Document
2393111711924535821200false--12-31Q220200001280058552900090250000.0010.0011800000001800000006020609160901100006280009040007100012250002000000020000000001106635411332912 0001280058 2020-01-01 2020-06-30 0001280058 2020-07-29 0001280058 2019-12-31 0001280058 2020-06-30 0001280058 2019-01-01 2019-06-30 0001280058 2020-04-01 2020-06-30 0001280058 2019-04-01 2019-06-30 0001280058 us-gaap:TechnologyServiceMember 2020-04-01 2020-06-30 0001280058 blkb:RecurringMember 2019-01-01 2019-06-30 0001280058 us-gaap:TechnologyServiceMember 2019-01-01 2019-06-30 0001280058 blkb:RecurringMember 2020-01-01 2020-06-30 0001280058 blkb:RecurringMember 2019-04-01 2019-06-30 0001280058 us-gaap:TechnologyServiceMember 2020-01-01 2020-06-30 0001280058 us-gaap:TechnologyServiceMember 2019-04-01 2019-06-30 0001280058 blkb:RecurringMember 2020-04-01 2020-06-30 0001280058 2018-12-31 0001280058 2019-06-30 0001280058 us-gaap:TreasuryStockMember 2020-03-31 0001280058 us-gaap:CommonStockMember 2020-03-31 0001280058 2020-01-01 2020-03-31 0001280058 us-gaap:CommonStockMember 2020-06-30 0001280058 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001280058 us-gaap:RetainedEarningsMember 2019-12-31 0001280058 2020-03-31 0001280058 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0001280058 us-gaap:CommonStockMember 2020-04-01 2020-06-30 0001280058 us-gaap:RetainedEarningsMember 2020-04-01 2020-06-30 0001280058 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001280058 us-gaap:AdditionalPaidInCapitalMember 2020-04-01 2020-06-30 0001280058 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0001280058 us-gaap:TreasuryStockMember 2020-04-01 2020-06-30 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-04-01 2020-06-30 0001280058 us-gaap:RetainedEarningsMember 2020-03-31 0001280058 us-gaap:CommonStockMember 2019-12-31 0001280058 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001280058 us-gaap:AdditionalPaidInCapitalMember 2020-06-30 0001280058 us-gaap:TreasuryStockMember 2020-01-01 2020-03-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-06-30 0001280058 us-gaap:TreasuryStockMember 2019-12-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001280058 us-gaap:TreasuryStockMember 2020-06-30 0001280058 us-gaap:RetainedEarningsMember 2020-06-30 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001280058 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001280058 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001280058 2019-01-01 2019-03-31 0001280058 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001280058 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001280058 us-gaap:CommonStockMember 2019-06-30 0001280058 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001280058 us-gaap:TreasuryStockMember 2019-06-30 0001280058 us-gaap:RetainedEarningsMember 2019-06-30 0001280058 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0001280058 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001280058 us-gaap:TreasuryStockMember 2019-04-01 2019-06-30 0001280058 2019-03-31 0001280058 us-gaap:CommonStockMember 2019-03-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001280058 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001280058 us-gaap:RetainedEarningsMember 2018-12-31 0001280058 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001280058 us-gaap:CommonStockMember 2018-12-31 0001280058 us-gaap:TreasuryStockMember 2018-12-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001280058 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001280058 us-gaap:TreasuryStockMember 2019-03-31 0001280058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0001280058 us-gaap:RetainedEarningsMember 2019-03-31 0001280058 us-gaap:RestrictedStockUnitsRSUMember blkb:COVID19Member 2020-05-01 0001280058 blkb:PRSUMember blkb:COVID19Member 2020-05-01 0001280058 srt:MaximumMember blkb:COVID19Member 2020-04-30 2020-04-30 0001280058 blkb:COVID19Member 2020-04-30 2020-04-30 0001280058 srt:MaximumMember 2020-01-01 2020-03-31 0001280058 2020-02-01 2020-02-29 0001280058 blkb:AllowanceforReturnsMember 2020-06-30 0001280058 blkb:AllowanceforReturnsMember 2020-01-01 2020-06-30 0001280058 blkb:AllowanceforReturnsMember 2019-12-31 0001280058 us-gaap:AllowanceForCreditLossMember 2020-01-01 2020-06-30 0001280058 us-gaap:AllowanceForCreditLossMember 2019-12-31 0001280058 us-gaap:AllowanceForCreditLossMember 2020-06-30 0001280058 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0001280058 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001280058 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001280058 us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0001280058 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001280058 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0001280058 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-06-30 0001280058 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001280058 us-gaap:LoansPayableMember 2019-12-31 0001280058 us-gaap:LoansPayableMember 2020-01-31 0001280058 2017-06-02 0001280058 us-gaap:SecuredDebtMember 2020-06-30 0001280058 us-gaap:LongTermDebtMember 2019-12-31 0001280058 us-gaap:SecuredDebtMember 2019-12-31 0001280058 us-gaap:LoansPayableMember 2019-12-31 0001280058 us-gaap:LoansPayableMember 2020-06-30 0001280058 us-gaap:ShortTermDebtMember 2020-06-30 0001280058 us-gaap:RevolvingCreditFacilityMember 2020-06-30 0001280058 us-gaap:ShortTermDebtMember 2019-12-31 0001280058 us-gaap:RevolvingCreditFacilityMember 2019-12-31 0001280058 us-gaap:LongTermDebtMember 2020-06-30 0001280058 us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-31 0001280058 us-gaap:OtherLiabilitiesMember us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2020-06-30 0001280058 blkb:AccruedexpensesandothercurrentliabilitiesMember us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2020-06-30 0001280058 us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2020-06-30 0001280058 blkb:AccruedexpensesandothercurrentliabilitiesMember