BLACKBAUD INC

Previous wording

We are the leading software provider exclusively dedicated to powering social impact. Serving the nonprofit and education sectors, companies committed to social responsibility and individual change makers, our essential software is built to accelerate impact in fundraising, nonprofit financial management, digital giving, grantmaking, corporate social responsibility and education management. A remote-first company, we have operations in the United States, Australia, Canada, Costa Rica and the United Kingdom, supporting users in 100+ countries.

Current wording

We are the leading software provider exclusively dedicated to powering social impact. Serving the nonprofit and education sectors, companies committed to social responsibility and individual change makers, our essential software is built to accelerate impact in fundraising, nonprofit financial management, digital giving, grantmaking, corporate social responsibility and education management. A remote-first company, we have operations in the United States, Australia, Canada, Costa Rica, India and the United Kingdom, supporting users in 100+ countries.

Previous wording

Our company has made significant strides over the past several years by executing on our five-point operating plan. We have extended our position as the world's leading provider of software to power social impact through product innovation to better serve the very specific needs of non-profit customers, successfully implemented key revenue initiatives to enhance the predictability of our growth, all while maintaining keen attention to cost management and cash flow. As a result of this work, we have accelerated our revenue growth, significantly improved our profitability, driven sustained EPS growth and generated significant cash flow, which we have used, in part, to fuel a material stock repurchase program, that was recently expanded and replenished to $800 million.

Current wording

Our company has made significant strides over the past several years by executing on our five-point operating plan. We have extended our position as the world's leading provider of software to power social impact through product innovation to better serve the very specific needs of non-profit customers, successfully implemented key revenue initiatives to enhance the predictability of our growth, all while maintaining keen attention to cost management and cash flow. As a result of this work, we have grown revenue, significantly improved our profitability, driven sustained EPS growth and generated significant cash flow, which we have used, in part, to fuel a material stock repurchase program, that was expanded and replenished to $800 million in July 2024.

Previous wording

•In our Social Sector, we continue to primarily focus on mid-sized and enterprise non-profits and, as market leader, we continue to see great opportunities to attract new customers as well expand our offerings to our existing customers. We appreciate that our customers have choices, too. For decades, we have enjoyed being the market leader, with

Current wording

•In our Social Sector, we continue to primarily focus on mid-sized and enterprise non-profits and, as market leader, we continue to see great opportunities to attract new customers as well expand our offerings to our existing customers. We appreciate that our customers have choices, too. For decades, we have enjoyed being the market leader, with strong brand recognition and significant breadth and depth of our product capabilities, but we are not relying on the success of our past.

Previous wording

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

Current wording

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

Previous wording

During the first six months of 2024, we generated $118.4 million of operating cash flow, an increase of more than 50% compared to the first half of 2023. Our robust cash flow generation gives us confidence to continue investment in a number of critical areas like product innovation and stock repurchases. In March 2024, we announced that we intend to repurchase between 7% and 10% of our outstanding common stock as of December 31, 2023 under our stock repurchase program. During the six months ended June 30, 2024, we repurchased 2,954,211 shares for $262.6 million, representing approximately 5.5% of the Company's common stock outstanding as of December 31, 2023. In addition to our previously announced ASR Transaction, we plan to be aggressive in repurchasing our stock at the current valuations. As previously disclosed, our board of directors reauthorized, expanded and replenished our existing stock repurchase program, raising the total capacity from $500 million to $800 million available for repurchases of our common stock. We believe there is currently no better use of our capital than investing back into the business through product innovation and returning capital to stockholders around these valuation levels.

Current wording

During the nine months of 2024, we generated $222.4 million of operating cash flow, an increase of approximately 9.6% compared to the first three quarters of 2023. Our robust cash flow generation gives us confidence to continue investment in a number of critical areas like product innovation and stock repurchases. In March 2024, we announced that we intend to repurchase during 2024 between 7% and 10% of our outstanding common stock as of December 31, 2023 under our stock repurchase program. During the nine months ended September 30, 2024, we repurchased 3,761,985 shares for $325.4 million, representing approximately 7.0% of the Company's common stock outstanding as of December 31, 2023. These share repurchases do not include the final settlement of the ASR Transaction, as discussed above. The remaining amount available to purchase stock under our stock repurchase program was $737.2 million as of September 30, 2024.

