Blackbaud Inc (BLKB) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. 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'll open up the call for 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 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 in the face of strong head winds.

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 growing traction of our international business are all positive in this extremely difficult economic environment.

Now Tim will cover the financials in detail 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 makeup 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 and positive enhancement to what was already a very strong business model. When combined with our maintenance revenue, over 50% of our total revenue now comes from recurring revenue sources.

We are very proud of the company's accomplishments during 2008, particularly considering an economic environment that became increasingly difficult as the year went by. During 2008, Blackbaud generated top line growth organically and grew even more rapidly when including strategic acquisitions.

We delivered a full year non-GAAP operating margin of close to 23% that drove approximately 13% growth in non-GAAP earnings per share.

We also generated $60 million in cash from operations, which enabled us to return approximately $61 million to stockholders in the form of dividends and share repurchases.

Even in a healthy economic environment, this would be considered a successful year and speaks to the resiliency of our company, business model, customer base and the experienced management team.

Now, let me address the current condition of our end market. Not unlike many other companies, we saw the selling environment become more difficult in each successive quarter during 2008 as a result of the deterioration of the economic environment.

As we've mentioned in the past, the nonprofit market is made up of a number of subverticals such as higher education institutions, K-12 private schools, religious, healthcare, human services, and arts and cultural organizations, just to name a few. Certain segments of the market continue to hold up relatively well while others are feeling more pressure.

From an overall perspective, there's a general sense of caution among suppliers, as everyone is trying to forecast the depth, breadth, and length of the current recession. We obviously cannot control or predict the economy and, more importantly, we're not able to adequately assess what the precise impact will be on our customers.

We believe, however, that it's appropriate to continue planning and managing our business in a manner that assumes that the macroeconomic environment does not materially improve during 2009.

We will continue to manage expenses very carefully, balancing our desire to maintain high profitability levels with the opportunity to invest in initiatives that we believe will position Blackbaud to return to our long-term growth targets when the macro environment improves.

It's difficult to provide a narrow range of official revenue guidance for calendar year 2009 given the pace at which the economic environment has been changing. But, from a high level perspective, I can say we would consider a year of no-to-very low single digit organic growth to be a successful year, which would drive total revenue growth north of that level when factoring in a full year of contribution from Kintera versus only six months during 2008.

If the macro environment continues to deteriorate, however, like all other companies, we need to continue to refine our targets and spending plan.

We currently have more control over and visibility into our costs than we do revenues. Our current plan calls for approximately $265 million in total non-GAAP costs and expenses including costs of revenue and operating expenses.

Our goal is to achieve at least a 20% non-GAAP operating margin, and our planning scenario suggests that level of profitability is achievable under the overall macroeconomic assumptions I've just discussed.

However, if the environment deteriorates beyond what we anticipate, we would face additional decisions regarding our investments and overall cost structure. We'll cross that bridge if and when it's necessary.

While our overall tone continues to be one of relative caution, there are some factors that provide us with a degree of optimism. For starters, the new leadership in our sales and marketing organization has brought an increased level of engagement, creativity, and enthusiasm, which we needed.

Our pipeline of opportunities remains solid from the low end to the high end of the market, and we have a strong financial and competitive position. I remain convinced that we're uniquely positioned in our market to continue executing effectively and efficiently in this difficult time period. We expect to emerge with our leadership position further enhanced.

We're also encouraged by the continued progress in strategic growth initiatives. This progress provides us with confidence that our growth will return to our long-term targets when the economic environment improves. At the high end of our market, we continue to see a significant level of interest in our Enterprise CRM offering.

Entering the year 2008, and before the economic environment deteriorated, we stated that our goal was to add a couple of eCRM customers per quarter during that year. With two additions during the fourth quarter, we ended up the year having added seven new Enterprise CRM customers. And we continue to make steady progress implementing eCRM customers with three now live.

I'm encouraged to see strong and growing interest in this eCRM offering in mid-size customers as well. Our success in closing eCRM deals and the continued growth of our pipeline of eCRM opportunities are evidence that some nonprofit organizations are continuing to move ahead with technology investments. These organizations see technology as a must have to help them operate and succeed in today's much more challenging environment.

