BLKB 10-K & 10-Q changes, risk factors and insider trading

In addition, the introduction of solutions encompassing new technologies, such as AI,AI (as discussed below), can render existing solutions obsolete and unmarketable. As a result, our future success will depend, in part, upon our ability to continue to enhance existing solutions and develop and introduce in a timely manner or acquire new solutions that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance. If we are unable to develop or acquire on a timely and cost-effective basis new software solutions or enhancements to existing solutions or if such new solutions or enhancements do not achieve market acceptance, we may be unable to compete successfully and our business, results of operations and financial condition may be materially adversely affected.

To meet our objectives successfully, we must attract and retain highly qualified personnel with specialized skill sets.sets, including with regard to our AI products and our expansion in India, each as discussed in more detail below. If we are unable to attract and retain suitably qualified management, there could be a material adverse impact on our business.

Further, we use equity incentive programs and equity awards in lieu of cash as part of our overall employee compensation agreements to both attract and retain personnel. A declineDeclines in our stock price couldmay have in the past negatively impactimpacted, and could again in the future negatively impact, the effectiveness of these equity incentive and related compensation programs as retention and recruiting tools. We may need to create new or additional equity incentive programs and/or compensation packages to remain competitive, which could be dilutive to our existing stockholders and/or adversely affect our results of operations.

The market for software and services for the social impact community might not grow andas expected, which would negatively impact the organizationsgrowth in that community might not continue to adopt, or renew their subscriptions for,of our solutions and services.business.

Furthermore, our subscription arrangements are generally for a term of three years at contract inception with three-year renewals thereafter. Our maintenance arrangement renewals are generally for a term of three years. As the end of the contract term approaches, we seek the renewal of the agreement with the customer. Historically, subscription and maintenance renewals have represented a significant portion of our total revenue. Because of this characteristic of our business, if our customers choose not to renew their subscriptions or maintenance arrangements with us on beneficial terms or at all, our business, operating results and financial condition could be harmed. Our customers' renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our solutions and services and their ability to continue their operations and spending levels due to general economic conditions, extraordinary business interruptions, client-specific financial issues or otherwise.

Changes in the USU.S. federal or state governmental grant, award or other funding programs could negatively impact the operations of our nonprofit customers, which could have a material adverse effect on our business, results of operations, financial condition and liquidity.

Many of our customers depend in significant part on the USU.S. federal and state governments for grants, awards and other funding to maintain their operations. Changes in, or uncertainty regarding, the availability, amount or conditions and restrictions related to such funding could negatively impact our customers’ willingness or ability to purchase our various software solutions due to resulting budgetary or investment capital concerns. Our customers and we must identify, assess and respond to new developments and trends in the legislative, regulatory and political environment while federal and state governments and agencies consider and implement potential funding changes that could materially impact various aspects of the nonprofits’ operations and financial health. We cannot predict the specific terms of any such proposals or changes, whether or when they will be implemented, or their effect on our operations. Certain proposals or changes could, if implemented, have an adverse, material impact on our business, results of operations, financial condition or liquidity.

We are increasingly incorporating generative AI technology into certainmany of our solutions and services. This technology is newservices, and developing,evolving regulatory requirements, technological complexity, competitive pressures, market perception and whileinvestment wedemands aimrelated to adoptAI known best practices, it maycould result in operational, financialfinancial, reputational and reputationalstock harmprice andvolatility other adverse consequencesrisks to our business.

We are implementing AI features in certain of our solutions and services. The technologies underpinning these features are in the early stages of commercial use and exist in an emerging regulatory environment, which presents regulatory, litigation, ethical, reputational, operational and financial risks. Many U.S. federal, U.S. state and international governmental bodies and regulators have adopted, or are in the process of developing, new laws and regulations related to the use of AI and machine learning technologies. These have imposed, and may in the future further impose, obligations related to our development, offering and use of AI technologies and expose us to increased risk of regulatory enforcement and litigation. Many of our generative AI features include the processing of personal data and are, and may be further, subject to laws, policies, legal obligations and codes of conduct related to privacy and data protection. There is uncertainty about the extent to which privacy and data protection laws apply to AI technologies, and any delay in addressing privacy or data protection concerns relating to our AI features may result in liability or regulatory investigations and fines, as well as harm to our sales and reputation. In addition, issues relating to intellectual property rights in AI-generated content have not been fully addressed by the courts, laws or regulations. Accordingly, the implementation of generative AI technologies into our products and services may result in exposure to claims related to copyright infringement or other intellectual property misappropriation.

Our use of AI technology may also present additional security risks due to embedded security vulnerabilities. Furthermore, many of our AI features may rely on third-party developers and other service providers.providers, As such,and any improper processing of personal data by these service providers could harm our reputation, business or customers, or expose us to legal liability. Also, our sensitive information could be leaked, disclosed or revealed as a result of or in connection with company or vendor use of these technologies generally. Any disruption or failure in our AI systems or infrastructure could result in delays or errors in our operations, which could harm our business and financial results. See also “Item 1A. Risk Factors. Operational Risks” related to breaches of our software and failure to safeguard confidential data in this report.

