (dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Total prepaid expenses and other assets | $146,006 | $148,508 | | Prepaid expenses and other current assets | $91,222 | $81,287 | Accrued Expenses and Other Liabilities (dollars in thousands) | (dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Total accrued expenses and other liabilities | $48,659 | $80,339 | | Accrued expenses and other current liabilities | $40,863 | $75,543 | Other Income, Net (dollars in thousands) | (dollars in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $1,968 | $2,815 | $3,623 | $4,863 | | Currency revaluation losses | $(2,022) | $(380) | $(2,899) | $(97) | | Other income, net | $1,118 | $3,310 | $3,223 | $6,657 | Note 6. Debt This note provides details on the company's debt balances, weighted average effective interest rates, and compliance with debt covenants Debt Balances and Weighted Average Effective Interest Rates | (dollars in thousands) | June 30, 2025 | December 31, 2024 | Weighted average effective interest rate at June 30, 2025 | Weighted average effective interest rate at December 31, 2024 | | :--------------------- | :------------ | :---------------- | :-------------------------------------------------------- | :-------------------------------------------------------- | | Revolving credit loans | $325,400 | $229,900 | 6.47 % | 6.37 % | | Term loans | $780,000 | $790,000 | 5.53 % | 5.59 % | | Real estate loans | $54,270 | $55,135 | 5.23 % | 5.23 % | | Other debt | $691 | $2,783 | 9.13 % | 8.77 % | | Total debt | $1,160,361 | $1,077,818 | 5.78 % | 5.75 % | | Debt, net of current portion | $1,136,112 | $1,051,110 | 5.77 % | 5.73 % | - Total debt increased by $82.543 million from December 31, 2024, to June 30, 2025, primarily due to an increase in revolving credit loans[57] - The company was in compliance with all debt covenants under the 2024 Credit Facilities and Real Estate Loans as of June 30, 2025[58][59] Note 7. Derivative Instruments This note describes the company's use of derivative instruments to manage interest rate and foreign currency risks - Blackbaud uses derivative instruments, specifically interest rate swaps and foreign currency forward contracts, to manage interest rate and foreign currency exchange risk, not for speculative purposes[64] - Interest rate swaps effectively convert portions of variable rate debt under the 2024 Credit Facilities to a fixed rate, with an aggregate notional value of $700.0 million as of June 30, 2025[66] Fair Values of Derivative Instruments (dollars in thousands) | (dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Total asset derivatives | $1,321 | $10,550 | | Total liability derivatives | $3,856 | $— | Note 8. Commitments and Contingencies This note outlines the company's significant commitments, including lease obligations, purchase commitments, and legal contingencies - In February 2025, the company made a one-time cash payment of $28.0 million to release from an office lease in Washington, DC, resulting in a $24.3 million loss on lease termination[75] Net Lease Cost (dollars in thousands) | (dollars in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net lease cost | $168 | $1,018 | $123 | $2,619 | - As of June 30, 2025, the company had remaining aggregate minimum purchase commitments of approximately $170.6 million through 2029 for third-party technology and services[81] - For the six months ended June 30, 2025, the company incurred $2.6 million in net pre-tax expenses related to the May 2020 Security Incident, primarily for ongoing legal fees and loss contingency accruals[87] Note 9. Income Taxes This note provides information on the company's income tax provision, effective tax rate, and the impact of recent tax legislation Income Tax Provision and Effective Income Tax Rate | (dollars in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision | $13,413 | $7,883 | $14,136 | $6,427 | | Effective income tax rate | 34.0 % | 26.6 % | 31.4 % | 19.2 % | - The effective income tax rate increased for both the three and six months ended June 30, 2025, primarily due to the unfavorable impact of a valuation allowance against net U.S. deferred tax assets[88] - The United States enacted the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which is expected to meaningfully reduce cash taxes for the company in the near-term, though the full impact is still being assessed[89] Note 10. Stockholders' Equity This note details changes in stockholders' equity, including the stock repurchase program and other comprehensive income/loss - The Board of Directors reauthorized and expanded the stock repurchase program to $800.0 million in July 2024, with $544.5 million remaining available as of June 30, 2025[93][94] - During the six months ended June 30, 2025, the company repurchased 