Greetings. Welcome to the Blackbaud Third 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, Blackbaud's Interim President and CEO and CFO. Thank you. Mr. Boor, you may begin.

Thank you, and good morning, everyone. Thank you for joining us today to review our third quarter 2013 results. Joining me on the call today is Tony Boor, Blackbaud's Interim President and CEO and CFO. Tony has some prepared remarks and then we will open up the call to your questions. Please note that our comments 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 -- recent quarterly report on Form 10-Q, our most recent annual report on Form 10-K/A and the risk factors contained therein, as well as our periodic reports and 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 for today's call will be available on the Investor Relations section of our website. During this call, we will be referring to both GAAP and non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business. A reconciliation of GAAP and non-GAAP results is available on the press release issued today, which is available on our website at www.blackbaud.com. With that, let me turn the call over to Tony.

Thanks, Brian. Good morning, everyone. Thank you for joining me today to review our solid third quarter 2013 performance. We delivered revenue of $128 million, which was in line with our guidance, and we generated non-GAAP operating income of $28.9 million, which was above the high end of our guidance and represents a non-GAAP operating margin of 22.6%. As our results indicate, our business continues to perform at a high level, while our Board of Directors works to complete the process of selecting Blackbaud's next permanent CEO. In the meantime, I can tell you that everyone at Blackbaud is focused on the task at hand and we continue to work hard to build upon the improvements we've made over the last year to fully capitalize on market opportunity. In my current role as Interim CEO, I have 3 priorities to advance Blackbaud's strategic initiatives. First is to build upon the progress we've made over the past year in positioning the company for improved long-term revenue growth. Consistent with this objective, we've begun to increase investments in our product portfolio and our go-to-market organization to ensure we're properly positioned to capitalize on the future growth potential we see in the market. As we increase investments in these areas, it will clearly take time for them to positively impact our revenue growth. My second key priority is to continue to streamline and rationalize our product portfolio, so that we are dedicating the proper resources to our highest growth, most profitable and strategic solutions. Exciting shift in the marketplace towards SaaS, online fundraising and mobile solutions, among others, require that we make the necessary investments to ensure Blackbaud remains the clear leader in the nonprofit software market. This focused strategy is positive for our customers. It's the right thing for Blackbaud to do…

[Operator Instructions] Our first question is from the line of Tom Roderick with Stifel. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: First question here. Just in terms of some commentary you offered in the quarter surrounding subscription growth on the bookings front and I recognize it doesn't necessarily flow into the P&L right away, but you talked about GMBU subscriptions outpacing license deals by 7 to 1 and some nice impact for the enterprise side. Can you provide any, maybe, qualitative direction as to sort how of the bookings flow has been pacing relative to your expectations? And from that standpoint, if there's an area where you could look to improve or you think there's room to improve. Would you point it more on the GMBU side or on the enterprise side?

From a subscriptions bookings growth perspective, I would say that performance has been tracking in line with expectation. The opportunity is certainly significant. As you know, we had a bit of a hit last year after the Convio acquisition and a bit of a freeze in the market as a result of us trying to roll out the product roadmap decisions and make some of the decisions we did on product rationalization. And we're still digging out of that one a bit this year and the impact, but as we said over the last couple of quarters, the pipeline has refilled fairly well on the Convio products. We've done very well as with our offering FE. FE now, Financial Edge, for us is offered wholly in subscriptions within GMBU. So we're selling, I believe, those have -- we've eliminated perpetual sales on FE at this time. We're looking at continuing to migrate towards that similar type of offer for RE in 2014. So we would expect to see some additional headwind as a result of that change, although we've done pretty well working through the FE change. Demand has been good. We've seen more unit sales as a result of shifting to that subscription-hosted offering on FE. So, all in all, I would say, expectation is very positive on the shift to subscriptions. The -- as you know and as you work through the models that ratable recognition and related timing has a bit of a drag on the revenue growth in the short-term and that's part of what we're building into our initial thoughts as far as 2014, is a more accelerated shift towards subscription, not an all-out shift, but a continued acceleration in that shift, and that's going to be a drag in the near term but should be very positive for us in '15 and beyond. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: Great. Maybe following up on the commentary around Raiser's Edge. You talked briefly about rolling out a SaaS-based version of that. I recognize it's early in that evolution, but knowing you just came from bbcon and had some conversations with customers and the like, can you provide what you're hearing from customers with their desire to shift to a SaaS-based model? And how we ought to think about sort of the timing and initial phases of that rollout?

