Blackbaud, Inc. (BLKB) Q2 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Blackbaud Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tony Boor, Chief Financial Officer. Thank you, sir. You may begin. One moment please. Your conference will resume momentarily.

Good morning, everyone. Thank you for joining us today to review our second quarter 2013 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 recently reported Form 10-Q, 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 on 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 second quarter results as well as guidance for the third quarter. Marc?

Thank you, Tony, and thanks to all of you for joining us today to review our second quarter results which represented another solid performance. We're pleased to have generated non-GAAP revenue and profitability that exceeded the high-end of our guidance ranges. During the second quarter, we continued to build on the positive performance we've delivered during the past 2 quarters, and we made good progress on a number of our key priorities. We delivered a solid sales performance in the quarter and we continued to see improvement in our opportunity pipeline. The cost rationalization and operation efficiency improvements we have made in recent quarters are taking hold faster than we anticipated, generating a faster-than-expected and more meaningful improvement in our profitability. And we achieved a significant milestone with the release of The Raiser's Edge and Luminate Online integration, which enables the seamless sharing of data and information between them and will expand our opportunity to cross-sell these solutions, decrease implementation times and give our customers a 360-degree view of their supporters. We've been particularly pleased with the company's ability to rapidly improve profit margins as we integrated the Convio acquisition. Our 21% non-GAAP operating margin in the second quarter represents our highest margin performance since the third quarter of 2011, which was prior to the acquisition of Convio. To put this achievement in context, Convio had a non-GAAP operating margin of approximately 10% prior to being acquired by Blackbaud. Let me provide a brief overview of our second quarter financial performance. We delivered non-GAAP revenue of $125.7 million which exceeded the high-end of our guidance. We generated non-GAAP operating income of $26.4 million which is well above the high-end of our guidance range. Based on the company's solid performance in the first half of the year, along with our view on the second half of the year, we are narrowing our full year revenue guidance, which means a modest increase in the midpoint of our range, and we're increasing our full year profit outlook. Tony will detail our guidance later. For now, let me turn to the macro environment which remains stable in the second quarter. As we look ahead, we're not anticipating a material change one way or another in the near-term. The Blackbaud Giving Index experienced a minor deceleration during the quarter but it continues to reflect year-over-year growth. This environment of modest growth in overall charitable giving has been the reality for the nonprofit markets since the recession began nearly 5 years ago. We see no changes anytime soon. Blackbaud's market-leading portfolio of best-of-breed fundraising tools, CRM platforms and back-office solutions are tailor-made for the nonprofit industry to be able to enable improved constituent relationships and increase the efficiency and productivity of their fundraising efforts. I'd like to take a few minutes to review the performance of each of our business units, beginning with our enterprise customer business unit. ECBU performed at a high-level in the second quarter including signing 8 deals are CRM offerings. We saw a good mix of CRM deals in the quarter in a number of different verticals, including health care, higher education, religious and political. We had a healthy mix between new customers and upgrades from our sizable Raiser's Edge installed base. Signing deals at the low end of the CRM market has been a strategic priority for us, and we're pleased with the improved performance we are seeing in this segment of the market. We continue to see a solid pipeline of opportunities for our CRM portfolio, and we believe we are well positioned heading into the second half of the year. We also had very strong performance in terms of go lives, bringing 7 Blackbaud CRM customers live during the second quarter, including Best Friends Animal Society and Legacy Health. This represents the largest number of CRM customers we've ever brought live in a single quarter. This expanding set of referenceable customers is a significant asset for Blackbaud in future sales cycles. During the quarter, we also made good progress expanding the Luminate Online pipeline in the enterprise segment, and we're beginning to generate positive momentum with this offering. During the quarter, we closed our first joint Luminate Online-Blackbaud CRM deal, which we believe is a positive indication that customers are seeing the value of the combined offering. Joe Moye and his team have also made significant strides with our ECBU services organization, where the steps we've taken to improve our forecasting and staffing plans to drive improved utilization is having a positive impact. We think the new policies and procedures we've put in place will generate significant improvement in the future. Turning now to the general markets business unit, Kevin Mooney and his team once again delivered solid performance in the second quarter. We saw the mix shifts towards our subscription offerings continue during the quarter, as subscriptions outpaced licensed deals nearly 5:1. This is helping to drive our recurring revenue growth, which is -- now represents a significant majority of our general market business revenue. This is positive for Blackbaud as it gives us greater visibility and predictability into our financial performance. We were particularly pleased with the performance of Luminate Online in GMBU during the quarter. We see a significant opportunity over time to cross-sell Luminate Online in our sizable mid-market installed base. And with the Luminate-Raiser's Edge integration just entering general availability, we're in the very early stage of executing against this opportunity. Another positive driver in the general market business is the success we're having converting Blackbaud's legacy installed base of mid-market customers to our merchant services solution, which offers better payment processing rates and is integrated into a growing percentage of our products. In the second quarter, we added merchant services to the Education Edge, and there is also a significant opportunity to convert Convio's installed base once we integrate merchant services into Luminate Online. Our international business boasted solid results, even as the macro environment overseas has seen greater headwinds than we've experienced domestically. That said, during the quarter, Everyday Hero signed its 3,000th charity. We had several CRM go lives internationally, and we're seeing good customer interest in our CRM offerings. We're focused on closing as many of these opportunities as is possible this year, but we're also mindful that the macro environment can impact the timing of when large deals such as these close. We believe we're under-penetrated internationally and expanding the percentage of our business that we generate outside the United States is a key long-term priority for Blackbaud. In summary, Blackbaud has delivered better-than-expected results through the first half of 2013, as we see customers recognize Blackbaud as the strategic vendor of choice for the full life cycle of a nonprofit's fundraising and CRM needs. We believe Blackbaud is positioned to generate accelerating revenue growth over time while also delivering improved profitability, which we believe could drive meaningful shareholder value. With that, let me to turn the call over to Tony to discuss our financials in more detail.

