Donald Volk – Chief Financial Officer Rudy Karsan – Chief Executive Officer Troy Kanter – President and Chief Operating Officer

Richard Davis – Needham & Company Brendan Barnicle – Pacific Crest Securities Peter Goldmacher – Cowen and Company Bryan McGrath – Credit Suisse Laura Lederman – William Blair & Co. Terry Tillman – Raymond James Brad Mook – MKM Partners [Jobe Matthew] for Thomas Ernst – Deutsche Bank James Friedman – Susquehanna Financial Group Horatio Zambrano – Jeffries and Company Steve Koenig– KeyBanc Capital Markets David Hilal – FBR Capital Markets Michael Nemeroff – Wedbush Morgan

Welcome to the Kenexa Corporation fourth quarter 2008 earnings conference call. (Operator Instructions) Now I would like to turn the conference over to your host and moderator, Mr. Don Volk. Please go ahead, sir.

With me today is Rudy Karsan, our Chief Executive Officer, and Troy Kanter, our President and Chief Operating Officer. Today we will review Kenexa's fourth quarter and full year 2008 results and provide guidance for the first quarter 2009, hen we will open up the call for questions. Before we begin, let me remind you that this presentation may contain forward-looking statements that are subject to risks and uncertainties associated with the company's business. These statements may concern among other things, guidance as to future revenues and earnings, operations, transactions, prospects, intellectual property, and the development of products. Additional information that may affect the company's business and financial prospects, as well as factors that would cause Kenexa's performance to vary from our current expectations are available in the company's filings with the Securities and Exchange Commission. Also, I would like to remind you that today's call may not be reproduced in any form without the expressed written consent of Kenexa. We may refer to certain non-GAAP financial measures on this call. I will discuss the reconciliation of adjusted numbers to GAAP numbers and a reconciliation schedule showing the GAAP versus non-GAAP is currently available on our company website www.kenexa.com with the press release issued earlier today. Finally, please note that we will be discussing preliminary GAAP financial results on this call for both the fourth quarter and the full year 2008. As shared in our press release, results are preliminary in nature as the company has not yet finalized the amount of the non-cash goodwill impairment charge to be recorded as part of its GAAP results for the fourth quarter ended December 31, 2008. I’ll now turn the call over to Rudy Karsan.

