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The Advisory Board Company Reports Results for Quarter Ended December 31, 2011
Feb 01, 2012 (03:02 PM EST)


Company Reports Quarterly Revenue Growth of 33% and Contract Value Growth of 29%; Issues Guidance for Calendar Year 2012; Announces New Program

WASHINGTON, Feb. 1, 2012 /PRNewswire/ -- The Advisory Board Company (NASDAQ: ABCO) today announced financial results for the quarter ended December 31, 2011, the third quarter of its 2012 fiscal year.  Revenue for the quarter increased 33.0% to $100.0 million, from $75.2 million for the quarter ended December 31, 2010.  Contract value increased 28.8% to $386.6 million as of December 31, 2011, up from $300.2 million as of December 31, 2010.  For the quarter ended December 31, 2011, net income was $8.1 million, or $0.46 per diluted share, compared to net income of $3.9 million, or $0.24 per diluted share, for the quarter ended December 31, 2010.  For the quarter ended December 31, 2011, adjusted net income, non-GAAP earnings per diluted share, and adjusted EBITDA, all of which are non-GAAP financial measures, were $10.6 million, $0.61 per diluted share, and $19.3 million, respectively.  For the quarter ended December 31, 2010, adjusted net income, non-GAAP earnings per diluted share, and adjusted EBITDA were $6.7 million, $0.40 per diluted share, and $11.6 million, respectively.

For the nine months ended December 31, 2011, revenue increased 28.9% to $274.6 million, from $213.0 million for the nine months ended December 31, 2010. Net income was $17.1 million, or $1.00 per diluted share, for the nine months ended December 31, 2011, compared to net income of $13.4 million, or $0.82 per diluted share, for the same period of the prior fiscal year.  For the nine months ended December 31, 2011, adjusted net income, non-GAAP earnings per diluted share, and adjusted EBITDA were $28.7 million, $1.67 per diluted share, and $51.1 million, respectively.  For the nine months ended December 31, 2010, adjusted net income, non-GAAP earnings per diluted share, and adjusted EBITDA were $21.0 million, $1.29 per diluted share, and $36.0 million, respectively.

Robert Musslewhite, Chief Executive Officer of The Advisory Board Company, commented, "We are very pleased with our strong performance for the quarter and the calendar year.  Our calendar year revenue and adjusted EBITDA growth of 27% and 29%, respectively, along with our 29% year-over-year December 31 contract value growth, demonstrate that we have the right formula for success:  delivery of outstanding member value, thoughtful scaling of programs and relationships, and strategic investments in future growth.  Based on our calendar 2011 performance, as well as the inherent visibility of our business model, we expect 2012 to be another year of strong revenue growth and margin expansion even as we continue to make key investments in the business to continue on our rapid growth trajectory years into the future."

Mr. Musslewhite continued, "I am also pleased to announce today our newest program launch: the Physician Practice Roundtable, a renewable research membership program that equips independent physician organizations with the strategic insights and practical tools needed to elevate their clinical, operational, and financial performance.  In today's changing health care environment, medical groups must look beyond managing solely to fee-for-service performance aims and instead ready their organizations for success under value-based payment.  In support of this challenging reality, the Physician Practice Roundtable offers new best practice case studies, tactical resources, and road-tested toolkits to help independent physician organizations develop the efficiencies required in today's marketplace.  The program also provides unparalleled insight into health system strategy, improving physician groups' ability to evaluate and execute future partnerships in a rapidly evolving health care market.  Augmenting our own ability to serve physician practices, the Physician Practice Roundtable is an exciting addition to our portfolio, and we look forward to its continued success."

Sale of OptiLink

On January 20, 2012, the Company sold substantially all of the assets of its OptiLink business to Kronos Incorporated for cash. The OptiLink business, which is headquartered in a suburb of Portland, Oregon and had approximately 35 employees, generated approximately $6.4 million in revenue, $0.7 million in income from operations, and less than $1.5 million in adjusted EBITDA for calendar year 2011. The Company expects to record a gain on the transaction of approximately $3.5 million in the fiscal quarter ending March 31, 2012.

Share Repurchase

During the three months ended December 31, 2011, the Company repurchased 28,079 shares of its common stock at a total cost of approximately $1.9 million.  As of December 31, 2011, the Company had repurchased since the program's inception 7,632,390 shares of its common stock at a total cost of approximately $322.9 million.

Outlook for Calendar Year 2012  

The Company is providing financial guidance for calendar year 2012.  For the calendar year, the Company expects revenue to be in a range of approximately $420 million to $430 million, adjusted EBITDA to be in a range of approximately $77 million to $82 million, and non-GAAP earnings per diluted share to be in a range of approximately $2.40 to $2.60.  For calendar year 2012, the Company expects share-based compensation expense to be approximately $13.5 million, and expects amortization from acquisition-related intangible assets to be approximately $5 million.  For calendar year 2012, the Company expects an effective tax rate in a range of approximately 38.0% to 38.5%.

Non-GAAP Financial Measures  

This press release and the accompanying tables present information about 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").  We define our non-GAAP financial measures as described below.  