us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-31 0001280058 us-gaap:OtherLiabilitiesMember us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-31 0001280058 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:InterestExpenseMember 2020-01-01 2020-06-30 0001280058 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-06-30 0001280058 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:InterestExpenseMember 2020-04-01 2020-06-30 0001280058 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:InterestExpenseMember 2019-04-01 2019-06-30 0001280058 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember us-gaap:InterestExpenseMember 2019-01-01 2019-06-30 0001280058 us-gaap:InterestRateSwapMember us-gaap:CashFlowHedgingMember 2020-01-01 2020-06-30 0001280058 blkb:February2018SwapMember 2018-02-28 0001280058 blkb:July2017SwapMember 2017-07-31 0001280058 blkb:June2019SwapMember 2019-06-30 0001280058 srt:MaximumMember 2020-06-30 0001280058 blkb:ThirdpartyTechnologyMember 2020-06-30 0001280058 blkb:CostOfRecurringMember 2020-04-01 2020-06-30 0001280058 us-gaap:TechnologyServiceMember 2019-01-01 2019-06-30 0001280058 us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-06-30 0001280058 blkb:CostOfRecurringMember 2019-01-01 2019-06-30 0001280058 us-gaap:CostOfSalesMember 2020-04-01 2020-06-30 0001280058 us-gaap:OperatingExpenseMember 2019-04-01 2019-06-30 0001280058 us-gaap:GeneralAndAdministrativeExpenseMember 2020-04-01 2020-06-30 0001280058 us-gaap:SellingAndMarketingExpenseMember 2020-01-01 2020-06-30 0001280058 us-gaap:TechnologyServiceMember 2019-04-01 2019-06-30 0001280058 us-gaap:SellingAndMarketingExpenseMember 2019-04-01 2019-06-30 0001280058 us-gaap:OperatingExpenseMember 2020-01-01 2020-06-30 0001280058 us-gaap:CostOfSalesMember 2019-04-01 2019-06-30 0001280058 blkb:CostOfRecurringMember 2019-04-01 2019-06-30 0001280058 us-gaap:ResearchAndDevelopmentExpenseMember 2020-04-01 2020-06-30 0001280058 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-06-30 0001280058 us-gaap:CostOfSalesMember 2020-01-01 2020-06-30 0001280058 us-gaap:CostOfSalesMember 2019-01-01 2019-06-30 0001280058 us-gaap:GeneralAndAdministrativeExpenseMember 2019-04-01 2019-06-30 0001280058 us-gaap:ResearchAndDevelopmentExpenseMember 2019-04-01 2019-06-30 0001280058 us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-06-30 0001280058 us-gaap:GeneralAndAdministrativeExpenseMember 2020-01-01 2020-06-30 0001280058 blkb:CostOfRecurringMember 2020-01-01 2020-06-30 0001280058 us-gaap:SellingAndMarketingExpenseMember 2020-04-01 2020-06-30 0001280058 us-gaap:OperatingExpenseMember 2019-01-01 2019-06-30 0001280058 us-gaap:SellingAndMarketingExpenseMember 2019-01-01 2019-06-30 0001280058 us-gaap:OperatingExpenseMember 2020-04-01 2020-06-30 0001280058 us-gaap:TechnologyServiceMember 2020-01-01 2020-06-30 0001280058 us-gaap:TechnologyServiceMember 2020-04-01 2020-06-30 0001280058 us-gaap:CashFlowHedgingMember 2019-01-01 2019-06-30 0001280058 us-gaap:CashFlowHedgingMember 2019-06-30 0001280058 us-gaap:CashFlowHedgingMember 2020-06-30 0001280058 us-gaap:CashFlowHedgingMember 2018-12-31 0001280058 us-gaap:CashFlowHedgingMember 2020-04-01 2020-06-30 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2020-01-01 2020-06-30 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2019-12-31 0001280058 us-gaap:CashFlowHedgingMember 2019-12-31 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2019-04-01 2019-06-30 0001280058 us-gaap:CashFlowHedgingMember 2019-04-01 2019-06-30 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2020-06-30 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2019-03-31 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2020-03-31 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2019-06-30 0001280058 us-gaap:CashFlowHedgingMember 2020-03-31 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0001280058 us-gaap:CashFlowHedgingMember 2020-01-01 2020-06-30 0001280058 us-gaap:CashFlowHedgingMember 2019-03-31 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-06-30 0001280058 us-gaap:AccumulatedTranslationAdjustmentMember 2020-04-01 2020-06-30 0001280058 2020-03-13 2020-03-13 0001280058 blkb:EnterpriseMarketsGroupMember 2020-04-01 2020-06-30 0001280058 blkb:EnterpriseMarketsGroupMember 2019-04-01 2019-06-30 0001280058 us-gaap:AllOtherSegmentsMember 2019-01-01 2019-06-30 0001280058 us-gaap:AllOtherSegmentsMember 2020-04-01 2020-06-30 0001280058 blkb:GeneralMarketsGroupMember 2020-04-01 2020-06-30 0001280058 us-gaap:AllOtherSegmentsMember 2020-01-01 2020-06-30 0001280058 us-gaap:AllOtherSegmentsMember 2019-04-01 2019-06-30 0001280058 blkb:GeneralMarketsGroupMember 2020-01-01 2020-06-30 0001280058 blkb:InternationalMarketsGroupMember 2019-04-01 2019-06-30 0001280058 blkb:EnterpriseMarketsGroupMember 2020-01-01 2020-06-30 0001280058 blkb:InternationalMarketsGroupMember 2020-04-01 2020-06-30 0001280058 blkb:InternationalMarketsGroupMember 2020-01-01 2020-06-30 0001280058 blkb:GeneralMarketsGroupMember 2019-04-01 2019-06-30 0001280058 blkb:GeneralMarketsGroupMember 2019-01-01 2019-06-30 0001280058 blkb:InternationalMarketsGroupMember 2019-01-01 2019-06-30 0001280058 blkb:EnterpriseMarketsGroupMember 2019-01-01 2019-06-30 0001280058 country:GB 2019-01-01 2019-06-30 0001280058 blkb:OthercountriesMember 2019-04-01 2019-06-30 0001280058 country:US 2020-01-01 2020-06-30 0001280058 country:US 2019-01-01 2019-06-30 0001280058 country:GB 2019-04-01 2019-06-30 0001280058 country:GB 2020-04-01 2020-06-30 0001280058 blkb:OthercountriesMember 2020-04-01 2020-06-30 0001280058 blkb:OthercountriesMember 2020-01-01 2020-06-30 0001280058 blkb:OthercountriesMember 2019-01-01 2019-06-30 0001280058 country:US 2019-04-01 2019-06-30 0001280058 country:US 2020-04-01 2020-06-30 0001280058 country:GB 2020-01-01 2020-06-30 0001280058 2020-04-01 2020-06-30 0001280058 blkb:GlobalHQMember 2020-06-17 0001280058 blkb:GlobalHQMember 2020-06-17 2020-06-17 iso4217:USD xbrli:shares iso4217:USD xbrli:pure xbrli:shares

