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Annual Report · Form 10-K
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1: 10-K Annual Report HTML 669K
2: EX-21.1 Subsidiaries of the Registrant HTML 15K
3: EX-23.1 Consent of Experts or Counsel HTML 5K
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10-K · Annual Report
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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934
Blackboard Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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52-2081178
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1899 L Street, N.W.
Washington D.C.
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20036
(Zip Code)
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(Address of Principal Executive
Offices)
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Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(g) of the
Act:
None
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, $0.01 par value per share
Indicate by check mark if
the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ No
o
Indicate by check mark if
the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o No
þ
Indicate by check mark whether
the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that
the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements
incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether
the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and
“smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether
the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o No
þ
The aggregate market value of outstanding voting stock held by
non-affiliates of
the registrant as of
June 30, 2007 was
approximately $953.7 million based on the last reported
sale price of
the registrant’s common stock on The NASDAQ
Global Market as of the close of business on that day.
Portions of
the registrant’s definitive proxy statement for
its 2008 annual meeting of stockholders to be filed pursuant to
Regulation 14A with the Securities and Exchange Commission
not later than 120 days after
the registrant’s fiscal
year end of
December 31, 2007, are incorporated by
reference into Part III of this
Form 10-K.
BLACKBOARD
INC.
Form 10-K
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Page
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Number
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PART I
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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10
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Item 1B.
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Unresolved Staff Comments
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20
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Item 2.
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Properties
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20
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Item 3.
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Legal Proceedings
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20
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Item 4.
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Submission of Matters to a Vote of Security Holders
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20
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PART II
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Item 5.
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Market for Registrant’s Common Equity and Related
Stockholder Matters and Issuer Purchases of Equity Securities
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21
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Item 6.
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Selected Financial Data
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23
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Item 7.
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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25
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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44
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Item 8.
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Financial Statements and Supplementary Data
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45
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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71
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Item 9A.
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Controls and Procedures
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71
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Item 9B.
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Other Information
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74
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PART III
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Item 10.
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Directors and Executive Officers of the Registrant
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74
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Item 11.
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Executive Compensation
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74
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
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74
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Item 13.
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Certain Relationships and Related Transactions
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74
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Item 14.
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Principal Accounting Fees and Services
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74
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules
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75
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ii
This report contains forward-looking statements that involve
risks and uncertainties that could cause our actual results to
differ materially from those expressed or implied by such
statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in
the section entitled “Risk Factors” under
Item 1A. When used in this report, the words
“expects,” “anticipates,”
“intends,” “plans,” “believes,”
“seeks,” “estimates” and similar expressions
are generally intended to identify forward-looking statements
within the meaning of The Private Securities Litigation Reform
Act of 1995. You should not place undue reliance on these
forward-looking statements, which reflect our opinions only as
of the date of this report. Blackboard assumes no obligation and
does not intend to update these forward-looking statements.
PART I
General
We are a leading provider of enterprise software applications
and related services to the education industry. Our product line
consists of various software applications delivered in three
suites, the Blackboard Academic
Suitetm,
the Blackboard Commerce
Suitetm,
and Blackboard
Connecttm.
Our suites of products include the following products:
Blackboard Learning
Systemtm,
Blackboard Community
Systemtm,
Blackboard Content
Systemtm,
Blackboard Outcomes
Systemtm,
Blackboard Portfolio
Systemtm,
Blackboard Transaction
Systemtm,
Blackboard
Onetm
and Blackboard
Connecttm.
We license these products on a renewable basis, typically for
annual terms.
Our clients include colleges, universities, schools and other
education providers, textbook publishers and student-focused
merchants who serve these education providers and their
students, and corporate and government clients. These clients
use our software to integrate technology into the education
experience and campus life, and to support activities such as a
professor assigning digital materials on a class
website; a
student collaborating with peers or completing research online;
an administrator managing a departmental
website; a principal
sending mass communications via voice, email and text messages
to parents and students; or a merchant conducting cash-free
transactions with students and faculty through pre-funded debit
accounts.
We began operations in 1997 as a limited liability company
organized under the laws of the state of Delaware and served as
a primary contractor to an education industry technical
standards organization. In 1998, we incorporated under the laws
of the state of Delaware and acquired CourseInfo LLC, which had
developed an internal online learning system used by faculty at
Cornell University, and had begun marketing its technology to
universities and school districts in the United States and
Canada. Since the time of our acquisition of CourseInfo, we have
grown from approximately 26 licenses of one software application
as of
December 31, 1998 to more than 4,800 licenses of our
software applications as of
December 31, 2007.
In June 2007, we issued and sold $165.0 million aggregate
principal amount of 3.25% convertible senior notes due 2027 (the
“Notes”) in a public offering.
On
January 31, 2008, we completed the acquisition of The
NTI Group, Inc. for a purchase price of $132.0 million in
cash and $50.0 million in our common stock, which equated
to approximately 1.5 million shares of our common stock,
with up to an additional 0.5 million shares of our common
stock contingent on the achievement of certain performance
milestones. In connection with the transaction, we paid a
portion of the purchase price using proceeds from the issuance
of the Notes. This acquisition will give us the opportunity to
offer clients the ability to send mass communications via voice,
email and text messages. We acquired the technology underlying
Blackboard Connect, which we began offering in February
2008, through the acquisition of The NTI Group, Inc.
Customer
Overview
Our customer base consists primarily of U.S. postsecondary
education clients, which accounted for approximately 61% of our
total revenues for 2007. We also sell to international
postsecondary clients; U.S. K-12 education clients; and
others, including primarily education publishers, commercial
education providers and
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United States government organizations, which accounted for
approximately 19%, 7% and 13% of our total revenues for 2007,
respectively.
Products
and Services
Blackboard offers a complete line of enterprise software
applications focused on the education industry. Clients can
license our software individually or in one of three suites:
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Blackboard Academic Suite,
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Blackboard Commerce Suite, and
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Blackboard Connect.
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We offer the Blackboard Academic Suite in all of our
markets, the Blackboard Commerce Suite primarily to
U.S. and Canadian postsecondary clients and Blackboard
Connect to U.S. K-12, postsecondary and government
clients. We also offer application hosting for clients who
prefer to outsource the management of their Blackboard
Academic Suite systems. In addition to our products, we
offer a variety of professional services, including project
management, training and custom application development, that
increase our clients’ success.