A second major growth initiative for the company is in the area of online fundraising. This continues to be among the strongest relative segments of our business. Our NetCommunity offering remains in high demand amongst Raiser's Edge customers, and we're very pleased with the early progress integrating the Kintera acquisition.

We have created a single Internet Solutions Division comprised of our Blackbaud Interactive Division and the Kintera Division. That single division focuses on delivering our broad and deep set of offerings that help nonprofits use the Web to help them achieve their missions.

Reaction to the Blackbaud Kintera combination has been very, very positive. Customers and prospects alike are enthusiastic about the best of both world solution that the BBNC Sphere roadmap promises and remain very interested in true integration with our CRM products.

Our competitive win rates in the online fundraising market have increased versus pure play vendors in this market subsegment, and we continue to see increasing customer retention rates within the Kintera customer base as a result of their being part of the much larger financially strong company.

In fact, the dollar renewal rates associated with Kintera customers has been particularly exciting as customers have expanded their use and added functionality at the time of renewal.

Consistent with our comments last quarter, we continue to be encouraged by the strong market acceptance of our eTapestry softwares and service fundraising solution, which is another key growth initiative for the company.

On a full year basis, sales of eTapestry grew just under 20%, which was quite an achievement considering the market environment. eTapestry is part of a constituent relationship management portfolio, which helps us meet the fundraising needs of essentially the entire nonprofit world.

We have our eCRM offering for the largest organizations, while eTapestry principally addresses the needs of much smaller nonprofits, and the Raiser's Edge fills in the middle and overlaps on the edges of both.

eTapestry and Kintera are also important because they provide Blackbaud with high quality and functionality rich software as a service solutions, as well as deep expertise in managing the development and delivery of software as a service.

From a geographic perspective, we continue to be pleased with the relative performance of our international operations. They delivered solid growth and sales during 2008, despite the fact that the economy became more challenging outside the US as it did here.

The leaders of our international business units are cautiously optimistic that they're well positioned to delivery another solid performance in 2009. We believe there remains further opportunity to increase our international revenue as a percentage of our overall business.

So, while our growth initiatives are top priorities, we remain highly focused on marketing our traditional core solutions to their target markets, which we believe continue to be underpenetrated.

These solutions continue to drive many new customer wins, as well as offer deals that can reach over $50,000 in software and total deal sizes of over 100,000. The success of our traditional core solutions has been instrumental in the growth of our average deal size over the last five years.

In the fourth quarter, our average deal size remained in the $40,000 to $50,000 range, which is at the high end of the company's historic ASP range.

In summary, Blackbaud's results in 2008 were solid considering the tough environment we were operating in. As we enter 2009, our focus is on gaining market share, selectively investing in our growth initiatives, further strengthening our leadership position, and importantly, maintaining a high level of profitability and cash flow for our shareholders.

We believe Blackbaud is focused on the right strategies and has the strong competitive and financial position necessary to accomplish these goals.

And with that, let me turn it back to Tim.

Thanks, Marc. Let me begin by providing details on our fourth quarter and the 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's 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 increase -- 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 six percentage points of the growth due to FundWare related maintenance.

It is important to stress that our maintenance renewal rates continue to be in the mid 90% range in spite of the more challenging economic environment.

Turning to profitability, and to be clear, all non-GAAP expense and profitability percentages that I will refer to here are based on our non-GAAP revenue total. Starting with gross profit, we generated 52.2 million in non-GAAP gross profit for the quarter representing a gross margin of 64%, which compares to 65% in the previous quarter.

The slight sequential downtick in gross margin is due to typical seasonality in which our services margin declines in the fourth quarter. Compared to the prior year, the single point decrease in gross margin is largely due to revenue nicks.

Turning now to operating expenses, total non-GAAP operating expenses were 34.6 million, which was essentially flat with the previous quarter. Strong expense management enabled the company to deliver non-GAAP operating income of 17.6 million, which was above the high end of our guidance of 16 million to 17 million and represented a non-GAAP operating margin of over 21%.

Effective tax rate for non-GAAP results in the quarter was again 39% leading to non-GAAP diluted earnings per share of $0.24, which was above the high end of our guidance range of $0.22 to $0.23 and also above the year ago period.

Just as a reminder here, let me just mention that we fully tax our non-GAAP EPS amounts even though the company's cash tax rate is much lower due to our deferred tax asset and other tax benefits associated with recent business acquisitions.

