Jul 31, 2009
Operator
Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the BlackBaud Second Quarter 2009 Earnings Conference call.
Today's call is being recorded. At this time, all participants are in a listen-only mode.
Following the presentation, we'll open up to question and answer session. Instructions will be provided at that time for you to queue up for questions.
I'd now like to turn the conference over to Mr. Tim Williams, Chief Financial Officer of Blackbaud.
Please go ahead.
Timothy V. Williams
Thank you very much. Good afternoon everyone.
Thank you for joining us today to review our second quarter 2009 results. With me on the call is Marc Chardon, President and Chief Executive Officer.
Marc and I have prepared remarks and then we'll open up the call little bit later for questions. Please note our remarks today contain forward-looking statements.
These statements are based solely on present information and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Please refer to our SEC filings including our most recent annual report on Form 10-K and the risk factors contained therein, as well as our periodic reports under the Securities Act of 1934 for more information on these risks and uncertainties and on the limitations that apply to our forward-looking statements.
Also, please note that a webcast for today's call will be available on the Investor Relation section of our website. With that I'd like to turn the call over to Marc and I'll come back a little bit later to give some further details regarding our financials.
Marc?
Marc Chardon
Thank you, Tim, and my thanks to all of you on the call for joining us today to review our second quarter 2009 financial results. While the economic environment remains challenging, Blackbaud's worldwide organization executed at a very high level, and as a result, delivered second quarter revenue and profitability that were consistent with or above the high end of our guidance ranges.
At the same time, as I'll discuss in a moment, we continue to make solid progress expanding on our market leadership position and online fundraising solutions. Our demand for these solutions does not always translate into upfront licensing revenue since they are increasingly being sold on subscription basis but continues to make improvement in our position and this segment is very encouraging, especially when combined with the progress of our other growth initiatives.
In a moment, Tim will cover the financials in detail. So let's take a look at the highlights.
Our total non-GAAP revenue of approximately $77.2 million was consistent with our guidance. This represents growth of approximately 7% over the year-ago period and was a sequential increase of 76...
from $76 million last quarter. The combination of inline revenue and continued tight control of expenses enabled Blackbaud to once again, deliver operating profitability that was above the high end of our guidance.
Moreover, at the half way point of 2009, the company's non-GAAP operating margin of 20% is right on track with our full year target. We believe this is a significant accomplishment particularly when you consider the investments that we continue to make in our growth initiatives and the challenging economic environment which we operate in.
Looking at the make up of our revenue, subscriptions remained the highest growth component of revenue in the second quarter, both on a year-over-year and sequential basis. In fact, the sequential growth of our subscription revenue was at the highest level since we acquired Kintera and began including their results in our financial statements.
In the second quarter, our subscription revenue was three times the level of our license revenue which remains the smallest contributor to revenue. Total recurring revenue made up of both subscriptions and maintenance increased to 61% of total non-GAAP revenue, up from 59% last quarter and 49% in the second quarter of 2008.
Blackbaud's business model is increasingly involved to its product sales on a subscription basis over the past several years and we believe it will continue to move in that direction. As I have noted before, our long-term product roadmap supports the continuation of this trend.
Although the transformation results in lower first-year revenue when compared with the upfront revenue generated by perpetual license sales, we continue to achieve significant current period profit margins while also building greater visibility into our long-term revenue and cash flow. In fact, we had a very strong cash flow performance in the second quarter and in the first half of the year.
Now, let me address the current status of our market. While we delivered better than expected revenue in the first quarter, we were candid in our remarks during last quarter's call that the market environment remained challenging and we were not yet seeing an improvement.
While certain market segments continue to perform better than average, such as higher education, the overall market environment was generally consistent with our expectations in the second quarter. While it did not appear worse than recent quarters, it also was not improving.
There are, however, some signs that are modestly encouraging. For example, we saw a small amount of fiscal year-end buying in the last couple of days of this quarter, this past quarter.
While this was not a material amount to our overall operating results to be clear, the behavior was something that we didn't really see in either the June 2008 or the December 2008 quarters. In addition, there are some customers that seem to be adjusting to the new economic environment by deciding that if conditions aren't worsening but seem likely to remain challenging for the near-term, they can no longer wait to make the investments needed to improve their results.
Our pipeline of opportunities remains solid and our efforts to fine-tune our positioning has helped to drive continued improvement in our win rates against competitors. However, it's too early to determine if customers will begin to move ahead with investments at faster pace than they have done over the past 12 to 18 months.
But they will remain cautious when it comes time to actually commit to a technology investment. As a result, we continue to plan and manage our business in the manner that does not assume an improvement in the macro environment.
