Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Blackbaud first quarter 2008 Earnings 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 questions. I would like to turn the conference over to Mr. Tim Williams, Chief Financial Officer of Blackbaud. Please go ahead, sir.

Thank you. Thank you very much. Good afternoon, everyone. Thank you for joining us today to review our first quarter 2008 results. With me on the call is, Marc Chardon, President and Chief Executive Officer. Marc and I will make a few prepared remarks, and then we will open up the call as we normally do for questions at the end. 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 our 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, let me turn the call over to Marc, and I will come back a little bit later and give you further details regarding our financials. Marc?

Thank you, Tim, and my thanks to all of you on the phone for joining us today. During the first quarter, the company delivered revenue growth and operating profitability that was in the upper half of our guidance ranges. Cash from operations was also strong. We were pleased with this growth and our overall financial performance considering the more challenging macroeconomic environment in which we're currently operating. During the first quarter, we made excellent progress in several areas of our business. First, our international operations continued their strong growth. Second, we expended our addressable market opportunity with the latest release of NetCommunity that runs independent of the Raiser's Edge. And finally our enterprise CRM offering continued to attract expanded and significant interest from very large and complex non-profit organizations. As we will discuss more detail, we have slightly adjusted the high-end of our expectations for the year. That said, we believe that Blackbaud's large customer base, broad and deep suite of solutions, domain expertise and a set of new growth initiatives position the company well for long-term growth. Moreover, we believe these factors coupled with our overall business model will help Blackbaud deliver revenue growth, impressive operating margins and strong cash flow in 2008 despite the current business climate. Throughout the year we will continue to invest in our products and services with a particular focus on the new product initiatives. We continue to believe we have a competitive advantage in important growth segments of non-profit market upon which we can build farther, and as I have said before, I believe that the overall market opportunity we're addressing continues to remain largely under penetrated. Now, let me turn to the details of our first quarter performance. Total revenue of $69.4 million grew 26% on a year-over-year basis and was in…

Thanks, Marc. Let me provide some details first on the first quarter operating results then update our guidance and finish with a very quick review of our capital management program. First let's start with some highlights from the income statement. Total revenue came in at $69.4 million, which was up 26% on a year-over-year basis, and was in the upper half of our $68 million to $70 million guidance range. License revenue was $9.6 million, an increase of 19% year-over-year, and as a reminder this growth in this particular revenue component is all organic, as both eTapestry and Target contribute virtually nothing to the software licensing revenue line. Subscription revenue was $8.8 million in the first quarter, an increase of 83% on a year-over-year basis. Subscription revenue continues to represent the fastest growing portion of our business and an increase to 13% of our total revenue in the first quarter, up from 9% in the same period a year ago. Even without the contribution from Target and eTap, subscriptions revenue would have increased by 39% on a year-over-year basis. Our services revenue came in at $23.6 million during the first quarter, an increase of 29% on a year-over-year basis, while our maintenance revenue came in at $25.4 million, an increase of 13% on a year-over-year basis. On a purely organic basis, growth in services and maintenance would have been 24% and 12% respectively. We continue to enjoy maintenance renewal rates in the mid-90s range, which is a testament to our customer satisfaction and the strength of our technology. Turning to gross profit, we generated $44.1 million in non-GAAP gross profit in the quarter, representing a gross margin of approximately 63%. On a quarter-to-quarter basis, gross margins tend to be seasonal as a result of the seasonality of our revenue sources.…

(Operator Instructions). We'll take our first question from Philip Rueppel with Wachovia Securities.

Questions on the current economic environment. Can you give us a little more color as to what's changed versus three months ago? Are your customers being a little bit more cautious? Is it really just lengthening of sales cycles or is there anything else, in terms of their worries about fundraising? And as part of that, are you seeing any particular caution in any segments, whether it is the low end, mid-range, or however, you would like to characterize the different segments you plan? Thanks.

Questions on the current economic environment. Can you give us a little more color as to what's changed versus three months ago? Are your customers being a little bit more cautious? Is it really just lengthening of sales cycles or is there anything else, in terms of their worries about fundraising? And as part of that, are you seeing any particular caution in any segments, whether it is the low end, mid-range, or however, you would like to characterize the different segments you plan? Thanks.