The
Blackboard Academic Suite
The Blackboard Academic Suite provides a scalable and
easy-to-use technology platform for delivering education online,
managing digital content and aggregating access to tools,
information and content through an integrated Web portal
environment that grows as our clients grow. It enables
institutions to:
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Increase faculty adoption of technology for teaching,
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Drive student engagement through personalized experiences and
active learning tools,
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Securely share and collaborate around content across the
institution, and
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Meet diverse assessment needs of institutions.
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The Blackboard Academic Suite includes:
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the Blackboard Learning
Systemtm;
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the Blackboard Community
Systemtm;
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the Blackboard Content
Systemtm;
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the Blackboard Portfolio
Systemtm;
and
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the Blackboard Outcomes
Systemtm.
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The Blackboard Academic Suite includes the products
formerly known as WebCT Campus
Editiontm
and WebCT Vistatm, which were acquired in our merger with
WebCT, Inc (“WebCT”) in 2006.
The
Blackboard Learning System
The Blackboard Learning System allows educational
institutions to support a feature-rich online teaching and
learning environment that can be used to augment a
classroom-based program or for distance learning. The major
capabilities of the Blackboard Learning System include:
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Teaching and Learning. Instructors can post
syllabi and course materials, including documents, graphics,
audio, video and multimedia; create, deliver and automatically
score online assignments and tests; and report grades and
grading analysis along with other information to students.
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Advanced features. The Blackboard Learning
System also provides integrated email, discussion forums and
live virtual classrooms. It also provides tools to facilitate
group collaboration, communication, file-sharing,
self-evaluation and peer review. Additionally, we offer
Blackboard
Scholartm,
a service which
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allows users to build a network of peers who share similar
educational interests, and
SafeAssigntm,
a plagiarism prevention service.
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Extending the learning environment. Our
products can be integrated with existing campus student
information systems and campus registrar’s systems to
access user, course and enrollment information stored throughout
the institution. Additional capabilities are available through
the integration of third-party Blackboard Building Blocks(R)
or Blackboard
PowerLinkstm
tools developed by our clients or independent parties. These
extensions allow institutions to download, install and manage
third-party enhancements. These third-party applications add
functionality to our products, and several client-managed online
communities exist to foster open source development of
enhancements to our products as well.
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System administration. Our products allow
clients to configure our applications to the specific needs of
their institutions. The appearance and configuration of our
products are customizable by each client for multiple
independent user populations within their institution on the
same system hardware and database. In addition, clients have the
ability to define multiple user roles and set access policies
for guest accounts and observers, such as parents, advisors,
mentors and supervisors.
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We offer the Blackboard Learning System through basic
licenses or enterprise licenses to appeal to all sizes and types
of clients. The Blackboard Learning System basic licenses
provide stand-alone, entry-level versions of the Blackboard
Learning System suitable for small-scale implementations,
while the Blackboard Learning System enterprise licenses
provide functionality to support larger or more advanced
implementations and various language configurations, including
English, Spanish, Italian, Dutch, German, French, Japanese,
Arabic and Chinese.
Blackboard
Community System
The Blackboard Community System is an enterprise
information portal application designed specifically for the
education industry and is currently available to customers with
the Blackboard Learning System enterprise license
products. The Blackboard Community System allows
institutions to extend their learning environments and to
further engage students by connecting them with each other, with
campus services, and with faculty beyond the classroom. As part
of the Blackboard Academic Suite, the Blackboard
Community System extends the Blackboard Learning System
to include functionality for student organizations, faculty
and staff, departmental collaboration, information distribution
and single sign-on access to existing administrative systems.
The major academic capabilities of the Blackboard Community
System include:
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Configurable portal environment enabling one-stop access to
services. Through a customizable Web portal, the
Blackboard Community System enables institutions to
provide their users access to multiple content sources, campus
services, administrative systems and personal information
management tools, such as email and calendar. The Blackboard
Community System can provide single sign-on access to a
variety of campus systems, eliminating the need for multiple
access points and identification verifications. Institutions and
independent software vendors can create custom portal
applications that provide views into content and data from other
systems or integrate other applications.
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Facilitating academic and co-curricular collaboration using
community and communication tools. The
Blackboard Community System facilitates the creation of
meaningful campus connections by allowing institutions to define
dedicated online environments for departments, clubs and other
groups. Members of organizations can manage their own
operations, as well as upload and share documents, and use their
own communication tools, conserving the resources of campus
information technology departments.
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Maintaining distinct campus identities. An
institution can configure the Blackboard Community System
to support multiple identities or brands within the
institution (such as multiple campuses, a law school, medical
school or continuing education program) and deliver content to
targeted, institution-defined roles. In addition, users can
customize the Blackboard Community System interface
according to their needs and preferences.
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e-Commerce
capabilities. This functionality enables campus
business units and student organizations to sell products, which
may be paid for with a student’s credit card or debit
account (via the Blackboard Transaction System). Uses
include campus bookstore online purchases, athletics and event
tickets, library fees and parking fees.
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Blackboard
Content System
The Blackboard Content System provides enterprise content
management capabilities and is currently available to customers
with the Blackboard Learning System enterprise license
products. The Blackboard Content System supports
activities which require enterprise management of electronic
files, such as teaching, learning, research, archival and
library needs, and extracurricular and departmental pursuits.
All of these activities require the central management, tagging,
sharing and re-use of electronic files, such as lecture notes
for multiple sections of a course, learning resources, test
banks and library electronic reserve materials. In addition, the
Blackboard Content System supports advanced workflow
capabilities across the institution and provides a secure way to
share sensitive institutional content. The major capabilities of
the Blackboard Content System include:
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Storing and accessing learning
materials. Institutions can make secure,
web-based,
drag-and-drop
file storage space available to all users, who can then use a
configurable permissions structure to share files with
individuals or groups, track versions, and add comments. To
assure appropriate usage of the file space, administrators can
manage disk space quotas and set bandwidth controls.
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Learning content management. Instructors can
manage versions of documents and other course material and can
re-use content across courses. Institutions can create content
repositories administered at the departmental, school or
institutional levels to facilitate the sharing and searching of
digital content.
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Integrating library resources into the learning
environment. Librarians can create and manage
collections of digital assets for use by specific courses,
disciplines or the entire institution.
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Collecting and sharing materials within electronic
portfolios. Users can collect and organize their
academic work as electronic portfolios to showcase their
accomplishments, which can be shared with other users on the
system, as well as published externally. These portfolios can be
used for personal reflection, academic assignments, program
completion, alignment with educational standards, or for
professional development, such as résumés and job
applications.
