Welcome to the Blackbaud fourth quarter 2008 earnings conference call. (Operator Instructions). I would now like to turn the conference over to Mr. Tim Williams, Chief Financial Officer of Blackbaud. Please, go ahead, sir.

Thank you very much. Good afternoon, everyone. Thank you for joining us today to review our fourth quarter and full year 2008 results. With me on the call is Marc Chardon, President and Chief Executive Officer. Marc and I have some 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 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'll come back a little bit later to give some further details regarding our financials. Marc.

Thank you, Tim, and my thanks to all of you on the call for joining us today to review our fourth quarter financial results, which were highlighted by better than expected profitability and solid execution on the face of strong headwinds. Our results for the quarter and full year 2008 reflect Blackbaud's strong market position, proven ability to deliver value to our customers and our attractive business model. We do continue to make progress against each of our growth initiatives during what has proved to be one of the most challenging periods our nonprofit customers and prospects have ever faced. The continued positive response to market to our eCRM initiative, growth of our online fundraising solutions, acquisition and integration of Kintera, momentum of eTapestry and the growing traction of our international business are all positive in this extremely difficult economic environment. Now, Tim will cover the financials in details in a moment, but let's take a look at the highlights. Our total non-GAAP revenue of approximately $82 million was at the low end of our targeted range for the quarter and represented approximately 17% growth against a very difficult comparison quarter in 2007. It's notable that our executive team's focus on closely managing expenses enabled Blackbaud to deliver non-GAAP operating income that was above our guidance range with a non-GAAP operating margin of over 21%. It also contributed to non-GAAP earnings per share of $0.24, which was above the high end of our guidance. Looking at the make-up of our revenue, our subscription revenue remained the highest growth segment of our business in the fourth quarter and was approximately twice the level of our license revenue. The continued growth of our subscription revenue has been a significant positive enhancement to what was already a very strong business model. When combined…

Thanks, Marc. Let me begin by providing details on our fourth quarter and full year operating results. Then, I'll provide guidance for the first quarter and close with a quick review of our capital management program. First, let us start with the income statement. GAAP revenue came in at $80.4 million, and after adding back the $1.5 million purchase accounting write-down of Kintera's deferred revenue, you get to non-GAAP revenue of $81.9 million. As Marc indicated, this represented an increase of 17% compared with the fourth quarter of 2007. We estimate that Blackbaud's total revenue, excluding the contribution from Kintera, would have grown approximately 4% on a year-over-year basis. This compares to 7% last quarter and is below our long-term target of low to mid teens growth, but this is due, of course, to the difficult economic environment. Looking at the details of our total revenue, non-GAAP subscription revenue was $16.5 million, an increase of 106% on a year-over-year basis. It remained at 20% of our total revenue in the fourth quarter, up from 11% in the year ago period. Even without the contribution from Kintera, subscription revenue would have increased by approximately 32% on a year-over-year basis. License revenue was $8.6 million in the fourth quarter, a sequential increase of approximately 6% and a decrease of 13% year-over-year against what was a very strong comparison quarter. As a reminder, our software license revenue in the year ago fourth quarter grew over 20% year-over-year, which was our highest quarterly software growth in a number of years. Our non-GAAP services revenue came in at $26 million, an increase of 6% on a year-over-year basis, while our non-GAAP maintenance revenue came in at $28.3 million, an increase of 13% on a year-over-year basis, with 6 percentage points of the growth due to…

(Operator Instructions). We will go next to Philip Rueppel with Wachovia Securities.

Yes. Thanks very much. Marc, you had talked a little bit about the current state of the environment in general for non-profit institutions. Obviously, this quarter was a lot worse than last quarter. Did it deteriorate during the quarter and did you see, for example, worse business trends in December, that were significantly worse than November? And then, also, it's kind of a corollary to that, I know the made-up scandals were ahead of far ripple effects through a number of charitable institutions. Did that cause any delays of purchases and did it affect any of your customers?

