Good afternoon, ladies and gentlemen. Thank you for standing by. We would like to welcome you to this Blackbaud third quarter 2008 Earnings Call. Please take note that today's call is being recorded. (Operator Instructions) I would now like to turn the conference over to Mr. Tim Williams, Chief Financial Officer of Blackbaud. Please go ahead.

Thank you very much. Good afternoon, everyone. Thank you for joining us today to review our third quarter 2008 results. With me on the call today 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 for questions. Please note 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 into the Securities Act of 1934 for more information on these risks and uncertainties and on the limitations that apply to our forward-looking statements. Also please note that a webcast of today's call will be available in the Investor Relations section of our website. With that, I'd like to turn the call over to Marc and I'll come back a little bit later to give some further details regarding our financial situation.

Thank you, Tim, and my thanks to all of you on the phones for joining us today to review our third quarter financial results, which were in line with or above our expectations. In spite of the significant deterioration of the economic environment in the last month of the quarter, the resiliency of the company's performance is a testament to Blackbaud's strong market position, attractive business model and the high level of execution shown by our employees and our management team. Now, these factors will enable Blackbaud to continue delivering solid profitability and cash flow during the challenging period we see ahead. Taking a look at our numbers, non-GAAP total revenue was $82 7 million after adding back the deferred revenue write-off associated with the recent acquisition of Kintera. Q3 revenue was up 22% on a year-over-year basis and was within our guidance range. A combination of organic growth and the acquisition of Kintera drove subscription revenue to $16.2 million, which is up 129% year-over-year. Subscription revenue was not only larger than our license revenue for the first time in the company’s history but it was nearly twice as large. The increasing mix of subscription revenue further improves our quarter-to-quarter revenue visibility and predictability. We've been stressing repeatedly over the past several quarters that you cannot look solely at license revenue as an indicator of what's happening with our solution sales. Subscription type offerings are increasing as a percentage of the mix. On an organic basis, which is to say without Kintera, subscription and software licensing revenue combined grew 16 % approximately, year-over-year in the quarter, which I believe is pretty good in this market. That said, license revenue came in at $8.1 million, which is down 5% year-over-year. This revenue line item more than any other reflects the negative…

Thanks Mark. Let me begin by providing some details on our third quarter operating results and then I will update our guidance and close with a very quick review of our capital management program. First, let me start with the income statement. As a reminder, due to the larger than expected deferred revenue write down associated with the Kintera acquisition, we mentioned on our last call that we will report non-GAAP revenue beginning with this quarter through the end of 2009. We believe adding back to deferred revenue write-down is the only way to provide shareholders, meaningful comparability of our top line results for the next couple of years, and it's most meaningful measure of our corporate performance. Also to be clear, all non-GAAP expense and profitability percentages will be based off our non-GAAP revenue total. With that said, total non-GAAP revenue as you heard earlier came in at $82.7 million, Kintera contributed approximately $10 million to this amount, including $2.6 million associated with the deferred revenue add back. This total non-GAAP revenue figure was up 22% on a year-over-year basis and was within our $82.5 million to $84.5 million guidance range. While we have started the process of aggressively integrating parts of the Kintera business with Blackbaud, we estimate that Blackbaud standalone total revenue would have grown approximately 7% on a year-over-year basis. This level is down from the recent past, due solely to the difficult economic environment, which is beyond our control. While our optimism for the long-term remains unshaken, we believe it is prudent to expect more modest top line growth, as long as the economic environment remains uncertain and challenging, which as Marc pointed out, we believe will be the case throughout 2009. Looking at the details of our total revenue, non-GAAP subscription revenue was $16.2…

Thank you. (Operator Instructions) Philip Rueppel with Wachovia has our first question.

Yes, thanks very much. It seems that you drilled down a little bit into some of the sub segment regarding the environment in the past. Has there been any change in looking at higher Ed versus cultural institutions and as you look into 09, do you sense any -- are there any segments that will be kind of the first to lead us out that we could look at as signs of kind of the recovery?