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The Blackboard Content System family of products also
includes the Blackboard Portfolio System and the Xythos
Software, Inc. (“Xythos”) enterprise document
management applications we acquired in 2007. The Blackboard
Portfolio System is a personal portfolio application that
enables users to collect and organize their academic work and is
currently available to customers with the Blackboard Learning
System — CE and Vista enterprise licenses. The
Xythos enterprise document management applications enable
clients to securely manage and share data across the entire
enterprise.
Blackboard
Outcomes System
The Blackboard Outcomes
Systemtm
was released in December 2006 and is currently available to
customers with the Blackboard Learning System - enterprise
license. Supplemented by strategic and technical professional
services, the Blackboard Outcomes System supports and
coordinates the academic and administrative assessment processes
taking place across an institution’s many departments. The
Blackboard Outcomes System enables the planning and
measuring of student, teaching and institutional outcomes and
provides a comprehensive set of instruments for student and
program assessment. The major capabilities of the Blackboard
Outcomes System include:
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Planning outcomes. The “Standards, Goals
and Student Learning Objectives” feature enables
institutions to document intended outcomes of courses, programs,
departments, colleges, universities and standards bodies.
Rubrics, or standard evaluation criteria, facilitate shared and
consistent evaluation of
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outcomes, while curriculum maps highlight the connection between
program goals and courses and co-curricular educational
experiences.
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Measuring learning and administrative
outcomes. Various assessment tools simplify the
collection of student work and its evaluation against shared
rubrics. Surveys and course evaluations enable users to collect
useful indirect assessment data, soliciting attitudes and
opinions from constituents on-campus and off-campus.
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Improving learning and institutional
effectiveness. Operational and analytic reports
provide insight into assessment plans, activities, data,
follow-up
actions and correlations to all levels of an institution.
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The
Blackboard Commerce Suite
The Blackboard Commerce Suite can be used for on- and
off-campus commerce, online
e-commerce,
meal plan administration, vending, laundry services, copy and
print management and student and staff identification. The
applications that make up the Blackboard Commerce Suite
are:
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the Blackboard Transaction
Systemtm;
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the Blackboard Community System; and
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Blackboard
Onetm.
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Blackboard
Transaction System
The Blackboard Transaction System is an enterprise
software application that we license along with various hardware
to allow clients to establish an integrated student debit
account program for charging incidental expenses such as meals
and academic materials, typically using the campus ID card. The
hardware that we sell as part of the Blackboard Transaction
System includes servers, cards, card readers and
point-of-sale devices. The Blackboard Transaction System
also supports activities such as facilities access and
identity verification. The principal features of the
Blackboard Transaction System include:
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Commerce. Transaction processing capabilities
of the Blackboard Transaction System support the creation
and management of student debit accounts, as well as the
processing of payments against those accounts using student ID
cards on campus, such as in dining facilities, vending machines,
copy machines and bookstores, off-campus and online. Our clients
use the Blackboard Transaction System to manage
point-of-sale transactions, such as prepaid debit cards, meal
plan administration, cash equivalency, privilege verification
and discounts, and self-service or unattended transactions, such
as vending, laundry, printing and copying and parking.
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Activities management and security. The
access-rights capabilities of the Blackboard Transaction
System enable a variety of applications using the
client’s investment in a single-card environment for
commerce. These include event admission, student government
voting, wireless verification on buses, library authorization
and computer lab access and tracking. In addition, the system
interfaces directly with door access points to manage
identification and secure access control to facilities using the
same student ID card.
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Blackboard
Community System
In addition to the functionalities it provides as part of the
Blackboard Academic Suite, the Blackboard Community
System enables additional transaction capabilities when
licensed as part of the Blackboard Commerce Suite,
including:
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eMarketplace. The Blackboard Community
System enables campus business units and student
organizations to sell products, which may be paid with the
student debit account. Users can activate template-driven tools
that allow them to describe, price, display and charge for an
item all within the campus portal environment. Uses include
campus bookstore online purchases, athletics and event tickets,
library fees and parking fees.
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Web account management. Through an online
account, end users can manage a variety of activities, including
online deposits, guest and parent deposits, balance inquiries,
transaction history statements and lost and stolen card reports.
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Blackboard
One
Blackboard One is bundled with the Blackboard Commerce
Suite and enables students and faculty to use their
university ID cards as a form of payment off-campus. We recruit
local merchants to accept student debit accounts as a form of
payment and facilitate the processing of transactions by
third-party merchants that use the Blackboard Transaction
System. By utilizing the existing Blackboard Transaction
System debit account at the university, Blackboard
One provides students with a secure, cashless and convenient
way to make purchases while assuring parents that their funds
will be spent within a university-approved merchant network. We
develop the off-campus merchant network on behalf of each
university and manage the program, from merchant acquisition and
funds settlement to transaction terminal support. We also
provide customized marketing campaigns designed to build the
card program brand and increase deposits into the accounts.
Blackboard
Connect
Blackboard Connect provides comprehensive communication
systems that enable rapid dissemination of critical information
via voice and text devices. The Blackboard Connect family
includes the Connect-ED, Connect-CTY,
Connect-GOV and Connect-MIL offerings specifically
designed for education, municipal, government and military
clients respectively. Blackboard Connect is a fully
hosted, web-based application that enables clients to record,
schedule, send, and track personalized voice messages,
e-mail, SMS
or text messages to tens of thousands of constituents in
minutes. Blackboard Connect provides a bundled set of
mass notification, survey, and community outreach tools through
a service which eliminates the need for equipment, hardware,
software, or long distance phone charges.
Professional
Services
Our professional services support the implementation and
maintenance of the educational environment in order to help
clients maximize the value of our various enterprise software
applications. Our services group offers:
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project management;
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integration of our applications with existing campus systems;
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user interface customization;
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installation and configuration;
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training and instructional design;
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course and content migration; and
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custom Blackboard Building Blocks and Blackboard
PowerLinks application development.
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Competition
The market for education enterprise software is highly
fragmented and rapidly evolving, and we expect competition in
this market to persist and intensify. Our primary competitors
for the Blackboard Academic Suite are companies and open
source solutions that provide course management systems, such as
ANGEL Learning, Inc., Desire2Learn Inc., eCollege.com, Moodle,
Jenzabar, Inc., The Sakai Project, VCampus Educator, and
WebTycho; learning content management systems, such as
HarvestRoad Ltd. and Concord USA, Inc.; and education enterprise
information portal technologies, such as SunGard SCT Inc., an
operating unit of SunGard Data Systems Inc. We also face
competition from clients and potential clients who develop their
own applications internally, large diversified software vendors
who offer products in numerous markets including the education
market and other open source software applications. Our
competitors for the Blackboard
6
Commerce Suite include companies that provide transaction
systems, security systems and off-campus merchant relationship
programs. We face a variety of competitors which provide mass
notification technologies including voice, email
and/or text
messaging communications.
