Mark Furlong - Blackbaud, Inc. Michael P. Gianoni - Blackbaud, Inc. Anthony W. Boor - Blackbaud, Inc..

Thomas Michael Roderick - Stifel, Nicolaus & Co., Inc. Justin A. Furby - William Blair & Co. LLC Rishi N. Jaluria - D. A. Davidson & Co. Brian Peterson - Raymond James & Associates, Inc. Tom Mao - Evercore Group LLC Rob Oliver - Robert W. Baird & Co., Inc. Kevin Liu - B. Riley FBR Mathew Spencer - JMP Securities LLC Mark W. Schappel - The Benchmark Co. LLC.

Good day, everyone and welcome to the Blackbaud Inc. Q1 2018 Earnings Conference Call. Today's conference is being recorded. At this time I'd like to turn the conference over to the Director of Investor Relations, Mark Furlong. Please go ahead..

Good morning, everyone. Thanks for joining us on Blackbaud's First Quarter 2018 Earnings Call. Today, we will review our financial and operational results and provide commentary on our performance in the context of our four-point growth strategy.

Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO; and Tony Boor, Blackbaud's Executive Vice President and CFO. Mike and Tony will make prepared comments, and then we'll open up the line for your questions.

Please note that our comments today contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our most recent Form 10-K and other SEC filings for more information on those risks.

We believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure our business. Unless otherwise specified, we will refer only to non-GAAP financial measures on this call. Please note that non-GAAP financial measures should not be considered in isolation from or as a substitute for GAAP measures.

A reconciliation of GAAP and non-GAAP results is available in the press release we issued last night, and a more detailed supplemental schedule is available in our presentation on our Investor Relations website.

Please also note that unless specified we will refer to 2018 results and comparable 2017 results as adjusted to reflect our adoption on January 1 of ASC 606 related to revenue from contracts with customers.

Before I turn the call over to Mike I'll briefly cover our upcoming investor marketing activity, which is available on or Investor Relations website. During the second quarter, our team will be attending the Jefferies Technology Conference in Beverly Hills, B.

Riley FBR's Institutional Investor Conference in Santa Monica, Baird's Global Consumer Technology and Services Conference in New York, Citi's Small and Midcap Conference in New York, and Stifel's Cross-sector Insight Conference in Boston. We will also be holding meetings with investors in New York, Boston, Dallas and Denver.

Please also mark your calendars for our annual Investor Day on October 10, which will be held in Orlando, Florida in conjunction with our user's conference, bbcon. And finally, please note that the proxy statement for our June 12 Annual Shareholder Meeting was filed with the SEC on April 24 and is now available.

With that, I'll hand the call over to Mike..

Thanks, Mark. Good morning, everyone, and thanks for joining our call today. We've continued the momentum from last year, furthering our move towards a subscription-based reoccurring revenue model with our mix of total reoccurring revenue now standing at 89%, a new all-time high for us after finishing full-year 2017 at 87% on a comparable basis.

The market remains very strong. Charitable giving continues to grow and the pace of innovation we're delivering to our growing base of over 40,000 customers and millions of individuals is unmatched in our industry. We had a solid start to the year and are reaffirming our full-year financial guidance.

As usual, Tony will provide more detail on our financial results and I'll provide an update on the context of our four-point growth strategy. But first, I want to cover a few key leadership changes.

A few weeks ago, I sent out a press release announcing Kevin Gregoire has joined Blackbaud to run our Enterprise Markets Group, bringing with him more than 20 years of leadership experience in the software industry with responsibilities spanning product management, business development, sales, support and more.

He's a 16-year veteran of Fiserv where his leadership played an instrumental role in the company's growth. That press release also mentioned that Brian Boruff, who formerly led our Enterprise team, has transitioned to build and lead Blackbaud's Partner Ecosystem & Global Alliances business.