There's not been a significant change; frankly, I don't think that you'll see any particular sector leading us out. I don't know of a reason why there would be a forward, sort of a leading indicator in terms of effect. I would think that endowment based sectors in as much as they're touched are going to come out a little later than sectors that are based on peoples need and demand for social services. And typically I think you see the arts and cultural sector recover sort of later than some of the other ones, but I would also say that the market, this particular market environment is dramatically, I think different and worse than any of the ones we've got really good, getting data on in the past 40 years. I mean, I don't think that we've lived through anything look quite like this, so I'm not sure that there's a depth of data for a comparable market difficulty.

Also you had mentioned you haven't seen any decline in the core maintenance renewal rates. Are we coming up to a period where you start to see more maintenance renewal contracts go out the door and it' s something that you're a little bit more worried about as we enter into 2009?

Good question, Phil. When we look at maintenance renewals, our heaviest maintenance renewals clearly occur in the middle of the year. We do have a traditional spike also at the end of the year but not nearly as significant as what we tend to see around the June 30 date. We haven't started to see anything at this time with those maintenance renewal rates and frankly, I can't speculate if it will happen but in prior difficult times even though there were not anything like what we see right now, we haven't seen any change in renewal rates by our customers. And we feel like we've got a very strong value proposition and a best-in-class service, all of our indicators about how our customers feel about what we're providing has been positive. So, at this point no change in our thinking there.

Great. Then one final clarification. You had mentioned that the two ECRM deals booked during the quarter, there were no license revenues. Are those going to be accounted for on a ratable basis or at least in a longer term kind of arrangement similar to the ECRM deals you had booked prior in the year?

Yes, we had two deals. One will be ratable, which will be under contract accounting. The other one which is a SAS offering is going to await deployment of the product. I was thinking about the one that was sold in October. Marc correctly pointed out, the two that we're talking about are ratable recognition.

Great. Thanks very much.

Our next question now comes from John Neff with William Blair.

Hi, thank you. Kind of get back to the whole environment question, but Marc, could you maybe address the perception at least versus the reality or maybe the perception is accurate of the non-profit sectors being, call it higher beta than the core profit sector? More volatility or less volatility?

Well John, I still believe that there is less volatility in the non-profit sector than there is in the core profit sector. I do see that and we've been able to predict on a quarter-over-quarter basis relatively well what's going to happen and how we’ve been. However, I think, what we see is that some of the sector is sort of similar like, as I said that the arts and cultural sector and other parts are relatively insulated. But even now, compared to what the full economy is feeling, the data that the giving institutes or other organizations have show that the decrease even in recessionary times is lower than what happens in the rest of the recession. That is as far as all of the data we have, both the quarterly data we do and on direct marketing as well as the data that external groups have. I’ll tell you that the sources of income are declining somewhat less dramatically than people might expect given the impact of the stock market, the devaluation of sort of the financial assets that are involved. That being said, this is the worst downturn than the other ones that have happened since that data started getting collected in the early 60s.

And could you can compare and contrast the environment as its impacting non-profits in the US and sales in the US versus rest of world, given how strongly you're doing rest of world?

Well, I've just spent a week with customers in the UK, and they are nervous looking at the financial markets, but I do think that, they feel somewhat less nervous than what I've seen in the United States. They are also more dependent on periodic giving in the UK. So, people who give on a monthly basis from the direct debit, environment on relatively smaller volumes. And so, there's a broader base of supporters on average for the average non-profit in the UK, and they've seen less impact in these small donations than you might have thought. There are surveys that we've done, say people might not take a vacation, but they are going to continue to give their two pounds a month to their favorite charities. So, that's the impact of that has been charities have been doubling down on keeping those people informed and on continuing to keep them involved because it's their sense of belonging to the cause that keeps them giving that 2 or 5 or 10 pounds a month.

I guess that's a good thing. Is there, in an economic downturn, talk about the effect between say the Raiser's Edge type fund raising activities versus target companies type fund raising in terms sort of direct marketing, etcetera? What sort of fund raising mix that customers look to employ?