We may also face competition from potential competitors that are
substantially larger than we are and have significantly greater
financial, technical and marketing resources, and established,
extensive direct and indirect channels of distribution. As a
result, they may be able to respond more quickly to new or
emerging technologies and changes in client requirements, or to
devote greater resources to the development, promotion and sale
of their products than we can. In addition, current and
potential competitors have established or may establish
cooperative relationships among themselves or prospective
clients. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire
significant market share to our detriment.
We believe that the primary competitive factors in our markets
are:
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base of reference clients;
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functional breadth and depth of solution offered;
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ease of use;
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complexity of installation and upgrade;
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scalability of solution to meet growing needs;
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client service;
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availability of third-party application and content add-ons;
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total cost of ownership;
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financial stability; and
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company reputation.
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We believe that we compete favorably on the basis of these
factors.
Our
Growth Strategy
We seek to capitalize on our position as a leader in our market
to grow our business by supporting several significant aspects
of education, including teaching, learning, commerce and campus
life. Key elements of our growth strategy include:
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Growing annual license revenues. We intend to
increase annual license revenues with existing clients through
upgrades to current products, cross-selling of complementary
applications and increased total license value commensurate with
the value of our offerings.
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Increasing penetration with U.S. postsecondary and K-12
clients. We intend to capitalize on our
experience in U.S. postsecondary and K-12 education to
further enhance our leadership position.
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Offering new products to our target
markets. Using feedback gathered from our clients
and our sales and technical support groups, we intend to
continue to develop and offer new upgrades, applications and
application suites to increase our presence on campuses and
expand the value provided to our clients.
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Increasing sales to international postsecondary and
U.S. K-12 clients. We intend to continue to
expand sales and marketing efforts to increase sales of our
applications to international postsecondary institutions as well
as U.S. K-12 schools.
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Pursuing strategic relationships and acquisition
opportunities. We intend to continue to pursue
strategic relationships with, acquisitions of, and investments
in, companies that enhance the
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technological features of our products, offer complementary
products, services and technologies, or broaden the scope of our
product offerings into other areas.
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Research
and Development
Each of the individual applications in our product suites is
developed and maintained by a dedicated team of software
engineers, product managers and documentation specialists. In
addition, we maintain three cross-product groups: an engineering
services team, which focuses on highly technical product support
issues that have been escalated by our telephone support
operation; a quality control team, which tests our applications
to identify and correct software errors and usability issues
before a new product or update is released; and a research and
development engineering team which works on special development
projects that involve third parties, including software tools
for integrating our products with other campus systems. Our
research and development group receives feedback on product
improvement suggestions and new products from clients, either
directly or through our sales and client support organizations.
We periodically release maintenance updates to and new versions
of our existing products. In addition, our research and
development group works on new product initiatives as
appropriate. Our products are primarily developed internally
and, in support of the development of our products, we have
acquired or licensed specialized products and technologies from
other software firms. Our research and development expenses were
$13.9 million, $27.2 million and $28.3 million in
the years ended
December 31, 2005,
2006 and
2007,
respectively.
Marketing
and Sales
Marketing
We engage in a variety of traditional and online marketing
activities designed to provide sales lead generation, sales
support and increasing market awareness. Our specific marketing
activities include print advertising in trade publications,
direct mail campaigns, speaking engagements and industry
trade-shows and seminars, which help create awareness of our
brand and products and services. Examples of specific marketing
events include the Blackboard Summit, which is our annual
meeting of educational and technology leaders from the United
States and abroad; the Blackboard Users’ Conference, which
is our annual conference dedicated to all users of Blackboard
products as well as prospective clients; and Blackboard Days,
which provide information sessions at current client sites for
current and prospective clients.
Sales
We sell our products through a direct sales force and, in some
emerging international markets, through re-sellers. Regional
sales managers are responsible for sales of our products in
their territories and supervise account managers who are
responsible for maintaining software and service renewal rates
among our clients. Account managers are typically compensated in
part based upon their achievement of renewal rate quotas, and
pursue a variety of client relations activities aimed at
maintaining and improving renewal rates. In addition, our sales
organization includes technical sales engineers, who are experts
in the technical aspects of our products and client
implementations.
In our experience, colleges, universities and schools frequently
rely on references from peer institutions when selecting a
vendor and often involve a variety of internal constituencies,
such as instructors and students, when evaluating a product. In
addition, most public education institutions and many private
institutions utilize request for proposal, or RFP, processes, by
which they announce their interest in purchasing an application
and detail their requirements so that vendors may bid
accordingly. As a result, we generate sales leads from sources
such as interacting with attendees at conferences, visiting
potential clients’ sites to provide briefings on the
industry and our products, responding to inbound calls based on
client recommendations and monitoring and responding to RFPs. We
often structure our licenses in a manner that anticipates
expansion from one product in a suite to multiple products in a
suite, and we engage in state or regional agreements when
appropriate to provide umbrella pricing and contractual terms
for a group of institutions. We have U.S. sales offices in
Washington, D.C.; Phoenix, Arizona; Los Angeles, California
and San Francisco, California. We have international sales
offices in Amsterdam and Sydney.
8
Executive
Officers
The following table lists our executive officers and their ages
as of
January 31, 2008.
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Name
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Age
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Position
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Michael L. Chasen
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36
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Chief executive officer, president, director
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Matthew L. Pittinsky
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35
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Chairman, director
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Michael J. Beach
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37
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Chief financial officer and treasurer
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Matthew H. Small
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35
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Chief legal officer and secretary
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Peter Segall
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46
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President, North American higher education and operations
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David Sample
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59
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Senior vice president for sales
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Jonathan R. Walsh
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Vice president for finance and accounting
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Matthew Pittinsky has served as chairman of the board of
directors since our founding in 1997. From June 1997 to November
1998, Mr. Pittinsky also served as chief executive officer.
Before co-founding Blackboard, from July 1995 to June 1997
Mr. Pittinsky was a consultant with KPMG Consulting (now
BearingPoint, Inc.) serving colleges and universities.
Mr. Pittinsky is the editor of The Wired Tower, a book
published in June 2002 analyzing the Internet’s impact on
higher education. Mr. Pittinsky serves on the board of
trustees of American University. Mr. Pittinsky received a
B.S. degree from American University and an Ed.M degree from
Harvard University Graduate School of Education. He is currently
a Ph.D candidate at Columbia University Teachers College. On
February 16, 2008, Mr. Pittinsky resigned as an officer of
the Company effective as of
March 1, 2008.