We have a lot of different verticals, as you can tell from literature and also from what happens typically in the market, some of them are more sensitive to economics than others. So at one end we're seeing very little impact if any in the higher education space, and another end of the spectrum arts and cultural is often impacted more quickly in an economic downturn, because donors feel that their funds can be better used in other directions. So this isn't really any different in that perspective than our previous downturns. We're not seeing the dramatic shift in anything like competitive response. We're just seeing sort of cycle lengthening, and if we're seeing any difference in the sales cycle at all, it is in the core when we're seeing a little bit of probably a certain amount more of finance or board intervention on a financial perspective and sort of looking for deeper ROI thinking and so on. That being said, on the international front, we're really seeing a very little of impact on that. Those are sort of the ways that I would describe the variable nature of the impact of what we're seeing, how it varies through the best and worse.

Great, that's helpful. And then just kind of drilling down a little bit more on the eCRM business, you mentioned that the implementations were proceeding as planned. Has there been any changes you had to make to the product, anything that would have caused you to be a little more cautious on driving sales in the current quarter? Or are we just experiencing, as you said, the typical lumpiness that's going to take place when you only have a few deals that could close each quarter? Thanks.

Great, that's helpful. And then just kind of drilling down a little bit more on the eCRM business, you mentioned that the implementations were proceeding as planned. Has there been any changes you had to make to the product, anything that would have caused you to be a little more cautious on driving sales in the current quarter? Or are we just experiencing, as you said, the typical lumpiness that's going to take place when you only have a few deals that could close each quarter? Thanks.

Absolutely, no change in the product road map that impacted our selling plan. There are two things that impact the selling plan, the customer's desired purchases, and it turns out that no customer who is buying wanted to buy in Q1, and that has to do with budget cycles and when to keep the best time is to start implementation. We are investing more heavily in features and shifting a little resources of towards the eCRM an engineering team for features for the higher education sector report the faith-based sector where demand seems quite sustained. And so the most important thing is we don't want to sell projects that will start before a full team with experienced people is in place to make the project successful. And so our next project team coming off an implementation will be the [Happer] team in the early second half of the year. And that will split in to a couple of teams, and then you'll be able to see the implementation go on like that. And I feel very comfortable that we're exactly on the track that we had in our plan for eCRM.

Okay, thanks. That's it for me.

Thank you, Phil.

We'll take our next question from John Neff with William Blair.

Hey, guys, good afternoon.

Hey, John.

Marc, you had mentioned that international to this point has been all organic, and has not included Target and eTapestry. When do you imagine that Target and eTapestry would start to contribute to international expansion?

Well, there are three different parts there. The Target Software, I believe we'll see our first international eCRM deal, which really is the combined road map for a team approach and eCRM. We'll see that first deal in this calendar year. So that I would believe is a contribution because it will be a Target like, one of them is a Target like customer of the two potential ones that might come in. So the second is Target Analysis, and we're starting to see interest in building business for the analytics business, especially the benchmarking side of the business outside both in the UK and Australia. We don't do much analytics at all in some of the other countries, because the data privacy laws are such that getting data sources is harder. That's going to be a slower burn, and we're doing pilots with eTapestry in Spanish language right now. We've gone through the first mini pilot, and we're thinking about that in the second half of the year. So I would be pretty comfortable saying I will be able to give you a good sense of where those growth plans look like at the end of this calendar year.

That's great. And then couldn't help, I notice you mentioned eCRM as a potentially $500 million revenue opportunity in a few years. Do you mean actual revenue is that an addressable market size or is that actual revenue contribution?

Well, I said over several years, so it is not a single year number as much as I wish it were. No. What it basically is taking the installed base in the higher education market, which typically is 15 to 20 plus years old at this point in time. And there is a significant technology shift, and if you take each of the top 250 schools and say the average deal is about $2 million plus deal for those schools and that most of them will be making decisions in the next five to seven years, that's where the number comes from.

Okay. That is helpful. And quick question, housekeeping. Could you talk about the number of employees you have at the end of this quarter, may be compared to the prior quarter a year ago, if you happen to have that handy?

We're going to look that one up, and if it doesn't come in a second or two we will answer it in a couple of minutes.

Okay, thanks very much.

Thank you, John.

We'll take our next question from Ross MacMillan with Jefferies & Company. Ross MacMillan - Jefferies & Company: Thank you, so on the eCRM in the higher education segment, what is DSR doing as a competitive to reaction to what appears to be really good success for you guys in that segment? That's the first question, and then secondly, when you think about decoupled NetCommunity, what are you doing in the sales organization to basically may be find incremental growth outside, how it was positioned before as it was tied to Raiser's Edge? Thanks.