Thanks to all the people joining us on the call to review our fourth quarter and full year 2008 preliminary results, which were consistent with our previously issued guidance. Similar to recent quarters, we saw the macroeconomic environment become more daunting on the margin as the quarter played out and the unemployment rate steadily increased. During the fourth quarter, the unemployment rate was announced at 7.2%, which was ahead of most economists’ predictions. Before and after this announcement, we continue to see major global corporations announcing layoffs numbering in the thousands for our organization. Two thousand eight turned out to be the most challenging operating environment that Kenexa has faced. While we are disappointed that our financial results fell short of our original targets entering the year, it is important to highlight our accomplishments. We exited the year as one of the largest vendors in the overall ACM and On-Demand markets providing Kenexa with significant critical mass. We generated over $36 million in non-GAAP operating income for a non-GAAP margin of 18%. We generated over $32 million in cash flows from operations. We used that strong cash flow to buy back over 1.6 million shares during the year reducing our shares outstanding by 7%. We added over 150 preferred partner customers. Our solutions were used by the largest and most complex organizations in the world such as GE, Unilever, CWC, Exxon/Mobil, among many others. Our technology was recognized as market leading by independent industry analysts. We expanded our value proposition by internal development in complementary acquisitions, and we grew our global footprint exiting the year with operations in over 15 countries. As we enter 2009 in a strong financial and fundamental position, we believe that Kenexa is well positioned to weather the economic storm based on our proven value proposition, critical mass, premiere customer base, strong balance sheet and history of profitability. We expect the talent management market to continue consolidating as customers increasingly turn to vendors, such as Kenexa, that are viewed as a safe choice. While we remain bullish about the long-term opportunities associated with the talent management market, the increasingly challenging economic environment and its related impact on the jobs market has had a clear impact on HR-related technology and consulting spending. It remains uncertain as to when the business environment will improve, so we continue to offer it with the views that it will remain challenging throughout 2009. We will continue to monitor the health of the global economy and take appropriate actions to balance delivering profitability in cash flow with ensuring we’re well positioned to drive long-term growth. To that end, last quarter we discussed the fact that we were realigning our cost structure for the lower revenue run rate of the business during this difficult economic environment. This was completed during the fourth quarter and we have recently communicated an incremental workforce reduction of approximately 150 employees in order to further adjust our infrastructure with the current state of the market. It is important again to stress that these moves will not slow our product delivery commitments or developmental plan, and our service delivery and customer support efforts will continue to receive the highest levels of commitment and focus. The most significant positive from the fourth quarter and the full year 2008 is that our competitive position does not only remain strong, but we believe is actually improving. As a point of reference, we signed a record number of customers for our applicant tracking systems during the fourth quarter and our renewal rates in this category remain in the 90% plus range. This segment of our business continues to hold up well in spite of the difficult economic environment which we believe is a result of two factors. First, it shows that the more sophisticated companies are continuing to move forward with talent management related projects. Second, we are realizing the benefits from our aggressive investment in R&D, in particular relative to the significant enhancement of our Kenexa Recruiter BrassRing offering. The strength of the ATS portion of our business is fairly widespread from medium sized organizations to displacement of competitors as they work through acquisition digestion to the high end of the market where we believe our solution that’s the industry standard. As it relates to the RPO segment of our business, we shared with you last quarter that we expected RPO contribution to decline materially as it is most directly tied to hiring trends and the slowdown or uptick in the economy. Our RPO revenue came in at $11.3 million in the fourth quarter, which compares to our expectations of $12 million and approximately $18.5 million in the second quarter of 2008. We have estimated that approximately 40% of our RPO clients have frozen hiring, which is a significant reason why approximately 80% of our operating at or below levels that are triggering guaranteed minimum. This obviously reduces our revenue that it’s tied directly to the number of employees we hire. As we have discussed before, our RPO revenue is not 100% service based, it also includes software and content to a degree. While the RPO segment of our business adds leverage to our revenue, which is a positive during healthier economic environment, it’s clearly a negative during the recessionary environment. That said there are some positive developments related to this business. For example, we recently added Verizon Business Services as a client in the media and we continue to pursue other opportunities. The final area of the business I would like to point on relates to our content and services. Similar to last quarter, this area of the business remains challenged and on the margin we saw more pressure in these areas in the past several months. Content and services are critical aspect of our long-term success. They are also drivers to customer value and create competitive barriers. In the short-term, however, some customers are trying to get by with bear minimum investments due to the overall challenges the businesses are facing leaving optimization for a later date. This can impact the size of total solution sales and renewals. However, we expect demand for content and services to come back strong when the economy improves and we continue to see more sophisticated new customers signing up for content and services. Turing to some of the key metrics that we normally report, we added over 20 preferred partner customers during the quarter. On the employee retention side of our business, we closed business with customer such as Accenture, Ernst & Young, Wyatt, Indianapolis Power & Light, among others. As it relates to our talent acquisition solutions, we closed business with customers such as PricewaterhouseCoopers or PWC, Memorial Healthcare Systems, Hong Kong Jockey Club, Wildlife Observatory and Boston Market, among others. Our PQ metric, which measures the average annual revenue contribution of our top 80 customers, was over $1.4 million during the fourth quarter, which is consistent with last quarter’s levels. As previously discussed, we expected a flattening of this figure given the current macroeconomic environment and the PQ metric may decline to a degree in the short-term depending on the length of the economic downturn. If it were to decline, we believe it will be due to the decline of our services revenue as opposed to our software subscriptions, which continue at a high level. When the economic environment stabilizes and eventually improves, we continue to believe that Kenexa will be a primary beneficiary and we would expect our PQ metric to resume growth that we have become accustomed to in previous years. As we enter 2009, we’re evaluating the market in our business in multiple scenarios based on our latest REITs of the marketplace, which is below our viewpoint as recently as a month or two ago. The bear case assumption, which would have a macroeconomic environment getting more difficult than what we are seeing today, is a quarterly revenue run rate in the range of $35 to $37 million. In such a scenario, we will target non-GAAP operating margins in the 10% to 12% range. The middle case is quarterly revenue run rates in the range of $38 to $42 million. This assumes that the unemployment rate increases marginally, the environment does not get materially tougher and while not robust more projects will make it through. We will target margins in the 12% to 14% range in this scenario. The bold case planning, which would have a quarterly revenue run rate of over $43 million, in such a situation the macroeconomic environment would need to improve. If this were to be the revenue level we would target margins in the 15% plus range. As Don will cover when he reviews our guidance in a moment, we are currently running our business in the middle case scenario. We will evaluate the market environment over the next quarter or two, and as we gain greater clarity to which way the economic and microenvironment is trending, we will provide grater detail to you as to our full year plan for 2009. The framework just provided, however, should help you understand how we’re thinking about the business and to model our business based on your expectations for unemployment and the health of the overall global economy. We clearly remain cautious in the near-term outlook based on the economy and unemployment. There are, however, reasons that support our overall positive view of the talent management market. For starters, the level of RSPs remain solid enough to support our middle case scenario. Customers, while cautious in the near-term are speaking about re-engaging more fully in the back half of 2009. We are seeing more multi-element deal opportunities. We believe there will be a further shakeout of the market over the next 12 to 24 months, as vendors not as well positioned, need to find larger partners to survive. And finally longer term the demand drivers of this base remain intact. In summary, we will look to delivery solid profitability in cash flow during this difficult economic period, longer term to talent management market is a big market opportunity and Kenexa is a market leader that we believe is well positioned to weather the current storm. I will now turn it over to Don to review our fourth quarter results and fourth quarter results and first quarter outlook in more detail. Donald?

