Blackbaud Inc (BLKB) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Blackbaud first quarter 2009 earnings conference call. Today's call is being recorded.

(Operator Instructions)

I would like to turn the conference over to Mr. Tim Williams, senior vice president and chief financial officer of Blackbaud. Please go ahead, sir.

Thank you very much. Good afternoon, everyone. Thank you for joining us today to review our first quarter 2009 results. With me on the call is Marc Chardon, president and chief executive officer. Marc and I have some prepared remarks and then we'll open up the call later for questions.

Please note our remarks today contain forward-looking statements. These statements are based solely on present information and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Please refer to our SEC filings, including our most recent report on Form 10-K and the risk factors contained therein, as well as our periodic reports under the Securities Act of 1934, for more information on these risks and uncertainties and on the limitations that apply to our forward-looking statements.

Also, please note that a webcast of today's call will be available in the investor relations section of our website.

With that, let me turn the call over to Marc and I'll come back a little bit later to give some further details regarding our financials. Marc?

Thank you, Tim, and my thanks to all of you on the call for joining us today to review our first quarter 2009 financial results.

A strong final month of the quarter enabled Blackbaud to deliver revenue that was at the higher end of our guidance. When combined with tight cost controls from the start of the quarter, this led to profitability that was well ahead of our expectations. Areas of our business that were particularly strong included our Enterprise CRM solutions, where we experienced record sales activity, and online fundraising, led by the strong performance of our Sphere offering.

Looking back, we're truly fortunate that we have made investments in our key growth initiatives and that we made them when we did because it is the success of these initiatives that are a very large reason Blackbaud is delivering solid financial results and weathering the challenging economic environment.

Tim will cover the financials in detail in a moment, but let's take a look at the highlights. Our total non-GAAP revenue of approximately $76 million was at the top quartile of our targeted range for the quarter. This represented approximately 9% growth against a relatively challenging year-ago comparison quarter. Our focus on cost containment enabled the Company to deliver first quarter non-GAAP operating income and earnings per share that were both well above our guidance ranges.

Looking at the makeup of our revenue, subscriptions remained the highest growth component of revenue in the first quarter, both on a year-over-year and on a sequential basis, and it was more than twice the level of our license revenue, which remains the smallest contributor to our revenue.

Total recurring revenue, which is made up of both subscriptions and maintenance, represented approximately 60% of our total non-GAAP revenue for the quarter, which is a record level for the Company since going public in 2004. This large base of recurring revenue is the primary driver of Blackbaud's strong cash flow model and is one of a number of reasons we're confident Blackbaud will successfully manage through this current economic downturn.

Now let me address the current state of our end market. We've been candid in describing the increasingly difficult selling environment that we experienced over the course of 2008. While we had a strong finish to our first quarter 2009 and delivered profitability that was better than expected, the market environment remains very challenging, as difficult and uncertain economic conditions continue to put pressure on the spending of a majority of nonprofit organizations.

As we have discussed in the past, the nonprofit markets we serve are made up of a number of sub-verticals, such as higher education, K-12 private schools, religious, healthcare, human services, arts and cultural organizations, development organizations, just to name a few. While some segments of the market are certainly holding up better than others, it's fair to say that every segment is now feeling some level of impact related to the economic pressures.

We've not yet seen any improvement in these conditions, and while we are confident that things will eventually improve, visibility remains low with respect to forecasting just when that will happen. In particular, remember that about half of our nonprofit customers have fiscal years that commence on July 1 and are thus now in the throes of developing their annual budgets.

Unlike prior years, we don't have the level of understanding and visibility that we would typically have by now about these organization's investment plans for their new years. As such, we continue to plan and manage our business in a matter that assumes that the macroeconomic environment's impact on our end market will not improve during 2009.

Last quarter we mentioned that our plan was to manage total non-GAAP costs and expenses, including cost of revenue and operating expenses, in the range of approximately $265 million for the year, with a goal of delivering at least a 20% non-GAAP operating margin for the year.