Thanks, Marc. We are pleased with our performance in the second quarter which exceeded the high-end of our guidance on both top and bottom line. The efforts we've undertaken to improve our operational efficiencies and position the company for improved revenue growth in the future have positively impacted our financial performance more quickly than we'd anticipated, and we are focused upon building upon this initial success. Now let me turn to the second quarter results starting with the P&L. GAAP revenue was $125.5 million and non-GAAP revenue was $125.7 million, which exceeded the high-end of our $121 million to $123 million guidance range and compared to $113.7 million in the second quarter of 2012. Non-GAAP subscription revenue was $52 million compared to $40.8 million in the second quarter of 2012 and up from $47.9 million last quarter. As expected, our subscription revenue grew sequentially due to seasonal improvements in our transaction revenue and the overall growth in our subscription base. Maintenance revenue was $34.1 million for the second quarter and up approximately 1% from the year-ago quarter. When combined with our subscription revenue, our total recurring revenue was $86.1 million for the second quarter. That's an annualized run rate of over $340 million. License revenue in the second quarter was $6 million compared to $4.5 million in the year-ago period. License revenue, which can be variable on a quarter-to-quarter basis, continues to become a smaller part of our overall revenue mix due to the growth in our subscription business. Services revenue in the second quarter was $31.6 million, up 8% from last quarter and down slightly from last year. We are pleased with the progress we have made in increasing the efficiency of our services organization and we see opportunities for further improvement. We're continuing to work to implement these improvements, and we expect to make continued gains in our services business, though the full effects will not be felt until later in the year and into 2014. Turning to profitability. Non-GAAP gross margin was 60%, comparable to the second quarter of last year. Our gross margin was positively impacted by increased scale of our subscription revenue base, which now represents 41% of our total revenue. Non-GAAP operating income was $26.4 million and was meaningfully above our guidance of $21 million to $23 million. Non-GAAP operating margin was 21%, representing a 400 basis point improvement from the second quarter of 2012. Our better-than-expected profitability was driven by our revenue performance, our improved cost structure and process improvements we implemented in recent quarters to increase our operational efficiency. Our non-GAAP diluted earnings per share were $0.33 for the quarter, which was $0.04 better than the high-end of our $0.26 to $0.29 guidance range. Turning to the balance sheet and cash flow. We generated $24.5 million in cash flow from operations during the second quarter. We used $5.5 million to pay our quarterly dividend, invested $4.7 million in capital expenditures and capitalized software and used $15.5 million to pay down our debt. We ended the quarter with $195.5 million of debt, which is down from $211 million at the end of the first quarter. We are now levered less than 2x EBITDA, which is down substantially from last May, when we acquired Convio. Our total deferred revenue balance was $191.5 million, an increase of 4% from a year-ago. I'd like to finish by turning to guidance, starting with our full year guidance. As Marc indicated earlier, we are refining our total revenue guidance to a range of $498 million to $504 million as compared to our prior guidance of $495 million to $505 million. Our updated view includes a negative impact of approximately $1 million related to changes in foreign exchange rates for the second half of the year. In the first half of the year, we had several unanticipated positive impacts on our top line that we are not forecasting to reoccur in the second half, such as an increase in charitable donations related to the Boston Marathon bombing and the Oklahoma tornadoes, as well as a record number of CRM deals we closed in the second quarter. All things considered, we have effectively increased the midpoint of our 2013 guidance range from $500 million to $501 million. From a profitability perspective, our strong first half performance enables us to increase our full year non-GAAP operating margin guidance range, which we are now guiding at 19.9% to 20.2%, versus our prior guidance of 19.0% to 19.5%. This now represents approximately 340 basis points of year-over-year margin expansion at the midpoint. This translates into non-GAAP EPS of $1.26 to $1.30, an increase from our previous guidance of $1.19 to $1.25. While we are very pleased with our margin performance in the first half of the year, we do want to call out that it has benefited from the timing of certain investments and a lower-than-expected increase in headcount compared to our initial hiring plans for the year. We currently have a number of open positions and we anticipate filling a number of those slots in the second half of the year. We also continue to make investments we discussed last quarter in consolidating the disparate back-office systems and implementing a best-in-class integrated CRM platform to improve our efficiency as we position the company to scale effectively in the coming years. Turning to the third quarter, we expect non-GAAP revenue to be in a range of $128 million to $130 million and non-GAAP operating income of $26 million to $28 million, resulting in non-GAAP earnings per share to $0.33 to $0.36. In summary, we're pleased with our second quarter performance, and the company continues to deliver against its key objectives. We have an improving pipeline of sales opportunities, and we believe we are well positioned to achieve our increased full year financial targets. We feel good about the progress we have made so far this year and are confident in our ability to create a significantly larger, more profitable company over the long-term. With that, we're happy to take your questions.

