BLACKBAUD INC

1. Organization

We are the world's leading provider of AI-powered solutions for social impact. Serving nonprofits, educational institutions, companies committed to corporate social responsibility and individual change makers, we propel impact at scale with the sector’s most intelligent solutions for fundraising and engagement, education solutions, financial management and CSR and grantmaking. With the deepest expertise powered by the world’s largest philanthropic data set, the most connected workflows, and the most powerful impact network, our solutions are building a future where resources are unleashed at the speed of need. We have operations in the United States, Australia, Canada, Costa Rica, India and the United Kingdom, supporting users in 100+ countries.

2. Basis of Presentation

Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

Reclassifications

Our revenue from "recurring" and "one-time services and other" have been combined within "revenue" beginning in 2025 due to the immateriality of our one-time services and other revenue. In order to provide comparability between periods presented, our “recurring“ and “one-time services and other" revenue lines have been combined within “revenue" in the previously reported consolidated statements of comprehensive income to conform to the presentation of the current period. Similarly, "cost of recurring" and "cost of one-time services and other" have been combined within "cost of revenue" in the previously reported consolidated statements of comprehensive income to conform to the presentation of the current period.

Revision of prior period financial statements

As disclosed in our third quarter 2025 Form 10-Q, we revised our prior period financial statements and applicable notes to correct for an error related to the previously recorded valuation allowance that was not material to our previously issued consolidated financial statements for the periods impacted, as well as other unrelated immaterial errors and related notes. The appropriate revisions to our historical consolidated financial statements and the related notes thereto are reflected herein. For more information, see Note 2 and Note 13 to our unaudited condensed consolidated financial statements contained in our Quarterly Report on Form 10-Q filed with the SEC on November 3, 2025.

Basis of consolidation

The consolidated financial statements include the accounts of Blackbaud, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, income taxes, business combinations, stock-based compensation, software development costs, our allowances for credit losses and sales returns, costs of obtaining contracts, valuation of derivative instruments, loss contingencies and insurance recoveries, among others. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could materially differ from these estimates.

Recently adopted accounting pronouncements

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). This update requires that on a annual basis, entities disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, the update requires that entities disclose additional information about income taxes paid as well as additional disclosures of pretax income and income tax expense, and remove the requirement to disclose certain items that are no longer considered cost beneficial or relevant. We adopted ASU 2023-09 on December 31, 2025, using a retrospective approach for all annual periods presented.

Because we adopted the standard retrospectively, certain prior‑period income tax disclosures for 2024 and 2023 have been revised to conform to the new presentation and disaggregation requirements. These revisions primarily reflect the reclassification of certain reconciling items within the rate reconciliation into the newly prescribed categories and the disaggregation of income taxes paid and income tax expense by jurisdiction. The adoption did not affect previously reported total income tax expense, net income or shareholders’ equity for any period presented.

Recently issued accounting pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update is intended to improve transparency by requiring entities to disclose, in the notes to the financial statements, a disaggregation of certain expense categories that are included within the line items presented on the face of the income statement. The standard is effective for our annual reporting period beginning in 2027 and for interim reporting periods beginning in 2028, with early adoption permitted. The standard may be applied either prospectively or retrospectively, with early adoption permitted. We are currently evaluating the timing and method of adoption and assessing the impact of this ASU on the preparation of our financial statement disclosures.

Summary of significant accounting policies

Revenue recognition

Our revenue is primarily generated from the following sources: (i) charging for the use of our software solutions in cloud and hosted environments; and (ii) providing payment and transaction services. Revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer;

•Identification of the performance obligations in the contract;

•Determination of the transaction price;

•Allocation of the transaction price to the performance obligations in the contract; and

•Recognition of revenue when, or as, we satisfy a performance obligation.

Our recurring revenue includes two components: contractual recurring and transactional recurring.

Contractual recurring

Contractual recurring revenue is primarily comprised of fees for the use of our subscription-based software solutions, which includes providing access to cloud solutions, including cloud solutions that incorporate AI-enabled functionality, online training programs and subscription-based analytic services. Contractual recurring revenue also includes fees from maintenance services for our on-premises solutions.

Contractual recurring revenue represents stand-ready performance obligations in which we are making our solutions or services available to our customers continuously over time and the value of the contract renews. Therefore, contractual recurring revenue is generally recognized over time on a ratable basis over the contract term, beginning on the date that the solution or service is made available to the customer. Our contractual recurring revenue contracts are generally for a term ofthree years at contract inception with three-year renewals thereafter, billed annually in advance and non-cancelable.

Transactional recurring

Transactional recurring revenue is comprised of fees and voluntary donor contributions (to offset processing fees) associated with the use of our solutions, including donation processing, tuition management, consumer giving and event-based usage.

Our payment services are offered with the assistance of third-party vendors. In general, when we are the principal in a transaction based on the factors identified in ASC 606-10-55-36 through 55-40, we record the revenue and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount withheld for the transaction fees) and record the net amount as revenue. For payment and transaction services, we have the right to invoice the customer in an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount we withhold for the transaction fees in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18.

One-time services and other

One-time services and other revenue is primarily comprised of fees for one-time consulting, analytic and onsite training services and fees for retained and managed services contracts that we do not expect to have a term consistent with our cloud solution contracts.

We generally bill consulting services based on hourly rates plus reimbursable travel-related expenses. Fixed price consulting engagements are generally billed as milestones towards completion are reached. Revenue for one-time consulting services is generally recognized over time as the services are performed.

Fees for retained and managed services contracts are generally billed in advance and recognized over time on a ratable basis over the contract term, beginning on the date the service is made available to the customer.

Contracts with multiple performance obligations

Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of our solutions and services are typically estimated based on observable transactions when the solutions or services are sold on a standalone basis.

Costs of obtaining contracts, contract assets and deferred revenue

We pay sales commissions at the time contracts with customers are signed or shortly thereafter, depending on the size and duration of the sales contract. Sales commissions and related fringe benefits earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized in a manner that aligns with the expected period of benefit, which we have determined to besix years. We determined the period of benefit by taking into consideration our customer contracts, including renewals, retention, our technology and other factors. We generally do not pay commissions for contract renewals that are commensurate with the commission paid on the initial contract. The related amortization expense is included in sales, marketing and customer success expense in our consolidated statements of comprehensive loss.

A contract asset is recorded when revenue is recognized in advance of our right to receive consideration (i.e., we must satisfy additional performance obligations in order to receive consideration). Amounts are recorded as receivables when our right to consideration is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Our contract assets are recorded within prepaid expenses and other current assets on our consolidated balance sheets. To the extent that our customers are billed for our solutions and services in advance of us satisfying the related performance obligations, we record such amounts in deferred revenue.