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     .
Commission file number: 000-50600
 
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
 
Blackbaud, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
11-2617163
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
65 Fairchild Street
Charleston, South Carolina 29492
(Address of principal executive offices, including zip code)
(843) 216-6200
(Registrant’s telephone number, including area code)
 
 
 
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on which Registered
Common Stock, $0.001 Par Value
BLKB
Nasdaq Global Select Market
 
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 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 reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer   
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes   No      
The number of shares of the registrant’s Common Stock outstanding as of July 29, 2020 was 49,575,132.








TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
1


Blackbaud, Inc.

 
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-arrow-green.jpg
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the documents incorporated herein by reference, contains forward-looking statements that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These "forward-looking statements" are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements consist of, among other things, specific and overall impacts of the COVID-19 global pandemic on our financial condition and results of operations and on the markets and communities in which we and our customers and partners operate, trend analyses, statements regarding future events, future financial performance, our anticipated growth, the effect of general economic and market conditions, our business strategy and our plan to build and grow our business, our operating results, our ability to successfully integrate acquired businesses and technologies, the effect of foreign currency exchange rate and interest rate fluctuations on our financial results, the impact of expensing stock-based compensation, the sufficiency of our capital resources, our ability to meet our ongoing debt and obligations as they become due, and potential litigation involving us, all of which are based on current expectations, estimates, and forecasts, and the beliefs and assumptions of our management. Words such as “believes,” “seeks,” “expects,” “may,” “might,” “should,” “intends,” “could,” “would,” “likely,” “will,” “targets,” “plans,” “anticipates,” “aims,” “projects,” “estimates” or any variations of such words and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions 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 expectations expressed in forward-looking statements include, but are not limited to, those summarized under “Part II, Item 1A. Risk factors” and elsewhere in this report, in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our other SEC filings. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statement, whether as a result of new information, future events or otherwise.

2
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q



 
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-arrow-green.jpg
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Blackbaud, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)
June 30,
2020

December 31,
2019

Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
30,531

$
31,810

Restricted cash due to customers
421,915

545,485

Accounts receivable, net of allowance of $9,025 and $5,529 at June 30, 2020 and December 31, 2019, respectively
129,675

88,868

Customer funds receivable
1,284

524

Prepaid expenses and other current assets
83,699

67,852

Total current assets
667,104

734,539

Property and equipment, net
36,539

35,546

Operating lease right-of-use assets
95,575

104,400

Software development costs, net
106,044

101,302

Goodwill
630,687

634,088

Intangible assets, net
292,187

317,895

Other assets
68,673

65,193

Total assets
$
1,896,809

$
1,992,963

Liabilities and stockholders’ equity
 
 
Current liabilities:
 
 
Trade accounts payable
$
41,029

$
47,676

Accrued expenses and other current liabilities
52,893

73,317

Due to customers
423,199

546,009

Debt, current portion
9,194

7,500

Deferred revenue, current portion
332,570

314,335

Total current liabilities
858,885

988,837

Debt, net of current portion
478,919

459,600

Deferred tax liability
45,108

44,594

Deferred revenue, net of current portion
4,626

1,802

Operating lease liabilities, net of current portion
86,586

95,624

Other liabilities
11,883

5,742

Total liabilities
1,486,007

1,596,199

Commitments and contingencies (see Note 9)


Stockholders’ equity:
 
 
Preferred stock; 20,000,000 shares authorized, none outstanding


Common stock, $0.001 par value; 180,000,000 shares authorized, 60,901,100 and 60,206,091 shares issued at June 30, 2020 and December 31, 2019, respectively
61

60

Additional paid-in capital
491,450

457,804

Treasury stock, at cost; 11,332,912 and 11,066,354 shares at June 30, 2020 and December 31, 2019, respectively
(311,661
)
(290,665
)
Accumulated other comprehensive loss
(14,476
)
(5,290
)
Retained earnings
245,428

234,855

Total stockholders’ equity
410,802

396,764

Total liabilities and stockholders’ equity
$
1,896,809

$
1,992,963

 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
3




Blackbaud, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three months ended 
 June 30,
 
 
Six months ended 
 June 30,
 
(dollars in thousands, except per share amounts)
2020

2019

 
2020

2019

Revenue
 
 
 
