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Blackbaud Inc (BLKB -0.13%)
Q2Â 2019 Earnings Call
Jul 31, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Blackbaud Inc. Second Quarter 2019 Earnings Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Mark Furlong. Please go ahead, sir.
Mark Furlong -- Director, Investor Relations
Good morning, everyone. Thanks for joining us on Blackbaud's second quarter 2019 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 will 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 substitution 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.
Before I turn the call over to Mike, I'll briefly cover our upcoming investor marketing activity, which is available on our Investor Relations website. During the third quarter, our team will be attending Oppenheimer's Technology, Internet and Communications Conference in Boston; Canaccord's Growth Conference in Boston; KeyBanc's Annual Global Technology Leadership Forum in Vail, Colorado; and D.A. Davidson's Vertical Technology Conference in New York. We will also be holding meetings with investors in Montreal and Toronto. And finally, please mark your calendars for October 16th, where we will again host Investors and Analysts for a breakout session with management at our Annual User Conference bbcon being held in Nashville, Tennessee.
With that, I'll turn the call over to Mike.
Michael Gianoni -- President and Chief Executive Officer
Thanks, Mark. Good morning, everyone. And thanks for joining our call today. With the first two quarters of 2019 behind us, I'm pleased with our progress as we continue to deliver vertical specific software innovation, enabling our customers drive impact and outcomes across the markets we serve. We're in a unique position, helping organizations around the world drive digital transformation and enabling our customers to realize their full potential.
Last week marked our 15th year as a public company, which is a testament to the incredible team we have and our dedication in building a better world while driving shareholder value. We have a global workforce of over 3,300 employees, of whom nearly 25% sit on a nonprofit board or committee. Nine out of 10 say Blackbaud's mission was an important factor in joining the company and over half say their volunteerism has increased since joining Blackbaud.
This mission-driven culture not only drives innovation and customer satisfaction, but it's also an incredible asset for our recruiting efforts. We're proud of what we've accomplished over the past 15 years as a public company. And we are energized by what's ahead as we continue to rapidly advance our existing applications and bring new solutions to market.
Heading into the second half, our full-year financial outlook is unchanged and we are reaffirming our 2019 full-year guidance. As usual, Tony will provide more detail on our results, and I'll provide an update on the context of our four-point growth strategy.
The first of our four strategies is integrated and open solutions in our cloud. The customers we serve require vertical specific business solutions to automate their operations and rebuild integrated purpose-built cloud solutions that solve these business needs. As an example of our execution against the strategy, we developed Blackbaud Church Management, part of the Cloud Solution for Faith Communities, enabling churches to digitally transform their day-to-day operations through a single connected experience.
We've been working with churches to gain additional insight into the capabilities that need to be successful, and continue to incorporate their feedback to optimize our already robust technology platform, specifically for their needs. We have heard from our Early Adopter Customers that our solution stands out as intuitive and easy to use with a mobile responsive user experience.
Churches can also add other Blackbaud capabilities from the Cloud Solution for Faith Communities as their needs scale, all through one integrated experience which is powered by the Blackbaud SKY platform. Bringing this solution to market is a significant step toward addressing several challenges in a church market and substantial opportunity for Blackbaud. This major initiative is on track and we expect to announce general availability soon.
The momentum is also building around Blackbaud's best-in-class peer-to-peer fundraising solution powered by JustGiving. Since the US launch in March, several hundred customers have signed up, creating a growing number of active campaigns. And I'll note the majority are net new payment transaction customers for Blackbaud. It's early days and we're excited about the opportunity to really disrupt the market landscape by providing this peer-to-peer cloud solution, which is fully integrated across our portfolio of best-in-class Cloud Solution. This is unique in the marketplace and there isn't another platform like it.
Turning to our second growth strategy, which is to drive sales effectiveness. As you know, we have worked to simplify our program, refine our methodology and approach in a uniform way to better enable our salespeople for success. The sales structure transformation is now largely done and we are laser focused on adding additional sales headcount and improving overall sales productivity.
Our plan this year calls for a continuation in the heightened level of sales hiring as we go after the large opportunities we have across our vertical markets. And Tony will provide an update on those investments. Our account executives continue to lead the total solution selling by vertical, focused on reoccurring revenue and driving more products for customer, higher ASPs and overall increased customer lifetime value.
Selling comprehensive cloud solutions translates to real value for our customers. For example, St. Stephen's Episcopal School in Austin, Texas, recently undertook a vendor evaluation with one goal in mind, to consolidate the number of systems that students and parents use to interact with the school, a critical project for the first co-educational Episcopal School in the United States. With over 650 students enrolled from 14 countries and alumni base exceeding 6,000. After exhaustive evaluation process to create a vendor list [Phonetic] reaching into the double digits, St. Stephen's ultimately selected Blackbaud because I quote, "fewer systems means less time spent on software maintenance and data synchronization as well as less time spent on training teachers, students and parents". They also highlighted our open APIs as a differentiating factor, given our tight integration with partners to provide ancillary services.