Let me begin by reviewing our preliminary results for the fourth quarter starting with the P&L. Total revenue for the fourth quarter was $45.1 million consistent with our guidance range. As expected, fourth quarter total revenue decreased on a year-over-year and sequential bases by 6% and 17% respectively. Subscription revenue was $37.6 million representing a decrease of 3% on a year-over-year basis and 13% sequentially. Subscription revenue was 83% of total revenue, which is above our longer term targeted mix of the upper 70% to 80% range. At $7.5 million in the fourth quarter, our services and other revenues declined 17% on a year-over-year basis and 32% sequentially. As we previewed last quarter, the sequential decline was driven by the slowdown in consulting revenue and hiring trends at our RPO customers both caused by the more challenging economic environment. We expect both of these components to return to growth as the economy stabilizes and improves over time. From a geographic perspective, our revenue mix of domestic versus international revenue was 79% to 21%, which compares to the previous quarter at 74% to 26%. Strengthening in the U.S. dollar during the fourth quarter had a negative impact of approximately $2.5 million on revenue compared to the third quarter of 2008. From a detailed perspective, RPO represented approximately $7.3 million of our subscription revenue and $11.3 million of our total revenue in the fourth quarter, which compares to $9 million and $15.6 million in the third quarter respectively. Our clients typically purchase multiyear subscriptions with an average length of approximately two years. During the fourth quarter, our renewal rates were in the 70% range, which is down from our well established long-term history of the 90% plus range in better economic environments. Turing to profitability, we will be providing non-GAAP measures for each fourth quarter 2008 expense category, which includes stock-based compensation charges associated with FAS 123R, the amortization and the tangibles associated with previous acquisitions, the R&D tax credit and restructuring and impairment charges. All comparisons will be using the non-GAAP current period results. Non-GAAP gross margin was 67% in the quarter compared to 70% in the third quarter and 73% in the year ago quarter. Non-GAAP sales and marketing expense came in at $9.3 million or 21% of revenue compared to $10.2 million and 19% last quarter and 19% in the year ago quarter. Non-GAAP R&D expense came in at $2.9 million or 6% of revenue compared to $3.6 million and 7% last quarter and 9% in the year ago quarter. Of note, the sequential decline in reported R&D spend was driven by the strengthening U.S. dollar rupee exchange rate and increase projects qualifying for capitalization. Non-GAAP G&A expenses were approximately $10.1 million or 22% of revenue compared to $11.7 million and 22% last quarter and 20% in the year ago quarter. Our non-GAAP income from operations was $6.3 million for the quarter consistent with our guidance and representing a 14% non-GAAP operating margin. During the fourth quarter, non-GAAP tax rate for reporting purposes was 8% resulting in non-GAAP net income of $6 million. Based on 22.6 million shares outstanding non-GAAP diluted earnings per share was $0.27 above our guidance due to a $0.05 impact from the lower than expected tax rate in the quarter. Turning to our results on a preliminary GAAP basis, which include $1.3 million related to the allocation of share-based compensation, $1.5 million related to the amortization of intangibles associated with previous acquisitions, $2.5 million related to restructuring charges. In addition, we expect to recognize a goodwill impairment charge in the range of $96 to $167 million. Final amount is still being determined and will be included in our annual report on Form 10-K, which we expect to file by March 16, 2009. The following were expense levels determined in accordance with GAAP. Cost of revenue $14.9 million, sales and marketing expense $9.6 million, R&D $3 million and G&A $11.4 million. For the fourth quarter, GAAP loss from operations is expected to be in the range of $94.6 million to $165.7 million. Net loss applicable to common shareholders is expected to be in the range of $68.7 million to $120.6 million resulting in GAAP loss per share of $3.05 to $5.35. A reconciliation of non-GAAP to GAAP expenses and income from operations can be found in our press release and current report on Form 8-K filed with the SEC. On a full year basis, our revenue for 2008 came in at $203.7 million up 12% compared to 2007. Non-GAAP operating income came in at $36.6 million for a margin of 18%. Non-GAAP earnings per share came in at $1.35 compared to $1.16 in 2007. While GAAP loss per share is expected to be in the range of $2.31 to $4.58 compared to diluted EPS of $0.94 in 2007. Kenexa has cash, cash equivalents, and short and long-term investments of $42.8 million at December 31, 2008, a decrease of $1.1 million from the end of the prior quarter. Positive cash from operations of $7.4 million during the fourth quarter included an impact of approximately $2.5 million related to the restructuring. Positive cash from operations was offset by $4.2 million in capital expenditures, $2.7 million in cash paid for acquisitions, and $400,000 associated with the execution of the company's share buyback program. In addition, the company wrote down the auction-rate securities portion of its marketable securities balance by $1.5 million. The remaining net balance in auction-rate securities at the end of 2008 was $16.3 million, of which we have received cash of approximately $1.1 million in early 2009. Accounts receivable DSO were 70 days at the end of the quarter, compared to 65 days at the end of the prior quarter, and 60 days at the end of the year ago quarter. Our deferred revenue at the end of the quarter was $38.6 million, up $1.6 million from $37 million at the end of the third quarter. I'd now like to turn to guidance for the first quarter of 2009. We expect the following, revenue to be $38 million to $41 million. To add some perspective to our revenue relative to Q4 levels, we currently expect our ATS business to remain solid during the first quarter from both the renewals and new sales perspective. Offsetting this is the fact that we currently estimate foreign exchange rates to negatively impact our reported Q1 revenue by approximately $1 million as compared to Q4. In addition, we are assuming the market environment will continue to challenge the RPO content and consulting segments of our business during the first quarter. From a summary perspective, our revenue expectations are consistent with the middle case scenario that Rudy described earlier. Taking into consideration that operating expenses are typically higher in the first quarter from a seasonality perspective, we are targeting non-GAAP operating income of approximately $3.8 to $4.1 million. Assuming a 23% tax rate for reporting purposes and 22.6 million shares outstanding, we expect our diluted non-GAAP earnings per share to be $0.13 to $0.15. Of note, our non-GAAP guidance excludes the restructuring charge we expect to incur as a result of the workforce reduction we mentioned earlier. In summary, we will continue to monitor our expenses closely and focus on profitability and cash flow during this challenging economic environment. We'd now like to turn it over to the operator to begin the Q&A Session.

