Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Blackbaud Fourth Quarter and Full-Year 2011 Earnings Call. Today's call is being recorded. [Operator Instructions] I would now like turn the conference over to Mr. Tony Boor, Chief Financial Officer of Blackbaud. Please go ahead, sir.

Thank you, Carla. Good afternoon, everyone. Thank you for joining us today to review our fourth quarter and full year 2011 results. With me on the call is Marc Chardon, our President and Chief Executive Officer. We both have prepared remarks, and then we'll open up the call for your questions. 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 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 it over to Marc to review our high-level financial performance and business highlights, then I'll come back at the end to provide greater details on our fourth quarter results as well as our guidance for the first quarter and full-year 2012.

Thank you, Tony, and thanks to everyone on the call for joining us. There are 2 key topics that we want to review with you today. First is the performance of our business in the fourth quarter and the full year of 2011 and second is our view of the business for 2012 including our strategic direction in the close of the Convio acquisition. On a pro forma basis, our fourth quarter revenue was at the midpoint of our guidance and grew in the mid-teens, while our pro forma operating income was above the high-end of our guidance and represented a 22.5% pro forma operating margin. The fourth quarter was indeed a strong finish to a year that was highlighted by a number of records including record revenue and non-GAAP profit. As I shared in our press release, Tony led us in a comprehensive audit process and we're confident in the strong financial foundation that this has laid for our future. Our fourth quarter results included several unusual items and accounting adjustments, which are excluded from our pro forma results and which Tony will detail in just a few minutes. What's most important from my perspective is the fact that, holding these adjustments to the side, the underlying performance of our business was strong for the quarter. In addition, during 2011, we reaccelerated revenue growth to the low double-digit range in each of our business units. General markets, enterprise and international delivered a solid performance. Our view of the market environment remains largely unchanged. While the world economy continues to face challenges, the pace of charitable giving continues to move in a positive direction and has returned to pre-recession levels. Just last week, we announced that our Blackbaud index of giving rose 2% year-over-year for the fourth quarter while online…

Thanks, Marc. As everyone knows, I joined Blackbaud during November 2011. And as such, this was the first time I went through a quarter close and year-end audit with the company. In addition to focusing on the work required to complete the acquisition of Convio, I've spent a significant amount of time doing a deep dive into Blackbaud's financial processes to ensure that we had a solid financial foundation to move forward with. I feel very good about the depth of the analysis performed and where we stand today. However, we did identify certain prior period errors related principally to revenue recognition, accounting for income taxes and the capitalization of software development costs. We concluded these errors were not material, individually or in aggregate, to any of the prior reporting periods. And therefore, amendments of previously-filed reports were not acquired. Specifically, the net income impact of these errors was a decrease in net income of $600,000, $900,000 $900,000, $1.6 million and $2.2 million for the years ended December 31, 2010, 2009, 2008, 2007, and 2006, respectively and an increase in net income of $600,000 for the 9 months ended September 30, 2011. The revisions for these corrections to the applicable prior periods will be reflected in our annual report on Form 10-K for 2011, which we expect to file in a timely fashion this month. Our press release issued after the market closed today included as reported versus as revised tables along with a pro forma reconciliation for our fourth quarter 2011 results that we believe will provide investors with a better understanding of the underlying performance of our business. We also posted additional supplemental schedules dating back to 2006 on the Investor Relations page of our website that we encourage investors to review. In our press release, we included…

[Operator Instructions] Our first question comes from Tom Roderick with Stifel, Nicolaus.

So maybe I could start with just a question on some of the mechanics here of the growth in the subscription line because this has been kind of a key part of the story and it continues to do very well. I'm curious as to how much of that growth is coming from sort of new customers versus conversion of existing customers that may have been on a perpetual license plus maintenance agreement. What's happening there, can you kind of walk us through the dynamic as we end 2011? What are the drivers of that subscription growth, new versus existing and how do we think about that going forward?

Well, in terms of the software part of the subscription growth, I'll remind you that subscriptions include analytics subscriptions and hosting and so on. The primary -- almost all of the growth in the software part of subscriptions happens with new units. There is very, very little conversion of existing customers to subscription offering. That said, an existing Raiser's Edge customer who goes and takes on hosting will have bought a hosting subscription with us. So there is back to base sales of subscriptions of new services to existing customers. That would also be true if there were an Analytics subscriptions sold to an existing software customer. But basically, in terms of new units, new unit software subscriptions are essentially 100% new as opposed to back to base or conversion.

