Good day, and welcome to the Blackbaud 2014 Fourth Quarter and Year-end Conference Call. Today's conference is being recorded. At this time, I like to turn the conference over to Robert Weiner, Director of Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today for Blackbaud's 2014 fourth quarter and year-end conference call. Today, we will review our fourth quarter and year-end financial and operating results and provide commentary on our plans for 2015, including our financial guidance for the year. Joining me on the call today are Mike Gianoni, Blackbaud's President and CEO; and Tony Boor, Blackbaud's Executive Vice President and CFO. Mike and Tony will make prepared remarks, and then we will open up the call for your questions. Please note that our comments 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 on the Investor Relations section of our website. During this call, we will be referring to both GAAP and non-GAAP financial measures. We believe that a combination of both GAAP and non-GAAP measures are more representative of how we internally measure the business. In addition, we discuss non-GAAP organic revenue growth which we believe provides a useful tool for evaluating the periodic growth of our business on a consistent basis. In this non-GAAP financial measure, we reflect certain revenue derived from our payment processing services for the year ended December 31, 2013 on a gross basis rather than a net basis for presentation consistent with 2014. Non-GAAP organic revenue growth excludes incremental…

Thanks, Rob. Good morning, everyone. Thank you for joining our call today to report on our 2014 fourth quarter and year-end results. In 2014, our company clearly gained momentum operationally and financially, while positioning our enterprise to perform well and enabling us to scale revenue and profitability in the future. During this past year we executed against our strategies, which were designed to drive an extended period of quality enhancement, product and service innovation, and increased operating efficiency and financial performance for Blackbaud. Our execution throughout the year was focused and strong, leveraging our domain expertise and marketing leadership in the global giving market to deliver solid progress on our five-point growth strategy, which we outlined at our investor day this past September. I’m very pleased with our progress in 2014. A team of approximately 3000 associates executed well and our leadership team is very grateful for and proud of their focus and determination during the year. Their dedication to serving our customers and our missions enabled our company to achieve these key milestones in 2014. We accelerated our operational momentum and financial performance, while at the same time we increased our capabilities to lead innovation in our markets. We made key product decisions and provided a clear road map. We launched compelling product upgrades to many of our solutions, including the Raiser's Edge, eTapestry, Luminate, and the latest Blackbaud CRM 4.0 release. We introduced key new cloud-based solutions, Raiser's Edge NXT and Financial Edge NXT. We enhanced our expertise through key hires. We strengthened our balance sheet and capital structure. We expanded the scope and scale of our business through two key acquisitions that substantially increased our total addressable market, and finally we are able to increase our financial guidance on two separate occasions as we progress throughout the…

Thanks Mike, good morning everyone. Thank you for joining us today to review our 2014 fourth quarter and full year performance. Our company performed well in the fourth quarter with strong increase in organic growth of 7.5% and continued broad base contributions from across our product portfolio. We had solid growth in each one of our primary revenue categories, subscriptions, services, licenses and maintenance with 20% growth for subscriptions, 7% growth for maintenance, 5% growth from services and a nice rebound in license sales this quarter with more than 28% growth, driven by several new deals for our recently released Blackbaud CRM product. Our maintenance revenue continues to benefit from our success in the global enterprise customer market. During the fourth quarter we also saw a strong contribution from our payments, analytics, mobile and online solutions, which were driven by their integration earlier this year into the Raiser’s Edge product suite. It is also important to note that our subscriptions growth of 20% was not impacted by the net to gross presentation change we made for our payment solutions in the fourth quarter of 2013. The anniversary of that change occurred at the end of the third quarter so our fourth quarter is a clean apples-to-apples comparison. Let me take a minute to one last time explain this presentation change. The total impact for the net to gross change was an increase to revenue of $32.2 million in 2014 compared to $22.2 million in 2013 had the presentation change been an effect for all of 2013. The impact is associated with the change in presentation for certain of our payment solutions from a net revenue presentation to a gross revenue presentation methodology. The presentation change reduced non-GAAP gross margin by 340 basis points and reduced operating margin by 106 basis…

[Operator Instruction] We will take our first question, caller please state your name.

Hi gentlemen, good morning Tom Roderick here. If you can provide an update with regard to NXT product itself and the milestones that you have made on the development front. I think originally back in October you were targeting 2015 release, what are you hearing back from customers that have been at the data program, how are we been achieving towards the milestone on the development front and do you still feel like Q2 call in June is still the appropriate timeframe for GA release?

Hi Tom, it's Mike. Yes, we are on track. We are getting some very good feedback. We have had clients using the system in an early release mode for quite a while. We started to sell Raiser's Edge NXT and Financial Edge NXT in the fourth quarter had a nice uptick in actual sales and we have had many, many clients raise their hands to be sort of first in line and we’re sorting through all that as well. So, from a development standpoint we are feeling very confident in our progress and we expect to hit our initial goals of getting this rolled out starting in the end of second, beginning of third quarter.

Great. Tony, I may have missed and I heard you give the adjustment on the currency side, so midpoint of the guidance here organically 5.5% if you adjust that for currency 6.8%. What would be the right way to think about the impacts of selling NXT at multi-year edge deals with the assumption obviously that you can't take revenue until that product is released. What's the headwind on the revenue growth this year?