I don't typically comment on the competitive strategy or positioning of a specific competitor. So what I can say is that the customers and prospects we're discussing in the higher ed space view the technology we have is being something that, it provides them a platform for the future, and if they are choosing us, I am going to assume they are choosing it because they believe it is the best platform for the future. In some senses it is not interesting, because they're making a bet on early technology in order to get a robust future platform, and we don't see much change in how these cycles have gone from the very first one to the ones that we're doing now. That's how we observe the competitive environment for higher ed. In terms of BBNC Universal, we're going to start again relatively slowly at this high-end of the market. So somewhat similar to the way we started to roll out DM or eCRM. The first customer was a team approach customer who chose to look for a higher level of integration, and some of the benefits that the Infinity-based BBNC Universal provided. So, we will continue to look at other team approach customers who might be interested in that higher level of integration. And then you'll see other customers of a similar type to those kinds of customers. And they'll be handled by our enterprise sales force and a specialized sales team inside the Blackbaud interactive business unit. Ross MacMillan - Jefferies & Company: That's great, may be just one very last one. Can you remind us on eCRM deals the choice of the customer has that allows to you recognize revenue ratably. If you can just go through the different types of contract we can see there, that would be great. Thank you.

Basically contracts can fall in to any one of four different categories, three of which would produce ratable revenue recognition. One would be what we call a smart license, which generally will just provide for license fee to be paid over several quarters, typically would probably be twelve quarters. But as you know, we haven't had that many deals that have been done at this point in time. Obviously, we could also have a SAS type license in which the product will just simply be delivered as a service fee of the web, and the customer would pay a subscription and that would result in ratable recognition. And finally we could even at this early stage still have situations in which the customer is interested in a specific piece of functionality or capability in the product that we would not have presently available in the product, and therefore might be only be willing to contract for a future deliverable or want us to do some specific funded development, either one of which would result in the late recognition or potentially even some ratable recognition. So hopefully that addresses your question, Ross. Ross MacMillan - Jefferies & Company: That's great. Thank you.

Let me just answer the headcount question that came up earlier. In Q1 of 2007 we had an average head count of 1,410 roughly. Now, I will remind you that there were two missing weeks of Target in that average, so two missing weeks of 200 people, and that eTapestry was not in that average. You sort of add those back, it might have looked like 1,530 or so. The Q4 average number was 1,655, the average for Q4. Our average number in Q1 of 2008 was 1,670, so approximately 15 average incremental heads relative to Q4 of last year. Next question?

We'll take our next question from Tom Roderick with Thomas Weisel Partners.

Hey, Marc, hey, Tim, good afternoon.

Hey, Tom.

I wanted to follow-up on your pipeline comment from earlier. I think you indicated the pipeline is up 20% year-over-year. So obviously, you're building up what's in the pipeline pretty robustly. Can you talk about the capacity in the sales force? I think relative to adding 15 heads in the quarter, I am not sure if you've aggressively begun to add headcount or what your plans are for that. Can you talk about that pipeline build with respect to where the sales headcount is and where you would like to see that go?

Yes. As I have said before, we're not planning on adding headcount in the sales organization other than very judiciously. We'll see a slight uptick in sales headcount in international, but very modest. And a couple of salespeople for things like the internet business and so on. But this Q1 we had an average of about 165 heads on average, and in Q4 we had 162 heads on average. So it is really a net two or three people.

Importantly, Tom, those are quota-carrying heads.

Quota-carrying heads. And we feel very comfortable with that, the sales capacity is there, and I remember ASP is continue to go up, so the number of units isn't growing as fast as the dollar number grows. And you're seeing an incremental sales efficiency that I talked about in several calls over the past few years, and we had an improvement of efficiency last year, and we expect to see that improvement again this year.

Tom, the only thing I would add to that is, if you just look at our sales and marketing expense line, actually as a percent of revenue partly to what Marc said, we did show a little bit over a percentage point improvement there, so that's part of what we are trying to get here a little bit.

Okay. And just I want to follow-up on your earlier comments regarding a little bit of a slowdown in the overall economy and I think everybody is feeling it out there. Can you point to any specific sub-segments of the nonprofit market that you're seeing a slowdown in, whether it is a slowdown in their spent or where their dollars are coming from a giving standpoint? Any particulars that you can point to from a weakness standpoint, any particulars you can point to from a strength standpoint?

The strongest sectors remain the higher education spaces, international and the faith-based sectors. They seem to be going on exactly the trajectory we would have thought they would have gone pretty much relative to before any thinking about economic slowdown. And the rest is relatively evenly spread out, the caution doesn't really stand out anywhere with the possible exception of higher level of caution in the arts and cultural customers, so people who buy ticketing for museums, aquariums and so on. That's really the range. This is a really three sectors that are pretty strong, several that are sort of generically a little bit more cautious, and perhaps a sector that's slightly more cautious than that.