Our generative AI technology features may also generate output that is misleading, insecure, inaccurate, harmful or otherwise flawed, which may harm our reputation, business or customers, or expose us to legal liability. Also, some AI scenarios present ethical issues. If we enable or offer AI solutions that are controversial because of their purported or actual impact on human rights, privacy, employment or other social issues, we may experience reputational harm.harm and legal liability.

New and emerging AI technologies mayrequire requiresubstantial additional investment in the development and maintenance of various models, approaches and processes, as well as development of protections and safeguards for the use of AI technologies, which may beis expensive and could negatively impact our financial results ifas we decide to further expand generativeAI AItechnology into our products and services. Likewise, the use of AI technology involves significant technical complexity and requires specialized expertise.expertise, Thewhich successis of any enhancement or new product depends on many factors, including its relevanceexpected to ourrequire customers,increased timelyinvestment implementationin infrastructure and market acceptance. If our enhanced products and services do not achieve widespread market adoption or there is a reduction in demand due to a lack of customer acceptance, technology challenges, strengthening competition, weakening economic conditions, or security or privacy concerns, our business could be harmed and our financial results could be adversely affected.headcount.

It is not possible to predict all of the risks related to the use of AI technology. Although we aim to develop and use AI responsibly and attempt to identify and mitigate ethical and legal issues presented by its use, we may be unsuccessful in identifying or resolving issues before they arise.arise, which may affect our ability to develop and use AI or subject us to legal liability.

If we do not successfully address the risks inherent in the expansion of our international operations, including in India, our business could suffer.

We currently have non-U.S. operations primarily in the U.K., Canada, Australia, Costa Rica and India, and we intend to expand further into international markets. Expansion of our international operations has required, and will continue to require, a significant amount of attention from our management and substantial financial resources and might require us to add qualified management in these markets. For example, we are currently expanding our operations in India, which we expect will give us greater access to talent, and increase the number of our employees, including management, in India. We have rented office space in India to accommodate those new operations, although we do not currently expect to generate revenue in India in the foreseeable future. Our direct sales model requires us to attract, retain and manage qualified sales personnel capable of selling into markets outside the United States. In some cases, our costs of sales might increase if our customers require us to sell through local distributors. In addition, there is intense competition in India for skilled technology personnel, and we expect such competition to increase. As a result, we may be unable to retain our current employees in India or to hire additional new employees in India. If we are unable to grow our international operations in a cost-effective and timely manner, our business and operating results could be harmed.

For example, following our acquisition of EVERFI, Inc ("EVERFI") in December 2021, we experienced the loss of certain employees and were unable to realize the anticipated returns on our investment prior to our disposition of the business in December 2024.2024 due to certain of the reasons listed above.

In addition, we derive a significant portion of our revenue from transaction-based payment processing fees that we collect from our customers through our Blackbaud MerchantIntegrated ServicesPayments solution, which enables our customers' donors to make donations and purchase goods and services using various payment options. A reduction in the growth of, or a decline in, charitable giving to these customers, whether due to deteriorating general economic conditions, the impact of past or future changes to applicable tax laws, or otherwise, could negatively impact the volume and size of such payment processing transactions and thereby adversely affect our operating results and financial condition.

Even though we may carry cyber-technology insurance policies that provide insurance coverage under certain circumstances, we have in the past suffered losses and may in the future suffer losses as a result of a security breach that significantly exceed the coverage available under our insurance policies or for which we do not have coverage. (See Note 11 to our consolidated financial statements in this report for expense and insurance coverage information related to the Security Incident.) Furthermore, in the future such insurance may not be available on commercially reasonable terms, or at all. A security breach and any efforts we make to address such breach could also result in a disruption of our operations, particularly our online sales operations.

ToAs date,a result of the Security Incident, we have received approximately 260 specific requests from customers for reimbursement of expenses incurred by them related to the Security Incident, all of which have been fully resolved and closed or are inactive and are considered by us to have been abandoned by the customers. We have also received approximately 400 reservations of the right to seek expense recovery in the future from customers or their attorneys in the U.S., U.K. and Canada related to the Security Incident, none of which resulted in claims submitted to usIncident and are considered by us to have been abandoned by the customers. We have also received notices of proposed claims on behalf of a number of U.K. data subjects, all of which have been fully resolved and closed or are inactive and are considered by us to have been abandoned by the data subjects.abandoned. In addition, insurance companies representing various customers’ interests through subrogation claims have contacted us, and certain insurance companies have filed subrogation claims in court, of which two cases remain active and unresolved. We also were a defendant in putative consumer class action cases in U.S. and Canadian courts alleging harm from the Security IncidentIncident, all of which have now been resolved. In addition, presently, we are a defendant in putative consumer class action cases in U.S. federal courts (most of which have been consolidated under multi district litigation to a single federal court) alleging harm from the Security Incident. The plaintiffs in these cases, who generally purport to represent various classes of individual constituents of our customers, generally claim to have been harmed by alleged actions and/or omissions by us in connection with the Security Incident and assert a variety of common law and statutory claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief. On May 14, 2024, the Court issued a memorandum opinion and order (1) denying the multi district litigation plaintiffs' motion for class certification, (2) granting our motion to exclude the multi district litigation plaintiffs' expert, (3) denying the multi district litigation plaintiffs' motion to exclude our expert and (4) denying all other pending motions. On July 30, 2024, the Fourth Circuit Court of Appeals denied the plaintiffs' petition for permission to appeal the Court's ruling. This litigation remains ongoing.

