Robert Weiner - IR Mike Gianoni - President and CEO Tony Boor - SVP, Finance and CFO.

Sterling Auty - JPMorgan Pete Wahlstrom - Morningstar James Gilman - Drexel Hamilton Jeff Meyers - Cobia Capital.

Good day, and welcome to the Blackbaud 2014 Third Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Robert Weiner. Please go ahead, sir..

Good morning, everyone. Thank you for joining us today for Blackbaud's 2014 third quarter conference call. Today, we will review our third quarter financial and operational results for 2014 and provide commentary on our recent acquisition of MicroEdge, as well as our progress toward achieving our goals for the full year.

We will also provide a brief update on the key points of our Investor Day, which we held about 45 days ago in New York. Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO; and Tony Boor, Blackbaud's Senior Vice President and CFO. Mike and Tony will make prepared comments, and then we will open up the call for your questions.

Please note that our comments 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 on the Investor Relations section of our website. During this call, we will be referring to both GAAP and non-GAAP financial measures. We believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure the business.

However, non-GAAP measures should not be considered in isolation from, or as a substitution for GAAP measures. A reconciliation of GAAP and non-GAAP results is included in the press release we issued last night, which is available on our Web site at www.blackbaud.com. Our team will continue to accessible to meet with investors in the coming months.

Beginning next week we will meet with investors in New York and Philadelphia. In December we plan to meet with investors in Atlanta, Kansas City and will present and participate at the Credit Suisse TMT Conference in Phoenix.

Please contact Investor Relations here at the Company if you’re interested in meeting with management in one of these locations. I am now pleased to turn the call over to Blackbaud’s President and CEO Mike Gianoni..

Thanks, Rob. Good morning, everyone. Thank you for joining our call today to report on our 2014 third quarter results. We are continuing to gain momentum in our organization which was the theme of our 2014 Investor Day.

At this Investor Day in September, we clearly communicated the Company’s five point growth strategy to find a large market to participate in and its specific growth dynamics. So taken together, these represent a compelling opportunity over the foreseeable future.

We believe the Company is at the beginning of a period of accelerating growth and increased profitability, which should drive consistent appreciation of enterprise value over the long term.

We’ll strive to report our progress towards our long-term aspirational financial goals which we announced on Investor Day in a plain speak, easily understandable manner, which we hope will resonate with members of the investment community as we execute on our strategy. Please review our investor day presentation, which can be found on our Web site.

I hope it will become a useful reference tool as we move forward with and execute against our strategies.

Our third quarter and year-to-date financial performance reflects a trend of increasing momentum in our business with increased reoccurring revenue, including subscription based revenue driven by solid traction in many of our solutions across the portfolio.

We continue to benefit from growth in a number of rapidly growing solutions including online, mobile, analytic and payments. License revenue continues to decline as a percentage of our overall revenue base as planned and we expect it to make up less than 2% of our overall revenue as we migrate our core edge products to the cloud.

Now let’s turn to a brief review of the financial results for the third quarter. Non-GAAP revenue was $146.2 million. Non-GAAP organic revenue growth was 7.3% over the third quarter of last year. Non-GAAP operating income was $27.2 million with non-GAAP net income of 15.8% and non-GAAP diluted earnings per share of $0.35.

We generated cash flow from operations of $40.4 million during the quarter. In the quarter, organic revenue growth for subscriptions was 15.9% and year-to-date it was 14.3%. Subscriptions revenue continues to accelerate driven by our core solution. Our growth in subscriptions on a GAAP basis was 28.8%.

Today with our third quarter organic revenue growth of 7.3% and our year-to-date organic revenue growth of 6.9%, we continue our trend of growing it higher than historic levels.

More importantly we’ve accelerated our organic growth rate from the second quarter of 2014 and believe the improvements we have made earlier this year to increase alignment, integrate product solutions and refine processes will continue to show results.

In the third quarter we continue to strengthen our operating platform for the long term and subsequently closed the MicroEdge acquisition on October 1. Specifically we made some very significant announcements for new products.

