Blackbaud Inc (BLKB) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Blackbaud third quarter 2010 earnings conference call. (Operator Instructions). I would now like to turn the conference over to Mr. Tim Williams, Chief Financial Officer of Blackbaud. Please go ahead.

Thank you very much. Good afternoon, everyone, and thank you for joining us today to review our third quarter 2010 results. With me on the call is Marc Chardon, President and Chief Executive Officer of Blackbaud. Marc and I have prepared remarks and then we'll open up the call a little bit later for your questions.

Please note that our remarks today contain forward-looking statements. These statements are based solely on present information and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

Please refer to our SEC filings, including our most recent annual report on Form 10-K, and the risk factors contained therein, as well as our periodic reports under the Securities Act of 1934 for more information on these risks and uncertainties and on the limitations that apply to our forward-looking statements.

Also please note that a webcast of today's call will be available in the investor relations 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?

Thank you, Tim. And my thanks to all of you on the call for joining us today to review our third quarter 2010 financial results, which had revenue and profitability in the upper half of our expectations.

We had a strong performance from our General Markets Business Unit, which is encouraging, as the mid market is our largest target market and was the area that was hardest hit during the depths of the economic downturn.

In addition, from a product perspective a key strength of our business continues to be the success of our expanding suite of subscription based offerings. It's the fastest growing element of revenue and bookings are growing even faster than that, which bodes well for longer-term subscription revenue growth.

We continue to be cautiously optimistic about the near-term economic environment but there are also many reasons to be encouraged about our current direction and our long-term opportunity.

Let's take a look at the financial highlights for the third quarter. Total revenue of $83.2 million was just above the midpoint of our guidance, and was up 5% on a year-over-year basis.

We're encouraged that the Company delivered its second consecutive quarter of mid single-digit revenue growth which is an improvement from flat to down organic growth in previous quarters. Our focus remains on achieving further improvements in pursuit of our goal of revenue growth in the low to mid-teens range.

From a profitability perspective, our non-GAAP operating income of $18 million and non-GAAP EPS of $0.25 were both at the high-end of our guidance.

Cash from operations of $24.2 million brought our year to date operating cash flow to almost $49 million, which is more than 1.5 times our non-GAAP net income. We continue to believe that cash flow will become an increasingly important metric for Blackbaud as subscription revenue grows as a percentage of our business.

Our subscription revenue grew 10% on a year-over-year basis, and represented approximately 26% of our total revenue during the quarter. Subscription revenue was over four times the size of our license revenue.

As we highlighted at our analyst day, we've experienced a growing trend away from perpetual licenses and towards subscription-based offerings.

In our General Markets Business Unit, bookings from traditional perpetual license deals were flat on a year-over-year basis for the first nine months of 2010, whereas our bookings from subscription-based offerings have increased approximately 50%, that's 5-0, 50%.

This is an important concept to keep in mind when evaluating our reported Q-3 total revenue growth of 5%. Remember that our license revenue is generally recognized on an upfront basis while our revenue from subscription-based offerings is recognized over the course of the contract.

Let me now comment more specifically about market conditions. Last quarter we highlighted the fact that while it was too early at that time to officially call a turn in the non-profit market, there were data points that suggested that the worst might be behind us.

Our view at the market environment in the third quarter has not meaningfully changed since the second quarter since what we described in last quarter's call.

And there are a number of reasons for us to be cautiously optimistic. Several of those have already been mentioned. Q-4 revenue growth improved and was consistent with our expectations. Sales of subscription-based solutions continued at a robust pace. And our General Markets Business Unit again experienced solid growth.

In addition to these factors, our Enterprise Business Units again signed three new eCRM deals and overall interest levels remain high for our offerings in both North American business units.

While we are pleased with the current stability of the market environment compared to a year ago, the pace of the economic recovery is still uncertain. And the customer buying environment is not back to pre recessionary levels.

As we have commented before, we believe we need a healthier economic environment for our revenue growth to return to our long term goal of low to mid-teens growth.

We remain heavily focused on doing everything in our control to maximize growth in the meantime and ensure we have the foundation in place to achieve our targeted growth rates when the market recovers.

One of the areas that we are most encouraged about has been our organization's ability to quickly analyze needs and translate them into new offerings, packaging and pricing options that have generated sales with customers that we believe would not otherwise have made a decision to buy in the current environment.

We have seen significant success with recently introduced offerings which include our Grow and Spark online fundraising solutions and package solutions targeting the arts and cultural for small school verticals.