Sales taxes

We present sales, use, value-added, and similar taxes that are imposed on and collected from customers and remitted to governmental authorities on the customers' behalf on a net basis, and, as such, exclude them from revenues.

Fair value measurements

We measure certain financial assets and liabilities at fair value on a recurring basis, including derivative instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. An active market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

•Level 1 - Quoted prices for identical assets or liabilities in active markets;

•Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

•Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

Our financial assets and liabilities are classified in their entirety within the hierarchy based on the lowest level of input that is significant to fair value measurement. Changes to a financial asset's or liability's level within the fair value hierarchy are determined as of the end of a reporting period. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Derivative instruments

We generally use derivative instruments to manage interest rate and foreign currency exchange risk. We view derivative instruments as risk management tools and do not use them for trading or speculative purposes. Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.

We record all derivative instruments on our consolidated balance sheets at fair value as either an asset or liability. If the derivative is designated as a cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive loss and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. If the derivative is designated as a net investment hedge, the effective portions of the changes in fair value of the derivative are recorded to translation adjustment, a component of other comprehensive loss, and recognized in earnings only when the hedged investment is liquidated. Ineffective portions of the changes in the fair value of cash flow hedges are recognized currently in earnings. See Note 10 to these consolidated financial statements for further discussion of our derivative instruments.

Cash and cash equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less and cash items in transit to be cash equivalents.

Restricted cash due to customers; Customer funds receivable; Due to customers

Restricted cash due to customers consists of monies collected and held at banks, payment processors, or other financial institutions (or in transit) and payable to our customers, net of the associated transaction fees earned. Monies associated with amounts due to customers are segregated in separate bank accounts and used exclusively for the payment of amounts due to customers. This usage restriction is either legally or internally imposed and reflects our intention with regard to such deposits. Customer funds receivable consists of monies we expect to collect and remit to our customers.

Concentration of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted cash due to customers and accounts receivable. Our cash and cash equivalents and restricted cash due to customers are placed with high credit-quality financial institutions. Our accounts receivable is derived from sales to customers. With respect to accounts receivable, we perform ongoing evaluations of our customers and maintain an allowance for credit losses based on historical experience and our expectations of future credit losses. As of and for the years ended December 31, 2025, 2024 and 2023, there were no significant concentrations with respect to our consolidated revenues or accounts receivable.

Property and equipment

We record property and equipment assets at cost and depreciate them over their estimated useful lives using the straight-line method. Leasehold improvements are depreciated over the lesser of the term of the lease or the estimated useful life of the asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. Repair and maintenance costs are expensed as incurred.

Construction-in-progress primarily related to purchases of information technology assets which had not been placed in service at the respective balance sheet dates. We transfer these assets to the applicable property and equipment category on the date they are placed in service. There wasno capitalized interest applicable to construction-in-progress for the years ended December 31, 2025 and 2024.

Business combinations

We include the operating results of acquired companies as well as the net assets acquired and liabilities assumed in our consolidated financial statements from the date of acquisition. We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed at the acquisition date based upon their estimated fair values. Goodwill as of the acquisition date represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible and intangible assets acquired and liabilities assumed.

We apply significant judgment in estimating the fair value of intangible assets acquired, which involves the use of significant assumptions. Significant assumptions used in the valuation of customer relationships include future revenue and operating expenses, customer attrition rates, contributory asset charges, tax amortization benefit, and discount rates. Significant assumptions used in the valuation of certain developed technology assets include future revenue, proprietary technology obsolescence curve, royalty rate, and discount rate. Significant assumptions used in the valuation of marketing assets include assumptions about the period of time the brand will continue to be valuable, royalty rate, and discount rate. Significant assumptions used in the valuation of content intangible assets include cost-based assumptions. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable, and unanticipated events and changes in circumstances may occur.

Goodwill

Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by us in a business combination. Goodwill is not amortized, but tested annually for impairment on the first day of our fourth quarter, or more frequently if indicators of potential impairment arise.

Accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis to determine whether it is necessary to perform the quantitative impairment test. Significant judgment is required in the assessment of qualitative factors, including but not limited to an evaluation of macroeconomic conditions as they relate to our business, industry and market trends, as well as the overall future financial performance of identified reporting units and future opportunities in the markets in which we operate.

The quantitative impairment test compares the fair values of identified reporting units with their respective carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Based on our current internal reporting structure, we haveone operating segment, one reportable segment, andone reporting unit. In each of 2025, 2024 and 2023, we performed the impairment assessment, which indicated that the estimated fair values of the identified reporting units significantly exceeded their respective carrying values. There wereno impairments of goodwill during 2025, 2024 and 2023.

Intangible assets other than goodwill

We amortize finite-lived intangible assets over their estimated useful lives as follows.

(1)Certain of the customer relationships, marketing assets and developed technology assets are amortized on a curve that represents the expected period of economic benefit.

We write off the gross carrying amount and accumulated amortization balances for all fully amortized intangible assets. We evaluate the estimated useful lives and the potential for impairment of finite and indefinite-lived intangible assets on an annual basis or more frequently if events or circumstances indicate revised estimates of useful lives may be appropriate or that the carrying amount may be impaired. If the carrying amount of a finite-lived intangible asset is no longer recoverable based upon the undiscounted cash flows of the asset, the amount of impairment is the difference between the carrying amount and the fair value of the asset. Substantially all of our intangible assets were acquired in business combinations. See Note 6 to these consolidated financial statements for a discussion of our impairment of certain intangible assets during 2024. There wereno impairments of acquired intangible assets during 2025 and 2023.

Impairment of long-lived assets

We review long-lived assets for impairment when events change or circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the extent or manner in which the business or asset acquired is used or significant adverse change in the business climate. If such events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether the asset or asset group is impaired. There wereno impairments of long-lived assets during 2025. See Note 6 to these consolidated financial statements for a discussion of our impairment of certain long-lived assets during 2024 and 2023.

Deferred financing costs and debt discount

Deferred financing costs included in other assets represent the direct third-party costs of entering into the revolving (line-of-credit) portion of our credit facility in April 2024 and portions of the unamortized deferred financing costs from prior facilities. These costs are amortized ratably over the term of the credit facility as interest expense.

Other debt issuance costs, as well as the debt discount associated with the 2024 Credit Facilities (as defined below) and portions of the unamortized balances from prior facilities, are recorded as a direct deduction from debt. These costs are amortized over the term of the credit facility as interest expense.

Stock-based compensation

We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense over the requisite service period, which is the vesting period.

We recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, we recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award is reversed in the period that the award is forfeited. Income tax benefits resulting from the vesting and exercise of stock-based compensation awards are recognized in the period the unit or award is vested or option or right is exercised.

Income taxes

We make estimates and judgments in accounting for income taxes. The calculation of the income tax provision requires estimates due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. To the extent actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is made.