We also continue to rapidly advance our existing applications to bring new solutions to market, enabling our sales teams to sell more. Our higher education vertical is a great example where we extended our proven K-12 private schools solutions up market, with significantly advanced functionality, enabling us to provide one cloud solutions to manage the complete student life cycle, from admissions, student information, to alumni engagement and more, all inside one cloud platform. This is unique in the higher end market and we've been pleased with the early traction. In fact, the majority of customers signing up for our education management portfolio this year purchase four or more products.
I'll now turn to our third strategy, which is TAM expansion. We continue to be excited about the acquisition of YourCause this past January and the inclusion of their industry-leading corporate social responsibility offering, which puts our business in a unique position to drive increased connectivity and efficiencies that have never been seen in this space.
As you might expect, we moved fast our back-office integration as we focused on the opportunity ahead of us, which is significant given the trend of institutions of all sizes, focusing on corporate social responsibility. This is a fantastic business and has reflected in their existing customer base, as well as the new customers who are signing up with organizations like the NHL Foundation and the Philadelphia 76ers, who recently selected YourCause and Blackbaud to help power their philanthropic efforts.
And I'll note, this opportunity extends beyond just companies and the markets we already served like healthcare and higher ed institutions. Our total addressable market currently stands at over $10 billion, and we remain active in the evaluation of opportunities to further expand our TAM through acquisitions and internal product development.
Our final strategic initiative is to focus on operational efficiency, to strength the business and position us for long-term success. This continuous effort spans the entire organization as we drive toward a more scalable operating model that creates efficiency and consistency on how we execute through infrastructure investments, productivity initiatives and organizational alignment.
An excellent example is our recent heightened investment in sales hiring. We spent the last several years in sales creating one global sales operating model to enable our account executives dealt more efficiently, while we are also designing program with scalability in mind. Our sales operating model enables us to efficiently recruit hire, train and trust the progress of our growing sales team in a way that we couldn't have done just a few years ago.
Overall, I'm pleased with our execution through the second quarter, our continued shift toward recurring revenue, which now stands at 92% total revenue and the opportunity ahead of us in 2019. Our full-year financial outlook is unchanged. And we are continuing to execute against our strategic plan, which is strengthening the business, enabling us to deliver more specific innovation for our customers.
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?
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Thanks, Mike. Good morning, everyone. Please refer to yesterday's press release and the investor materials posted to our website for the full detail of our Q2 financial performance. Today, I'll focus on key highlights so we can get to your questions.
We continue to see a healthy shift in revenue mix and as Mike mentioned, our second quarter recurring revenue represented 92% of total revenue. Recurring revenue increased 8% over Q2 of 2018 and 5% on an organic basis. One-time services and other revenue represented only 8% of our total revenue mix and declined nearly $4 million in the quarter, which is an 18% decline versus Q2 of 2018.
During the first half, one-time services and other declined 21% compared to the first half of 2018. And we still anticipate the rate of year-over-year decline to accelerate to roughly 25% for full-year 2019, which is healthy for the long runs. I'll remind you that last year, one-time services and other declined 17%.
Turning to profitability. Our second quarter gross margin was 60.8%. We generated operating income of $43 million, representing an operating margin of 19.2% and diluted earnings per share of $0.66. I'll point out that the strong operating performance in the first half includes heightened investments and positions us to land within our full-year guidance for operating margin of 16.7% to 17.2% .
As Mike mentioned, our plan calls for continuing hiring as we look to grow our full-year sales headcount at an accelerated rate relative to our historical average. And we're pleased with the progress of the new hires added to date as they ramp the targeted productivity.
With two quarters behind us, we expect the level of investment and pace of sales hiring in the second half to exceed our first half investments, as we further expand our selling footprint, bring new solutions to market and continue our shift to third-party hosting .
Moving to the cash flow statement and balance sheet. Our Q2 free cash flow was $38 million, which puts us on track to deliver our full-year guidance of $124 million to $134 million. We continued making necessary innovation and infrastructure investments to support our move to the cloud, amounting to $5 million in CapEx, primarily associated with our global workplace strategy and investment in infrastructure and $12 million for capitalized software development.
During the quarter, we paid out $6 million in cash dividends to shareholders and ended with $529 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 Q2, we stood at just under 2.7 times.
In summary, continued execution against our strategic plan is allowing us to strengthen the business and reiterate our full-year financial guidance. We're maintaining our disciplined approach to balanced investments to 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.
With that, I'd like to open up the lines for your questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] We will now move to our first question. Please go ahead, caller. Your line is open.
Tom Roderick -- Stifel, Nicolaus & Company -- Analyst
Hi. Good morning, guys. Thanks for taking my questions. So, I wanted to kind of start here with the big upside in earnings and margins. Congratulations on that. That's great job in terms of -- in terms of profitability this quarter. But I'm hearing you loud and clear, Mike, when you say the heightened investments need to continue here.
So, I was hoping we could talk about that just a little bit. And in terms of last year, I think you guys hired somewhere in the ballpark of 80 or a little bit more than 80 reps in the back half of the year. You jump-started faith-based. You jump-started higher ed. How much -- how many more reps or what's the sort of sale that you think you need to kind of get those businesses scaled out? And as we look at sort of the implied guidance, obviously, it pulls the margins back into that 16, high-16s range for the rest of the year to kind of hit that guidance. How do you want us to think about the longer-term approach?
