Income Statement Trend Analysis of the Louisiana Philharmonic Orchestra
Case Western Reserve University
SASS 425: Nonprofit Financial Management
February 19, 2022
Go to Part 1-3, Part 4, Part 6, Part 7, Presentation
Statement of Revenue and Overview of Statement of Functional Expense
The Louisiana Philharmonic Orchestra (LPO) is in New Orleans, Louisiana and its stated mission is “to transform people and communities through music” (Louisiana Philharmonic Orchestra, 2020, p. 1). The largest source of income for the orchestra is program service revenue which accounted for about 40% of income in fiscal years 2017 and 2018 and about 55% of total income in 2019. Most program service revenue comes from four categories – agency (government) contracts, subscription fees, single event fees, and contract fees – with immaterial amounts coming from program participation and other program service revenue. Due to this, it seems the organization must direct a significant portion of its energy and operations not only to carrying out its performance and educational programs but also to drawing revenue from them. This likely includes marketing for season ticket subscriptions, single event ticket sales, and LPOtv streaming subscriptions as well as venue and event management and performers’ wages. If LPO were to take a hit in this area – e.g., losing an agency contract or experiencing a decline in ticket or subscriptions sales or attendance – it would greatly impact their finances.
The Louisiana Philharmonic Orchestra is heavily dependent on program service income. This was the second highest source of revenue for 2017 and 2018, barely trailing direct public support. However, in 2019 program service revenue jumped from 39% to 55% (possibly due to a large government contract) which increased the organization’s reliance on this source. The advantage of this level of dependence on program service income is this revenue stream is mission related. The orchestra exists to present live music and engage in cultural and educational activities, so it does not split the organization’s focus to have these as an income source and may inspire them to put more energy toward compelling seasons that will draw attendance/support. The disadvantage of this dependence is that if it has a season with low sales or performances cut – such as with the pandemic – half of its income is in jeopardy, and this affects the ability to pay the musicians and provide programs going forward.
This income stream appears highly diversified in that subscription fees and single event fees account for 47% of program service revenue, bringing in about $1.4 million in 2019, and these revenues were drawn from over 100 performances that patrons attended in-person or virtually. Season subscription packages range from $115 to $1,195. The cost of single tickets for concerts is $10 for students and $25-$110 for non-student adults depending on seating location. LPOtv, the orchestra’s digital access streaming subscription, is offered for $9.99 a month or $99.99 a year. These figures suggest thousands of patrons contributed to LPO program service revenue. It is fair to presume the orchestra has chosen to lean into program service revenue as its main funding source because the orchestra is self-governed by the musicians, and this capitalizes on their strengths – music education and performance. It allows the LPO to tie drawing income to sustain the organization to their vision of “achieving the highest level of artistry” that “is integrally linked with a deeply personal investment in our organization and our community” (Louisiana Philharmonic Orchestra, n.d., par 4). Financial success as an organization is directly related to their ability to use their art to connect with their community (mission fulfillment) and earn support.
With that in mind, the LPO must continue building on its foothold and relationships in the community to maintain and increase this stream. It should also consider contingency plans for when its community is not able to support it at stable or increasing levels. Should there be a disaster (such as hurricanes that frequently impact the region), economic downturn, or other reason patrons are unable to afford or attend concerts and programs at the level that brings in $2-3 million a year in program service revenue, the orchestra will need a backup. This could be in the form of increasing the organization’s second highest income stream, direct public support, since it already has an infrastructure to develop and manage this stream. Given that the highest amount of this stream is categorized as “All other contributions, gifts, grants, and similar amounts”, this may mean seeking more support from individual donors, corporations, trusts, and nongovernmental entities that support their mission.
Regarding expenses, it is not surprising that 87.05% is spent on programs, 10.49% on administration, and 2.47% on fundraising for LPO. This illustrates the organization directs most of its resources (including revenue development as discussed earlier) to programs – being a live orchestra with community outreach. Salaries and wages make up approximately 70% of program service expenses. This is reasonable because it includes salaries for 67 orchestra members without whom programs could not exist and most of the compensation of current officers, directors, trustees, and key employees is also included in this figure. Because the orchestra presents such a large number of performances and activities each season, it is sensible for the organization to spend the most money on this category rather than overburden itself with fundraisers not attached to programs.