We make estimates in determining tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of a recorded valuation allowance significant judgment is required. We consider all positive and negative evidence and a variety of factors including the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning strategies. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax asset in the future in excess of its net carrying value, then an adjustment to the deferred tax asset valuation allowance is made to increase income tax expense, thereby reducing net income in the period such determination was made.

We measure and recognize uncertain tax positions. To recognize such positions, we must first determine if it is more likely than not that the position will be sustained upon audit. These positions include interest and/or penalties. We may release or increase unrecognized tax benefits as audits progress, as statutes of limitations expire, or as other facts or laws may change impacting these positions. It is reasonably possible that the amount of unrecognized tax benefits could change within the next twelve months due to audit activity or changes in tax law. Significant judgment is required in the identification and measurement of uncertain tax positions.

Foreign currency translation and remeasurement differences may affect our deferred tax balances and income tax expense, and in accordance with ASC 740 we do not recognize deferred taxes for temporary differences arising solely from exchange‑rate changes.

Foreign currency

Net assets recorded in a foreign currency are translated at the exchange rate on the balance sheet date. Revenue and expense items are translated using an average of daily exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive income.

Gains and losses resulting from foreign currency transactions denominated in currency other than the functional currency are recorded at the approximate rate of exchange at the transaction date in other income, net. For the years ended December 31, 2025 and 2023, we recorded net foreign currency losses that were $2.8 million and insignificant, respectively. During the year ended December 31, 2024, we recorded a net foreign currency gain that was insignificant.

Research and development

Research and development costs are expensed as incurred except as noted below under Software development costs. These costs include compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to researching and developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support (including cybersecurity) costs.

Software development costs

We incur certain costs associated with the development of internal-use software, which are primarily related to activities performed to develop our cloud solutions and the development of online education curriculum to be delivered on the Company's cloud platform. Internal and external costs incurred in the preliminary project stage of internal-use software development are expensed as incurred. Once the software or content being developed has reached the application development stage, qualifying internal costs including payroll and payroll-related costs of employees who are directly associated with and devote time to the software or content project as well as external direct costs of materials and services are capitalized. Capitalization ceases at the point at which the developed software or content is substantially complete and ready for its intended use, which is typically upon completion of all substantial testing. Qualifying costs capitalized during the application development stage include those related to specific upgrades and enhancements when it is probable that those costs incurred will result in additional functionality. Overhead costs, including general and administrative costs, as well as maintenance, training and all other costs associated with post-implementation stage activities are expensed as incurred. In addition, internal costs that cannot be reasonably separated between maintenance and relatively minor upgrades and enhancements are expensed as incurred.

Qualifying capitalized software development costs are amortized on a straight-line basis over the software asset's estimated useful life, which is generally three toseven years. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. See Note 6 to these consolidated financial statements for a discussion of our impairment of certain capitalized software development costs during 2024. There wereno impairments of capitalized software assets during 2025 and 2023. We write off the gross carrying amount and accumulated amortization balances for all fully amortized capitalized software development cost assets.

Allowance for credit losses

Our accounts receivable consist of a single portfolio segment. Accounts receivable are recorded at original invoice amounts less an allowance for credit losses, an amount we estimate to be sufficient to provide adequate protection against lifetime expected losses resulting from extending credit to our customers. In judging the adequacy of the allowance for credit losses, we consider multiple factors including historical bad debt experience, the current aging of our receivables and current economic conditions that may affect our customers' ability to pay. 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.

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. 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.

The allowance presented on the consolidated balance sheets represents the combined allowance for credit losses and the allowance for sales returns. The net provision for credit losses and sales returns presented in operating activities on our consolidated statement of cash flows reflects the net non‑cash impact of current‑period expense and contra‑revenue adjustments, while utilization of prior‑period estimates is reflected in changes in operating assets and liabilities.

Advertising costs

We expense advertising costs as incurred, which were $16.1 million, $16.0 million and $14.0 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Restructuring costs

Restructuring costs include charges for the costs of exit or disposal activities. The liability for costs associated with exit or disposal activities is measured initially at fair value and only recognized when the liability is incurred.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expense and other current liabilities, and operating lease liabilities, net of current portion in our consolidated balance sheet as of December 31, 2025 and 2024.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate in determining the present value of lease payments. Our incremental borrowing rate is based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any initial direct costs and lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments related to our operating leases is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. We do not recognize short-term leases (those that, at the commencement date, have a lease term of 12 months or less) on our consolidated balance sheets. Variable lease payments, which are primarily comprised of common-area maintenance, utilities and real estate taxes that are passed on from the lessor in proportion to the space leased by us, are recognized in operating expenses in the period in which the obligation for those payments is incurred.

Loss contingencies

We are subject to the possibility of various loss contingencies, including legal proceedings and claims, that arise in the normal course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described in Note 11 to these consolidated financial statements. We record an accrual for a loss contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and the estimation of damages are difficult to ascertain. These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions that have been deemed reasonable by us. Although we believe we have substantial defenses in these matters, we could incur judgments or enter into settlements of claims that could have a material adverse effect on our consolidated financial position, results of operations or cash flows in any particular period.

Earnings (loss) per share

We compute basic earnings (loss) per share by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Diluted earnings per share reflects the assumed exercise, settlement and vesting of all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive. Potentially dilutive securities consist of shares issuable upon the exercise of stock options and stock appreciation rights and vesting of restricted stock awards and units. In periods where there are net losses and the inclusion of potentially dilutive securities would be anti-dilutive, diluted loss per share is the same as basic loss per share.

3. Business Combinations and Dispositions

2024 dispositions

EVERFI, LLC

On December 31, 2024, we disposed of our EVERFI business, formerly a wholly-owned subsidiary of Blackbaud, Inc, to a private investment firm that is unaffiliated with Blackbaud for nominal cash consideration. We incurred $14.0 million of costs associated with the disposition of this business, all of which were recorded as accrued expenses and other liabilities as of December 31, 2024. As a result of the disposition, we recorded a loss of $15.2 million, which included direct costs to sell the business. This loss on disposition together with EVERFI impairment charges are recorded within EVERFI disposition on our consolidated statements of comprehensive loss for the year ended December 31, 2024.

EVERFI Limited

On March 2, 2024, we completed a transaction to divest our U.K.-based creative services business EVERFI Limited, formerly a wholly-owned subsidiary of EVERFI, Inc, which was a wholly-owned subsidiary of Blackbaud, Inc. EVERFI Limited's total revenue during 2023 was $8.4 million. We incurred an insignificant amount of legal costs associated with the disposition of this business. As a result of the disposition, we recorded a $1.6 million loss, which was recorded in general and administrative expense on our consolidated statements of comprehensive loss for the year ended December 31, 2024.