We believe our ability to successfully bring high-value offering such as these to the market has been a critical factor in the renewed growth of our General Markets Business Unit.

We are excited to have further strengthened our capabilities in this area with the recent hiring of Jana Eggers in the role of senior vice president of product management and marketing for Blackbaud.

She will help guide our product development to best fit the needs of our non-profit customers. Jana has a wealth of software and technology expertise in similar roles with companies such as Intuit, Lycos and American Airlines Sabre to name a few.

We look forward to Jana's contributions as we remain focused on further strengthening our product leadership positions.

One of the other areas where we've continued to build our product capabilities is in our Enterprise CRM offering. We closed three new deals in the third quarter, and in particular we continued to build on the Company's strong momentum in the higher education vertical.

Last quarter we highlighted wins with Boston University and the University of North Carolina at Chapel Hill. And in this Q-3 we added Yale University as our latest higher education enterprise CRM customer.

We also continue to expand our Enterprise CRM customer base in the health and human services area.

During the third quarter we added Big Brothers Big Sisters of America and Planned Parenthood as customers. With the three new customer wins this quarter, we are now at nine for the year and already at our full-year goal of adding two to three new Enterprise CRM customers per quarter on average.

In addition, we have a solid pipeline of opportunities looking ahead to the fourth quarter and longer term. We believe the Enterprise CRM target market remains largely intact, and there are several factors that could enable us to more aggressively capitalize on this opportunity in the future.

First, an improvement in the overall economic environment would obviously help our purchasing environment with the larger non-profit organizations.

Second, we continue to build out our product capabilities, and finally the continued increase in the number of customer references will provide additional proof-points for prospects evaluating our enterprise CRM offerings. We already have sixteen Enterprise CRM customers that are actively using our software, and we believe we can further streamline implementation processes with best practices from our experience with these and other existing Enterprise CRM customers.

We're investing in each of these areas because we believe there is a significant long term pay back. We believe that Blackbaud is uniquely positioned to capitalize on the opportunity of this high-end of the market. This is due not only to the aggressive investments we're making in our solution but also because of our industry leading domain expertise and the very large customer base, larger than any other vendor in the market.

We understand the challenges non-profits face better than anyone, and we have a uniquely experienced services and training organization that help our customers with the implementation of best practices. We've worked hard to establish our reputation as a trusted partner.

This position is important to customers of all sizes as they determine which solutions to deploy and how to optimize their fundraising efforts across multiple and expanding channels to market.

Blackbaud's product breadth and depth across both traditional and emerging channels such as online fundraising and social networking is unrivaled in the market place. As additional channels emerge down the road, Blackbaud will help our customers manage and communicate across all of these channels with their donors in an integrated fashion which is what most non-profits are looking for.

In online fund raising in particular Blackbaud's results have been strong, led by solid momentum from our flagship offering for standalone online fundraising, Blackbaud Sphere, the world's most widely-used online fundraising solution. We're closing in on our first release of a new offering which will combine some of the best features of Sphere and NetCommunity on our Infinity platform, which we believe will set a new standard for online solutions.

As mentioned earlier we also continue to enjoy strong demand for our streamline NetCommunity offerings, Spark and Grow, as well as with our packaged solution, RAI that is a product that combines Raiser's Edge with NetCommunity Spark delivered in a hosted environment.

I would like to close with a couple of additional updates regarding our senior executive team. During the third quarter we announced the appointment of Brad Holman as president of our international business unit.

Brad has worked in the UK, Hong Kong and Australia, and managed operations in Europe, the Middle East and India. Most recently he was president of Travelport's $300 million Asia Pacific operation.

I recently spent several weeks traveling throughout Europe to meet with our leaders as well as our customers and prospects. And I remain convinced that there is significant opportunity there for Blackbaud.

From a macro economic perspective, we believe that the non-profit sector recovery in Europe, and in UK in particular, is behind the United States. Significant changes in government support for charities in the United Kingdom have had many customers taking a wait and see approach.

Notwithstanding the weak economic environment, we believe there's opportunity to improve our go to market execution internationally as we have done in the US, and longer term we expect to benefit from an improved economy as well as an enhanced leadership team.

Finally, I want to acknowledge that two weeks ago we announced that Tim Williams will be retiring as Blackbaud's Chief Financial Officer in mid to late 2011. Tim has been an excellent business partner to me since I arrived as CEO five years ago this month, and his service to Blackbaud over the last 10 years has been invaluable. We will certainly miss Tim and wish him best in his retirement, but in the meantime we appreciate and look forward to Tim's ongoing contributions as he will remain Blackbaud's CFO during this transition period.