[Operator Instructions] Our first question comes from the line of Matthew Kempler with Sidoti. Matthew J. Kempler - Sidoti & Company, LLC: So I wanted to start off on the enterprise side. You said a record number of CRM deals. So I'm wondering are you starting to see the replacement cycle for large enterprise play out? And what are the signs that the nonprofits are now ready to upgrade versus holding off for years?

Well, a part of them are upgrades to The Raiser's Edge, and so the signs of upgrade -- of the desire to upgrade to Raiser's Edge in the enterprise space is continuing to grow. You're seeing a combination of both centralization of chapter-based organizations towards headquarters, and that pressure is continuing to grow in terms of getting more efficient and getting more cost-effective in fundraising. We are also seeing continued interest in the -- in both cause and cure and hospitals and health care. So yes, so we're just -- it's a slow growth, but it's a growth. Matthew J. Kempler - Sidoti & Company, LLC: Okay. And then I wanted to follow-up on the services side. You said you've made a lot of changes there, expect improvements in the latter half of this year and into the first half. Can you talk about what are some of the changes to policies and procedures that we've put in place? And in general terms, what kind of impacts do you expect to see from this over the next year?

So well, we won't make a guidance for next year, obviously, at this point. But the kinds of changes, we've installed a quality control function in -- as a direct report to the enterprise leadership team, and that does everything from scope reviews in the quoting process through quality assurance reviews on a quarterly basis through the process. That means that any new deals sold in the second half of last year and beyond -- or the last quarter of last year and beyond, we'll start to see the benefit. And so the mix shift will happen over the 18 to 24 months after that system got put in place because you're still working out the backlog of pre-existing deals. What I've said before that I think there are a couple of points, overall corporation level at the professional services margin line to be had, and that this is a key component of getting that, Matt.