Taking into consideration our Q1 results, current assessment of the marketplace, and ongoing efforts to run our business as efficiently as possible, we believe we can further reduce this total cost and expense target by approximately $10 million.

We're confident in our ability to achieve these additional cost savings and believe this action will improve our ability to attain our goal of delivering at least 20% non-GAAP operating margin in the face of the challenging economic environment.

In addition to our focus on cost savings, continued progress against our key growth initiatives will remain a primary contributor to the Company's financial performance. And both are critical to weathering the current economic storm and positioning Blackbaud for enhanced growth when the macroenvironment stabilizes and eventually improves.

During the first quarter it was very encouraging to see the continued progress of our Enterprise CRM initiative, which is targeted primarily at the largest nonprofit organizations, although we also see high level of interest in this solution from some of the larger mid tier nonprofit organizations as well.

I've always said that there would be quarter-to-quarter fluctuations in the number of Enterprise CRM customer additions given the longer sales cycles associated with these relatively large engagements. With that caveat, it was exciting to see record level of these CRM sales activity occur during the first quarter of 2009, especially in light of the challenging economic environment.

While we added seven new eCRM customers during the full year 2008, we added four new eCRM customers in the first quarter of 2009. I'm pleased to announce that the March of Dimes was added this quarter as one of those new customers.

One of the exciting elements of this particular relationship is the plan for Blackbaud to roll out the offering, the eCRM offering to all of the regional state and local March of Dimes locations. It's important to note that this is the second Enterprise CRM deal that we've done with a large federated organization.

Two of the other Enterprise CRM deals this quarter were with clients in the United Kingdom. In addition to these four brand new eCRM customers, we've also closed several eCRM [milestone 2] commitments, which I'll remind you are eCRM [plus Team Approach], during the quarter with [target] Team Approach customers such as the United States Olympic Committee. We also closed our first ever [back to base] sale to an existing Enterprise CRM customer.

To be clear, I do not believe that Q1 represents a new (inaudible) quarterly expectations for our eCRM efforts. This was truly a spectacular performance. And as I mentioned a moment ago, there will be quarter-to-quarter fluctuations. It was encouraging, though, to see several of these large nonprofit organizations continuing to move ahead with key technology profits -- sorry, projects that they realize will help them operate more effectively in today's challenging economic and fundraising environment.

In addition to success in the selling effort, we're making good progress with Enterprise CRM implementations. Since general release, we've sold the solution to 18 customers, including four Team Approach accounts. Of these, five are now live and six more plan to go live before year-end.

At the beginning of my remarks, I mentioned that our online fundraising business was a primary area of strength during the quarter. This includes our Blackbaud NetCommunity offering targeted at users of our Raiser's Edge solution and our Blackbaud Sphere solution, which was part of the Kintera acquisition last year.

With three quarters now under our belt, we can say definitively that the Kintera acquisition has been a success and is proceeding very well. As I mentioned on the last earnings call, Kintera's organization has been fully integrated into the overall Blackbaud structure through the creation of a single internet solutions division.

Satisfaction levels within the large client base that Kintera brought to Blackbaud continue to show dramatic improvement and we're making excellent progress towards reaching Blackbaud's traditional customer satisfaction rating level. This effort has led to a significant improvement in Blackbaud's Sphere customer retention rates and more frequent expansion of customer relationships at the time of subscription renewal.

We also believe that prospects outside of the core Blackbaud and Kintera customer base are increasingly appreciating the power of our combined organization's combined solutions and our product development roadmap. This can be seen in steadily improving competitive win rates. We fully expect to be the clear market leader and winner long term in online fundraising solutions just as we have established The Raiser's Edge as the industry standard.

It's worth noting that we were recently able to leverage our experience with both the eTapestry and Sphere fundraising solutions to bring to market an entirely new online fundraising offering, Blackbaud Now, in conjunction with our partner PayPal, which many of you know has the leading global online payment service. This solution offers nonprofits a point and click website builder with secure donation processing and the ability to send emails and record donors giving histories.