The terms of the California Judgment, FTC Order, the Attorneys General Administrative Orders and our settlement with the SEC require that we implement and maintain certain processes and programs and comply with certain legal requirements related to cybersecurity and data protection. Any future regulatory investigation or litigation settlements may also contain such requirements. Effectively implementing, monitoring and updating these requirements has been, and is expected to be over an extended period of time, expensive and time-consuming. Our failure to do so in accordance with the terms of our agreements with FTC, the Attorneys General and with the SEC, and possibly others, could expose us to additional material liability under the terms of the Administrative Orders, the SEC settlement, or otherwise.

The long-term effects of climate change on the global economy and our industry may impact our business operations and those of our suppliers, customers and partners. Climate change increases the severity and frequency of extreme weather events such as hurricanes, wildfires, floods, heat waves or power shortages, all of which could lead to business disruptions. The locations of our principal executive offices andoffices, our data centers and our operations in India are vulnerable to the effects of climate events and other natural disasters, including hurricanes, heat waveswaves, floods and earthquakes, which we have experienced in the past. In addition, the effects of climate change are harder to mitigate for our remote-firstRemote-Flexible workforce, which exposes the Company to business disruption. Even though we carry business interruption insurance policies and typically have provisions in our commercial contracts that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage. Any natural disaster or catastrophic event affecting us could have a significant negative impact on our operations.

We currently utilize data center hosting facilities to provide cloud solutions to a significant number of our subscription customers and hosting services to our on-premise license customers. Any damage to, or failure of, these data center systems generally could result in interruptions in service to our customers, notwithstanding any business continuity or disaster recovery agreements that may currently be in place at these facilities. As noted above, our executive offices andoffices, some of our data centers and our operations in India are located in areas that are vulnerable to the effects of climate change and could be subject to increased interruptions as a result of the severity and increased frequency of extreme weather events such as hurricanes, wildfires, floods, heat waves, or power shortages. Because our cloud solutions and hosting service offerings are complex and we have incorporated a variety of new computer hardware and software systems at our data centers, our services might have errors or defects that users identify after they begin using our services. This could result in unanticipated downtime for our customers and harm to our reputation and business results. Internet-based services sometimes contain undetected errors when first introduced or when new versions or enhancements are released. We have from time to time found defects in our web-based services and new errors might again be detected in the future. In addition, our customers might use our Internet-based offerings in unanticipated ways that cause a disruption in service for other customers attempting to access their data.

We significantlyhave increasedmaintained ouran elevated leverage inposition, connectionprimarily withdue to stock repurchases, and we may increase our leverage in the future in connection with acquisitions, Security Incident costsacquisitions or other business purposes, which could adversely impact our business and financial performance.

In addition, additional leverage could impact our ability to meet certain financial and other covenants contained in our 2024 Credit Facilities, which increased our total borrowing capacity from $1.1 billion to $1.5 billion. (See Note 9 to our consolidated financial statements included in this report for a more detailed description of our 2024 Credit Facilities.) There can be no assurance that we will be able to remain in compliance with the covenants to which we are now subject or may be subject in the future and, if we fail to do so, that we will be able to obtain waivers from our lenders or amend the covenants.

As of December 31, 2024,2025, we had $1.1 billion and $132.9$106.7 million of goodwill and intangible assets, respectively. On at least an annual basis, we assess whether there have been impairments in the carrying value of goodwill and intangible assets. If the carrying value of an asset is determined to be impaired, then it is written down to fair value by a noncash charge to operating earnings. Changes in circumstances that could indicate that the carrying value of goodwill or intangible assets may not be recoverable include declines in our stock price, market capitalization, cash flows and slower growth rates in our industry. We cannot accurately predict the likelihood or potential amount and timing of any impairment of goodwill or other intangible assets. An impairment of a significant portion of goodwill or intangible assets, such as the EVERFI impairment charges discussed in Note 4 to our consolidated financial statements in this report, have in the past, and could in the future, materially and negatively affect our results of operations and financial condition.