(Operator Instructions) Your first question comes from Brendan Barnicle – Pacific Crest Securities. Brendan Barnicle – Pacific Crest Securities: I just wanted to follow up on your guidance there. Should we be assuming a similar breakdown between subscription revenue and other revenue, as we saw in Q4? And so basically have this currency impact hit universally?

Yes. Brendan Barnicle – Pacific Crest Securities: So for that 83% type rate is about the right level to be at?

Yes, trending a little bit higher to 83% to 85%. Brendan Barnicle – Pacific Crest Securities: And then also, a lot of buyback activity last year. What should we be using for a share count assumption in Q1, and what's that buyback activity look like going forward?

Go ahead, Rudy

Well for a share count perspective it's 22.5. Brendan Barnicle – Pacific Crest Securities: Oh, that's right. You gave guidance on that.

Yes. If we go looking forward, Brendan, you know we have a line with P&C, and that line has certain covenants in it. So with the write-down off the intangible goodwill, we'll be negotiating with the bank once we get a better handle on our debt facilities and get more clarity and visibility in the auction-rate securities we will make further buyback decisions later on through the year. Brendan Barnicle – Pacific Crest Securities: And then, just lastly, Rudy, you were mentioning benefits and consolidation that you were expecting to see and had seen. Who do you expect to be taking most of that share from?

A lot of the smaller players that have either vertical specialties or they are organizations that may have two or three clients to it, those are the kinds of companies that we would expect and no names mentioned. Troy, do you want to add anything to it?

It's a trend that we're seeing in the sales cycle now, that in due diligence, the financial due diligence piece in this environment has become a major gating issue. Though as that continues to be a major gating issue, we'll see that to be a benefit for Kenexa, given sort of our history of profitability and stronger balance sheets. And we'll see that to continue to put additional pressure on a lot of our smaller to mid-size competitors, beyond what they're currently experiencing, just given the downturn that we're all dealing with. Brendan Barnicle – Pacific Crest Securities: Lastly, the riff, where is most of those, or what's the distribution of those cuts?

It’s in cost of goods sold and G&A. Just reflecting the RPO business more than anything else.

We take our next question from Mr. Richard Davis. Richard Davis – Needham & Company: So that was actually helpful, kind of talking about how you want to manage the company through this challenge, and I know no one really knows when the turn's going to come and that kind of thing. But when you think about it from the inside of the company, what are you looking for that will tell you that we're kind of getting close to a turn? I mean, obviously you pointed out market share gains tend to add in those things, and that’s one thing. And then secondly, now, we're sitting at the outside. We obviously don't get to see the sales pipeline. On the outside if you were looking into Kenexa, what are the things that you would look for that are maybe, other than just oh, we hit our numbers and we guided up or something like that. What are some of the details that you would be looking for that would tell us that you guys are actually making traction when the business starts to turn?