As we shared at the time of the announcement, we will begin our search process, including internal and external candidates, before the end of this calendar year.

With that let me turn it over to Tim.

Thanks, Marc. And thank you very much for the very kind words. I've truly enjoyed my time at Blackbaud which has been a very rewarding experience working for an industry leader with a highly talented management team and a super finance organization.

While I will miss everyone that I've worked with here at the Company, I am confident in the strength and depth of the team that I work with on a day-to-day basis, and I remain committed to ensuring that my transition goes smoothly.

Let me now move on to the details of our third quarter operating results, and after that I'll follow it up with some comments on our guidance for the fourth quarter of 2010 and a quick review of our capital management program.

Let me start with the income statement. As Marc said earlier, revenue was $83.2 million, which was just above the midpoint of our guidance range of $82 million to $84 million, and up 5% on a year-over-year basis. We remain confident that Blackbaud will ultimately return to low to mid-teens growth in a healthier economic environment.

Looking at the details of total revenue, subscription revenue was $21.2 million, an increase of 10% on a year-over-year basis and a sequential increase of 4%. Subscriptions increased to 26% of our total revenue in the third quarter, up from 24% in the year-ago period.

And as Marc pointed out, our sales of subscription based solutions have been growing at a much faster rate than our subscription revenue. And consequently we expect subscriptions to continue to become a larger component of our revenue.

License revenue was $5.1 million in the third quarter, representing a 14% decrease compared to the year-ago quarter. There are two primary drivers to the year-over-year decline.

First, we saw a greater mix of customers electing to adopt product offering with subscription based terms during the quarter.

And second, license revenue can be lumpy on a quarter to quarter basis, given its small relative size, and depending upon the timing of closing and ultimately recognizing software revenue related to large Enterprise CRM deals.

Services revenue came in at $24 million, an increase of 15% on a sequential basis, and up 4% on a year-over-year basis, which was consistent with our remarks on our last call that there was potential for services revenue to return to year-over-year growth in the second half of this year.

Our maintenance revenue once again represented the largest source of revenue during the quarter at $31.4 million, and increased 6% on a year-over-year basis and 2% sequentially. Our maintenance renewal rates have remained in the mid 90% range throughout this difficult environment.

Total recurring revenue, which is composed of subscription and maintenance revenue, represented 63% of our total revenue in the third quarter compared with 62% last year.

Turning now to profitability and beginning with our non-GAAP results, starting with gross profit we generated $52.2 million in non-GAAP gross profit in the quarter, representing a gross margin of 62.7%, which is below the 64.5% in the year-ago quarter but roughly in line with Q-2. The margin from our fastest growing source of revenue, subscriptions, improved 160 basis points year-over-year.

However, our margin on services continues to run just under five points lower than the year-ago period, yet improving on a sequential basis by approximately 400 basis points.

As we pointed out last quarter, we are making investments in a small number of key early adopters of our Enterprise CRM solution, and we added services head count in the third quarter as a result of our growing backlog of implementation engagements. We expect to gain leverage from these -- from both of these investments during 2011.

From an operating perspective we were up approximately 5% on a year-over-year basis, but we did bring operating expenses down by over $1 million compared to the second quarter.

Our overall management of expenses has been solid while we were also making selected strategic investments in our growth initiatives.

For the quarter, non-GAAP operating income came in at $18 million, which was at the high-end of our guidance range of $17 million to $18 million and represented a non-GAAP margin, operating margin, of 21.7% which was up from 20% in Q-2 but down from around 24% in Q-3 last year.

The effective tax rate for non-GAAP results in the quarter was again 39%, leading to non-GAAP diluted earnings per share of $0.25, again at the high-end of our guidance range of $0.24 to $0.25.

As a reminder, we fully tax 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. As such our cash EPS is materially higher than the GAAP and non-GAAP EPS that we report.

In our earnings release, there is a full tabular reconciliation between our GAAP and non-GAAP results.

The non-GAAP results, of course, exclude the impact of stock based compensation expense and amortization of intangibles associated with acquisitions.

In summary, third quarter GAAP operating income was $13.1 million, net income was $8.5 million, and GAAP diluted earnings per share was $0.20. This compares with GAAP results of $13.9 million in operating income, $9.8 million in net income and $0.22 in GAAP earnings per share respectively in the same period last year.