Brian will provide more emphasis on growing our partner program and as a former Microsoft executive himself, will lead the expanded partnership that we announced last fall. We also announced last week that David Benjamin will be joining Blackbaud from Box to lead our International Markets Group and will be based in our London office.

David is a seasoned executive with 24 years of professional experience within the technology, telecommunication and media sectors. David has delivered outstanding results throughout his career, and we are in a great position to drive growth internationally under his leadership. David is taking Jerome Moisan's position.

Jerome is taking time off to spend with his family, and we wish him all the best. Kevin, Brian and David will report directly to me and serve on our executive leadership team. Now, let's cover the progress we've made against our growth strategies. The first of our four growth strategies is integrated and open solutions in the cloud.

We introduced Blackbaud Grantmaking, which is our newest and most comprehensive grant management solution. Our next generation cloud offering for grant making evolves the experience previously available with a product we acquired with MicroEdge called GIFTS Online.

Blackbaud Grantmaking takes full advantage of the rapid innovation, modern user experience and enhanced capabilities made possible by our Blackbaud SKY cloud platform. The early adopter feedback has been very positive, receiving high marks for intuitive design and configurable workflows that make it easy to quickly find data and act.

Customers like the Aetna Foundation are saying that they will be able to approve grants more quickly, improve collaboration with their grantees and ultimately deliver greater impact and drive outcomes. Our customers are also benefiting from the power of a fully integrated cloud.

The Missouri Foundation for Health told us that one of the major reasons they adopted Blackbaud Grantmaking is because of the seamless integration with Financial Edge NXT. That means one sign-on, a consistent user experience, and Omnibar access to our portfolio of Blackbaud SKY-powered solutions.

Along this theme of integration, we also just announced the integration of AcademicWorks with our Blackbaud SKY-powered solutions, bolstering our customers' ability to grant and manage scholarships. Donors funding scholarships, for example, will now have improved visibility given the integration with our digital marketing solutions.

Scholarship granting organizations are now able to seamlessly manage financial tracking and reporting through integration with financial Edge NXT, and integration with Raiser's Edge NXT ensures a holistic view of the donor and granted scholarship.

This is really exciting for our customers, saving them time through automation and providing them with a more robust set of tools to better enable their organizations for success. We're continuing to rapidly innovate in the cloud which is resulting in gains for both Blackbaud and our customers.

This leads me to our second growth strategy which is to drive sales effectiveness. We've shifted to selling integrated cloud solutions instead of individual point solutions which is a key competitive differentiator for our sales teams.

Our focus is on driving improved productivity within our existing sales force through common procedures, training, key operating metrics, compensation plans and reporting.

Our sales account executives now lead with a total solution selling strategy which we believe results in more products per customer, higher ASPs and increased customer retention over the long term.

We know that attaching training, analytics and payments to a deal improves the customer experience, improves outcomes, drives retention and extends the customer lifetime value. Trillium Health Partners Foundation is a great example.

They're dedicated to raising funds for Trillium Health Partners, one of the largest community-based, academically affiliated acute care facilities in Canada. Trillium implemented six of our cloud solutions and paired those with training offered by Blackbaud University.

We provide a comprehensive portfolio of training solutions for all skill levels, both virtually and onsite to help our customers work more efficiently and accelerate their organizational objectives.

Blackbaud's training programs exceeded Trillium's expectations with over 90% of their staff enrolled in courses and logging over 400 hours in training, enabling them to take full advantage of our cloud solutions and execute their mission more effectively. Let's turn to our third strategy which is TAM expansion.

Our goal is to expand TAM into new or near adjacencies with acquisitions and product investments. We've been executing this strategy for several years now and expanded our TAM by roughly $2 billion through acquired businesses over the last few years.

Last year, we closed on AcademicWorks in our second quarter, adding scholarship management and stewardship software to our portfolio. We moved quickly to integrate their back office for consistency and scale and expanded sales into Canada and the UK by integrating them into Blackbaud's international sales channel.