Good question, John. I wouldn't think of it as target or Raiser's Edge specifically. The real difference is that, the tougher the environment, the harder it is to get new donors and so, getting new donors by list acquisition is a little harder than reactivating existing donors and getting new major givers, is a little harder than getting major givers that exist, that you've got relationships with to step up. So, what you see is in the target business for example, there's a higher request for things like scoring and modeling in order to help identify the donor population, how you get a little more out of your existing donor population, and you might see a little less purchasing of acquisition, less direct marketing; less trying to figure out how to have big events to try to bring new people into the major giving pool. The primary reservoir of revenue for these organizations is going back to their committed base to have them understand that the need is bigger and sometimes they are willing to reach down deeper into their pockets.

Okay. And then last question again, Marc, if you could. You had mentioned Kintera had a renewal rate boost with existing customers post acquisition. I think you also mentioned an up sell boost, a little bit more color there? Thank you.

Thank you, John. We don't, we aren't giving specific numbers about renewal rates for Kintera. But what happens is you get towards the end of a contract and there will be a decision about whether you add additional functionality, additional modules, whether you are interested having a higher volume of contract commitments. So, those kinds of things of what we see. I gave the example in my prepared remarks of a couple of organizations that had renewed at a higher level than we previously had contracted with them. That again is about how do you continue to cultivate an expanded number of people as your mailing lists grow and as your need to get back to the base of people who are supporting that growth. That's where those contracts typically increase. More and more that means that people are doubling down on the relationship building tools that they have, and that's true for online tools as well as sort of traditional channels and to the Sphere product, which really provides a big chunk of that online as well as the BB&C product. We just saw our first deal, for example, where you have both of them together and where you have the best of the added sort of the event functionality that the sphere product, produces for the customer to the cultivation because they are trying to reach a broader set of people in their already existing supporter base and identify them and connect them back to their existing base. So, that's the kind of thing that happens in this environment as we are observing.

Moving on to our next question from Tom Roderick with Thomas Weisel Partners.

Hi, guys. This is Chris Cohen, in for Tom Roderick this afternoon.

Hello, Chris.

Hi, how are you?

So, far so good.

Good to hear. Good job on the operating expense line this quarter. And that does bring up the question of ball parking on the guidance for Q4, it looks like you are implying operating margin in Q4 in the 20% range or so. Given that you guys have done a pretty good job this quarter, is there reason that we should expect that not to continue from a profitability standpoint?

Actually, great question, Chris. If you look at the company historically and you sort of look Q4 versus Q3, it's been pretty common for us to see a sequential decline in our profitability between those two quarters. If you look back at Q4 2006, for example, it was about an 11 % decrease compared with Q3. Q2 or Q4 last year, the decline was less significant but we sort of had a blowout quarter from a sales standpoint and from a licensing revenue standpoint. The truth is that when you look at Q4 this year and sort of consistent with prior years there are a number of things that do drive our costs up a bit in Q4. Number one we do our annual customer conference occurs in Q4 and that is a sizeable investment for us. I am sure you can understand. We will have a full quarter and there were some planned cost increases in the quarter related to Kintera, which we had planned for all along. In addition you head us talk on the call about selective investment in so far as investing in various initiatives. So we have selectively added some hedge. There were probably a few more that will be added that will support those initiatives. And then finally one of the things that we talked about in prior quarters is the Iowa transaction and that particular transaction will all be recognized in the fourth quarter. There have been some costs deferred related to that, both selling costs and delivery costs, services costs, which will get picked up this quarter. So all of that factors into the increase that you're seeing in Q3 versus Q4.

Great. That's very helpful, Tim, thank you. Then a similar question but as far as on the pipeline, you had mentioned that eTapestry was doing quite well. Given, what I would expect to be some cost sensitivity on the part, in the face of kind of uncertainty given the revenue expectations, is there any potential per say somebody who may have been looking at Raiser's Edge instead going, uptick eTapestry instead? And then you had mentioned you were targeting mid size non-profits with Enterprise CRM. I had been under the impression that that was the larger scale, non-profit Target. Is that something that you guys are newly strategizing or did I just miss that earlier as far as the Target for Enterprise CRM?