We announced that we are bringing our flagship products for the cloud with Raiser’s Edge NXT and Financial Edge NXT, which will be drivers the future growth. With the announcement of these product Blackbaud is offering an exciting path to the cloud for both our current and perspective customers.

The forthcoming Edge NXT solutions provide simple migration path to the cloud as the system architecture shows a common database enabling quick and seamless migration. This is a huge plus for our customers. In the third quarter, we also added new talent and capabilities to the team, with key additions in product development and marketing.

We continue to focus on operational improvement through the rollout of new internal systems, process improvements in further refinements. We implemented programs focused on operational excellence beginning in our products area and we plan to cascade these programs throughout all key functional areas of the company.

And we completed the previously acquisition of MicroEdge, which significantly expanded our total adjustable market or TAM. Most importantly this acquisition provided entry into a near adjacency of the market that was not historically a focus for the Company.

Blackbaud has historically been focused on the fund raising segment of the giving market and both MicroEdge and our recent acquisition of WhippleHill extend our TAM and bring us the new customers and market segments.

MicroEdge expands our TAM by over $635 million and WhippleHill expanded our addressable customer based in the K-12 market by three times from approximately 4,500 to nearly 15,000 potential customers. So early days in both of these markets. WhippleHill and MicroEdge are the first two acquisitions we’ve made that do not have fund raising solutions.

So they are true adjacent market expansions for us. This is very powerful for our Company and customers as we now can provide more comprehensive solutions to our expanded customer base with better integration and improved value propositions. For example, in the K-12 marketplace we now have a full suite of front and back office solutions.

This market has been asking for better integration and we have begun integrating the WhippleHill on office solutions with the Raiser’s Edge. Also we are leveraging our capabilities in the back office, in areas like engineering, sales, operations and finance to help accelerate growth in these businesses.

As an example, by the end of this year we will largely have all of the WhippleHill internal systems migrated on to our Blackbaud system. MicroEdge's CEO Chris Nims Grub has joined Blackbaud and will lead Blackbaud's Foundation and Corporate Markets, group reporting to Joe Moye President of our Enterprise Business unit.

We’re happy to have the MicroEdge employees join Blackbaud.

The acquisition has provided entry into the foundation, grant making and corporate market, where we had not previously participated and it also allows us to connect the entire giving community end to end; opening up the entire giving eco-system, from grant making to corporate social responsibility, foundation management and outcomes management.

This combination will let us connect the industry in a way that hasn’t happened. I’m very excited about the opportunity and our potential to take MicroEdge to the next level as a part of Blackbaud. Tony will comment on the funding of MicroEdge later in the call.

I'd now like to wrap my comment by turning to some exciting things that we’ve done as an organization to improve transparency and communication. For our Investors we held our 2014 Investor Day on September 12 in New York.

This event, which we expect to hold annually served as a catalyst for the Company as we clearly defined our future, our strategy and our focus on execution.

We hope that those of you who attended and participated over the webcast were able to clearly see the excitement we had about our future process, as well as the focus and alignment we have internally on executing our strategies and delivering on both 2014 and a long term aspirational financial goals.

And finally we held our annual customer conference three weeks ago. It was a very successful events where we discussed many of the things I mentioned with a focus on new innovation, including sharing detail on Raiser’s Edge NXT and Financial Edge NXT.

It was great to hear a room filled with a few thousands customers clap and cheer throughout parts of the presentation. We also provided a clear view into our plans for online platforms such as Luminate Online and Online Express.

Along with providing details on virtually every major product including Blackbaud CRF enterprise clients, key tapestry for the smaller less sophisticated nonprofit, Luminate CRM, and our payments processing platform.

And for the first time we highlighted our crowd fundraising solution EveryDayHero, which was quite popular in the Expo center, as it opens up new channel of donors for not profit and integrates with the Raiser’s Edge, providing nonprofits a direct to consumer channel and wider awareness at no additional cost.

These initiatives paint a new picture of Blackbaud. We're focused with greater alignment and energy and have very clear action plans and strategies to execute with focused resources and capabilities to mimic delivering performance. I'm very excited about our future and pleased with our progress thus far.

