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The Advisory Board Company Reports Results for Quarter Ended December 31, 2010
Feb 03, 2011 (03:02 PM EST)


Company Reports Quarterly Revenue Growth of 23.5% and Contract Value Growth of 18.3%; Issues Guidance for Calendar Year 2011; Announces Acquisition of Population Management Analytics and Patient Registry Software Company

WASHINGTON, Feb. 3, 2011 /PRNewswire/ -- The Advisory Board Company (Nasdaq: ABCO) today announced financial results for the quarter ended December 31, 2010, the third quarter of its 2011 fiscal year.  Revenue for the quarter increased 23.5% to $75.2 million, from $60.9 million in the quarter ended December 31, 2009.  Contract value increased 18.3% to $300.2 million as of December 31, 2010, up from $253.7 million as of December 31, 2009. For the quarter ended December 31, 2010, net income was $3.9 million, or $0.24 per diluted share, and EBITDA was $8.1 million.  Included in net income for the third quarter of fiscal 2011 was a fair value adjustment to one of the Company's acquisition-related earn out liabilities of $1.1 million. Excluding the effects of this adjustment, adjusted net income was $4.6 million, non-GAAP earnings per diluted share were $0.28, and adjusted EBITDA was $9.2 million for the third quarter of fiscal 2011.  For the quarter ended December 31, 2009, net income was $4.3 million, or $0.27 per diluted share, and EBITDA was $7.6 million.

For the nine months ended December 31, 2010, revenue increased 21.1% to $213.0 million, from $175.9 million for the nine months ended December 31, 2009. Net income was $13.4 million, or $0.82 per diluted share, and EBITDA was $27.0 million.  Included in net income for the nine months ended December 31, 2010 were fair value adjustments to the Company's acquisition-related earn out liabilities of $1.5 million. Excluding the effects of this adjustment, adjusted net income was $14.4 million, non-GAAP earnings per diluted share were $0.88, and adjusted EBITDA was $28.5 million for the nine months ended December 31, 2010.  For the nine months ended December 31, 2009, net income was $6.4 million, or $0.41 per diluted share, and, excluding certain non-cash charges, adjusted net income was $12.5 million, non-GAAP earnings per diluted share were $0.80, and adjusted EBITDA was $22.6 million.

Robert Musslewhite, Chief Executive Officer of The Advisory Board Company, commented, "Overall, we were pleased with our results for the quarter and for the calendar year.  The strong value that we provide to hospitals and health systems, as well as colleges and universities, drove the continued momentum that we saw across 2010 in both renewals and sales while strengthening our member relationships and providing the foundation for additional relationship expansion in the future."

Mr. Musslewhite continued, "Our strong top and bottom-line growth in calendar 2010, combined with the inherent visibility of our business model, affords us clarity into another strong year in 2011.  We are excited to continue to deliver the formula of consistent double digit growth and margin expansion, particularly in this time of tremendous change in health care when we have before us enormous opportunities to serve our members in new, deeper ways.  We are very pleased that our growth trajectory permits us to make the critical investments that will allow us to seize these opportunities and set up future growth while still delivering solid bottom-line results in the shorter term."

Acquisition of Cielo MedSolutions

The Company also announced the acquisition, as of February 1, 2011, of Cielo MedSolutions, a leading provider of population management analytics and patient registry software in the ambulatory environment.  The cash transaction enhances The Advisory Board Company's existing suite of physician performance management solutions through the addition of analytics and workflow tools that give providers visibility across a patient population to enable appropriate clinical decisions.

Robert Musslewhite commented, "We are excited to add Cielo's outstanding tools to our portfolio and the talented Cielo team to the Advisory Board.  As the market moves towards value-based payment structures, there is increasing urgency for physicians practicing at hospitals and health systems to understand care provided to their patients across all settings. The addition of Cielo to the portfolio allows us to provide these population management analytics and patient registry capabilities in a physician-friendly interface through the Crimson platform.  In addition, as our members build capabilities to manage patients across the full continuum of care and work with us to develop the structures to do so—for example through our Medical Home Collaborative, now more than 200 hospitals strong—Cielo's solutions will also provide key value to them." 