In our earnings release, there's a full tabular reconciliation between our non-GAAP results and our GAAP results, which include the deferred revenue add back from Kintera and the impact of stock-based compensation expense and amortization of intangibles associated with acquisitions.

In summary, our GAAP net income was $6.5 million in the fourth quarter of 2008 compared with 9 million in the fourth quarter of 2007. While GAAP diluted earnings per share was $0.15 compared with $0.20 in the same period last year.

I'd now like to provide a quick summary view of our 2008 full year results. Total non-GAAP revenue was 306.5 million, an increase of 19% compared with 2007 and 12% if you exclude the contribution from Kintera.

Within total revenue, our subscription and maintenance revenue represented just over half of our total revenue with subscription revenue remaining the highest growth segment of our business. Subscription revenue grew just under 100% and 51% again if you exclude the contribution from Kintera.

From a profitability perspective, full year non-GAAP income from operations was 69.5 million representing a non-GAAP operating margin of approximately 23% and leading to non-GAAP diluted earnings per share of $0.95, which were up 13% on a year-over-year basis. On a GAAP basis, our full year EPS -- diluted EPS was $0.68 per share.

Let me now turn briefly to cash flow and the balance sheet. We ended the quarter with 16.4 million in cash, up $4.1 million from the end of Q3. Cash flow from operations was 12.3 million in the fourth quarter and the company generated just over $60 million on a full year basis in 2008. Accounts receivable decreased this quarter to 52.6 million from 57.2 million at the end of the prior quarter.

Our DSO also decreased from the high 40s of the last two quarters to the low 40s at the end of the fourth quarter, which is a reflection of our strong collection performance during Q4 and the fact that we are now past the accounting system transition which I discussed a couple of quarters ago. Total deferred revenue came in 119.6 million, which was up 23.5 million or just over 24% compared to the end of Q4 last year.

At the end of the quarter, the company's deferred tax asset had a balance of approximately $71.6 million. This asset adds roughly 8 million to our annual cash flow on an annual basis. In addition to an annual cash flow benefit of approximately $3.5 million as a result of the structuring of our three most recent acquisitions.

We ended the December quarter with $61.3 million in debt virtually unchanged from the end of Q3. We currently plan to use our strong cash flow principally to repay this debt, and I would note again at this point that our cash flow from operations was a little over $60 million in all of 2008.

Our thoughts at this point on management of cash is to increase our cash balance to a range of around approximately $20 million, and then we will turn to a greater focus on repaying debt. As a reminder, when Blackbaud was a private company, we used the company's strong and predictable cash flow to pay down over $100 million in debt. So, we are quite comfortable with our current financial position and the ability to service the current level of debt outstanding.

Let me now turn to our guidance for the first quarter of 2009. At this stage, we expect total non-GAAP revenue of 74.5 million to 76.5 million, non-GAAP operating income of $11.7 million to $12.7 million, leading to a non-GAAP earnings per share of $0.16 to $0.17. As a reminder, from a seasonality perspective, the March quarter typically represents a seasonally weaker license and services revenue quarter.

Marc provided our thoughts for the full year 2009 during his prepared remarks. However, I would like to add that the strengthening of the US dollar has, and we expect it will continue to have, a negative impact on our reported revenue from our international operations.

Comparing our 2009 plan to 2008 results, we anticipate that foreign exchange rates will negatively impact our reported revenue by approximately $7 million with the impact on non-GAAP operating income being a bit smaller, but still impacting us somewhere in the range of $3 million for the full year 2009.

Finally, let me finish with a quick update on our two-part capital management program. First, we announced today that our Board of Directors has approved the payment of a $0.40 per share dividend in 2009. The same as we paid last year.

In addition, the Board declared our first quarter dividend of $0.10 per share payable on March 13, 2009 to stockholders of record on February 27, 2009. During the fourth quarter, we did pay dividends of $4.3 million.

Second, we used approximately $1.7 million to buy back approximately 145,000 shares of our stock in the fourth quarter, and we have approximately $30 million of capacity remaining in our approved $40 million share repurchase program. We will continue to balance the best ways to use our cash flow to enhance long-term shareholder value.