Although our board of directors has authorized a stock repurchase program that does not have an expiration date, the program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares of our common stock. We have, from time to time, repurchased stock under this program and re-initiated repurchases under the program in the fourth quarter of 2023 after a two-year hiatus. We cannot guarantee that the program will be fully consummated or that it will enhance long-term stockholder value. The program could affect the trading price of our stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our stock. In addition, implementation of some or all of this program diminishes our cash reserves and/or increases our debt, which may impact our ability to finance future growth,growth and to pursue possible future strategic opportunities and acquisitions and fund liabilities and expenses related to the Security Incident.acquisitions. (See Note 14 to our consolidated financial statements in this report for additional information related to our stock repurchase program, including authorization amount, shares purchased, amounts paid and shares remaining available for purchase.)

As of December 31, 2024,2025, we had deferred tax assets of $162.3$125.6 million. As of December 31, 2025, we have retained a valuation allowance against our U.S. net deferred tax assets. Realization of our deferred tax assets is dependent upon our generating sufficient taxable income in future years to realize the tax benefit from those assets. Deferred tax assets are reviewed at least annually for realizability. A charge against our earnings would result if, based on the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized beyond our existing valuation allowance. This could be caused by, among other things, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the solutions sold by our business and a variety of other factors. If a deferred tax asset net of our valuation allowance was determined to be not realizable in a future period, the charge to earnings would be recognized as an expense in our results of operations in the period the determination is made. Additionally, if we are unable to utilize our deferred tax assets, our cash flow available to fund operations could be adversely affected.

Governments in some jurisdictions have enacted or are considering enacting consumer data privacy or data protection legislation, including laws and regulations applying to the solicitation, collection, transfer, processing and use of personal data. This legislation could reduce the demand for our software solutions if we fail to design or enhance our solutions to enable our customers to comply with the privacy and data protection measures required by the legislation. Moreover, we may be exposed to liability under existing or new consumer privacy or data protection legislation. For example, when providing our solutions to certain customers in the healthcare industry, we must comply with applicable provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and might be subject to similar provisions of other legislation, including, without limitation, the Gramm-Leach-Bliley Act and related regulations, and the California Consumer Privacy Act of 2018,2018 and related regulations, and may apply to some of our customers and areas of business. Even technical violations of these laws may result in penalties that are assessed for each non-compliant transaction.

If our customers or we were found to be subject to and in violation of any privacy or data protection laws or regulations, our business may be materially and adversely impacted and we and/or our customers would likely have to change our business practices. In addition, these laws and regulations could impose significant costs on our customers and us and make it more difficult for donors to make online donations. (See Note"Item 111A. toRisk ourFactors. consolidatedOperational financial statements includedRisks" in this report for a description ofregarding the Security Incident and related legal proceedings and regulatory matters.risks.)

Our success and ability to compete depends to a significant degree upon the protection of our proprietary technology rights. We might not be successful in protecting our proprietary technologytechnology, particularly in non-U.S. jurisdictions, and our proprietary rights might not provide us with a meaningful competitive advantage. To protect our core proprietary technology, we rely on a combination of patent, trademark, copyright and trade secret laws, as well as nondisclosure agreements, each of which affords only limited protection.

Certain of our solutions, in particular our financial management and payment services solutions, relate to activity heavily regulated by government agencies in the U.S., the U.K.U.K., Canada and other countries in which we operate. The laws and regulations enforced by these agencies are proposed or enacted to deter fraud and other illicit financial transactions and to protect consumers and the financial system and are often revised or increased in scope. We have procedures and controls in place to monitor compliance with numerous federal, state and foreign laws and regulations. However, because these laws and regulations are complex, differ between jurisdictions, and are often subject to interpretation, or as a result of unintended errors, we may, from time to time, inadvertently violate these laws and regulations. Compliance with these laws and regulations is expensive and requires the time and attention of management. These costs divert capital and focus away from efforts intended to grow our business. If we do not successfully comply with laws, regulations, or policies, we could incur fines or penalties, be subject to litigation, lose existing or new customer contracts or other business, and suffer damage to our reputation.

We are the world's leading software provider exclusivelyof dedicatedAI-powered tosolutions poweringfor social impact. Serving thenonprofits, nonprofiteducational and education sectors,institutions, companies committed to corporate social responsibility and individual change makers, ourwe essential software is built to acceleratepropel impact inat fundraising,scale nonprofitwith the sector’s most intelligent solutions for fundraising and engagement, education solutions, financial management, digital giving, grantmaking, corporate social responsibilitymanagement and educationCSR management.and Agrantmaking. remote-first company, weWe have operations in the United States, Australia, Canada, Costa Rica, India and the United Kingdom, supporting users in 100+ countries.