Mr. Pittinsky remains chairman of our board of directors.
Michael Chasen has served as chief executive officer
since January 2001, as president since February 2004 and as a
director since our founding in 1997. From June 1997 to January
2001, Mr. Chasen served as president. Before co-founding
Blackboard, from May 1996 to June 1997, Mr. Chasen was a
consultant with KPMG Consulting (now BearingPoint, Inc.) serving
colleges and universities. Mr. Chasen received a B.S.
degree from American University and a M.B.A. degree from
Georgetown University School of Business.
Michael Beach has served as chief financial officer since
September 2006 and treasurer since February 2004. From June 2001
to September 2006, Mr. Beach served as vice president for
finance. Prior to joining us, from February 1997 to June 2001,
Mr. Beach was an audit senior manager at the public
accounting firm of Ernst & Young LLP. Mr. Beach
received a B.B.A. degree from James Madison University.
Matthew Small has served as chief legal officer since
January 2006 and secretary since February 2004. Mr. Small
served as senior vice president for legal and general counsel
from January 2004 to January 2006, corporate counsel from
September 2002 to January 2004 and assistant secretary from
November 2002 to February 2004. Prior to joining us, from
September 1999 to September 2002, Mr. Small was an
associate at the law firm of Testa, Hurwitz &
Thibeault LLP. Mr. Small received a B.A. degree from the
University of Denver, a M.B.A. degree from the University of
Connecticut School of Business and a JD degree from the
University of Connecticut Law School.
Peter Segall has served as president of North American
higher education and operations since September 2006. From March
2006 to September 2006, Mr. Segall served as senior vice
president of education strategy. Mr. Segall joined us
through the merger with WebCT, Inc. where he was executive vice
president and director from August 1999 until the completion of
the merger with us in February 2006. Mr. Segall received a
B.A. degree from Brown University and a masters of math and
science education from the Harvard Graduate School of Education.
David Sample has served as senior vice president of sales
since July 2005. Prior to joining us, from September 2002 to
November 2003, Mr. Sample served as executive vice
president for global sales at Princeton Softech, from November
2000 to September 2001, as president and CEO at Davox
Corporation, from September 1998 to November 2000, as president
and chief operating officer at ABT Corporation and, from July
1986 to March 1997, as senior vice president for sales at
Hyperion Solutions Corporation. Mr. Sample received a B.A.
degree from Trinity College.
9
Jonathan Walsh has served as vice president for finance
and accounting since September 2006. From July 2001 to August
2006, he served as controller. Prior to joining us, from July
1998 to June 2001, Mr. Walsh held financial reporting and
financial planning positions at Sunrise Assisted Living, Inc.,
AppNet, Inc. and CommerceOne, Inc. and from January 1995 to July
1998 Mr. Walsh was an audit senior at the public accounting
firm of Ernst & Young LLP. Mr. Walsh received a
B.B.A. degree from James Madison University.
Employees
As of
December 31, 2007, we had 890 employees,
including approximately 189 in sales; 77 in marketing and
business development; 157 in support, ASP hosting and
production; 186 in research and development; 130 in professional
services; and 151 in general administration. None of our
employees are represented by a labor union. We have never
experienced a work stoppage and believe our relationship with
our employees is good.
International
Operations
We currently operate predominately in the United States. Our
revenues derived from operations in foreign countries for fiscal
years 2005, 2006 and 2007 were $21.9 million,
$34.7 million and $53.6 million, respectively.
Substantially all of our material identifiable assets are
located in the United States.
Website
Access to U.S. Securities and Exchange Commission
Reports
Our Internet address is
http://www.blackboard.com.
Through our
website, we make available, free of charge, access
to all reports filed with the U.S. Securities and Exchange
Commission including our Annual Reports on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K
and amendments to these reports, as filed with or furnished to
the SEC pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Copies of any
materials we file with, or furnish to, the SEC can also be
obtained free of charge through the SEC’s
website at
http://www.sec.gov
or at the SEC’s Public Reference Room at 450 Fifth
St., N.W., Washington, DC 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
Our
merger with The NTI Group, Inc. presents many risks, and we may
not realize the financial and strategic goals that were
contemplated at the time of the transaction.
We completed the merger with The NTI Group, Inc. on
January 31, 2008. We entered into this transaction with the
expectation that it would result in various long-term benefits
including enhanced revenue and profits, and enhancements to our
product portfolio and customer base. Risks that we may encounter
in seeking to realize these benefits include:
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we may not realize the anticipated financial benefits if we are
unable to sell the Blackboard Connect products to our
customer base, if a larger than predicted number of customers
decline to renew their contracts, or if the acquired contracts
do not allow us to recognize revenues on a timely basis;
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we may have difficulty incorporating The NTI Group’s
technologies or products with our existing product lines and
maintaining uniform standards, controls, procedures and policies;
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we may face contingencies related to product liability,
intellectual property, financial disclosures, and accounting
practices or internal controls;
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we may have higher than anticipated costs in supporting and
continuing development of the Blackboard Connect products
and in servicing new and existing Blackboard Connect
clients;
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we may not be able to retain key employees from The NTI Group;
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we may be unable to manage effectively the increased size and
complexity of the combined company, and our management’s
attention may be diverted from our ongoing business by
transition or integration issues;
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we may lose anticipated tax benefits or have additional legal or
tax exposures; and
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we will not be able to determine whether all or any of the
0.5 million shares of stock consideration in the merger
that is contingent on the achievement of certain performance
milestones will be issued until the completion of the financial
results for fiscal year 2008 and 2009.
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Our
business strategy contemplates future business combinations and
acquisitions which may be difficult to integrate, disrupt our
business, dilute stockholder value or divert management
attention.
During the course of our history, we have acquired several
businesses, and a key element of our growth strategy is to
pursue additional acquisitions in the future. Any acquisition
could be expensive, disrupt our ongoing business and distract
our management and employees. We may not be able to identify
suitable acquisition candidates, and if we do identify suitable
candidates, we may not be able to make these acquisitions on
acceptable terms or at all. If we make an acquisition, we could
have difficulty integrating the acquired technology, employees
or operations. In addition, the key personnel of the acquired
company may decide not to work for us. Acquisitions also involve
the risk of potential unknown liabilities associated with the
acquired business.