I would say if I was looking at the outside for outside indicators, once the credit starts opening up, Richard, you'll start seeing more CapEx that'll affect the solution sale, and you will see more hiring begin that will affect our revenues throughout all lines of our business. So I would say, probably the leading indicator would be the credit market opening up. The next thing internally that we would see is how many, and this is a point that we have noticed, and I think we mentioned a couple of quarters ago, which is what's the conversion rate from verbal to signed contracts? And we mentioned, I think, in Q4 that Q3 was notoriously weak for that. We continued to move those that didn't close in Q3 we closed some of them in Q4. Not all of them. We closed a significant number, but we walk into Q1 again with a bunch of verbals sitting out there. So once we see the conversion rate and sales cycle starting to tighten and shorten, we know that they're real. I think from the outside, the biggest indicator would be our deferred. If you see that thing act in a non-traditional manner, like this Q4 has moved up. Well, every Q4 has moved up. Budget flush is the reason. Do you think Q1, which historically has either remained level or come down a little bit? If it remains level or comes down a little bit, that's a sign that it's ending. If it comes down a lot we're still in the midst of this cycle. If it goes up then we will be very, very surprised.

Your next question comes from Peter Goldmacher – Cowen and Company. [Joe] for Peter Goldmacher – Cowen and Company: Hey, guys, Joe here for Peter. So what we want to know right here is how do we think about how your business will recover when the economy stabilizes? What do you think will recover first, subscriptions or services? And that's it. That's all I have.

I would say you will see the services climb a lot faster than the subscription, and the increase in the subscription will take place in the increase in the deferred, as we mentioned to Richard earlier.

I think you'll see a big pop in the services businesses as our clients have scaled back dramatically. As our customers can't get visibility to their revenue, there's been a big overreaction, spin reductions, a lot of headcount reductions as company’s start gearing back up their hiring programs and reinvesting in their performance management and learning programs as they are going to be reluctant to add a lot of new staff so we’re hopeful that we’re well positioned to capitalize on that of when our clients and prospects start moving in that direction.

Your next question comes from Bryan McGrath – Credit Suisse. Bryan McGrath – Credit Suisse: Can you talk about how many potential RPO contracts you have still up for renewal in ’09? Also, I think you said, and I’m looking at my notes from last quarter, that you had a renewal from Europe that didn’t renew last quarter that you thought might re-up this quarter, and I’m wondering if you had an update you can share on that.

No. It did not re-up so you saw a subscription on the RPO that was part of the reason why our subscription dropped. Our subscription on RPO dropped from 9 to 7.3 or 7.5 roughly and a lot of it was made up with that. We have four contracts renewing this year and so I think the way you want to think about the RPO business as you’re modeling it out as follows, right about 7.5 million in subscription in that business assume about a quarter lifecycle to it. There are two levels of degradation that takes place, one is non-renewal, and two is anniversary. A lot of these contracts when you anniversary them, they’re minimums drop. This was negotiated months and years ago because companies didn’t want very long fixed obligations, and so from a modeling perspective if you think about it going from 7.5 to 0 in a linier slope that would be a good model and then if we sign on any new business we would let you know. Bryan McGrath – Credit Suisse: Going to the EED is a spike in ATS customers you had in the quarter. I'm still trying to get my arms around what would cause a company or businesses that were theoretically probably going through headcount reductions and perhaps budget cuts for flat budgets to add to buy ATS Solutions in this current time period?

There are even companies that are going through really significant headcount reductions still are hiring specialized positions in various parts of the world and on that ATS platform, we have quite a few installs and so the documented ROI there is fairly significant and it's a fairly safe bet for our customers to make. And there is also a phenomenon occurring in the marketplace right now where there have been some consolidation and so there are a lot of customers that are currently reviewing their current platform and looking at other platforms as well as organizations that have implemented platforms on a geographic basis that are now looking at how do we consolidate three or four platforms into one global platform. So we're sort of capitalizing on the benefit of a couple of things that have happened here in the marketplace recently.

Your next question comes from Laura Lederman – William Blair & Co. Laura Lederman – William Blair & Co.: Can you give us a feel for in those different scenarios what cash flow and CapEx might look like? And also, can you talk a little bit about market pricing in the different segments and what's kind of happening in the pricing environment and then I have a follow-up.

On cash flow, Laura, the last three years our cash flow has basically mapped to our non-GAAP operating income. So our operating cash flow and our non-GAAP operating income are basically the same. Laura Lederman – William Blair & Co.: So you don’t expect any shrinking in billing durations?

We have taken a lot of the hits. We were up to 70 days, the DSO at the end of Q4. Could it get worse? Yes. Is it likely that it's going to get much worse? Probably not. Laura Lederman – William Blair & Co.: And can you talk a little bit about if you look at the price of acquisitions out there would you hold off just because you want to absorb what you have and hold onto cash or would you look at this environment as a way to add additional pieces to your business that you might think that you need for the long-term?