The LPO made a profit of about $100,000 in fiscal year 2017, but this was followed by losses of over $60,000 in 2018 and $200,000 in 2019. Net income was 3.7% less than total expenses in 2019. Program service income (the largest category of income) was a notably higher percentage and dollar amount in 2019 than it was in the previous two years, increasing by about $600,000 from 2018 to 2019. Program service expenses (the highest category of spending) was also a lower figure by percentage and dollar amount than the previous two years, decreasing more than $500,000 from 2018 to 2019 to total less than the 2017 figure while administrative and fundraising costs remained stable. This indicates the organization is making wise financial and operating decisions regarding program services and changes in other categories of income were key in the LPO experiencing losses in 2019. Thus, the LPO should continue centering program services in revenue generation and spending and simultaneously review resources directed to other income streams – particularly income classified as “other revenue” that shifted from 11.5% of income in 2017 to 18% in 2018 and less than 1% in 2019. In this stream, the orchestra experienced an increase of almost $500,000 followed by a decrease of over a million dollars – more than the amount of loss for the year. It requires additional attention to stabilize this stream or replace it with other streams.
Closer Examination of the Statement of Functional Expenses
Human resources is the largest type of expense for the Louisiana Philharmonic Orchestra at 78.04% of total expenses. This makes sense for the organization as program services are at the core and because it requires a large roster of personnel (the musicians and artistic staff as well as support staff) to present programs. In the same vein, roughly $130,000 of $140,000 of fundraising expenses goes toward compensation for personnel. The total figure for fundraising does not include any employee benefits, but this is consistent with the organization’s reporting across categories and may mean the organization includes benefits within the compensation and salaries and wages expense types.
This fundraising amount also does not include any figures representing fees for services to non-employees which indicates the organization relies 100% on internal personnel or volunteers to raise funds and does not use paid external sources or services to assist with fundraising. Raising funds in this manner allows the organization to avoid unnecessary fundraising overhead while raising $15.41 in contributions per dollar spent fundraising and $38.06 in total revenue per dollar spent fundraising. This shows up in the success of direct public support which was the largest income stream in 2017 and 2018 and the second-largest income stream in 2019 at over $2 million each year. Spending $140,000 to draw more than $2 million in income appears to be a wise choice for LPO.
Statement of Program Service Accomplishments
The Louisiana Philharmonic Orchestra used the Statement of Program Service Accomplishments well as a fundraising tool. It described all its program services in clear, compelling language in one paragraph on line 4a as follows:
The Louisiana Philharmonic Orchestra is a full-time professional orchestra presenting 100 performances a year and our programming fills a void in education and community services with regard to orchestral music exposure and hands-on interaction with or beside orchestral musicians. We pride ourselves on developing programs that are responsive to identified community needs for life-affirming arts and arts-integrated programming at little or no cost. LPO programming also supports youth development both in and through the arts, an approach to learning correlated with cognitive, emotional, and social growth and measurable student achievement (Louisiana Philharmonic Orchestra, 2020, p. 2)
Mentioning the correlation to areas of growth and student achievement was a useful touch for the organization as it highlights how educational programs translate to transformation for the community. The organization could have further highlighted its mission by pulling out its performance and educational programs and describing each in more detail on its own separate line. This would use the space to show the impact of each group of programs on its own and its impact. For instance, LPO could have included how many patrons attend their 100 performances, what it does to make programs more accessible for community members, how many community members directly participate in educational programs, and how all of this has specifically transformed the community.
Louisiana Philharmonic Orchestra. (n.d.) About the LPO. Retrieved from https://lpomusic.com/about-section/about-the-lpo/
Louisiana Philharmonic Orchestra. (2018). IRS Form 990. Retrieved from https://pdf.guidestar.org/PDF_Images/2017/721/189/2017-721189023-0ee8aeb9-9.pdf
Louisiana Philharmonic Orchestra. (2019). IRS Form 990. Retrieved from https://pdf.guidestar.org/PDF_Images/2019/721/189/2019-721189023-202021969349304662-9.pdf
Louisiana Philharmonic Orchestra. (2020). IRS Form 990. Retrieved from https://pdf.guidestar.org/PDF_Images/2019/721/189/2019-721189023-202021969349304662-9.pdf