And then, Matt, we're also in the process of installing some best-of-breed solutions for management of the professional services area as well. And that's in the early phases, so we still have some work to do there, but we expect those solutions to be in place sometime in '14. Matthew J. Kempler - Sidoti & Company, LLC: Okay. And then the last question for me and I'll get back in the queue. In the prepared remark, you talked about merchant services and the opportunities you've been seeing there. Could you just expand a little bit more on merchant services, the value of differentiation of that product and why clients would be converting to it?

Well, there's a combination. Actually, in many cases, it's less expensive than their current offering in the low end. But the most important is that because it's integrated directly with our CRMs, you get the information flow into your CRM on a much more timely and less person-intensive basis. The other thing is that as countries, especially outside of the United States, start to implement higher levels of PCI standards, they want to outsource the tokenization. And they don't really want to have credit card numbers inside their organizations, so having the opportunity to have that built into your CRM is absolutely critical to them.

Our next question comes from the line of Ross MacMillan with Jefferies.

You mentioned that there were some one-time benefits such as the Boston Marathon charity. And I just was curious, if I look at the subscription line, was there a sort of bigger-than-normal benefit from the sort of transactional component of that line? Could you maybe add any color to that?

Yes, Ross. We certainly saw some benefit in the quarter from those unfortunate incidences, but it was not something that was so material that we would want to call out, specifically, from a numbers perspective. So it did have an impact, but not substantial.

Now transaction revenue in general in Q2 is at a highest level. Q2 and Q3 are higher than Q1 and Q4, just because now with the combined business, the event business and the online fundraising in the event business, or the transaction-based pricing of the event business happens mostly in the summer -- spring, summer and early fall.

And is that revenue stream that you get from transactional business equivalent margin to the broad basis subscription or higher? Is it higher simply because it's a higher revenue base on very little incremental cost? I'm just trying to get a sense for how that impacts the P&L in Q2 and Q3.

Yes, there are 2 kinds of transaction revenue. The one, first kind, is where you're sort of doing it in lieu of the subscription. And I would say margins are relatively similar. So you're not -- we could have transaction-based pricing even if we don't actually run the transaction through our merchant services. The merchant services business, however, is very, very high margin because it's net. So we don't -- in our P&L, we don't include the overall fee we charge, we only include the net proceeds that we get because transaction processing -- merchant processing at this point is not a core portion of our business. We're not the core provider.

That's helpful. And then just bigger picture on the recurring revenue base. You've done a really good job at managing the gross margins despite the shift in growth from the higher gross margin maintenance line to the lower gross margin subscription line. And I know you've got opportunities to increase gross margins on subscription over time, but on a blended basis, we've been seeing that recurring stream have a gross margin non-GAAP in the 73% to 74% level. Do you think that's sustainable even if growth, if you will, continues to shift towards the subscription line?

Sure, Ross. I think that we will continue to be impacted by the drag that's created with that conversion to subscription and the ratable recognition for some period of time until we get through the transition and get that base of recurring subscription built up. But I think that offsetting that, as Marc and I have spoken numerous times before, we still think we have quite a few opportunities for margin expansion with the business as we continue to shift more towards SaaS as an operation as a business, I think, within our service delivery org. We've talked about, within hosting, we have opportunities to gain leverage. So I think there are several places, as we've spoken in past quarters, to get some additional margin expansion to help offset that drag that we have from the conversion.

And I'd also point out that we're running -- so I think, bottom line of Tony's comment is the margins of each -- the margins of the service delivery component will continue to expand. The question then is how quickly you shift from maintenance, right? So if you were to make a specific decision relative to going to a subscription model 100%, for example, you probably wouldn't maintain the gross margins exactly where they are. But we've been sort of being graceful in the transition to subscription. And at a graceful rate, I think you could probably grow SDO service delivery margins fast enough to keep things somewhat in the same ballpark.

That's really great color. And maybe the last one, just on maintenance itself. You're obviously going through this transition as you begin to even upgrade the RE base and other parts of the traditional product base to subscription. How should we think about that maintenance line? Is it going to grow? Should we think about it being flat? Just at a high level, is there -- how should we think about that?

