Blackbaud Inc (BLKB) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Blackbaud Third Quarter 2011 Earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for your questions.

I would now like to turn the conference over to Mr. Tim Williams, Chief Financial Officer of Blackbaud. Please go ahead, sir.

Thank you very much. Good afternoon, everyone. Thank you for joining us today to review our third quarter 2011 results. With me on the call is Marc Chardon, our President and Chief Executive Officer. Marc and I have some prepared remarks and then we'll open up the call for 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 web cast 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 afterward to give some further details regarding our financials.

Marc?

Thank you, Tim, and thanks to all of you on the call for joining us today to review our third quarter financial results, which were in line with our guidance and represented the third consecutive quarter in which the company delivered organic revenue in double digits and total revenue growth in the mid-teens. During the mid-quarter, we continue to make significant investments in our strategic initiatives, continue to see strong adoption of our subscription based offerings and also expanded operating margins.

While economic news remains volatile globally, Blackbaud continues to execute at a high level. In addition to a record bookings quarter for our Blackbaud CRM offerings, several other elements of our business did quite well. Our general markets business unit continued to excel at serving our traditional midmarket customers. Overall services revenue, which crosses all our business units, was at an all time quarterly high, and our international business continued to improve.

I believe we are becoming a stronger company with increasingly well-rounded performance and we are optimistic about Blackbaud's future.

Let's take a look at the financial highlights for the third quarter. Total revenue in the third quarter was $95.5 million, up 15% year-over-year. On an organic basis, revenue growth was 12%. Our revenue growth in Q3 remained at the highest level in over two years. Non-GAAP operating income grew 17% to $21.1 million representing our highest non-GAAP operating margin in nearly two years and leading to non-GAAP earnings per share of $0.29.

Our revenue, non-GAAP operating income, and earnings per share were consistent with our guidance ranges. It should be noted that this performance includes an unanticipated adjustment to lengthen the period over which we are amortizing the initial setup fees associated with certain subscription offerings. This reduced our total revenue by approximately $700,000, non-GAAP operating income by $400,000 and non-GAAP earnings per share by $0.01. Tim will discuss this adjustment in greater detail in a moment.

Our view of the economic environment has not changed materially since our last earnings call. The economic environment remains challenging and nonprofits are cautious regarding the near term outlook for fundraising and their financial health overall. This is consistent with the modest slowdown in growth we've seen in the latest Blackbaud Charitable Giving Index from 10.9% in July to 6.8% in August. However, this still represents positive growth and it is up sharply from the 1.6 growth level in April of this year.

We believe the nonprofits increasingly accept the current difficult economic environment as the new normal based on the past two years of start and stop recovery and the current limited visibility into timing of any material improvement. Given the current economic scenario, it's becoming more important for them to invest in new technologies that can help them become more efficient and optimize their fundraising in a tighter market for contributions. While demand is not as robust as pre-recession, we've continued to witness the healthy buying environment. Key indicators are the number of no decisions in the US are now modestly down from peak levels. The Company's overall revenue growth has shown meaningful acceleration. Sales to midmarket organizations by the General Market's business unit continue to show strong year-over-year improvement, and sales of our Blackbaud CRM offerings continue to grow well.

It's also encouraging to see back-to-back quarters of solid year-over-year growth in professional services revenue. That was the area of our business that was particularly hard hit during the economic downturn. Services revenue is now up 50% from its bottom and finished the third quarter at its highest ever quarterly level. This performance is a result of the substantial bookings growth we've achieved over the past few quarters and also reflects the fact that many customers are moving ahead with new programs from high-end CRM solutions to faster, more focused deployments in the midmarket.

During the third quarter, we closed a record seven new Blackbaud CRM deals, which is more than double last year's quarterly average and exceeds this year's target of three to five units per quarter. We now have 55 CRM customers representing $100 million in total bookings and I'm pleased to report that half of them are live. CRM is the most successful product launch in the history of Blackbaud. Six of these CRM signings during the quarter were brand new customers and one was a Raiser's Edge upgrade. Two of the deals were outside of the United States, the Australian operations of a large international children's welfare organization and Bird's Life in The Netherlands. Included in the five CRM deals in the US were signings with The American Heart Association, Mission of Mercy, and the University of Georgia Foundation.