It sounds like you want to keep heightened investments for a while. Or could 2020 be a year where we start to see a little bit more leverage? Just take us through the mid-term thinking and what the scale on these sales hires need to be to kind of get the faith-based and higher ed up to the scale that you need? Thanks.
Michael Gianoni -- President and Chief Executive Officer
Sure, Tom. I'll start here. Couple of things. First of all, the investments in the platforms themselves and R&D are going really well and the market acceptance is really great on both the faith-based and higher ed, and we expect to be announcing general availability in both of those in the next couple of months. So, they're going really well, Early Adopter Customers on both. So, those investments are moving well. We also have over the last 12 months or so, increased sales headcount, as you mentioned 84, I think people in the back half of last year. Some of those increases were in those two markets, higher ed and faith-based and some other markets as well. And we continue to plan on increasing headcount in sales. It will be a little bit back-end loaded this year. The ramp up in sales headcount, we plan on smoothing that out more in future years like next year where headcount ramps won't be as lumpy. We've hired a bunch of folks in Q4 last year and then shifted some folks around in Q1 this year.
And so the hires -- because of all that change, the net new hires will be more Q3 and Q4 this year. And like I said, we plan on having that be smoothed out in future years, starting next year. But we continue to plan on investing in sales ramp across the board. Yeah, I'll just give you one little example. We closed on YourCause in January and not break it out numbers at that micro level, but we've already doubled the sales headcount in the YourCause space and we're about to triple it between now and end of the year from the January close of that business. So, that's just one example where we're kind of doubling down on sales headcount growth because of the opportunities were in that business. We're hiring people in major cities, given the opportunity that we have.
Tom Roderick -- Stifel, Nicolaus & Company -- Analyst
Outstanding.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
I think, Tom, on the margin side, real quick on the guide. It will be not only the continued investment in innovation Mike spoke to, and the back-end loaded hiring on sales, but we also have some one-time type costs, recruiting expenses because of the ramp in hiring. We've got some major IT projects that are still ongoing that are bit more lumpy on, consulting type expenses associated with those projects, some of the integration costs, et cetera. So, there is certainly [Phonetic] kind of more one-time in nature as well costs hit in the second half. There are heightened versus what we saw in the first half, which helps drive that full-year EBIT margin guide down a bit.
Tom Roderick -- Stifel, Nicolaus & Company -- Analyst
Okay. Good. Tony, quick follow-up for you. Just as we lap Q3, Q4, we had some challenges last year and some of those challenges sort of stem from the payments business, which you've kind of been humming along and then you had some headwinds, some in the K-12 arena, with, I think it was mix shift issues, some in the UK around JustGiving.
As we lap those kind of headwinds, how should we think about the payments business right now? Is it stabilized? Is it growing at the same rate as the rest of the business? Is it still a little bit of a headwind? Maybe just some details around payments in general and how payments play a role in this quarter? Thanks.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Yeah. Sure, Tom. Last year, there was kind of three big areas on that payments front that hit us, which was really unusual, the kind of similar time frame in the back half of the year. We had the overall UK market and softness that we saw there, which impacted us more than historical just because of the JustGiving acquisition. That UK market has still been soft on the giving front, so that continues.
We did a much better job, I think in forecasting that this year, so we're actually doing well to plan, so no real big issues there. Smart Tuition, if you recall was another one where we just had a mix shift in mix of parents and affluency of parents. We haven't seen that repeat this year. So, that's not really a stability issue. And then we had major one-time events year-over-year where we just had less of those than what we had seen previously.
So, that one can still be a little lumpy. It's hard to say what hurricanes are going to hit or natural disasters and those kind of things. So, we'll have to see how that plays out. But thus far, we feel really good about where we are on the payments business. So, I think the positive side on ed is it -- we've done a good job of going back to the base and penetrating the base since Mike came on board. And now I do think the growth rate looks a lot more like the rest of the business because we're selling, enabling payments with the products when we sell them like the NXT solutions, et cetera. So, I think you'll see in the future that being correlated much more tightly to kind of our typical subscription growth, assuming we continue to do a good job of selling payments with and turning on those solutions with each of the products.
Tom Roderick -- Stifel, Nicolaus & Company -- Analyst
Yeah. That's helpful. Thank you, guys. I appreciate it.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
You bet. Thanks, buddy.
Operator
We will now move on to our next question from Mr. Rob Oliver of Baird. Please go ahead. Your line is open.
Matt Lemenager -- Robert W. Baird & Co. -- Analyst
Thanks, guys. It's Matt Lemenager on for Rob Oliver this morning. Excuse me. I just had a quick one on the -- a few months ago, we are now a few months into the Salesforce.org acquisition. So, I guess on the competitive front, any changes that you've seen coming out of Salesforce.org given the new ownership structure within Salesforce.com? I realize it's early, but any early changes there?
Michael Gianoni -- President and Chief Executive Officer
No, haven't seen any. Just remind you that, in many of our markets, we have very different competitors. So, our higher-end solution, the competitors are Campus Management, Jenzabar, Unit4 are the competitors that we're out there replacing. And faith-based, it's ACS and Tarasoff and Ministry brands. We don't see Salesforce in those markets at all. We don't see them in our performing arts markets...
