Blackbaud, Inc. (BLKB) Q4 2011 Earnings Report, Transcript and Summary

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. [Operator Instructions] I would now like 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 2011 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 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 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 note 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 provide greater details on our fourth quarter results as well as our guidance for the first quarter and full-year 2012.

Thank you, Tony, and thanks to everyone on the call for joining us. There are 2 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 in the close of the Convio acquisition. On a pro forma basis, our fourth quarter revenue was at the midpoint of our guidance and grew in the mid-teens, while our 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 I shared in our press release, Tony led us in a comprehensive audit process and we're confident in the strong financial foundation that this has laid for our future. Our fourth quarter results included several unusual items and 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 largely 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're seeing particularly strong demand from large nonprofit organizations, which is where our Blackbaud CRM offering is primarily targeted. During the fourth quarter, we had another strong performance with 6 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 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're 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 9 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 adopters CRM customers where implementations are both complex and involve somewhat unique requirements. As we have 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 4 of these CRM implementations to a successful conclusion, but 2 of these 4 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 enterprise direct marketing market, and we continue to enjoy a very nice adoption rate as I referenced a minute ago. However, to address unique high volume requirements associated with the top few percent of the direct marketing market, we're increasing our R&D investments during the first half of 2012 to deliver set of features that were identified working with these 2 customers. With the other 2 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 4 customers is truly a valued partner to Blackbaud, and we believe our decision to increase 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're very optimistic about the future of our Blackbaud CRM business. We have a clear product roadmap, a strategy and a plan for moving our remaining early adopter customers into production, and our pipeline of opportunities is 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 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 Markets Business Unit, which delivered excellent performance 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've launched new offerings such as Spark and Grow, introduced subscription-based pricing or traditionally perpetual license 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've 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. And 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're pleased with the progress we've 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 Blackbaud's great achievements during 2011 was 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 4x. Similarly, our subscription revenue was more than 4x 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. Our suite of 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 managed 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 our 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're still operating as independent companies, which is entirely appropriate. But we're even more excited about the potential associated with bringing our 2 companies together based on the preliminary planning meetings we've 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. Task-based online fundraising is a core competency of Convio particularly with large federated enterprises and advocacy-based organizations. The growth of Blackbaud's online fundraising solutions on the other hand has been driven primarily by our focus in midmarket nonprofit organizations. The addition of Convio should enable Blackbaud to effectively serve the online fundraising needs of the smallest to largest nonprofit organizations, and we believe we’ll 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 multichannel supporter engagement solutions to nonprofit organizations of all sizes. We believe we're well-positioned to make significant progress on our long-term goal of scaling Blackbaud to $1 billion and greater in revenue. With that, let me turn it back to Tony.

Thanks, Marc. 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 with the company. In addition to focusing on the work required to complete the acquisition of Convio, I've spent a significant amount of time doing a deep dive into Blackbaud's financial processes to ensure that 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. And therefore, amendments of previously-filed reports were not acquired. Specifically, the net income impact of these errors was a decrease in net income of $600,000, $900,000 $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 9 months ended September 30, 2011. The revisions for these corrections to 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 our fourth quarter performance relative to the 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 recognized a $3.4 million charge against its revenue in recognition of the remaining work required to bring several early adopter, CRM 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 in Blackbaud in defining, shaping and testing new capability 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. After this related to an additional adjustment on setup fees, which we discussed last quarter, we determined that the useful life of certain subscription customers was longer than our original estimate. The remaining related to our move to a ratable revenue recognition instead of upfront or a revenue stream associated with our target analytics offering. I hope the combination of the review I just provided, along with supplemental schedules we provided in our press release, helps to illustrate that 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 don't 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 processes, was to make sure we had a strong foundation on a go forward basis. 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. We continue to see subscription revenue becoming a growing percentage of our business and it was more than 4x 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 both 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 of 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 to [ph] Blackbaud capital as part of our pending acquisition of 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'd 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 teens 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 setup fees that was previously discussed. We are currently targeting a 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 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 referenced 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 setup 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. As we previously discussed, we expect the acquisition of Convio to be accretive to our non-GAAP EPS, that 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 $93 million to $95 million and non-GAAP operating income of $13.5 million to $14.5 million. A couple of things to consider in looking at our Q1 operating expenses. First, the incremental R&D spend and G&A expenses that I referenced a moment ago are 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's 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 operations. We're excited by the initial report, which indicates there are a number of areas in which we can improve. During the first half of 2012, we expect to realize an additional expense of approximately $2 million as we execute against this program. We expect the 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 enter 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're putting in place the right business processes to keep this from reoccurring, and it shouldn't distract from the 3 key financial points that I'd like to leave you with. First, our fourth quarter performance was consistent with, or better than our guidance on a pro forma basis. 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. And third, we feel very good about our business as we start 2012. We are targeting revenue growth in the double-digit to low teens range, with a 20% operating margin at the same time we make important investments in our business to drive long-term growth and profitability. With that, we're happy to take your questions.