4. Goodwill and Other Intangible Assets

The change in goodwill during 2025 consisted of the following:

We have recorded intangible assets acquired in various business combinations based on their fair values at the date of acquisition. The table below sets forth the balances of each class of intangible asset and related amortization as of:

During the year ended December 31, 2025, changes to the gross carrying amounts of intangible asset classes were primarily related to write-offs of fully amortized intangible assets and the effect of foreign currency translation.

EVERFI impairment charges

As previously disclosed, on December 9, 2024, we concluded that a material impairment charge was required related to its EVERFI asset group, which primarily included finite-lived intangible assets and capitalized software development costs. On December 29, 2024, we classified EVERFI's assets and liabilities as held for sale and we determined there would be an additional impairment charge to record the EVERFI disposal group at its estimated fair value less costs to sell resulting in total noncash impairment charges of $390.2 million. On December 31, 2024, we disposed of EVERFI for a nominal amount that resulted in a loss on disposition of $15.2 million, which together with the impairment charges, is recorded within EVERFI disposition on our consolidated statements of comprehensive loss for the year ended December 31, 2024. See Note 3 to these consolidated financial statements for additional information about the disposition of EVERFI.

Amortization expense

Amortization expense related to finite-lived intangible assets acquired in business combinations is allocated to cost of revenue on the consolidated statements of comprehensive income based on the revenue stream to which the asset contributes, except for marketing assets and non-compete agreements, for which the associated amortization expense is included in operating expenses.

The following table summarizes amortization expense of our finite-lived intangible assets:

The following table outlines the estimated future amortization expense for each of the next five years for our finite-lived intangible assets as of December 31, 2025:

5. Earnings (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share:

Diluted loss per share for the year ended December 31, 2024 was the same as basic loss per share as there was a net loss in the period and inclusion of potentially dilutive securities was anti-dilutive.

6. Fair Value Measurements

Recurring fair value measurements

Financial assets and liabilities that are measured at fair value on a recurring basis consisted of the following, as of the dates indicated below:

Our derivative instruments within the scope of Accounting Standards Codification ("ASC") 815, Derivatives and Hedging, are required to be recorded at fair value. Our derivative instruments that are recorded at fair value include interest rate swaps and foreign currency forward contracts. See Note 10 to these consolidated financial statements for additional information about our derivative instruments.

The fair value of our interest rate swaps and foreign currency forward contracts are based on model-driven valuations using Secured Overnight Financing Rate ("SOFR") rates and foreign currency forward rates, respectively, which are observable at commonly quoted intervals. Accordingly, our interest rate swaps and foreign currency forward contracts are classified within Level 2 of the fair value hierarchy.

We believe the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, accrued expenses and other current liabilities and due to customers approximate their fair values at December 31, 2025 and December 31, 2024, due to the immediate or short-term maturity of these instruments.

We believe the carrying amount of our debt approximates its fair value at December 31, 2025 and December 31, 2024, as the debt bears interest rates that approximate market value. As SOFR rates are observable at commonly quoted intervals, our debt under the 2024 Credit Facilities (as defined below) is classified within Level 2 of the fair value hierarchy. The fair value of our fixed rate debt does not exceed the carrying amount.

We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the years ended December 31, 2025, 2024 and 2023.

Non-recurring fair value measurements

Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, intangible assets, goodwill and operating lease ROU assets. These assets are recognized at fair value during the period in which an acquisition is completed or at lease commencement, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for long-lived assets, intangible assets acquired and operating lease ROU assets, are based on Level 3 unobservable inputs.

For long-lived assets, intangible assets and operating lease ROU assets, 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.

There were no significant non-recurring fair value adjustments during 2025.

During the year ended December 31, 2024, we recorded noncash impairment charges of $367.5 million against certain intangible assets, noncash impairment chargesof $22.6 million against certain previously capitalized software development costs, noncash impairment charges of $3.1 million against certain operating lease ROU assets and noncash impairment charges against certain property and equipment assets, which were insignificant. See Notes 4, 7, and 11, respectively, to these consolidated financial statements for additional details.

During the year ended December 31, 2023, we recorded noncash impairment charges of $5.6 million against certain operating lease ROU assets and $1.1 million impairment charges against certain property and equipment assets. See Notes 11 and 7, respectively, to these consolidated financial statements for additional details.

Other than the items described above, there were no other non-recurring fair value adjustments during 2024 or 2023, except for certain immaterial business combination accounting adjustments to the initial fair value estimates of the assets acquired and liabilities assumed at the acquisition date from updated estimates and assumptions during the measurement period.

7. Property and Equipment and Software Development Costs

Property and equipment

Property and equipment consisted of the following as of:

Depreciation expense was $10.1 million, $12.8 million and $13.0 million for the years ended December 31, 2025, 2024 and 2023, respectively.

During the year ended December 31, 2024, we recorded insignificant noncash impairment charges against certain property and equipment assets. During the year ended December 31, 2023, we recorded noncash impairment charges of $1.1 million against certain property and equipment assets. Each of these impairment charges resulted from our entry into subleases for different portions of our Washington, DC office location, which we closed in February 2023 to align with our Remote-Flexible workforce strategy. These charges are included in general and administrative expense on our consolidated statements of comprehensive income (loss).

Software development costs

Software development costs consisted of the following as of:

During the year ended December 31, 2024, we recorded noncash impairment chargesof$22.6 million against certain previously capitalized software development costs. The impairment charges are included in EVERFI impairment charges within EVERFI dispositionon our consolidated statements of comprehensive loss. For additional information, see the discussion of the EVERFI impairment charges in Note 4 to these consolidated financial statements.

Other changes to the gross carrying amount of software development costs were primarily related to qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance such as those for our cloud solutions, write-offs of fully amortized assets, and the effect of foreign currency translation.

Amortization expense related to software development costs was $46.3 million, $48.3 million and $42.8 million for the years ended December 31, 2025, 2024 and 2023, respectively, and is included primarily in cost of revenue.

8. Consolidated Financial Statement Details

Restricted cash

Prepaid expenses and other assets

(1)Amortization expense from costs of obtaining contracts was $20.3 million, $20.1 million and $31.9 million for the years ended December 31, 2025, 2024 and 2023, respectively, and is included in sales, marketing and customer success expense in our consolidated statements of comprehensive loss.

(2)The current portion of costs of obtaining contracts as of December 31, 2025 and 2024 was $18.5 million and $18.4 million, respectively.

(3)The current portion of prepaid software maintenance and subscriptions as of December 31, 2025 and December 31, 2024 was $30.4 million and $34.0 million, respectively.

(4)These costs primarily relate to the implementations of our global enterprise resource planning system, customer relationship management systems and other cloud-based systems.