Let me now turn to cash flow and the balance sheet. We ended the third quarter with $26.3 million in cash, compared to $13.3 million at the end of last quarter.

In the third quarter we generated cash flow from operations of $24.2 million, bringing our nine month year-to-date total to $48.9 million. In the quarter we used approximately $4 million to pay down our debt, and ended the quarter with no debt outstanding on our revolving credit facility. We also used approximately $4.8 million for the quarterly payment of dividends to stockholders and $1.1 million to repurchase approximately 50,000 shares of our stock.

Accounts receivable decreased this quarter to $56 million from $62 million at the end of the prior quarter, and our DSO at the end of the quarter was in the mid 40s in line with our historical performance.

Total deferred revenue came in at $150 million, which was up $4.7 million compared to the end of last quarter, and $12 million -- and 12% compared to the end of the third quarter of 2009.

As you may recall, the largest portion of our deferred revenue is maintenance. However, the fastest-growing segment within deferred revenue is subscriptions, which had deferred revenue growth in excess of 20% on a year-over-year basis.

And finally at the end of the quarter the company's deferred tax asset had a balance of $57.8 million, this asset adds roughly $8 million to our annual cash -- to our cash flow on an annual basis in addition to a cash flow benefit of approximately $3 million associated with the structure of several of our acquisitions.

Turning to guidance for the fourth quarter, we are targeting revenue of $86 million to $88 million with non-GAAP operating income of $18.5 to $19.5 million, leading to non-GAAP earnings per share of $0.26 to $0.27. This then translates into full year revenue of approximately $326 million to $328 million. Non-GAAP operating income of approximately $66.9 million to $67.9 million, and non-GAAP earnings per share of $0.93 to $0.95.

This is all consistent with our commentary from last quarter's call, namely that Blackbaud is positioned to grow slightly better than our original target of low single-digit growth in 2010.

In addition, operating margins are expected to be down approximately one percentage point on our year-over-year basis, in large part because of the increased investments in our services business that I talked about earlier.

We will provide specific commentary relative to our 2011 expectations when we get together on our next call. However, I would like to provide some reminders to analysts as they build their models in the meantime.

First, remember that expenses traditionally go up in the first quarter relative to the year-ago fourth quarter due to increases in employee related expenses. As such, margins should be at their low point in the beginning of the year. That is in the first quarter.

We will be targeting revenue growth in very modest expansion in our non-GAAP operating margin for the full year 2011. However, we are not prepared to provide any specific commentary at this time and will cover it on our next quarterly conference call.

Finally, let me just finish with a very quick update on our two part capital management program.

First we announced today that our Board of Directors has declared our fourth quarter dividend of $0.11 per share payable on December 15, 2010, to stockholders of record on November 26, 2010.

Second, as I mentioned earlier, we repurchased nearly 50,000 shares of our stock during the third quarter and now have $50 million in capacity remaining under our authorization that was adopted on August 1, 2010.

We will continue to balance the best ways to use our cash flow to enhance long term shareholder value.

In summary, then, the company delivered a solid financial performance in the third quarter. The pace of economic recovery, however, remains uncertain. We are seeing solid demand for our solutions, particularly our subscription-based solutions. And we believe the Company is on track to deliver full year results with revenue growth that is greater than our expectation entering the year combined with 20% plus operating margins and strong cash flow.

With that let me turn it over to the operator, and we will begin the Q&A session. Operator?

(Operator Instructions). And first we'll go to Tom Roderick with Stifel Nicolaus.

Hi, gentlemen. Good afternoon.

Hey, Tom.

So I'm going to apologize here. I missed just the first five minutes. So, Marc, you may have hit on this in your comments.

But can you talk or just repeat what you might have said about the macro environment with respect to various segments of the non-profit environment? I think your commentary earlier in the year was that the smaller non-profits are getting healthier, and then I think last quarter it was more broad-based.

So how do things shape up throughout the third quarter and as you look into the all-critical fourth quarter fundraising environment, what are your customers telling you about what they expect for fundraising and that environment, how that might play out into their budgets for 2011? Thanks.

Yes. Well, the first thing to note is that the UK is having a challenging environment because of the very significant cuts in government funding, which has had an impact on the not-profit sector, which gets a fair amount of its funding from government grants and fees for services.

So there's been a lot of sort of wait and see in the UK market. I do think in the end that will turn into higher demand for fundraising solutions as they try to find fundraising as a substitution.