 
 
Recurring
$
216,260

$
208,468

 
$
421,127

$
406,562

One-time services and other
15,731

17,166

 
34,485

34,902

Total revenue
231,991

225,634

 
455,612

441,464

Cost of revenue
 
 
 
 
 
Cost of recurring
91,370

86,657

 
180,921

171,368

Cost of one-time services and other
13,569

14,150

 
28,883

28,722

Total cost of revenue
104,939

100,807

 
209,804

200,090

Gross profit
127,052

124,827

 
245,808

241,374

Operating expenses
 
 
 
 
 
Sales, marketing and customer success
51,954

55,009

 
110,689

110,464

Research and development
24,895

25,902

 
49,872

54,363

General and administrative
29,842

28,543

 
55,697

55,660

Amortization
729

1,152

 
1,470

2,528

Restructuring
50

730

 
74

2,683

Total operating expenses
107,470

111,336

 
217,802

225,698

Income from operations
19,582

13,491

 
28,006

15,676

Interest expense
(3,893
)
(5,799
)
 
(8,052
)
(11,122
)
Other income, net
630

2,181

 
1,700

2,363

Income before provision for income taxes
16,319

9,873

 
21,654

6,917

Income tax provision
4,496

2,733

 
5,192

899

Net income
$
11,823

$
7,140

 
$
16,462

$
6,018

Earnings per share
 
 
 
 
 
Basic
$
0.25

$
0.15

 
$
0.34

$
0.13

Diluted
$
0.24

$
0.15

 
$
0.34

$
0.13

Common shares and equivalents outstanding
 
 
 
 
 
Basic weighted average shares
48,239,928

47,714,621

 
48,138,125

47,622,740

Diluted weighted average shares
48,418,378

48,160,684

 
48,465,077

48,101,212

Other comprehensive loss
 
 
 
 
 
Foreign currency translation adjustment
(887
)
(6,018
)
 
(6,615
)
(1,428
)
Unrealized gain (loss) on derivative instruments, net of tax
551

(1,939
)
 
(2,571
)
(2,871
)
Total other comprehensive loss
(336
)
(7,957
)
 
(9,186
)
(4,299
)
Comprehensive income (loss)
$
11,487

$
(817
)
 
$
7,276

$
1,719

 
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q


Blackbaud, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six months ended 
 June 30,
 
(dollars in thousands)
2020

2019

Cash flows from operating activities
 
 
Net income
$
16,462

$
6,018

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
46,088

43,113

Provision for credit losses and sales returns
6,677

4,646

Stock-based compensation expense
33,713

28,755

Deferred taxes
1,945

465

Amortization of deferred financing costs and discount
376

376

Other non-cash adjustments
477

1,982

Changes in operating assets and liabilities, net of acquisition and disposal of businesses:
 
 
Accounts receivable
(48,167
)
(45,071
)
Prepaid expenses and other assets
(7,068
)
(12,725
)
Trade accounts payable
(8,984
)
216

Accrued expenses and other liabilities
(26,520
)
(9,014
)
Deferred revenue
22,489

26,328

Net cash provided by operating activities
37,488

45,089

Cash flows from investing activities
 
 
Purchase of property and equipment
(5,887
)
(6,375
)
Capitalized software development costs
(21,679
)
(23,206
)
Purchase of net assets of acquired companies, net of cash and restricted cash acquired

(109,386
)
Other investing activities

500

Net cash used in investing activities
(27,566
)
(138,467
)
Cash flows from financing activities
 
 
Proceeds from issuance of debt
202,100

329,100

Payments on debt
(185,250
)
(155,150
)
Employee taxes paid for withheld shares upon equity award settlement
(20,996
)
(19,760
)
Proceeds from exercise of stock options
4

6

Change in due to customers
(121,612
)
(107,808
)
Change in customer funds receivable
(828
)
(3,741
)
Dividend payments to stockholders
(5,960
)
(11,802
)
Net cash (used in) provided by financing activities
(132,542
)
30,845

Effect of exchange rate on cash, cash equivalents and restricted cash
(2,229
)
(526
)
Net decrease in cash, cash equivalents and restricted cash
(124,849
)
(63,059
)
Cash, cash equivalents and restricted cash, beginning of period
577,295

449,846

Cash, cash equivalents and restricted cash, end of period
$
452,446

$
386,787

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown above in the condensed consolidated statements of cash flows:
(dollars in thousands)
June 30,
2020

December 31,
2019

Cash and cash equivalents
$
30,531

$
31,810

Restricted cash due to customers
421,915

545,485

Total cash, cash equivalents and restricted cash in the statement of cash flows
$
452,446

$
577,295

 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
5

Blackbaud, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)


(dollars in thousands)
Common stock
 
Additional
paid-in
capital

Treasury
stock

Accumulated
other
comprehensive
income (loss)

Retained
earnings

Total stockholders' equity

Shares

Amount

Balance at December 31, 2019
60,206,091

$
60

$
457,804

$
(290,665
)
$
(5,290
)
$
234,855

$
396,764

Net income





4,639

4,639

Payment of dividends ($0.12 per share)





(5,960
)
(5,960
)
Exercise of stock options and vesting of restricted stock units
210,057


1




1

Employee taxes paid for 245,358 withheld shares upon equity award settlement



(19,782
)


(19,782
)
Stock-based compensation


13,539



41

13,580

Restricted stock grants
563,947

1





1

Restricted stock cancellations
(47,456
)






Other comprehensive loss




(8,850
)