(5)Amortization expense from capitalized cloud computing implementation costs was $3.4 million, $2.9 million and $2.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. Accumulated amortization for these costs was $14.0 million and $10.6 million as of December 31, 2025 and 2024, respectively.

(6)Represents a strategic investment that did not result in Blackbaud having significant influence over the investee.

Accrued expenses and other liabilities

(1)All accrued legal costs are classified as current. See Note 11 to these consolidated financial statements for additional information about our loss contingency accruals and other legal expenses.

(2)See Note 3 for a discussion of our sale of EVERFI on December 31, 2024.

Other income, net

9. Debt

The following table summarizes our debt balances and the related weighted average effective interest rates, which includes the effect of interest rate swap agreements.

2024 refinancing

In April 2024, we entered into a 5-year $1.5 billion Amended and Restated Credit Agreement (the "2024 Credit Agreement"). The 2024 Credit Agreement matures in April 30, 2029 and replaced our 5-year $1.1 billion credit facility entered into during October 2020 (the "2020 Credit Agreement") by amending and restating it to include a $700.0 million revolving credit facility (the “2024 Revolving Facility”) and an $800.0 million term loan facility (the “2024 Term Facility” and together with the 2024 Revolving Facility, the “2024 Credit Facilities”). Upon closing, we borrowed $800.0 million pursuant to the 2024 Term Facility and $208.2 million pursuant to the 2024 Revolving Facility and used the proceeds to repay the outstanding principal balances of the term loans under the 2020 Credit Agreement, and repay $196.6 million of outstanding revolving credit loans under the 2020 Credit Agreement.

Summary of the 2024 Credit Facilities

The 2024 Revolving Facility includes (i) a $50.0 million letter of credit subfacility, (ii) a $50.0 million swingline subfacility and (iii) a $150.0 million sublimit available for multicurrency borrowings.

Under the 2024 Credit Facilities, dollar tranche revolving loans and term loans bear interest at a rate per annum equal to, at the option of the Company: (a) a base rate equal to the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the prime rate announced by Bank of America, N.A., and (iii) Term SOFR plus 1.00% (the “Base Rate”), plus an applicable margin as specified in the 2024 Credit Agreement (the “Applicable Margin”); (b) Term SOFR plus the Applicable Margin; or (c) the Daily SOFR Rate plus the Applicable Margin. The Applicable Margin shall be adjusted quarterly, varies based on our net leverage ratio and varies based on whether the loan is a Base Rate Loan (0.375% to 1.500%), or a Term SOFR Loan/Daily SOFR Loan (1.375% to 2.500%). The 2024 Credit Agreement also provides for a commitment fee of between 0.250% and 0.500% of the unused commitment under the 2024 Revolving Facility depending on our net leverage ratio.

Under the 2024 Credit Facilities, designated currency tranche revolving loans bear interest at a rate per annum equal to, at the option of the Company: (a) the Designated Currency Daily Rate (as defined in the 2024 Credit Agreement) plus the Applicable Margin; or (b) the Designated Currency Term Rate (as defined in the 2024 Credit Agreement) plus the Applicable Margin. The Applicable Margin shall be adjusted quarterly and varies based on our net leverage ratio for both Designated Currency Daily Rate Loans and Designated Currency Term Rate Loans (1.375% to 2.500%).

We may prepay the 2024 Credit Agreement in whole or in part at any time without premium or penalty, other than customary breakage costs with respect to certain types of loans.

Under the terms of the 2024 Credit Agreement, we are entitled on one or more occasion, subject to the satisfaction of certain conditions, to request an increase in the commitments under the 2024 Revolving Facility and/or request additional incremental term loans in the aggregate principal amount of up to the sum of (i) the greater of (A) $360.0 million and (B)100% of EBITDA (as defined in the 2024 Credit Agreement), plus (ii) at our option, up to an amount such that the net leverage ratio shall be no greater than 3.50 to 1.00. At December 31, 2025, our available borrowing capacity under the 2024 Credit Agreement was $413.6 million.

The 2024 Credit Agreement contains various representations, warranties and affirmative, negative and financial covenants customary for financings of this type. Financial covenants include a net leverage ratio and an interest coverage ratio. At December 31, 2025, we were in compliance with our debt covenants under the 2024 Credit Facilities.

Financing costs

In connection with our entry into the 2024 Credit Agreement, we paid $6.5 million in financing costs, of which $1.6 million were capitalized in other assets and, together with a portion of the unamortized deferred financing costs from the 2020 Credit Agreement and prior agreements, are being amortized into interest expense over the term of the new facility. We recorded aggregate financing costs of $3.6 million as a direct deduction from the carrying amount of our debt liability, which related to debt discount (fees paid to lenders) and debt issuance costs for the 2024 Term Facility.

As of December 31, 2025 and 2024, deferred financing costs totaling $1.3 million and $1.7 million, respectively, were included in other assets on our consolidated balance sheets.

Real estate loans

In August 2020, we completed the purchase of our global headquarters facility. As part of the purchase price, we assumed the Seller’s obligations under two senior secured notes with a then-aggregate outstanding principal amount of $61.1 million (collectively, the “Real Estate Loans”). The Real Estate Loans require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038. At December 31, 2025, we were in compliance with our debt covenants under the Real Estate Loans.

Other debt

From time to time, we enter into third-party financing agreements for purchases of software and related services for our internal use. Generally, the agreements are non-interest-bearing notes requiring annual payments. Interest associated with the notes is imputed at the rate we would incur for amounts borrowed under our then-existing credit facility at the inception of the notes. Our assumption of these loans are noncash financing transactions and are reflected in our supplemental disclosure of cash flow information.

The following table summarizes our currently effective financing agreements as of December 31, 2025:

(1)Represent noncash investing and financing transactions during the periods indicated as we purchased software and services by assuming directly related liabilities.

The changes in supplier financing obligations during the year ended December 31, 2025, consisted of the following:

As of December 31, 2025, the required annual maturities related to the 2024 Credit Facilities, the Real Estate Loans and our other debt were as follows:

10. Derivative Instruments

We generally use derivative instruments to manage our interest rate and foreign currency exchange risk. We currently have derivatives classified as cash flow hedges and net investment hedges. We do not enter into any derivatives for trading or speculative purposes.

All of our derivative instruments are governed by International Swap Dealers Association, Inc. master agreements with our counterparties. As of December 31, 2025 and December 31, 2024, we have presented the fair value of our derivative instruments at the gross amounts in the consolidated balance sheet as the gross fair values of our derivative instruments equaled their net fair values.

Cash flow hedges

We have entered into interest rate swap agreements, which effectively convert portions of our variable rate debt under the 2024 Credit Facilities to a fixed rate for the term of the swap agreements. We designated each of the interest rate swaps as cash flow hedges at the inception of the contracts. Our entry into the 2024 Credit Agreement in April 2024 did not affect our interest rate swap agreements, including their designation as cash flow hedges, as the 2024 Credit Agreement has substantially the same critical terms as the 2020 Credit Agreement. As of December 31, 2025 and December 31, 2024, the aggregate notional values of the interest rate swaps were $700.0 million. All of the contracts have maturities on or before October 2028.