We also closed JustGiving in the fourth quarter last year, one of the world's leading online giving platforms, broadening our ability to serve both individual donors and non-profits. Just recently, 2018 Olympic figure skater, Adam Rippon, launched his JustGiving fundraising campaign for GLAAD on The Ellen DeGeneres Show.

Adam is one of JustGiving's millions of users that are raising money and changing lives. We're continuing the integration work on JustGiving and we remain active in the evaluation of future opportunities to expand our TAM through acquisitions and internal product development.

Our final strategic initiative is a focus on operational efficiency to strengthen the business and deliver improved profitability.

You've heard us talk a lot about the transformational changes we've been making in the business driving us towards a more scalable operating model that creates efficiency and consistency in how we execute through infrastructure investments, productivity initiatives, and organizational realignments.

A few years ago, I stood up an operational excellence function inside of Blackbaud to focus on maximizing the effectiveness of the business through continuous improvement. For example, we certified over 100 associates on our global management team in a program focused on leadership capabilities.

We have different courses spanning different functions and levels within Blackbaud enabling every single employee to take ownership of their role, and move the company forward. This has empowered our employees to improve their daily lives, advance Blackbaud's strategic objectives, and ultimately, drive more value for our customers.

It's one of the reasons we've been named to Forbes' America's Best Employers list in 2018 for the third year in a row. We've made significant strides to-date improving operating efficiency, and there's more opportunity ahead to further optimize the business.

Overall, I'm pleased with our strategic shift towards subscription-based reoccurring revenue, the innovation we're delivering for our customers and the opportunity ahead of us in 2018. I'll now turn the call over to Tony to cover our financial performance in greater detail before we open it up for Q&A.

Tony?.

Thanks, Mike. Good morning, everyone. I'll direct to you yesterday's press release and the investor materials posted to our website for the full detail of our Q1 financial performance and adoption of ASC 606. Today, I'll focus on key highlights so we can get to your questions.

The adoption of ASC 606 had an immaterial impact from a revenue recognition standpoint. We've combined maintenance and subscriptions into a single recurring revenue line moving forward given the tremendous progress we've made in shifting revenue mix towards subscriptions and relative immateriality of the remaining maintenance revenue stream.

We've also reclassified revenue from what would have historically been services and other revenue into recurring revenue given the true recurring nature of the revenue.

For example, some of the training offered by Blackbaud University that Mike mentioned is in a recurring subscription model, hence, we moved it into our recurring revenue line, which is the appropriate classification. I'll point out that we've shared the historical impact of these reclassifications for 2016 and 2017 in our investor materials.

Moving to the quarter, our first quarter revenue was $205 million, an increase of 5.3% on an organic basis over 2017. Recurring represented 89% of total revenue, the highest in our company's history. This is 210 basis points higher than Q1 of 2017 and 7.2% growth on an organic basis.

The business has never been more stable, with 9 out of every 10 revenue dollars now recurring. We expect Q1 to be our low point in terms of organic revenue growth, which was contemplated in our budget and anticipate acceleration for the full-year.

I'll note that we've seen healthy growth in our customers' donations revenue to-date and haven't identified any meaningful impact from the recent U.S. tax reforms. We also continued reducing the mix of one-time services and other revenue which is a drag on our total company revenue growth.

One-time services and other revenue represent 11% of total revenue mix and declined 7% versus Q1 of 2017. We anticipate that services revenue will continue to decline in 2018 although at a slower rate than in 2017. Turning to profitability. Our gross margin was 62.9%, which is a 280-basis-point improvement versus Q1 of 2017.

This is particularly strong and primarily attributable to some one-time items, accretive acquisitions and improvement in our services margin. We generated solid operating income of $43 million, representing an operating margin of 21.1% and diluted earnings per share of $0.66.

It's important to note that our gross margin performance also created upside for operating margins in the first quarter, which is typically our seasonal low. We're still expecting the full year to land within our guidance of 20.6% to 21%.