(8,850
)
Balance at March 31, 2020
60,932,639

$
61

$
471,344

$
(310,447
)
$
(14,140
)
$
233,575

$
380,393

Net income





11,823

11,823

Exercise of stock options and vesting of restricted stock units
7,111


3




3

Employee taxes paid for 21,200 withheld shares upon equity award settlement



(1,214
)


(1,214
)
Stock-based compensation


20,103



30

20,133

Restricted stock grants
20,776







Restricted stock cancellations
(59,426
)






Other comprehensive loss




(336
)

(336
)
Balance at June 30, 2020
60,901,100

$
61

$
491,450

$
(311,661
)
$
(14,476
)
$
245,428

$
410,802

 
 
 
 
 
 
 
 
 

6
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q

Blackbaud, Inc.
Condensed Consolidated statements of stockholders' equity (continued)
(Unaudited)


(dollars in thousands)
Common stock
 
Additional
paid-in
capital

Treasury
stock

Accumulated
other
comprehensive
income (loss)

Retained
earnings

Total stockholders' equity

Shares

Amount

Balance at December 31, 2018
59,327,633

$
59

$
399,241

$
(266,884
)
$
(5,110
)
$
246,477

$
373,783

Net loss





(1,122
)
(1,122
)
Payment of dividends ($0.12 per share)





(5,901
)
(5,901
)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units
234,453


3




3

Employee taxes paid for 239,311 withheld shares upon equity award settlement



(18,400
)


(18,400
)
Stock-based compensation


13,693



33

13,726

Restricted stock grants
663,906

1





1

Restricted stock cancellations
(43,314
)






Other comprehensive income




3,658


3,658

Balance at March 31, 2019
60,182,678

$
60

$
412,937

$
(285,284
)
$
(1,452
)
$
239,487

$
365,748

Net income





7,140

7,140

Payment of dividends ($0.12 per share)





(5,901
)
(5,901
)
Exercise of stock options and stock appreciation rights and vesting of restricted stock units
21,726


3




3

Employee taxes paid for 17,119 withheld shares upon equity award settlement



(1,360
)


(1,360
)
Stock-based compensation


15,010



19

15,029

Restricted stock grants
12,405







Restricted stock cancellations
(29,746
)






Other comprehensive loss




(7,957
)

(7,957
)
Balance at June 30, 2019
60,187,063

$
60

$
427,950

$
(286,644
)
$
(9,409
)
$
240,745

$
372,702

 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
7


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)



1. Organization
We are the world’s leading cloud software company powering social good. Serving the entire social good community—nonprofits, higher education institutions, K–12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies and individual change agents—we connect and empower organizations to increase their impact through cloud software, services, expertise and data intelligence. Our portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility, school management, ticketing, grantmaking, financial management, payment processing and analytics. Serving the industry for more than three decades, we are headquartered in Charleston, South Carolina, and have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom.
2. Basis of Presentation
Unaudited condensed consolidated interim financial statements
The accompanying condensed consolidated interim financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to state fairly the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of stockholders’ equity, for the periods presented in accordance with accounting principles generally accepted in the United States ("U.S.") ("GAAP"). The consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date. Operating results and cash flows for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020, or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations for interim reporting of the SEC. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, and other forms filed with the SEC from time to time.
Basis of consolidation
The condensed consolidated financial statements include the accounts of Blackbaud, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reportable segment
We report our operating results and financial information in one operating and reportable segment. Our chief operating decision maker uses consolidated financial information to make operating decisions, assess financial performance and allocate resources. Our chief operating decision maker is our chief executive officer ("CEO").
Risks and uncertainties
Impact of COVID-19
We are subject to risks and uncertainties as a result of the global COVID-19 pandemic. We expect that COVID-19 will impact all of our vertical markets across all of our geographies to some degree, but the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease and other unforeseeable consequences.

8
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, income taxes, business combinations, stock-based compensation, capitalization of software development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuation of derivative instruments and loss contingencies, among others. Changes in the facts or circumstances underlying these estimates due to COVID-19 could result in material changes and actual results could materially differ from these estimates.
Response to COVID-19
To better enable us to weather the extraordinary business challenges brought about by the global COVID-19 pandemic, to protect the safety and welfare of our employees, and to further effect our long-term strategy to deliver the greatest value to our stockholders, we have taken several actions. These initial measures taken are expected to provide us the financial flexibility needed to manage a wide array of outcomes that may result from the pandemic. Some of these actions include the following:
Temporarily closed our offices worldwide and transitioned our employees to work remotely;
Rescinded our previously announced policy to pay an annual dividend at a rate of $0.48 per share of common stock and discontinued the declaration and payment of all cash dividends, beginning with the second quarter of 2020 and thereafter until such time, if any, as our Board of Directors may otherwise determine in its sole discretion;
Temporarily suspended our 401(k)-match program, whereby we have historically matched 50% of qualified U.S. employees' contributions to our 401(k) plan up to 6% of their salaries, effective with the payroll period commencing April 1, 2020;
Temporarily froze our hiring efforts and implemented a modest and targeted headcount reduction, though we have since began backfilling sales positions;
Michael Gianoni, our President and Chief Executive Officer, elected to forego receipt of all but that portion of his base salary necessary to fund, on a pre-tax basis, his contributions to continue to participate in our health benefits plan, between April 1, 2020 and June 16, 2020;
Restricted non-essential employee travel and put in place other operating cost containment actions;
All of our employees with a base salary equal to or less than $75 thousand received financial support in the form of a one-time bonus of $1 thousand on April 30, 2020;
On May 1, 2020, we granted restricted stock units with a total grant date fair value of $8.3 million to our employees that were eligible for base salary merit increases in lieu of such increases, which will vest on May 1, 2021 subject to the recipient's continued employment with us;
On May 1, 2020, we granted performance-based restricted stock units with a total grant date fair value of $34.4 million to our employees that were eligible for a 2020 cash bonus plan in lieu of such cash bonus, which may be earned and become eligible for vesting on May 1, 2021 subject to meeting certain performance conditions and the recipient's continued employment with us.
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires certain types of financial instruments, including trade receivables, to be presented at the net amount expected to be collected based on historical events, current conditions and forward-looking information. We adopted ASU 2016-13 as of the January 1, 2020 effective date and the adoption did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the accounting for implementation costs related to a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. We adopted ASU 2018-15 prospectively as of the January 1, 2020 effective date and the adoption did not have a material impact on our consolidated financial statements.

Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
9


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Recently issued accounting pronouncements
There are no recently issued accounting pronouncements that are expected to have a material impact on our financial position or results of operations when adopted in the future.
Summary of significant accounting policies
Except for the accounting policies for allowance for credit losses and allowance for sales returns below that were updated as a result of adopting ASU 2016-13, there have been no new or material changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020.
Allowance for credit losses
Our accounts receivable consist of a single portfolio segment. Accounts receivable are recorded at original invoice amounts less an allowance for credit losses, an amount we estimate to be sufficient to provide adequate protection against lifetime expected losses resulting from extending credit to our customers. In judging the adequacy of the allowance for credit losses, we consider multiple factors including historical bad debt experience, the current aging of our receivables and current economic conditions that may affect our customers' ability to pay. A considerable amount of judgment is required in assessing these factors and if any receivables were to deteriorate, an additional provision for credit losses could be required. Accounts are written off after all means of collection are exhausted and recovery is considered remote. Provisions for credit losses are recorded in general and administrative expense.
Below is a summary of the changes in our allowance for credit losses.
(in thousands)
Balance at
beginning of year (1)

Provision/
adjustment

Write-off

Recovery

Balance at June 30, 2020

2020
$
4,011

$
3,708

$
(554
)
$
243

$
7,408

(1)
Upon adoption of ASU 2016-13 at January 1, 2020, we reclassified certain balances previously disclosed within the allowance for sales returns to the allowance for credit losses, as these amounts reflect the credit risk associated with our accounts receivable.
The increase in our allowance for credit losses during the six months ended June 30, 2020 was primarily due to an increase in the aging of our receivables and observed changes in some of our customers' payment behavior associated with the COVID-19 pandemic. The increase in the amount of write-offs during the six months ended June 30, 2020 was insignificant.
Allowance for sales returns
We maintain a reserve for returns and credits which is estimated based on several factors including historical experience, known credits yet to be issued, the aging of customer accounts and the nature of service level commitments. A considerable amount of judgment is required in assessing these factors. Provisions for sales returns and credits are charged against the related revenue items.
Below is a summary of the changes in our allowance for sales returns.
(in thousands)
Balance at
beginning of year
(1)

Provision/
adjustment

Deduction

Balance at June 30, 2020

2020
$
1,518

$
2,969

$
(2,870
)
$
1,617

(1)
As discussed above, we reclassified certain balances previously disclosed within the allowance for sales returns to the allowance for credit losses upon adoption of ASU 2016-13 at January 1, 2020.

10
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


3. Goodwill and Other Intangible Assets
The change in goodwill during the six months ended June 30, 2020, consisted of the following:
(dollars in thousands)
Total
Balance at December 31, 2019
$
634,088

Effect of foreign currency translation
(3,401
)
Balance at June 30, 2020
$
630,687


4. Earnings Per Share

We compute basic earnings per share by dividing net income available 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 available to common stockholders by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Diluted earnings per share reflect the assumed exercise, settlement and vesting of all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive. Potentially dilutive securities consist of shares issuable upon the exercise of stock options, settlement of stock appreciation rights and vesting of restricted stock awards and units.
The following table sets forth the computation of basic and diluted earnings per share:
  
Three months ended 
 June 30,
 
 
Six months ended 
 June 30,
 
(dollars in thousands, except per share amounts)
2020

2019

 
2020

2019

Numerator:
 
 
 
 
 
Net income
$
11,823

$
7,140

 
$
16,462

$
6,018

Denominator:
 
 
 
 
 
Weighted average common shares
48,239,928

47,714,621

 
48,138,125

47,622,740

Add effect of dilutive securities:
 
 
 
 
 
Stock-based awards
178,450

446,063

 
326,952

478,472

Weighted average common shares assuming dilution
48,418,378

48,160,684

 
48,465,077

48,101,212

Earnings per share:
 
 
 
 
 
Basic
$
0.25

$
0.15

 
$
0.34

$
0.13

Diluted
$
0.24

$
0.15

 
$
0.34

$
0.13

 
 
 
 
 
 
Anti-dilutive shares excluded from calculations of diluted earnings per share
1,484,976

245,060

 
1,329,519

748,743



Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
11


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


5. Fair Value Measurements
We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 - Quoted prices for identical assets or liabilities in active markets;
Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
Recurring fair value measurements
Assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below:
 
Fair value measurement using
 
 
(dollars in thousands)
Level 1

 
Level 2

 
Level 3

 
Total

Fair value as of June 30, 2020
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
Derivative instruments
$

 
$
5,233

 
$

 
$
5,233

Total financial liabilities
$

 
$
5,233

 
$

 
$
5,233

 
 
 
 
 
 
 
 
Fair value as of December 31, 2019
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
Derivative instruments
$