I'll take them in a reverse order. I have not had any customer tell me that the made-up situation specifically had an impact on them in terms of technology purchases or so on. But that's anecdotal, I didn't do a survey. As to the tone in the quarter, I think it actually turns out that if you had looked at our quarter, that November would have been sort of more challenging. I think that there may have just been a little bit, sort of, let down after the whole political effort and the voting situation and so on. I think people were just somewhat distracted in November. We actually found that the results in December, both in transactional results for our online transactions, as well as how far or close we were to what we thought we would do in the month, turned out at a relatively reasonable tone, when I say reasonable, in the context of a very difficult economic environment. So, no, I wouldn't say that. It was more of a "U" than a constant decline. That being said, the bookings results were clearly lower than we would have get in January of 2008.

That's helpful. Thanks. On the eCRM product, you mentioned still a lot of activity, but if I'm right, the two that closed in the quarter were earlier in the quarter. Are you sensing at least in that at the high end that there might be delays going on there or do you still see a pretty reasonable pipeline into 2009?

I see a reasonable pipeline in 2009 and I expect that to continue on at the pace of a couple deals a quarter. We actually have quite a decent pipeline for the beginning of the year for eCRM deals and will be planning for going live with one or two systems at quarter two. So, we really get into a point where there is a broader range of people, either live or very close to live, that are helping us with those people who have been sort of waiting to see what the first people's experience were. So, that's actually an accelerating factor.

Okay, great. That's it for me. Thanks.

Thanks, Phil.

Thanks, Phil.

We'll take our next question from Ross Macmillan with Jefferies.

Hi, guys. Thanks. This is Ross here for Ross. I had a question about some color on the segments where you're seeing sort of the most weakness, both from a verticals perspective, as well as from the size of non-profits. I read quite a few forecasts that there might be a shakeout through this recession on non-profits and I'm wondering if you're going to see that more in your eTapestry line on the low end versus at the mid market where you have possibly more non-profits with bigger resources buying Raiser's Edge and other products there?

Thanks, Ross. So far, the fastest growing fundraising segment, in terms of just pure units, was that lowest factor that you are talking about. Now, that being said, a 20% increase in eTapestry bookings is a small portion of the $1 million, sort of very, very small non-profit, so $150,000, sort of $25,000 to $500,000, annual revenue non-profits. I like to think that the ones who chose eTapestry are the ones who got there acts together and are out there saying “we've got to take care of our donors in a difficult environment”. The non-profits that are doing well are those that have a relatively strong committed donor base that they know how to cultivate. The ones that are having the biggest challenge are those people who are trying to acquire new donors right now. New donors just aren't coming in. The core fundraising offering that we have is focused on cultivating and maintaining relationships with moderate to high net-worth people and those investments continue to be made. They come slower and some of them don't happen for sure, but it's still pretty much across the board.

If I could just follow-up on that; when you talked about our rough guidance for the year and the assumption that if the macroeconomic environment stays as it does you think you can hit these targets, but if it gets worse you'd have to adjust. What sort of assumptions in your planning are you guys explicitly making about the economy? What are the levers, sort of, unemployment? Are you looking at other things that you have visibility on, what are those levers or vectors you are looking at?

I wish that I were a smart enough economist to be able to figure out which lever is going to hit what. We basically decided, Ross, was to say, if you see a certain amount of decline in bookings that continues, sort of the difficulties that we saw in the December quarter, and you apply that continued decline in the next year, you get the kind of results that we are talking about, flat to very modest single digit growth because of the momentum of past bookings. So, we actually didn't build into the plan any increase and we didn't build into the plan flat. We build the base plan to believe that there would be a continued decline in the economy that it wouldn't stay flat, that it would actually continue to get somewhat worse.

Great, thank you.

You're welcome.

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

Hi, guys. Thanks and good afternoon. I was wondering if you could maybe go into a little more detail in terms of your internal assumptions, how you're thinking about the growth of the Kintera line of business versus the growth of the core organic business as we look into next year? Should they both grow at roughly the same pace, the bullish commentary on Kintera would suggest that, perhaps, you're expecting a little bit more out of that business next year. But anything you can add there would be helpful.