As a result of these risks, we may not be able to achieve the
expected benefits of any acquisition. If we are unsuccessful in
completing or integrating acquisitions that we may pursue in the
future, we would be required to reevaluate our growth strategy,
and we may have incurred substantial expenses and devoted
significant management time and resources in seeking to complete
and integrate the acquisitions.
Future business combinations could involve the acquisition of
significant tangible and intangible assets, which could require
us to record in our statements of operations ongoing
amortization of intangible assets acquired in connection with
acquisitions, which we currently do with respect to our historic
acquisitions, including the NTI Group merger. In addition, we
may need to record write-downs from future impairments of
identified tangible and intangible assets and goodwill. These
accounting charges would reduce any future reported earnings, or
increase a reported loss. In future acquisitions, we could also
incur debt to pay for acquisitions, or issue additional equity
securities as consideration, which could cause our stockholders
to suffer significant dilution.
Our ability to utilize, if any, net operating loss
carryforwards, if any, acquired in any acquisitions may be
significantly limited or unusable by us under Section 382
or other sections of the Internal Revenue Code.
Our
indebtedness could adversely affect our financial condition and
prevent us from fulfilling our debt obligations, including the
3.25% Convertible Senior Notes due 2027 (the
“Notes”).
Our outstanding debt poses the following risks:
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we will use a significant portion of our cash flow to pay
interest on our outstanding debt and to pay principal when
required, limiting the amount available for working capital,
capital expenditures and other general corporate purposes;
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lenders may be unwilling to lend additional amounts to us for
future working capital needs, additional acquisitions or other
purposes or may only be willing to provide funding on terms we
would consider unacceptable;
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if our cash flow were inadequate to make interest and principal
payments on our debt, we might have to refinance our
indebtedness and may not be successful in those efforts; and
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our ability to finance working capital needs and general
corporate purposes for the public and private markets, as well
as the associated cost of funding, is dependent, in part, on our
credit ratings, which may be adversely affected if we experience
declining revenues.
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We may be more vulnerable to adverse economic conditions than
less leveraged competitors and thus, less able to withstand
competitive pressures. Any of these events could reduce our
ability to generate cash available for investment or debt
repayment or to make improvements or respond to events that
would enhance profitability. We may incur significantly more
debt in the future, which will increase each of the foregoing
risks related to our indebtedness.
We may
not be able to repurchase the Notes when required by the
holders, including upon a fundamental change or other specified
dates at the option of the holder, or pay cash upon conversion
of the Notes.
Upon the occurrence of a fundamental change, holders of the
Notes will have the right to require us to repurchase the Notes
at a price in cash equal to 100% of the principal amount of the
Notes plus accrued and unpaid interest. Any future credit
agreement or other agreements relating to indebtedness to which
we become a party may contain similar provisions. Holders will
also have the right to require us to repurchase the Notes for
cash or a combination of cash and our common stock on
July 1, 2011,
July 1, 2017 or
July 1, 2022.
Moreover, upon conversion of the Notes, we are required to
settle a portion of the conversion obligation in cash. In the
event that we are required to repurchase the Notes or upon
conversion of the Notes, we may not have sufficient financial
resources to satisfy all of our obligations under the Notes and
our other debt instruments. Our failure to make the fundamental
change offer, to pay the repurchase price when due, or to pay
cash upon conversion of Notes, would result in a default under
the
indenture governing the Notes. Any default under our
indebtedness could have a material adverse effect on our
business, results of operations and financial condition.
Conversion
of the Notes may affect the market price of our common stock and
may dilute the ownership of existing stockholders.
The conversion of some or all of the Notes and any sales in the
public market of our common stock issued upon such conversion
could adversely affect the market price of our common stock. The
existence of the Notes may encourage short selling by market
participants because the conversion of the Notes could depress
our common stock price. In addition, the conversion of some or
all of the Notes could dilute the ownership interests of
existing stockholders to the extent that shares of our common
stock are issued upon conversion.
Our
reported earnings per share may be more volatile because of the
contingent conversion provision of the Notes.
The Notes may have a dilutive effect on earnings per share in
any period in which the market price of our common stock exceeds
the conversion price for the Notes as a result of the inclusion
of the underlying shares in the fully diluted earnings per share
calculation. Volatility in our stock price could cause this
condition or other conversion conditions to be met in one
quarter and not in a subsequent quarter, increasing the
volatility of fully diluted earnings per share.
The
accounting method for convertible debt securities with net share
settlement, like the Notes, may be subject to
change.
The FASB is considering changes to the treatment of convertible
debt securities for the purpose of calculating diluted earnings
per share, which may adversely affect income available to common
stockholders. We cannot determine the outcome of the FASB
deliberations or when any change would be implemented or whether
it would be implemented retroactively or prospectively. We also
cannot determine any other changes in GAAP that may be made
affecting accounting for convertible debt securities. Any change
in the accounting method for convertible debt securities could
have an adverse impact on our future financial results.
12
Providing
enterprise software applications to the education industry is an
emerging and uncertain business; if the market for our products
fails to develop, we will not be able to grow our
business.
Our success will depend on our ability to generate revenues by
providing enterprise software applications and services to
colleges, universities, schools and other education providers.
This market for some of our products has only recently
developed, and the viability and profitability of this market is
unproven. Our ability to grow our business will be compromised
if we do not develop and market products and services that
achieve broad market acceptance with our current and potential
clients and their students and employees. If our newest
products, the Blackboard Outcomes System and
Blackboard Connect, do not gain widespread market
acceptance, our financial results could suffer. We introduced
our newest software application, the Blackboard Outcomes
System, in December 2006 and acquired the technology
underlying Blackboard Connect through our merger with The
NTI Group, Inc. in January 2008. Our ability to grow our
business will depend, in part, on client acceptance of these
products. If we are not successful in gaining market acceptance
of these products, our revenues may fall below our expectations.
We
face intense and growing competition, which could result in
price reductions, reduced operating margins and loss of market
share.
We operate in highly competitive markets and generally encounter
intense competition to win
contracts. If we are unable to
successfully compete for new business and license renewals, our
revenue growth and operating margins may decline. The markets
for online education, transactional, portal, content management,
transaction systems and mass notification products are intensely
competitive and rapidly changing, and barriers to entry in these
markets are relatively low. With the introduction of new
technologies and market entrants, we expect competition to
intensify in the future. Some of our principal competitors offer
their products at a lower price, which has resulted in pricing
pressures. Such pricing pressures and increased competition
generally could result in reduced sales, reduced margins or the
failure of our product and service offerings to achieve or
maintain more widespread market acceptance.