Previous wording

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

Current wording

Total revenue increased by $9.1 million and $42.8 million, respectively, during the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, driven largely by the following:

Previous wording

Our Social Sector revenue (which represents approximately 88% of our total year-to-date revenue) increased $19.8 million, or 8.5%, and $39.3 million, or 8.6%, respectively, during the three and six months ended June 30, 2024, when compared to the same periods in 2023, driven primarily by the increases in contractual recurring revenue and transactional recurring revenue discussed above. The Social Sector has proven to be very resilient as demonstrated through the last several economic downturns and the COVID-19 pandemic, and we have great confidence in the long-term trajectory of this portion of our business.

Current wording

Our Social Sector revenue (which represents approximately 88% of our total year-to-date revenue) increased $15.7 million, or 6.6%, and $55.0 million, or 7.9%, respectively, during the three and nine months ended September 30, 2024, when compared to the same periods in 2023, driven primarily by the increases in contractual recurring revenue and transactional recurring revenue discussed above. The Social Sector has proven to be very resilient as demonstrated through the last several economic downturns and the COVID-19 pandemic, and we have great confidence in the long-term trajectory of this portion of our business.

Previous wording

Our Corporate Sector revenue (which represents approximately 12% of our total year-to-date revenue) decreased $3.5 million, or 9.2%, and $5.6 million, or 7.4%, respectively, during the three and six months ended June 30, 2024, when compared to the same periods in 2023, driven primarily by the performance of EVERFI and our disposition of EVERFI Limited in March 2024 (see Note 3 to our unaudited, condensed consolidated financial statements in this report for more information). EVERFI has unique and valuable assets, including a comprehensive catalog of content, great customer relationships and a deep talent pool. However, EVERFI has faced a number of external challenges and while we have taken decisive actions, including changes to Corporate Sector leadership and the disposition of a non-recurring revenue component (EVERFI Limited discussed above), EVERFI continues to be a drag on our overall performance, and we expect that to continue. Accordingly, we are actively considering a range of strategic alternatives for EVERFI, one of which includes a potential divestiture of the business. This work is in early stages, and EVERFI remains well positioned to support its customers. We will continue to provide updates as progress is made on this initiative.

Current wording

Our Corporate Sector revenue (which represents approximately 12% of our total year-to-date revenue) decreased $6.6 million, or 17.3%, and $12.2 million, or 10.7%, respectively, during the three and nine months ended September 30, 2024, when compared to the same periods in 2023, driven primarily by the underperformance of EVERFI and our disposition of EVERFI Limited in March 2024 (see Note 3 to our unaudited, condensed consolidated financial statements in this report for more information). EVERFI has unique and valuable assets, including a comprehensive catalog of content, great customer relationships and a deep talent pool. However, EVERFI has faced a number of external challenges and while we have taken decisive actions, including changes to Corporate Sector leadership and the disposition of a non-recurring revenue component (EVERFI Limited discussed above), EVERFI continues to be a drag on our overall performance, and we expect that to continue. While EVERFI remains a small portion of our total revenue at approximately 8%, we are focused on achieving the best possible outcome for this business. We recently took actions to right-size EVERFI's business to better align costs to its lower revenues, and we hired a strategic advisor to assist us in considering a range of alternatives for EVERFI, one of which includes a potential divestiture of the business. This work is in early stages, and EVERFI remains well positioned to support its customers. We will continue to provide updates as progress is made on this initiative.

Previous wording

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

Current wording

Income from operations increased by $21.8 million and $84.2 million, respectively, during the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, driven largely by the following:

Previous wording

We are continuing to make critical investments in the business in areas such as innovation, cybersecurity, and our continued shift of cloud infrastructure to leading public cloud service providers. Our profitability during the first half of 2024 reflects some of these incremental investments.

Current wording

We are continuing to make critical investments in the business in areas such as innovation, cybersecurity, and our continued shift of cloud infrastructure to leading public cloud service providers. Our financial results through the third quarter of 2024 reflect some of these incremental investments.