As I previously noted, we are increasing our momentum and resolve, which we expect will heighten and widen our competitive mode through experience, expertise, and innovation with a singular focus on the giving market and best serving our customers' needs. Thank you for your time this morning.

And now I’ll turn the call over to Tony to provide more detail about the third quarter performance.

Tony?.

Thanks, Mike and good morning, everyone. Thank you for joining us today to review our 2014 third quarter performance. Out third quarter performance was solid and expanded on our trend of acceleration. We continue to report strong results in our core products, with customers just beginning to embrace recent product upgrade.

I'm really excited about our recent announcements for the new Raiser's Edge and Financial Edge NXT products. We have accounted for the next NXT product launch in our expectations for 2015 and long-term aspirational goals for 2015 to 2017 that we shared at our Investor Day.

We expect the Raiser’s Edge and Financial Edge NXT solutions to become industry standards for product excellence and functionality, much like the current licensed version of these products have become and we’re very excited about the initial responses that we heard at our recent customer conference, bbcon.

Operationally, it was another solid quarter of progress for the Company. We made significant strides implementing our new best of breed automation systems and processes, which we detailed at our Investor Day.

You may recall that we've been speaking about maturing our business by implementing several new and innovating systems focused on streamlining and automating back office and operational process functionalities. We will complete many of the upgrades this year.

These new systems and processes will help us to become more efficient, while providing scalable platforms to support our future expected growth.

In all, we’re taking 24 disparate systems and/or manual processes down to six that will support the entire organization and will provide us the ability to layer on new and acquired assets seamlessly, as we're doing in the fourth quarter with WhippleHill. Now let's turn to the third quarter and year-to-date financial performance.

Non-GAAP gross margin as 57.9%, which continued to reflect the mix change resulting from increased year-over-year payment solutions revenue.

Our year-to-date non-GAAP gross margin edged down due to the presentation change for payments revenue, which was partially offset by improved maintenance margins resulting from our larger year-over-year contribution from BBCRM customers and leveraging our scale for efficiencies.

We continue to see the effects on gross margin from the change in presentation for our payments revenue from net to gross, which we made in last year’s fourth quarter. This is the last quarter that we will see that comparable impact.

The presentation change reduced non-GAAP gross margin by approximately 300 basis points in both the third quarter and year-to-date period. I'll remind you that this change is merely optical and does not affect gross margin dollars.

We generated non-GAAP operating income of $27.2 million, representing a non-GAAP operating margin of 18.6%, inclusive of our year-to-date 2014 incremental investments of $11.5 million. As a reminder, we previously announced that we expect to invest $17 million for the full year in 2014.

These investments are focused on four primary objectives; accelerating organic revenue growth, optimizing our product portfolio, accelerating our transformation to a recurring revenue company and increasing our long term operating efficiencies. Now let’s look at the balance sheet statement and cash flow.

We ended the third quarter with $54 million in cash. Our debt balance at the end of the third quarter was $171.1 million and when netted against cash on hand results in a net debt balance of $117.1 million. We generated $40.4 million in cash flow from operations and paid out $5.6 million for our quarterly dividend.

Now I'll discuss the integration of WhippleHill and acquisition funding of MicroEdge. In the third quarter we made very good progress relating to the integration of WhippleHill. We also began extensive planning for the acquisition of the MicroEdge business, which we completed on October 1st.

While MicroEdge is larger and more complex compared with WhippleHill, our integration programs will be leveraged to help integrate MicroEdge. We expect a contribution from MicroEdge business in Q4. As Mike mentioned, MicroEdge has become part of Blackbaud’s enterprise business unit.

To fund the acquisition, we drew down approximately $140 million of cash on our $250 million total revolving line of credit which we used together with approximately $20 million of cash on hand to pay the 160 million purchase price.

As a result of this draw, we had approximately $315 million of total outstanding indebtedness at the beginning of the fourth quarter. This represents approximately 2.4 times our annual EBITDA, which we are comfortable with and as well within our targeted range for debt levels.

I'd like to spend the balance of our time on the call this morning to cover two important points, our long-term operating margin improvement plan and our full year 2014 guidance. We are implementing that three year margin improvement plan that has several primary drivers.