Cielo's Chief Executive Officer David Morin added, "The Advisory Board's Crimson platform, deep knowledge base of best practices, and network of over 2,900 members provides the ideal environment to leverage the strengths and capabilities of the Cielo tool.  I—along with the entire Cielo team—am thrilled to join forces with the Advisory Board to enhance our impact on physician practice across care settings.  We are excited about the large market opportunity ahead of us and the new ways we will work together to help members provide greater value in patient care."

Mr. Musslewhite concluded, "We are very excited about the acquisition and the opportunities to incorporate Cielo into our work.  Hospitals and physicians look to us as their solution for physician performance, and since patient registry is a key tool that they use, the addition of this functionality to our portfolio will greatly enhance our ability to serve member needs in this terrain."

Share Repurchase

During the three months ended December 31, 2010, the Company repurchased 41,190 shares of its common stock at a total cost of approximately $2.0 million.  As of December 31, 2010, the Company had repurchased 7,484,698 shares of its common stock at a total cost of approximately $314.5 million.

Outlook for Calendar Year 2011  

The Company is providing financial guidance for calendar year 2011.  For the calendar year, the Company expects revenue to be in a range of approximately $318 million to $326 million.  In order to provide greater clarity and to better reflect its operating performance, the Company is providing adjusted EBITDA and non-GAAP earnings per diluted share guidance.  Adjusted EBITDA for calendar year 2011 will exclude share-based compensation expense and adjustments to acquisition-related earn out liabilities.  Non-GAAP earnings per diluted share for calendar year 2011 will exclude share-based compensation expense, amortization from acquisition-related intangible assets, and adjustments to acquisition-related earn out liabilities.  The Company expects calendar year 2011 adjusted EBITDA to be in a range of approximately $56 million to $60 million and calendar year 2011 non-GAAP earnings per diluted share to be in a range of approximately $1.85 to $2.00.  For calendar year 2011 the Company expects share-based compensation expense to be approximately $10 million, and expects amortization from acquisition-related intangible assets to be approximately $4.5 million.  For fiscal year 2012, the Company expects an effective tax rate of approximately 36.5% to 37.5%. This guidance includes the effects of the acquisition of Cielo.

Non-GAAP Financial Measures

This press release and the accompanying tables present information about EBITDA, adjusted EBITDA, adjusted net income, and non-GAAP earnings per diluted share, which are non-GAAP financial measures provided as a complement to the results provided in accordance with accounting principles generally accepted in the United States of America ("GAAP").  As used in this release for historical fiscal periods, we define our non-GAAP financial measures as described below.  The term "EBITDA" refers to a financial measure that we define as earnings before other income, net, which includes interest income and foreign currency losses and gains; income taxes; depreciation and amortization; and amortization of acquisition-related intangibles included in cost of services. The term "adjusted EBITDA" refers to a financial measure that we define as earnings before other income, net, which includes interest income and foreign currency losses and gains; income taxes; depreciation and amortization; amortization of acquisition-related intangibles included in cost of services; non-cash charges associated with the write-off of capitalized software and the cancellation of certain stock options that occurred in the quarter ended September 30, 2009; and fair value adjustments made to the Company's acquisition-related earn out liabilities.  The term "adjusted net income" refers to net income excluding the net of tax effect of non-cash charges associated with the write-off of capitalized software and the cancellation of certain stock options, and fair value adjustments made to the Company's acquisition-related earn out liabilities.  "Non-GAAP earnings per diluted share" refers to net income per share excluding the per share effect, net of tax, of non-cash charges associated with the write-off of capitalized software and the cancellation of certain stock options, and fair value adjustments made to the Company's acquisition-related earn out liabilities.  These non-GAAP measures may be calculated differently from similarly titled measures used by other companies, which limits their usefulness as comparative measures, and should be considered in addition to financial measures prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP measures or results as indicators of performance. We use these non-GAAP financial measures for internal budgeting and other managerial purposes because they enable the Company's management to evaluate projected operating results on a basis that allows for comparability without regard to changes arising from applicable tax rates, variability in interest income and foreign currency exchange rates, periodic costs of certain capitalized tangible and intangible assets, and certain non-cash and special charges.