Previous wording

Our recurring subscription contracts are typically for a term of three years at contract inception. A key factor to our overall success is the renewal and expansion of our existing subscription agreements with our customers. Management uses gross dollar retention in analyzing our success at delighting our customers with innovative and cloud solutions. Gross dollar retention is defined as contracted annual recurring revenue ("CARR") divided by beginning CARR with a measurement period of twelve months. For the twelve months ended June 30, 2024, our gross dollar retention was approximately 90%. This gross dollar retention rate was consistent with our rate for the full year ended December 31, 2023. We are continually investing in innovation, which we believe will increase gross dollar retention over the long-term.

Current wording

Our recurring subscription contracts are typically for a term of three years at contract inception. A key factor to our overall success is the renewal and expansion of our existing subscription agreements with our customers. Management uses gross dollar retention in analyzing our success at delighting our customers with innovative and cloud solutions. Gross dollar retention is defined as contracted annual recurring revenue ("CARR") divided by beginning CARR with a measurement period of twelve months. For the twelve months ended September 30, 2024, our gross dollar retention was approximately 90%. This gross dollar retention rate was consistent with our rate for the full year ended December 31, 2023. Excluding EVERFI, our gross dollar retention during the twelve months ended September 30, 2024 was approximately 92%. We are continually investing in innovation, which we believe will increase gross dollar retention over the long-term.

Previous wording

At June 30, 2024, our cash and cash equivalents were $30.4 million. Under the 2024 Credit Facilities, the carrying amount of our debt was $963.6 million and our net leverage ratiowas 2.51 to 1.00.

Current wording

At September 30, 2024, our cash and cash equivalents were $34.6 million. Under the 2024 Credit Facilities, the carrying amount of our debt was $943.0 million and our net leverage ratiowas 2.42 to 1.00.

Previous wording

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

Current wording

During the nine months ended September 30, 2024, we generated $222.4 million in cash from operations, had a net increase in borrowings of $223.2 million, returned $325.4 million to stockholders by way of share repurchases and had aggregate cash outlays of $50.1 million for purchases of property and equipment and capitalized software and content development costs.

Previous wording

As discussed in Note 9 to our unaudited, condensed consolidated financial statements in this report, total costs related to the Security Incident exceeded the limit of our insurance coverage in the first quarter of 2022. Accordingly, the Security Incident has negatively impacted, and we expect it to continue for the foreseeable future to negatively impact, our GAAP profitab ility and GAAP cash flow (see discussion regarding non-GAAP free cash flow and non-GAAP adjusted free cash flow on page 43). For the three and six months ended June 30, 2024, we incurred net pre-tax expenses of $1.8 million and $12.1 million, respectively, related to the Security Incident, which included $1.8 million and $5.1 million, respectively, for ongoing legal fees and additional accruals for loss contingencies of $0.0 million and $7.0 million, respectively. During the six months ended June 30, 2024, we had cash outlays of $5.8 million related to the Security Incident for ongoing legal fees. In line with our policy, legal fees are expensed as incurred. For full year 2024, we currently expect pre-tax expenses of approximately $5.0 million to $10.0 million and cash outlays of approximately $8.0 million to $13.0 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.

Current wording

As discussed in Note 9 to our unaudited, condensed consolidated financial statements in this report, total costs related to the Security Incident exceeded the limit of our insurance coverage in the first quarter of 2022. Accordingly, the Security Incident has negatively impacted, and we expect it to continue for the foreseeable future to negatively impact, our GAAP profitab ility and GAAP cash flow (see discussion regarding non-GAAP free cash flow and non-GAAP adjusted free cash flow on page 43). For the three months ended September 30, 2024, we incurred net pre-tax expenses which were insignificant. For the nine months ended September 30, 2024, we incurred net pre-tax expenses of $12.8 million related to the Security Incident, which included $6.0 million for ongoing legal fees and additional accruals for loss contingencies of $6.8 million. During the nine months ended September 30, 2024, we had cash outlays of $15.1 million related to the Security Incident for ongoing legal fees and the $6.8 million paid during the third quarter of 2024 related to our settlement with the Attorney General of the State of California. In line with our policy, legal fees are expensed as incurred. For full year 2024, we currently expect pre-tax expenses of approximately $5.0 million to $10.0 million and cash outlays of approximately $8.0 million to $13.0 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below.