Last quarter, we mentioned that we identified approximately $10 million of incremental 2009 cost savings as a result of our ongoing efforts to run our businesses as efficiently as possible. As Tim will explain more fully in a moment, we've identified additional incremental savings, some of which we realized already in the second quarter.
Should market conditions worsen, we believe that we could achieve additional cost savings. Overall though, we were very pleased with our day-to-day execution in the area of cost management and we continue to target delivering a full-year non-GAAP operating margin of 20% or better.
While we're taking actions that we believe are important to deliver strong current period operating profitability in cash flow, it's important to remember that we are also continuing to invest significantly in growth initiatives that are critical to our long-term success. Our goal is to ensure that Blackbaud is well positioned to enjoy accelerated revenue growth when the economic environment does eventually improve.
During the second quarter, we were particularly pleased with the success of our online fundraising initiatives. In the past, we've spoken about our Blackbuad NetCommunity offering which has targeted users of our Raiser's Edge solution and our Blackbuad Sphere solution which was part of the Kintera acquisition just over a year ago.
During the second quarter, we saw a strong demand for our NetCommunity Grow offering which packages the subset of the core components of NetCcommunity with a prescriptive implementation and on going eMarketing consulting. This results in a quickly implementable subscription basis solution.
I'm really pleased with the sense of urgency that we show in quickly building this new online offering which helps our Raiser's Edge customers tangibly improve their business in this budget constrained market environment. This Grow version of net community represented over half of our NetCommunity unit sold in the second quarter, in facing from five units in the first quarter to 44 in the second quarter.
Now, I don't plan on providing quarterly updates on this figure but I did want to put into perspective the magnitude of the market acceptance, competitive strength of this particular solutions. In addition, because of the Grow release is only offered on a subscription basis, we're affectively spreading approximately $1.5 million in sales over the course of these contracts as opposed to recognizing it upfront.
As I just mentioned, we also continued to be pleased with performance of Blackbaud's here. Customer satisfaction levels continue to rise and the related renewal rates and expansion of existing agreements are very encouraging.
Finally, we also recently launched a set of online solutions specifically designed for the K-12 vertical market. This suite has also being offered on a subscription basis.
Based on very early feedback, we're optimistic that this offering will be well received in the marketplace. BlackBaud continues to build on our market leadership in the online segments and we are well on our way to becoming the clear long-term winner in online solutions for the non-profit market, just as we a while ago established the Raiser's Edge as an industry standard.
We continue to make progress with other Software as a Service subscription based solutions such as the eTapestry which delivered a respectable performance in light of the difficult economic environment. eTapestry is ideally suited for the low end of the market where IT resources are more scarce and organizations do not wish to own software or manage an internal computer infrastructure.
These non-profits are simple and easy to implement fundraising solution deployed in the Software as a Service manner is ideal. Of course, for other organizations looking for the most complete fundraising solution available, The Raiser's Edge continues to be the widely acknowledged market leader.
On the eCRM front, we remain pleased with market acceptance and interest levels as well as the progress of our implementations. We continue to target the largest non-profit organizations with this solution and receiving a growing level of interest in terms of larger mid-tier non-profit organizations which we would've served with The Raiser's Edge offering in years past.
In the second quarter, we signed two eCRM deals, one of which is an existing theme approached customer. Both second quarter deals were with customers in the healthcare sector.
You will recall that although we had record eCRM sales activity last quarter plus but we have all the stress that sales of eCRM will be variable quarter-to-quarter based on the large deals sizes and longer sale cycles associated with these transactions. In addition to the two deals we signed, we made progress in the sales cycle and several other exciting eCRM opportunities and remain on track to meet or exceed our goal of closing, on average, a couple of new eCRM deals each quarter.
With eTapestry, The Raiser's Edge and eCRM, we believe we're able to meet the fundraising needs of all non-profit organization no matter what size. The last component of our business that I'll highlight today is Target Analytics.
During the second quarter, we saw solid sales activity and, in particular, an increase in this sales business compared with the previous quarter. These sales have historically been a key contributor in the Target Analytics revenue but over the last year, the sales have been negatively impacted by the economic environment as customers were less concerned with new donor acquisitions and more inertly focused on existing constituents.
We think that this is potentially another encouraging sign of some improvement. In summary, Blackbaud continued to deliver solid financial results in the midst of a difficult economic environment.
Interest levels and our solutions remain high and there are some very early signs that are more positive on the margin. However, sales visibility is still low and we are finding and executing our business with the expectation that the market environment will remain challenging.
Most importantly though, we continue to focus on and invest in improving Blackbaud's long-term value proposition to our customers and our competitive position in the non-profit market. We're growing our base of subscription revenue, we're extending our clear leadership position in online fundraising and we are executing well with respect to developing, delivering and selling solutions that meet our customers' needs, now and in the future.