There are limitations associated with EBITDA and adjusted EBITDA, including that they do not reflect all changes in applicable tax rates, foreign currency exchange rates, or the periodic costs of certain capitalized tangible and intangible assets used in generating revenue in our business.  A reconciliation of the foregoing historical non-GAAP financial measures to the most directly comparable historical GAAP financial measures is provided below for each of the periods indicated.  It is not practicable to provide a reconciliation of forecasted adjusted EBITDA and forecasted non-GAAP earnings per diluted share to the most directly comparable GAAP financial measures because certain items required for the forecast of such GAAP financial measures cannot reasonably be estimated or predicted at this time.



Three Months Ended


Nine Months Ended


December 31,


December 31,


2010


2009


2010


2009









Net income

$    3,934


$    4,309


$    13,411


$    6,381

Provision for income taxes

2,204


2,249


7,513


3,331

Other income, net (1)

(480)


(603)


(1,278)


(2,149)

Depreciation and amortization

1,479


1,387


4,289


5,008

Amortization of acquisition-related
intangibles  (incl. in Cost of services)

957


230


3,112


691

    EBITDA

$    8,094


$    7,572


$    27,047


$    13,262

Write-off of capitalized software




7,397

Option cancellation charge




1,937

Fair value adjustments to acquisition-
related earn out liabilities

1,100



1,500


    Adjusted EBITDA

$    9,194


$    7,572


$    28,547


$    22,596





Three Months Ended


Nine Months Ended


December 31,


December 31,


2010


2009


2010


2009









Net income

$    3,934


$  4,309


$    13,411


$    6,381

Write-off of capitalized software, net of tax




4,860

Option cancellation charge, net of tax




1,273

Fair value adjustments to acquisition-
related earn out liabilities, net of tax

705



962


    Adjusted net income

$    4,639


$    4,309


$   14,373


$    12,514












Three Months Ended


Nine Months Ended


December 31,


December 31,


2010


2009


2010


2009









GAAP earnings per diluted share

$    0.24


$   0.27


$    0.82


$    0.41

Write-off of capitalized software, net of tax




0.31

Option cancellation charge, net of tax




0.08

Fair value adjustments to acquisition-
related earn out liabilities, net of tax

0.04



0.06


    Non-GAAP earnings per diluted share

$    0.28


$    0.27


$    0.88


$    0.80











(1)  Other income, net includes interest income of $0.5 million and $0.6 million for the three months ended December 31, 2010 and 2009, respectively, and $1.2 million and $1.8 million for the nine months ended December 31, 2010 and 2009, respectively. Other income, net also includes a foreign currency gain of $11,000 and foreign currency loss of $22,000 for the three months ended December 31, 2010 and 2009, respectively.  Other income, net includes foreign currency gains of $0.1 million and $0.3 million for the nine months ended December 31, 2010 and 2009, respectively.  



Web and Conference Call Information

As previously announced, the Company will hold a conference call to discuss its third quarter performance this evening, February 3, 2011 at 5:30 p.m. Eastern Time.  The conference call will be available via live web cast on the Company's web site at www.advisoryboardcompany.com/IR.  To participate by telephone, the dial-in number is 866.203.3436 and the access code is 12459229.  Investors are advised to dial-in at least five minutes prior to the call to register.  The web cast will be archived for seven days from 8:30 p.m. Thursday, February 3, until 8:30 p.m. Thursday, February 10, 2011.