I think from an M&A perspective there would be various elements that we would look at. The most obvious one is why would a seller sell in this environment? What do they know that we don’t know? So if we could get satisfied with that first basic question then we would go back to our old rules of is this adding to geography, is it adding to verticals, is it adding to offerings? If the answer to that is yes can we make it profitable? If it’s yes, then we would look at it. And as in the past most of these, not all of these deals have been accretive first full quarter we still have that criteria. And at the current stock price where it's trading it's got to be a pretty low price for it to be accretive so we will think about it that way. Laura Lederman – William Blair & Co.: Then to answer the question on the market pricing, in what you see out there in terms of price aggression on the part of competition and how you establish [inaudible]?

in a market like this obviously we are seeing some price competition, the good news for Kenexa on that front is that we compete primarily on that global 2500 and there's a much smaller number of competitors or other vendors that can really service those types of large complex global organizations. So we have seen some pricing pressure but not to the degree that we're seeing in some of the mid-market tournaments that we're in. And then obviously with current customers that are going through really significant headcount reduction, a lot of our applications are tied to number of employees, so we've seen a little bit of price erosion there.

Your next question comes from Terry Tillman – Raymond James Terry Tillman – Raymond James: Rudy, I know you're not giving full year guidance but I appreciate the scenario analysis and on that bear case the $35 to $37 million, does that just assume a mildly increased minimum level for your RPO customers or why shouldn’t we assume that most all of your RPO customers go to minimums in terms of the level they're operating at?

Yes they could. Terry Tillman – Raymond James: You had given a percentage. Can you remind me what that percentage is in terms of how many are at minimums now?

Eighty percent are at minimums now. Terry Tillman – Raymond James: Okay so you are kind of almost there then.

Yes. Terry Tillman – Raymond James: Okay and the second question relates to, Don, I think you had talked about $9 million related to the RPO and subscription to 3Q and then $7.3 million in 4Q. Can you give us the numbers so we can see comparability to the prior year?

We haven’t disclosed prior year and I don’t have those numbers with me, Terry. Terry Tillman – Raymond James: Okay because what I was just curious on is if you backed out that RPO side, what just the traditional enterprise business like the Brass Ring stuff, what the growth rate or the decline is in that part of the subscription line?

We can give you the total for the last three quarters, it was 18.6% in Q2 18.5% in Q2 the subscription was 9% out of that, Q3 was and 9% again. I don’t think subscription moved. And then last quarter was 11.3% and 7.6%. Terry Tillman – Raymond James: Okay and I know when you bought Quorum, I think there was talk earlier in the different world we were in that that would do about $11 million in the stub period. I know that's a smaller piece so it's less material than the rest of the RPO business. But would that incrementally harder hit or is that actually relatively speaking better or about in line with the same, with the broader RPO business?

I got killed. Terry Tillman – Raymond James: Okay then I guess just last question, Troy, if you could maybe give us an update on the learning and development type solutions, some of the newer stuff that you all had highlighted at the Analysts Day. Is it still too early to think about that in terms of driving new bookings and revenue or are you starting to sell that or where are you in that process.

Let's see, the funnel is starting to build up on that we've yet to realize any significant benefit for the year to revenues on the income statement. But as organizations again there's been a pullback there at the large enterprise level, but we've mentioned there are some pretty impressive organizations that we won on the retention side in Q4. And I think that a lot of those wins have to do with how we are joining together these comprehensive solutions from hiring on boarding on through individual development learning performance management succession planning and I think that's getting reflected in some of the deals we're winning as well as how the funnel’s building.

Your next question comes from Brad Mook – MKM Partners Brad Mook – MKM Partners: Just follow up on that, Troy you mentioned some specialized applications of the ATS. You also mentioned consolidation kind of globally amongst ATS vendors for large customers. Are you seeing any trend either specific to ATS or more broadly across your business in terms of initial engagement sizes?

We're seeing deal size improve, with our business again we're focused on that global 2500 the stuff that is sticking with current customers, as well as the new deals, are those projects that have visibility to the operating committee. And typically when it's visible to the operating committee, it's much more of a strategic buying decision where it's a large multi-element deals that are part of larger business initiatives in organizational initiatives. So we are seeing deal size rise as well as the number of deals that we're winning that have multiple elements to them. Brad Mook – MKM Partners: Okay so that explains the multi-element deal opportunity point as well. On the RPO, Rudy, you talked about non-renewals or reduced renewals, anybody under contract ask for relief to get out and did anybody get it?

We're in ongoing discussions and negotiations. I mentioned earlier on the way to think about the business, which is assume that the subscription will drop by whatever it is, I think it works out to $800,000 or $900,000 per quarter. That would be a decent estimate going forward. Brad Mook – MKM Partners: Okay so that would incorporate any potential impact from relief granted. Is that a fair way to look at it?

It's hard for me answer that question specially, because I don't all the data in front of me, but I would say it would be in the ballpark. Brad Mook – MKM Partners: Okay. Because if we model it linearly and that happens, it's possible to see a step-function reduction, and that's all I'm asking about.