Blackbaud Now is a cost effective CRM solution for very small nonprofits. There's no setup or monthly fee. Instead, organizations only pay fees on a per-transaction basis. The target market for this solution is the couple hundred thousand nonprofit organizations that are smaller than the organizations in eTapestry's target market. Plus another couple hundred thousand additional nonprofit organizations such as clubs, youth leagues, et cetera, that are not even in the universe of 501c3 orgs that report to the IRS and were not previously served by Blackbaud solutions at all.

Given the fact that these are very smallest nonprofit organizations, our expectation is that they will be raising small amounts of money and therefore we do not expect a material contribution towards our revenue in the short term from Blackbaud Now solution. Rather, our objective is to extend our position as the leader in the nonprofit industry in helping these organizations grow.

It further strengthens Blackbaud's brand at the low end of the market, building on the momentum generated by our eTapestry offering. In addition, we're optimistic that Blackbaud Now will help to create a base of customers that could be upgrade candidates for the eTapestry offering over time.

Another area that we've told you will be a focus for our long term growth strategy is the international market. As I mentioned earlier, we closed two enterprise CRM transactions with United Kingdom customers in Q1, the second and third since product release. In addition, today we announced another step in advancing our international growth strategy, the acquisition of RLC CCT, a privately held company that is the market leader in providing software solutions to nonprofits in the Netherlands.

Their Constituent Relationship Management solutions are used by 80 customers in the Netherlands. We believe that RLC's customer base will provide a foundation upon which to strengthen our position both in that market as well as within Western Europe.

As important as our newer growth initiatives are to the Company's short and long term success, so too is the continued success of our industry leading core solutions such as The Raiser's Edge, The Education Edge and The Financial Edge. There are also a number of related integrated solutions such as Patron Edge Ticketing and our Student Information Systems as well as our (inaudible) suite of analytic offerings.

These solutions continue to drive many new customer wins as well as software deals over $50,000 and total deals over $100,000. It's our core solutions that have established Blackbaud as the recognized leader in the nonprofit sector over the past 25 plus years and we believe that the market opportunity for these solutions continues to be underpenetrated and underserved.

In summary, our first quarter results met or exceeded our expectations. But we believe it is appropriate to maintain our cautious stance on the market, given the continued near term economic pressures on the customers we serve. At the same time, we remain very confident in Blackbaud's ability to effectively manage through this storm, with Q1 being a very good example.

We continue to run a very successful business in various challenging times. We've had a large and growing base of recurring revenue and we continue to invest in key growth initiatives that are already paying significant dividends despite the current economic downturn. We believe we are well positioned to continue gaining market share and further strengthen our leadership position. This will remain our focus. Now, with that, let me turn it back to Tim.

Thanks, Marc.

Let me begin by providing some details on our first quarter operating results and then I will follow that with guidance for the second quarter and then wrap up with a quick review of our capital management program.

First, let's start with the income statement. GAAP revenue came in at $74.4 million and after adding back the $1.2 million purchase accounting write-down associated with Kintera's deferred revenue, you get to non-GAAP revenue of 75.9 million. This represented an increase of 9% compared with the first quarter of 2008.

We estimate that Blackbaud's first quarter total revenue, excluding the contribution from Kintera, would have decreased approximately 3% on a year-over-year basis and would have been flat on a constant currency basis, that is factoring out foreign exchange impacts. This compares to a growth of 4% last quarter and is certainly well below our long term target of low to mid teen's growth. But we believe this is a consequence of the difficult economic environment that is impacting our end market.

Looking at the details of our total revenue, non-GAAP subscription revenue was $16.9 million, an increase of 92% on a year-over-year basis. It increased to 22% of our total revenue in the first quarter, up from 13% in the year-ago period. Even without the sizeable contribution from Kintera, subscription revenue would still have increased by approximately 27% on a year-over-year basis.

