Blackbaud Inc (BLKB) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Blackbaud fourth-quarter and full-year 2011 earnings call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we conduct a question-and-answer session. And instructions will be provided at that time for you to queue up for questions. I would now like to turn the conference over to Mr. Tony Boor, Chief Financial Officer of Blackbaud. Please go ahead, sir.

Thank you, Carla. Good afternoon, everyone. Thank you for joining us today to review our fourth-quarter and full-year 2001 results. With me on the call is Marc Chardon, our President and Chief Executive Officer. We both have prepared remarks, and then we'll open up the call for your questions. Please note that our remarks today contain forward-looking statement. These statements are based solely in 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 annual 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 not that a webcast of today's call will be available in the Investor Relations section of our website. With that, let me turn it over to Marc to review our high-level financial performance and business highlights. Then, I'll come back at the end to provided greater details our fourth-quarter results as well as our guidance for the first quarter and full-year 2012.

Thanks, Tony, and thanks to everyone on the call for joining us. There are two key topics that we want to review with you today. First is the performance of our Business in the fourth quarter and the full year of 2011. And second is our view of the Business for 2012, including our strategic direction and the close of the Convio acquisition. On a performance basis, our fourth-quarter revenue is the midpoint of our guidance and grew in the mid-teens while our a pro forma operating income was above the high end of our guidance and represented a 22.5% pro forma operating margin. The fourth quarter was, indeed, a strong finish to a year that was highlighted by a number of records including record revenue and non-GAAP profit. As he shared in our press release, Tony led us in a very comprehensive audit process, and we are confident in the strong financial foundation that this has laid for our future.

Our fourth-quarter results included several unusual items in accounting adjustments which are excluded from our pro forma results and which Tony will detail in just a few minutes. What's most important from my perspective is the fact that, holding these adjustments to the side -- the underlying performance of our Business was strong for the quarter. In addition -- during 2011-- we reaccelerated revenue growth to the low double-digit range in each of our business units -- General Markets, Enterprise, and International delivered a solid performance. Our view of the market environment remains unchanged. While the world economy continues to face challenges, the pace of charitable giving continues to move in a positive direction and has returned to pre-recession levels.

Just last week, we announced that our Blackbaud index of giving rose 2% year-over-year for the fourth quarter, while online giving increased 13% for that fourth quarter year over year. We continue to see that nonprofits accept the current environment as the new normal, and it's more important now than ever for them to invest in innovative solutions that can help them become more efficient and optimize their fundraising in a relatively tight fundraising market. We are seeing particularly strong demand for margin nonprofit organizations which is where are our Blackbaud CRM offering is primarily targeted. During the fourth quarter, we had another strong performance with six new CRM wins, of which half are implementing our direct marketing solution as well.

These latest customers to adopt CRM include an important charity in Australia, the foundation of a major state university, Autism Speaks and the Great Commission Ministries. Our solid sales execution during the fourth quarter contributed to a record 23 Blackbaud CRM wins during 2011, which was up over 60% from our previous record level. In fact, during the fourth quarter, our Blackbaud CRM offerings generated a higher level of total sales bookings than our flagship Raiser's Edge offering. And equally important to our sales success is the fact that we are having broad-based success moving Blackbaud CRM customers into live production. During 2011, 12 CRM customers went live -- a record level that was up from nine go-lives in 2010, which means that a total of 28 customers have Blackbaud CRM in everyday use.

I'd like to provide an update on the handful of early adopter CRM customers where implementations are both complex and involve somewhat unique requirements. As even mentioned on previous calls, we continue to make good progress in bringing these implementations into full production. However, in the fourth quarter, we took a charge against our revenue in recognition of the remaining work to bring four of these CRM implementations to a successful conclusion. With two of these four customers, we have identified work needed to complete the functionality required to manage the very largest and highest volume direct marketing programs.

Our current direct marketing solution addresses the needs of the vast majority of the Enterprise Direct Marketing market, and we continue to enjoy a very nice adoption rate, as I referenced a minute age. However, to address unique high-volume requirements associated with the top few percent of the direct marketing market, we are increasing our R&D investments during the first half of 2012 to deliver a set of features that were identified working with these two customers. With the other two customers, we continue to work through the final stages of complex implementations involving highly federated organizations, each of which has a number of simultaneous Chapter implementations. Both of these customers now have Pilot Chapters Live -- the last one starting just this past Monday -- which is a significant milestone.