There are two additional points that I would share regarding our Blackbaud CRM performance. First, a majority of the financial impact associated with the strong growth in our CRM customer base is not yet reflected in our profit and loss statement. During the third quarter, several of our Blackbaud CRM transactions had deal terms that resulted in the associated license revenue being deferred to future quarters. In addition, as we've noted before, the services related to these deals contribute to our backlog, but get executed and recognized over time.

The second point is that two of our CRM deals in the third quarter were in the $500,000 range, which is lower than the initial traditional seven-figure CRM deal size. This is encouraging as it shows the attractiveness of this offering to slightly smaller organizations and it offers a strong proof point for our belief that there's a broader market opportunity for Blackbaud to serve as we continue to scale this offering.

This is a record year in our Blackbaud CRM business and we continue to believe we are reaching a level of product maturity, momentum with customers, and implementation experience that will extend the already significant gap between Blackbaud and our competition. If and when competitors attempt to enter this end of the market, they'll need to go through the multiple year learning curve associated with implementing solutions that meet these most challenging and sophisticated needs in the sector.

Moving forward, we will continue to innovate and grow this business on the strong foundation that we've established. We believe that we can achieve sustainable competitive differentiation at the high end of the market just as we have done in the midmarket. We did that decades ago and we maintain it to this day.

In addition to the strong momentum we're experiencing with Blackbaud CRM, we're pleased with the progress we're seeing in our international operations. For the third quarter, our international operations represented 14% of our revenue and I've indicated before that we believe we can roughly double international as a percentage of our revenue over the long-term.

In order to do so, we will continue to leverage a combination of organic growth and targeted acquisitions. Consistent with this strategy, we recently acquired Everyday Hero, a privately owned company based in Australia whose event fundraising tools are used by tens of thousands of individual fundraisers and 1,400 customers in Australia, New Zealand, and the UK. We're in the process of integrating the business with our existing operations and expect that to be completed in the coming months. We're excited about this opportunity to further strengthen our offerings outside of the United States.

The recent leadership and go-to-market changes in our European operations will take time to fully ramp and have their full positive and sustainable impact. That said, we're particularly pleased that our international business unit again delivered solid growth in the third quarter. On a year-to-date basis, bookings growth for our international business unit has been greater than that of our domestic operations. There is still much work to be done and we believe international [affected] economies are further behind the US from a recovery standpoint, but the signs of progress are encouraging.

One of the contributing factors to the improved performance of our international business unit and a reason we're confident that it will continue to improve is that we're still in the early stages of replicating proven strategies that have led to renewed growth in our General Markets Business unit in North America. During the third quarter, GMBU continued to execute at a high level, continued to enjoy very high win rates and delivered package solutions to meet our target customers' needs. The combination of these factors led to strong growth and continued expansion in our subscription customer base.

Within GMBU, we saw particularly strong growth from our packaged solutions targeted in vertical segments of our market. The K12 vertical, as well as our ALTRU offering for the arts and cultural segment. We believe there's an attractive long-term opportunity for the GMBU to continue to build on our vertical product, Package Solutions Strategy, growing share of wallet and expanding our midmarket leadership. GMBU also saw strong growth overall from our Blackbaud Sphere online fundraising solution for the quarter.

Now, before I turn it over to Tim to discuss our financial results in more detail, I am pleased to share that we've completed our search for Blackbaud's next Chief Financial Officer. After the market closed today, we announced that Anthony Boor will join Blackbaud as Senior Vice President and CFO effective November 14th. He joins us after 13 years of executive leadership with Brightpoint, which is a multi-billion dollar global distributor of wireless products and a logistics service provider to the wireless industry. At Brightpoint, Tony served as Chief Financial Officer and had previously served as Interim President of Brightpoint's EMEA operations and Director of Business Operations for Brightpoint North America. Tony also served in multiple roles within leading public account firms, including Ernst and Young and KPMG.