1.Product•Product Innovation and Delivery

3.TransactionalTransactional Recurring Revenue Optimization(~34% andof Expansiontotal revenue)

Total revenue increaseddecreased by $50.1$26.3 million during 2024,2025, driven largely by the following:

We delivered another quarter of solid execution against our operating plan, with continued focus on operational efficiency and product innovation. AI initiatives remain an important area of emphasis—both in the capabilities we are delivering to customers and in the way we operate the business. During the first quarter,half of 2026, we expanded the availability of AI‑enabledAI-enabled capabilities across our product portfolio and launched our first agentic AI solution, the Blackbaud fundraising development agent, into general availability. This solution is designed to assist fundraising teams by automating certain outreach and stewardship activities within existing workflows, using customer‑permissionedcustomer-permissioned data and operating under defined governance and user controls.

The fundraising development agent is expectedcurrently to bebeing offered under a subscription pricing model. While commercialization remains in the early stages, we currently anticipate that annual subscription pricing wouldis generally be in the tens of thousands of dollars, depending on customer size and use case. We expect this offering to be marketed both to existing customers as an incremental subscription and to prospective new customers as part of our broader product portfolio. WeDuring continuethe second quarter, we continued to evaluateexpand customer adoption,deployments and evaluate adoption trends, operational impacts,impacts and potential financial contributions as part of our ongoing planning and investment process.

Adoption of AI‑enabledAI-enabled functionality continued across portions of our customer base during the quarter. AMore significantthan portionhalf of our Raiser’sRaiser's Edge NXT customers utilize machine‑learning‑enabledmachine-learning-enabled donor prospecting capabilities, which leverage historical and behavioral data to support fundraising activities. These capabilities are supported by proprietary Blackbaud data, licensed datasets, benchmarking data,data and other philanthropic datasets, all subject to our cybersecurity and data governance framework.

We also continued to apply AI internally to improve efficiency across engineering, sales and marketing, customer success and the back office. During the quarter, our engineering teams increased their use of approved generative AI development tools to accelerate software development and issue remediation, contributing to productivity improvements and faster delivery of enhancements. We are also applying AI to support lead qualification, sales development, customer support and other operational processes.

In February 2026, we announced our intention to repurchase between 5% and 10% of our outstanding common stock as of December 31, 2025 during the course of 2026 under our stock repurchase program. During the three months ended MarchJune 31,30, 2026, we repurchased an aggregate of 1,601,057797,795 shares for $82.1$28.0 million. During the six months ended June 30, 2026, we repurchased an aggregate of 2,398,852 shares for $110.1 million. Including net share settlement of employee stock compensation, these repurchases represent approximately 4.5%6.2% of our outstanding common stock as of December 31, 2025. As of MarchJune 31,30, 2026, $878.5$850.4 million remained available under our stock repurchase program. Over the long term, we expect stock repurchases to remain an important component of our capital allocation strategy, subject to market conditions, business performance, leverage considerations, and other factors. We anticipate utilizing at least 50% of our free cash flow from 2026 to 2030 for stock repurchases. See discussion of our Non‑GAAP Financial Measures below.

Revenue increased by $11.2$8.6 million and $19.8 million, during the three and six months ended MarchJune 31,30, 2026, respectively, when compared to the same periodperiods in 2025, driven largely by the following:

Income from operations increased by $31.7$4.7 million and $36.4 million, during the three and six months ended MarchJune 31,30, 2026, respectively, when compared to the same periodperiods in 2025, driven largely by the following:

Our recurring subscription contracts are typically for a term of three years at contract inception with standard three-year renewals thereafter. 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 MarchJune 31,30, 2026, our gross dollar retention was approximately 92%.91%. This gross dollar retention rate iswas relativelylower unchanged fromthan our rate for the twelve months ended December 31, 2025. Changes in the amount of contractual annual recurring revenue up for renewal in a given period may impact absolute churn dollars even when customer renewal rates remain relatively consistent from year-to-year. We are continually investing in innovation, which we believe will support gross dollar retention over the long-term.

At MarchJune 31,30, 2026, our cash and cash equivalents were $34.1$34.4 million. Under the 2024 Credit Facilities, the carrying amount of our debt was $1.1 billion and our net leverage ratio was 2.672.58 to 1.00.

During the threesix months ended MarchJune 31,30, 2026, we generated $51.5$142.5 million in cash from operations, had a net increase in borrowings of $64.9$28.6 million, returned $82.1$110.1 million to stockholders by way of share repurchases, and had aggregate cash outlays of $14.5$30.2 million for purchases of property and equipment and capitalized software development costs.

On July 4, 2025, the United States enacted the OBBBA, which introduced significant changes to U.S. tax law. See Note 9 to our unaudited, condensed consolidated financial statements in this report for more information. OBBBAOBBBA's impactsrestoration of 100% bonus depreciation and immediate expensing of domestic research and experimental expenditures, together with our utilization of net operating loss carryforwards, meaningfully contributed to reducingreduced U.S. cash taxes in 2025 and we expect to continue to see meaningful reductions to cash taxes through 2027.2026. U.S. state OBBBA conformity considerations (which continue to evolve as the states address the new2025 Federal tax legislation) and the phase-in of the OBBBA international tax provisions in 2026 mayare continueexpected toto, affectin thispart, offset these cash reduction.tax reductions in 2026 and 2027. We currently expect a material impact from future phases in fiscal years 2026 and 2027, but not beyond, before considering any impacts of any potential future valuation allowance release (described further in Note 9).