About The Advisory Board Company

The Advisory Board Company provides best practices research and analysis, business intelligence and software tools, and installation support and management and advisory services to approximately 2,985 organizations, including hospitals, health systems, pharmaceutical and biotech companies, health care insurers, medical device companies, colleges, universities, and other educational institutions.  Members of each program typically are charged a fixed fee and have access to an integrated set of services that may include best practice research studies, executive education seminars, customized research briefs, web-based access to the program's content database, and software tools.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements, including the Company's expectations regarding its revenue, adjusted EBITDA and non-GAAP earnings per diluted share for calendar year 2011 and its effective tax rate for fiscal year 2012, are based on information available to the Company as of February 3, 2011, the date of this news release, as well as the Company's current projections, forecasts, and assumptions, and involve risks and uncertainties.  You are hereby cautioned that these statements may be affected by certain factors, including those set forth below.  Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements, and reported results should not be considered as an indication of future performance.  Factors that could cause actual results to differ materially from those indicated by forward-looking statements include, among others, changes in the financial condition of the health care industry, our dependence on renewal of membership-based services, the need to attract new business and retain current members and qualified personnel, new product development, competition, risks associated with our software tools and installation support tools, our ability to license technology from third parties, risks associated with anticipating market trends, industry consolidation, variability of quarterly operating results, possible volatility in the Company's stock price, and various factors related to income and other taxes, including whether the District of Columbia withdraws the Company's status as a Qualified High-Tech Company, as well as those risks and uncertainties described in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2010 and also disclosed from time to time in its subsequent reports on Form 10-Q and Form 8-K, which are available on the Company's website at www.advisoryboardcompany.com/IR and at the SEC's website at www.sec.gov.  Additional information will also be set forth in the Company's report on Form 10-Q for the quarter ended December 31, 2010, which will be filed with the SEC in February 2011.  

Accordingly, readers are cautioned not to place undue reliance on forward-looking statements made in this news release, which speak only as of the date of this news release, and the Company does not undertake to update these statements, whether as a result of circumstances or events that arise after the date they are made, new information, or otherwise.

THE ADVISORY BOARD COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

AND OTHER OPERATING STATISTICS

(In thousands, except per share data)






Three Months Ended


Selected


Nine Months Ended


Selected



December 31,


Growth


December 31,


Growth



2010


2009


Rates


2010


2009


Rates

Statements of Income












Revenue

$      75,210


$      60,893


23.5%


$    213,000


$   175,919


21.1%














Cost of services (1)

41,232


32,080




113,091


93,185



Member relations and marketing (1)

17,099


13,809




48,352


39,502



General and administrative (1)

9,742


7,662




27,622


23,264



Depreciation and amortization

1,479


1,387




4,289


5,008



Write-off of capitalized software

-


-




-


7,397




Income from operations

5,658


5,955




19,646


7,563



Other income, net

480


603




1,278


2,149




Income before provision for income taxes

6,138


6,558




20,924


9,712



Provision for income taxes

(2,204)


(2,249)




(7,512)


(3,331)




Net income

$        3,934


$        4,309




$      13,412


$       6,381
















Earnings per share













Basic

$          0.25


$          0.28




$          0.86


$         0.41




Diluted

$          0.24


$          0.27




$          0.82


$         0.41
















Weighted average common shares outstanding













Basic

15,796


15,511




15,663


15,531




Diluted

16,600


15,701




16,303


15,657
















Contract Value (at end of period)

$    300,165


$    253,738


18.3%




















Percentages of Revenues












Cost of services (1)

54.8%


52.7%




53.1%


53.0%



Member relations and marketing (1)

22.7%


22.7%




22.7%


22.5%



General and administrative (1)

13.0%


12.6%




13.0%


13.2%



Depreciation and amortization

2.0%


2.3%




2.0%


2.8%



Income from operations

7.5%


9.8%




9.2%


4.3%



Net income

5.2%


7.1%




6.3%


3.6%


















(1)  During the three and nine months ended December 31, 2010, the Company recognized approximately $0.6 million and $2.0 million in cost of services, approximately $0.6 million and $1.5 million in member relations and marketing, and approximately $1.0 million and $3.5 million in general and administrative expense for share-based compensation.  During the three and nine months ended December 31, 2009, the Company recognized approximately $0.8 million and $3.3 million in cost of services, approximately $0.5 million and $1.6 million in member relations and marketing, and approximately $0.9 million and $4.0 million in general and administrative expense for share-based compensation. Included in the share-based compensation amounts for the three and nine months ended December 31, 2009 are approximately $0.7 million, $0.1 million, and $1.1 million recorded in Cost of Services, member relations and marketing, and general and administrative expense, respectively, relating to the one-time charge for the cancellation of certain stock options during the quarter ending September 30, 2009.  The Company has recorded all these expenses in the same line items as other compensation paid to the relevant categories of employees.