So, to take the two parts of your question, I do believe that we've seen some very smallest potential Raiser's Edge customers choose to go with eTapestry. It's become a Blackbaud offering and there is an overlap between the two of them. Certainly, we have sort of a 0% financing offer for the Raiser's Edge, which spreads the payments out over a three year period which helps get rid of the up front cost and we had some modest interest in that but not a huge interest, sort of actually in the economic environment, a little bit surprising. I would have thought we might have seen a larger uptick. So I gather from that that the upfront cost of buying a license versus a subscription is material. Essentially its a the very smaller part of the market and we’ve seen some indication that people are moving towards eTapestry for that. But in the middle portion of the market and by that I mean the core the traditional Raiser's Edge customer size, I don't see a huge move in that direction despite an offering that was actually relatively attractive. So from that I wonder if the people are wanting to spread everything out over three years some portion and have the money in hand and just want to get it done and not have to worry about paying it over a period of time. That being said, so that was the first part of your question. I may have been imprecise in talking about the midsize for ECRM. When I'm saying for ECRM midsize it means how do you get it down below a $1 million? When I look at Southern Methodist I’d say that's almost a midsize deal and our question is how do we package that sort of not a major University but good-sized University, how do you package that and make that more accessible to that same size school on a more sort of repeatable basis and a more packaged environment. And so that's what I meant. Its sort of the very high end of the Raiser's Edge, sort of the 100,000 software’s and $400 thousand deals, that to me is sort of a midsize deal, I guess I mis-spoke a small size deal for the ECRM market.

Great. Thanks for the clarification Marc.

Well thanks for bringing that up because I obviously didn't make it very clear to everybody.

We'll now move on to WR Hambrecht & Company’s Lawrence Petrone Lawrence Petrone - WR Hambrecht & Co: Hi good afternoon everyone.

Good afternoon Lawrence Lawrence Petrone - WR Hambrecht & Co: Marc just to kind of extend that conversation out a little bit on the sales experience you've had over the last couple of months, I'm wondering what changes if any you've seen in terms of the sales cycle, particularly for your license products and/or ECRM. Now, that you've got more offerings and more possibilities that you can offer clients than you did for example, at the beginning of the year. Does that help your sales folks in terms of going into potential clients to give them a cheaper option, if they don't want to extend a lot of capital up front? Just and again, I'm thinking more in the last couple of months in particular.

Well, to be clear, there's not been a change in the offering since the beginning of the year. We acquired eTapestry in August of last year and we've had this Team Approach offering and the ECRM offering since the early part of last year. So, the portfolio of fund raising offerings other than adding sphere to the mix on the online side has stayed the same throughout this period. And as I said, I've seen a modest shift in the low-end of the Raiser's Edge business towards our eTapestry offering. And we've seen a modest shift at the high-end of our Raiser's Edge business towards the ECRM offering. Both of those offerings are doing quite well. And so, I think that we're going to continue to see some of that growth over time, but what I find is in the middle of the market, I have not seen that same movement towards a SAS offering or a subscription based offering because we have a subscription, we have a hosted offering and we have a financing option. As to the change of the sales cycle itself, in the middle of the market is the place, where the sales cycle has changed the most, where you have actually seen, sort of the finance function or the Board itself entering into the sales cycle relatively later in the sales cycle and where the middle market was very often in the past driven by a specific bad experience, where they didn't treat a certain segment of their population well or they lost donors and they wanted a better and stronger system or a new person came in. Now, they are really more focused on adding an ROI component to the selling cycle, which is sort of understandable in the environment where they are today.…

Well, it's first of all, Larry, we're not ready to give any guidance, obviously for 2009, and quite honestly, a lot of this is going to depend on what happens to our market environment. As I said, we're assuming right now that that market environment does not improve in 2009. And we've also said though that, we're going to try to continue to selectively invest and with other cost management, we believe we can perhaps achieve a margin that's comparable to ’08. But we're just not prepared to get anymore specific, and I certainly am not ready to talk about something in the mid 20s. Lawrence Petrone - WR Hambrecht & Co: Okay. And just one last question. I unfortunately missed it, but you were commenting on Kintera 's contributions in the quarter. I think I heard you say $6.1 million of the subscription revenue were from Kintera. I also thought I heard over $10 million plus came from Kintera in total. Do I have that right or am I missing something?