Okay. That's helpful. Second question for me, in thinking about sort of the dynamics of the giving index as you saw it at the end of the year kind of up a couple of percent. How does that sort of map relative to the overall business trends you saw from a new booking standpoint and maybe translating that across, Tony to a question to you, as we look at the guidance for next year of $410 million to $420 million, $93 million and $95 million in the first quarter. Can you just help us understand sort of your assessment of the organic growth rate in that once we adjust for any of the noise in the numbers? It seems like there's not much going forward in the guidance, but I just want to be clear about that.

Marc, you want to take the index piece?

Yes. When I talk about new normal, what people are realizing is that what we've sort of gotten back to where donations were before the downturn, but it's not expanding at some extraordinary rate, and people are very cautious to give money. And so what we're seeing is, that more and more organizations are making the decision to invest in new channels of fundraising or new tools and that's part of why multichannel fundraising is such an important strategy for us. Adding an event, if you don't do events or adding major giving if you're primarily event-driven. Those multichannel approaches are being more and more sought after because the fundraising sources aren't really exploding. And yet, need is going up faster than fund sources. So that's how I describe the situation. The second part to point out is that there is a mix shift happening in fundraising. The shift towards online doesn't necessarily increase the overall pond, but the percentage of the pond that ends up going through the online properties is increasing and that gives incremental opportunities in terms of merchant services, in terms of new forms of Analytics and so on. And our Merchant Services business did a brilliant job last year of growing.

So I think on the -- from a revenue perspective, is there anything included, I think the only material item of note would be the setup fee impact that carries into 2012 from the latter half of '11? And we've estimated that at about $1.5 million impact -- negative impact on revenue for 2012 guidance. Organic perspective, I think with -- from an organic perspective, I think PIDI is almost a full year behind us by the time we get into Q1.

The only change would be services in terms of what -- we'd had some services changes in terms of what was recognized and when things are moved from when.

Right. And then I think PIDI is largely a year behind us in Q1 and then I think Everyday Hero is so small to the overall $400 million plus that it's not meaningful. So I think the growth with that we gave up that double-digit to low teens is reflective of organic.

And that $1.5 million, Tony, will that come in the first quarter on the setup fee side?

It is spread with, I think the largest portion of it coming in Q1 and Q2. So we’ll get kind of that first 4 quarter kind of impact of the change. There's a little bit of tail that goes into Q3, but I put the majority of that in the first 2 quarters.

Moving on, we’ll hear from Philip Rueppel with Wells Fargo Securities.

Can you give us an update on the sort of the process for the Convio acquisition in terms of -- you've had to delay it somewhat, do you have a new timeframe for when you think things could be wrapped up with the DOJ and as a corollary to that, have there been any customer delays in your own online products as they try to figure out what you're going to be offering potentially going forward?

Thanks, Phil. So I think that we are basically on the same timeline that I announced when we were on the call on the 17, I said that I thought we could close it this quarter. And I still think we can close it this quarter. That said, we don't control the process and -- so we'll just see what happens. We really expect to achieve the approval and I know that this – we’ll keep investors apprised if anything changes. So that's pretty much what I could say at this point. And I understand we are a very complicated business, even for the size of our company. And it takes a while for you to be able to digest all the information that's required in order to come to a deliberate and an appropriate conclusion and I suspect that's where the Department of Justice find themselves right now. That said, in terms of product freeze or sales freeze right now, we have a really brought you the product. Since our -- most of the products are really unrelated to this. I mean, if you take a look at Raiser's Edge, Financial Edge, Education Edge, Patron Edge, and so on, they're relatively, as far as I can tell, relatively on track and the momentum is sort of untouched by this. We have seen a few customers asking questions and say, “what's going to actually happen afterwards?”. And so you will see a little bit of that happening and our guidance includes that consideration. We took that into consideration when we built our plans. That said, it's not a major factor for us right now.