So maybe 2 things I'd point out. So one, Ross, and recall, we do have some downward pressure this year on the maintenance line caused by the accounting change that we have at beginning of the year on the gross versus net on our ticketing business, and so that's affecting maintenance. I think if you adjust for that on a pro forma basis, Q2 maintenance would've grown at about 3% on a pro forma basis versus looking relatively flat on the financials. And then secondarily, as we said last quarter, I think we continue to believe that we will see some -- something in those lines for the rest of the year of a slight growth in that maintenance line. We're not guiding to '14 yet, but I think it ties back to Marc's comment about how quickly do you make that conversion would be the biggest impact on the maintenance line.

Our next question comes from the line of Tom Roderick with Stifel. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: So we're lapping the Convio acquisition by a year here and things are really starting to sort of go smoothly for you on the operating side. I guess the question I'd have from the standpoint of raising your margin guidance here, Tony, is where can this go if you look out over 2 to 3 years? And if you think about the incremental investments needed to sort of put all these products in a smooth product roadmap and sort of a cohesive product suite, how much more investment on the R&D side needs to occur? Do you think the heavy lifting is largely behind you? And if that's the case, what does that mean for margins, again, over the next -- not just this year, as you raise your targets, but even over the next couple, 3 years?

Well, I'll start with the product roadmap answer and then let Tony talk about the numbers and margin implications, Tom, if that's okay. We clearly do not have, behind us, the work of rationalizing the product portfolio. I would say that we've got a good start, and we have some very clear understanding of the kinds of directions we would be going in. But until the Internet offering across the company is rationalized and until there's a very clear roadmap for every single RE customer as opposed to part of the RE base that's out there in the market, the job's not done. And we'll announce each step of that along the way as it shows up. But you won't see R&D going down, if anything, I would expect that there are some investments that still need to be made that might move it gently in the other direction.

And I think, Tom, from the margin expansion opportunities, obviously the midpoint of the revised guidance -- we're guiding to 340 basis points expansion in our operating margin which is, obviously, a great performance compared to last year. We've largely implemented all of the planned synergies, so we're well into that. I think at this point, the one thing I would point out is that we did have a bit better performance than planned in the first half, both in Q1 and Q2, because we've had quite a few open heads that we've been behind schedule on hiring. We're currently recruiting for 130 heads, a big chunk of those being in products and in sales marketing. And so I'd tell you, there's a timing issue of when we can get those heads on board that will have some headwind on us in the second half, is what we're anticipating. Overall, over the longer-term, as Marc and I have said time and time again, we believe there's great opportunity for margin expansion. We're making, as you know, a lot of investments in our back-office infrastructure right now. Plan is that those investments would allow us to gain more substantial leverage in the future and help drive more growth for the future. So we think those are the right investments to make. Getting back to our margins of old, I think that's a question we'll have to look at over time and balance between putting that money back into the business to drive more top line growth versus to the bottom line for margin expansions we've talked about. But we're trying to balance the 2 of those, obviously, as effectively as possible. And I think, thus far, we've shown that we've done that very well here in the -- certainly, in the last year since the Convio acquisition. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: Great. One last follow-up question for me, just in terms of the quarter showing a record number of CRM deals. You had a big jump in the license line this quarter, recognizing license isn't a huge component of revenue, but it did have a very nice jump. How should we think about where these CRM deals are contributing in subscription versus license? And is this sort of $6 million range maybe a better range to think about or is a -- will it still kind of jump around in the low to mid single-digits here by quarter?

Yes. The CRM business still is primarily licensed. They're a relatively small number of subscriptions. CRM deals, when you talk about the traditional Blackbaud CRM, obviously, all the LCRM deals are subscription-based. So depending on the mix in any given quarter of L to B, you could have a different ratio. And depending on what decisions we might make as a company over time about whether we're going to subscription overall, you might see that. Leaving that, the same, you would expect that the number could vary -- it could vary from 4 to 6 on any given quarter. And in fact, being 6 this quarter and being 4 a year ago, means that it looks like it's growing. And being 4 this year and 6 a year ago would make it look like it's going down because it's just a lumpy business. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: I understand. And just to be clear, the revenues recognized from the deals in the quarter are largely already recognized, in other words, there aren't additional elements of these that were booked this quarter that will show up in future periods or is there still sort of a term-based component behind it?