It was 10 million in total. Lawrence Petrone - WR Hambrecht & Co: Okay. 10 million in total.

And the difference is the other applications like fund wear and the analytics products, it's just the donor advised financing services. Lawrence Petrone - WR Hambrecht & Co: Okay, very good. Thank you.

(Operator Instructions). Moving on we’re going to Horacio Zambrano with Jeffries & Company. Horacio Zambrano - Jeffries & Company: Hi guys. Thanks for taking my question. I'm here for Ross MacMillon. Tim, I had a question following up on the last question. If I back out the maintenance or what I think is remaining out of the 10 million for Kintera, does the Blackbaud core maintenance go down sequentially slightly quarter-over-quarter and is that just a function of how license is working through and the renewal rate?

No. I think we said that, I said that maintenance on an overall basis for where the company grew about 8% if I remember correctly year-over-year in the quarter. Horacio Zambrano - Jeffries & Company: Okay. And..

We certainly aren’t looking, we’re not looking for a sequential decline in Q4 either. Horacio Zambrano - Jeffries & Company: Okay. I guess I was also looking for a little bit more color on just the ECRM pipeline and some of the deals that you signed recently like the Salvation Army and Oxford. What's the total market opportunity for these deals? Are you expecting sort of follow on transactions from those deals and what does the overall pipeline look like today versus say a year ago?

Well, pipeline today versus a year ago is significantly larger but I won't go into how much larger. I have publicly said that they're on the order, they are somewhere between 150 and 250 universities that that will in my opinion be making decisions that look like the ones we're talking about. So multi-million dollar decisions over the next five to seven years. I stick by that. I'm still very convinced that's the case given the current [ageing] of the existing technology and needs for the [updated phase] and I'm not giving any sizing for outside of that but if you take a look at our customer Save The Children. And [Horacio] there are a lot of other international non- governmental organizations that look very similar and in fact those are just the US branches of these. Many of them have multiple chapters around the world, some of whom will either come on Board. So over time you could see extension for the international non-governmental space internationally. You'll see it at a place like, [Horacio], we've gone live with one portion of it and there follow on business associated with that and the second phase to come live next year. So there is a lot of potential over time for ongoing business with many of these organizations and in each sector the ongoing business opportunity is quite different depending on the business model of the sector itself.

Gracias. Let me just add one other thing that is not specific to your question but relates to a question I answered earlier. Let me just interject here, because I think I've confused things a good bit here. Talking about the four ECRM deals that we've done, I just want to clarify, we did two in Q3 and we've already done two in Q4 in early October. Two of those deals, one in Q3, one in Q4, will be done on a ratable basis. The revenue recognition related to the software and in fact the one we did in October is a SAS deal and we're not going to have any income recognized on that for the better part of 2009 at a minimum, because we have to wait until the software is deployed, but we in fact did recognize some software revenue on one deal we did do in Q3 and we will recognize, we believe software on a deal we've concluded in October. So sorry for the confusion but I needed to clarify that? Horacio Zambrano - Jeffries & Company: Okay, that's helpful. And any comments on sort of the Salvation Army deal? It sounds like it's a Southern chapter. Do you think that there's room, what's the sort of decision-making to go across some of the other national chapters here?

Well it's not a chapter. It's a region, so it's a very large region for the Salvation Army and there are some other regions. One of them has made a decision not too long ago, others will I’m sure be looking to see how well this goes. That's the nature of these things. They make choices on a relatively independent basis and that's true of the Save the Children around the world. Each one is, they're relatively independent or have -- and many of them are doctors without borders and it's also true that many of the regional organizations in the United States that the regions have a modest -- somewhere between a modest and large amount of autonomy. So the very best thing -- and I've been talking about building reference accounts and making every one of these deals successful as we go through. And this is a perfect example of we do a very good job here and there are a certain number of faith-based and human service organizations that we’ll be looking very carefully at this very prestigious and very influential organization as they go through this process. Horacio Zambrano - Jeffries & Company: Okay and my last question, just on hiring. How many people were hired in the quarter and I guess did you guys talk about sort of your forward plans in that area?