Our primary competitors for the Blackboard Academic Suite
are companies and open source solutions that provide course
management systems, such as ANGEL Learning, Inc., Desire2Learn
Inc., eCollege.com, Jenzabar, Inc., Moodle, The Sakai Project,
VCampus Educator and WebTycho; learning content management
systems, such as HarvestRoad Ltd. and Concord USA, Inc.; and
education enterprise information portal technologies, such as
SunGard SCT Inc., an operating unit of SunGard Data Systems Inc.
We also face competition from clients and potential clients who
develop their own applications internally, large diversified
software vendors who offer products in numerous markets
including the education market and open source software
applications. Our competitors for the Blackboard Commerce
Suite include companies that provide transaction systems,
security and access systems and off-campus merchant relationship
programs. Our competitors for Blackboard Connect include
a variety of competitors which provide mass notification
technologies including voice, email
and/or text
messaging communications.
We may also face competition from potential competitors that are
substantially larger than we are and have significantly greater
financial, technical and marketing resources, and established,
extensive direct and indirect channels of distribution.
Similarly, our competitors may also be acquired by larger and
more well-funded companies which have more resources than our
current competitors. These larger companies may be able to
respond more quickly to new or emerging technologies and changes
in client requirements, or to devote greater resources to the
development, promotion and sale of their products than we can.
In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or
prospective clients. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and
rapidly acquire significant market share to our detriment.
13
If
potential clients or competitors use open source software to
develop products that are competitive with our products and
services, we may face decreased demand and pressure to reduce
the prices for our products.
The growing acceptance and prevalence of open source software
may make it easier for competitors or potential competitors to
develop software applications that compete with our products, or
for clients and potential clients to internally develop software
applications that they would otherwise have licensed from us.
One of the aspects of open source software is that it can be
modified or used to develop new software that competes with
proprietary software applications, such as ours. Such
competition can develop without the degree of overhead and lead
time required by traditional proprietary software companies. As
open source offerings become more prevalent, customers may defer
or forego purchases of our products, in particular our
Blackboard Academic Suite products, which could reduce
our sales and lengthen the sales cycle for our products or
result in the loss of current clients to open source solutions.
If we are unable to differentiate our products from competitive
products based on open source software, demand for our products
and services may decline, and we may face pressure to reduce the
prices of our products.
Because
most of our licenses are renewable on an annual basis, a
reduction in our license renewal rate could significantly reduce
our revenues.
Our clients have no obligation to renew their licenses for our
products after the expiration of the initial license period,
which is typically one year, and some clients have elected not
to do so. A decline in license renewal rates could cause our
revenues to decline. We have limited historical data with
respect to rates of renewals, so we cannot accurately predict
future renewal rates. Our license renewal rates may decline or
fluctuate as a result of a number of factors, including client
dissatisfaction with our products and services, our failure to
update our products to maintain their attractiveness in the
market or budgetary constraints or changes in budget priorities
faced by our clients.
We may experience difficulties that could delay or prevent the
successful development, introduction and sale of new products
under development. If introduced for sale, the new products may
not adequately meet the requirements of the marketplace and may
not achieve any significant degree of market acceptance, which
could cause our financial results to suffer. In addition, during
the development period for the new products, our customers may
defer or forego purchases of our products and services.
Following acquisitions in which clients are contracted under
renewable licenses, such as WebCT and The NTI Group, for several
years after such acquisitions we may experience a decrease in
the renewal rate from historical levels which could reduce
revenues below our expectations.
Because
we generally recognize revenues ratably over the term of our
contract with a client, downturns or upturns in sales will not
be fully reflected in our operating results until future
periods.
We recognize most of our revenues from clients monthly over the
terms of their agreements, which are typically 12 months,
although terms can range from one month to over 60 months.
As a result, much of the revenue we report in each quarter is
attributable to agreements entered into during previous
quarters. Consequently, a decline in sales, client renewals, or
market acceptance of our products in any one quarter will not
necessarily be fully reflected in the revenues in that quarter,
and will negatively affect our revenues and profitability in
future quarters. This ratable revenue recognition also makes it
difficult for us to rapidly increase our revenues through
additional sales in any period, as revenues from new clients
must be recognized over the applicable agreement term.
Our
operating margins may suffer if our professional services
revenues increase in proportion to total revenues because our
professional services revenues have lower gross
margins.
Because our professional services revenues typically have lower
gross margins than our product revenues, an increase in the
percentage of total revenues represented by professional
services revenues could have a detrimental impact on our overall
gross margins, and could adversely affect our operating results.
In addition, we sometimes subcontract professional services to
third parties, which further reduce our gross margins on
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these professional services. As a result, an increase in the
percentage of professional services provided by third-party
consultants could lower our overall gross margins.
If our
products contain errors, new product releases are delayed or our
services are disrupted, we could lose new sales and be subject
to significant liability claims.
Because our software products are complex, they may contain
undetected errors or defects, known as bugs. Bugs can be
detected at any point in a product’s life cycle, but are
more common when a new product is introduced or when new
versions are released. In the past, we have encountered product
development delays and defects in our products. We expect that,
despite our testing, errors will be found in new products and
product enhancements in the future. In addition, service
offerings which we provide may be disrupted causing delays or
interruptions in the services provided to our clients.
Significant errors in our products or disruptions in the
provision of our services could lead to:
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delays in or loss of market acceptance of our products;
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diversion of our resources;
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a lower rate of license renewals or upgrades;
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injury to our reputation; and
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increased service expenses or payment of damages.
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Because our clients use our products to store, retrieve and
utilize critical information, we may be subject to significant
liability claims if our products do not work properly or if the
provision of our services is disrupted. Such an event could
result in significant expenses, disrupt sales and affect our
reputation and that of our products. We cannot be certain that
the limitations of liability set forth in our licenses and
agreements would be enforceable or would otherwise protect us
from liability for damages and our insurance may not cover all
or any of the claims. A material liability claim against us,
regardless of its merit or its outcome, could result in
substantial costs, significantly harm our business reputation
and divert management’s attention from our operations.
The
length and unpredictability of the sales cycle for our software
could delay new sales and cause our revenues and cash flows for
any given quarter to fail to meet our projections or market
expectations.
The sales cycle between our initial contact with a potential
client and the signing of a license with that client typically
ranges from 6 to 15 months. As a result of this lengthy
sales cycle, we have only a limited ability to forecast the
timing of sales. A delay in or failure to complete license
transactions could harm our business and financial results, and
could cause our financial results to vary significantly from
quarter to quarter. Our sales cycle varies widely, reflecting
differences in our potential clients’ decision-making
processes, procurement requirements and budget cycles, and is
subject to significant risks over which we have little or no
control, including:
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clients’ budgetary constraints and priorities;
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the timing of our clients’ budget cycles;
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the need by some clients for lengthy evaluations that often
include both their administrators and faculties; and
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the length and timing of clients’ approval processes.