We believe the benefits of these efforts will become increasingly apparent as in our financial performance as the economic environment eventually improves. With that, let me turn it over to Tim.
Timothy V. Williams
Thanks Marc. Let me begin by providing details on our second quarter operating results followed by our guidance for the third quarter and wrapping up with a very quick review of our capital management program.
First, let me start with the income statement. GAAP revenue came in at 76.4 million and after adding that 800,000 for the second quarter impact of the purchase accounting write-down associated with Kintera's deferred revenue, you get to non-GAAP revenue of 77.2 million.
This represented an increase of approximately 7% compared to the second quarter of 2008. We estimate the Blackbuad's second quarter total revenue, excluding the contribution from Kintera, would have decreased approximately 6% on a year-over-year basis and would have been down about 4% on a constant currency basis.
This is in line with a decline of approximately 3% that we highlighted last quarter. Obviously, this year-over-year movement is well below our long-term target of low to mid-teens growth and we believe this principally the consequence of the difficult economic environment impacting our end market and to a lesser degree, the short-term impact related to the increasing shift in our business to more subscription-based transactions.
Looking at the details of our total revenue, non GAAP subscription revenue was 17.9 million, an increase of 99% on a year-over-year basis. It increased to 23% of our total revenue in the second quarter, up from 12% in the year-ago period.
Even without the contribution from Kintera, subscription revenue would have increased by approximately 29% on a year-over-year basis. License revenue was 5.8 million in the second quarter compared to 9.6 million in the year-ago quarter.
The decline in license revenue is a result of two factors. First, this is the revenue line that is most directly impacted by delays in the timing of deals because of the difficult market environment.
Second, as Marc pointed out, we have seen an increased level of the interest in our subscription-based offerings as well as license-based deals who's structure results in ratable or some other form of deferred revenue recognition. Our non-GAAP services revenue came in at 23.1 million, a decrease of 9% on year-over-year basis but up 5% sequentially.
Year-over-year decline is a natural derivative of the reduction seen in license revenue over the past 12 to 18 months which is also resulted in reduction of services related projects. In addition, another consequence of the difficult economic environment is that it is not uncommon for some customers to delay the delivery or performance of certain of our services engagement, training in particular.
That said, we've been managing attrition and recruitment very carefully over the last several quarters in anticipation of lower services volumes. And as result of sequential growth in revenue combined with a cost of services reduction of approximately $700,000 produced a 600 basis point improvement in our services margin compared with the first quarter.
Our non-GAAP maintenance revenue represented the larger source of our revenue during the quarter and it came in at 28.9 million, an increase of 10% on a year-over-year basis and up 3% sequentially. Our maintenance renewal rates continue to be in the mid-90% range despite the more challenging economic environment.
Turning to profitability, and to be clear here all non-GAAP extents and profitability percentages that I will refer to are based on our non-GAAP revenue total. So, starting with gross profit, we generated 49 million in non-GAAP gross profit in the quarter representing a gross margin of 63% which was consistent with last quarter and compared to 66% achieved in the year-ago quarter.
Turning to operating expenses, our continued focus on identifying cost savings enabled the company to lower the non-GAAP cooperative quarterly operating expense run rate by nearly 1.5 million compared to the first quarter. Elements of saving came from sales and marketing, R&D and G&A all.
The combination of inline revenues and solid cost management led to non-GAAP operating income of 16.5 million which was above the high-end of our guidance of 15.3 to 16.3 million and represented a non-GAAP operating margin of a little over 21%. The effective tax rate for non-GAAP results in the quarter was again 39% leading to non-GAAP diluted earnings per share of $0.23, which was again above the high-end of our guidance range of 21 to 22.
As a reminder, we fully tax our non-GAAP EPS amounts even though the company's cash tax rate is much lower due to our deferred tax assets and other tax benefits associated with recent business acquisitions. In our earnings release, there's a full tabular reconciliation between our non-GAAP results and GAAP results which include the deferred revenue add-back from Kintera and the impact of stock-based compensation expense and amortization of intangibles associated without our acquisitions.
In summary, our GAAP net income was 6.6 million in the second quarter of 2009 compared with 9 million in the second quarter of 2008 while GAAP diluted earnings per share was $0.15 compared with $0.21 in the same period last year. Let me now turn to cash flow in the balance sheet.
We ended the second quarter with $18.5 million in cash, down 4.5 million from the end of Q1, principally because of substantial debt retirement. Cash flow from operations was 22.1 million in the second quarter and 34.5 million for the first six months, ended June 30.
