There are two ways a company can achieve growth: It can built it or buy it. Blackbaud (NASDAQ:BLKB) typically does a little bit of both, but its third-quarter report, which was released after markets closed on Wednesday, showed its prowess in buying growth. Acquisitions not only pushed revenue and earnings higher, but the company's most recently closed deal boosted full-year revenue outlook.

Blackbaud results: The raw numbers

 

Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Non-GAAP Revenue

$159.9 million

$146.2 million

3.5%

Non-GAAP Net Income

$17.7 million

$15.8 million

11.5%

Adjusted EPS

$0.38

$0.35

8.6%

Source: Blackbaud.

What happened with Blackbaud this quarter? 
Blackbaud reported a fairly solid quarter.

  • While Non-GAAP revenue, which makes an adjustment for acquisitions, only grew by 3.5%, it would have been higher if it weren't for the impact of foreign currency fluctuations. If currencies had held constant, revenue would have grown 5.5% year over year.
  • Driving revenue growth was a 20% increase in subscriptions revenue to $80.9 million, as well as the contribution from the company's MicroEdge acquisition last October.
  • Earnings grew by an even faster clip thanks in part to a 50 basis point improvement in the company's non-GAAP operating margin to 19.1%.
  • Cash flow from operations was $37.7 million.
  • Subsequent to the quarter's end, the company closed its acquisition of Smart Tuition for $187.8 million in cash.

What management had to say 
In commenting on the quarter, CEO Mike Gianoni said:

We continue to make solid progress as a company and are pleased with our revenue and profitability results for the quarter and year to date ... Our leading solutions, our transition to the cloud and our strategy of open and integrated products are resonating with the market.

The transition to a cloud-based solution has been an important one for the company because it helps to drive recurring revenue. Because of this, recurring revenue represented 75% of total revenue during the quarter, though that is down slightly from 75.9% just last quarter. Further, subscription-based revenue is now 50% of the total, up from just 4% a decade ago.

Looking forward 
With the recent closing of its acquisition of Smart Tuition, Blackbaud is updating its full-year guidance. The chart below details the changes to its guidance.

 

Updated Guidance

Prior Guidance

Non-GAAP revenue

$645.0 million to $653.0 million

$635.0 million to $645.0 million

Non-GAAP income from operations

$120.0 million to $124.0 million

$118.0 million to $122.0 million

Non-GAAP operating margin

18.6% to 19%

18.6% to 18.9%

Non-GAAP diluted EPS

$1.48 to $1.52

$1.47 to $1.53

Cash flow from operations

$115.0 million to $119.0 million

$115.0 million to $125.0 million

Source: Blackbaud.

It's worth pointing out that while the company does expect revenue to be higher than its previous guidance, earnings and cash flow will be lower. That's partially due to the extra expenses resulting from the Smart Tuition transaction as well as the impact it will have on the company's operating margin. Longer term, the company is working on its plan to increase its margin to 20.5% to 23.5% by 2017, so this isn't much of a concern.

Matt DiLallo owns shares of Blackbaud. The Motley Fool recommends Blackbaud. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.