As a reminder, the largest financial impact from ASC 606 relates to the increased deferral of cash-based commissions and related benefits which will be amortized over a longer five-year life rather than what was generally a three-year life. This will positively impact operating margins with no effect on cash flows.

Moving to the cash flow statement and balance sheet, our Q1 free cash flow was negative $1 million, which is largely in line with our expectations given the typical seasonality of our business.

We continued making necessary innovation and infrastructure investments to support our move to the cloud amounting to $6 million in CapEx associated with our new headquarters and investment in infrastructure and $7 million for capitalized software development.

And I'll note that we completed a significant cash tax planning project in 2017 and currently don't anticipate paying any federal cash taxes in 2018.

We provided a one-time equity grant in February of approximately $2,000 to each Blackbaud employee not currently receiving equity so that all employees are owners and can participate in the company's success. During the quarter, we paid out $6 million in cash dividends to shareholders and ended with $442 million in net debt.

Our capital strategy calls for a debt to EBITDA ratio of less than 3.5 times, and at the end of Q1, we stood at 2.2 times. It's paying off that we hedged a portion of our interest rate. We have a very efficient financing model and our tax effective interest rate is roughly 2.5%.

You'll remember from our last call that we're making key 2018 incremental investments into sales, marketing, R&D and our workplace strategy. Our new global headquarters required one-time investments that will position us well for future growth and scale over the long term.

Also in an effort to improve operating efficiency and further our organizational objectives, we initiated a multi-year plan to consolidate and relocate some of our existing offices to highly modern and more collaborative workspaces with short-term financial commitment.

These workspaces are also more centrally located for our employees and closer to our customers and prospects. We currently expect to incur before tax restructuring costs associated with these activities of between $6 million to $8 million with the majority of those costs expected to be incurred between 2018 and 2019.

And in the first quarter of 2018, we recorded approximately $800,000 in restructuring charges associated with this initiative. We're expecting to gain operating efficiencies in the long term beyond 2019 with an estimated payback of roughly two years and future annual before tax savings of between $3 million and $4 million beginning in 2020.

In summary, continued execution against our strategic plan is allowing us to strengthen the business and track our full-year financial guidance.

We're maintaining our disciplined approach to balance investments that drive growth with improved profitability, and we will continue to execute on our capital deployment strategy to maintain a strong balance sheet, return capital to shareholders, and create growth, and scalability..

Before we go to Q&A, I want to share that yesterday we acquired a St. Paul, Minnesota-based company called Reeher for approximately $40 million. We also sent out a press release earlier this morning. This acquisition will accelerate capabilities for our customers that have major gifts in annual fund programs.

Reeher's industry-leading fundraising performance management solution help drive fundraising effectiveness and improve outcomes. Their customers include a range of higher education institutions, like Calvin College and Duke University, and we intend to extend these capabilities to our broader customer base.

The founder, Andy Reeher, will remain with Blackbaud. We expect the acquisition to be additive to our 2018 revenue and slightly dilutive to operating margin. And given the relative size of the business, the financial contribution is contemplated within our full-year 2018 guidance that we originally issued back in February.

With that, let's open up the line for your questions..

We'll have our first question from Tom Roderick with Stifel..

Hey, gentlemen. Good morning. Thanks for taking my questions. So, first question here, just thinking about the quarter – the fourth quarter itself and kind of the moving parts and the numbers, so really nice outperformance on recurring revenue relative to how, I guess, we were sort of thinking about it.

If we marry that with the deferred revenue line, which is perhaps a bit sub-seasonal for Q1, how should we think about what that meant for the quarter and for bookings in terms of mix between maintenance declining, subscription growing, and then, the – and sort of the blend of payments inside of that? It would seem like with revenue outperformance, but a sub-seasonal deferred number, perhaps there was more mix towards payments, but maybe could help us understand what's going on in that number since it's no longer broken out between subscription and maintenance.

Thanks, guys..