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
K-12.
Michael Gianoni -- President and Chief Executive Officer
K-12 market, we don't see them, YourCause market, don't see them So, topic comes up a lot and it should. But we predominantly see them and what I would call charities market. And there we've seen no change.
Matt Lemenager -- Robert W. Baird & Co. -- Analyst
Okay. Got it. Thanks. And then on the -- Tony, on the recurring gross margin, ticked down year-over-year again. I just wanted to kind of ask what's been the trend there? It's been down year-over-year for, I think, four quarters or five quarters in a row now. Is that more payments going into there or what's the trend in the recurring gross margin line?
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Yeah, Robert [Phonetic]. Two things. If you recall in Q1, we talked, we had some one-time rebates in Q1 of '18 and that bumped up margins a little bit, which would have some impact on the first half, if you're looking it at first half versus last year. And then the bigger really kind of continual trend that you're seeing is not payments because payments actually -- that growth rate, because it's become a bigger base has slowed and as we said is more in line with the rest of our business, it's actually more of the move to the cloud.
And that we're selling more and more of that new NXT products and move to third-party out of COLO data centers. And we're still getting hit today with our COLO costs, plus cost to migrate all of the products to the cloud and then that incremental cost of the third-party cloud. And we would expect over time, we're going to get efficiencies and cost benefits to gross margin from, once we migrate all the legacy stuff that will go to the cloud.
We won't have those incremental cost of the migrations, when we're able to finish sunsetting or finish migrating legacy products that will never go to the cloud, we'll shut down the COLOs, so we'll have those costs goes away. And then as we finish the NXT products completely, Citrix and some of the other things that drive costs in the third-party cloud, we will go out of those products and so we'll actually see our average cost per unit drop over time.
So, I'd expect it's -- we're going to see a bit of a continued increase in COGS for the near term and then in the long term, I think we should see some positive benefits to the gross margin line as we get more fully shifted into the cloud.
Matt Lemenager -- Robert W. Baird & Co. -- Analyst
Understood. Thank you, Tony.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
You bet.
Operator
We will now move on to our next question from Mr. Brian Peterson of Raymond James. Please go ahead. Your line is open.
Brian Peterson -- Raymond James -- Analyst
Hi, gentlemen. Thanks for taking the questions. So, wanted to start on some of the early hires in the sales productivity. You mentioned that you're pleased with the early results. I realized we're early in the process for some of these new people you brought on board. But I'm curious if there's anything you can expand on that. It -- maybe what metrics that you're looking at when evaluating the new sales hires?
Michael Gianoni -- President and Chief Executive Officer
Yeah. Sure. So, again, we're going to have Q3 and Q4 ramp-up again. We really did two things in the last nine months. One is ramp-up in the back half of last year and then some reassignments in the first quarter and deploying folks in direct territories.
And the key thing -- key for us is, we're roughly now about 50% of the headcount on prospects and 50% on back to base. And we've not been 50-50 before. So, that's been a building shift as well. As far as bringing folks on, not having an issue in finding talent, we get a lot of applicants coming in from lots of different places .
Depending on the level ramp time, if you're more kind of mid-level, it's faster than if you are enterprise just given complexity and size of deals that they're focused on. So, I think the ramp has gone well, if you just look back the last nine months or so. I think we've demonstrated, we can bring on a lot of folks in the short period and we plan on doing that in the next five months, six months.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
And Brian, this is Tony. On the metrics, with all these net adds and the reallocation of resources and creation of hunter, farmers, all those things, and a key kind of metrics we look at initially are that ramp to full quota and what our expectations are there. And we've seen really nice ramp on all these moves, which is good news. So, we're kind of on track for the most part.
We've got a couple of isolated pockets in certain verticals where we're not as -- on track and we have others where we're ahead of plan. And then we look at the mix of recurring versus one-time bookings, we want to continue to shift toward ARR, obviously, for our bookings and for our quota mix. And that's why we changed comp plans and had the two bucket approach.
We want to sell more new logos. So, we look at the number of logos we're selling and the mix there. And then at a little higher level, you're looking at ARR to OTE. With our long-range goals as we spoke about before at a company level, we really want to improve that LTV to CAC ratio. We're kind of middle of the pack today compared to peers.
We'd like to get into that top quartile over the next few years, which means with our retention rates where they are, I think we're in good shape. We'll continue to work on those and drive [Phonetic] improvement, it really comes down to getting more ARR in that ARR to OTE through productivity gains and shift in mix. And so that's kind of the highest level of metrics. But we look at those day in, day out here on the sales team.
Brian Peterson -- Raymond James -- Analyst
Got it. Thanks for the color, guys. And maybe, Tony, a follow-up for you. There is -- if I look at the recurring revenue line item, I know there is payments in there, there is maintenance. We've got what we used to call the core subscription. I'm just curious, is there any way that you would frame what normal seasonality for the recurring revenue line would look like third quarter versus the second quarter? Thanks, guys.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Yeah. With our shift -- continued shift to recurring, we're getting more visibility and should have less lumpiness. The thing that drives the variability really in there is the maintenance and true subs, are not a problem, right. Those are very consistent and typically ratable recognition. The things that are driving some variability are obviously payments and usage and related seasonality. And then within payments, you can have Smart Tuition with the school years and those related seasonality that comes in there.