And I think that that's going to play out in some of the other European markets in which we have some traction, including places like Holland. Australia continues to be rather sort of the same as it's been, and I don't see any significant shifts there. In the US we saw a surge in February and March and April that was related to the Haiti situation. And then we saw sort of a dip back in the middle of the summer in retrospect.

The place that was having the best strength continues to be the low end of the market. We had -- the surge impacted the high-end which sort of gave this sort of view of the market as a [u]. I think things have sort of settled down back to a modest amount of growth. It looks like people are feeling modestly optimistic for the second part of the year, but I don't see a huge sense of optimism.

Some organizations are doing very well, as always happens, but most are sitting there believing that their funding doesn't look dramatically different than in the past.

One thing, however, to note if you go on our website, the survey of the non-profit industry that we do across 10 countries, approximately 40% or 45% of the respondees to that survey, and there were a couple thousand, indicate that they'll be increasing their investment and fundraising and fundraising professionals in the next year as compared to about a 5% group that is decreasing.

I know I'm not sure that that would withstand a severe downturn in the market, but that is the sense of the respondents in the survey. So I have to say that I continue to remain cautiously optimistic that we've leveled out in the fundraising space, and I do believe that we're going to start seeing organizations increasing modestly their fundraising spend as they try to face multiple channels of fundraising and face increased demand as well as decreased governmental support.

I'm sorry for the longish answer, but I sort of had to make it complete.

That's great color. And Tim, two brief ones for you. And again, congratulations on your big news here.

Just in terms of the three CRM deals you had in the quarter, can you just talk about what the structure, rev-rec structure on those deals were and with respect to Sphere and BBNC, the event revenue, any seasonality that we ought to take note on the event revenue side, how much of the overall subscription component came from events this quarter? Thanks.

Sure, Tom, and thanks for the comments. With respect to the Enterprise CRM deals that we completed and signed this quarter, one of those had some immediate income recognition. But it was not that significant in overall terms, either with respect to EBIT or total revenue. But it did contribute in the quarter, and was certainly built into our expectations when we set them for the quarter.

Secondly, with respect to the seasonality or any seasonality in the transaction revenue, there was no significant change this quarter versus last quarter or the prior year quarter. So that was not a significant impact in our growth or movement from Q-2.

Perfect. Thank you very much. Appreciate it.

You bet.

(Operator Instructions). And next we'll go to Sterling Auty with JPMorgan.

Hi, guys, it's [Sackett] here for Sterling. How are you?

Hey, Sackett.

Hey, just one quick question from my side. So Tim, regarding the services investments this quarter, how many resources did you hire, and how many more do you have left to go?

Yes, in the quarter the net add in terms of heads, and by net I mean net of attrition, we added roughly 50 people to the total services team. Most of those would be [go-able] heads. We still have some more heads to go, but we would not expect the additions in Q-4 to be anything like what we saw in Q-3.

We also added a lesser number of heads that are subcontracted through a couple of significant third-party relationships both for reach and to make sure that we have some variable capacity built into the model.

Got it. Got it. I guess looking to 2011 to the extent that you can comment, do you still kind of plan on ramping that area of services in 2011?

I would say that like so many other things it sort of depends on what we see in the momentum of sales in the first half of the year. If we see really strong momentum in sales in the first half of the year and we start to continue to see backlogs building, we will certainly use that as an opportunity to add head count to meet the demands of our implementation engagements.

Got it. Thanks.

Thank you.

Next we'll go to Matthew Kempler with Sidoti & Company .

Hey, good evening.

Hey, Matt.

So first, the guidance for fourth quarter of $86 million to $88 million of revenue implies I think about --- almost -- about 9% growth in that range, which is a decent step up from the mid single digits that the Company's been reporting.

Is that more about revenue recognition on existing deals that you've already closed, or is this a reflection of the pipeline of new business you expect to win?

I would say that it's more a reflection of the former than the latter, although I would say that I wouldn't take that as a negative necessarily on what's happening with sales. We feel cautiously optimistic, as Marc said, about what we're seeing in our business and about our pipe lines.

Certainly there could be some revenue associated with deals that we close in the quarter, depending upon whether we are able to close out some Enterprise CRM deals.

Obviously that would drive potentially some software revenue for us. But a bigger portion of it will be addressing engagements that are into our --- that are in our backlog which we're implementing. And there would of course be some accounting that comes through from subscription based offerings where we're starting to pick up the income recognition from them.