We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian Dollar ("CAD") against changes in the exchange rate with the United States Dollar ("USD"). We designated each of these foreign currency forward contracts as cash flow hedges at the inception of the contracts. As of December 31, 2025 and December 31, 2024, the aggregate notional values of the foreign currency forward contracts designated as cash flow hedges that we held to buy USD in exchange for Canadian Dollars were $32.9 million CAD and $32.8 million CAD, respectively. All of the contracts have maturities of 12 months or less.

Net investment hedges

We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds ("GBP") into USD. We designated each of these foreign currency forward contracts as net investment hedges at the inception of the contracts. As of December 31, 2025 and December 31, 2024, the aggregate notional values of the foreign currency forward contracts designated as net investment hedges to reduce the volatility of the U.S. dollar value of a portion of our GBP-denominated investments was £12.0 million and £12.9 million, respectively.

The fair values of our derivative instruments were as follows as of:

The effects of derivative instruments in cash flow and net investment hedging relationships were as follows:

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 loss includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit. Excluding net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive loss until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) and related tax effects are reclassified from accumulated other comprehensive income loss to current earnings. For net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to translation adjustment, a component of accumulated other comprehensive income (loss), and recognized in earnings only when the hedged GBP investment is liquidated. The estimated accumulated other comprehensive income as of December 31, 2025 that is expected to be reclassified into earnings within the next twelve months is insignificant. There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the years ended December 31, 2025, 2024 and 2023. See Note 14 to these consolidated financial statements for a summary of the changes in accumulated other comprehensive income (loss) by component. We classify cash flows related to derivative instruments as operating activities in the consolidated statements of cash flows.

We didnot have any undesignated derivative instruments during 2025, 2024 and 2023.

11. Commitments and Contingencies

Leases

We have operating leases for corporate offices, subleased offices and certain equipment and furniture. As of December 31, 2025, we did not have any operating leases that had not yet commenced.

Release from Washington, DC lease

In February 2025, we made a one-time cash release payment of $28.0 million to the lessor in connection with a release from our lease for office space in Washington, DC (which was acquired as part of our acquisition of EVERFI in December 2021). Due to our Remote-Flexible workforce strategy, we had not used the office space since February 2023 and had subleased a portion of the space. During the year ended December 31, 2025, we recorded a loss on lease termination of $24.3 million in general and administrative expense.

The following table summarizes the components of our lease expense:

(1)Includes short-term lease costs, which were immaterial.

During the years ended December 31, 2024 and 2023, we recorded noncash impairment charges of $3.1 million and $5.6 million, respectively, against certain operating lease ROU assets. These impairment charges resulted from our entry into subleases for different portions of our Washington, DC office location, which we closed in February 2023 to align with our Remote-Flexible workforce strategy. These charges are reflected in general and administrative expense on the statements of comprehensive income (loss).

Maturities of our operating lease liabilities as of December 31, 2025 were as follows:

Our ROU assets and lease liabilities are included in the following line items in our consolidated balance sheet:

The weighted average remaining lease terms and discount rates were as follows:

Supplemental cash flow information related to leases was as follows:

Other commitments

The term loans under the 2024 Credit Facilities require periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due upon maturity of the 2024 Credit Facilities in April 2029. The Real Estate Loans also require periodic principal payments and the balance of the Real Estate Loans are due upon maturity in April 2038.

We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of December 31, 2025, the remaining aggregate minimum purchase commitment under these arrangements was approximately $164.0 million through 2030.

Solution and service indemnifications

In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of our solutions or services. We have not identified any losses that might be covered by these indemnifications

Legal proceedings

We are subject to legal proceedings and claims that arise in the ordinary course of business, as well as certain other non-ordinary course proceedings, claims and investigations, as described below. We record an accrual for a loss contingency when it is both probable that a material liability has been incurred and the amount of the loss can be reasonably estimated. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, we disclose such an estimate, if material. If such a loss or range of losses is not reasonably estimable, we disclose that fact. We review any such loss contingency accruals at least quarterly and adjust them to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. We recognize insurance recoveries, if any, when they are probable of receipt. All associated costs due to third-party service providers and consultants, including legal fees, are expensed as incurred.

Legal proceedings are inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending or threatened against us and intend to defend ourselves vigorously against all claims asserted. It is possible that our consolidated financial position, results of operations or cash flows could be materially negatively affected in any particular period by an unfavorable resolution of one or more of such legal proceedings.

Security incident

As previously disclosed, we are subject to risks and uncertainties as a result of a ransomware attack against us in May 2020 in which a cybercriminal removed a copy of a subset of data from our self-hosted environment (the "Security Incident"). Based on the nature of the Security Incident, our research and third party (including law enforcement) investigation, we do not believe that any data went beyond the cybercriminal, has been misused, or has been disseminated or otherwise made available publicly.

As a result of the Security Incident, we have been subject to certain legal proceedings and claims and could be the subject of additional legal proceedings, claims, inquiries and investigations in the future that might result in adverse judgments, settlements, fines, penalties or other resolution. To limit our exposure to losses related to claims against us, including data breaches such as the Security Incident, we maintain $50 million of insurance above a $250 thousand deductible payable by us. As noted below, this coverage reduced our financial exposure related to the Security Incident in prior years.

We recorded expenses related to the Security Incident as follows:

The following summarizes our cumulative expenses, insurance recoveries recognized and insurance recoveries paid as of:

Recorded expenses have consisted primarily of payments to third-party service providers and consultants, including legal fees, settlement of governmental investigations, settlements of customer claims and accruals for certain loss contingencies. Not included in the expenses discussed above were costs associated with enhancements to our cybersecurity program. We present expenses and insurance recoveries related to the Security Incident in general and administrative expense on our consolidated statements of comprehensive income (loss) and as operating activities on our consolidated statements of cash flows. Total costs related to the Security Incident exceeded the limit of our insurance coverage during the first quarter of 2022. For the year ended December 31, 2025, we incurred net pre-tax expense of $3.1 million related to the Security Incident for ongoing legal fees and recorded accruals for loss contingencies of $1.1 million. Also, for the year ended December 31, 2025, we had net cash outlays of $4.6 million related to the Security Incident for ongoing legal fees and $1.8 million paid during the third quarter of 2025 related to previously recorded accruals for loss contingencies related to the Security Incident. As of December 31, 2025, we donot have any recorded liabilities for loss contingencies related to the Security Incident.