As an aspirational goal we hope to achieve 300 to 600 basis points of operating margin improvement by the end of 2017. The most significant driver of the improvement is expected come from internally generated sources of as follows. First we expect to return significant returns from our 2014 investments in our sales and customers success teams.

We are already seeing a very solid initial return and the visibility for increasing returns is clear.

Second we will gain greater efficiency in operating leverage from our investments in and focus on operational excellence in all key functional areas of organization, and third we will improve the effectiveness and returns on our professional services business.

Additionally we will also benefit from external growth drivers coming from increased use and penetration of online payments analytics and mobile applications, as well as the overall market shift to the cloud and subscription based solutions.

As part of expecting operating margin improvement, we’ve been clear about our expectations for overall financial performance, both in the short term and over the longer term. At our Investor Day, which we held about a month and half ago, we released both our long term aspirational goals and commented on our financial guidance for 2014.

The operating margin improvement plan I just spoke about was one of those longer term aspirational goals and we also set long term organic revenue growth and aggregate cash flow goals for the period from now until the end of 2017.

As Mike mentioned, our Investor Day was designed to provide greater clarity, including a simple path to follow as we execute against our strategies, with clear goals tried to our objectives and mission. The beginning of 2014 is the start of our journey I am pleased to say that we are again increasing our full year financial guidance.

The increase reflects the addition of MicroEdge for the fourth quarter and solid overall year to date results and performance above previously expected growth.

Our updated 2014 revenue guidance is a range from $565 million to $570 million, which is an increase of $15 million to the midpoint of the range for the full year compared to the update we made it into the second quarter.

This update, together with the update we made into the second quarter represents $25 million increase in revenue to the midpoint of the range compared to our original guidance which we issued at the start of the year.

We are also updating our 2014 non-GAAP operating income guidance to $98 million to $102.5 million, which is nearly even with our 2013 non-GAAP operating income and is inclusive of the expected $17 million of incremental investment that we are making in 2014.

This updated goal represents an increase of 3.25 million for the midpoint of the range from our guidance we issued at the end of the second quarter and reflects expected continuing core business strength and the addition of recently acquired MicroEdge.

It also represents an operating income increase a $5.25 million to the midpoint of the range compare to our original guidance which we issued at the start of the year.

This translates to a non-GAAP operating margin of 17.3% to 18.0% and non-GAAP diluted earnings per share in the range of $1.25 to $1.29, which represents an increase of $0.06 to the midpoint in the range compared to our guidance we issued at the end of the second quarter.

We're very pleased with the increased momentum and traction that is driving our accelerated growth and enabling us to raise our guidance. I’d like to wrap up my remarks by saying that we remain focused, energized and committed to achieving our 2014 financial guidance and we are actively working toward achieving our long term aspirational goals.

We participate in a large growing and dynamic market and we’re well positioned to lead in areas of customer service, quality market leadership and performance. We’re excited by the strategies that we’ve developed but look forward to delivering increased value to our shareholders. With that we'd like to open up the line for your questions.

Operator?.

[Operator Instructions]. We’ll take our first question from [indiscernible].

I was just wondering if you could start with just a high level question here. You are less than a month off your user conference but certainly enough time to get some feedback from your clients.

What did you hear back from your customers regarding the expected transition to NXT? What were they most excited about, what were their biggest concerns and how do they think about the kind of a transition on pricing from their existing maintenance payment stream towards a subscription stream..

It's Mike. I would say that the response was even better than we expected.

It was -- people were really clapping and cheering in the room when we went through the product, the deliverables, the demos, the differences in the product, the new technology and the new architecture, the ease of migration, which is quite significant -- one of the challenges in this industry and others with these type of solutions as migrations can be painful, the exiting Raiser’s Edge to the Raiser’s Edge NXT and the same with Financial Edge NXT migrations are quite simple and quick and straightforward.

So the operational awareness of that and the product itself were went over extremely well We also are going a lot deeper around integration because we’re focused on solutions, not just single products and the bbcon or conference audience really understood that quite well and it was accepted quite well.