1,513,022 shares for $100.0 million, representing approximately 4.2% of outstanding common stock as of December 31, 2024[94] Changes in Accumulated Other Comprehensive (Loss) Income by Component (Six months ended June 30) | (in thousands) | 2025 | 2024 | | :------------- | :-------- | :-------- | | Accumulated other comprehensive (loss) income, beginning of period | $(4,869) | $(1,688) | | Net current-period other comprehensive (loss) income | $(1,423) | $1,863 | | Accumulated other comprehensive (loss) income, end of period | $(6,292) | $175 | Note 11. Segment Information This note clarifies that Blackbaud operates as a single operating and reportable segment, with consolidated financial information used for performance assessment - Blackbaud operates as one operating segment and one reportable segment, with the CEO reviewing consolidated financial information and disaggregated revenue for performance assessment and resource allocation[97] - The CEO uses consolidated operating margin and net income as primary measures of profit or loss[97] Note 12. Revenue Recognition This note provides details on the company's revenue recognition policies, remaining performance obligations, deferred revenue, and disaggregated revenue - As of June 30, 2025, approximately $1.3 billion of revenue from remaining performance obligations is expected to be recognized, with about 50% within the next 12 months[99] Total Deferred Revenue (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Total deferred revenue | $401,386 | $361,544 | - The increase in deferred revenue is primarily due to a seasonal increase in customer contract billings, historically peaking at the beginning of the third quarter[101] Revenue by Geographic Area (dollars in thousands) | (dollars in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $231,001 | $241,831 | $460,218 | $479,940 | | United Kingdom | $33,708 | $29,980 | $59,830 | $56,109 | | Other countries | $16,673 | $15,475 | $31,995 | $30,487 | | Total revenue | $281,382 | $287,286 | $552,043 | $566,536 | Revenue by Type (dollars in thousands) | (dollars in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Contractual recurring | $180,224 | $193,542 | $356,160 | $384,397 | | Transactional recurring | $95,407 | $87,834 | $183,521 | $168,497 | | Total recurring revenue | $275,631 | $281,376 | $539,681 | $552,894 | | One-time services and other | $5,751 | $5,910 | $12,362 | $13,642 | | Total revenue | $281,382 | $287,286 | $552,043 | $566,536 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of Blackbaud's financial condition and results of operations, highlighting key business updates, financial performance, non-GAAP measures, seasonality, liquidity, and capital resources for the periods ended June 30, 2025 and 2024 Executive Summary This section provides an overview of Blackbaud's business as a leading software provider for social impact and its primary revenue sources - Blackbaud is the leading software provider for social impact, offering solutions in fundraising, financial management, digital giving, grantmaking, corporate social responsibility, and education management[107] - Revenue is primarily generated from cloud software solutions and payment/transaction services[108] Business Update This section highlights the company's business resilience, focus on innovation, strategic priorities, and operational initiatives - The company's business has shown resilience, with a focus on innovation, particularly through applied AI, to help customers improve fundraising and cost management[109][111] - Key management focuses include acquiring new customers, strengthening relationships through innovation and renewals, and driving profitability via operational discipline[112] - Operational initiatives include transitioning to primarily 3-year contractual revenue terms, migrating products to public cloud providers, increasing AI use, and rationalizing office leases and vendor contracts[113] - Blackbaud repurchased 1,513,022 shares for $100.0 million during the six months ended June 30, 2025, representing approximately 4.2% of outstanding common stock[116] Financial Summary This section summarizes Blackbaud's key financial performance metrics, including revenue, income from operations, gross dollar retention, and liquidity - Total revenue decreased by $5.9 million (2.1%) for the three months and $14.5 million (2.6%) for the six months ended June 30, 2025, primarily due to the sale of EVERFI, partially offset by transactional recurring revenue growth[120] - Income from operations increased by $14.6 million for the three months and $24.3 million for the six months ended June 30, 2025, driven by decreased compensation, amortization of intangibles (due to EVERFI impairment), and Security Incident-related expenses[120][122][124] - Gross