As previously disclosed, during the three months ended September 30, 2025, we paid an insignificant settlement amount to the plaintiffs in the previously disclosed multi-district litigation filed in the United States District Court of South Carolina. On September 22, 2025, that court issued an order definitively closing that case. As a result, all customer constituent class actions related to the Security Incident are now resolved and closed. In addition, as previously reported, insurance companies representing various customers’ interests through subrogation claims contacted us, and certain insurance companies filed subrogation claims in court, two of which remain pending and are the only customer claims currently unresolved. For more information about the completed government investigations and related actions, see Note 11 to our audited consolidated financial statements contained in our Annual Report on Form 10-K filed with the SEC on February 21, 2025 and Note 8 to our unaudited, condensed consolidated financial statements contained in our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2025.

12. Income Taxes

We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including Canada, the U.K., Australia, Ireland, Costa Rica and India. We are generally subject to U.S. federal income tax examination for calendar tax years 2022 through 2025 as well as state and foreign income tax examinations for various years depending on statutes of limitations and net operating loss and/or tax credit utilization in those jurisdictions.

The following summarizes the components of income tax expense (benefit):

The following summarizes the components of income (loss) before provision (benefit) for income taxes:

The following summarizes cash paid for taxes, net of refunds:

(1)No state accounted for more than 5% of total cash taxes paid.

A reconciliation between the effect of applying the U.S. federal statutory rate and the effective income tax rate used to calculate our income tax provision is as follows:

(1)State taxes in California, Florida, Maryland, Minnesota, Pennsylvania and Washington, D.C. made up the majority (greater than 50%) of the tax effect in this category.

(2)The rate impact of OBBBA is reflected within “Changes in valuation allowances” in our effective tax rate reconciliation given that the primary financial reporting effect of OBBBA is a reduction in DTAs, which in turn results in a corresponding reduction in the valuation allowance recorded against those DTAs, rather than a standalone recurring rate item.

The increase in our effective income tax rate for year ended December 31, 2025, when compared to the same period in 2024, was primarily attributable to normalization of several non-recurring events in 2024, in which we had recorded the valuation allowance against all of our U.S. deferred tax assets in excess of deferred tax liabilities due to the combination of our cumulative pretax loss position and net deferred tax asset position resulting from our divestiture of EVERFI.

On July 4, 2025, the OBBBA was enacted into U.S. federal income tax law. OBBBA permanently extends immediate expensing of R&D expenditures under Internal Revenue Code Section 174 and provides transition rules for previously capitalized R&D costs. Under ASC 740, these changes modify the measurement of certain DTAs, particularly those arising from capitalized Section 174 expenditures.

Additionally, in 2025, the valuation allowance decreased primarily due to the pre-tax income recorded during the current year as well as the enactment of the OBBBA, which resulted in the realizability of certain U.S. deferred tax assets. We intend to continue maintaining a valuation allowance on our U.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Management continues to evaluate the impact of future phases of OBBBA that will become effective beginning in 2026, including changes to international tax provisions and interest limitation rules; however, for 2025, no further material impact beyond the valuation‑allowance‑driven effects is expected.

The significant components of our deferred tax assets and liabilities were as follows:

As of December 31, 2025, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $53.4 million, $1.0 million and $50.3 million, respectively. Of our federal net operating loss carryforwards, $7.3 million are subject to expiration beginning in 2026 while the remainder have an unlimited carryforward period. The state net operating loss carryforwards are subject to various applicable state tax laws. If not utilized, the state net operating loss carryforwards will expire over various periods beginning in 2025. Our foreign net operating loss carryforwards have an unlimited carryforward period. Our state tax credit carryforwards for income tax purposes were approximately $32.2 million, net of federal benefit. If not utilized, the state tax credit carryforwards will begin to expire in 2025. We also have federal and state capital loss carryforwards of $30.2 million expiring in 2029. The foreign and state net operating loss carryforwards, capital loss carryforward and state credit carryforwards have a valuation allowance due to management's uncertainty regarding the future ability to use such carryforwards.

The following table illustrates the change in our deferred tax asset valuation allowance:

The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2025, 2024 and 2023:

The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $4.5 million at December 31, 2025. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2025 and December 31, 2024 was $1.1 million and insignificant, respectively. The total amount of interest and penalties included in the consolidated statements of comprehensive loss as an increase or decrease in income tax expense for 2025, 2024 and 2023 was insignificant.

We have taken U.S. federal and U.S. state tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits might decrease within the next twelve months. This possible decrease could result from the expiration of statutes of limitations. The reasonably possible decrease at December 31, 2025 was insignificant.

For our undistributed earnings of foreign subsidiaries, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States except to the extent that said earnings are of previously taxed income. Accordingly, we have not provided for U.S. income taxes and foreign withholding taxes on those undistributed earnings of our foreign subsidiaries.

13. Stock-based Compensation

Employee stock-based compensation plans

Under the 2016 Equity and Incentive Compensation Plan Amended and Restated as of June 11, 2025 (the "2016 Equity Plan"), we may grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards and cash incentive awards to employees, directors and consultants. Our Compensation Committee of the Board of Directors administers this plan and the stock-based awards are granted under terms determined by it.

The total number of authorized stock-based awards available under our plan was 4,003,142 as of December 31, 2025. We issue common stock from our pool of authorized stock upon exercise of stock options and stock appreciation rights, vesting of restricted stock units or upon granting of restricted stock.

During the years ended December 31, 2025, 2024 and 2023, we have issued three types of awards under our plans: restricted stock awards, time-based restricted stock units, and performance-based restricted stock units. The following table sets forth the number of awards outstanding for each award type as of:

Awards granted to our executive officers and certain other employees are subject to accelerated vesting upon a change in control as defined in the employees’ employment agreement or retention agreement, and continued vesting in accordance with our Long-term Incentive Retirement Program, subject to satisfaction of applicable retirement eligibility requirements and required approvals.

Expense recognition

We recognize compensation expense associated with stock options and awards with performance or market based vesting conditions on an accelerated basis over the requisite service period of the individual grantees. We recognize compensation expense associated with restricted stock awards and SARs on a straight-line basis over the requisite service period of the individual grantees, which equals the vesting period. We recognize the effect of awards for which the requisite service period is not rendered when the award is forfeited (that is, we recognize the effect of forfeitures in compensation cost when they occur). Previously recognized compensation cost for an award is reversed in the period that the award is forfeited.

Stock-based compensation expense is allocated to cost of revenue and operating expenses on the consolidated statements of comprehensive loss based on where the associated employee’s compensation is recorded. The following table summarizes stock-based compensation expense:

The total amount of compensation cost related to unvested awards not recognized was $61.9 million at December 31, 2025. It is expected that this amount will be recognized over a weighted average period of 1.2 years.