We haven’t given any specifics on it Tom, but there are three major factors that I talked about in our prepared comments. Effectively you get a deferral of revenue on anything that we are selling in Q4 and then Q1 and Q2 before the actual launch, a big portion of that revenue is going to get deferred until the product actually launches in the second half and get ratable recognitions and software treatment on the NXT product as well and then we anticipate and have built into our guidance expectation for some reduction in back to base sales for existing customers i.e., probably buying less user licenses and less new modules because they are anticipating moving to NXT. So, all of those factors are built into our guidance. Then the other thing I would share with you is that we are effectively selling customers today both in RE 7 for instance or FE 7 solution and the rights to an NXT. So they are effectively getting a Raiser's Edge 7 and a Raiser's Edge NXT when they buy a solution today. And so, we have to allocate the revenue between those two, both our subscriptions between those two products. And so, you will get rev rec on the RE 7 subscription between now and when they go live on NXT. And then, whatever revenue which is a larger portion of revenue is allocated to the NXT portion of the contract will get recognized over the remaining contract term on a ratable basis. So, assume they bought in January, get six month on RE7 of revenue and then probably recognized the remaining over 30 months on a normal 36 month contract.

Got it, okay. Mike can you talk a little bit more about the growth in the payment business, got the question about the accounting change last year but the actual functional growth in payment, it seems like you have done a lot to improve the capability in payments within both Raiser's Edge and the online side of the business as well. What are you seeing in that front connected and change to grow and what are the things do you have to do to the payments, to capture more functionality and integrate it more deeper with your core products?

Sure Tom. We started and talked about this several times last year and it continues, which is a pretty big focus on deeply integrating payments across our solution side. The nice side about that is not just a short term upside, but the fact that the online part of the industry is growing at multiples of the total industry. And so, as we continue to add payments capabilities to all of our online platforms and we are not done with that yet, but we are pretty aggressively getting that done, we will pick up revenue and then we will pick up the organic growth that inclines to those online platforms and then having those online platforms continue to grow essentially in multiples of the entire industry. But I think that the organic growth future for that component of our subscription revenue is pretty positive.

Wonderful. Thanks guys, I will jump back in queue, I appreciate it.

Thanks Tom.

Next caller please go ahead.

Pete Wahlstrom. Good morning it's Pete Wahlstrom giving the call from Morningstar. Thanks for the questions. Maybe following up on the payment side, can you really remind us as to whether you view this more of white space for Blackbaud, is it in untapped market or does Blackbaud need to displace another acquirer in certain situations?

Yes, a lot of it is white space. The payments capable, most of the industry is still cash and check and that’s primarily because most of the industry is still yet not online, in fact, it's less than 10% of the total is online. And so, there is the upside and to sort of converting the industry if you will to more automated online and kind of mobile capable payments within our own platform, but then it's also early days for the industry in general because most of the industry is not online. I would summarize that as white space and new opportunity.

Okay. And do you view that as – because the non-profit area is just a little bit more below the radar, it's a niche area, I guess what I am trying to ask is if this is a growing market that's expected to grow at multiples of the overall giving market, it seems like it would be attracting a little bit more competition as well. Are you seeing Blackbaud having some success in this market or is it becoming a little bit more difficult to go into some of those customers?

Yes, we don't see any new competitors. The non-profit sector in general is pretty fractured, so we don't have any large online competitive threat, nothing new that we have had in the last several years and we enjoy a pretty substantial sort of incumbent position with our sort of traditional serum of platform. So, we think we are positioned quite well from a payment standpoint and we are focused on integrating our payments platform with our existing online platforms which is not yet complete and I mentioned earlier and also selling new clients to our online systems, which just pulls the payment transaction capability with it as well.

Very good and one last question just from an operational standpoint, you have essentially completed the back office improvement goals that you started a year ago and I understand that there is more work to be done. How would you characterize or quantify the benefits of these in your 2015, up margin goals expanding by 30 basis points and also along your three year margin improvement plan?

Pete this is Tony. You are right, we had a really good year last year as far as back office and we were able to largely get rid of 24 despaired systems or manual processes and moved to six best breed and so we’re, I think well-positioned to drive more growth and gain efficiencies and leverage as a business. In 2015 the difficulty you have as far as margins twofold one, currencies are dragging on both our organic growth rate and our margins on off margins, we estimate the currency impact to be about 30 basis points, so our guidance is showing about half of what we kind of anticipated year-over-year. The second side of that is there is lot of efficiencies we are starting to see as a business, which play into that long term aspirational goal of gaining 300 to 600 basis points in operating margin, a lot of that benefit in 2015 is actually offset by some of the impact of the NXT shift. So, with that revenue getting pushed out some decline and expected decline in back to base sales etcetera that revenue is largely a 100% fall through to earnings. And so, I actually feel very positive of our guidance that we are increasing our operating profits and cash flows as strongly as we are, inclusive of both the FX and the impact of this NXT shift. And I recall ever seeing another software company has been able to do that when they went through a transition. So, we feel really positive about that in 2015 and then 2016, 2017 again we still feel good about our long term aspirational goals and that driving towards 300 to 600 basis points.

Hi Pete, it's Mike again. Just one sort of the operational add that I think is a key point. We last summer shutoff the last system of an acquisition we made a few years ago and the change in our focus and capability is such that we purchased WhippleHill in June, we shutoff all of their system in six months. So, we are a lot more aggressive in gaining those synergies when we make acquisitions and just from an internal focus standpoint.

Okay. Thank you very much.

You are welcome.

And this will conclude our question-and-answer session. I will turn the call back over to you host for closing remarks.

Hi thanks everyone. Thanks for listening to the call. We look forward to seeing all of you in our upcoming investor relations trips, have a good day. Thank you.

Ladies and gentlemen this does conclude your conference for today. Thank you for your participation.