License revenue was $7.4 million in the first quarter, a decrease of 23% year-over-year. As Marc pointed out, the first quarter of 2008 was a difficult comparison quarter, as license revenue grew by 19% year-over-year in that quarter. The market environment, as you will recall, became increasingly challenging for us beginning in the second quarter of 2008.

Our non-GAAP services revenue came in at $22.1 million during the first quarter, a decrease of 7% on a year-over-year basis and 15% on a sequential basis. This decline is a natural derivative of the reduction in license revenue that occurred as we progressed through 2008, which has resulted in a reduction of services related projects. In addition, with the challenges posed by the economic environment, it is not uncommon for some of our customers to delay the delivery or performance of certain services engagements, training in particular.

That said, we have been managing attrition and recruitment very carefully over the past several quarters in anticipation of lower services volumes and, as a result, our services margins are still at acceptable levels. Our non-GAAP maintenance revenue came in at $28.2 million, an increase of 11% on a year-over-year basis, but relatively flat sequentially.

Our maintenance revenue, however, would have been up approximately $200,000 sequentially were it not for the negative impact of foreign currency translation. Most importantly related to maintenance revenue, however, our maintenance renewal rates continue to be in the mid 90% range, despite the challenging economic circumstances.

Turning to profitability and to be clear here, all non-GAAP expense and profitability percentages that I'm going to give you are based on our non-GAAP revenue total. We start with gross profit. We generated $47.9 million in non-GAAP gross profit in the quarter, representing a gross margin of 63%, which is consistent with the year-ago quarter and compares to 64% in the fourth quarter of 2008.

Turning to operating expenses, we typically experience a seasonal increase in operating expenses moving from the first quarter from the fourth. However, our increased focus on identifying cost savings enabled the Company to lower its non-GAAP operating expense run rate by approximately $600,000 for the quarter compared with the same numbers for the fourth quarter.

Combined with our solid revenue performance, this led to non-GAAP operating income of $14 million, which was well above the high end of our guidance of $11.7 million to $12.7 million and represented a non-GAAP operating margin of 18.4%. And importantly, on a constant currency basis, this would have represented year-over-year growth of almost 3% and 1.5% organically.

The effective tax rate for non-GAAP results in the quarter was again 39%, leading to non-GAAP diluted earnings per share of $0.19, which again was above the high end of our guidance range of $0.16 to $0.17. As a reminder here, we fully tax our non-GAAP EPS amounts even though the Company's cash tax rate is much lower due to our deferred tax asset and other tax benefits associated with recent business acquisitions.

In our earnings release there's a full tabular reconciliation between the non-GAAP results and our GAAP results, which include the deferred revenue add-back from Kintera and the impact of stock-based compensation expense and amortization of intangibles associated with acquisitions.

In summary, our GAAP net income was $4.1 million in the first quarter compared with $7 million in the first quarter of 2008, while GAAP diluted earnings per share were $0.09 compared with $0.16 in the prior period quarter.

Let me now turn to cash flow and the balance sheet. We ended the quarter with $23 million in cash, up $6.7 million from the end of Q4. And cash flow from operations was $12.4 million in the first quarter. Accounts receivable decreased this quarter to $47.3 million from $52.6 million at the end of the prior quarter and our DSO fell below the 40-day mark at the end of the first quarter, which is a reflection of the strong collection performance we saw in Q1.

Total deferred revenue came in at $117.1 million, which was up $18.1 million, or 18% on a year-over-year basis. At the end of the quarter the Company's deferred tax asset had a balance of approximately $71 million. I'll remind you that this asset adds roughly $8 million to our cash flow on an annual basis and there is an additional annual cash flow benefit of approximately $3.5 million that we experience as a result of the structuring of our three most recent acquisitions.