So what we've typically seen, obviously, is Q2 jumping up a bit from where we were in Q1. Q1 is typically our lowest. Q2, we have some variability also because of renewals, what you run into when you start looking at deferreds because we have a lot more renewals in Q2 and early Q3, which then has a big impact on free cash flow as well because the collections typically come on that heightened renewals in Q3.
And then Q4 is typically because of seasonal giving. It's another quarter that we have some higher than normal seasonality. The thing we have to keep an eye on those as we continue to roll out these new products, as Mike talked about in higher ed and faith and then acquisitions like YourCause, is our seasonality continues to shift. And I think what we're seeing is a bit less seasonality now than what we had historically. And I would expect that potential to continue to kind of to decelerate in that volatility that we've seen historically.
Michael Gianoni -- President and Chief Executive Officer
Yeah. So, seasonality is different by vertical markets. Schools won't go live on new platforms in September, for example, given the students are coming back and faith-based institutions don't make changes around major religious holidays. And so each of the market has a different cadence around when they buy sometimes, but definitely when they go live.
Brian Peterson -- Raymond James -- Analyst
Thanks.
Operator
We will now move on to our next question from Rishi Jaluria. Please go ahead. Your line is open.
Rishi Jaluria -- D.A. Davidson & Co. -- Analyst
Hey, guys. Thanks for taking my questions. I think, first, I want to go back to just the organic growth rates on the recurring side. I'm sorry if I'm making you believe are a point. But just want to, I mean, it look like organic recurring growth ticked down a little bit from Q1 and definitely below where it was in the first half of last year.
I know we're facing a tougher compare in Q2 versus what you faced in Q1. But maybe if you could just help us understand the puts and takes and maybe why a little bit of the decel. And if I back into your guidance, it looks like we should expect that metric to kick up in the back half of the year. So, maybe help us also understand what's giving you confidence and that number kind of accelerating a little bit? And then I've got a follow-up.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Yeah, Rishi. It's Tony. I think on the organic growth, it really is a tough compare is what it comes down to because as we spoke to you that all the new folks we hired in Q4 are ramping kind of right in line with expectations. So, we feel really good about the bookings side of the equation. And then because so much of the business is now recurring in that 92% to 93% range, we have really good visibility there. Not a lot of volatility in rev rec. That's the only thing that's moving there again as kind of payments and usage related. And we have, like we talked about last year, built some new tools for forecasting those that are much more accurate than we've had historically .
So, we have really good visibility there. So, all things said, it's really that change of 70 basis points is really driven by the compare, the ramp that we're seeing kind of expectation to our internal plans. We're right on track.
So, I feel good about our reiterate on the full-year guide. I don't know that there's anything else that I can think of. Mike, anything on years really? The Q2 of last year compares the only real driver we are seeing.
Rishi Jaluria -- D.A. Davidson & Co. -- Analyst
Okay. Great.
Michael Gianoni -- President and Chief Executive Officer
Yeah, I'd just add. We are year-to-date where we expect it to be and I think things are going well with sales ramp in driving ARR.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
And it's early days as we said, Rishi, remember, we didn't expect to start seeing a real impact in revenue on all these sales investments and the reallocation that Mike spoke to earlier, these heads [Phonetic] and so forth until late this year or early next. And so they're ramping. They're getting to that point. We're going to start getting full quota out of them versus a ramping quota but that's in bookings.
And then we have to wait until that bookings start to actually materialize and turning into revenue. And so I think you'll see more of the positive impact of these investments we've been making since Q3, Q4 of last year and Q4 this year and more so in early part of next year in the revenue side.
Rishi Jaluria -- D.A. Davidson & Co. -- Analyst
Got it. Thanks. That's helpful. And then I just wanted to turn to APIs. I believe in your prepared remarks, you mentioned one of the -- one of your customers chose you because of the APIs. So maybe if you could give an example of how customers are using the Blackbaud APIs to maybe change the business or go through digital transformation or become more efficient or whatever? And then maybe how you think that API story kind of can trend from here? Thanks.
Michael Gianoni -- President and Chief Executive Officer
Sure. In that case, I talked about a school, I believe. And it really is just a function of going with our cloud platform for the school, which covers most of the business functions that a school has but not all. So, there are and will always be ancillary sort of pocket solutions that our platforms need to share data with.
And we have gone down the path in the last several years of open restful APIs, which are industry standard and it just helps the school. Basically in that case, eliminate a lot of legacy systems by going with our cloud, but also to be able to integrate with things that we don't provide, which is usually maybe a departmental solution, that's an ancillary solution. And the fact that we have open APIs, it allows them to go ahead and replace the legacy platforms and then integrate with some of the niche solutions that they need to run a department.
Rishi Jaluria -- D.A. Davidson & Co. -- Analyst
Great. Thank you, guys.
Michael Gianoni -- President and Chief Executive Officer
Sure.
Operator
We will now move on to our next question from Mr. James Rutherford of Stephens, Inc. Please go ahead. Your line is open.