Okay, great, that's helpful. And then maybe, Tony, I mean you mentioned that the unusual nature of at least $3.4 million of the charge against revenues this quarter. What is the potential that we could experience that again with other early CRM adopters and are you comfortable with the fact that sort of the new -- the 6 you signed up this quarter have contracts that are clean, and going forward we shouldn't see this issue again?

Yes, Phil let me take that. As you know, we have sort of 3 primary areas. The higher end area, we are very, very confident that all of our deals are easily implementable. We've been doing this for a while. We've basically gotten over the early phase of the implementation. And we're very comfortable with all of the deals that we've sold in the quarter. I have absolutely no qualms about the deals sold in the quarter. If you take a look at the backlog of deals that haven't implemented yet, 23 -- there's 60 plus that are out there, there are 28 live, which leaves just a little over 30, and of those 30, 23 were sold this year. It's an 18-month cycle for most of these deals at a minimum and some of them as you know, the very big ones will be quite a bit longer. So I'm quite comfortable that we have a very clear understanding and there's contractual terms behind it to not see this kind of magnitude of project happen in the kinds of deals that we've just been selling in the past several quarters. Very comfortable.

Great. And then final question for me. You mentioned that part of -- in the ongoing review that there were changes to software capitalization. It looks like that bumped up significantly. Is that a -- kind of a new run rate for software capitalization or was there some catch up involved in that and sort of how should we look at that going forward?

So historically, it's not been material for us. So we've never had enough to qualify for capitalization that mattered until 2011. So from that perspective, it is a bit of an anomaly. The net number on the year is roughly $1 million. A little bit higher than that and then some amortization of which all of it fell within Q2 and Q3. So there's no impact on Q4. So going forward, we’ll have the amortization of those amounts spread and then we'll just have to see how new development work goes. The rules are so specific. I would just have to benchmark based upon our history and our history is set. We typically don't have a significant amount of capitalized software.

[Operator Instructions] And now we'll hear from Ross MacMillan with Jefferies.

I just want to go back to the credit for the new CRM customers and understand what the trigger was for that charge to be taken in Q4. Was it of your volition, was it your auditor, was it the customers, could you help me understand that?

Yes. I had a very hard time understanding, but let me -- I think you're saying what was the trigger or the instigation and what was the decision process that caused us to make the decision to take these charges now? Is that right?

Yes.

Okay. Well, most of our -- these are 4 customers I've been talking with you about for several quarters. These customers are part of that handful of early adopters, and so this is an ongoing process. Basically, we got to point where it became clear to us what we needed to do in order to get these customers to the right place. The 2 direct marketing customers as I mentioned, there was some clear functionality to do, and for the chapter-based customers, once you get those initial chapters live, you have a very -- a much better understanding of what you need to do to get the rest of the chapters live. So it's really about coming to clarity. And there's no one day when you come to clarity. It's dozens of decision points across 4 different customers and it added up to this. And Tony and I looked at this and part of the audit process was to become very clear about -- once we get to the point of understanding what you need to do, you take that, and you put that charge in and that's what actually happened. This said, it's a -- it's 4 customers I've been talking to amongst a handful of customers. We've got a great business. It's got super momentum where, 12 go lives in the past year and 23 new sales. So even through this process, these customers -- several of these customers have provided significant references for us and have helped us continue because they view this as a partnership, and that's what Tony meant when he was talking about investing in a partnership. It's a product, but it’s also a business relationship that lasts a decade plus for these kinds of organizations.

That's helpful. And maybe along the same lines or as a follow-up to that, when you think about the customers that you still have to go live, I presume that these 4 have been very much in that kind of -- you mentioned a few times, early adopter set. So I think you answered a question a couple ago that suggests your perception in terms of having to do something similar in the future is very low at this point.

I think that's -- something like this is I think we're very clear that both of these areas, we know what we need to do and we know what we're selling and we can be quite prescriptive because the product and our implementation processes have gotten to the right point. That's why you see the momentum building in terms of sales, that's why customers are convinced when we walk in the door. I mean people -- -- it's a small industry. People talk to each other. And they buy, knowing where we are. And yes these customers have been around for a while. The customers that we have sold in the past 2 years in 2010 and 2011, I feel very confident of our ability to implement these customers and to know exactly -- that we're -- that we know what we're implementing when we start. That they know what they're buying when we start and that we enter into it with a very clear understanding of how to get to the far end and how to get them happy and productive and help them raise money to raise their missions.