Sure, Tom. I will take that one. This is Tim. I think the way to think about Kintera is to remember that, obviously for 2008, we only had six months of revenue baked in for Kintera, but if you were to look at them on sort of a pro forma basis and build in a full year set of numbers, our overall assumption in our plan would be very consistent in the no to very low single digit growth category of the Kintera as a whole.

Okay. Relative to a business, where, I presume, you've been trying to create some margin expansion there, and it takes the cost out of the business, do you feel like you have to invest, perhaps, more aggressively in that side of the business, to achieve some growth or achieve that plan? Is it the right cost structure given the firepower there, and if things slow, is there room to cut some more costs out of that acquisition piece? Thanks.

Marc can add to this too, but I would say that our plan is not based on that. To achieve in a world, what I just described, is not based on higher levels of investment. What I will say though is with respect to our R&D investments across the company, a big part or a sizable part of what is strategic for us is our investment in Internet solutions. And certainly, Kintera is a part of that.

If you take the combination of Blackbaud Interactive and the Kintera Sphere team, we had talked in the past about that these savings that were available. There were a couple of million in engineering, there were some public company costs and data center costs and data costs. We have our organic notes. They are built into the plan. No further cuts are built in the plan. The sales force is completely integrated into our Charleston sales force as of January 1, which is different than eTapestry or the Target acquisitions, because, in fact, the integrated offering of Sphere friends asking friends and our CRM offerings need to be sold by one team, not separate teams. And we figure this synergy will help us in the booking side. I would point out that, even if you have a significant increase in bookings, it has short term not so much impact on the revenue of that business because services, training and the bookings themselves all get recognized ratably over the life of the contract starting on the day that go live. So you can make a pretty big hit up or down in the bookings for that business and you'll see the results in a year or two, not in the current year mostly.

All right, okay. That's very helpful. Thank you both very much.

You're welcome. Thanks, Tom.

(Operator Instructions). We'll go next to John Neff with William Blair.

Hi. Thank you.

Hi, John.

A couple of big picture questions, and then, a couple of smaller detailed ones. The Lutheran Church eCRM, announced just the other day; is that a relatively new frontier for Blackbaud, getting into the religious space? How many elephants are there in that space and what does this win represent as a milestone, if at all?

We've been serving the faith-based sector for a long time and hundreds and hundreds of customers there. We started off, primarily, with diocesan customers. Of them, we have quite a few. There are dozens of large faith-based organizations and combination of mega-church and the evangelical and poor missionary-based organizations, not always the same mix, and they all have some very similar sets of needs that the enterprise CRM offering is really designed to focus on, which is connecting outcomes back to the donor base and keeping that information and those relationships strong. So, I feel that it's great. It is as big as the university sector. Yes, probably, it is as immediately accessible as the university sector, probably, it takes a little bit longer time because of the existing platforms in question, as compared to the university platforms.

And then another question probably for you, Marc, what does this end market weakness and uncertainty, what does that do to the competition's interest, specifically, the sales force dotcoms of the world? People who are exploring the space, what does that do to them in terms of their interest? Are you seeing any movement there one way or the other?

I, obviously, have to let them comment on their own sectoral strategy, but we don't see any dramatic change in the amount of interest by the large players like Microsoft, Oracle, Salesforce, Sage type organizations. This business represents a relatively small portion of their business, and I don't really see any change in how they are approaching the segment.

You mentioned the strength in international. Could you give us the percentage of total revenue in the fourth quarter and maybe for the full year from international?