We expect to make continued progress moving these distributed organizations into full production in the coming quarters. Each of these four customers is truly a valued partner to Blackbaud, and we believe our decision to increased investments in these relationships will pay for itself over the longer-term, based on the goodwill that it earns us and on our ability to leverage this R&D work and implementation know-how with future customers. As we begin 2012, we are very optimistic about the future of our Blackbaud CRM business. We have a clear product road map, a strategy and a plan for moving our remaining early adopter customers into production and our pipeline of opportunities are strong.

We believe we are approaching an important threshold relative to sales momentum, customer reference ability and proven methodologies for moving customers into production smoothly. It's also important to point out that the traditional market for our Raiser's Edge offering remains quite underpenetrated as well. Raiser's Edge was the most significant contributor to our total sales bookings for the full-year 2011, and Blackbaud name remains the market leader in this important segment of the market. Of course, the Raiser's Edge is only one of a number of solutions that are sold by our General Market's business unit which delivered excellent results throughout 2011.

We have spoken in the past about our increased focus on packaging, promotion, and pricing of our overall suite of solutions sold by the general markets business. Over time, we have launched new offerings such as Spark and Grow, introduced subscription-based pricing for traditionally perpetualizing solutions such as the Financial Edge and our Small School Solution and delivered a number of vertical-specific offerings in areas such as arts and cultural and education. We have realized tremendous success with this strategy. In fact, sales from this suite of new offerings went from a standing start in 2009 to over $10 million in 2010 to over $20 million in 2011.

We don't intend to break out pipeline detail on a quarterly basis, but I wanted to provide some extra color to illustrate the success of our go-to market strategy in these general markets. Our international business unit also delivered solid growth during the fourth quarter and for the full year, it grew faster than our overall business. We still have a lot of work ahead of us to grow further our international revenue, but we are pleased with the progress we have made during 2011. For the full year, international represented 14.4% of our revenue, which is up nearly a percentage point from 2010 and aligns with our longer-term goal of generating 20% to 25% of our revenue from our international operations. One of the Blackbaud's great achievements during 2011was the continued progress of our strategy to move more of our business to a subscription-based business model.

For the full-year 2011, the number of subscription units sold outnumbered software units by nearly four times. Similarly, our subscription revenue is more than four times the level of our software revenue during the fourth quarter. Of course, one of the primary drivers of our subscription revenue is the strong growth of our online fundraising solutions. As we developed, online fundraising solutions was the largest driver of new sales activity during the fourth quarter. Even so, we've barely scratched the surface of the online fundraising opportunity. Blackbaud's online fundraising solutions represent less than 15% of our total revenue for the full-year 2011, and we currently manage less than 5% of the total online donations raised in the United States.

Our share of the online fundraising market is even smaller when we consider the global online fundraising opportunity. Just over a month ago, we announced our agreement to acquire Convio to expand our capabilities, better serve customers and improve Blackbaud's ability to address the significant online fundraising opportunity. While we continue to proceed through the regulatory process -- as we announced last week -- we are still operating as an independent company, which is entirely appropriate. But we are even more excited about the potential associated with bringing our two companies together based on the preliminary planning meetings we have held thus far. Our cultures are a good fit, and both teams are excited to begin the integration process, once we receive the appropriate regulatory approval.

Convio's strength in online and social offerings is a great complement to our experience, and its addition to Blackbaud will enable us to better serve nonprofit organizations. (inaudible)-based online fundraising is a core competency of Convio, particularly with large federated enterprises and advocay-based organizations. The growth of Blackbaud's online fundraising solutions, on the other hand, has been driven primarily by our focus in mid-market nonprofit organizations. The addition of Convio should enable Blackbaud to effectively serve the online fundraising needs of the smallest to largest nonprofit organization. We believe we will have a compelling best-of-both worlds offering for large nonprofit organizations that has strong capabilities for both online fundraising and CRM.