Yes, if you model it incrementally for the balance of the balance of the year then you're going to see drops into Q2, three and four, right? So then you would see a larger quantum leap if there was a company that kind of got out of the deal, or whatever the case might be. Brad Mook – MKM Partners: And then last question just with respect to acquisitions, would it be fair to say that the covenant renegotiation on your line would limit your ability to make any acquisitions here in the front half of the year?

I would say, probably, we would just renegotiate the covenants, but no. The bank just found out about this. We're talking about minutes ago, when the press release hit because we had not shared this information with the commercial banks until we were letting The Street about it. So we don't know how they're going to respond.

Our next question comes from Thomas Ernst – Deutsche Bank. [Jobe Matthew] for Thomas Ernst – Deutsche Bank: Hi. Thanks for taking my question. This is actually [Jobe Matthew] on behalf of Tom. My question is, where are you seeing greatest slowdown within your talent acquisition and retention businesses? And if possible, can you give us a break out of the acquisitions sold and the attention within the subscription? And if I have time, I'll ask a follow-up. Thanks.

You have time, so prepare your follow-up. The breakdown between retention and talent acquisition is heading toward 70/30 in favor of talent acquisition. Historically through the middle of 2008 that number was at 60/40. Towards Q4 it skewed towards kind of in the low to mid 60s and mid to high 30s. For planning purposes through 2009 our model will assume 70/30. [Jobe Matthew] for Thomas Ernst – Deutsche Bank: Okay. So that means that you're seeing some kind of slowdown in your retention businesses relative to the acquisition?

Correct. In fact, it's slowing down faster there than on the acquisition side. And this is not including RPO, by the way. [Jobe Matthew] for Thomas Ernst – Deutsche Bank: Yes, I got that. Okay. Now the other question that I was thinking to ask is you had mentioned earlier that your services revenue – if things get from bad to worse, you could linearly model it from 7.5 to zero. Is that two or three RPO component in your subscription revenues as well?

Yes, that was a subscription component of our RPO.

Our next question comes from James Friedman – Susquehanna. James Friedman – Susquehanna Financial Group: Rudy or Troy, I was wondering if you could describe what you do in the government and vertical, and what sort of level of business activity you might be seeing there, being that government is so topical these days?

We have a GSA license. We haven't had tremendous success in selling there. We had won a few contracts. About a year ago we mentioned L.A. County, the Department of Agriculture and there was a third one I don't remember.

Navy. U.S. Navy.

U.S. Navy, yes.

And then in Europe, I think, a year ago we announced FSO which is the European equivalent to the EEOC, where we did sell the purchase assessment tool. We are continuing to really hammer away at that vertical. We recently added a fairly significant global player out of Britain who joined our leadership team out of retirement from the British Army. General Andrew Jackson's joining our London operation. And we're continuing to look for significant players here in the U.S. So that's an area we want to be investing in. James Friedman – Susquehanna Financial Group: Okay. Andrew Jackson sounds like it would be important.

I know – it's a great name, isn't it? James Friedman – Susquehanna Financial Group: You mentioned a contract with Accenture. Not to pry here, but just to clarify, is that a contract for Accenture's internal purposes or is that a reseller arrangement with Accenture?

Accenture is a new customer. James Friedman – Susquehanna Financial Group: Okay, nice. And then my last thing is, not to beat a dead horse here, but with regard to the difference – and you did describe a decline in subscription renewals, but the deferred revenue increases. I realize there's seasonality to that. I'm just trying to reconcile the different directions of those two observations. Thank you very much.

Assume a huge budget flush.

(Operator Instructions) And we take our next question for Horatio Zambrano – Jeffries. Horatio Zambrano – Jeffries and Company: Hi, thank you. I have a question about the 150-person RIF. What is that on a percentage basis, following your 12% RIF from before? And I guess if you hit your bear case scenario, would you have to have an additional RIF, and where would that come from? Is it from the cost of goods sold line, as well?

The numbers under 10%, I'm not sure whether it's eight or nine. It's somewhere between seven and nine. Additional positions would depend very much where the reduction's coming from. So it's hard to answer that question in a vacuum without knowing the line items that are in the bear case. For example, if it's entirely attributable to RPO you'd have a different answer then. If it was entirely attributable to consulting or it would be a different answer if it was primarily software. So it's hard for us to give an answer in a vacuum around that component. Would there be additional RIFs? Again, it's very difficult to answer the question in a vacuum. An example might be we get into a bear case, and our deferred climbs by $7 million and we knew for sure we're going to have contracts, you'll have a different answer then. We hit the bear case, and our deferred drops by $5 million. A lot of it would depend on the available data. Horatio Zambrano – Jeffries and Company: Okay. In terms of brass ring integration, can you talk about how you've integrated the different groups there from the sales and marketing and G&A perspective? What's left of the original operations that you acquired?