Hey, Tom. It's Tony. Thanks for the question. The difficulty on the deferred side is we have some changes as a result of ASC 606. But the bigger impact is just, as you know, our payments and transactional related revenue doesn't run through deferred.

We've got some services-related revenue, as well, that doesn't run through there and a lot of the usage, like on the Luminate product, doesn't run through deferreds. And typically, our highest seasonality that we see for billings takes place with renewals around the end of Q2 and going into Q3.

So, from an expectation perspective, I don't think there's anything that I can allude to related to Q1 specifically. We're holding to our guidance on the year. I don't think there was anything specific other than probably just a – actually a tough compare from the transactional side of the business.

Q4 of 2016 and Q1 of 2017 were both tough compares on the transaction side just because of the political environment and the election. We saw a lot of growth in giving to various causes as part of the election that carried over and made a tough comparison.

I would actually say comparatively, 2017 Q1 versus 2018, we actually saw probably a lower mix of payments in the total as a result..

We'll go next to Justin Furby, William Blair & Company..

Thanks, guys. Mike, maybe just for you.

There've been obviously a number of sales changes in the last few months, and I guess I'm wondering if there's any sort of near-term impacts, either positive or negative? And then when you look out over the next sort of 12 to 24 months, what are some of the impacts you expect from those changes? And then, Tony, just really quickly on the recurring revenue, obviously, some noise with how you reclassified.

It looked like your growth organically decelerated quarter-over-quarter, but it also looks like some of the revenue you shifted from services into recurring was growing slower, maybe low-single digit type growth based on what you gave us.

Is that the right interpretation that the organic recurring growth was maybe a bit higher if we were to go back to ASC 605 treatment? Thanks..

Sure, Justin. It's Mike. So, the sales changes are really settled down now. The model we have facing the market is one of vertical business units and we've had our vertical business units in place for a while now.

There could be some more in the future, but there has been a minimum amount of change in sales, related to territory assignments and things like that in the last several months. So that's pretty settled in. The sales excellence program though continues on.

We have a big focus on, again, adding where appropriate head count and driving performance optimization and productivity in sales. And that continues on.

We've got more of a focus on that in our international business as well, which is really around driving best practices and common use of tools and productivity and common training, which is now a global program.

We'll keep on that in the future because we see good returns and we now have a common selling operating environment from comp plans to systems to metrics and a focus on productivity..

And Justin, this is Tony. On the re-class, with the change in how we're presenting the face of the P&L with recurring and then one-time services and other, as part of the re-class and with ASC 606, we ended up moving – and we've got schedules out there on our investor relations materials that will show you all of the parts for 2016 and 2017.

We moved a good chunk of revenue that was related to recurring services and training, things that are sold more in a subscription or recurring-type model. We're starting to sell a lot more along those lines as well.

So, I'd expect those dollars to move – continue to move out of one-time to where we're starting to offer those in more of a recurring model. We didn't restate or go back and recalculate the actual impact. We have some pieces that we move, like training, for instance, is growing really nicely, where other pieces of some of the services were not.

I would expect that it's probably a bit dilutive to our overall recurring revenue growth rate as a result of those moves that we made..

Okay, got it. Thank you..

I'll just add, Justin, that our training business is basically a SaaS business unit. That's now over in the recurring line to Tony's point.

It's a really healthy business that is very additive to attach rates for our customers and I mentioned one customer in my prepared remark related to a customer that adopted six of our cloud solutions and also quite a bit of training to go along with that..

We'll go next to Rishi Jaluria with D. A. Davidson..

Hey, guys. Thanks for taking my questions. Two quick ones. First, Mike, let me start with you. This is your second recent acquisition in higher ed. I mean, from a longer term perspective, can you help us understand broadly how you're thinking about your higher ed strategy and your higher ed road map? And then I have a follow-up for Tony..

Yeah. Sure. We see lots of opportunity in higher ed, obviously. As we think about acquisitions in general like this, it's through a lens of strategy by vertical business unit and that continues.