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Potential clients typically conduct extensive and lengthy
evaluations before committing to our products and services and
generally require us to expend substantial time, effort and
money educating them as to the value of our offerings.
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Our
sales cycle with international postsecondary education providers
and U.S. K-12 schools may be longer than our historic U.S.
postsecondary sales cycle, which could cause us to incur greater
costs and could reduce our operating margins.
As we target more of our sales efforts at international
postsecondary education providers and U.S. K-12 schools, we
could face greater costs, longer sales cycles and less
predictability in completing some of our sales, which may harm
our business. A potential client’s decision to use our
products and services may be a decision involving multiple
institutions and, if so, these types of sales would require us
to provide greater levels of education to prospective clients
regarding the use and benefits of our products and services. In
addition, we expect that potential international postsecondary
and U.S. K-12 clients may demand more customization,
integration services and features. As a result of these factors,
these sales opportunities may require us to devote greater sales
support and professional services resources to individual sales,
thereby increasing the costs and time required to complete sales
and diverting sales and professional services resources to a
smaller number of international and U.S. K-12 transactions.
We may
have exposure to greater than anticipated tax
liabilities.
We are subject to income taxes and other taxes in a variety of
jurisdictions and are subject to review by both domestic and
foreign taxation authorities. The determination of our provision
for income taxes and other tax liabilities requires significant
judgment and the ultimate tax outcome may differ from the
amounts recorded in our consolidated financial statements, which
may materially affect our financial results in the period or
periods for which such determination is made.
Our
ability to utilize our net operating loss carryforwards may be
limited.
Our federal net operating loss carryforwards are subject to
limitations on how much may be utilized on an annual basis. The
use of the net operating loss carryforwards may have additional
limitations resulting from certain future ownership changes or
other factors under Section 382 of the Internal Revenue
Code.
If our net operating loss carryforwards are further limited, and
we have taxable income which exceeds the available net operating
loss carryforwards for that period, we would incur an income tax
liability even though net operating loss carryforwards may be
available in future years prior to their expiration, which may
adversely affect our future cash flow, financial position and
financial results.
The
investment of our cash balance and our investments in marketable
debt securities are subject to risks which may cause losses and
affect the liquidity of these investments.
We hold our cash in a variety of marketable investments which
are generally investment grade, liquid, short-term fixed-income
securities and money market instruments denominated in
U.S. dollars. If the carrying value of our investments
exceeds the fair value, and the decline in fair value is deemed
to be other-than-temporary, we will be required to further write
down the value of our investments, which could materially harm
our results of operations and financial condition. With the
current unstable credit environment, we might incur significant
realized, unrealized or impairment losses associated with these
investments.
Our
future success depends on our ability to continue to retain and
attract qualified employees.
Our future success depends upon the continued service of our key
management, technical, sales and other critical personnel,
including employees who joined Blackboard in connection with our
acquisitions of WebCT and The NTI Group. Whether we are able to
execute effectively on our business strategy will depend in
large part on how well key management and other personnel
perform in their positions and are integrated within our
company. Key personnel have left
our company over the years, and
there may be additional departures of key personnel from time to
time. In addition, as we seek to expand our global organization,
the hiring of qualified sales, technical and support personnel
has been difficult due to the limited number of qualified
professionals. Failure to attract, integrate and retain key
personnel would result in disruptions to our operations,
including adversely affecting the timeliness of product
releases, the successful implementation and completion of
company initiatives and the results of our operations.
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If we
do not maintain the compatibility of our products with
third-party applications that our clients use in conjunction
with our products, demand for our products could
decline.
Our software applications can be used with a variety of
third-party applications used by our clients to extend the
functionality of our products, which we believe contributes to
the attractiveness of our products in the market. If we are not
able to maintain the compatibility of our products with
third-party applications, demand for our products could decline,
and we could lose sales. We may desire in the future to make our
products compatible with new or existing third-party
applications that achieve popularity within the education
marketplace, and these third-party applications may not be
compatible with our designs. Any failure on our part to modify
our applications to ensure compatibility with such third-party
applications would reduce demand for our products and services.
If we
are unable to protect our proprietary technology and other
rights, it will reduce our ability to compete for
business.
If we are unable to protect our intellectual property, our
competitors could use our intellectual property to market
products similar to our products, which could decrease demand
for our products. In addition, we may be unable to prevent the
use of our products by persons who have not paid the required
license fee, which could reduce our revenues. We rely on a
combination of copyright, patent, trademark and trade secret
laws, as well as licensing agreements, third-party nondisclosure
agreements and other contractual provisions and technical
measures, to protect our intellectual property rights. These
protections may not be adequate to prevent our competitors from
copying or reverse-engineering our products and these
protections may be costly and difficult to enforce. Our
competitors may independently develop technologies that are
substantially equivalent or superior to our technology. To
protect our trade secrets and other proprietary information, we
require employees, consultants, advisors and collaborators to
enter into confidentiality agreements. These agreements may not
provide meaningful protection for our trade secrets, know-how or
other proprietary information in the event of any unauthorized
use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information. The protective
mechanisms we include in our products may not be sufficient to
prevent unauthorized copying. Existing copyright laws afford
only limited protection for our intellectual property rights and
may not protect such rights in the event competitors
independently develop products similar to ours. In addition, the
laws of some countries in which our products are or may be
licensed do not protect our products and intellectual property
rights to the same extent as do the laws of the United States.
If we
are found to infringe the proprietary rights of others, we could
be required to redesign our products, pay significant royalties
or enter into license agreements with third
parties.
A third party may assert that our technology violates its
intellectual property rights. As the number of products in our
markets increases and the functionality of these products
further overlaps, we believe that infringement claims may become
more common. Any claims, regardless of their merit, could:
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be expensive and time consuming to defend;
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force us to stop licensing our products that incorporate the
challenged intellectual property;
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require us to redesign our products and reimburse certain costs
to our clients;
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divert management’s attention and other company
resources; and
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require us to enter into royalty or licensing agreements in
order to obtain the right to use necessary technologies, which
may not be available on terms acceptable to us, or at all.
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Expansion
of our business internationally will subject our business to
additional economic and operational risks that could increase
our costs and make it difficult for us to operate
profitably.
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