Comparison of the three and six months ended MarchJune 31,30, 2026 and 2025

Revenue increased by $11.2$8.6 million, or 4.2%,3.0%, and $19.8 million, or 3.6%, during the three and six months ended MarchJune 31,30, 2026, respectively, when compared to the same periodperiods in 2025. For a discussion of our changes in revenue, see "Revenue" above starting on page 2122 in this report.

Cost of revenue decreased by $0.2$1.2 million, or 0.2%,1.1%, and $1.4 million, or 0.6%, during the three and six months ended MarchJune 31,30, 2026, respectively, when compared to the same periodperiods in 2025, driven primarily by the following:

Gross margin increased by 180160 basis points and 170 basis points for the three and six months ended MarchJune 31,30, 2026, respectively, when compared to the same periodperiods in 2025, due to the increase in revenue combined with the decrease in cost of revenue.

Sales, marketing and customer success expense increased by $2.2 million, or 5.0%, and $4.9 million, or 5.5%, during the three and six months ended MarchJune 31,30, 20262026, wasrespectively, relativelywhen in-linecompared withto the same periodperiods in 2025. The increases in dollars and as a percentage of revenue were primarily driven by the following:

We continue to make investments intended to delight our customers with innovative and secure cloud solutions, including AI technology. Research and development expenses increased by $3.4$1.3 million, or 10.0%,3.8%, and $4.6 million, or 6.9%, during the three and six months ended MarchJune 31,30, 2026, respectively, when compared to the same periodperiods in 2025. The increases in dollars and as a percentage of revenue were primarily driven by the following:

Not included in research and development expense for the three months ended MarchJune 31,30, 2026 and 2025 were $12.2$13.0 million and $12.4$14.4 million, respectively, and for the six months ended June 30, 2026 and 2025 were $25.2 million and $26.8 million, respectively, of qualifying costs associated with software development activities that arewere required to be capitalized under GAAP,capitalized, such as those for our cloud solutions. Qualifying capitalized development costs associated with our cloud solutions are subsequently amortized to cost of revenue over the related assets' estimated useful life, which generally range from two to seven years. We expect that the amount of software 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.

General and administrative expense decreasedincreased by $26.4$1.6 million, or 46.6%,4.8%, during the three months ended MarchJune 31,30, 2026, when compared to the same period in 2025. The decreasesincreases in dollars and as a percentage of revenue were primarily driven by the following:

The decreasedecreases in interest expense in dollars and as a percentage of total revenue during the three and six months ended MarchJune 31,30, 2026, when compared to the same periodperiods in 2025, waswere primarily due to a decrease in portfolio effective interest rate on relatively flat average daily borrowing. We currently expect interest expense for the full year 2026 to be approximately $62 million to $66 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 7 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.

OtherThe increases in other income, net in dollars and as a percentage of total revenue during the three and six months ended MarchJune 31,30, 2026, wasrespectively, relativelywhen consistentcompared withto the same periodperiods in 2025.2025, were primarily due to decreases in current year losses in currency revaluation compared to prior year losses. See Note 5 to our unaudited, condensed consolidated financial statements in this report for more information regarding our other income.

To the extent that our customers are billed for our solutions and services in advance of delivery, we record such amounts in deferred revenue. Our recurring revenue contracts are generally for a term of three years at contract inception with three-year renewals thereafter, billed annually in advance and non-cancelable. InWe recent periods, wenow have experiencedapproximately an increase in longer‑term customer contracts, with more than 20%90% of newour contractual recurring revenue on 3-year or longer contracts and renewingapproximately contracts25% havingon initial terms of four years4-year or longer.longer contracts. We generally invoice our customers with recurring revenue contracts in annual cycles 30 days prior to the end of each one-year period.

The decreaseincrease in deferred revenue during the threesix months ended MarchJune 31,30, 2026 was primarily due to a seasonal decreaseincrease in customer contract billings. Historically, due to the timing of customer budget cycles, we have an increase in billings and 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.

On July 4, 2025, the United States enacted the OBBBA, which introduced significant changes to U.S. tax law. See Note 9 to our unaudited, condensed consolidated financial statements in this report for more information. OBBBAOBBBA's impactsrestoration of 100% bonus depreciation and immediate expensing of domestic research and experimental expenditures, together with our utilization of net operating loss carryforwards, meaningfully contributed to reducingreduced U.S. cash taxes in 2025 and we expect to continue to see meaningful reductions to cash taxes through 2027.2026. U.S. state OBBBA conformity considerations (which continue to evolve as the states address the new2025 Federal tax legislation) and the phase-in of the OBBBA international tax provisions in 2026 mayare continueexpected toto, affectin thispart, offset these cash reduction.tax reductions in 2026 and 2027.