dollar retention was approximately 92% for the twelve months ended June 30, 2025, an increase primarily due to the sale of EVERFI[127] - Cash and cash equivalents were $41.6 million at June 30, 2025, with a net leverage ratio of 2.70 to 1.00[128] Results of Operations This section provides a detailed analysis of the company's operating results, including disposition impacts, reclassifications, revenue, cost of revenue, and operating expenses Disposition This section details the disposition of the EVERFI business and its impact on consolidated operations - On December 31, 2024, Blackbaud disposed of its EVERFI business to an unaffiliated private investment firm for nominal cash consideration, and EVERFI's results are no longer included in consolidated operations[131] Reclassifications This section explains the reclassification of revenue lines for improved comparability in financial reporting - Beginning in 2025, 'recurring' and 'one-time services and other' revenue lines have been combined into 'revenue' due to the immateriality of one-time services, with prior periods reclassified for comparability[132] Revenue and Cost of Revenue This section analyzes the trends and drivers of the company's revenue, cost of revenue, and gross margin - Revenue decreased by 2.1% ($5.9 million) for the three months and 2.6% ($14.5 million) for the six months ended June 30, 2025, primarily due to the EVERFI disposition, partially offset by transactional recurring revenue growth[142] - Cost of revenue decreased by 8.9% ($11.1 million) for the three months and 9.0% ($22.5 million) for the six months ended June 30, 2025, mainly due to reduced amortization of EVERFI intangible assets and lower compensation costs[142][147] - Gross margin increased by 300 basis points and 290 basis points for the three and six months ended June 30, 2025, respectively, as cost of revenue decreases outpaced revenue declines[143] Operating Expenses This section provides an analysis of the company's operating expenses, including sales, marketing, customer success, research and development, and general and administrative costs Sales, marketing and customer success This section analyzes changes in sales, marketing, and customer success expenses and their primary drivers - Sales, marketing and customer success expense decreased by $3.0 million (6.4%) for the three months and $9.3 million (9.5%) for the six months ended June 30, 2025, primarily due to lower compensation and advertising costs related to the EVERFI disposition[151][153] Research and development This section analyzes changes in research and development expenses, including capitalized software development costs - Research and development expenses decreased by $5.5 million (14.0%) for the three months and $14.7 million (18.0%) for the six months ended June 30, 2025, mainly due to reduced compensation and third-party contractor costs from the EVERFI disposition[152][154] - Capitalized software development costs were $14.4 million for the three months and $26.8 million for the six months ended June 30, 2025, expected to remain consistent with ongoing innovation investments[152] General and administrative This section analyzes changes in general and administrative expenses, including acquisition/disposition costs and Security Incident expenses - General and administrative expense decreased by $0.6 million (1.8%) for the three months ended June 30, 2025, due to lower acquisition/disposition costs, Security Incident expenses, and rent[157][158] - For the six months ended June 30, 2025, G&A expense increased by $8.3 million (10.3%), primarily due to $20.7 million in acquisition and disposition-related costs from the Washington, DC office lease release, partially offset by decreases in Security Incident expenses and stock-based compensation[157][158] Interest Expense This section analyzes the trends and drivers of the company's interest expense, including the impact of borrowings and interest rate swaps - Interest expense increased for both the three and six months ended June 30, 2025, primarily due to incremental borrowings for stock repurchases and the expiration of favorable interest rate swaps in October 2024[162] - Full-year 2025 interest expense is projected to be approximately $65 million to $69 million[162] Other Income, Net This section analyzes the trends and drivers of the company's other income, net, including currency revaluation losses - Other income, net, decreased for both the three and six months ended June 30, 2025, primarily due to increased currency revaluation losses compared to prior periods[165] Deferred Revenue This section analyzes the company's deferred revenue balance and the factors contributing to its changes Deferred Revenue (dollars in millions) | (dollars in