Okay. And then you made comments early in the call about bookings growth exceeding the mid single-digit revenue growth. Can you provide a little more perspective and just the range on where you've been seeing bookings growth over the trailing nine months relative to that license growth?

Well, I think what we said in the analyst day, we commented at that time about where we were seeing six-month growth. And I think for nine months what I would tell you is that the growth for the General Markets Business Unit hasn't really changed all that much from what we saw for the six months.

So it's kind of in the -- on an overall basis kind of in the 20% range. But it's important to remember that that includes the full contract value of subscriptions, right? So that's part of the reason why the bookings growth is so much larger than what we're seeing so far in revenue growth.

In terms of Enterprise, the growth there can be kind of lumpy on a quarter to quarter basis depending upon the deals that are closed within that quarter.

So if you look at the quarter that we just finished for Enterprise, they did have some bookings growth in the quarter, but that was against a quarter last year in which we had four Enterprise CRM deals, two of which were very large, and so the total contract value of those eCRM deals year-over-year was actually down slightly.

So there are a lot of factors here that enter into it, Matthew.

Okay. And then last question. At the conference there was mention about business intelligence products being increasingly looked for in the Enterprise segment measuring and analysis outcomes from fundraising. I was wondering if you could elaborate a little bit more about where Blackbaud is in providing that technology, do you have it or is that something you need to build and kind of what you see is the opportunity for that type of a solution.

I'm not sure I'd call it specifically business intelligence. Over time it's the ability to track outcomes, so it's the ability to let people know where their money has gone and give donors and funders a sense of the impact that they're creating in the world with their donations. There's no real set of standard methodologies or definitions of impact.

Where I would define impact as a child graduates from college and gets a job, that's a societal impact. Teaching them literacy in the second grade is an activity that's part of a whole train of events that produces societal impact.

So it's going to be a decade before, or more, before you have some kind of intergalactic system to measure the impact of every non-profit action. So what you're seeing is organizations saying, I'd like to get at least get from activity to outcomes. I'd like to be able to see how many of the kids I have in an after school program don't get arrested or do graduate from high school or whatever.

And so you're finding more and more people are trying to use some level of case management, which can be built in or on top of the Enterprise CRM products. Some of our customers have asked for that.

You're looking at organizations that do child sponsorship or sponsorship of an investment in a particular village or region, and so on, wanting to see more sort of direct feedback.

So today it's more about using the Internet and social media to report on anecdotally report on impact and then to track outcomes but not really the full societal impact.

And right now it's happening sort of on a case-by-case basis on a sort of a semi-custom way. We sometimes build product that could be reused for that. But this is a part of the industry that's nascent. So don't think of it has having a material impact on our business in the near future, think of that as being a growth initiative for us in three, five years, not tomorrow.

Okay. Thank you.

Thanks, Matthew.

And now we'll go to Wells Fargo with Priya Parasuraman.

Thanks. This is actually Priya [Fulfil]. Could you give us a little more granularity on the online fundraising side of the business in terms of product performance and also market trends and any change in competition in this side of the business?

I don't see any meaningful change in competition in that side of the business at this point. The people who are there are there and we are seeing continued improvement in our win rate. So the win rates for us in the online space are approaching the win rates that we have on the Raiser's Edge product set, which is, that's sort of the gold standard there. So we're feeling pretty good about the sort of the competitive and economic position.

We continue to sell well both onto the Raiser's Edge space, there are thousands, something like over 10,000 Raiser's Edge customers who could benefit from one of our online fundraising solutions and haven't yet been reached. And the same is true of Raiser's Edge customers going to hosting, which is a different way of them using the Internet to serve their purposes by adding either e-mail or something like a Spark or [BB&C] offering at the low end like an e-mail tool or a donation page.

So there's a lot of opportunity space there. And the Sphere team is selling off the Raiser's Edge base, and they continue to grow their new business and to meet their numbers in terms of dollar renewal rates now at this point, which I'm glad to say is indication in my opinion that the Sphere customers who are stand alone customers are feeling good about the Blackbaud acquisition a couple years ago.

All right. That's very helpful. Thank you.

(Operator Instructions). It looks like we have no further questions at this time.

I would just like to thank everybody for taking the time to join us on the call today. And we look forward to seeing you after the close of the year. And thanks very much.

Also thanks to Tim for continuing to support us through the next sort of six, nine, 12 months as we make the transition happen. You'll hear from him several times more.

Thank you very much.

This does conclude today's conference. We do thank you all for joining us.