(3)Includes charges of $24.3 million incurred during the threesix months ended MarchJune 31,30, 2025 related to the release from our lease for office space in Washington, DC.

Our cash flow from operations normally fluctuates quarterly due to the combination of the timing of customer contract billings and 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.December. In addition, deferred revenues can vary on a seasonal basis due to the timing of customer contract billings and renewals and student enrollments or significant acquisitions. Our cash 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.

At MarchJune 31,30, 2026, our total cash and cash equivalents balance included approximately $14.0$14.9 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.

Net cash provided by operating activities increased by $50.1$74.2 million during the threesix months ended MarchJune 31,30, 2026, when compared to the same period in 2025, primarily due to a $37.4$47.5 million increase in net income adjusted for non-cash expenses and a $12.7$26.6 million increase in cash flow from operations associated with working capital.

The increase in cash flow from operations associated with working capital during the threesix months ended MarchJune 31,30, 2026, when compared to the same period in 2025, was primarily due to fluctuations in the timing of vendor payments.:

On July 4, 2025, the United States enacted the OBBBA, which introduced significant changes to U.S. tax law. See Note 9 to our unaudited, condensed consolidated financial statements in this report for more information. OBBBAOBBBA's impactsrestoration of 100% bonus depreciation and immediate expensing of domestic research and experimental expenditures, together with our utilization of net operating loss carryforwards, meaningfully contributed to reducingreduced U.S. cash taxes in 2025 and we expect to continue to see meaningful reductions to cash taxes through 2027.2026. U.S. state OBBBA conformity considerations (which continue to evolve as the states address the new2025 Federal tax legislation) and the phase-in of the OBBBA international tax provisions in 2026 mayare continueexpected toto, affectin thispart, offset these cash reduction.tax reductions in 2026 and 2027.

Net cash used in investing activities of $14.5$38.9 million decreased by $11.4$2.4 million during the threesix months ended MarchJune 31,30, 2026, when compared to the same period in 2025.

During the threesix months ended MarchJune 31,30, 2026, we used cash of $12.8 million and $1.7$26.1 million for software development costs and purchases of property and equipment, respectively,costs, which was relativelya indecrease lineof with$1.7 million when compared to the same period in 2025. We spent $4.1 million for purchases of property and equipment during the six months ended June 30, 2026, which was an increase of $2.8 million when compared to the same period in 2025. Also, we used $8.7 million for a minor investment in a business during the six months ended June 30, 2026.

During the threesix months ended MarchJune 31,30, 2025, we used net cash of $12.2 million for the disposition of a business.

During the threesix months ended MarchJune 31,30, 2026, we had a net increase in borrowings of $64.9$28.6 million, primarily due to our stock repurchase program and to satisfy tax obligations of employees upon settlement of equity awards (see discussion below).

We paid $25.1$25.3 million to satisfy tax obligations of employees upon settlement of equity awards during the threesix months ended MarchJune 31,30, 2026 compared to $37.9$38.7 million during the same period in 2025. The amount of taxes paid by us on behalf of employees related to the settlement of equity awards varies from period to period based upon the timing of grants and vesting, as well as the market price for shares of our common stock at the time of settlement. Most of our equity awards currently vest in our first quarter.

During the threesix months ended MarchJune 31,30, 2026, cash flow from financing activities associated with changes in restricted cash due to customers decreasedincreased $294.1$132.6 million, compared to aan decreaseincrease of $320.2$128.6 million during the same period in 2025. This line in the statement of cash flows represents the change in the amount of restricted cash held and payable by us to customers from one period to the next. This restricted cash due to customers is not available to us for operational purposes.

In February 2026, we announced our intention to repurchase between 5% and 10% of our outstanding common stock as of December 31, 2025 during the course of 2026 under our stock repurchase program. During the three months ended MarchJune 31,30, 2026, we repurchased an aggregate of 1,601,057797,795 shares for $82.1$28.0 million. During the six months ended June 30, 2026, we repurchased an aggregate of 2,398,852 shares for $110.1 million. Including net share settlement of employee stock compensation, these repurchases represent approximately 4.5%6.2% of our outstanding common stock as of December 31, 2025. As of MarchJune 31,30, 2026, $878.5$850.4 million remained available under our stock repurchase program. Over the long term, we expect stock repurchases to remain an important component of our capital allocation strategy, subject to market conditions, business performance, leverage considerations, U.S. excise taxes and other factors. We anticipate utilizing at least 50% of our free cash flow from 2026 to 2030 for stock repurchases. See discussion of our Non‑GAAP Financial Measures above.

Historically, we have drawn on our credit facility from time to time to help us meet financial needs, primarily due to the seasonality of our cash flows from operations and financing for business acquisitions. At MarchJune 31,30, 2026, our available borrowing capacity under the 2024 Credit Facilities was $343.2$374.0 million. The 2024 Credit Facilities mature in April 2029.