So we have a pretty high number of clients that have contacted us post that and we’re talking to them about migrations and timeframes and pricing as we speak. So I’d say it’s very, very positive..

Okay, great. Tony, let me throw the next question at you. Just in terms of the impact from MicroEdge it’s certainly wrapped into your numbers. You indicated $15 million revenue guidance increase relative to your last round of guidance and you beat by a little bit this quarter.

How much of that $15 million increase is related to MicroEdge and I guess part of that question is also trying to get a feel for how much we should be lifting our models next year associated with the MicroEdge impact? Thanks..

Thanks Tom. By the way we will be reporting our pro forma MicroEdge SEC numbers sometime around mid-December, I believe is the due date on that so watch for that. It’s coming. It will give you more granularity on MicroEdge.

But I would tell you, we don’t want to break that out separately from a guidance perspective, but overall as low to mid $30 million run rate business with margins that are accretive to current operating margins..

Great, okay so accretive even today?.

Yes, sir..

Okay and last question from me here is the payments business seems to be one even aside from just the net to gross move. You've put more emphasis in it this year. You’ve certainly seen some success.

Can you talk about the impact of payments as it pertained to your success in the last quarter? And if you could address the ALS Ice Bucket Challenge and what you were able do for that customer; I'd be curious to understand how that impacted the model in the quarter as well?.

Sure, this is Mike again. So payments, what’s interesting about the quarter I would say that -- I wouldn’t highlight necessarily payments. We had pretty strong revenue performance across the major product portfolio in general. Payments was strong but so was really everything else, and it was pretty evenly spread, which to me is really good news.

We do continue to focus on payments. We focus on lot of our products. I’ll add that the Blackbaud CRM pending 4.0 release had a fantastic response at our client conference as well and we continue to have good results again across the product portfolio. We’ll continue drive payments.

Related to ALS, that was - obviously it has been fantastic for that organization. I think now the numbers are in the same time period. Where they would have raised $5.5 million, they've raised $115 million. I think that’s roughly accurate. So for them it’s been fantastic.

Their online presence, which is where all that fundraising came through for the most part is one of our products is Luminate Online. And so we participated in that as far as being a solution provider, kind of behind the scenes. What was really clear to them and a lot of them our larger clients is our ability to scale.

Really unexpected pop in volume for them because that went viral as you all quite well know and we were able to support the volume in that really short time period and it really sort of was an interesting point for our larger clients that were able to scale as we continue to bring more innovation to the market which is really important for the big guy.

So we’re really happy that it all worked out well for that institution..

And Tom, just on numbers, our non-GAAP subscription growth was almost 21% in the quarter. Recurring subscription revenue growth was 16%. So to Mike’s point we grew really well with recurring subscription mix. That would be excluding usage and payments. And then usage grew very well, as did payment.

So we saw good growth kind of across the gambit on subscriptions in the quarter..

We’ll take our next question from..

It's Sterling Auty from JPMorgan.

On the margin front, at the Analyst Day when you outlined the 300 to 600 basis points of improvement, there was kind of a prolife I thought where year one, it would be down; year two, you kind of get back to breakeven; year three, improving as you did the rest of migration in terms of the customer base to the cloud? Has any of that changed? Because the way you described it today, I guess I was a little bit confused.

It almost sounded like you're expecting straight up into the right improvement over the next three years?.

Yes, this is Tony. I'm not -- we could circle back on the Investor Day presentation to try and dig into that a little more where you came away with that thought. I apologize if that's what you thought we articulated.

We would expect more so the latter what you just spoke about, that it would be an improvement upwards to the right over the next three years. So we’re not giving guidance yet for the next year.

I will do that in the next call but at this point I would expect you could see some improvements in '15, '16 and '17 to hopefully get us to that 300 to 600 by the end of 2017..

Thank you for that clarification. On the revenue growth, similar type of question. 7% growth [indiscernible]. Did you outline the aspirational goal of 10% organic growth? Is that similarly -- you expect a somewhat steady improvement from here and how do we think about what MicroEdge will contribute to that growth acceleration..