Yes, it's an interesting comment and I talked to several of our customers at bbcon. I would say that there's a large portion of our existing customer base that are on Prem RE today that would be happy to stay on Prem with RE. They're looking for us to make continued investments and improvements in feature and functionality for that product. I did not hear a lot of those existing on Prem customers asking for us to shift that offer to a true SaaS-based multi-tenant hosted solution on their behalf. I do think that the subscription SaaS-based offer being bluebird [ph], as that matures over time, will be a very compelling solution for those folks to move to, but I don't think that they're asking for it. I do think that the SaaS-based subscription offer of a solution like bluebird [ph] reduces the cost and barrier-to-entry for new customers, so I do think that like we saw with FE, it will be an opportunity for people to buy, or in this case, rent the product, the solution, and therefore, should increase unit sales and hopefully, our revenue growth as a result. But again, Tom, I think -- I did not hear our existing customers asking that we move that direction in the near term. Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division: Great. Maybe one last one for me. Just thinking about your commentary about a moderate reduction in the non-GAAP EBIT margin next year. Where do you want to put those dollars? Should we think about this being predominant? Obviously you're going to spend on the product side for Raiser's Edge with bluebird [ph], but how should we think about sort of the sales and marketing line? Is this a function of just more marketing spend in general or is there room to meaningfully expand the sales force? Just any commentary around where you'd like to put those dollars would be great.

Yes, it will be very specific. So it's early on in the planning discussions, so I can't speak exactly to what our ultimate decisions will be, but I can tell you from a moderate reduction, I wouldn't expect this to go backwards more than a couple of hundred basis points from our kind of 2013 overperformance. I wouldn't want to take too drastic of an investment kind of approach to things, but as far as where we'll invest, you'll see some incremental investment in some of the SaaS solutions. We'll continue to work on maturing the Online Express solution because that will help us rationalize some of our products in online space. You'll see some continued investment in bluebird [ph]. Incremental investment, we made a commitment at bbcon. We're going to make some incremental new investments on the Edge products to help keep those customers happy and on-board with that, those -- and also, try and keep retention rates high as they've been. I will expect on the sales and marketing front, there will be some incremental marketing spend, but more of the spend will be on direct sales efforts. We currently believe we've got an opportunity to improve retention slightly with a bit more focus on customer success and retention efforts, largely within the GMBU area. We would also plan to expand sales -- direct sales teams within certain products, lines and verticals within the various business units. And those decisions will be made upon more of a CAC [ph] ratio approach, where we're getting a very quick and adequate return on sales and marketing and think we've got an opportunity to expand sales and marketing to drive more growth and still get an adequate return. And we'll make sure we put in the right measurable, so that we can pull back on those reins very quickly if we see that we're not getting the right return on those investments.

Our next question is from the line of Matthew Kempler with Sidoti. Matthew J. Kempler - Sidoti & Company, LLC: So just a follow-up to that question. Tony, is your belief that the company has been underinvested in their go-to-market strategy at this point in time, or is this more about capitalizing on new opportunities?

So Matt, I think that -- there's a couple of things that led to where we are. I do think we've been underinvested in certain areas, certain products and certain verticals. Some of the analysis that we've done this year has given us better insight to that of where we think we got that elasticity and opportunity to drive more growth and I think that comes from us just becoming a bit smarter and a bit maturer as a company on how we look at that. I think secondarily, we've been running well behind where we had planned to be. So part of our profitability overperformance in the year is certainly because we've been less successful than we had planned to be from a hiring front. And so we're still well behind on R&D investments, headcount investments and sales and marketing heads. We're trying to make a concerted effort to ramp those headcount increases up and that's part of where you'll see some of the decline in the Q4 earnings guidance as we are anticipating that we'll make some headway on that front. But I think that there certainly was also an impact at the beginning of the year as we went through the Convio integration and rationalization and obtaining synergies where we may have through all of that integration work overcut in certain places as well. So I think it's going to be a combination of all 3 of those things. While we were underinvesting in certain areas, we may have overcut in a couple of others and then we've just had a difficult time hiring as quickly as we would have liked to. Matthew J. Kempler - Sidoti & Company, LLC: Okay. And then -- so it sounds like 2014, tied to the spending, we're looking at modest earnings growth. Maybe you can share your perspective on 2, 3 years out, what you expect the spending to yield for Blackbaud? Maybe, what kind of long-term growth you can see for the business coming out of this?