There's always a pretty big pipeline of life science businesses that will continue to feed one of our strategies which is TAM expansion in particular vertical business units where we have a focus. This one happens to be in higher education.

Frankly, this one we think will spread beyond higher education for us as well, given the other verticals that we have. So we think it's applicable to more than just higher ed as a note.

But, really, it's about TAM expansion, it's about integrating solutions for our customers, because in a lot of cases, we win through integration and we're eliminating point solutions and providing better operating frictionless cloud solutions for our customers by vertical.

And it's just another one in supporting that particular vertical business unit, but we'll also, again, move to a few other verticals over time as well..

Okay, great. That's helpful. And Tony, in your prepared remarks, you mentioned that Q1 is going to be the low point of organic revenue growth and that we should see an acceleration in organic revenue growth through the rest of the year.

Is that a function of one-time services being less of a drag on growth just given the lower composition of revenue or should we expect to see organic recurring revenue growth also accelerate?.

Yeah. I think, Rishi, again, as I spoke to an earlier question, one of the biggest impacts is just the tough compare, I think, to what we saw in Q1 of 2017 with giving associated with the presidential election and uncertainty of what was going to happen, I think, in certain places throughout the country.

Services, certainly compared to last year, we expect services to shrink again as we've stated this year but not nearly at the rate of decline that we saw in the prior year. That will be helpful. And as you know, it's not linear for us quarter-to-quarter.

We've been here before where we'll have a low quarter and then accelerate out of there as we saw last year and the year before, and we're again sticking to the full-year guide, so we feel good about the full-year number..

We'll go next to Brian Peterson, Raymond James..

Good morning, gentlemen. Thanks for taking the question, and congrats on the margin performance this quarter. So one question from me, just on the partnership stuff. Mike, you mentioned that'll be an increased effort going forward. I know historically, especially related to Blackbaud CRM, there were some big services projects for partners.

Can you just talk about how the composition of those partnerships from a, maybe an SI area or a technology relationship, how are those going to change going forward? Thanks, guys..

Yes, sure. So, the change, really, is with someone like Brian's background, it's a global focus on growth with partners in a bigger way than we've had before. Brian's going to be dedicated to this basically starting this quarter with Kevin Gregoire transitioning in to the Enterprise Group.

And, really, it's a continuation of what we've been doing with partners but with a global view and an emphasis on the partnership we have with Microsoft which is a, still an emerging partnership. I would classify it as that.

and I just think there is a lot of opportunity for us to expand our reach with partners in a way we haven't done before with a growth-oriented leader like Brian..

Thanks, Mike..

Yeah..

We'll go next to Kirk Materne, Evercore ISI..

Hi. This is Tom Mao dialing in for Kirk. Mike, could you provide some more granularity on the investments you're looking to do in sales and marketing R&D? And how does today's acquisition alter those plans at all, such as maybe building versus buying in the space? And I have a follow-up..

Yeah. Sure. So, I'd say that the strategy we've communicated in the last several quarters and over the last year hasn't changed which is we continue to invest in sales. We invest in head count expansion in particular vertical markets, where we see a good return and lots of expansion opportunity both in North America and internationally.

Also sales investments again are around productivity, driving better return with our existing sales teams. And we're seeing some good progress on that program, that sales excellence program. Over in R&D, we continue to drive innovation.

And frankly, productivity is increasing quite a bit because of the SKY architecture and the way that we've built that. It consists of multiple components of reusable systems. So, I'll just use one example. The user experience is shared by all of our engineering teams and all of our products.

So, we have a toolkit now that eliminates a pretty large percentage of application development related to user experience, where if you go back four or five years, we were building the user experience components by product individually every single time. Now, it's a shared set of services and tools.

And when you share that across a very large engineering team, you start to drive a lot of productivity because you don't have to build that from scratch every time like we used to. And that's just one example. There are multiple components of SKY architecture that drive that kind of productivity.