We ended the March quarter with $61 million in debt, which was flat with the balance at the end of the year. As we previously discussed with you in our last quarter call, our first priority has been rebuilding our cash balance to just over $20 million. As we move through the remainder of this year, we will turn more of our focus to using our strong cash flow to reduce our debt balance.

We are very comfortable with our ability to service this debt load based on the strong cash flow profile of the Company. And as a reminder to you, when Blackbaud was a much smaller private company, we used our strong and predictable cash flow to pay down over $100 million in debt.

We now turn to our guidance for the second quarter of 2009. At this stage, we expect total non-GAAP revenue in the second quarter to be $76.5 million to $78.5 million, non-GAAP operating income of $15.3 million to $16.3 million, leading to non-GAAP earnings per share of $0.21 to $0.22.

Marc has already provided you with some high level thoughts on how we are planning the business for the full year 2009. However, we will continue to hold off on providing official guidance ranges for the full year on both revenue and EPS until there is greater visibility for us from a macro perspective.

Let me now share just a couple of very quick words about the acquisition of RLC, the Netherlands based company that Marc mentioned earlier and that we announced after the market closed today. The purchase price for the acquisition was $2.3 million US and there will be a small additional earn-out. This is just over -- represents just over one times their 2008 revenue. The company was modestly profitable and we expect the acquisition will be neutral to our 2009 non-GAAP earnings per share.

Finally, let me finish with a quick update on our two-part capital management program. First, we announced today that our Board of Directors has declared our second quarter dividend of $0.10 per share, payable on June 15th, 2009, to stockholders of record on May 28th, 2009. I will remind you that in the first quarter we did pay dividends of $4.3 million.

Second, we did not make any share repurchases during the first quarter and we have approximately $30 million of capacity remaining in our approved $40 million share repurchase program. We will continue to balance the best ways to use our cash flow to enhance long term shareholder value.

In summary, we were pleased with our first quarter results, particularly considering the economic environment in which we are operating. That said, we've also been candid in our remarks that we are not calling a turn in the market at this time. We continue to expect a challenging economic environment throughout the rest of this year.

We will continue to invest in our key growth initiatives, at the same time managing our overall cost and expenses aggressively, with the goal of delivering at least a 20% non-GAAP operating margin. Importantly, the progress of our growth initiative, even in a market environment as difficult as it is today, is quite encouraging for the long term future of Blackbaud.

With that, let me turn the call over to the operator and we will begin the Q&A section. Operator?

Thank you. (Operator Instructions) And we'll go first to Horatio Zambrano, Jefferies & Co.

Hi, guys. I'm here for Ross MacMillan. Just a question here on the revenue recognition of the eCRM deals. Did you -- how do you expect these new deals to kind of flow through the P&L and did you recognize much revenue from prior eCRM deals in the current quarter?

Horatio, the -- as I think we've mentioned before with respect to the eCRM deals, mostly we anticipate that the revenue, and in particular the software revenue, is, in most cases, going to likely be spread over several quarters for these transactions, along with related services revenue.

In this quarter, one of the deals that Marc alluded to we did recognize the software revenue. The deal was structured to allow us to do that and it did have an impact on the quarter. And of course we are continuing to do services engagements for many of the other deals that we've done in prior quarters. I don't have the exact amount on that, but it did make a contribution certainly in the quarter as well.

Okay. And just one follow-up. On the cost containment, have you guys done any layoffs or was it all around just prudent sort of attrition and how do you -- how do you expect to hit the new $10 million that you might be able to squeeze out going forward for the rest of the year?

We have basically the same number of people at the beginning and the end of the quarter, so we did not have layoffs. And we were being careful about -- we've actually sort of added some people in specific areas as we've watched also some attrition in those areas where the (inaudible) was lower. So on balance, pretty much flat headcount.

And we -- I expect that we'll be able to do the $10 million without layoffs in the second half of the year [or the end] of this year. So those are not in our plans. We will, however, be a little bit more attuned to replacement attrition probably in the second half.

Okay, thank you, guys.

And we'll go next to John Neff, William Blair.