At MarchJune 31,30, 2026, the carrying amount of our debt under the 2024 Credit Facilities was $1.1 billion. Our average daily borrowings during the three and six months ended MarchJune 31,30, 2026 were $1.1 billion.billion and $1.1 billion, respectively.

Under the 2024 Credit Facilities, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (i) no default or event of default shall have occurred and be continuing under the 2024 Credit Facilities, and (ii) our pro forma net leverage ratio, as set forth in the 2024 Credit Facilities, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration or share repurchase. At MarchJune 31,30, 2026, we were in compliance with our debt covenants under the 2024 Credit Facilities. See Note 6 to our unaudited, condensed consolidated financial statements in this report for additional information regarding the 2024 Credit Facilities.

As of MarchJune 31,30, 2026, we had contractual obligations with future minimum commitments as follows:

As of MarchJune 31,30, 2026, we had total remaining principal payments of approximately $1.2 billion. These payments represent principal payments only, under the following assumptions: (i) that the amounts outstanding under the 2024 Credit Facilities, our real estate loans and our other debt at MarchJune 31,30, 2026 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future borrowings on the revolving credit loans under the 2024 Revolving Facility for the purposes of determining minimum commitment amounts. See Note 6 to our unaudited, condensed consolidated financial statements in this report for more information.

In addition to principal payments, as of MarchJune 31,30, 2026, we expect to pay interest expense over the life of our debt obligations of approximately $213.5$194.7 million. These payments represent our estimated future interest payments on debt using our debt balances and the related weighted average effective interest rates as of MarchJune 31,30, 2026, which includes the effect of interest rate swap agreements. The actual interest expense recognized in our unaudited, condensed consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions on our remaining principal payments described above.

As of MarchJune 31,30, 2026, we had remaining operating lease payments of $9.3$8.6 million. These payments have not been reduced by sublease income, incentive payments, reimbursement of leasehold improvements or the amount representing imputed interest. Our operating leases are generally for corporate offices, subleased offices and certain equipment and furniture. Given our remote-first workforce strategy and real estate footprint optimization efforts, we do not anticipate entering any new, material operating leases for offices for the foreseeable future. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.

As of MarchJune 31,30, 2026, we had remaining purchase obligations of $142.3$84.5 million. These purchase obligations are 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. Our purchase obligations are not recorded as liabilities on our unaudited, condensed consolidated balance sheets as of MarchJune 31,30, 2026, as we had not received the related services. See Note 8 to our unaudited, condensed consolidated financial statements in this report for more information.

Approximately 17%18% of our total revenue for the threesix months ended MarchJune 31,30, 2026 was generated from operations outside the U.S. We do not have significant operations in countries in which the economy is considered to be highly inflationary. Our consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange rate between foreign currencies and the U.S. dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. The accumulated currency translation adjustment, recorded within accumulated other comprehensive loss as a component of stockholders’ equity, was a loss of $5.3$5.4 million as of MarchJune 31,30, 2026 and a loss of $3.8 million as of December 31, 2025. 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 into U.S. dollars.

The vast majority of our contracts are entered into by our U.S. or U.K. entities. The contracts entered into by the U.S. entity are almost always denominated in U.S. dollars or Canadian dollars, and contracts entered into by our U.K., Australian and Irish subsidiaries are generally denominated in British Pounds, Australian dollars and Euros, respectively. Historically, as the U.S. dollar weakened, foreign currency translation resulted in an increase in our revenues and expenses denominated in non-U.S. currencies. Conversely, as the U.S. dollar strengthened, foreign currency translation resulted in a decrease in our revenues and expenses denominated in non-U.S. currencies. During the threesix months ended MarchJune 31,30, 2026, foreign translation resulted in increases in our revenues and expenses denominated in non-U.S. currencies. Though we have exposure to fluctuations in currency exchange rates, primarily those between the U.S. dollar and both the British Pound and Canadian dollar, the impact has generally not been material to our consolidated results of operations or financial position. For the threesix months ended MarchJune 31,30, 2026, the fluctuation in foreign currency exchange rates increased our total revenue and our income from operations by $2.2$2.9 million and $1.1$2.5 million, respectively. We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian dollar against changes in the exchange rate with the U.S. dollar. We will continue monitoring such exposure and take action as appropriate. To determine the impacts on revenue (or income from operations) from fluctuations in currency exchange rates, current period revenues (or income from operations) from entities reporting in foreign currencies were translated into U.S. dollars using the comparable prior year period's weighted average foreign currency exchange rates. These impacts are non-GAAP financial information and are not in accordance with, or an alternative to, information prepared in accordance with GAAP.

There have been no significant changes in our critical accounting policies and estimates during the threesix months ended MarchJune 31,30, 2026 as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.