James Rutherford -- Stephens, Inc. -- Analyst
Hey. Good morning, and thanks for taking the questions. Mike, just first one for you. Can you comment on the level of interest you're starting to see for your new Church Management product as you get ready to take that particular application into general availability? And just help frame up how bigger important this product might be for your total business over the coming six months to 12 months to 18 months?
Michael Gianoni -- President and Chief Executive Officer
Sure. Couple things. First of all, the level of interest is significant. We haven't really shown up in that market as far as conferences and direct drive marketing like we have in the last year. We launched this product at an industry conference, I think, back in the fall now. So the interest has been significant. We've had lots and lots of prospects coming here to talk to us. We've really ramped up the sales headcount in the last 18 months in that team.
There has not been a lot of innovation in that space for a really long time, a lot of legacy systems. So, there is a ton of interest. The really interesting thing, too, is that because we're selling an integrated cloud, which is fundraising, financials, Church Management, customers are signing up in many cases for the whole thing and then going live on financials or fundraising, which is available of course now. But there is a pretty decent backlog of customers who signed up for the new Church Management who are just waiting for general availability. We've got quite a few customers using the system today as early adopters. And also it's a huge market. It's over 300,000 churches in the United States. And if you look at total giving, which is over $400 billion annually, the faith-based market is over a third of that. So, it's a huge market that I believe has been very underserved.
And it's going to take a while, right, to get realized reoccurring revenue because we're building a new platform. That will be announced in general availability in the next couple of months. So, quota attainments really ramping up. Takes a while for revenue to ramp up in a reoccurring revenue world. This is an investment for the very long term, and I think it can be a significant growth factor and significant part of our future growth. And no one is doing what we're doing. And it's difficult to do what we're doing because we're bringing our whole product portfolio to the market and building a new Church Management platform for this market that really hasn't been done this way.
James Rutherford -- Stephens, Inc. -- Analyst
Great. That's helpful. I'm not sure if these follow-ups better for Mike or Tony. But can you update us on the progress of conversions from your legacy products to your more modern NXT applications? And can you perhaps update us where you stand, what you're doing to spur that switch and how long until we're through, that conversion? There is a number of questions in there. But how do you want to comment around the progress on that conversion? Thanks.
Michael Gianoni -- President and Chief Executive Officer
Sure. Yeah, it's going well. I mean, we are a couple of years in now. We knew it was going to take a while to do that. We're not forcing folks to move. Part of it is, the product capabilities are not fully done for everybody to be able to move. There was a lot of nichey things over the years that customers have done to build on things based on customer type around Raiser's Edge NXT, for example, that those gaps need to be closed and we keep closing those every quarter.
So, it's gone well and a lot of the customers have moved over to Financial Edge and Raiser's Edge NXT. Tons of success stories, there has been white papers written up on the impact these products have had with our customer base. It's built with our modern SKY cloud platform, which means it's mobile-first intuitive and features are released every month. So, it's a pretty high velocity platform.
So, yeah, it's going well. Still going to take some more time to sort of get that done fully for those two products. But we are where we expected to be when we launched a couple of years ago. And there is a few years left and those products are also in that mix. Tony talked about earlier, where we've got some of the legacy products still in the COLOs and we're deploying the NXT products more and more in Azure with our Microsoft partnership. And that -- there has been a pretty big shift from COLO to Azure, for example, Raiser's Edge NXT, on the infrastructure side. So, all that's going well.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
And James, this is Tony. I think the other thing to note is that it's a tougher compare now because we kind of, as we spoke about last year, we kind of crossed over the top of the bell curve as far as the number of those customers that have migrated. And so that compare is getting harder from a financial perspective. Those first years was more of a pickup on the revenue front because of the uplift we are getting and the number that we're moving over now. We're past that. So, it's a little tougher compare. We're half in the stomach on the revenue front, but we've been able to handle that pretty well now.
James Rutherford -- Stephens, Inc. -- Analyst
Congrats on the quarter.
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Thanks. Sure.
Operator
We will now move on to our next question from Kirk Materne of Evercore ISI. Please go ahead. Your line is open.
Kirk Materne -- Evercore ISI -- Analyst
Okay. Thanks very much. Mike, I was wondering if you could just comment on sort of your thoughts on M&A, given you're bringing on all of the sales headcount right now. Is it -- can you kind of do both at the same time? It seems like you have a pretty wide and broad product portfolio at this point in time. So, I'm just trying to get a sense on how you think about that. I think you guys have always done, sort of added in some products as you've gone along inorganically. But just wondering if that might -- if the thought process might shift a little bit, given the amount of investment in sales these days and trying to get that squared away first. Thanks.
Michael Gianoni -- President and Chief Executive Officer
Yeah, sure. We've actually been doing both last several years. Our sales headcount ramp isn't a new story. Last year, we ramped up 84 heads. That was about double the rates, but the rates have been pretty high in the last several years and we've made some acquisitions. And the acquisitions aren't really just about growth. It's really about broadening our TAM in the verticals.