So I would say for long-term, from a revenue line perspective, that we would not be making the investments we're making if we didn't believe we can get back into double-digit growth in the next few years. From a -- EBIT perspective, I feel very comfortable with the tremendous improvement that we made just in the last year post-Convio. I think we're going to be at the midpoint, we're what, 330 basis points improvement in non-GAAP EBIT this year over last year. We still have significant opportunities, I would say, within the organization to continue to improve EBIT. As our top line growth accelerates, that allows us to gain leverage and scale as we improve some more of the back office infrastructure and simplify and standardize and automate with the transition to a SaaS business. That will give us an opportunity to gain leverage from a profitability perspective. So I think there's ample opportunity on the bottom line and I certainly believe that we can improve EBIT. It will be a balancing act, Matt, I think, as we've spoken about before of how much of that do we put on the bottom line and give back to shareholders versus how much of that do we reinvest to drive more accelerated long-term revenue growth. And as we all know that if we can actually get that accelerated revenue growth, that will give a better return to our shareholders than a point of EBIT will. So we'll continue to balance that much like what we talked about for '14 and see how we perform and we will adjust accordingly if we cannot deliver that accelerated growth. And I would expect you'd see a ramp-up in how quickly we would deliver improved profitability. Matthew J. Kempler - Sidoti & Company, LLC: Okay. And then last question for me is, just going to the Online Express product, could you reveal a little more what product platform is this built on? And what should it long-term help rationalize and replace?

So it is a much more robust, easy-to-use, easy to implement, true SaaS-based online solution. It's still fairly immature from the standpoint of being able to replace some of our legacy mature products. But thus far -- and we've tested it with several existing legacy clients and they've been very positive on the solution. Several of them have actually moved to it already. I think that what you'll see is it becomes a very, very good cross-sell opportunity for us for all those existing Edge clients that don't currently have an online solution -- and I would expect as it matures over the next couple of years, that it would allow us to rationalize -- I don't want to say a specific number, somewhere between 2 to 4 of our existing products would be my expectation, that we would be able to rationalize with this Online Express solution as it matures.

Our next question comes from the line of Sterling Auty of JPMorgan. Saket Kalia - JP Morgan Chase & Co, Research Division: Tony, it's Saket here for Sterling. A few questions if I may. So sales and marketing was down, I think, both in dollars and as a percent of revenue quarter-over-quarter. So can you just talk about maybe how sales commissions came in relative to your expectations? And maybe if there were any other line items that drove efficiency there?

So Saket, I think it's probably less of a commission issue and more back to my earlier comment that we're just behind on hiring. I can tell you it's interesting, as many people are still out of work, it's a tough market in the software business. And so we've really wrestled with that all year to find the right caliber of folks and we've been running -- I think we spoke about it last quarter, I think we're running behind by about 100 heads of where we had planned to be and where we would like to be. Not all of those in sales and marketing, but a good chunk of them are sales and marketing. And so that quarter-over-quarter, really, I think, is more of an impact of us just not getting to where we intended to be from a headcount perspective. And then there would be obviously, some commission impact typically when you're hiring folks, they're going to demand [ph] a different type of comp plan in those initial months when they're getting trained and up to speed. So you would have some slight impact there, but very little more so on the headcount. And then where we are today to be clear is not only do we want to get those -- what were already planned heads hired, but incremental heads for sales and marketing and R&D on top of that. So we are planning on an incremental investment above and beyond those 100 heads that we've been running short on all year. Saket Kalia - JP Morgan Chase & Co, Research Division: Got it. And then sorry to make you talk more, but can you just maybe repeat what you said around the reasoning for going to gross revenue accounting around merchant services and maybe how much it's impacting fourth quarter revenue guidance? I know -- I caught the $20 million impact or benefit for 2014.