It's hard to even respond to that question anymore, because it's been completely integrated for quite a while, so it's hard to tell where one began and the other started. So I think that sort of the integration thing's probably kind of an irrelevant topic at this point. It probably has been for a couple quarters. Horatio Zambrano – Jeffries and Company: Okay. And then last question. What's the tax rate you guys are assuming, I guess, for next year?

We're not giving guidance on the year that the tax rate for the first quarter is approximately 23% on a non-GAAP basis.

Your next question from Steve Koenig – KeyBanc Capital Market. Steve Koenig– KeyBanc Capital Markets: Hi, guys. Thanks for taking my questions. I just have two questions here. The first one, we'd be interested in any color you can give us on the renewal rates which trended down in Q4. Where was that weakness coming from? What drove that, what areas, etc?

That 80% overall, 90% on the ATS, so it was the other solutions, like performance management solution, surveys and assessments where the balance came in from. Steve Koenig– KeyBanc Capital Markets: Okay. And would you expect those to trend further down to remain stable, any visibility on those?

We've assumed that it will continue the same way for Q1 in our guidance. Steve Koenig– KeyBanc Capital Markets: And that leads me to my next question. I'd be interested in knowing, for your different scenarios, what business areas could drive downside or upside in the scenarios? And would it be more likely to be Q1 or later in the year, etc., in terms of driving upside or downside to the bear case or bull case?

The way we are thinking about it is, I think I mentioned in the prepared comments that from a month or two ago, our bear case has moved significantly. We still think that if the credit markets open and companies start to – we entirely run this out to corporations so when corporations start to reinvest in their people and in their systems, we should start to see that. So I think, I guess the best way I can answer the question is if we can keep an eye out on the credit markets and they don't get much worse than they are now and unemployment doesn't get much worse than it is now, I think the base case will prevail. If that deteriorates significantly into the back half of the year we will get closer to the bear case. Steve Koenig– KeyBanc Capital Markets: And Rudy, if it were to deteriorate toward the bear case in the back half any thoughts on which business areas would be more impacted or where it would come from?

It's hard to speculate and that's part of the reason why we didn't give '09 guidance. At this point in time it will be just pure speculation. I think there's an analyst at [Wright's] Management guidance is management speculation and we don't want to make that analyst look good.

Your next question is from David Hilal – FBR Capital Markets. David Hilal – FBR Capital Markets: Just a couple follow-ups to some previous questions. First, on the $7.5 million, Rudy, you talked about modeling that linearly down over an eight quarter average life. Are you suggesting that $7.5 million is going to go to zero or is that your draconian scenario?

Draconian scenario. David Hilal – FBR Capital Markets: And then I wanted to ask a follow-up on the renewals. So if the ATS is kind of 90%, overall it's 70%, could one extrapolate that the performance management content business is running maybe 50, 60% renewals?

It's hard – I don't have the data in front of us so it would be only speculating on an answer there. David Hilal – FBR Capital Markets: But you have, in terms of number of customers you have more customers in performance management than ATS, even though the deals are smaller there's a greater number of customers? Is that accurate?

No. There's more ATS customers. David Hilal – FBR Capital Markets: Okay, so maybe retention is sub-50. I'm just trying to play the math here.

Seventy/thirty. David Hilal – FBR Capital Markets: In terms of revenue contribution?

Right. David Hilal – FBR Capital Markets: Yes. Right.

Your next question comes from Michael Nemeroff – Wedbush Morgan. Michael Nemeroff – Wedbush Morgan: I was just curious, the uptick that you saw in the ATS product this quarter, does that have anything to do with TeleServe or – and also if you could maybe talk a little bit about the competitive landscape specifically in the ATS market that would be helpful. Thank you.

Each year it's not only TeleServe but there's been a number of other consolidations and less than great news on some of the other vendors in the ATS space, which helps our competitive position and helps our value proposition there. And again, we're also benefiting from as companies look to again reduce costs and there are multiple systems, one system in North America, one system in Asia, one system in Europe, they look for, okay, well what's the best global solution? Pull all those together so we're benefiting from that as well. From a competitive landscape perspective the field is getting smaller especially on these large complex global deals. It's a fairly short list of people that we're competing against. Michael Nemeroff – Wedbush Morgan: And then just one for Rudy, the unemployment rate, how much higher does it have to tick up and how much worse does the environment have to get before you would get to that 35 to 37, 10% to 12% bear case scenario?

Michael, if I knew the answer to that question we probably would give you '09 guidance. We just don't know.

And at this time there are no further questions in the queue. I would like to turn the call back over to you, Mr. Karsan, for any additional remarks.

[Martin], thank you very much and we again would like to thank The Street for joining the call and as my grandfather told me, "This too shall pass." So we'll look forward to talking to you again next quarter. Good night and good evening.

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