We've gone in the last five years from really providing the fundraising and financials to having a pretty broad portfolio. If you just look at education, our platforms now run the whole school. And in K-12 and higher eds, those expansions came from M&A. But those expansions also make our traditional fundraising and financial platforms stickier and more relevant because they are integrated with the platform, a full school platform. Same thing is happening in faith-based.
So, I wouldn't say that we're not going to do acquisitions. We are just going to be opportunistic if we think we can become stronger in a particular vertical and be more relevant in a vertical and move beyond being just the departmental player in fundraising. And it's really impactful for K-12 schools or universities now or churches to be able to replace 15 or 18 small vectors with one cloud that covers their entire operation and most of their IT spend.
So, our ASPs are a lot higher. We sell more modules. The footprint creates a bigger opportunity to cross-sell. So, I'd say the answer is, it depends. I think we've demonstrated that we can do both and so we don't have to necessarily work in serial. We can do some of these things in parallel. And also they are all quite different. If you look at YourCause, YourCause -- that platform didn't really step on top of any other engineering efforts per se that we're doing because it's a different category.
And yet we're replacing a legacy product we had in the space with one of the largest players on the space, YourCause. So, we continue to look. Our balance sheet allows us to do that quite well, and the model has been pretty transparent and straightforward for us. We use bank debt. We pay it down. We delever and don't extend do much. I think we ended the quarter at 2.7 times and now it'll continue to come down. So, it really is about fulfilling the strategy and being able to drive organic growth and provide better solutions for our customers.
Kirk Materne -- Evercore ISI -- Analyst
That's helpful. And then maybe just one follow-up on the Church Management product. When you guys look at the market, how much of the market is sort of just greenfield? Meaning people are using either excel spreadsheets or maybe not even a sort of a traditional sort of enterprise software product versus replacement. I'm just trying to get a sense on how much -- are you little dependent upon sort of replacement cycles versus, there is just sort of this wide-open market that folks might not be using sort of any technology at this point in time? Thanks.
Michael Gianoni -- President and Chief Executive Officer
Sure. It's a mix. We have seen custom builds out there. We've seen sort of commercial systems cobbled together and then there is a handful of vertical software companies out there that predominantly have point solutions. We're doing something unique in the market. Again, we have many churches that have signed up, that are able to replace 12 stand-alone vendors, 15 stand-alone vendors with a single cloud solution. The other thing that's interesting is, a lot of these institutions have hundreds of K-12 schools as well. And so there is an opportunity with our K-12 platform in addition to, which is also a consolidation opportunity for them in addition to our church management platform.
And lastly, I'll just reiterate what I said earlier. It's a huge market, big, big market. On the donation side, it's north of $130 billion roughly and several 100,000 churches all sizes. So, we think it's a really interesting opportunity in the long run. And, yeah, we're going to do this right. We don't have to go fast. The Church Management platform build up has gone really well. We've got Early Adopter Customers on there. It will be announced, general availability in the next couple of months. And this is a long run investment and I think will really start to materialize in the coming years, including next year.
Operator
We'll now move on to our next question from Mr. Ryan MacDonald of Needham. Please go ahead. Your line is open.
Ryan MacDonald -- Needham & Company -- Analyst
Hi, Mike and Tony. Thanks for taking my questions. I guess I wanted to start on the Corporate Social Responsibility market. Obviously it sounds like you're getting more aggressive with the sales headcount investments. With YourCause, we're also seeing sort of Salesforce.org enter aggressively with their philanthropy cloud through a reseller agreement with United Way. So, it seems like there is a lot of demand in that space.
So, I guess, I'd just like to know what are you seeing in terms of sort of pipeline velocity in that area from potential customers. And then how do you sort of size the opportunity for YourCause versus, say, some of the other initiatives in education management and Church Management?
Michael Gianoni -- President and Chief Executive Officer
Sure. This is a different market, but there is a trend happening. It's been going on for a while, which is for companies of all types to be more focused on working with their employees around matching gifts and volunteer time and really tying that to their brands. And these are companies of all types. I think in the last earnings call, I mentioned we closed DuPont.
And in my prepared remarks this morning I mentioned NHL Foundation and Philadelphia 76ers. And it really is just to demonstrate that the market is really wide. If any company of most size, any size that wants to focus on working with their employees to volunteer and provide matching gifts, that also applies to many of our existing customers. You think about universities and healthcare institutions that have thousands of employees. So, this is a cross-sell opportunity back into our base as well. So, I think the opportunity is big. The United Way side is a little bit of a different thing.
Most companies are opting to have platforms like YourCause because employees want to make personal decisions on where they volunteer and where they want to gift. We also have United Way's customers. In fact, we recently closed the deal at United Way. I think I mentioned that on the last quarter as well. But YourCause is a different thing. It's a big platform. I think it's a really big marketplace. We are significantly adding sales headcount and the supporting functions there to, engineering and sales engineers. And I think that's a really interesting market that, that more and more companies are focused on.
They have a good platform today with a big reach. I think I mentioned in previous calls, they have over 8 million employees on a platform and over 120,000 nonprofits have received donations through the YourCause platform over the last several years. So, there is also an interesting opportunity for us with those institutions given the rest of our product portfolio. So, I think this is a big and interesting market and a growing market. There's only a couple of players in the space.