This represents an increase of more than 50% compared to the first half of 2008. While this comparison is against the somewhat weak prior year's six-month period due to the impact we experienced then from the implementation of the new accounting system, its still represents very solid execution from our team in a very difficult market environment.
Accounts receivable increased this quarter to 59.2 million from 47.3 million at the end of the prior quarter. This increase is very much in line with our normal seasonal movements in accounts receivable.
Our DSO at the end of the quarter was in the mid-40s, also consistent with historical performance. We believe our performance here reflects strong collections overall, again in a difficult environment.
We ended the June quarter with approximately $42.3 million in debt which was down almost 20 million or third compared to the balance at the end of the previous quarter. As we discussed last quarter, our first priority was rebuilding our cash balance to over the $20 million level which was accomplished during the first quarter.
We remain comfortable with our ability to service our remaining debt load based on strong cash flow of the company. Total deferred revenue came in at a 132.5 million which was up 22.4 million or 20% on a year-over-year basis.
And at the end of the quarter, the company's deferred tax asset had a balance of 69.5 million. As a reminder, this asset adds roughly $8 million to our cash flow on an annual basis, in addition to our annual cash flow benefit of approximately $3.5 million as a result of the structure applied to our three most recent acquisitions.
Let me now turn to our guidance for the third quarter of 2009. At this stage, we expect total non-GAAP revenue of 76 to 78 million, non-GAAP operating income of approximately 15.5 to 16.5 million leading to non GAAP earnings per share of 22 to $0.23.
Taking a look at the full year, we continue to make progress identifying incremental cost savings. And we currently expect total non-GAAP cost and expenses including cost of sales to be in the range of 245 to 250 million for the full year.
This is a further improvement of 5 to 10 million from our previous estimate of total non-GAAP cost and expenses in the range of 255 million that we discussed in our last quarter's call. We remain committed to our goal of delivering a full year non-GAAP operating margin of 20% or better.
Finally I'd like to finish with a very quick update on our two part capital management program. First, we announced today that the Board of Directors has declared our third quarter dividend of $0.10 per share payable on September 15th, 2009 to stockholders of record on August 28th, 2009.
During the second quarter, we paid dividends of $4.5 million. Second, we did not make any share repurchases during the second quarter.
We still have approximately a $30 million of capacity remaining in our $40 million share repurchase program and we will continue to balance the best ways to use our cash flow to enhance long-term shareholder value. In summary, the company executed at a very high level in the second quarter and the first half of the year.
In a difficult environment, the company has delivered profitability margin in line with our goal for the year. While we continue to progress, it remains our long term growth initiatives and build an increasingly subscription-based business model.
We believe the research and development initiative and broader market strategies that we are executing against are solidifying Blackbaud's market leadership position and position us well when the economic environment improves. With that let me turn it over to the operator and we will begin the Q&A session.
Operator
Thank you. (Operator Instructions).
And we'll take our first question from Tom Roderick with Thomas Weisel Partners.
Unidentified Analyst
Hey guys this is Chris Crowe (ph) sitting in for Tom. Good job on the figures.
Hey, guys, how are you?
Marc Chardon
Good.
Unidentified Analyst
Excellent. Good job on the expense side of the equation, especially given your tone it sounded like things are kind of going sideways a little bit.
So I do have a question though on the budget setting process, you mentioned that... Marc mentioned that at the quarter, some people just decide to use it or lose it on the budgets.
For fiscal year '10 on the budget setting plans, are you seeing anything there that would reasonably, that maybe, you could get grasp of what their IT spending trends for fiscal year '10 for the people that ended their fiscal year in June and how is that plan to work?
Marc Chardon
Everybody is being quite cautious, as I think we've said before, I think the non-profit sector does some what lag the economic environment and organizations, whether they have increased fund raising so far this year or decreased, are facing increased demands. So, they're being very judicious in how much money they can afford to put into IT.
Falling into a couple of categories, there are those organization that have decided to not last long enough but they need to increase recourses and that's a minority of organization and so they increased their investment in IT and I think that a majority of them are under very tight budgetary constraints. For that reason I said I don't foresee that as timing for an increase in the purchasing environment in the near future.
Unidentified Analyst
Okay Thank you very much and then I guess on the NetCommunity Grow product you guys mentioned that there was a strong point during the quarter. Sorry if I missed the press release or something on this but is there something that you guys actively tried to market during the quarter or is this something that was just a higher degree of interest in the environment?
Marc Chardon
We did market but obviously we market in those areas that are read by non-profit organizations. One telling factor was that of the sales of Grow in the quarter comes at 44 sales, almost half of them came from customer initiated leaves so the marketing did seem to be striking home.