Moreover, once the acquisition closes, the addition of Convio dramatically accelerates progress towards our strategic objective of expanding our subscription-based business. To summarize, we successfully reaccelerated Blackbaud's revenue growth during 2011, and we begin 2012 with solid momentum. We plan to invest in our Business in the year ahead in order to build on this momentum and to position us well to scale efficiently over the long-term. A major part of our strategy for 2012 is closing, integrating, and fully leveraging our acquisition of Convio. We believe the addition of Convio will enable Blackbaud to deliver the most comprehensive and compelling set of multi-channel supporter engagement solutions to nonprofit organizations of all sizes. We believe we are well positioned to make significant progress on our long-term goal of scaling Blackbaud to $1 billion in greater end revenue. With that, let me turn it back to Tony.

As everyone knows, I joined Blackbaud during November 2011, and as such, this was the first time I went through a quarter close and year-end audit for the Company. In addition to focusing on the work required to complete the acquisition of Convio. I spent a significant amount of time doing a deep dive into Blackbaud's financial processes to ensure we had a solid financial foundation to move forward with. I feel very good about the depth of the analysis performed and where we stand today. However, we did identify certain prior-period errors related principally to revenue recognition, accounting for income taxes, and the capitalization of software development costs. We concluded these errors were not material, individually or in aggregate to any of the prior reporting periods.

Therefore, amendments of previously filed reports were not required. Specifically, the net income impact of these errors was a decrease in net income of $600,000, $900,000, $1.6 million and $2.2 million for the years ended December 31, 2010, 2009, 2008, 2007 and 2006, respectively. And an increase in net income of $600,000 for the nine months ended September 30, 2011. There were visions for these corrections so the applicable prior periods will be reflected in our annual report on Form 10-K for 2011, which we expect to file in a timely fashion this month. Our press release issued after the market closed today included -- as reported versus as revised tables, along with a pro forma reconciliation for our fourth-quarter 2011 results that we believe will provide investors with a better understanding of the underlying performance of our business.

We also posted additional supplemental schedules dating back to 2006 on the investor relations page of our website that we encourage investors to review. In our press release, we included a traditional non-GAAP reporting format for the fourth quarter of 2011, and we added a pro forma format that excluded the impact of unusual items and accounting adjustments that I'll detail in a moment. On that basis, pro forma revenue was $99 million for the fourth quarter, an increase of 15% year-over-year and at the midpoint of our guidance range of $98 million to $100 million. Pro forma operating income was $22.2 million above the high end of our guidance of $19.6 million to $21.1 million and representing a pro forma operating margin of approximately 22.5%.

Finally, pro forma non-GAAP EPS was $0.31 above the high end of our guidance of $0.27 to $0.29. We believe this framework is the best way to evaluate fourth-quarter performance relative to guidance that was previously issued. Let me drill into our results in more detail. Total revenue was $95 million, which is $4 million less than the pro forma revenue I just referenced. Blackbaud recognizing a $3.4 million charge against its revenue in recognition of the remaining work required to bring several early adopter DRM implementations to successful conclusion, as Marc referred to earlier. We believe our decision to invest in these relationships is absolutely the right thing to do, considering the fact that these customers have provided great help to Blackbaud in defining, shaping and testing new capabilities that can be leveraged by other Blackbaud CRM customers over time.

The remaining fourth-quarter revenue reduction, which related primarily to our services revenue was an accounting adjustment of approximately $600,000. Half of this related to an additional adjustment on setup fees which we discussed last quarter. We determined that the user life of certain subscription customers was longer than our original estimate. The remaining related to our move to ratable revenue recognition instead of upfront for a revenue stream associated with our target analytics offering. I hope the combination of the review I just provided, along with the supplemental schedules we provided in our press release helps to illustrate to Blackbaud's revenue performance for the fourth quarter was consistent with our expectations excluding the impact of these unusual items.

Let me also be clear -- we do not want the analysis of our revenue to be this complicated moving forward. The reason we went through a thorough analysis of our accounts far above what is required by standard year-end audit process was to make we had a strong foundation on a go-forward bases. In addition, we will make certain targeted investments during 2012 to further improve our financial processes. Let me now turn to the details of revenue performance. Pro forma subscription revenue was $28 million. This represents an increase of 28% on a year-over-year bases. We continue to see subscription revenue becoming a growing revenue of our Business, and it was more than four times the size of our pro forma license revenue for the quarter.