 
$
1,757

 
$

 
$
1,757

Total financial liabilities
$

 
$
1,757

 
$

 
$
1,757


Our derivative instruments within the scope of Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate swaps.
The fair value of our interest rate swaps was based on model-driven valuations using LIBOR rates, which are observable at commonly quoted intervals. Accordingly, our interest rate swaps are classified within Level 2 of the fair value hierarchy. The Financial Conduct Authority in the U.K. has stated that it plans to phase out LIBOR by the end of calendar year 2021. We do not currently anticipate a significant impact to our financial position or results of operations as a result of this action as we expect that our financial contracts currently indexed to LIBOR will either expire or be modified before the phase out occurs.
We believe the carrying amounts of our cash and cash equivalents, restricted cash due to customers, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at June 30, 2020 and December 31, 2019, due to the immediate or short-term maturity of these instruments.
We believe the carrying amount of our debt approximates its fair value at June 30, 2020 and December 31, 2019, as the debt bears interest rates that approximate market value. As LIBOR rates are observable at commonly quoted intervals, our debt is classified within Level 2 of the fair value hierarchy.
We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the six months ended June 30, 2020. Additionally, we did not hold any Level 3 assets or liabilities during the six months ended June 30, 2020.

12
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Non-recurring fair value measurements
Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets, goodwill and operating lease right-of-use ("ROU") assets, which are recognized at fair value during the period in which an acquisition is completed or at lease commencement, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for long-lived assets, intangible assets acquired and operating lease ROU assets, are based on Level 3 unobservable inputs. In the event of an impairment, we determine the fair value of these assets other than goodwill using a discounted cash flow approach, which contains significant unobservable inputs and, therefore, is considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate. For goodwill impairment testing, we estimate fair value using market-based methods including the use of market capitalization and consideration of a control premium.
During the six months ended June 30, 2020, we recorded an impairment charge of $4.3 million against certain previously capitalized software development costs that reduced the carrying value of those assets to zero. The impairment charge is reflected in cost of recurring revenue and resulted primarily from our decision to accelerate the end of customer support for certain solutions. During the six months ended June 30, 2020, we also recorded an insignificant impairment of operating lease ROU assets associated with certain leased office space we ceased using. This impairment charge is reflected in general and administrative expense.
There were no other non-recurring fair value adjustments to our long-lived assets, intangible assets, operating lease ROU assets and goodwill during the six months ended June 30, 2020.
6. Consolidated Financial Statement Details
Prepaid expenses and other assets
(dollars in thousands)
June 30,
2020

December 31,
2019

Costs of obtaining contracts(1)(2)
$
89,080

$
90,764

Prepaid software maintenance and subscriptions(3)
28,975

17,384

Implementation costs for cloud computing arrangements, net(4)(5)
10,563

7,294

Unbilled accounts receivable
8,647

6,233

Prepaid insurance
2,638

1,585

Taxes, prepaid and receivable
842

849

Security deposits
861

885

Other assets
10,766

8,051

Total prepaid expenses and other assets
152,372

133,045

Less: Long-term portion
68,673

65,193

Prepaid expenses and other current assets
$
83,699

$
67,852


(1)
Amortization expense from costs of obtaining contracts was $9.4 million and $18.9 million for the three and six months ended June 30, 2020, respectively, $9.8 million and $19.4 million for the three and six months ended June 30, 2019, respectively.
(2)
The current portion of costs of obtaining contracts as of June 30, 2020 and December 31, 2019 was $32.7 million and $33.0 million, respectively.
(3)
The current portion of prepaid software maintenance and subscriptions as of June 30, 2020 and December 31, 2019 was $24.4 million and $16.1 million, respectively.
(4)
These costs, which were previously included in prepaid software maintenance and subscriptions, primarily relate to the multi-year implementations of our new global enterprise resource planning and customer relationship management systems.
(5)
Amortization expense from capitalized cloud computing implementation costs was insignificant for the three and six months ended June 30, 2020 and 2019, respectively. Accumulated amortization for these costs was insignificant as of June 30, 2020 and December 31, 2019.

Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
13


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


Accrued expenses and other liabilities
(dollars in thousands)
June 30,
2020

December 31,
2019

Operating lease liabilities, current portion
$
19,316

$
19,784

Accrued bonuses(1)
5

24,617

Accrued commissions and salaries
7,601

6,980

Taxes payable
12,576

6,835

Derivative instruments
5,233

1,757

Customer credit balances
5,032

4,505

Unrecognized tax benefit
3,833

3,758

Accrued vacation costs
2,278

2,232

Accrued health care costs
2,991

2,399

Other liabilities
5,911

6,192

Total accrued expenses and other liabilities
64,776

79,059

Less: Long-term portion
11,883

5,742

Accrued expenses and other current liabilities
$
52,893

$
73,317


(1)
In March 2020, we reduced our accrued bonuses due to the payment of bonuses from the prior year and, in response to the global COVID-19 pandemic, determined to replace our 2020 cash bonus plans with performance-based equity awards (See Note 2).
Other income, net
  
Three months ended 
 June 30,
 
 
Six months ended 
 June 30,
 
(dollars in thousands)
2020

2019

 
2020

2019

Interest income
$
110

$
525

 
$
632

$
1,179

Other income, net
520

1,656

 
1,068

1,184

Other income, net
$
630

$
2,181

 
$
1,700

$
2,363


7. Debt
The following table summarizes our debt balances and the related weighted average effective interest rates, which includes the effect of interest rate swap agreements.
 