There are some with a term-based component and there are some that are booked in the quarter and there are some that have, essentially, very little software revenue per se because their upgrades or much less softer revenue because they're lower-priced deals and upgrades from The Raiser's Edge, so it's a real mix.

[Operator Instructions] Our next question comes from the line of Sterling Auty with JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: So let's start administratively, what was the actual total headcount at the end of the quarter versus the end of the last quarter?

Give me just a second to grab that here. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay. And as you're doing that, maybe you can just qualitatively comment, you mentioned a couple of times that you're a little behind on the 130 open recs that you have. Is that a function of kind of given the macro environment, not putting a lot of pressure on people to really get that hiring done, just seeing how the year is playing out? Or is it a function of actually having a little bit more difficulty finding the right people to fill those slots?

I would say it's probably both of what you've said. The first component of it, not as much pressure. I think one of the things is we went through the rationalization of our headcount and all of the obtainment of synergies. I think that has an emotional impact on our personnel, right, and our team. And with the adjustments that we made in Q1, I think that we had less hiring just naturally coming into that event and had less hiring coming out of that. So I think part of the issue, Sterling, is just that the human nature effect of those kind of changes. And then secondarily, I think it's a bit of a tough market in some of the areas, certainly, for some of the engineering staff in some of the locations and some of sales and marketing as well. And so you kind of fight that on both ends, where attrition is working against you, and then it's also -- it's a little more competitive environment, tougher to find the right people. So I think it's a combination of all those things. We are planning to more aggressively recruit in the second half than what we were in the first half and, hence, are forecasting to fill some of those open positions more quickly. The numbers that you'd asked for Q1 was 2,575. Q2 was 2,629 heads, so we were up 54 heads effectively. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay. And you mentioned implementation of, I believe, a system to help better manage services. Can you give a little bit more detail, are we talking like -- something like a NetSuite to help manage billable hours, utilization, et cetera?

So this would be a best-of-breed solution, specifically made for the services business -- a services business. And it -- the nice thing about it is, as we've said, we're implementing a CRM across the business. So we're in the middle of that pilot and ready to move, hopefully, forward with expansion of that rollout of a consistent CRM across the business. This integrates very tightly with that CRM. We also are looking at a best-of-breed -- not looking, are implementing a best-of-breed solution for the quote to contract piece of the business as well that will integrate very tightly with our CRM solution. So we should get a very tightly integrated solution that works all the way through from quote to cash to CRM to management of the services engagements, all the way through to billing of those as well. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay. And can you give us an update on kind of the CEO transition process?

Yes. We've been working diligently on the process as aboard, and we believe we're very close to concluding it. But we don't have anything to announce today, and we're looking forward to making an announcement as soon as we're done. Sterling P. Auty - JP Morgan Chase & Co, Research Division: And last question from my side, in that context, can you give us an update in terms of the product transition, meaning the kind of transition to SaaS? And are there elements of that, that need to wait for a new CEO to come in and kind of put their stamp of approval on it? Or is the actual direction pretty much set and you're moving forward despite the transition?

I'd say that the board, the full board, so 6 independent directors and myself, have debated the product direction and the transition to the various difference -- no, platforms and SaaS technologies at length, and we're quite aligned on it. So my guess is that there'll be some significant continuity and direction from that perspective and, certainly, I know the board is lined up behind what we're doing. We have not postponed any decisions relative to roadmaps in waiting for in the past 2-plus quarters since we announced CEO transition. And we've made good progress in that time.

Mr. Chardon, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Well, thank you very much, and thanks, everybody, for joining us again today on the call. To summarize, we've performed at a high level in the second quarter. Revenue and profitability both exceeded the high end of our guidance. The cost savings that we've generated is the -- in the integration process with Convio and in the operational efficiency improvements have been driving significantly better-than-expected profitability. Our non-GAAP operating margins have returned to pre-Convio levels. I'm feeling good about all of that. And looking forward, the Luminate pipeline is showing good improvement during the quarter. We see a building pipeline of opportunities in the coming quarters for our traditional products and for the Convio-Luminate products. We're confident, as a team, about Blackbaud's ability to execute against the market opportunity we're targeting. We believe we're well positioned to deliver on improved growth this year and beyond. So we look forward to updating you on our progress at the next earnings call in October. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.