I think that, when people get a broader understanding, the Blackbaud's provide a simple, easy to implement entry level fundraising, online fundraising solution that they have been interested in coming directly to us. And so, that was very encouraging.
So, it was in response... it was customer driven, mostly customer driven response to a modest amount on marketing and in non-profit specific channels.
Unidentified Analyst
Great, and then, I was wondering lastly, if you guys could provide some color on the average selling prices and maybe the core or eMarket. Are you seeing, I wouldn't necessarily count it, so just wouldn't say that cannibalization's the right word but, but are you seeing like, decline as far as Raiser's Edge, I would assume from your license sales that this might be the case, but is RE like dropping quite significantly relative to what you would had expected and just more like kind of short run small budget investments.
Marc Chardon
I would say that in general, we're not seeing a substantial change in our ASP. It's perhaps down a bit but it's not a significant change in terms of the overall ASP.
Our issue is really more of units than it is ASP, Chris.
Unidentified Analyst
Okay, great. Thanks guys.
Operator
And you will be answering a question from Phil Rueppel with Wells Fargo.
Marc Chardon
Phil?
Operator
I'm sorry. We have Phil on the line now.
Unidentified Analyst
Can you hear me now?
Marc Chardon
Yeah, we can.
Unidentified Analyst
Sorry about that. This is Priya Simon (ph) for Phil.
Just following up on the earlier question, what impact does the layoffs in the non-profit sector having on your business? You talk about units.
How, especially on the renewals, what impact are you seeing?
Marc Chardon
I'm having a hard time hearing. You said the impact of something on the non-profit and second what is that impact?
Unidentified Analyst
Can you hear me better now? I'm sorry about that.
In terms of the layoffs on the non-profit business, you talked about units in your previous question so just curious on that.
Marc Chardon
Well, there have been layouts in many sectors around the world and non-profit world is not exempt. It doesn't appear to me, I mean we don't have the statistical data, but it doesn't appear to me that there's a significant sort of connection between our customers and whether or not they're going to buy and or whether or not they renew in the last.
So, we've not seen any particular. But we haven't seen no particular increase in organizations going bankrupt and that you can see that in our maintenance renewal rates which remain the same as they were during healthier economic times and I think that some organizations lay offs and credit planning altogether and some organizations, they were unrelated.
Unidentified Analyst
Okay. And following up on the comments you made during the prepared remarks.
Do you think you've seen a bottom in your business especially as related to new licenses?
Marc Chardon
Well from a new license prospective, remember that you need to look at subscription and new licenses together and there's one question which is what the mix looks like in the future and we will probably have subscriptions growing faster than licenses even when a recovery occurs. So you'll just see the subscription growth rate higher than license growth rate over time.
I do not think that we've necessarily seen the beginning of a recovery. To paraphrase Winston Churchill, we may have seen the end of the decline.
Unidentified Analyst
Okay, and one more. Can you give a little more color on your expense controls in terms of...
you mentioned it's forward but add a little more color would be helpful?
Marc Chardon
Would you like me to talk a little bit about were those expense savings have come from?
Unidentified Analyst
Yes, that would be helpful.
Timothy Williams
Yeah, okay. Well, when you talk about this and I think we tried to make this soon enough in our previous calls that the savings have come from across the entire organization.
It's been a really significant effort by every member of the management team. And so, we feel really god about that.
In addition to that, we've been getting the saving from a variety of different areas and so that big part of the roughly 20 million or so in savings that we're not talking about relative to where we started the year; roughly probably 30% of that is related to payroll and benefit and part of that is we did not give any increases at all to the entire organization, normal salary adjustments. But more importantly, I think we've done a very solid job of managing our attrition in replacement hiring, so that we've been able to achieve significant savings there without having to do an across the board, headcount reduction.
In addition to that, unfortunately, we haven't been able to pay as higher commissions that we might have been paying if sales were performing a lot better. That reduction in commission was directly related to our mobile revenue.
It's probably somewhere in the $3.5 million range, in addition because our performance is not quite well as we had hoped it would be when we entered the year, we were generating some savings against our bonus plans. We've also saved a substantial amount of dollars in travel, and probably somewhere in the neighborhood around 5 million, part of that would otherwise have been built to customers and we incurred it if there's a sizeable portion of just travel related expense that close to our various categories in the P&L and we're achieving savings there.
So, I think you get a sense, they're in a whole variety of places, but, it's been in across the board everybody, the entire team.
Unidentified Analyst
Okay, if I could squeeze in just one last one. Could you talk about your performance in eTapestry?
Did you see how it is sequentially year-over-year?
Marc Chardon
eTapestry continues to do well and especially in terms of units. It's very close to its plan which makes it somewhat of a bright point in the context of the corporation from the user's perspective.