THE ADVISORY BOARD COMPANY

CONSOLIDATED BALANCE SHEETS

(In thousands)








December 31,


March 31,



2010


2010



(unaudited)



ASSETS





Current assets:





Cash and cash equivalents


$               37,273


$               61,238

Marketable securities


-


10,422

Membership fees receivable, net


195,985


143,453

Prepaid expenses and other current assets


5,458


3,326

Deferred income taxes, net


6,559


5,629

Total current assets


245,275


224,068






Property and equipment, net


25,290


22,183

Intangible assets, net


18,269


9,161

Restricted cash


6,500


2,500

Goodwill


59,063


37,255

Deferred incentive compensation and other charges


47,538


37,563

Deferred income taxes, net of current portion


9,987


7,782

Other non-current assets


5,000


5,000

Marketable securities


70,319


41,260

Total assets


$             487,241


$             386,772






LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Deferred revenues


$             228,082


$             182,689

Accounts payable and accrued liabilities


53,587


45,654

Accrued incentive compensation


12,550


12,152

Total current liabilities


294,219


240,495






Long-term deferred revenues


46,487


25,713

Other long-term liabilities


8,408


8,749

Total liabilities


349,114


274,957






Stockholders' equity:





Common stock


223


218

Additional paid-in capital


259,840


239,548

Retained earnings


159,336


145,925

Accumulated elements of comprehensive income


133


1,034

Treasury stock


(281,405)


(274,910)

Total stockholders' equity


138,127


111,815






Total liabilities and stockholders' equity


$             487,241


$             386,772









THE ADVISORY BOARD COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)








Nine Months Ended December  31,



2010


2009

Cash flows from operating activities:





Net income


$           13,411


$             6,381

Adjustments to reconcile net income to net cash provided by





operating activities:





Depreciation


4,289


5,008

Write-off of capitalized software


-


7,397

Amortization of intangible assets


3,575


890

Deferred income taxes


(753)


(9,192)

Excess tax benefits from stock-based payments


(1,900)


-

Stock-based compensation expense


6,980


10,060

Amortization of marketable securities premiums


449


469

Changes in operating assets and liabilities:





Member fees receivable


(49,389)


(28,015)

Prepaid expenses and other current assets


(1,932)


1,409

Deferred incentive compensation and other charges


(9,975)


(10,130)

Deferred revenues


65,090


30,532

Accounts payable and accrued liabilities


8,792


11,176

Accrued incentive compensation


(665)


1,976

Other long-term liabilities


(4,341)


(478)

Net cash flows provided by operating activities


33,631


27,483






Cash flows from investing activities:





Purchases of property and equipment


(7,396)


(939)

Capitalized software development costs


(1,433)


(496)

Cash paid for acquisitions, net of cash acquired  


(35,120)


(13,600)

Redemption of marketable securities


20,080


20,350

Purchases of marketable securities


(40,544)


(9,965)

Other investing activities


-


(5,000)

Net cash flows used in investing activities


(64,413)


(9,650)






Cash flows from financing activities:





Proceeds on issuance of stock from exercise of stock options


11,889


214

Repurchase of shares to satisfy minimum employee tax withholding


(616)


(2)

Proceeds on issuance of stock under employee stock purchase plan

139


109

Excess tax benefits from share-based compensation arrangements


1,900


-

Purchases of treasury stock


(6,495)


(2,999)

Net cash flows provided by (used in) financing activities


6,817


(2,678)






Net (decrease) increase in cash and cash equivalents


(23,965)


15,155

Cash and cash equivalents, beginning of period


61,238


23,746

Cash and cash equivalents, end of period


$           37,273


$           38,901














SOURCE The Advisory Board Company