Pro forma license revenue was $6.7 million, up 4% year-over-year, and pro forma services revenue was $27.7 million up 19% year-over-year. We continue to see strong demand for services related to our Blackbaud CRM offering and our suite of subscription-based offerings. Maintenance revenue was $33.3 million, an increase of 5% year-over-year and driven largely by our strong maintenance renewal rates that remain in the mid-90% range. Turning to our profitability measures -- we generated $59.4 million in pro forma gross profit in the quarter, representing a pro forma gross margin of 60%. Pro forma operating income was $22.2 million, representing a pro forma operating margin of 22.5% and year-over-year growth of 26%. The effective tax rate for pro forma results in the quarter was again, 39%, leading to pro forma non-GAAP diluted earnings per share of $0.31, which was above our guidance range of $0.27 to $0.29.

We ended the fourth quarter with $52.5 million in cash, compared to $52 million at the end of last quarter. We generated $16.7 million in cash from operations for the fourth quarter of 2011, finished the year with $85.5 million in cash from operations. This represented an increase of 53%, compared to the $56 million in cash from operations for the full-year 2010. As it relates to our future balance sheet, I also wanted to highlight that we were very pleased with the strong interest levels that we received from institutions seeking to lend Blackbaud capital as part of our pending acquisition at Convio. We closed on a $325 million credit facility that matures in February 2017 which provides us with financing capacity to complete the transaction.

In addition, we believe we secured favorable terms on this future debt as detailed in our filings. I would like to finish with some thoughts regarding our financial outlook. And to be clear, we are doing so for standalone Blackbaud. We will address combined Company guidance after the acquisition of Convio has closed. With that, let me start with full-year 2012. We currently expect revenue growth in the low double-digits to low-teen range or approximately $410 million to $420 million. This includes a negative impact of approximately $1.5 million related to the change in accounting for set-up fees that was previously discussed. We are currently targeting the non-GAAP operating margin of 20% for the full-year 2012 or $82 million to$ 84 million in non-GAAP operating income.

This represents a best-in-class operating margin for a growing software company -- albeit down slightly on a year-over-year basis -- due to several areas of additional investment and expense -- approximately $1 million of incremental R&D to expedite features related to our Blackbaud CRM offering -- as we reference earlier -- between $1 million and $1.5 million in additional G&A costs related to the extra work required to complete our 2011 control environment evaluation and financial audit, along with related follow-on investments focused on strengthening our back-office processes. And the previously mentioned adjustment to set-up fees will reduce our 2012 non-GAAP operating income by slightly over $1 million.

In addition, we plan to increase growth oriented investments across each of our business units during 2012 as we look to build on the accelerated revenue growth we generated in 2011 and make progress towards our longer-term goal of $1 billion in revenue. This all translates to non-GAAP earnings per share in the approximate range of $1.12 to $1.15 for the full-year 2012. We expect the acquisition of Convio to be accretive to our non-GAAP EPS, though we need to wait until after the acquisition has closed to discuss any specifics related to that. Turning to the first quarter of 2012 ¶ We are currently targeting total revenue in the range of $94 million to $95 million, and non-GAAP operating income of $13.5 million to $14.5 million. A couple things to consider in looking in our Q1 operating expenses -- first -- the incremental R&D spend and G&A expenses that I referenced a moment ago were largely weighted in the first half of 2012 and in the first quarter, in particular. We expect these expenses to normalize in the second half of the year. Second -- there is a seasonal sequential increase of $3.7 million associated with employee taxes, benefits and accruals during the first quarter of the year. Finally, one of the projects that I undertook after taking over as CFO was engaging with a consulting firm to do a comprehensive review of Blackbaud's organization, processes and go-to market strategies with a goal of identifying ways to improve our efficiency as we continue to scale our operations. We are excited by the initial report, which indicates there are a number of areas in which we can improve.

During the first half 2012, we expect to realize an additional expense of approximately $2 million, as the execute against this program. We expect this spend to be offset by an equal amount of savings through efficiencies to be realized in various operational areas during the second half of the year, positioning us for continued improvement as we entered 2013. The combination of our revenue and expense expectations translates to non-GAAP earnings per share of approximately $0.19 to $0.20 for the first quarter of 2012. In closing -- while there was an unacceptable level of noise in the financial results discussed today, we are putting in place the right business processes to keep this from recurring. And it shouldn't distract from the three key financial points that I would like to leave you with.