We were very pleased to hire a CFO with significant global experience, a combination of operational, strategic, and financial leadership, and a track record of working with executive teams to deliver strong performance in very large organizations. After Tony starts on November 14th, Tim will work with us on a consultative basis as Tony settles into his new role and I'd like to once again thank Tim for his extraordinary contributions during his time at Blackbaud, which has helped us be in such a strong position today. He's been an excellent business partner over the years.

To summarize our overall performance, the Company delivered solid results for the third quarter, as well as the first nine months of 2011, particularly in light of the continued economic difficult environment. Total revenue growth remained at a multiyear high, Blackbaud CRM had a record number of deals close in the quarter spanning North America, Europe, and Australia. The General Markets Business Unit continued to execute at a very high level and this delivered strong growth. The International Business Unit continued to show operational improvement, and Professional Services revenue reached an all time quarterly high. We're confident in our market position and remain optimistic about Blackbaud's long-term growth opportunities.

With that, let me turn it over for the last time to my friend, Tim Williams.

Thanks Marc and thanks for the kind words. I'm going to provide some further details on our operating results for the third quarter, our guidance for the fourth quarter and full year 2011, and a very quick update on our capital management program.

Let me begin with the income statement. Total revenue was $95.5 million, which was within our guidance range of $95.5 million to $97.5 million and it was up 15% on a year-over-year basis. Our growth was 12% organically excluding PIDI's contribution during its third quarter as part Blackbaud.

As Marc noted in his remarks, we did record an adjustment, lengthened the amortization period of initial setup fees associated with certain of our subscription-based offerings. This adjustment reflects the fact that based on our analysis, the average life of our customer relationship associated with these subscription offerings is longer than we have previously estimated. The amount of this adjustment was approximately $700,000 in the quarter and was not anticipated at the time we did our third quarter guidance. So absent the adjustment, our revenue would have been more solidly toward the midpoint of our guidance range.

Looking further at the details of our total revenue, subscription revenue was $26 million, an increase of 23% on a year-over-year basis. The second quarter of 2011 included a bump in transaction revenue following several natural disasters and this of course resulted in a sequential decline in the transaction revenue component of our subscription revenue during the third quarter. Even so, our subscription revenue would have increased sequentially had it not been for the previously mentioned adjustment of setup fees, a portion of which went through our subscription revenue. Excluding the contribution from PIDI, year-over-year organic growth for subscription revenue would have been approximately 16%.

License revenue was $5 million in the quarter, representing a 2% decrease compared to the year-ago quarter. We've seen a fairly stable level of license revenue over the course of 2011. However, there is still potential for quarter-to-quarter variability in this line item, principally due to the timing and structure of larger Blackbaud CRM transactions. In addition, we expect the shift in our sales mix to a higher percentage coming from subscription based offerings to continue in the future.

Services revenue grew 24% on a year-over-year basis to a record $29.8 million as the increased services headcount we added in recent months are becoming increasingly productive. This is a reflection of the strong demand we have seen for our Blackbaud CRM offering in our suite of subscription-based offerings.

Maintenance represented the largest component of revenue during the quarter at $32.9 million and increased 5% on a year-over-year basis. Our maintenance renewal rates have remained in the mid 90% range, which is a principle reason why maintenance revenue has continued to grow at a modest level even though our license revenue is on track to decline year-over-year in 2011 for the fourth consecutive year.

Turning to profitability and beginning with our non-GAAP results, we generated $58.2 million in non-GAAP gross profit in the quarter, representing a gross margin of 60.9%, which compares with 62.7% in the year-ago quarter and 60.7% last quarter. Looking at the details of the individual gross margin lines, as expected, services margin improved by almost 400 basis points on a year-over-year basis as we continue to make progress with the early adopter Blackbaud CRM customers that have unique functionality and/or deployment requirements. Subscription gross margins declined year over year all as a result of investments in our infrastructure that we've previously discussed with you. These investments are necessary to meet the significant increase in demand that we have seen for our hosted and SaaS offerings.