Units tend to be somewhat less. The ASP has gone down in the sense that there are fewer set of large eTapestry deals then we've had in the past.
So, in general were very, very pleased with the results that we're seeing in terms of sort of unit momentum. And we're actually reinvesting a little bit and additional new generation because we think their potential for some incremental improvement there.
Unidentified Analyst
All right. Thank you.
Timothy Williams
And I would just add that in addition to the comments Marc was making about the sales side, I would also tell you that we did have a nice little bit of growth on the revenue side as well, as you would expect with the subscription of our model.
Unidentified Analyst
All right. Thank you.
Timothy Williams
Thank you.
Operator
Thank you. Moving on, we'll take a question from Stuart Abbey (ph) with JP Morgan.
Unidentified Analyst
Yeah, thanks. Hi guys.
Couple of questions. First, you mentioned the renewal rates being still in mid-90s.
Was that just on the maintenance? Can you talk to what you seen on the subscription side of the house as well?
Timothy Williams
Yeah, the maintenance renewals... let me just go through this just a little bit.
Our maintenance renewals are in the mid-90s. When you look at subscription renewals, you have to kind of break it down in pieces.
If you look at our internet solutions, direct marketing solutions, and hosting, our renewal rates are very much in the same range as our traditional maintenance renewal rates. When you go to work Analytics solutions, which is a variety of different offerings that we provided to the market that are used by different customers for different purposes.
The renewal rates there, that traditionally been in the mid-80s to mid-90s and in general, we're seeing the same thing at the present time. Finally, with respect to the Sphere offering, which we got in the Kintera acquisition, I think, as Marc pointed out, we've seen a significant improvement in the renewal rates there which is something that we expected when we made the acquisition and we've been very pleased with what we've seen there.
So a good improvement there.
Unidentified Analyst
Okay. And on that last one, Kintera specifically.
You looked at the kind of, the cost structure that you acquired; the business that you acquired. Can you just talk to, how much of the savings that you're experiencing now is just giving better efficiency out of that asset in particular?
Timothy Williams
Well, I wouldn't say that, I think that the way I would position is to say that, we're sort of at the point where we expect it to be with Kintera in terms of their cost structure. We're not done; we haven't achieved all of the cost synergies that we can achieve.
But I would say that in general terms, our cost structure is about where we expected it to be at the time we made the acquisition.
Marc Chardon
And we did have the cost savings built into the 2009 final meet that gave our initial numbers of 265. So, that included a couple of million dollars of cost savings in engineering and included cost savings in data centers and public company costs.
None of those are included in the improvements that we've made this year. They were already baked into the initial plan.
Unidentified Analyst
Okay. And then last question.
If you look at the competitive landscape, so you mentioned there are organizations that, you're right, they feel like they have to move now to move to the next generation of how they interact with the donors et cetera. But I have to imagine that the number of opportunities is smaller, given the environment.
I would imagine that means that the competition for those is even higher. Can you talk to the competitive landscape, like type of organizations as well as size of organization, both from some of the dedicated guys in the space versus what you might be seeing use of, like, a salesforce.com or even any talks of anybody else moving into this space.
Marc Chardon
Well, if you could look at the largest organizations, we have a very, very high win rate. The cycle enterprise year-end product is simply unmatched.
There's nothing like it, in the market place today. So, when you look at the special sector of people like the higher and the very big high-end organizations or the very big healthcare organization, the very big chapter-based organizations, we are...
we're doing very, very well. And so, in that space actually an impairment of growth actually, we're seeing growth at this point.
If you look in the core markets, what you see is, as you say, somewhat lower amount of opportunity, although the opportunities are not that much lower than in past years. The real change is that in most sectors, and eventually all sectors of mid size, being no decisions after looking is the part that's increased.
So, if you had 100 opportunities, then no decisions in the path for 40 or so percent, they might be 50 or 60% there, depending on the sector. So, yes, there is in some sense more competition for the remaining parts and, yes, we represent the largest, the safest, the most financially secure and the highest customer satisfaction vendor essentially in the market in those segments.
And so the win rates that we are experiencing once there is a decision made, the percentage of those cases that we win is going up regularly quarter-by-quarter here. And we are very pleased that the improvement in the win rate and I believe that's an acknowledgement for the quality of the organization, the quality of the customer satisfaction.
And also I believe that in times like these you may need to make sure you invest with someone who is going to see you through the hard times.
Unidentified Analyst
Got it. Thank you.
Timothy Williams
Okay.
Operator
Thank you. Moving on, we'll take a question from John Neff with William Blair.
John Neff
Hey guys, thank you.
Timothy Williams
Hey, John.