In summary then, all things considered, Blackbaud delivered solid financial results during 2008. We grew the top line, delivered a non-GAAP operating margin of close to 23%, grew non-GAAP earnings per share by approximately 13%, and returned $61 million to stockholders in the form of share buy backs and dividends.

We continue to be cautious about the buying environment we are seeing in our end market in 2009. However, we will continue to run the business with the goal of delivering at least 20% non-GAAP operating margins at the same time as we invest to preserve the company's ability to deliver on its long-term growth targets when the market improves, which it eventually will.

With that, let me turn it over to the Operator to begin our Q&A session.

Operator.

[OPERATOR INSTRUCTIONS.] We'll go next to Philip Rueppel with Wachovia Securities.

Yes. Thanks very much.

Marc, you had mentioned -- talked a little bit about the current state of the environment in general for nonprofit institutions and, 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 had -- that were significantly worse in November.

And then, also as kind of a corollary to that, I know the Madoff scandal sort of had a far -- a ripple effect through a number charitable institutions. Did that cause any delays of purchases, and did it affect any of your customers?

So, I'll take them in reverse order. It's -- I have not had any customer tell me that the Madoff situation specifically had an impact on them in terms of technology purchases or so on. But, I -- 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 there may have just been a little bit of sort of a let down after the political -- the whole political effort and the voting situation and so on. So, I think people were just somewhat distracted in November.

And 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 to have relatively reasonable tone. I mean, and I say reasonable in the context of a very difficult economic environment. So, no, I would say that it was sort of more of a U than a constant decline.

That being said, the bookings results were clearly lower than we would have guessed had -- in January --.

-- Right --.

-- 2008.

Yeah, but that's helpful. Thanks.

And then, 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 were -- that there might be some delays going on there, or do you still see a pretty reasonable pipeline into 2009?

I see a reasonable pipeline in 2009, Phil, and I expect us to continue on at the pace of a couple deals a quarter. We actually had quite a decent pipeline for the beginning of the year for eCRM deals and will be going live with one or two systems a quarter too.

So, we really get into a place -- a point where there's a broader range of people either live or very close to live that are helping us with those people who've been sort of waiting to see what the first peoples' 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 Horatio for Ross. I had a question about some color on the segments, where you're seeing the most weakness, both from a vertical's perspective as well as from a size of nonprofits.

I've read quite a few forecasts that there might be a shakeout through this recession on nonprofits, and I'm wondering if you're gonna see that more in your eTapestry line on the low end versus at the mid-market where you have possibly more nonprofits with bigger resources buying Raiser's Edge and other products there.

Thanks, Ross. Well, so far the fastest growing fundraising segment in terms of just pure units was that low sector that you're talking about. Now that being said, a 20% increase in eTapestry bookings, you know, it's a small portion of the 1 million sort of the small nonprofit -- very, very small nonprofits of the 150,000 sort of $25,000 to $500,000 annual revenue nonprofits.

And I like to think that the ones who choose eTapestry are the ones who've got their acts together and are out there saying, "We've got to take of our donors in a difficult environment." Those nonprofits 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, and so -- the core fundraising is an offering that we have is focused on cultivating and maintaining relationships with moderate-to-high 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 your guidance --rough guidance for the year and the assumption that if macro -- the macroeconomic environment stays as it does, you'll be able to hit these -- or 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? Is it -- what are the levers -- sort of unemployment. Are you looking at other things that you have visibility? But, what are those levers or vectors you're looking at?

You know, I wish that I were smart enough economist to be able to figure out which lever is gonna 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 December quarter, and you watched -- and you sort of apply that continued decline in the next year, you get the kind of results that we are talking about, sort of flat-to-very modest single digit growth sort of because of the momentum of past bookings.

So, what we actually didn't build into the plan any increase, and we didn't build into the plan flat. We built into the plan -- the base plan the belief 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.

Hello, Tom.

I was wondering if you could maybe go into a little bit 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'll take that one. This is Tim.

I think the way to think about Kintera is it -- and 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 sort of the no-to-very low single digit growth category for Kintera as a whole.

Okay. And relative to a business where, I presume, you've been trying to create some margin expansion there and take some 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? Do you have enough fire power there? And if things slow, are -- is there room to cut some more costs of that acquisition piece?

Thanks.