Operating expenses were up 9% on a year-over-year basis and down slightly compared to Q2. Non-GAAP operating income was $21.1 million, representing a non-GAAP operating margin of 22.1% and year-over-year growth of 17%. The third quarter also represented our best quarterly operating margin in nearly two years and contributed to 40 basis points of non-GAAP operating margin expansion for the first nine months of 2011.

The impact of the setup fee on operating income was approximately $400,000. Excluding that adjustment, operating income would have been at the high end of our guidance range and up 19% year-over-year. The effective tax rate for non-GAAP results in the quarter was again 39%, leading to non-GAAP diluted earnings per share of $0.29, which was at the high end of our guidance range of $0.28 to $.29. As a reminder here, we fully tax non-GAAP EPS amounts even though the Company's cash tax rate is much lower due to our deferred tax asset and other tax benefits associated with prior 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's a full tabular reconciliation between our non-GAAP and GAAP results. As most of you know, the differences between non-GAAP and GAAP results typically only include two adjustments, the first for amortization associated with intangibles arising from business acquisitions and secondly, non-cash stock-based compensation charges.

In summary, third quarter GAAP operating income was $15.7 million, net income was $9.8 million, and GAAP diluted earnings per share was $0.22. This compares with GAAP operating results of $13.1 million, $8.5 million, and $0.20 respectively in the same period last year.

Let me now turn to cash flow on the balance sheet, just hit a couple of highlights there. We ended the third quarter with $52 million in cash compared to $33.4 million at the end of the last quarter. We generated $29.9 million in cash from operations for the third quarter and have generated $67.7 million for the first nine months of 2011, which represents an increase of 38% compared with the comparable year ago period. Total deferred revenue came in at $162 million, which was up 8% when compared with the balance at the end of the third quarter of 2010.

Let me now turn to guidance for our business. For core Blackbaud for the fourth quarter, we are now targeting revenue of $97.3 million to $99.3 million, which would represent year-over-year growth of 13% at the midpoint, with non-GAAP operating income of $20 million to $21.5 million, leading to non-GAAP earnings per share of $0.28 to $0.30. These numbers include the ongoing impact of the increase in the estimated customer life we are now using our setup free revenue recognition.

The numbers, however, do not include any impact from our acquisition of Everyday Hero. We expect a revenue contribution of approximately $700,000 from that acquired business in this fourth quarter, which will lead us to total revenue of $98 million to $100 million. Everyday Hero was generating a small operating profit prior to our acquisition, but their Q4 has always been historically seasonally weak and consequently we expect them to reduce our overall operating income by approximately $300,000 in the fourth quarter, which will then lead to total non-GAAP operating income of $19.7 million to $21.2 million. As we look to 2012, we believe Everyday Hero's financial performance will be slightly accretive to our non-GAAP operating results.

This then translates all into our full year revenue guidance, including the one quarter of Everyday Hero operations, of $374.2 million to $376.2 million, which would represent total year-over-year growth of 15% at the midpoint, while we continue to anticipate full year 2011 organic growth of 12% to 13%, which would represent a meaningful increase over the mid single digit growth we saw in 2010.

We anticipate full year non-GAAP operating income to be in the range of $76.3 million to $77.8 million, leading to non-GAAP earnings per share of $1.06 to $1.08. Finally, just a very quick update on our capital management program. The Board has declared a fourth quarter dividend of $0.12 per share payable on December 15th to stockholders of record on November 28th.

In summary then, Blackbaud's third quarter financial performance was consistent with our guidance, showed continued strength in light of the challenging economic environment. We are on track to meaningfully accelerate our revenue growth in 2011 as compared with 2010, along with modest expansion in our non-GAAP operating margin, the combination of which would be slightly better than our expectations coming into this year. We remain very excited about Blackbaud's long-term opportunity as we are reinforcing our long-term position, leadership position in the midmarket, and at the same time expanding the distance between Blackbaud and the competition at the high end of the market.

One final word personally. This will be, as you've already heard, my last Blackbaud earnings call. It has been a terrific 11 years here, 7.5 of those years very exciting as a public company. Blackbaud is a terrific organization with a high calling and an extremely exciting future and it has truly been an honor to serve as its CFO. I appreciate the outstanding support of my finance team, the leadership of Marc and his predecessor, Bob Sywolski, and the other members of our management team with whom I've had the pleasure to work.