Hi, guys. Thank you. A quick just piggyback on the cost control and the $10 million, Marc. How much, if any, of that is from streamlining some of the Kintera operations?

None of the incremental part -- no significant amount of the incremental part is from that. Kintera and the rest of the organization, the [ISD] team and the rest of the organization have sort of all contributed pretty much equally to things like travel containment and any number of other things. So the engineering cost savings that I've talked about in the past were already included in the $265 million number that I gave you last time.

And then you mentioned how December 31 is a big renewal date for customers. How firm and the maintenance rates are still in the mid 90s. But how firm at this point are those renewal commitments at this time?

(inaudible - microphone inaccessible)

In other words, do you have a good handle on who's really onboard?

Yes, I think we do, John. I mean certainly to some degree we're seeing some customers who are taking a little bit longer to pay and therefore in some cases it's -- we do see -- we do see that. But I would say we feel quite good about our renewal rates, certainly from a unit standpoint.

There is a little bit of difference on the dollar renewal rate. So in some cases we are adding customers who are electing to eliminate a seat or eliminate a small nodule here or there. But we feel quite good about where we are with respect to those rates.

Two specific additional comments. One, we've seen no increase in our customers seeking business, a very small percentage. And so from an economic perspective, while customers may be feeling the pinch, they are continuing to go forward.

And I'll point out that the Kintera renewals have actually had dollar renewal rates that are significantly above unit renewal rates, in part because of our added ability to sell more when we do a renewal Kintera Sphere customer base.

And since you brought up that distinction, I guess I should ask what is the way you define the renewal rate in the mid 90s? Is that on a unit basis or a dollar renewal basis?

Well, it's actually both, John.

Oh, it is.

There's a little bit of disparity between the two but they're both in the mid 90s.

Okay. And then, Marc, I was wondering if you could just maybe give us a brief tutorial on some of the nuances of philanthropy in the Netherlands and the role that RLC is playing and maybe some of the idiosyncrasies of that market.

Well, first, I wouldn't call it idiosyncrasy. But the first difference is they speak Dutch. And so having a local language product is a significant asset. It turns out that the Netherlands is probably the single most philanthropic country in the world in terms of activity per member of population and also giving.

And so while they are a relatively small market with maybe 100,000 nonprofits compared to the sort of million and a half that you might find in the United States, there's a target market of 750 to 1,000 organizations that have 250,000 euro or larger sort of budget, revenue budget.

And that would be the primary target customer base for the two RLC pieces of software. The first is very similar to The Raiser's Edge, although probably less functional, but in Dutch, which is helpful. And that would cover probably a third of the market opportunity. The other two-thirds are actually membership based organizations and they have a second offering that's a membership based fundraising and membership management project -- product, which is quite unique and is quite valuable in that particular market.

I'm sorry, just wanted to make sure you said 7,500 sort of targetable large --.

No, no. I would say about -- I would say close to -- about 1,000, between 750 and 1,000. So with about one-third of those being sort of typical Raiser's Edge type customers and about two-thirds being sort of more membership type organizations. And with 80 customers, that would mean that we're something like 10% of the market at this point.

Yes. Okay, good. I can get back in queue. Thank you.

And we'll go next to Tom Roderick, Thomas Weisel Partners.

Hi, guys. Thanks and good afternoon.

Hey, Tom.

Marc, I wanted to touch on your comment there regarding a strong final month of the quarter and it certainly seemed to generate some upside. Can you talk about what your customers are telling you regarding their budgets, why you think you saw better close rates at the end of the March quarter, and what you think that means going forward into Q2 as we get into kind of the end of the fiscal year for many nonprofits? Thanks.

Well, I think that it's more our ability to manage through and sell through the environment than any fundamental underlying change in the economics of our customers. And so I'm pleased with that sales activity but I am sure not counting on it to continue into Q2. I haven't seen any really significant difference. And when I talk to customers, it just seems like they've gotten tired of waiting.