John Neff
Just kind of a core profit non-profit kind of question, but core profits in a recessionary environment they go justified technology investment to improve efficiencies. I think you eluded to this before so I think I know what the answer will be, but can NPOs do this or is it less likely to do it to go for technology driven efficiency out of concern for maintaining services?
Marc Chardon
The answer is, both occur. The larger the organization, the more likely it is that they have an industrial budget and a professional IT organization that knows how to evaluate sort of the difference between capital and operating expense.
And in the mid-size organizations that truly depends on whether or not there's someone in the organization who has a clear understanding of how an investment in the new fundraising system can bring them results in the time of horizon of the downturn. And so, that's part of like you see some of our areas the kind of uptick, for example, on Grow, which is a subscription-based offering and a lower end entry point, they believe they can get a return faster by doing that than aiming for an upfront fee and doing a more complete and full featured website for example.
And so, you do see some decisions that are driven in the financial decision towards a periodic payment versus an upfront payment. But that typically again depends on whether someone has a firm belief that spending money now will get more people taken care of during a period of increased demand.
John Neff
Assuming that this listening post project survey that came out recently found that mid-sized NPOs seem to be feeling... they're feeling the most severe effects of the recession.
Is that kind of consistent? I mean, you used the expression but, in recent quarters, your sales have been sort of marked down sort of, in eTapestry is fairly strong.
eCRM fairly strong and then it has been a core solutions sort of in the mid point. Would the survey results sort of collaborate what's going on with your sales in terms of the pattern there?
Marc Chardon
It sound to me like a pretty fair assumption. We don't have any specific details from any third party market experts other than the kind of things that you read but to me, yes, that sounds like a very fair assumption.
I think middle sized organizations are feeling the squeeze.
John Neff
And then, historically the non-profit sector, employment has increased during the past recession unlike the core profit sector. Probably haven't seen a statistics on that but is that any anecdotal sense on whether that has been true so far during this downturn and whether yes or no, was that showing up in your maintenance renewals, your training?
In other words, are people signing up? Are you seeing much degradation in terms of the number of people being renewed at contract time et cetera?
Marc Chardon
Well, two things. First, when you look at quarter-on-quarter unemployment in the non-profit sector many of these studies include volunteers and so those sectors where demand is going up and is visible in the local community, say, banks, you see a dramatic increase in the number of people who come out to help and the amount of work that goes in.
So it's very hard to know what the, quote-unquote, paid versus unpaid employment figures are and what they mean. We've seen it all over the board.
So that's a primary distinction so that may. And Tim has a comment.
Timothy Williams
Yeah, I would also add remarks just on your comment about training. It certainly isn't showing up in training.
I mean we're not... a training business is down year-over-year.
It represent a lower percentage of our total services revenue. We are seeing people just stay away from training.
So I'm not sure that's an indicator of whether or not there are fewer or less people. And now on top, but it's certainly wouldn't support that there was an increase.
And in terms of maintenance, we have seen clearly that if you look year-over-year, there probably are a higher number of customers who are deciding they want one less feat of a particular product on their maintenance program. But in general when you add that all up it's still not that significant in terms of our overall percentage of renewal, John.
John Neff
That's helpful. And then sort of speaking of renewals, Tim, you've just giving the importance of the eTapestry renewal rates to combat the risk of cannibalization with some of the core solutions.
How are those holding up?
Marc Chardon
Yeah. They actually went up just slightly this last quarter.
But I mean when you talk in terms of pointing the way, when you're in the mid-90s already, the few tens of when or I think long-term but they're gone, they've been trending up slightly. People are not changing horses in the middle of the stream.
John Neff
That's great. Thank you, guys.
Timothy Williams
Thanks John.
Marc Chardon
Thanks John.
Operator
Thank you. (Operator Instructions).
And we'll move on to Ross Macmillan with Jefferies.
Timothy Williams
Hey, Ross.
Ross Macmillan
Hey Tim, hey Marc. Three separate questions.
First one, services were up sequentially I think for the first time in three quarters. I don't know, I came on a little late.
So you may have talked to that but could you just talk... speak about that a little bit.
Second one, the 5 to 10 million of additional cost savings, is it more the same and I guess specifically we're not making any headcount cuts here I presume. And then I have a follow up.
Thanks.
Marc Chardon
Taking the first one, which is, no, we are not making headcount cuts into do that 5 to $10 million other than management of attrition. But there is no generalized headcount reduction.
Timothy Williams
And in terms of Services, Ross, I would merely characterize what we've seen sequentially in Services is I think you know that our first quarter is tend to be not a particularly strong quarter from a Services standpoint. In any event normally first quarter and fourth quarter are little bit weaker.