So we were -- that 6% to 10% was organic revenue growth. So for next year you would exclude the impact of WhippleHill and MicroEdge in that growth calculation. It wouldn’t be till the following -- after you pass that first full year that we’d include that in organic growth.

Our growth targeted that 6% to 10% over the next three years organic revenue growth would be inclusive of the RE and FE NXT shift and related impact.

So with that again, since we're not giving '15 guidance yet, I would expect some drag on revenue next year on growth rates as a result of that transition from what has historically been largely licensed maintenance, to a successfully cloud based subscription offer and ratable recognition.

That being said I think we still have a good opportunity to maintain a reasonable organic growth rate next year. And that then as you work through that migration -- obviously we expect that to ramp upwards to the right as we get to through that initial transition period.

But we’ve already seen quite a bit of transition if you recall because we've several of those RE clients now in subscription hosted kind of solutions as we do for Financial Edge and you can see this quarter the impact of that transition over the year. We have less than 2%, which I think is the first time ever that our revenue was in license fees.

So license is certainly a very, very small piece of the total pie nowadays..

Okay and then putting the two together, obviously you’ve made the investments and talked about the operational efficiencies, to keep margins improving towards that three year goal while having let’s say a pause in the revenue acceleration mix…..

I believe he just disconnected. [Operator Instruction] And we’ll take our next question from..

It’s Pete Wahlstrom calling from Morningstar. So you are about to lap the period of increased investments kind of in the next couple of quarters.

Given the recent sales momentum, is there a case for extending some of those elevated investments and maybe how are evaluating this option?.

So, I think as we alluded to, if you break the investments down into the four major bucket, I would say the place that there could be a likely opportunity, if we saw the right return on investment would be in the expansion of the sales of marketing investments. We’ve seen really good ramp up on those investments thus far this year.

We should start benefiting from the revenue side of those investments in Q4, because it was a fairly long period of time of getting the folks hired, getting them trained, getting their book of business built up et cetera and then most of what they are selling is subscription. So you wouldn’t see the revenue early on.

So we should start benefiting from that, Q4 of this year and certainly going into next. So I would say that's a place we’ll continue to focus on opportunities for sales expansion if we think it’s going to drive the proper return on investment.

The other place that I would there is some potential is in the customer success in retention areas that we’ve invested in. So as we shift more and more of the business to subscription based offerings, we're very keenly focused on ensuring our customers success and trying to hold retention level highs.

And so that would the other place if we’re seeing proper return on investment where we might continue to add but I don’t think you would hear us talk about those. I would assume that any investments along those lines would be more in line with the revenue growth and not so out of the ordinary as we have this year.

Most likely we would not be speaking to them as a big growth investment as we did this year..

Okay, and from an organic growth perspective in the quarter, as you are looking at it, across your customer segment, are you seeing particular success in maybe one sector vertical or either in ECBU or GMBU, maybe outperforming the other?.

No, I think we're seeing good growth and Mike can speak as well, but we’ve had really positive acceleration in the subscription line which is online and usage and payments and analytics as well, we’ve made a big push with Mike coming on board, much harder than we had historically of getting back to base with that broader suite of solutions instead of just a point solutions, and then integrating all of those products as well I think is having a positive impact.

The CRM product in the enterprise is done well. That's driving I believe about half of our maintenance growth, that base of CRM customers now getting up to enough breathe in size that it's starting to have an impact on -- positive impact on maintenance growth rates.

So that’s driving some of that growth there and I think the only place we see any real kind of stagnation would be in licenses because of the shift to subscription and then secondarily, processes [ph], because we’ve done two things largely bundle a lot of the services into subscription offers.

So you're getting a hit there with the ratable recognition. And then secondly we’ve done a great job I think on reducing the amount of service associated with the large enterprise CRM engagements and so that’s been relatively flat as you can see this year, which is a little bit drag on overall growth rate..

And I’ll just add. I think a key point to note is that last year license revenue was about 3% of our total and Tony mentioned on the second quarter it’s about 2% of our total. So when we talk about transition to the cloud, a high percentage of our revenue today is subscription revenue and the low to mid-40% of total is subscription.