Previous wording

As of June 30, 2024, we have recorded approximately $8.5 million in aggregate liabilities for loss contingencies, which included $6.8 million for our settlement with the Attorney General of the State of California on June 13, 2024 that we paid in the third quarter of 2024, and other accruals based primarily on recent negotiations with certain customers related to the Security Incident that we believed we could reasonably estimate in accordance with our loss contingency procedures described above and as more fully described in Note 9. It is reasonably possible that our estimated actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

Current wording

estimate in accordance with our loss contingency procedures described above and as more fully described in Note 9. It is reasonably possible that our estimated actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

Previous wording

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

Current wording

Comparison of the three and nine months ended September 30, 2024 and 2023

Previous wording

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

Current wording

Recurring gross margin decreased by 140 basis points for the three months ended September 30, 2024, when compared to the same period in 2023, primarily due to the increases in cost of recurring revenue outpacing the increases in recurring revenue.

Previous wording

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

Current wording

One-time services and other revenue decreased by $1.9 million, or 22.2%, and $5.9 million, or 22.6%, during the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, driven primarily by the following:

Previous wording

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

Current wording

Cost of one-time services and other decreased by $2.8 million, or 36.2%, and $7.0 million, or 29.5%, during the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, driven primarily by the following:

Previous wording

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

Current wording

One-time services and other gross margin increased by 1,590 basis points and 810 basis points during the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, primarily due to the decrease in compensation costs discussed above outpacing the decrease of one-time services and other revenue.

Previous wording

Sales, marketing and customer success expense decreased by $6.1 million, or 11.5%, and $9.6 million or 9.0%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023. The decreases in dollars and as a percentage of total revenue were primarily driven by the following:

Current wording

Sales, marketing and customer success expense decreased by $3.0 million, or 5.7%, and $12.6 million or 7.9%, during the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023. The decreases in dollars and as a percentage of total revenue were primarily driven by the following:

Previous wording

We continue to make investments to delight our customers with innovative and secure cloud solutions. Research and development expenses increased by $2.9 million, or 8.1%, and $5.1 million or 6.7%, during the three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023, primarily driven by the following:

Current wording

We continue to make investments to delight our customers with innovative and secure cloud solutions. Research and development expenses increased by $1.4 million, or 3.7%, and $6.5 million or 5.7%, during the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, primarily driven by the following:

Previous wording

Not included in research and development expense for the three months ended June 30, 2024 and 2023 were $14.8 million and $15.4 million, respectively, and for the six months ended June 30, 2024 and 2023 were $28.5 million and $29.6 million, respectively, of qualifying costs associated with software and content development activities that are required to be capitalized under GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized development costs associated with our cloud solutions are subsequently amortized to costof recurring revenue over the related assets' estimated useful life, which generally range from three to seven years. We expect that the amount of software and content development costs capitalized will be relatively consistent in the near-term as we continue making investments in innovation, quality, security and the integration of our solutions, which we believe will drive long-term revenue growth.

Current wording

Not included in research and development expense for the three months ended September 30, 2024 and 2023 were $16.0 million and $15.7 million, respectively, and for the nine months ended September 30, 2024 and 2023 were $44.5 million and $45.4 million, respectively, of qualifying costs associated with software and content development activities that are required to be capitalized under GAAP, such as those for our cloud solutions, as well as development costs associated with acquired companies. Qualifying capitalized development costs associated with our cloud solutions are subsequently amortized to costof recurring revenue over the related assets' estimated useful life, which generally range from three to seven years. We expect that the amount of software and content development costs capitalized will be relatively consistent in the near-term as we continue making investments in innovation, quality, security and the integration of our solutions, which we believe will drive long-term revenue growth.