Now, related to the acquisition I talked about earlier and announced this morning, Reeher, that really is an advancement of engineering road map with advanced capabilities that we currently don't have.

So, it doesn't really change our engineering strategy, but for us and for our customers, it advances capabilities pretty significantly for major gift officers in larger institutions. And so, it really is an advancement of our capabilities. The other really cool thing is their platform is already integrated to several of our current solutions.

So, that work is largely done, and so, this is, again, just an advancement of capabilities for us, initially in higher education, and then in a few other vertical markets as we move throughout the year..

Got it.

And can you talk a little bit about your deeper relationship with Microsoft, and how does that impact your results in 2018 or 2019?.

Yeah, there's not really much to mention there. There's still a lot of work going on in a lot of different ways, go-to-market, and market partnership, and product integration, and product road map. So, it's going to take some time on that because they're a big company, and – but it's going quite well.

There's been a multi-year relationship with them in engineering, which is quite mature. The commercial relationship is growing well. We're working with them in multiple vertical markets, which is great. So, I think there's not much to talk about related to metrics, but I'm pleased with our progress. I'm pleased with the relationship.

And, again, Brian is going to focus a bunch of his time on this and he spent a long time at Microsoft a while back and has a lot of good relationships and knows their company and their market and their model quite well..

We'll go next to Rob Oliver, Baird..

Hi. Good morning, guys. Thanks for taking my question. Mike, I was wondering if you can touch on – and you did a little bit, just the progress in moving salespeople out into the field.

And along with that, adjacent to that, the competitive landscape and if there's been any change in the competitive landscape either positive or negative? We noted that Salesforce's presence at the Nonprofit Tech Conference was much more muted this year than it had been in the past.

Just curious if there's any more open runway for you guys, and if there's – if moving salespeople out to the field has been successful in addressing some of the competitive bidding on conversions? Thank you, guys..

Yeah, Rob, sure. So, for sales, we've made a lot of progress on moving people into markets close to customers, sales and sales engineers. That continues. But in the last three years, we've made a lot of progress. And I also think it's important to hit on what Tony mentioned.

So, the more distributed sales team and sales engineers, and what I've described as specific roles that should be in the field close to customers is something we've made a lot of progress on. And that is related to our real estate strategy in a big way as well. I think you know we don't own any real estate, we're renters.

But as we have a more distributed team, we've also created a really good real estate strategy, includes our new headquarters, yes, which we also rent, but also a distributed office model with a lot more flexibility that supports this move toward having the right roles close to the customer around the world in the field.

Those are tightly linked together. And the real estate strategy we think will have some great returns in the next several years as well. So, it's also a positive investment model for us in addition to a proximity model for customers and all that continues quite well.

Related to the competition, we haven't seen any big changes, I'd say, in the last year or so. We still have competitors in different verticals. Most of the competitors are smaller-size institutions, typically with a single-point solution. And so, we haven't really seen a marked change at all. But we're focused on us.

And so, we're focused on our innovation. We're focused on good tuck-in acquisitions like the one today that advance our competitive capabilities. We're focused on sales productivity, and so that's our predominant focus..

Great. Thanks very much..

You're welcome..

We'll go next to Kevin Liu, B. Riley FBR..

Hi. Good morning. Just a couple follow-ups on the Reeher acquisition. Could you talk about to what extent you guys have customer overlap within your higher ed base today? And then, if you'd look at kind of the typical deal size you get in that vertical, what sort of uplift does this provide? Thank you..

Yeah. Sure. So, we have some customer overlap, but it's not a high percentage. So, there's a cross-sell opportunity with them, which is great.

The bigger opportunity is to pull their solution into our existing customer base in higher ed and then other verticals, as I mentioned, and to attach that solution to existing prospective customers as well because it strengthens our position at the really high end of the market, which I would describe as power users or major gift officers.

It's a really cool platform that really uses analytics to drive performance. So, you could think of the platform as a team-based platform for a major gift officer team to drive that team's performance. And it also pulls data from multiple customers, so that team can compare their performance to industry performance.