You saw a little bit of that when we looked at the Q1 economic (inaudible) and we saw for the first time that individual consumption has started to go back up just slightly. And the primary reason that people give is, "Well, we keep waiting for this to end. We've got to do something. We decided to do it now." And of course we always -- there's always sales pressure at the end of the quarter.

So I think that may have been fortuitous and I'm not counting on it to reoccur.

Great. So you have four new eCRM deals and I guess given the size of those and the nature of those deals, maybe this wouldn't be when we'd expect four to close in a quarter. So were those sort of a function of pipeline having been pretty full and finally materializing from the deals? Just maybe you can comment on why you think you saw an uptick in eCRM.

And then what's going on with the competitive dynamics in that marketplace, if you look at competitors like [Sun Guard] and Oracle perhaps? Are they showing up more in these competitive bakeoff situations or less than you've historically seen there?

I think it's absolutely what you said. The pipeline takes a little bit longer these days to work, deals take a little bit longer to work their way through. And frankly, it has somewhat less of an impact on any given quarter's revenue because most of the software and most of the business is spread out over several quarters thereafter. So the time came.

And it also means that we have a little bit -- there is a little bit less leverage for customers to say at the end of the quarter, therefore you're going to have to give us that extra 10% or whatever. We just -- given that it has no current impact, the temptation to do that is actually very small, right?

And so we've just basically waited for deals to happen at their right time, obviously trying to keep pushing them through the process. And (inaudible) show up now in this economic environment than would otherwise have done. So I think some of it slipped out from Q4 last year and some of it was just Q1 business that was planned.

Great. Thanks very much.

You're welcome.

Thanks, John.

And we'll go next to Phil Rueppel, Wachovia.

Thanks. This is actually [inaudible - microphone inaccessible] for Phil. I was wondering on the licenses again, did you see any specific segment contributing to the upside or was it just overall?

The only surprising sector, other than the fact that I was very pleased to see four eCRM deals close, but that's not going to produce a ton of revenue, the only significant factor was one eCRM deal being a softer deal as opposed to a [contractor kind] of deal. And the arts and cultural sector actually [moved so much] stronger than I expected that sector to be given that it had a fair amount of its challenges as well.

And that's a perfect example of it's been hurting for a while. People kept putting off and then some people decided, in fact, that they had to make an investment. They did not see the great turnaround on the horizon so they buckled down and made the investment.

And --.

Otherwise no significant changes in sector-by-sector basis.

Okay. And then on the subscription revenue line item, did that come in line with your plan? And I know you're not giving full year guidance, but how do you think that'll trend in terms of seasonality or through the rest of the year?

Well, we're not giving specific guidance. But I would say that it's -- as a recurring revenue item, we have somewhat better visibility with respect to subscription than we do certain other lines. We would expect as part of our -- and what we see in our business right now, that we will experience sequential growth through the rest of the year, but we're not prepared to put any specifics around that.

Thank you.

And we'll go next to John Neff, William Blair.

Hi.

Welcome back.

Thanks. A follow-up in terms of any new legislation or regulation concerning the nonprofit sector. Is there anything out there on the horizon that could affect the budgets of your customers either positively or negatively?

Concerning legislation, John, I don't see anything that I believe is going to have a material or significant impact. I think that the economic environment has obviously had an impact and I think that government grant-making and funding has gone down at all levels of government, from state and local all the way up to the federal government. And so that's changed sort of the level of need sector by sector. But that's not legislative.

Thanks very much.

You're welcome.

And it appears we have no further questions. At this time I would like to turn nit back over to management for any additional or closing remarks.

Well, we want to thank everybody for joining us on the call today and look forward to chatting with some of you over the next several weeks. Marc and I will be on the road a bit during the month of May and hopefully we'll see some of you then. And we thank you again for participating and for your support.

Thank you very much and bye now. Thank you for being on the call.

And this concludes today's conference. Thank you for your participation.