No, I think what we said was and we never really talk specifically about the net addition to head count. Clearly in the quarter we had a modest net addition. We'll have a modest net addition probably in Q4, but it will not be all that significant. The key is where -- we are talking here about selective careful investment in those areas, which are important strategic initiatives for us and that's where we're focusing our investments on.

And you'd see a certain amount of increase in the product development as Tim says focusing on those areas of investment. There is work to be done in every single Enterprise CRM sector when we sell the first or the second customer in bringing the product along to be truly adaptive to that sector. In the full detail of what we've actually sold and that's part of why you're in contract accounting for many of those pieces of business. We have a connector between the Raiser's Edge and Sphere that we're delivering, which is a new product set. We have the ECRM version that we are moving a team of first customers from. Each of those things are sort of an incremental ongoing investment stream as well as investing in the generation of product suite sort of version of the Raiser's Edge, the Financial Edge and the Education Edge and if this were my own company and my own personal money, all of it…. my own Company and my own personal money, all of it I would continue to be investing in those things so I'm doing that on behalf of the shareholder at this point because I want us to come out of the storm with critical mass and having really built on the leadership position that we do have, which gives us the opportunity to come out much stronger building on the product offering that we're talking about. That's what the choices are relative to the investment and that's where we're going. Horacio Zambrano - Jeffries & Company: Okay, thank you guys.

Our next question now comes from Brent Thill with Citi.

Thanks. Tim, can we just talk a minute about how you think about worse case scenario and I apologize for bringing that up, but if you look at the 7% gross standalone this quarter, I mean, is it fair to say that you still believe you can grow through this and I know you aren't giving guidance for ’09, but the margin guidance for Q4 and it is low 20s and could we assume a 5% growth in the 20% and that margin would be considered worst case scenario that you've modeled into what you're looking at?

You know, Brent, to be honest with you I just can't answer the question. We think that we're planning the business prudently by saying that, we don't see an improvement in the environment. We're not prepared to get specific on 2009 and what that translates into in terms of an overall growth rate. So, I wish I could get more specific with you here but what we're telling you is sort of the guidance we've given our management team about, how to plan their businesses going forward.

Okay.

And we'll have more to say on the next call.

So, just to look at Q4 and now, since you have given that number it looks like you effectively scrubbed the license number to go to low single digits.

Well, you mean in terms of growth year-over-year?

In terms of absolute dollars?

I'm not quite sure.

You mean in terms of millions of dollars of revenue?

Right. Because if service maintenance and subscription is going to modestly grow then the only opposite to that is the license side, right?

Well, there's services too, Brent.

Right.

So, the point here is, if what you're saying is we're not, we certainly expect some software revenue in Q4, I'm not putting a number on that, but I would remind you that Q4 last year was a blowout quarter. It was a record quarter for us in terms of license revenue. We did almost $10 million in software revenue and it was a 20% grower. We signed five deals that were greater than $1 million. So, we had a gangbuster quarter and we're in a much different market condition right now. So, I'm not putting the number on it, but obviously you can draw your own conclusion from what I'm saying about what that number is.

That's fair, I'm just trying to understand the variables in terms of how you're thinking about Q4 and you're looking at the license and services as the two biggest variables relative to your guidance.

Yes, sir, absolutely.

Thank you.

Yeah.

And gentlemen, we have no further questions in our queue at this time. Mr. Chardon, I'll turn the conference back over to you for additional or closing remarks.

I just want to say thank you all for taking the time to be with us today. I know it's a tough environment. We're making progress against our growth initiatives, I'm delighted to see the results of subscription revenue and license taken together, and I do really feel like the investments we're making are going to make a difference as we start to see a little bit of daylight, I'm not sure the daylight is going to happen before the end of next year. So, that's sort of a summary of what Tim and I had to say today and thank you for your time and your questions. We look forward to talking with some of you individually on one on one later.

Again, that concludes today’s conference call. Thank you for your participation. Have a good day.