[Operator Instructions] Our first question comes from Tom Roderick with Stifel, Nicolaus.

So maybe I could start with just a question on some of the mechanics here of the growth in the subscription line because this has been kind of a key part of the story and it continues to do very well. I'm curious as to how much of that growth is coming from sort of new customers versus conversion of existing customers that may have been on a perpetual license plus maintenance agreement. What's happening there, can you kind of walk us through the dynamic as we end 2011? What are the drivers of that subscription growth, new versus existing and how do we think about that going forward?

Well, in terms of the software part of the subscription growth, I'll remind you that subscriptions include analytics subscriptions and hosting and so on. The primary -- almost all of the growth in the software part of subscriptions happens with new units. There is very, very little conversion of existing customers to 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 there were an Analytics subscriptions sold to an existing software customer. But basically, in terms of new units, new unit software subscriptions are essentially 100% new as opposed to back to base or conversion.

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

Marc, you want to take the index piece?

Yes. When I talk about new normal, what people are realizing is that what we've sort of 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. And so what we're seeing is, that more and more organizations are making the decision to invest in new channels of fundraising or new tools and that's 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're primarily event-driven. Those multichannel approaches are being more and more sought after because the fundraising sources aren't really exploding. And yet, need is going up faster than fund sources. So that's how I describe the situation. The second part to point out is that there is a mix shift happening in fundraising. The shift towards 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. And our Merchant Services business did a brilliant job last year of growing.

So I think on the -- from a revenue perspective, 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 '11? And we've estimated that at about $1.5 million impact -- negative impact on revenue for 2012 guidance. Organic perspective, I think with -- from an organic perspective, I think PIDI is almost a full year behind us by the time we get into Q1.

The only change would be services in terms of what -- we'd had some services changes in terms of what was recognized and when things are moved from when.

Right. And then I think PIDI is largely a year behind us in Q1 and then I think Everyday Hero is so small to the overall $400 million plus that it's not meaningful. So I think the growth with that we gave up that double-digit to low teens is reflective of organic.

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

It is spread with, I think the largest portion of it coming in Q1 and Q2. So we’ll get kind of that first 4 quarter kind of impact of the change. There's a little bit of tail that goes into Q3, but I put the majority of that in the first 2 quarters.

Moving on, we’ll hear from Philip Rueppel with Wells Fargo Securities.

Can you give us an update on the sort of the process for the Convio acquisition in terms of -- 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 and as a corollary to that, have there been any customer delays in your own online products as they try to figure out what you're going to be offering potentially going forward?

Thanks, Phil. So I think that we are basically on the same timeline that I announced when we were on the call on the 17, I said that I thought we could close it this quarter. And I still think we can close it this quarter. That said, we don't control the process and -- so we'll just see what happens. We really expect to achieve the approval and I know that this – we’ll keep investors apprised if anything changes. So that's pretty much what I could say at this point. And I understand we are a very complicated business, even for the size of our company. And it takes a while for you to be able to digest all the information that's required in order to come to a deliberate and an appropriate conclusion and I suspect that's where the Department of Justice find themselves right now. That said, in terms of product freeze or sales freeze right now, we have a really brought you the product. Since our -- most of the products are really unrelated to this. I mean, if you take a look at Raiser's Edge, Financial Edge, Education Edge, Patron Edge, and so on, they're relatively, as far as I can tell, relatively on track and the momentum is sort of untouched by this. We have seen a few customers asking questions and say, “what's going to actually happen afterwards?”. And so you will see a little bit of that happening and our guidance includes that consideration. We took that into consideration when we built our plans. That said, it's not a major factor for us right now.

Okay, great, that's helpful. And then maybe, Tony, I mean you mentioned that 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 and are you comfortable with the fact that sort of the new -- the 6 you signed up this quarter have contracts that are clean, and going forward we shouldn't see this issue again?

Yes, Phil let me take that. As you know, we have sort of 3 primary areas. The higher end area, we are very, very confident that all of our deals are easily implementable. We've been doing this for a while. We've basically gotten over the early phase of the implementation. And we're very comfortable with all of the deals that we've 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, 23 -- there's 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 and some of them as you know, the very big ones will be quite a bit longer. So I'm quite comfortable that we have a very clear understanding and there's contractual terms behind it to not see this kind of magnitude of project happen in the kinds of deals that we've just been selling in the past several quarters. Very comfortable.

Great. And then final question for me. You mentioned that part of -- in the ongoing review that there were changes to software capitalization. It looks like that bumped up significantly. Is that a -- kind of a new run rate for software capitalization or was there some catch up involved in that and sort of how should we look at that going forward?

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

[Operator Instructions] And now we'll hear from Ross MacMillan with Jefferies.

I just want to go back to the credit for the new CRM 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?

Yes. I had a very hard time understanding, but let me -- I think you're 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.