Thank you to all of you on the phone for your insights and challenging perspectives, and most importantly, your encouragement of the Company. I've enjoyed working with all of you.

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

(Operator Instructions) We'll take our first question from Tom Roderick with Stifel Nicolaus.

This is Chris [Cove] for Tom. How are you doing?

Hey, Chris.

First of all, congratulations, Tim. Glad that you'll finally be able to retire. So and well done on the quarter, guys, as well. So I guess my first question in terms of -- Marc, I think last quarter you gave kind of a unit growth or unit growth metric for the general markets business. I was wondering if you had a similar metric to share with us this quarter?

It's not something that we typically -- we give out on a regular basis and so I don't have anything specific to say other than it's continuing to grow and to provide me confidence that it will continue to grow in the future.

Okay, great. Then in terms of, the area of strength obviously seems to have been Enterprise CRM for the quarter. You did mention that you're kind of moving downstream a little bit. So I guess one thing that might come to mind, is it possible that some of these smaller eCRM deals could potentially be taking up space where a higher end Raiser's Edge would have been prior? Or would you see it as maybe complementary or do you see it as kind of just a new market?

Well, in the past we might have taken the very high end of the Raiser's Edge up to $500,000 or more deals. So there is always some chance that some of those deals would have happened otherwise, but I'd say that out of the seven deals we did this quarter only the Raiser's Edge upgrade is one that we would have gotten as a Raiser's Edge deal. So for the vast majority of the CRM deals today are still Greenfield for us.

Okay, got it. So you would characterize kind of in the historical context, a high end RE deal would be still roughly where a low-end eCRM deal is, in most cases.

I think that's true. I would say a very high-end one. I mean the typical deal in the enterprise is $200,000 to $300,000 for RE with a bit more -- so the $500,000 would be sort of towards the higher end (inaudible). If we had a couple million dollar deals over the history of the Company that was sort of the exception.

Got it. Sounds good. Then just in terms of the comment about no decisions, kind of moving down from peak levels so that's encouraging to hear. But when you kind of look at -- so if you look at what happened in August with the debt ceiling debate and all of that, would it be fair to characterize Q3 as maybe similar to what you saw in Q2 from a macro environment, but maybe short of what you had maybe been hoping for going into the quarter?

I don't think the mid-market would be characterized that way. I feel the mid-market did quite well in the quarter. The variability for us is often associated with whether the CRM deals are license, or whether they're a smart license, or whether they're a percentage of completion, or whether they're time and materials. So I would say that if there's variability in terms of how we look at things it's really large deal variability. It's not a big number, but it's likely to be there. So no, I do think in general the economy is very much what I thought it was and I think that the general markets and the international business did pretty well compared to what we thought they'd do. So I think the market is up and down a little bit and I think that that's confusing and difficult for some of our customers. But still, signs are encouraging for growth.

Got it. Sounds good. Then one last one in terms of the PIDI contribution. If it was roughly 3% it sounds like -- can you remind me what you were expecting going in and how that compared?

Chris, it's roughly very much in line with what we thought. We've been very pleased with the contribution from PIDI, and for the year they're going to finish about where we expected they would when we acquired the business.

Great. Thanks, guys.

(Operator Instructions) We'll go next to Ross Macmillan with Jefferies Investment Bank.

Thanks a lot, and Tim, my congratulations as well on a great few years of service here at Blackbaud and all the best in the future.

Thanks, Ross. Appreciate it.

So I had one question just on this adjustment, which was -- I'm trying to get my arms around this. So it feels like it's going to be ongoing until we anniversary this third quarter in '11. Is that a fair statement? In other words, there's going to be a little bit of that kind of, put it this way, dampening affect relative to what we would have previously modeled and let me get back to more normal growth once we anniversary it. Is that fair?

Well, not entirely. I think the way you have to think about it is there's going to be -- that on one hand, you would have had revenue that you would have already had baked into your model that in future periods is actually going to come in. The difference really probably is the degree to which you've modeled new deals and new setup fees, and how they would be flowing through the P&L in future years.