Debt balance at
 
 
Weighted average
effective interest rate at
 
(dollars in thousands)
June 30,
2020

December 31,
2019

 
June 30,
2020

December 31,
2019

Credit facility:
 
 
 
 
 
    Revolving credit loans
$
207,600

$
187,000

 
2.41
%
3.11
%
    Term loans
277,500

281,250

 
3.02
%
3.22
%
Other debt
3,926


 
5.00
%
%
        Total debt
489,026

468,250

 
2.78
%
3.18
%
Less: Unamortized discount and debt issuance costs
913

1,150

 
 
 
Less: Debt, current portion
9,194

7,500

 
2.29
%
3.05
%
Debt, net of current portion
$
478,919

$
459,600

 
2.78
%
3.18
%


14
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


2017 credit facility
In June 2017, we entered into a five-year $700.0 million senior credit facility (the "2017 Credit Facility"). At June 30, 2020, we were in compliance with our debt covenants under the 2017 Credit Facility.
Other debt
In December 2019, we entered into a 51-month $2.2 million agreement to finance our purchase of software and related services for our internal use. The agreement is a non-interest-bearing note requiring four equal annual payments, where the first payment was due in January 2020. Interest associated with the note has been imputed at the rate we would incur for amounts borrowed under the 2017 Credit Facility.
In January 2020, we entered into an additional 39-month $3.5 million agreement to finance our purchase of software and related services for our internal use. The agreement is a non-interest-bearing note requiring three equal annual payments, where the first payment was due in March 2020. Interest associated with the note has been imputed at the rate we would incur for amounts borrowed under the 2017 Credit Facility.
As of June 30, 2020, the required annual maturities related to the 2017 Credit Facility and other debt were as follows:
Years ending December 31,
(dollars in thousands)
Annual maturities

2020 - remaining
$
3,750

2021 
9,194

2022 
475,544

2023 
538

2024 

Thereafter

Total required maturities
$
489,026


8. Derivative Instruments
Cash flow hedges
We generally use derivative instruments to manage our variable interest rate risk. We have entered into interest rate swap agreements, which effectively convert portions of our variable rate debt under the 2017 Credit Facility to a fixed rate for the term of the swap agreements. We designated each of the interest rate swap agreements as a cash flow hedge at the inception of the contracts.
The terms and notional values of our derivative instruments were as follows as of June 30, 2020:
(dollars in thousands)
Term of derivative instrument
Notional Value

Derivative instruments designated as hedging instruments:
 
 
Interest rate swap
July 2017 - July 2021
$
150,000

Interest rate swap
February 2018 - June 2021
50,000

Interest rate swap
June 2019 - June 2021
75,000

 
 
$
275,000



Second Quarter 2020 Form 10-Q
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
15


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


The fair values of our derivative instruments were as follows as of:
 
 
Liability Derivatives
(dollars in thousands)
Balance sheet location
June 30,
2020

December 31,
2019

Derivative instruments designated as hedging instruments:
 
 
 
Interest rate swaps, current portion
Accrued expenses
and other current liabilities
$
2,515

$

Interest rate swaps, long-term portion
Other liabilities
2,718

1,757

Total derivative instruments designated as hedging instruments
 
$
5,233

$
1,757


The effects of derivative instruments in cash flow hedging relationships were as follows:
 
Gain (loss) recognized
in accumulated other
comprehensive
loss as of

Location
of gain (loss)
reclassified from
accumulated other
comprehensive
loss into income
Gain (loss) reclassified from accumulated
 other comprehensive loss into income
 
(dollars in thousands)
June 30,
2020

Three months ended 
 June 30, 2020

 
Six months ended 
 June 30, 2020

Interest rate swaps
$
(5,233
)
Interest expense
$
(1,018
)
 
$
(1,223
)
 
 
 
 
 
 
 
June 30,
2019

 
Three months ended 
 June 30, 2019

 
Six months ended 
 June 30, 2019

Interest rate swaps
$
(1,826
)
Interest expense
$
244

 
$
473


Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit. Changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) is reclassified from accumulated other comprehensive income (loss) to current earnings. The estimated accumulated other comprehensive loss as of June 30, 2020 that is expected to be reclassified into earnings within the next twelve months is $5.1 million. There were no ineffective portions of our interest rate swap derivatives during the six months ended June 30, 2020 and 2019. See Note 12 for a summary of the changes in accumulated other comprehensive income (loss) by component.
9. Commitments and Contingencies
Leases
We have operating leases for corporate offices, subleased offices and certain equipment and furniture. As of June 30, 2020, we had operating leases for equipment that had not yet commenced with future rent payments of $0.9 million. These operating leases are expected to commence during 2020 with lease terms of 5 years.

16
https://cdn.kscope.io/eb7fabdfedc72795c608abd849909bac-bblogo.jpg
Second Quarter 2020 Form 10-Q


Blackbaud, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


The components of lease expense were as follows:
 
Three months ended 
 June 30,
 
 
Six months ended 
 June 30,
 
(dollars in thousands)
2020

2019

 
2020

2019

Operating lease cost(1)(2)
$
6,281

$
5,894

 
$
12,592

$
11,894

Variable lease cost
1,113

988

 
2,371

1,979

Sublease income
(940
)
(755
)
 
(1,853
)
(1,459
)
Net lease cost
$
6,454

$
6,127

 
$
13,110

$
12,414

(1)
Includes short-term lease costs, which were immaterial.
(2)
See Note 15 for a discussion of the pending purchase of our Headquarters Facility that we currently lease.
Other commitments
The term loans under the 2017 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 2017 Credit Facility in June 2022.
We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of June 30, 2020, the remaining aggregate minimum purchase commitment under these arrangements was approximately $90.5 million through 2024.
Solution and service indemnifications
In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our solutions or services. If we determine that it is probable that a loss has been incurred related to solution or service indemnifications, any such loss that could be reasonably estimated would be recognized. We have not identified any losses and, accordingly, we have not recorded a liability related to these indemnifications.
Security incident
We are subject to risks and uncertainties as a result of a ransomware attack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment (the "Incident"). Based on the nature of the Incident, o