No, happy to. So the regulatory environment on the credit card and payments business has changed dramatically over the last couple of years, more so even in the last 12 months. Our prior processor that we utilized, I won't mention who it is, decided to get out of that business for the nonprofit space, just because of the increase in regulatory scrutiny. And as a result, we switched providers. Switching providers and with increased regulatory scrutiny that we're seeing in the market, we've had to add quite a bit of additional work that we are required to do on our on our end regarding know your customer, anti-money laundering screening, fraud screening, OFAC screening, taking on more liability than what we have with our previous processor. And as a result, that skewed the accounting treatment from net to gross. We would expect -- and our guidance includes in Q4 a $5 million increase in revenue and a $5 million increase in cost of goods. The net dollars on gross margin and net dollars in profit are 0, right, so there's no change in profit dollars or gross margin dollars, but you would see that increase in both revenue and cost of goods sold. And we're estimating that to be about a $5 million impact in Q4 and then incremental $20 million on the year for 2014. Saket Kalia - JP Morgan Chase & Co, Research Division: Got it. And that was something that you decided to do starting in Q4, correct?

Yes, we just signed -- recently signed that contract with the new processor and recently transitioned our customer base to that new processor. And that with the change in the regulatory environment over the last few quarters is what drove that change in accounting. We made that as part of our Q3 close but had no impact in Q3. It will be a prospective change for Q4 forward. Saket Kalia - JP Morgan Chase & Co, Research Division: Got it. And then just kind of lastly on cash flow, do you expect -- I think the fourth quarter has sort of been your seasonally strongest cash flow quarter, so just wondering if you expect that to continue to be the case. And then as you sort of look at cash flow on an annual basis for this year, were there any onetime items besides Convio that maybe helped or hurt your cash flow? I guess I'm just trying to get an understanding for sort of what the naturally recurring level of cash flow is for the business?

Right. So we're not giving any specific guidance as to cash flow at this point for Q4. I would tell you that I'm not aware of any anomalies. And so I think you can look at our historical trends. I would tell you there's certainly a focus internally to continue to make improvements in our accounts receivable and related collection efforts. And I think if you look over the past few quarters, you'll see that DSO has trended positively as a result of those efforts. From a cash flow perspective, we probably had a bit more in write-offs this year, just as part of the effort to clean up account receivable and get that in order. We put in new policy, new process, hired more collectors, taken a more aggressive approach. So I think you'll continue to see some ongoing improvements from a balance sheet management perspective. One-time items, not a significant amount. I think CapEx is relatively in line with where we expected for the year. Taxes are ramping up a bit because we're burning through some of the NOLs, so you'll, going forward, I tell you, you'll need to contemplate the impact of taxes -- cash taxes. We did have a positive impact this year in the first quarter because of the R&D credit that will impact the tax -- cash tax rate. As you recall, the federal government had not extended that and they finally extended it in I think it was January of this year. So we get that R&D tax credit. And then the probably only other kind of one-off cash items we'd have outside of Convio would have been related to like Marc's severance that would have been a onetime. But again, in materiality to the total, not that large of a number.

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

Tony, can you just -- your gross margins are, I think, back up to levels we haven't seen since 2010. And if we strip out the impact that we will see obviously from the gross versus net accounting on merchant services, what's your thought process around gross margins as we go into next year? Should we see further expansion due to some of the leverage you're getting on subscription revenues and also on services improvement?