I think that while the impact will last for a couple of quarters, I do think that the impact is going to dissipate probably sooner than a year as best as I can tell at this point.

Okay, that's helpful. And you said it was split between subscription and I presume service. Is there any way for us to think about that split? I may be down into the weeds here but was just curious.

I think that if I remember correctly it's sort of $200,000 to $300,000 in the subscription line and the rest is in services.

that's great. Then stepping back a little, you're obviously on track to grow 12% to 13% organically this year in what's remained a tough environment from a giving perspective. I think earlier in the year and even going back to last year's analyst day you talked about getting the business back up to consistent low to mid-teens organic growth. I know you're not obviously guiding for next year yet, but is there any reason for us to think that this growth rate this year is a good starting point and potentially depending on various factors, you could end up with a little better growth next year? I guess I'm just trying to frame it in obviously what's been a really good organic growth this year thinking forward.

Well, obviously, Ross, we're not going to provide guidance. You'd be surprised if we did so far, but I don't at this time see a change in the balance of our focus between growth and margin. I think there's still opportunity for us to reaccelerate the top line and you can expect us to continue to invest in the same sort of census we did this year and to try to make the most of opportunities to reaccelerate the top line.

So I do think there's still opportunity. I do think it depends on the economic environment, but there's still more potential for improved long-term growth than what we had last year.

And last one just on the services gross margin, which did see a really nice uptick. We're at a level now where I think we haven't been for some time, but I do want to extrapolate. How should we think about this kind of call it mid 30% services gross margin? Is that a good level to think about as a sort of run rate?

Well, Ross, I think -- and we've made these comments I think before, and I think maybe with a little more confidence I believe based on what we've seen here in Q3. I think that we can make further progress in our margins and our services margins beyond where we are today. The pace at which we can do that and the amount, though, is certainly difficult to say at this point in time. I think we need a little bit more time. We need to get past a few more of these implementations and as we scale our business further.

The one thing I would say, though, for sure, and I've made this comment before, and I do feel it quite strongly here that I don't think we get back to the margin level in services that we saw back in sort of the 2007, 2008 timeframe. Our business has changed way too much to expect to get back there. But certainly, I think we feel like we can make further progress.

One other quick point. With new deals and a different geography will come some investment in service headcount in the international business? So some continued improvement in US service margins might go and be sort of counterbalanced by some potential headcount investment and learning curve as we go up the CRM credit abroad.

That's really helpful. Thanks a lot, Marc. Thanks, Tim.

We'll go next to Matthew Kempler from Sidoti and Company.

Good evening. So first to follow-up on the services side, are we working down a backlog here that's been accumulating while you were adding staff and were we replacing what we deliver at this point?

I would say that our backlog has actually been growing and we're delivering against that backlog. With the momentum that we've seen in the last three quarters, I don't think there's any question that we are adding to our backlog, Matthew. We would hope to continue to do so.

From an operational perspective, the backlogs are about at the right level for the headcount we have, but we're going to continue to expand as we sell more CRM deals. So there will still be a learning curve for new heads as we go into the coming year.

Okay. Then shifting to CRM, we mentioned $100 million of total bookings so far. Roughly what percent of that has been recognized at this point?

My guess is we're probably -- with the number that we have live, I would say, in just thinking about the deals my guess is we're a little -- we're a bit less than half recognized at this point, Matthew.

Okay. Then shifting gears to the general market, so there was a comment in the press release that we're gaining significant market share in the midmarket. Could you provide us any sense of what your estimate of market share is or how it has changed and I guess who you're taking share from?

Well, it's really hard to estimate market share just because there's no real external benchmark for the number of customers. There's 1.5 million nonprofits. So it's very hard to estimate market share and it happens vertical by vertical. So what I know is that the number of units we're selling is growing faster than the overall rate of nonprofits in the United States. Who we're taking it from is really a very broad range. I mean practically every vertical, and every size band, and every offering has a different competitor. So there's no one competitor that represents a significant majority of those kinds of wins. It's literally 100 competitors.