Restricted stock awards

We have granted shares of common stock subject to certain restrictions under the 2016 Equity Plan. Restricted stock awards granted to employees vest in equal annual installments generally over three years from the grant date subject to the recipient’s continued employment with us. Restricted stock awards granted to non-employee directors vest after one year from the date of grant or, if earlier, immediately prior to the next annual election of directors, provided the non-employee director is serving as a director at that time. The fair market value of the stock at the time of the grant is amortized on a straight-line basis to expense over the period of vesting. Recipients of restricted stock awards have the right to vote such shares and receive dividends, if declared.

The following table summarizes our unvested restricted stock awards as of December 31, 2025, and changes during the year then ended:

The total fair value of restricted stock awards that vested during the years ended December 31, 2025, 2024 and 2023 was $30.4 million, $42.7 million and $42.7 million, respectively. The weighted average grant-date fair value of restricted stock awards granted during the years ended December 31, 2024 and 2023 was $69.86 and $62.59, respectively.

Restricted stock units

We have also granted restricted stock units subject to certain restrictions under the 2016 Equity Plan. Restricted stock units granted to employees vest in equal annual installments generally over three years from the grant date subject to the recipient’s continued employment with us. We have also granted restricted stock units for which vesting is subject to meeting certain performance conditions. The fair market value of the stock at the time of the grant is amortized to expense on a straight-line basis over the period of vesting except for awards with performance conditions, which are amortized on an accelerated basis over the period of vesting.

The following table summarizes our unvested, time-based restricted stock units as of December 31, 2025, and changes during the year then ended:

The total fair value of time-based restricted stock units that vested during the years ended December 31, 2025, 2024 and 2023 was $19.6 million, $19.4 million and $13.5 million, respectively. The weighted average grant date fair value of time-based restricted stock units granted for the years ended December 31, 2024 and 2023 was $67.73 and $61.37, respectively.

The following table summarizes our unvested, performance-based restricted stock units as of December 31, 2025, and changes during the year then ended:

(2)This amount represents the target number of shares that were eligible to be earned and vested. The number of shares earned and vested based on actual results when compared to the performance conditions was 758,777 and those shares had a weighted average grant date fair value of $67.52.

The total fair value of performance-based restricted stock units that vested during the years ended December 31, 2025, 2024 and 2023 was $52.3 million, $55.5 million, and $50.9 million, respectively. The weighted average grant date fair value of performance-based restricted stock units granted for the years ended December 31, 2024 and 2023 was $67.90 and $59.62, respectively.

14. Stockholders' Equity

Preferred stock

Our Board of Directors may fix the relative rights and preferences of each series of preferred stock in a resolution of the Board of Directors.

Stock repurchase program

Under our stock repurchase program, we are authorized to repurchase shares from time to time in accordance with applicable laws both on the open market, including under trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and in privately negotiated transactions. The timing and amount of repurchases depends on several factors, including market and business conditions, the trading price of our common stock and the nature of other investment opportunities. The repurchase program does not have an expiration date and may be limited, suspended or discontinued at any time without prior notice. Under the 2024 Credit Agreement, we have certain restrictions, as defined, on our ability to repurchase shares of our common stock, which are summarized on page 56 in this report.

We account for purchases of treasury stock under the cost method. On December 1, 2025, our Board of Directors reauthorized, expanded and replenished our stock repurchase program by expanding the total capacity under the program from $800.0 million to $1.0 billion available for repurchases.

During the year ended December 31, 2025, we repurchased an aggregate of 3,337,844 shares for $214.0 million. The remaining amount available to purchase stock under the approved stock repurchase program was $960.6 million as of December 31, 2025.

Changes in accumulated other comprehensive (loss) income by component

The changes in accumulated other comprehensive (loss) income by component, consisted of the following:

15. Defined Contribution Plan

We have a defined contribution 401(k) plan (the "401K Plan") covering substantially all employees. Employees were able to contribute between 1% and 75% of their salaries in 2025, 2024 and 2023. We match 50% of qualified employees’ contributions up to 6% of their salary. The 401K Plan also provides for additional employer contributions to be made at our discretion. Total matching contributions to the 401K Plan for the years ended December 31, 2025, 2024 and 2023 were $6.7 million, $8.2 million and $7.8 million, respectively.

There wereno discretionary contributions by us to the 401K Plan in 2025, 2024 and 2023.

16. Segment Information

We haveone operating segment andone reportable segment. Our chief operating decision maker is our chief executive officer ("CEO"), who reviews financial information presented on a consolidated basis, accompanied by disaggregated information about our revenue, for purposes of making decisions about assessing financial performance and allocating resources. Our CEO considers costs of revenue, sales, marketing and customer success, research and development, and general and administrative expense categories on our consolidated statements of comprehensive income (loss) as significant. Our CEO uses consolidated operating margin and net income as the primary measures of profit or loss. These financial metrics are used by our CEO to make key operating decisions, such as the allocation of budget between costs of revenues and our different operating expense categories.

Our other segment items include amortization, interest expense, other income, net, and income tax provision (benefit) on our consolidated statements of comprehensive income (loss).

The following table presents long-lived assets by geographic region based on the location of the assets. For purposes of this disclosure, long-lived assets includes property and equipment, net and operating lease ROU assets.

See Note 17 to these consolidated financial statements for information about our revenues by geographic region.

17. Revenue Recognition

Transaction price allocated to the remaining performance obligations

As of December 31, 2025, approximately$1.3 billion of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 50% of these remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

We applied the practical expedient in ASC 606-10-50-14 and have excluded the value of unsatisfied performance obligations for which we recognize revenue at the amount to which we have the right to invoice for services performed (transactional revenue).

Contract balances

We did not have any contract assets as of December 31, 2025 and December 31, 2024. Our closing balances of deferred revenue were as follows:

The increase in deferred revenue during 2025 was primarily due to billings related to contract renewals and new subscription sales of our cloud solutions. Historically, due to the timing of customer budget cycles, we have an increase in customer contract renewals at or near the beginning of our third quarter. Generally, our lowest balance of deferred revenue during the year is at the end of our first quarter. The amount of revenue recognized during 2025 that was included in the deferred revenue balance at the beginning of the period was approximately$344 million. The amount of revenue recognized during 2025 from performance obligations satisfied in prior periods wasinsignificant.

Disaggregation of revenue

We sell our cloud solutions and related services in three primary geographical markets: to customers in the United States, to customers in the United Kingdom and to customers located in other countries. The following table presents our revenue by geographic area based on the location of our customers:

(1)The decrease in total revenue from 2024 to 2025 was primarily due to our sale of EVERFI on December 31, 2024.

The following table presents our revenue by type:

(1)The decrease in total revenue from 2024 to 2025 was primarily due to our sale of EVERFI on December 31, 2024.

Significant customer

Our largest single customer accounted for less than 1% of our 2025 consolidated revenue.