That's helpful. Just maybe 2 for Tony. Just on the guidance. I think I heard you say this, but is this growth rate based off the pro forma non-GAAP numbers so the 99 for 4Q and the pro forma non-GAAP for all of 2011? That's the baseline revenue from which you're looking to grow?

Yes I think, and you can look too because we gave obviously specific revenue ranges, so I would tell you, so there's not confusion, we said for $410 million to $420 million. That way, I'll make sure that's not confusing any math. And I'm sorry was there...

Yes. I had one other 1. And it relates to the somewhat kind of immaterial historic changes. I just wanted to make sure, Blackbaud as a company has historically paid a lower cash tax rate than the statutory rate for a couple of main reasons. And my understanding is that, that doesn't change with any of these historic revisions. But I just wanted to confirm that with you.

I think the only thing that potentially changes is that we did have a tax adjustment related to section 162M, which will be a small amount relative of incremental cash tax we'll pay, but to the overall effective tax rate, it will have next to no impact. And that will be a onetime.

And now we'll open the floor up to Sterling Auty with JPMorgan.

It's Saket here for Sterling. So a couple of quick questions from my side. Sales and marketing I think was down quarter-over-quarter. Was there any seasonality there that you could speak to?

Nothing intentional. I mean, the sales and marketing numbers depend a lot on when certain campaigns hit and overall, the full year, the General Markets Business was quite good at expanding sort of revenue per rep and so on, so there was some specific progress made in the General Markets business in sales and marketing that accounts for a fair amount of that. That said, it really depends on when you commit to what kind of campaign and there's nothing intentional there. I think we got the right level to drive the business that we're driving.

Okay. And then Marc, as you look to 2012, specifically within the licensed line, do you think we've reached sort of a natural level of demand for license revenue or do you think that could continue to decline?

I think the shift will continue to go to subscription over time. And I think that when the Convio acquisition closes, that there will even be a higher incentive to move towards SaaS more quickly especially in the midmarket. Potentially, also in the international business. There's a certain part of the enterprise market, especially the higher end hospital sectors where there's a real ongoing desire to run the product on your own systems. And so, I do think that there's sort of a -- for the next several years, where several means 3 to 5, I think that there is a portion of the business that will be driven primarily by CRM and Raiser's Edge or Raiser's Edge follow-on product that will be license-based primarily in those verticals I just mentioned. But in general, I think the mix of shift to SaaS will continue to go and could even go somewhat faster over time in the other segments that I'm talking about especially with Convio.

Got it. And then lastly for Tony. Tony, as you've kind of taken a deeper dive into the business, how do you view the long-term profitability for the company? I know that 2012 is a little bit of an anomaly with some of the investments that you're making. Longer term, how do you sort of view the margin profile?

Well obviously, we have -- as I said in my prepared remarks, we've got very good strong margins despite the fact, as you said, that we're making some current investments. I think that -- what I've seen thus far, that there's certainly some opportunity for margin expansion. I think that you can see some of that in our numbers just where we've gained some leverage from an OpEx perspective. I think it will be interesting once we get Convio done to see what that does to our overall margin structure. Obviously, where they are, that's going to have an impact in more shifts to the subscription model. That being said, I think the work we're doing with this consulting firm should give us some leverage potentially going into 2013. I think it's one of those things where I need to get Convio done, get that integrated a bit, understand the numbers, get another quarter or 2 under my belt and then I think it will be in a much better position to be able to come back and talk to you about it, but I do believe that there's some room for some margin expansion in '13 and forward

[Operator Instructions] And ladies and gentlemen, that is all the time that we have for questions today. At this time, I would like to turn it back to management for any closing or additional remarks.

I don't believe that we have a time horizon.

[Operator Instructions]

If there are no more questions, that's fine.

And there appear to be no further questions.

All right, well, that's great. Thank you, everybody. We appreciate everybody being on the call and we'll look forward to either talking with you when we have something to announce relative to our acquisition or at the next quarterly call. Bye-bye now.

Ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation. You may now disconnect.