Previous wording

General and administrative expense decreased by $25.7 million, or 43.5%, and $30.8 million, or 27.5%, three and six months ended June 30, 2024, respectively, when compared to the same periods in 2023. The decreases in dollars and as a percentage of total revenue were primarily driven by the following:

Current wording

General and administrative expense decreased by $17.0 million, or 39.8%, and $47.7 million, or 30.9%, three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023. The decreases in dollars and as a percentage of total revenue were primarily driven by the following:

Previous wording

The increases in interest expense in dollars and as a percentage of total revenue during the three and six months ended June 30, 2024, when compared to the same periods in 2023, were primarily due to our incremental borrowings to fund our ASR Transaction. We currently expect interest expense for the full year 2024 to be approximately $52 million to $56 million. Our interest expense in connection with the variable rate portion of our outstanding debt could increase in a rising interest rate environment. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information regarding our derivative instruments, which we use to manage our variable interest rate risk, and Item 3. Quantitative and Qualitative Disclosures about Market Risk: Interest Rate Risk (below) for more information about our variable interest rate exposure and related risk.

Current wording

The increases in interest expense in dollars and as a percentage of total revenue during the three and nine months ended September 30, 2024, when compared to the same periods in 2023, were primarily due to our incremental borrowings to fund our ASR Transaction and other stock repurchases. We currently expect interest expense for the full year 2024 to be approximately $53 million to $57 million. Our interest expense in connection with the variable rate portion of our outstanding debt could increase in a rising interest rate environment. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information regarding our derivative instruments, which we use to manage our variable interest rate risk, and Item 3. Quantitative and Qualitative Disclosures about Market Risk: Interest Rate Risk (below) for more information about our variable interest rate exposure and related risk.

Previous wording

The increases in other income in dollars and as a percentage of total revenue during the three and six months ended June 30, 2024, when compared to the same periods in 2023, were primarily due to an increase in interest income. Interest income increased primarily due to higher interest earned on restricted cash held and payable by us to customers for our payment processing solutions. See Note 6 to our unaudited, condensed consolidated financial statements in this report for more information regarding our other income.

Current wording

The decreases in other income in dollars and as a percentage of total revenue during the three and nine months ended September 30, 2024, when compared to the same periods in 2023, were primarily due to current year losses in currency revaluation compared to prior year gains. For the nine months ended September 30, 2024, the decrease was partially offset by an increase in interest income. Interest income increased primarily due to higher interest earned on restricted cash held and payable by us to customers for our payment processing solutions. See Note 6 to our unaudited, condensed consolidated financial statements in this report for more information regarding our other income.

Previous wording

The increase in deferred revenue during the six months ended June 30, 2024 was primarily due toa seasonal increase in customer contract renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter.

Current wording

The increase in deferred revenue during the nine months ended September 30, 2024 was primarily due tothe impact of our contract pricing initiatives within the Social Sector, as well as a seasonal increase in customer contract billings and renewals. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter.

Previous wording

(2)Includes Security Incident-related costs incurred during the three and six months ended June 30, 2024 of $1.8 million and $12.1 million, respectively, which includes approximately $0.0 million and $7.0 million, respectively, in recorded liabilities for loss contingencies and during the three and six months ended June 30, 2023 of $26.8 million and $44.6 million, respectively, which included approximately $19.8 million and $30.0 million, respectively, in recorded aggregate liabilities for loss contingencies. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims, negotiated settlements and accruals for certain loss contingencies. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year 2024, we currently expect pre-tax expenses of approximately $5 million to $10 million and cash outlays of approximately $8 million to $13 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below. In line with our policy, legal fees are expensed as incurred. As of June 30, 2024, we have recorded approximately $8.5 million in aggregate liabilities for loss contingencies, which included $6.8 million for our settlement with the Attorney General of the State of California on June 13, 2024 that we paid in the third quarter of 2024, and other accruals based primarily on recent negotiations with certain customers related to the Security Incident that we believe we can reasonably estimate. It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss. There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of June 30, 2024 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.