Yes, Ross, you hit it right on the head. So that continued shift to subscription should have a positive impact. Convio had good strong gross margins and so that's having a positive impact, as well as just continued shift toward subscription. Joe and Kevin and their teams have done a very good job as well of making some improvements on the services side. That's a little muted because of the impact of Convio. If you recall, Convio's services margin were roughly breakeven and so we've kind of had to work through that hurdle. But we had a good quarter from a services margin perspective with Q3 and Joe and his professional service team and Kevin and his, continue to make good progress there. So I'd expect to see some continuing improvement in services gross margin. And then I think the other big factor, Ross, will be is, how does that services revenue line trend? As you can see, it's flattened a bit. As we've been working especially on the big CRM at the enterprise space level, we've really been working, as we said, to be able to bring those products downmarket to make them easier to implement, to improve the translation and conversion process, to reduce hours, less customization, more configuration, all of those related things we're doing are making some investments. Joe and team are on some new BI data warehouse query reporting tool that should help with those implementations and also create a new revenue offering for us. And so I think that one of the other key pieces will be how that services revenue plays out as a percentage of the total mix. So we should have subscriptions continuing to grow, services margins continuing to improve and then the real wild card's going to be how much of a drag on revenue is services because we actually would like to see that not grow as quickly, right? We'd like to see services come down as far as a ratio of services to software or services to total contract price. So we'll just have to see how that plays out over time, but that would also have a positive impact on gross margins.

That's helpful. And -- so the just the way we should think about this, going back to the gross to net on the merchant services, it's really $5 million in Q4, $20 million next year, so it's sort of net $15 million next year and there's an equivalent offset in COGS? So basically, the impact to margins is all going to come from below the line, i.e. in OpEx, is that right?

Correct. I'm trying to see -- I think we did a rough calculation on that. Hold on. Give me just 1 sec, Ross. So our rough estimate was, it was going to have about a 70-basis-point impact on gross margins.

Okay. That's helpful. And then just 2 questions. Just on subscription revenue, there's obviously some lumpiness in there with the transactional piece. Can you just maybe help us understand what you think that is currently sort of growing at from a recurring standpoint? If you could sort of look past the transactional elements of subscription that are going to be a little bit noisy quarter-to-quarter, what sort of underlying growth are you seeing in the kind of recurring component?

I can't give you the specific, because we don't give that level of granularity at this point in time. I can tell you that the usage or transactional component of that subscription piece is about 20% of the total subscription. We've got training in there, we got the payments business and related usage type component. The payments business has been a very good growth opportunity for us, so we continue to see that growing rather -- at a rather high growth rate comparatively to the rest of the business, continuing into '14 and beyond. That will mute a bit on the margin line as we said now that, that moves to gross, but that is certainly growing faster. And so I would expect we would see, as you look out into the future, a continued potential shift in the amount of usage or transaction as a percentage of the total, at least for the next couple of years, just because of the growth rate in that transaction side is faster than recurring subscription.

That's helpful. And maybe just one last one. Europe was particularly strong, I think, this quarter. You called out some deals there. Is there something -- we're all mindful of Europe improving from a macroeconomic standpoint. Is there something above and beyond macro improvement that you think is starting to help you drive more growth out of Europe?

Europe was strong from a CRM perspective. I would not say that it was strong or exceeded our expectations from an overall holistic perspective. So there's still a lot of uncertainty, I think, around the world, inclusive of Europe. Our legacy products did not do as -- anything over, above and beyond what we would have expected. And I think the key here is that we see more opportunities with CRM on more global type and international organizations. So I think it's more so the growth in that specific set of offers, being LCRM or BBCRM to those larger enterprise-type customers on the international front is where you're seeing that incremental growth. Still a lot, I think, to be desired yet for the economy to turn around and see the growth ramp back up on the other legacy products. That said, we are making some incremental investments in Everyday Hero to roll that out to the rest of the world, and so we would certainly hope to see some incremental growth from that Everyday Hero product in 2014, certainly and going forward. And then we hope to bring that solution as well to the U.S. sometime late next year as well. And so we would hope to see some growth from some of those solutions elsewhere.

At this time, we've reached the end of our allotted question-and-answer session for today. I will turn the floor back to management for closing comments.

Well, thank you, all, for us today. I appreciate that. We had, again, a very good third quarter. I'm very happy with where we are. I'm enjoying this Interim CEO role. We did not get a question on that one, maybe I'll just give everybody a quick update. I'm sure everybody is wondering how it's going. The search is going very well. We've had very good interest. The board is happy with the caliber and number of qualified candidates that we see, and I think the good news is that the management team that's in place is doing a great job as you can see from the results that we delivered in Q3 and will continue to execute until such time as we have new permanent CEO on board. And I look forward to updating everybody on our guidance for 2014 on our next call after we get Q4 closed and talk to you then. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.