Okay. Well, most of our -- these are 4 customers I've been talking with you about for several quarters. These customers are part of that handful of early adopters, and so this is an ongoing process. Basically, we got to point where it became clear to us what we needed to do in order to get these customers to the right place. The 2 direct marketing customers as I mentioned, there was some clear functionality to do, and for the chapter-based customers, once you get those initial chapters live, you have a very -- a much better understanding of what you need to do to get the rest of the chapters live. So it's really about coming to clarity. And there's no one day when you come to clarity. It's dozens of decision points across 4 different customers and it added up to this. And 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's what actually happened. This said, it's a -- it's 4 customers I've been talking to amongst a handful of customers. We've got a great business. It's got super momentum where, 12 go lives in the past year and 23 new sales. So even through this process, these customers -- several of these customers have provided significant references for us and have helped us continue because they view this as a partnership, and that's 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. And maybe along the same lines or as a follow-up to that, when you think about the customers that you still have to go live, I presume that these 4 have been very much in that kind of -- you mentioned a few times, early adopter set. So 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.

I think that's -- something like this is I think we're very clear that both of these areas, we know what we need to do and we know what we're selling and we can be quite prescriptive because the product and our implementation processes have gotten to the right point. That's why you see the momentum building in terms of sales, that's why customers are convinced when we walk in the door. I mean people -- -- it's a small industry. People talk to each other. And they buy, knowing where we are. And yes these customers have been around for a while. The customers that we have sold in the past 2 years in 2010 and 2011, I feel very confident of our ability to implement these customers and to know exactly -- that we're -- that we know what we're implementing when we start. That they know what they're 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. Just maybe 2 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 so the 99 for 4Q and the pro forma non-GAAP for all of 2011? That's the baseline revenue from which you're looking to grow?

Yes I think, and you can look too because we gave obviously specific revenue ranges, so I would tell you, so there's not confusion, we said for $410 million to $420 million. That way, I'll make sure that's not confusing any math. And I'm sorry was there...

Yes. I had one other 1. And it relates to the somewhat kind of 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. And my understanding is that, that doesn't change with any of these historic revisions. But I just wanted to confirm that with you.

I think the only thing that potentially changes is that we did have a tax adjustment related to section 162M, which will be a small amount relative of incremental cash tax we'll pay, but to the overall effective tax rate, it will have next to no impact. And that will be a onetime.

And now we'll open the floor up to Sterling Auty with JPMorgan.

It's Saket here for Sterling. So a couple of quick questions from my side. Sales and marketing I think was down quarter-over-quarter. Was there any seasonality there that you could speak to?

Nothing intentional. I mean, the sales and marketing numbers depend a lot on when certain campaigns hit and overall, the full year, the General Markets Business was quite good at expanding sort of revenue per rep and so on, so 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 really depends on when you commit to what kind of campaign and there's nothing intentional there. I think we got the right level to drive the business that we're driving.

Okay. And then Marc, as you look to 2012, specifically within the licensed line, do you think we've reached sort of a natural level of demand for license revenue or do you think that could continue to decline?

I think the shift will continue to go to subscription over time. And I think that when the Convio acquisition closes, that there will even be a higher incentive to move towards SaaS more quickly especially in the midmarket. Potentially, also in the international business. There's a certain part of the enterprise market, especially the higher end hospital sectors where there's a real ongoing desire to run the product on your own systems. And so, I do think that there's sort of a -- for the next several years, where several means 3 to 5, I think that 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 license-based primarily in those verticals I just mentioned. But in general, I think the mix of shift to SaaS will continue to go and could even go somewhat faster over time in the other segments that I'm talking about especially with Convio.

Got it. And then lastly for Tony. Tony, as you've kind of taken a deeper dive into the business, how do you view the long-term profitability for the company? I know that 2012 is a little bit of an anomaly with some of the investments that you're making. Longer term, how do you sort of view the margin profile?

Well obviously, we have -- as I said in my prepared remarks, we've got very good strong margins despite the fact, as you said, that we're making some current investments. I think that -- what I've seen thus far, that there's certainly some opportunity for margin expansion. I think that you can see some of that in our numbers just where we've gained some leverage from an OpEx perspective. I think 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. That being said, I think the work we're doing with this consulting firm should give us some leverage potentially going into 2013. I think it's one of those things where I need to get Convio done, get that integrated a bit, understand the numbers, get another quarter or 2 under my belt and then I think it will be in a much better position to be able to come back and talk to you about it, but I do believe that there's some room for some margin expansion in '13 and forward

[Operator Instructions] And ladies and gentlemen, that is all the time that we have for questions today. At this time, I would like to turn it back to management for any closing or additional remarks.

I don't believe that we have a time horizon.

[Operator Instructions]

If there are no more questions, that's fine.

And there appear to be no further questions.

All right, well, that's great. Thank you, everybody. We appreciate everybody being on the call and we'll look forward to either talking with you when we have something to announce relative to our acquisition or at the next quarterly call. Bye-bye now.

Ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation. You may now disconnect.