And that's really the basis of what this is about. So it's a performance-based system, it's an analytics and data-driven system, and we have some data and analytics that will be additive to their platform. Their platform is very additive to ours. So, we're really excited about that, and not a lot of customer overlap.

So, we'll be taking that platform to market immediately. We know their business well. A lot of our folks have been knowledgeable about them for several years. So, we think it's a really good fit. Andy, who's the Founder and CEO, has done a really good job in building and leading that business.

And so, skill-wise and platform-wise, it's a great fit for us..

We'll have our next question from Pat Walravens with JMP Securities..

Hi. This is Matt Spencer on for Pat. Thank you for taking my question.

With the shuffling you highlighted in the leadership ranks, how confident are you that you have the right team in place right now, and what kind of changes are they making to their respective organizations?.

Yeah. Sure, Matt. I wouldn't use the word shuffling. This has been planned for a long time; many, many months. So, this is a measured change to add some skills to the team. And related to Enterprise, Kevin Gregoire, to me, was a known executive from Fiserv.

And with Brian's background in partnerships, and Brian has been involved in our partnership program for several months, so that's been building. Brian has been helping Kevin come up to speed. Kevin has been here for a couple of weeks now. So, Kevin is a really good executive add to the team.

I think Brian's going to do a great job in partnerships given his background. And then David started yesterday. So, David Benjamin started yesterday. And I mentioned in my prepared remarks, Jerome, who was in that role, is actually taking some time off to be with his family.

I know a lot of companies use those words and sometimes maybe that's not accurate. He actually is. In fact, Jerome is coming in to help David come up to speed and he already has started to do that. And so, I think that will be another measured change with a very seasoned executive to head up our International Group.

So, I don't expect any bumps in the road. We've got good operations in both of those business units and really solid transitions planned over several months underway..

Great. Thank you..

You're welcome..

We'll go next to Mark Schappel, Benchmark..

Hi. Good morning and thank you for taking my question. Mike, I believe this is the second full quarter with JustGiving and I was wondering if you could give us some indication whether JustGiving's growth rate is consistent with the growth rate when you had purchased them..

Yeah. Yeah, it's really been a great add for us. The platform is exciting for us. It's a global scalable platform that's direct to consumer, so it's a unique and new category for us. The executive team has been a really good fit two quarters in. Yes, the growth is where we expect it to be. They're executing on the integration plan.

There's a lot of really interesting things underway there. I mentioned just one campaign in my prepared remarks that got some notoriety. So, we're very pleased with the business, the growth, the fit, our integration plans going really well two quarters in, which is always a big focus for us. So, yeah, very pleased with JustGiving..

Great. Thank you.

And then with respect to the Reeher acquisition, could you just give us an idea of what the revenue run rate was at that firm as well as how quickly they were growing?.

Mark, that one is an overall immaterial acquisition. We're not giving any of the granularity but I'd tell you we paid a similar and multiple to what we've done in recent acquisitions and expect to see good growth on that front.

We'll have to get through the accounting, purchase accounting to understand what kind of deferred revenue write-offs we'll have, et cetera. I mean, we just closed on it this morning so, more to come on that.

But I'm thinking back into a number that fits well within the guidance range that we had given at the beginning of the year, hence no update there..

Yeah. I mentioned it'll be additive to our 2018 revenue, slightly dilutive to operating margin, solid organic growth, so we think it's a really good fit..

Yes..

Okay. Thank you..

You bet..

That concludes today's question-and-answer session. We'll turn the conference back to Mike Gianoni for any additional or closing remarks..

Thanks, operator. I'll just close the call by saying that we're really pleased with the progress we've made against our strategic objectives. We plan to further these in 2018 and achieve our financial guidance. Tony and I look forward to updating you on our progress on the next call. And thanks, everyone, for your participation this morning..

That does conclude today's conference. You may now disconnect..