millions) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Deferred revenue | $401.4 | $361.5 | 11.0 % | - The increase in deferred revenue during the six months ended June 30, 2025, was primarily due to a seasonal increase in customer contract billings and renewals[169] Income Taxes This section analyzes the company's effective income tax rate and the expected impact of recent tax legislation - The effective income tax rate increased for the three and six months ended June 30, 2025, mainly due to the unfavorable impact of a valuation allowance against net U.S. deferred tax assets[172] - The recently enacted OBBBA is expected to reduce cash taxes for the company in the near-term[173] Non-GAAP Financial Measures This section provides reconciliations and discussions of non-GAAP financial measures used by management to assess performance Non-GAAP organic revenue growth This section presents the company's non-GAAP organic revenue growth, including constant currency adjustments Non-GAAP Organic Revenue Growth | (dollars in millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP revenue | $281.4 | $287.3 | $552.0 | $566.5 | | Non-GAAP organic revenue | $281.4 | $263.5 | $552.0 | $519.4 | | Non-GAAP organic revenue growth | 6.8 % | | 6.3 % | | | Non-GAAP organic revenue growth on constant currency basis | 6.0 % | | 6.0 % | | - Non-GAAP organic revenue growth was 6.8% for the three months and 6.3% for the six months ended June 30, 2025, reflecting growth after excluding divested businesses[183] - Non-GAAP organic recurring revenue growth on a constant currency basis was 6.1% for the three months and 6.0% for the six months ended June 30, 2025[183] Rule of 40 This section presents the company's Rule of 40 metric, combining non-GAAP organic revenue growth and adjusted EBITDA margin - The Rule of 40, defined as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin, was 45.3% for the three months and 42.8% for the six months ended June 30, 2025[188][191] Non-GAAP Adjusted EBITDA (dollars in millions) | (dollars in millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP net income | $26.0 | $21.8 | $30.8 | $27.1 | | Non-GAAP adjusted EBITDA | $108.5 | $102.5 | $201.2 | $191.4 | | Non-GAAP adjusted EBITDA margin | 38.5 % | | 36.5 % | | Non-GAAP free cash flow and non-GAAP adjusted free cash flow This section presents the company's non-GAAP free cash flow and adjusted free cash flow metrics Non-GAAP Free Cash Flow (dollars in millions) - Six months ended June 30 | (dollars in millions) | 2025 | 2024 | | :-------------------- | :---- | :---- | | GAAP net cash provided by operating activities | $68.3 | $118.4| | Non-GAAP free cash flow | $39.2 | $83.9 | | Non-GAAP free cash flow margin | 7.1 % | 14.8 %| | Non-GAAP adjusted free cash flow | $41.7 | $89.7 | | Non-GAAP adjusted free cash flow margin | 7.6 % | 15.8 %| - Non-GAAP free cash flow decreased to $39.2 million for the six months ended June 30, 2025, from $83.9 million in the prior year, with a margin of 7.1%[198] - Non-GAAP adjusted free cash flow, which includes Security Incident-related cash flows, was $41.7 million for the six months ended June 30, 2025[198] Seasonality This section describes the typical seasonal fluctuations in the company's revenue and cash flows - Revenue typically fluctuates seasonally, with the first quarter historically being the lowest for bookings and total revenue, and the fourth quarter achieving the highest total revenue[199] - Cash flow from operations is usually lowest in the first quarter due to lower revenues and annual vendor contract payments, and generally lower in the second quarter compared to the third and fourth quarters[200] - Financing cash flow is negatively impacted in the first quarter due to tax payments on behalf of employees for equity award settlements[203] Liquidity and Capital Resources This section discusses the company's sources and uses of cash, including operating, investing, and financing activities, and its capital structure Operating Cash Flow This section analyzes the changes and drivers of the company's net cash provided by operating activities - Net cash provided by operating activities decreased by $50.1 million for the six months ended June 30, 2025, primarily due to a $9.5 million decrease in net income (adjusted for non-cash expenses) and a $40.6 million decrease in cash flow from working capital[211] - The decrease in working capital cash flow was driven by fluctuations in vendor payment timing and a decrease in accrued expenses related to disposition costs[211][218] - The OBBBA is expected to meaningfully reduce cash taxes for the company in the near-term[212] Investing Cash Flow This section analyzes the changes and drivers of the company's net cash used in investing activities - Net cash used in investing activities remained relatively