Current wording

(2)Includes Security Incident-related costs incurred during the three months ended September 30, 2024 which were insignificant, during the nine months ended September 30, 2024 of $12.8 million, which included approximately $6.8 million in recorded liabilities for loss contingencies, and during the three and nine months ended September 30, 2023 of $4.1 million and $48.6 million, respectively, which included approximately $0.0 million and $30.0 million, respectively, in recorded aggregate liabilities for loss contingencies. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims, negotiated settlements and accruals for certain loss contingencies. Not included in this adjustment were costs associated with enhancements to our cybersecurity program. For full year 2024, we currently expect pre-tax expenses of approximately $5 million to $10 million and cash outlays of approximately $8 million to $13 million for ongoing legal fees related to the Security Incident. Not included in these ranges are our previous settlements or current accruals for loss contingencies related to the matters discussed below. In line with our policy, legal fees are expensed as incurred. As of September 30, 2024, we have recorded approximately $0.7 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain customers related to the Security Incident that we believe we can reasonably estimate. During the third quarter of 2024, we paid $6.8 million in connection with our settlement with the Attorney General of the State of California (as previously disclosed on June 14, 2024). It is reasonably possible that our estimated or actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss. There are other Security Incident-related matters, including customer claims, customer constituent class actions and governmental investigations, for which we have not recorded a liability for a loss contingency as of September 30, 2024 because we are unable at this time to reasonably estimate the possible loss or range of loss. Each of these matters could, separately or in the aggregate, result in an adverse judgment, settlement, fine, penalty or other resolution, the amount, scope and timing of which we are currently unable to predict, but could have a material adverse impact on our results of operations, cash flows or financial condition.

Previous wording

(3)Beginning in 2024, we now apply a non-GAAP effective tax rate of 24.5% when calculating non-GAAP net income and non-GAAP diluted earnings per share. For the three and six months ended June 30, 2023, the tax impact related to non-GAAP adjustments is calculated under our historical non-GAAP effective tax rate of 20.0%.

Current wording

(3)Beginning in 2024, we now apply a non-GAAP effective tax rate of 24.5% when calculating non-GAAP net income and non-GAAP diluted earnings per share. For the three and nine months ended September 30, 2023, the tax impact related to non-GAAP adjustments is calculated under our historical non-GAAP effective tax rate of 20.0%.

Previous wording

In addition, we use non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis, non-GAAP organic recurring revenue growth and non-GAAP organic recurring revenue growth on a constant currency basis in analyzing our operating performance. We believe that these non-GAAP measures are useful to investors, as a supplement to GAAP measures, for evaluating the periodic growth of our business on a consistent basis. Each of these measures of non-GAAP organic revenue growth excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, each of these non-GAAP organic revenue growth measures reflects presentation of full year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period. In addition, each of these non-GAAP organic revenue growth measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. We believe this presentation provides a more comparable representation of our current business’ organic revenue growth and revenue run-rate.

Current wording

In addition, we use non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis, non-GAAP organic recurring revenue growth and non-GAAP organic recurring revenue growth on a constant currency basis in analyzing our operating performance. We believe that these non-GAAP measures are useful to investors, as a supplement to GAAP measures, for evaluating the periodic growth of our business on a consistent basis. Each of these measures of non-GAAP organic revenue growth excludes incremental acquisition-related revenue attributable to companies, if any, acquired in the current fiscal year. For companies, if any, acquired in the immediately preceding fiscal year, each of these non-GAAP organic revenue growth measures reflects presentation of full year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period. In addition, each of these non-GAAP organic revenue growth measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. We believe this presentation provides a more comparable representation of our current business’ organic revenue growth and revenue run-rate.

Previous wording

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

Current wording

(1)Includes EVERFI revenue of $19.4 million and $26.2 million for the three months ended September 30, 2024 and 2023, respectively, and $66.8 million and $80.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

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

Current wording

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

Previous wording

Our cash flow from operations normally fluctuates quarterly due to the combination of the timing of customer contract renewals including renewals associated with customers of acquired companies, delivery of professional services and occurrence of customer events, as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our first quarter, combined with the payment of certain annual vendor contracts, our cash flow from operations has been lowest in our first quarter. Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has generally been lower in our second quarter as compared to our third and fourth quarters. Partially offsetting these favorable drivers of cash flow from operations in our third and fourth quarters are base salary merit increases, which occur in July. In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract renewals and student enrollments or significant acquisitions. Our cash