First, our fourth-quarter performance was consistent with or better than our guidance on a pro forma bases. Second, we made significant progress, continued to shift our business to subscription-based offerings during 2011. And we expect to continue during 2012, particularly following the acquisition of Convio. Third, we feel very good about our Business as we start 2012. We are targeting revenue growth in the double-digit -- the low-teens range with a 20% operating margin. At the same time, we make important investment in our Business to drive long-term growth and profitability. With that, we are happy to take questions.

(Operator Instructions)

Tom Roderick, Stifel Nicolaus.

Maybe I can start with some of the mechanics of the growth in the subscription line because this has been a key part of the story and it continues to do very well -- I am curious as to how much of that growth is coming from new customers versus conversion of existing customers that may have been on a perpetual license plus maintenance agreement. What is happening there? Can you walk us through the dynamic as we end 2011? What are the drivers of that subscription growth -- new versus existing? How do we think about that going forward?

In terms of the software part of the subscription growth -- I will remind you that subscriptions include analytics subscriptions and hosting and so on. Almost all of the growth in the software part of subscriptions happens through new units, and there's very little conversion of existing customers to a subscription offering. That said, an existing Raiser's Edge customer who goes and takes on hosting will have bought a hosting subscription with us. So there is back-to-base sales of subscriptions of new services to existing customers. That would also be true if they were an analytics subscriptions sold to a existing software customer. Basically, in terms of new units -- new units software subscriptions are essentially 100% new as oppose to back-to-base or conversion.

Okay. That's helpful. Second question -- in thinking about the dynamics of the giving index as you saw at the end of the year up a couple of percent -- how does that map relative to the overall business trends you saw from a new bookings standpoint and maybe translating that across? Tony -- a question to you -- as we look at the guidance for next year of $410 million to $420 million, $93 million to $95 million in the first quarter -- can you help us understand your assessment of the organic growth rate in that once we adjust for any of the noise in the numbers? It seems there's not much going forward in the guidance, but I want to be clear about that.

Marc, do you want to take the index piece?

When I talk about new normal, what people are realizing is we have gotten back to where donations were before the downturn, but it's not expanding at some extraordinary rate and people are very cautious to give money. What we are seeing is more and more organizations are making the decision to invest in new channels of fundraising or new tools and that is part of why multichannel fundraising is such an important strategy for us. Adding an event -- if you don't do events -- or adding major giving if you are primarily event-driven -- those multichannel approaches are being more and more sought after because the fundraising sources are not really exploding.

And yet need is going up faster than fund sources. That's how I describe the situation. The second part to point out is that there is a mix shift happening in fundraising. This shift toward online doesn't necessarily increase the overall pond but the percentage of the pond that ends up going through the online properties is increasing, and that gives incremental opportunities in terms of merchant services, in terms of new forms of analytics and so on. Our merchant services business did a brilliant job last year of growth.

From a revenue perspective of is there anything included -- I think the only material item of note would be the setup fee impact that carries into 2012 from the latter half of 2011, and we have estimated that at about $1.5 million negative impact on revenue for 2012 guidance. From an organic perspective -- PIDI is almost a full year behind us by the time we get into Q1.

The only change would be services. We had some services in terms of what was recognized and when things were moved from one.

PIDI is largely a year behind us in Q1. I think Everyday Hero is so small to the overall the $400 million plus that it is not meaningful. The growth rate that we gave of that double digit to low teens is reflective of organic.

That $1.5 million, Tony, will that come in the first quarter of the setup fee side?

It is spread, with the largest portion of it coming in Q1 and Q2. So we will get that first four-quarter impact of the change. There's a little bit of tail that goes into Q3, but I would put the majority of that in the first two quarters.

Phillip Rueppel, Wells Fargo Securities.

Can you give us an update of the process for the Convio acquisition? You've had to delay it, somewhat. Do you have a new timeframe for when you think things could be wrapped up with the DOJ? As a corollary to that, have there been any customer delays in your own online products as they try to figure out what you are going to be offering potentially going forward?