consistent at $41.3 million for the six months ended June 30, 2025[213] - Cash used for software development costs was $27.8 million, consistent with the prior year, while purchases of property and equipment decreased by $4.8 million[214] - Net cash used for business disposition increased to $12.2 million in 2025 from $1.2 million in 2024[214] Financing Cash Flow This section analyzes the changes and drivers of the company's net cash provided by financing activities - Net cash provided by financing activities increased significantly to $68.1 million for the six months ended June 30, 2025, from $25.7 million in the prior year[204] - This increase was driven by a net increase in borrowings of $84.6 million, primarily for stock repurchases and tax obligations related to equity award settlements[215] - Cash flow from financing activities associated with changes in restricted cash due to customers increased by $128.6 million[217] Stock repurchase program This section provides an update on the company's stock repurchase program, including authorization and activity - The Board reauthorized and expanded the stock repurchase program to $800.0 million in July 2024, with $544.5 million remaining available as of June 30, 2025[220][221] - During the six months ended June 30, 2025, the company repurchased 1,513,022 shares for $100.0 million[221] 2024 Credit Facilities This section details the company's available borrowing capacity and compliance with financial covenants under its 2024 Credit Facilities - As of June 30, 2025, the company had $374.3 million in available borrowing capacity under the 2024 Credit Facilities, which mature in April 2029[222] Financial Covenants under 2024 Credit Facilities (as of June 30, 2025) | Financial covenant | Requirement | Ratio as of June 30, 2025 | | :----------------- | :------------- | :------------------------ | | Net leverage ratio | ≤ 3.75 to 1.00 | 2.70 to 1.00 | | Interest coverage ratio | ≥ 2.50 to 1.00 | 6.41 to 1.00 | - The company was in compliance with all debt covenants under the 2024 Credit Facilities as of June 30, 2025[224] Commitments and Contingencies This section outlines the company's total contractual obligations, including debt, operating leases, and purchase commitments Total Contractual Obligations (in millions) as of June 30, 2025 | (in millions) | Less than 1 year | More than 1 year | Total | | :------------ | :--------------- | :--------------- | :------ | | Debt | $22.6 | $1,137.8 | $1,160.4| | Operating leases | $1.9 | $6.2 | $8.1 | | Interest payments on debt | $0.3 | $3.7 | $4.0 | | Purchase obligations | $88.3 | $82.2 | $170.6 | | Interest payments on debt (unrecorded) | $67.0 | $203.9 | $271.0 | | Total contractual obligations | $180.1 | $1,433.9 | $1,614.0| - As of June 30, 2025, total remaining principal payments on debt were approximately $1.2 billion, and estimated future interest payments were $274.9 million[228][229] - Remaining operating lease payments were $8.1 million, and purchase obligations for third-party technology and services totaled $170.6 million[230][231] Foreign Currency Exchange Rates This section discusses the company's exposure to foreign currency exchange rate fluctuations and its hedging strategies - Approximately 17% of total revenue for the six months ended June 30, 2025, was generated from operations outside the U.S[235] - Foreign currency translation resulted in increases in revenues and expenses denominated in non-U.S. currencies during the six months ended June 30, 2025, increasing total revenue by $1.6 million[236] - The company uses foreign currency forward contracts to hedge foreign currency exposure, particularly for Canadian Dollar denominated revenues and British Pound denominated investments[235][236] Critical Accounting Policies and Estimates This section confirms that there have been no significant changes to the company's critical accounting policies and estimates - There have been no significant changes in critical accounting policies and estimates during the six months ended June 30, 2025, compared to those disclosed in the Annual Report on Form 10-K for fiscal year 2024[237] Recently Issued Accounting Pronouncements This section addresses the expected impact of recently issued accounting pronouncements on the company's financial statements - No recently issued accounting pronouncements are expected to have a material impact on the consolidated financial statements when adopted in the future[31][238] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Blackbaud's exposure to market risks, specifically interest rate risk and foreign currency exchange rate risk, and how these risks are managed Interest Rate Risk This section describes the company's exposure to interest rate fluctuations and its strategies for managing this risk - The