And our recurring revenue on the third quarter in total was 72%.

So when you think about in those terms, this transition to the cloud, we’re talking about a few products inside of the Company, not the Company and if you’re look our subscription growth in the quarter, our GAAP subscription growth was almost 29%, 28.8%, and our non-GAAP subscription growth was almost 21%.

So I think those are key points to remember as we talk about transition to the cloud, because this transition started a while ago..

And we’ll take our next question from..

James Gilman of Drexel Hamilton. It seems that things are going quite well there in the Low Country.

My question for you is around basically if you were to continue to make maybe small tuck-in acquisitions, how do you prevent those from being disruptive to our operations as you seek to streamline them over the coming years?.

It’s a good question. So what's interesting about the two acquisitions we've made this year there; WhippleHill back in June was the first acquisition that the Company has made that is not fundraising software but a near adjacency. So quickly out of the gate, we have integrated some of their products with some of ours.

So for example we’ve got internally integration with Raiser’s Edge right now and that provides a really interesting value proposition for those K-12 clients in that we're providing solutions that cover sort of the front and back end.

So we’re able to go market with four, five, or six solutions as opposed to one or two in that marketplace and we’re operating those in a way that it’s exclusively focused on that K-12 market but leveraging the rest of Blackbaud.

So as an example we mentioned earlier on the call that by the end of this year we would have essentially shut off all of the internal WhippleHill systems and migrated them to our internal systems, yet they operate solely focused on that K-12 market.

So we get internal operating leverage while we still maintain a high focus on that vertical market, meaning it’s not that disruptive for us to do this..

Right. And I have a follow-up question just around -- really around technology as you move to the cloud.

As you've gone down this path here in transition to the cloud, how has the evolving technology within the cloud space assisted you or maybe helped improve your margin outlook?.

I’ll talk about the technology a bit. So what’s really interesting about when we talk about Raiser’s Edge NXT and Financial Edge NXT is that the underlying technology us a very modern high velocity platform for us.

And so our expectations are that we will move more and more of our products to what I would highly scalable new cloud technology at velocity. So I will use this specific example. We have a fantastic online product called Online Express. That’s been out for not long in the marketplace. We have several hundred clients on it and we are accelerating that.

It’s included with Raiser’s Edge NXT and that particular online product, that’s in that Raiser’s Edge NXT bundle is a very modern high velocity product. What I mean by high velocity is we put new functionality out in the market every week or every other week based on client needs and feedback.

So we’re able to move quite quickly and deploy new capabilities, whether it’s better integration or new functionality and be very nimble and we’ve done that with Raiser’s Edge NXT and Financial Edge NXT as well.

So we’re pretty excited about the underlying chassis if you will of the new platform for scalability and to drive innovation and to really be able to in a much quicker way and more nimble way meet our clients’ needs.

So we think over time that will be a significant competitive advantage for us, especially as we move to more and more integrated solutions..

[Operator Instruction] And we will take our next question from.

Jeff Marsh from Cobia Capital.

Just a housekeeping question? If you guys can just say what the payments revenue was this quarter than what it was a year ago?.

Jeff, this is Tony. We don’t break out payment separately in the P&L. You can get last year’s number from the workbook that we have posted on our website. So that would give you last year because of the accounting change presentation, change but we do not break out payment separately currently..

Yes okay.

What about like just in the terms of how fast they grew? Any sort of big picture?.

It was certainly a good quarter I think. We don’t give that specifically but I did note earlier on the call if you heard that, that are non-GAAP recurring subscription revenue grew at 16%..

Right..

And then between usage and payments, it would largely make up the rest of that total subscriptions bucket and that grew at a non-GAAP rate of about 21% almost. So like I said, payments and usage was growing at something north of this 16%..

And it appears we have no question in queue at this time. I will now like to turn the conference back over Mike Gianoni for any additional or closing remarks..

Thanks operator. Thanks everyone for calling in. We’re exciting about the Q3 and year to date results and really focused on executing our strategy which we communicated at Investor Day. So thanks everyone. Have a good day..

And this does conclude today’s conference call. Thank you all for your participation. You may now disconnect..