Okay, and along similar lines to that, the commentary about this remains a large and underpenetrated opportunity, maybe (inaudible) but do you have a sense of kind of how much of the midmarket is still Greenfield versus already using some sort of third party system that you'd be replacing/

Yes, the research that we've done in the midmarket tells us that something on the order of 40% or slightly north of 40% of the low-mid, and mid-mid market are using Excel, or ACT, or Goldmine, or some sort of a contact management system that's not a fundraising application. So there is -- that's Greenfield at that level. There's also simple fundraising where people's needs go up. If you take a look at the real core sectors of where we're sort of fully -- we fully feel we have a great solution, we might have 20%, to 25%, to 30% of the real hardcore deep fundraising customers who are using our applications today.

So but I would point out two things. One is the share of wallet goes up when you move from fundraising to a solution like ALTRU. So you make market expansion in terms of opportunity for share of wallet. The second is, as we offer a $99 a month eTapestry you expand beyond the core of high net -- high worth fundraising.

Okay. Thank you.

And we'll go next to Sterling Auty with JPMorgan.

Hi, guys. It's Saket here for Sterling. Thanks for taking my questions. So first, on the subscription line, looking at that overall it's really accelerated this year on some new product introductions and maybe more customers shifting to hosted/SaaS. I guess two questions on that. First, do you feel you have the pipeline in those new products to keep that growth going into fiscal '12? Then secondly, what percent of your customers are on a hosted/SaaS solution right now?

So I feel very confident that the pipeline is not only there for 2012 but that we're actually accelerating the offering, especially in the midmarket for subscription-based customers. So very comfortable with that. I don't actually know the percentage numbers so I'm going to look at my friend, Tim.

I would say that if you looked at our total customer base, I think the total number of customers that are on a -- either getting hosting services or on some kind of SaaS solution is less than 10%.

Not counting eTapestry.

Not counting eTapestry, right.

So SaaS solutions, you should probably follow-up with that because the combination of eTapestry and Sphere are several thousand customers out of the 25,000 plus a couple thousand hosted customers and I just don't have the maps and total in my head. But the percentage opportunity for hosting is still a vast majority of the existing customer base. And remember, when we say subscriptions there are subscriptions to data, there are subscriptions to training, there are subscriptions to hosting. So when you start going and saying which customers have a research subscription and you start adding them up, what happens is if you add up all the customers some of them are overlap. So someone might have hosting, and research, and training, and if you added up the number of subscriptions you'd end up with more than our customer base, nearly our customer base at one level.

So it's really the complexity of how many different subscription models, I mean subscription offerings.

Understood. My follow-up to that is on the eCRM side. What's the average lag for some of these eCRM deals that you've seen this year to hit revenue? I guess you've seen an acceleration in the number of deals that you've signed really through the first three quarters of this year and it sounds like less than half of them have really been revenued. Hoe long is it going to take, I guess, on average, for some of those to really start to hit the income statement?

Well, typically the projects start implementing within a couple months, two to three months of when a contract is signed. Some take a little longer for meaningful amounts of service to happen. So if it's a time and material contract you'll start recognizing revenue over the lifetime of the project. The smaller projects might take 12 months to implement from that time. Larger projects could take a couple years and the very large projects you could be into year four before you're finished recognizing the revenue. So again, it depends very much on which kind of contract we have. But you could sort of say within about three months you might start to recognize some revenue and then you might recognize, I don't know, a $50,000 to $75,000 a month for many of them over a period of time as the work gets done.

Got it. Thanks.

And with no questions left in the queue, I will turn the call back to management for any additional or closing remarks.

Just wanted to thank everybody for being on the call today. Tim and I will be presenting next week at the Wells Fargo conference in New York and Tim will be with Stifel Nicolaus in Chicago. So we hope to see many of you there and are otherwise always available to talk with you and respond to questions. We look forward to discussing full year 2011 results with you next quarter. Finally, again, I'll just close with thanking Tim for all of his hard work and the great relationship that he's allowed me to build with all of the investors and analysts out there, and we'll look forward to introducing Tony to you at that time. Thank you.

This does conclude today's conference. We thank you for your participation.