Ryan MacDonald -- Needham & Company -- Analyst
Got it. And thanks. And then just a quick follow-up for Tony. I guess as we're looking into the back half of the year here and sort of expectations for the JustGiving business. Obviously, with that being a UK-based entity, that gives you some increased exposure there as we sort of move toward a Brexit decision at the end of October.
Does that -- what sort of expectations, I guess, are you building in terms of FX or impact on sort of that overall market there?
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Yeah. FX is a wildcard, right? I wish I could predict it. We had some impact in the first half from currency fluctuations, largely driven by the UK market. I think it impacted us by about a point of growth on revenue to the negative. So, we'll just have to keep an eye on that one. Who knows what's going to happen with all the changes there recently and with Brexit.
Market has been off there. I think part of the reason that the UK market is often has been, is some of the same things, Brexit concerns, on the related economic concerns. There has been a decline in major one-time events there versus prior years. And I think just overall, giving has been -- environment has been pushed down in the UK because of a lot of different factors. So, we just have to keep an eye on it. There is no way I can predict what that will be. Our core business, that means that JustGiving is just a piece of our UK business, our core business of selling. Our product portfolio is actually doing really well.
David Benjamin has been on board now and got his feet well underneath it. And we're doing a really great job. I think the work that he and the team are doing with Canada, which is another currency we have to deal with. We're ramping really well in Canada. I'm excited about what we're doing there with David and team. So, I feel good about the international overall. The giving side of the UK market is something we'll just have to keep an eye on and see how that affects us.
Michael Gianoni -- President and Chief Executive Officer
Yeah. We've done a great job with leadership recruiting and our international business sales headcount ramp up is under way, has been there as well. And we think there is a big opportunity there. Sales execution has gone well in our international business.
Operator
We will move on to our next question from Mr. Mark Schappel of Benchmark. Please go ahead. Your line is open.
Mark Schappel -- The Benchmark Company -- Analyst
Hi. Thank you for taking my question. Mike, with respect to the new faith-based solution, could you go into a little bit more detail what you believe are some of the differentiators of your solution? And also with respect to that solution, maybe just give us a few details on some of the early pilots that you're currently conducting and what you're seeing with some of the feedback has been?
Michael Gianoni -- President and Chief Executive Officer
Sure. So the differentiator is a single cloud platform for these institutions. As I mentioned earlier, in most cases, they have an opportunity to replace 12,15 software products from 12 vendors to 15 vendors. So, you think about operating an institution, where you have to log in to 12 different user experiences. Each of those platforms, probably have very light weight or any integration. All 12 of those platforms have different reporting engines. And you can't aggregate data unless you build a separate reporting engine that aggregates data. These institutions don't have an IT shop that can do that.
So with us, it's one log on to run the whole business, if you will, all integrated. So, you can do things like create a dashboard report and connect the data points across the institution, pretty unique. Also you have one vendor with a roadmap that has a significant investment in the platform and it's a modern, mobile intuitive platform and it includes all the components of running a church, facilities to day care, the financials, fundraising in an integrated platform as opposed to signing up with 12 or 15 different vendors. I mean it's a completely different platform. And it's a modern platform and is stable and scalable.
And some of these smaller vendors are a handful of employees. So, there is a massive difference in what we've done and what the experience has been with the early adopters. And we have many, many clients who have signed contracts here and are in the backlog. They go live and we've got quite a few live. And in early adopter platform, we just been kind of using the system every day, providing our engineering team with feedback. And like I said, we'll announce general availability in a couple of months.
Mark Schappel -- The Benchmark Company -- Analyst
Thank you.
Michael Gianoni -- President and Chief Executive Officer
Welcome.
Operator
It appears there are no further questions at this time. I'd like to turn the conference back to Mr. Mike Gianoni for any additional or closing remarks.
Michael Gianoni -- President and Chief Executive Officer
Thanks, operator. I'll just close the call by saying, I'm pleased with our execution through the second quarter and year-to-date '19. Our aim is still to deliver digital transformation across the social good community in all the markets we serve. I'm really excited about our progress across the board with the advancement of Church Management platform, our higher ed platform and the addition of YourCause. All these represent significant growth opportunities for us for a long time. These investments will ultimately create lasting value for our customers, employees and shareholders.
Tony and I look forward to updating you guys on our progress call -- on our progress on the next call. Thanks everyone. Have a good day .
Operator
[Operator Closing Remarks]
Duration: 58 minutes
Call participants:
Mark Furlong -- Director, Investor Relations
Michael Gianoni -- President and Chief Executive Officer
Anthony Boor -- Chief Financial Officer, and Executive Vice President of Finance and Administration
Tom Roderick -- Stifel, Nicolaus & Company -- Analyst
Matt Lemenager -- Robert W. Baird & Co. -- Analyst
Brian Peterson -- Raymond James -- Analyst
Rishi Jaluria -- D.A. Davidson & Co. -- Analyst
James Rutherford -- Stephens, Inc. -- Analyst
Kirk Materne -- Evercore ISI -- Analyst
Ryan MacDonald -- Needham & Company -- Analyst
Mark Schappel -- The Benchmark Company -- Analyst