company's primary market risk exposure for changing interest rates is its variable rate debt, managed through borrowings and derivative instruments (hedging)[241] - Interest income from restricted cash for payment processing solutions acts as a partial natural hedge against interest rate risk[241] - No significant changes in interest rate risk management occurred between December 31, 2024, and June 30, 2025[241] Foreign Currency Risk This section describes the company's exposure to foreign currency exchange rate fluctuations and their potential impact - Blackbaud is exposed to foreign currency exchange rate fluctuations, primarily between the U.S. dollar and the British Pound and Canadian dollar, but the impact has generally not been material[236][242] Item 4. Controls and Procedures This section confirms the effectiveness of Blackbaud's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the most recent fiscal quarter Evaluation of Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance of meeting their objectives[243] Changes in Internal Control Over Financial Reporting This section reports on any changes in internal control over financial reporting during the fiscal quarter - No changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting[244] Part II. Other Information Item 1. Legal Proceedings This section refers to Note 8 of the financial statements for a discussion of the company's legal proceedings and claims - Information regarding legal proceedings is detailed in Note 8 to the unaudited, condensed consolidated financial statements[247] Item 1A. Risk Factors This section supplements the risk factors from the Annual Report on Form 10-K, focusing on strategic risks associated with the increasing incorporation of AI technology into solutions and services Strategic Risks This section details strategic risks, particularly those related to the increasing incorporation of AI technology into the company's solutions - The company is increasingly incorporating AI technology, including generative, predictive, interactive, and agentic AI, into its solutions, which presents regulatory, litigation, ethical, reputational, operational, and financial risks[249][250][253] - Emerging AI regulations, privacy concerns, intellectual property issues, and potential security vulnerabilities pose significant risks, including liability and harm to reputation[251][252] - Substantial investment is required for AI development and safeguards, which could negatively impact financial results, and the success of AI-enhanced products depends on market acceptance and competition[256][257][258] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the company's equity security transactions, specifically focusing on issuer purchases of common stock under its repurchase program and shares withheld for tax obligations Issuer Purchases of Equity Securities This section details the company's purchases of its own equity securities, including shares withheld for tax obligations Issuer Purchases of Equity Securities (Three months ended June 30, 2025) | Period | Total number of shares purchased | Average price paid per share | | :--------------------------- | :------------------------------- | :--------------------------- | | April 1, 2025 through April 30, 2025 | — | $— | | May 1, 2025 through May 31, 2025 | 13,939 | $62.24 | | June 1, 2025 through June 30, 2025 | — | $— | | Total | 13,939 | $62.24 | - During the three months ended June 30, 2025, the company withheld 13,939 shares in May to satisfy minimum tax obligations of employees upon vesting of restricted stock awards and units[261] - The remaining amount available under the stock repurchase program was $544.5 million as of June 30, 2025[262] Item 5. Other Information This section reports on trading arrangements adopted or terminated by the company's directors or executive officers Trading Arrangements Adopted or Terminated This section reports on any trading arrangements adopted or terminated by the company's directors or executive officers - None of the company's directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of company securities during the three months ended June 30, 2025[264] Item 6. Exhibits This section lists the exhibits filed or incorporated by reference as part of this Quarterly Report on Form 10-Q - The report includes various exhibits, such as certifications by the CEO and CFO (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[265] Signatures This section contains the official signatures of the company's principal executive and financial officers, certifying the report - The report is signed by Michael P. Gianoni, Chief Executive Officer, President and Vice Chairman of the Board, and Chad M. Anderson, Executive Vice President and Chief Financial Officer, on July 30, 2025[268]