Well, I would say that it -- and Marc can add to this too -- but I would say that our plan is not based on a -- the achievement of 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 sizeable part of where -- of what is strategic for us is our Internet -- is our investment in Internet solutions and certainly Kintera is a part of that so --.

-- And if you take the combination of Blackbaud Interactive and the Kintera Sphere team, we had talked in the past about the savings that were available. There was a couple million in engineering. There was some public company costs, some data center cost, and data costs. We have or are getting those. They're built into the plan. No further cuts are built in the plan.

The sales force was completely integrated into our Charleston sales force as of January 1 and that -- which is different than the 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 figured the 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 date of 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.

Hey, John.

A couple of big picture questions and then I'll -- a couple of smaller detail ones. But, the Lutheran Church eCRM win announced just the other day is that a relatively new frontier for Blackbaud getting into the religious space? Sort of how many kind of elephants are there in that space and what does this win sort of represent as a milestone, if at all?

We've been serving the faith-based sector for a long time and have hundreds and hundreds of customers there. We started off primarily with Diocese customers of whom we have -- there are quite a few. And there are dozens of large faith-based organizations of the -- you know, sort of combination of mega-church and evangelical and for missionary-based organizations. It's not always the same mix, and they have all 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. Is it as big as the university sector? Yes, probably. Is it as immediately accessible as the university sector? Probably 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. Just what is this end market weakness and uncertainty? What does that do to the competition's interest or specifically the salesforce.com's of the world? People who are sort of -- have kind of -- you know, 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?

Well, I'd obviously have to let them comment on their sectoral strategy, but we don't see any dramatic change in amount of interest by the large players, the -- sort of Microsoft, Oracle, Sales force, [Sage] type organizations. This business represents a relatively small portion of their business, and I don't really see any change in how they're 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 for international?

Well, 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 sort of a constant dollar basis that 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 a -- an exchange rate perspective, if you looked at Q4, international revenues in dollar terms were actually down about 4% compared with Q4 last year.

If, however, you looked at them in constant dollars or in -- yes, in constant dollar 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 there, John.

And can you comment on the sequential decline in Kintera's deferred revenue write down, and is there an expectation of that item for 2009?

Well, remember that -- and I can't give you a whole of color about 2009 because, in fact, we haven't specifically given full year guidance 2009, just some broad indicators. But, what I can tell you is that from the standpoint of the deferred revenue and the impact of how much the write down impacts you on a quarterly basis, remember that there was a piece of the deferred revenue that related solely to services where revenue had to be deferred relative to services and so -- as well as other components.

Obviously, as time goes by and those engagements reach an end or reach a further point in the cycle that deferred revenue starts to drop off more quickly -- or the impact, at least, of the write off drops off in the earlier periods. It doesn't just automatically flow out over a two-year period. It does have some impact, earlier rather than later, in the period. So that's kind of the best I can do in explaining that.

That's helpful. That's great. And you did mention -- I know you didn't give a lot of guidance for full year '09. I just wanted to make sure that I heard you correctly. You're expecting, I think, is a 20% non-GAAP operating margin.

Well, I think what we said was at the level of expenditure Marc talked about were -- 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's any specific revenue line item that was more impacted by the foreign exchange issue.

My guess is that it's probably -- it was probably harder hit in services than in any other. I know maintenance would have been affected too, Larry. I'm sorry. I just don't have good granularity for that one.

Larry Petrone. Okay. And then, the other question I had, Marc, just wondering with the situation -- with 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 is -- at this point is roughly -- is somewhat similar to -- in previous years. And so, you sort of are covering the same number of opportunities with a similar of reps and 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, I just wonder, you commented earlier about sort of what happened during the quarter in terms of customer interest early in the call. And 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 there was some -- people got cautious in Q3 in the education space -- slightly more cautious -- and I have seen no change in -- 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.

I just had a quick follow-up.

Welcome back, John.

Yeah. Thank you. I was just wondering, Tim, if you had handy the employee head count and at the end of the year and how many -- if you break that out, how many associated with Kintera.

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

I'd point out that the Kintera business is made up of some analytics teams that have been merged into Target Analytics. And that there is the FundWare team that has been merged into the Charleston Financial Solutions sector, so you know -- and I don't have on top of my head the number of that, but there's -- there probably is something like 40 of those people are in those two sectors. So, the Sphere portion of the business is probably closer to 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. Well, 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.