And so I think all you're really seeing in the sequential movement in Services is something more related to seasonality than anything else.
Ross Macmillan
But I just told that point, you know, you're obviously getting a lot of services around the eCRM deal, so I think is it fair for me to assume that the connection between services and license fee's historically is breaking down here and because of the different licensing arrangements under eCRM?
Timothy Williams
Well, I think that's true and I would also point to the fact that, a point as we've said, the increase in the number of subscription offerings that we're doing, is affecting us as well. So, it is eCRM and certainly it is having an impact but also the subscription revenue as well where there's a period of deferral before you can even begin sort of recognizing the services you have to wait until the Software as a service product is deployed and then has made a recognition over the remaining life of the contract.
Ross Macmillan
Yeah.
Timothy Williams
So, all of these are factors that enter in.
Ross Macmillan
Great. And then my follow up was I think you mentioned you're starting to see some mid-tier interest for eCRM.
Does that have any implications on how you're thinking about development of RE8? Thanks.
Marc Chardon
Yes. So, when I say mid, I was talking large mid.
I mean the kind of project that would have been the biggest RE8 project of the past. It's sort of the mid-sized eCRM project, big projects that are in the highest six figures.
So, I would say that there's very little in what's happening in the high-mid market eCRM. That is a direct influence or impact on The Raiser's Edge development path and they're very different markets in the sense that 8 is really about sort of smaller organization, that smaller organization where people typically were more half than there are people and still at the lower end of eCRM, they're typically more people for roll than there are rolls.
So it's a difference between a professional tool and an enterprise platform or an enterprise application. And they are going on quite separately and independently.
Ross Macmillan
That's very clear, thanks. Good job on the costs.
Marc Chardon
Thank you, sir.
Operator
Thank you. We have a follow up from Stuart Abbey (ph) with JP Morgan.
Unidentified Analyst
Yeah, thanks. I'm back.
As I was figuring out first time I gave all the questions I could. On the commentary about managing the attrition, can you give us what the total headcount was at the end of this quarter versus the last quarter?
Timothy Williams
It's basically, without getting in the finer point, it's basically a flat headcount.
Marc Chardon
The flat headcount has a tendency to mask two different trends. There's down in a period of attrition in most areas of the company in there is up in R&D.
And there is up in services in the UK where we have two large eCRM deals and there is a small amount of up in sales in a couple of other geographies. So, there are puts and takes in that number and that's a zero.
Timothy Williams
Any important thing, and also remember, Sterling, is when we started the year and we were looking at our cost structure of around $265 million that cost structure clearly contemplated that we would have some additional headcount being added normally in the second quarter. And so, part of what you've got to balance through all of these pieces, the attrition where we have to add as and where we're not need throughput.
Unidentified Analyst
Okay, that makes sense. And have you guys disclosed when...
what the timeline is on Raiser's Edge 8?
Marc Chardon
No. One thing I've said is that it would be the first integrated generation 8 solution for the core market.
It would be in limited release by the end of this calendar year and would be in general release in the first half of next year and it would be an arts and culture solutions that would include components of Raiser's Edge and that's the only specific thing that I said.
Unidentified Analyst
I just think about that platform. Is there any ideas around what that might actually do for your services revenue because it seems like, well, I'm sure some of your customers are or your customers might be the part of their maintenance program, it still seem like because of the integration, the implementation of it would drive with quite a bit of service revenue opportunity?
Marc Chardon
The upgrade services? You mean upgrading of the existing installed base or do you mean new sales or what?
Unidentified Analyst
No, the existing customers. The existing customers that are on seven and below where they want to you to actually come in.
how would you upgrade to 8, perhaps, everything from migrating data and just implementing the system?
Marc Chardon
In the past, as we we've gone from one version to another there has been an increase in service revenue associated with that. Some organizations elect to do it pretty own much on their and some organizations, many organizations elect to spend some amount of money on services.
So, I think you can expect to see, over the next couple of years, after the generation 8 products come out, some services associated with the migration that maybe offset by the generation 8 products being task products which may sort of spread other services out in the future years. So, I'm not calling ahead of time which of those two factors is a bigger one.
Unidentified Analyst
Okay. Alright, thank you guys.
Timothy Williams
Thanks.
Marc Chardon
Thank you, sir.
Operator
Thank you. And gentlemen, there appears to be no further questions at this time.
Timothy Williams
All right. Well, at this point, we want to thank everybody for participating on the call and look forward to chatting with those of you who have follow up questions in the days and weeks ahead.
Thank you very much.
Marc Chardon
Thank you very much. Have a good evening.
Bye-bye now.
Operator
Thank you. And ladies and gentlemen that does conclude today's conference.