It's a little bit difficult, because, there were some substantial impacts in the quarter relative to what happened with exchange rates, John. So, I would say, on a constant dollar basis, the percentage represented by our international business, I think, was a tad over 15%, if I have my recollection correct. But, I guess, just to give you a little bit of color as to how bad the impact really was from an exchange rate perspective, if you looked at Q4, international revenues in dollars terms were actually down about 4% compared with Q4 last year. If, however, you looked at them in constant dollars terms, the revenues would actually have grown about 16.5%. So, really strong performance if you were looking at those businesses in local currencies. And for the year, the growth in dollars was about 11.5%, but if you put in constant dollars, it was closer to 13.5%. So, some pretty big changes just in terms of currency here, John.

Can you comment on the sequential decline in Kintera's deferred revenue write-downs? Is there an expectation of that item for 2009?

I can't give you a whole lot of color about 2009, because, in fact, we haven't specifically given full year guidance for 2009, just some broad indicators. But what I can tell you is that: from a standpoint of the deferred revenue and the impact of how much the write-down impacts you ,on a quarterly basis remember, if there was a piece of the deferred revenue that related solely to services where revenue had to be differed, relative to services as well as other components, obviously, as time goes by and those engagements reaching the end or reaching a further point in the cycle, then deferred revenue starts to drop off more quickly, or the impact, at least, if the write-off drops off in the earlier period, it doesn't just automatically blow out over a two-year period. It does have some impact in earlier rather than later periods. So, that's kind of the best I can do in explaining that.

That's helpful. I know you didn't give a lot of guidance for full year '09, I just wanted to make sure I heard you correctly, are you expecting, I think it was, a 20% non-GAAP operating margin?

I think what we said was, at the level of expenditure, Marc talked about we believe it's possible to achieve the 20% margin target.

Our goal would be to be there or better.

Yeah.

Thank you.

Thanks John.

And we'll go next to Larry Petrone with WR Hambrecht.

Thank you. Tim, just a follow-up on the FX item, just curious if there is any specific revenue line item that was more impacted by the foreign exchange issue?

My guess is that it was probably harder hit in services than any other. I don't mean this would have affected it too, Larry. I'm sorry I just don't have good granularity for that.

Okay. And then the other question I had, Marc, just wondering with the macroeconomic situation; does it cause you to think differently about how you position your sales force with regard to either specific products or end customer verticals, that sort of thing?

Not in any major way. It actually turns out that the amount of opportunity, in terms of available opportunities, at this point is somewhat similar to previous years. And so, you are covering the same number of opportunities with a similar number of reps then you might shift a person or two away from a sector that's got the bigger challenges, and we are doing that. But it's on the margin, it's 5% of the sales force, not 30% or 40% of the sales force.

Okay. Just one quick question following up on that; you commented earlier about what happened during the quarter in terms of customer interest early in the call, I'm just wondering if you saw any differences in the educational vertical during the past quarter and, let's say, into January.

No. I think that people got cautious in Q3 in the education space, slightly more cautious, and I had seen no change during Q4 nor in the beginning of Q1 in the posture of any of the major universities that are considering the high end solutions.

Okay. Thank you.

(Operator Instructions). We'll go next to John Neff with William Blair.

Just a quick follow-up.

Welcome back, John.

Thank you. I was just wondering, Tim, if maybe you had handy the employee headcount at the end of the year and, if you break that out, how many associated with Kintera?

Hang on. I do, but I don't have it at my fingertips, but I'm looking. I think our numbers, as best we can tell right now, are about just over 2,000 and Kintera is probably right around 230 or so.

I'd point out that the Kintera business is made up of some analytics teams that have being merged into Target analytics and that there is the FundWare team that has been merged into the Charleston financial solutions sector. I don't have on top of my head the number of that, but there probably will be, something like 40 of those people, that are in those two sectors. So the Sphere portion of the business is probably closer to the 190 or so.

Thank you.

Thanks.

And there appear to be no further questions at this time. I'll turn the conference back over to our speakers for any additional closing remarks.

Okay. Thank you very much again for joining us on the call, and we look forward to speaking with you over the next few weeks. Thank you.

And that does conclude today's conference call. We thank you all for your participation and you may now disconnect.