We are basically on the scene timeline I announced when we were on the call on the 17th. I said I thought we could close at this quarter, and I still think we can close at this quarter. That said, we don't control the process, so we will see what happens. We expect to achieve the approval, and I know we will keep investors apprised if anything changes. So that is what I can say at this point. Understand, we are a very complicated business even for the size of our Company. It takes a while for you to be able to digest all the information that is required in order to come to a deliberate and appropriate conclusion. I suspect that's where the Department of Justice finds themselves right now.

In terms of product freeze or sales freeze right now, we have a broad suite of products, so most of the products are unrelated to this. If you take a look at Raiser's Edge, Financial Edge, Education Edge, Patron Edge and so on, they are, as far as I can tell, they are relatively on track and the momentum is untouched by this. We have seen a few customers asking questions and saying what's going to happen afterwards. You will see a little bit of that happening, and our guidance includes that consideration. We took into consideration when we built our plans. That said, it's not a major factor for us right now.

That's helpful. Tony, you mentioned the unusual nature of at least $3.4 million of the charge against revenues this quarter. What is the potential that we could experience that again with other early CRM adopters? Are you comfortable with the fact that the six you signed up this quarter have contracts that are clean, and going forward, we shouldn't see this issue again?

As you know we have three primary areas. The higher ed area -- we are very confident that all of our deals are easily implementable. We have been doing this for a while. We have gotten over the early phase of the implementation. We are very comfortable with all the deals we have sold in the quarter. I have absolutely no qualms about the deals sold in the quarter. If you take a look at the backlog of deals that haven't implemented yet, there are 60 plus that are out there. There are 28 live which leaves just a little over 30, and of those 30, 23 were sold this year. It's an 18-month cycle for most of these deals, at a minimum. Some of them -- as you know, the very big ones will be quite a bit longer. I am quite comfortable that we have a very clear understanding, and the contractual terms behind it, to not see this kind of magnitude of project happen in the kinds of deals that we have just been selling the past several quarters. Very comfortable.

You mentioned in the ongoing review that there were changes to software capitalization and it looked like that bumped up significantly. Is that a new run rate for software capitalization or was there some catch up involved in that? How should we look at that going forward?

Historically, it has not been material for us. So we've never have enough that qualified for capitalization that mattered until 2011. From that perspective, it is a bit of an anomaly. The net number on the year is roughly $1 million -- a little higher than that -- and some amortization, of which, all of it fell within Q2 and Q3 so there is no impact on Q4. Going forward, the amortization of those amounts spread and then we will have to see how new development work goes. The rules are so specific, I would have to benchmark based upon our history and our history has said -- we typically don't have a significant amount of capitalized software.

Operator Instructions)

Ross MacMillan, Jefferies.

I want to go back to the credit for the ECRM customers and understand what the trigger was for that charge to be taken in Q4. Was it of your volition -- was it your auditor -- was it the customers? Could you help me understand that?

I had a hard time understanding -- I think you are saying -- what was the trigger or the instigation and what was the decision process that caused us to make the decision to take these charges now? Is that right?

Yes.

These are four customers I have been talking with you about for several quarters. These customers are part of that handful of early adopters, so this is an ongoing process. We got to a point where it became clear to us what we needed to do in order to get these customers to the right place. The two direct marketing customers, as I mentioned -- there was some clear functionality to do. And for the chapter-based customers -- once you get to the initial chapters live you have a much better understanding of what you need to do to get the rest of the chapters live. It is about coming to clarity. There is no one day when you come to clarity. It is dozens of decision points across four different customers, and it added up to this.

Tony and I looked at this, and part of the audit process was to become very clear about -- once we get to the point of understanding what you need to do, you take that and you put that charge in, and that is what actually happened. This said, it's four customers I have been talking to amongst a handful of customers. We have a great business that has super momentum -- 12 go-lives in the past year and 23 new sales. Even through this process, several of these customers have provided significant references for us and have helped us continue because they viewed us as a partnership, and that is what Tony meant when he was talking about investing in a partnership. It's a product but it's also a business relationship that lasts a decade plus for these kinds of organizations.

That's helpful. Maybe a long the same lines or as a follow-up to that -- when you think about the customers you still have to go live, I presume these four have been very much in that, you mentioned a few times, early adopter set. I think you answered a question a couple ago that suggests your perception in terms of having to do something similar in the future is very low at this point.