Current wording

Our cash flow from operations normally fluctuates quarterly due to the combination of the timing of customer contract renewals, delivery of professional services and occurrence of customer events, as well as merit-based salary increases, among other factors. Historically, due to lower revenues in our first quarter, combined with the payment of certain annual vendor contracts, our cash flow from operations has been lowest in our first quarter. Due to the timing of customer contract renewals and student enrollments, many of which take place at or near the beginning of our third quarter, our cash flow from operations has generally been lower in our second quarter as compared to our third and fourth quarters. Partially offsetting these favorable drivers of cash flow from operations in our third and fourth quarters are base salary merit increases, which occur in July. In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract renewals and student enrollments or significant acquisitions. Our cash flow from financing is negatively impacted in our first quarter when

Previous wording

flow from financing is negatively impacted in our first quarter when most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards.

Current wording

most of our equity awards vest, as we pay taxes on behalf of our employees related to the settlement or exercise of equity awards.

Previous wording

As a well-known seasoned issuer, we filed an automatic shelf registration statement for an undetermined amount of debt and equity securities with the SEC on January 14, 2022. Under this universal shelf registration statement we may offer and sell, from time to time, debt securities, common stock, preferred stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Subject to certain conditions, this registration statement will be effective through January 13, 2025.

Current wording

As a well-known seasoned issuer, we filed an automatic shelf registration statement for an undetermined amount of debt and equity securities with the SEC on January 14, 2022. Under this universal shelf registration statement we may offer and sell, from time to time, debt securities, common stock, preferred stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Subject to certain conditions and pursuant to applicable SEC regulations, this registration statement is effective for three years from its date of filing with the SEC, or through January 13, 2025. In order to maintain uninterrupted access to the capital markets, we intend to file a replacement universal shelf registration statement with the SEC before the existing shelf registration statement expires. In that event, the existing shelf registration statement would terminate upon the filing of the replacement shelf registration statement, which would, subject to certain conditions, expire three years from such date of filing.

Previous wording

At June 30, 2024, our total cash and cash equivalents balance included approximately $16.5 million of cash that was held by operations outside the U.S. While these funds may not be needed to fund our U.S. operations for at least the next twelve months, if we need these funds, we may be required to accrue and pay taxes to repatriate the funds. We currently do not intend nor anticipate a need to repatriate our cash held outside the U.S.

Current wording

At September 30, 2024, our total cash and cash equivalents balance included approximately $15.1 million of cash that was held by operations outside the U.S. While these funds may not be needed to fund our U.S. operations for at least the next twelve months, if we need these funds, we may be required to accrue and pay taxes to repatriate the funds. We currently do not intend nor anticipate a need to repatriate our cash held outside the U.S.

Previous wording

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

Current wording

Net cash provided by operating activities increased by $19.4 million during the nine months ended September 30, 2024, when compared to the same period in 2023, primarily due to a $47.5 million increase in net income adjusted for non-cash expenses, partially offset by a $28.1 million decrease in cash flow from operations associated with working capital.

Previous wording

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

Current wording

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

Previous wording

As of June 30, 2024, we have recorded approximately $8.5 million in aggregate liabilities for loss contingencies, which included $6.8 million for our settlement with the Attorney General of the State of California on June 13, 2024 that we paid in the third quarter of 2024, and other accruals based primarily on recent negotiations with certain customers related to the Security Incident that we believed we could reasonably estimate in accordance with our loss contingency procedures described above and as more fully described in Note 9. It is reasonably possible that our estimated actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

Current wording

As of September 30, 2024, we have recorded approximately $0.7 million in aggregate liabilities for loss contingencies based primarily on recent negotiations with certain customers related to the Security Incident that we believed we could reasonably estimate in accordance with our loss contingency procedures described above and as more fully described in Note 9. It is reasonably possible that our estimated actual losses may change in the near term for those matters and be materially in excess of the amounts accrued, but we are unable at this time to reasonably estimate the possible additional loss.

Previous wording

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

Current wording

Net cash used in investing activities of $56.3 million increased by $7.2 million during the nine months ended September 30, 2024, when compared to the same period in 2023.