Great, very good, that's it for me. I will turn it over to others. Thank you and nice job.

Thank you very much.

Thanks, Tom.

(Operator Instructions). We will take our next question from Robert Stimson with W.R. Hambrecht.

Good afternoon, Marc. How are you doing, Tim? A couple of quick questions, I want to drill down a little bit. One of the questions was you tweaked the consensus guidance number on your Q2 revenue number, but you pretty much kept the EPS line pretty much in line with consensus thinking. So the question is what are you thinking on the margin side? Are we actually getting above the 24.5%? And if you follow-up with that, you actually widen the range on your non-GAAP annual operating income, $72 million to $77 million, which is a wider range than you gave last quarter of $73 million to $76 million. Is there a margin pickup that you're seeing or can you maybe just give us some color on that? And I have one quick follow-up.

Good afternoon, Marc. How are you doing, Tim? A couple of quick questions, I want to drill down a little bit. One of the questions was you tweaked the consensus guidance number on your Q2 revenue number, but you pretty much kept the EPS line pretty much in line with consensus thinking. So the question is what are you thinking on the margin side? Are we actually getting above the 24.5%? And if you follow-up with that, you actually widen the range on your non-GAAP annual operating income, $72 million to $77 million, which is a wider range than you gave last quarter of $73 million to $76 million. Is there a margin pickup that you're seeing or can you maybe just give us some color on that? And I have one quick follow-up.

I would say on margins, Bob, what we're really trying to do is manage the business in a way that allows us to achieve for the full year some margin improvement. I think we've said repeatedly that for the full year we're trying to manage this in a way that we get some modest margin improvement as we also, though, continue to make investments. And we do feel it is important to continue to make those investments, but in light of what we're seeing on the top line, we're being a little more selective on that, as you would expect. But we are striving pretty hard in our thinking to achieve those margins that we've targeted at the end of the year. The other thing that I would tell you on the EPS side to keep in mind is that, rather what I guess I would characterize is pretty robust activities around share repurchases both for the first quarter and since then probably are going to add in terms of EPS a little over $0.015 to our earnings per share, and I think a little less than $0.01 as you think about the second quarter.

Okay. So, one of my competitors went out with a pretty gloom and doom downgrade scenario pushing the stock down pretty hard. Do you think that gloom and doom scenario is really playing out in the marketplace? Or is it kind of just some tweaking with sales cycle, people being a little bit more cautious because of the economic environment, but you can more than able to make up that shortfall from a revenue standpoint and EPS? Is that a fair assessment of kind of how you see the market right now and the gloom and doom scenario didn't really play out?

I would never allow myself to discuss, this is the comments of any of your competitors, but I don't see gloom and doom. I see 15% to 17% growth. As you know relatively high percentage of our business is pretty visible pretty far out. I feel quite comfortable that we have a lot of opportunity in front of us, and I feel like there as a certain amount of caution in the market. But I do believe this is a sector that is less impacted on average than most other sectors by the economic downturn, and I don't see anything that changes in that opinion.

And just real quick, I'm sorry, I'm taking too much time, but, Tim, you gave 28% year-over-year deferred revenue growth. How do I reconcile that 28% to kind of your 18% year-over-year revenue growth? Obviously, you're getting some pickups and maintenance from eTapestry and from Target, but wouldn't that be kind of a better leading indicator for where your revenue growth could go? And that's my last question. Thank you.

Bob, I think one of the biggest factors that we've got in the big deferred revenue jump quarter-over-quarter was, as I think I alluded to in my prepared remarks, you do have eTapestry in the balance sheet deferred revenue number at the end of Q1 2008 and nothing in there for them in 2007, and in point of fact their business is all subscription based, so they're a pretty sizable contributor. When you analyze the rest of the pieces of deferred revenue, they move between Q1 and from Q4, pretty much in line with what we've seen in the past. So, I wouldn't make anything more of that movement in deferred revenue at this point.

Great. Thanks a lot. Good quarter.

Thank you.

Thank you. That concludes the question and answer session today. At this time, Mr. Williams, I would like to turn the conference back to you for any additional or closing remarks.

Okay. I will only say thank you to all of you for participating in the call. We will be doing a little bit of meetings on the road over the next several weeks. So, some of you we will no doubt see and look forward to meeting you then. Thank you for your continued support in the company. We will talk with you soon.

Thank you very much. Goodbye now.

That does conclude today's conference. We appreciate your participation. You may now disconnect.