We are very clear that in both of these areas. We know what we need to do. We know what we are selling and we can be quite prescriptive because the product and our implementation processes have gotten to the right point. That is why you see the momentum building, in terms of sales. That is why customers are convinced when we walk in the door. It's a small industry. People talk to each other, and they buy knowing where we are. Yes, these customers have been around for a while. The customers that we have sold to in the past two years -- in 2010 and 2011 -- I feel very confident of our ability to implement these customers and to know exactly -- that we know what we are implementing when we start, that they know what they are buying when we start, and that we enter into it with a very clear understanding of how to get to the far end and how to get them happy and productive and help them raise money to raise their missions.

That's helpful. Maybe two for Tony, just on the guidance. I think I heard you say this, but is this growth rate based off the pro forma non-GAAP numbers -- the 99 for 4Q and the pro forma non-GAAP for all of 2011 -- that is the baseline revenue from which you are looking to grow?

You can look too, because we gave specific revenue ranges, so I would tell you, so there is not confusion. We said for $410 million to $420 million. That way -- want to make sure there is not confusion in any math. I'm sorry, was there --

Yes. I had one other one -- that it relates to the somewhat immaterial historic changes. I just wanted to make sure -- Blackbaud as a Company has historically paid a lower cash tax rate than the statutory rate for a couple of main reasons. My understanding is that doesn't change with any at these historic revisions, but I just wanted to confirm that with you.

The only thing that potentially changes is we did have a tax adjustment related to Section 162M, which will be a small amount, relatively, of the incremental cash tax we will pay. To the overall effective tax rate, it will have next to no impact. That will be one time.

Sterling Auty, JPMorgan.

It's Saket here for Sterling. A couple quick questions -- sales and marketing was down quarter-over-quarter. Was there any seasonality you could speak to?

Nothing intentional. The sales and marketing numbers depend a lot on when certain campaigns hit. Overall, the full year -- the general markets business was quite good at expanding revenue per rep and so on. There was some specific progress made in the general markets business in sales and marketing that accounts for a fair amount of that. That said, it depends on when you commit to what kind of campaign. There is nothing intentional there. We have the right level to drive the business that we are driving.

Marc, as you look at 2012 -- specifically within the license line -- do you think we have reached a natural level of demand for license revenue or do you think that will continue to decline?

I think the shift to go to subscription over time. When the Convio acquisition closes, there will be an ever higher incentive to move up towards SaaS more quickly, especially in the mid market, and potentially also in the international business. There's a certain part of the enterprise market, especially the higher ed and hospital sectors, where there is an ongoing desire to run the product on your own systems. For the next several years -- where several means three years to five years -- there is a portion of the business that will be driven primarily by CRM and Raiser's Edge or Raiser's Edge follow on product. That will be licensed based primarily in those verticals I just mentioned, but in general, the shift to SaaS will continue to go and could even go somewhat faster over time in the other segments I am talking about -- especially with Convio.

For Tony, as you've taken a deeper dive into the business, how do you view the long-term profitability for the Company? I know that 2012 was a bit of an anomaly with some of the investments that you're making. Longer term, how do you view the margin profile?

Obviously, as I said in my prepared remarks, we have very good strong margins despite the fact that, as you said, that we are making some incurrent investments. What I have seen thus far that there is certainly some opportunity for margin expansion. You can see some of that in our numbers where we have gained some leverage from an OpEx prospective. It will be interesting once we get Convio done -- to see what that does to our overall margin structure. Obviously, where they are, that's going to have an impact in more shifts to the subscription model. The work we are doing with this consulting firm should give us some leverage potentially going into 2013. It's one of the things where I need to get Convio done, get that integrated a bit, understand the numbers, get another quarter or two under my belt and then I will be in a much better position to be able to come back and talk about it. But I do believe that there is some room for margin expansion -- '13 and forward

Ladies and gentlemen, that is all the time we have for questions today, at this time. I would like to turn it back to Management for any closing or additional remarks.

We are willing to take more questions at this point. I'm sorry. I don't believe we have a time horizon.

(Operator Instructions)

There appears to be no further questions.

Thank you everybody. We appreciate everybody being on the call. We will look forward to talking with you when we have something to announce relative to our acquisition or at the next quarterly call. Bye-bye.

That does conclude the conference call for today. Thank you for your participation.