Blackbaud (NASDAQ:BLKB) is the global provider of software, and related services that are specifically designed for non-profit organizations. It helps non-profit organizations increase donations, reduce fund-raising costs, improve communications with constituents, manage their finances, and optimize internal operations. It has focused solely on the non-profit market since its incorporation in 1982. At the end of 2006, it had approximately 15,500 customers, of which 97%, or almost 15,000, paid annual maintenance and support fees. Its customers operate in multiple verticals within the non-profit market including religion, education, foundations, health and human services, arts and cultural, public and societal benefits, environment and animal welfare, and international and foreign affairs.
Non-profit organizations employ 7.2% of the U.S. work force, a figure that increases to 10.5% when volunteer labor is included. Donations to non-profit organizations in the United States were $260 billion in 2005, and have increased almost every year since 1962. According to Giving USA, the compound annual growth rate over the past ten years was 7.5%. In addition, these organizations receive fees of approximately $850 billion annually for services they provide. Worldwide, non-profit organizations employ more than 25 million people, and account for $1.3 trillion in total annual expenditures, according to the Johns Hopkins Nonprofit Employment Data Project.
FUND-RAISING RELATED EXPENSES
I often see some teenage guys selling some toys for some fundraiser that is used by a non-profit organization, when I am at the park with my 3-year old daughter. Most of the times we feel that the dollar we are spending goes directly to the cause, after all Uncle sam does not get any piece of this pie. Well, in reality this is not true. According to Blackbaud's market research, $0.24 out of every dollar we spend is used by non-profit organizations for their fund-raising expenses. This creates enormous opportunities for software providers like Blacbaud to pitch in, and help these organizations reduce their fund-raising expenses, in order to get more bang for their buck.
THE RAISER'S EDGE - Blackbaud's leading product
This is a 20-year old product that has evolved by making improvements that incorporate the innovations in technology.
The Raiser’s Edge provides a comprehensive dashboard view that shows user's important performance indicators for campaigns, appeals, funds, events, proposals and membership drives. The Raiser’s Edge is highly configurable allowing a non-profit organization to create numerous custom views of constituent records and automate a variety of business processes. The Raiser’s Edge contains a robust data management and storage system to help fundraisers use their data more effectively. Among other things. The Raiser’s Edge allows an organization to access extensive biographical and demographic information about donors and prospects, process gifts, monitor solicitation activity, analyze data andpublish reports. The Raiser’s Edge improves the efficiency and effectiveness of a non-profit organization by reducing overall mailing costs, offering faster data entry and gift processing, supporting major donor cultivation, using the Internet to send email appeals and accept on-line donations, in addition to providing instant access to better information. The Raiser’s Edge also integrates with Microsoft® Office® to enable users to take advantage of additional functionality.
In 2004 The Patron Edge was developed in conjunction with The Raiser's Edge to allow for comprehensive marketing based on donor profiles or as a standalone ticketing and subscription sales management tool.
The Patron Edge offers a variety of ticketing methods and allows customers to save time by streamlining ticketing, staffing,scheduling, event and membership management, and other administrative tasks.
The Patron Edge decreases costs incurred by customers by reducing box office expenses and eliminating the transaction fees common to other online ticketing solutions.
SALES AND MARKETING
The products are directly sold by its 300-strong sales force located that are located in branch offices throughout the U.S., Canada, Australia and U.K.
COMPETITION IN NON PROFIT SOFTWARE INDUSTRY
A number of diversified software enterprises have made acquisitions or developed products for the market, including Sage and SunGard. Other companies such as Microsoft (OTCQB:MFST), Salesforce.com and Oracle (NASDAQ:ORCL), offer products that are not designed specifically for non-profits, but still provide some of the functionality of that are present in Blackbaud's products, and could be considered competitors.
SIGNIFICANT DEFERRED TAX ASSET
In connection with the initial acquisition of their common stock as part of its recapitalization in 1999, it recorded approximately $107 million as a deferred tax asset. Its deferred tax asset, of which $58 million relates to its 1999 recapitalization, was approximately $66 million as of December 31, 2006, or approximately 34% of its total assets as of that date. The realization of its deferred tax asset is dependent upon its generating sufficient taxable income in future years to realize the tax benefit from that asset. In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, deferred tax assets are reviewed at least annually for impairment. Impairment would result if, based on the available evidence, and it is more likely than not that some portion of the deferred tax asset will not be realized. This impairment could be caused by, among other things, a deterioration in performance, a loss of key contracts, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of oraffect the products sold by its business, or a variety of other factors. If an impairment were to occur in a future period, it would be recognized as an expense in its results of operations during the period of impairment.
When does a company create a deferred tax asset? The tax laws may not recognize some of the expenses that a company has charged off in its accounts. For instance, provisions made at the discretion of management, such as those for bad debts, may not be fully recognized by tax authorities. In some tax systems, companies may be able to "carry forward" losses to future years, which may be referred to as tax write-offs. In such cases, the company may have a tax asset representing the amount that future taxes payable may be reduced due to tax losses in previous years. Expenses which are accounted for on an accrual basis (when they become due, and not when they are actually paid) may not be applicable to tax accounting, and therefore are taxable profit. Companies may charge off duty, access and tax dues against profits when they become due, but they would be recognized for tax computation only when they are actually paid. In such cases, a company is actually pre-paying taxes pertaining to future years. For the year, the profits that are taxable would be higher than those computed in the company's books of accounts, or there is a timing difference in the recognition of the taxable profit compared to the accounting profit. So, while the company shells out a disproportionately high amount of taxes in the current year, it would save on taxes in the years when the expenses or provisions actually materialise.
SOURCES OF REVENUE
License fees:These have grown from $20.5mln in 2002 to $32.5 mln in 2006. Services: These have grown from $26.7 mln in 2002 to $61.2 mln in 2006. Maintenance: These have grown from $52.7 mln in 2002 to $81.3 mln in 2006. Subscriptions: There were no subscriptions in 2002 mln, and in 2006 they were $10.7 mln.
Overall the revenues have grown from $105 mln to $191 mln.
Even though services have grown substantially, the gross profit margin is highest for License fees and subscriptions. The cost of license fees has decreased from $2.5 mln in 2002 to $2.2 mln in 2006. Services, maintenance, and subscriptions have changed from $14 mln, $10mln, and $0 to $33.7 mln, $13.2 mln and $2.36 mln, respectively.