The term "adjusted EBITDA" refers to a financial measure that we define as net income before provision for income taxes; other income, net, which includes interest income, gain on investment in common stock warrants, and foreign currency losses and gains; depreciation and amortization; amortization of intangibles (incl. in CoS); acquisition and similar transaction charges; fair value adjustments to acquisition-related earn out liabilities; equity in income of unconsolidated entity; and share-based compensation expense.  The term "adjusted net income" refers to net income excluding the net of tax effect of amortization of acquisition-related intangibles; acquisition and similar transaction charges; fair value adjustments to acquisition-related earn out liabilities; gain on investment in common stock warrants; equity in income of unconsolidated entity; and share-based compensation expense.  The term "non-GAAP earnings per diluted share" refers to net income per share excluding the net of tax effect of amortization of acquisition-related intangibles; acquisition and similar transaction charges; fair value adjustments to acquisition-related earn out liabilities; gain on investment in common stock warrants; equity in income of unconsolidated entity; and share-based compensation expense.  

The foregoing 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, share-based compensation expense, and certain non-cash and special charges.

There are limitations associated with these non-GAAP financial measures as indicators of performance, including that they do not reflect all changes in applicable tax rates, foreign currency exchange rates, share-based compensation expense, 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,


2011


2010


2011


2010









Net income

$    8,052


$    3,934


$    17,126


$   13,412

Provision for income taxes

5,702


2,204


11,146


7,512

Other income, net (1)

(1,625)


(480)


(2,870)


(1,278)

Depreciation and amortization

2,235


1,479


6,303


4,289

Amortization of intangibles (incl. in CoS)

1,623


1,133


4,357


3,575

Acquisition and similar transaction charges



648


Fair value adjustments to acquisition-related earn out liabilities

(200)


1,100


5,300


1,500

Equity in income of unconsolidated entity

609



609


Share-based compensation expense

2,947


2,189


8,462


6,980

    Adjusted EBITDA

$    19,343


$    11,559


$    51,081


$    35,990










Three Months Ended


Nine Months Ended


December 31,


December 31,


2011


2010


2011


2010









Net income

$    8,052


$  3,934


$    17,126


$    13,412

Amortization of acquisition-related intangibles, net of tax

946


665


2,644


2,149

Acquisition and similar transaction charges, net of tax



405


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

(121)


705


3,317


962

Gain on investment in common stock warrants, net of tax

(663)



(663)


Equity in income of unconsolidated entity

609



609


Share-based compensation, net of tax

1,777


1,403


5,224


4,474

    Adjusted net income

$    10,600


$    6,707


$   28,662


$    20,997










Three Months Ended


Nine Months Ended


December 31,


December 31,


2011


2010


2011


2010









GAAP earnings per diluted share

$    0.46


$   0.24


$    1.00


$    0.82

Amortization of acquisition-related intangibles, net of tax

0.06


0.04


0.16


0.13

Acquisition and similar transaction charges, net of tax



0.02


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

(0.01)


0.04


0.19


0.06

Gain on investment in common stock warrants, net of tax

(0.04)



(0.04)


Equity in income of unconsolidated entity

0.04



0.04


Share-based compensation, net of tax

0.10


0.08


0.30


0.28

    Non-GAAP earnings per diluted share

$    0.61


$    0.40


$    1.67


$    1.29











(1)

Other income, net includes interest income of $0.6 million and $0.5 million for the three months ended December 31, 2011 and 2010, respectively, and $1.7 million and $1.2 million for the nine months ended December 31, 2011 and 2010, respectively. Other income, net also includes a foreign currency loss of $0.1 million and foreign currency gain of $11,000 for the three months ended December 31, 2011 and 2010, respectively.  Other income, net includes foreign currency gain of $0.1 million for both the nine months ended December 31, 2011 and 2010.  Other income, net also includes a gain on investment in common stock warrants of $1.1 million for the three months ended December 31, 2011.  



Web and Conference Call Information

As previously announced, the Company will hold a conference call to discuss its third quarter performance this evening, February 1, 2012, at 6:00 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 866.700.0133 and the access code is 84284729.  Participants 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 8:00 p.m. Eastern Time on Wednesday, February 1, until 11:00 p.m. Eastern Time on Wednesday, February 8, 2012.

About The Advisory Board Company

The Advisory Board Company is a global research, technology, and consulting firm partnering with 125,000 leaders in 3,200 organizations across health care and higher education.  Through its innovative membership model, the firm collaborates with executives and their teams to elevate performance and solve their most pressing challenges.  The company provides strategic guidance, actionable insights, web-based software solutions, and comprehensive implementation and management services.  For more information, visit the firm's new website, http://www.advisory.com.

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, non-GAAP earnings per diluted share, share based compensation expense, amortization from acquisition-related intangibles, and effective tax rate for calendar year 2012 are based on information available to the Company as of February 1, 2012, 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 or implied 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 or implied 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 other risks and uncertainties described in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2011, and subsequent reports filed with the Securities and Exchange Commission which are available on the Company's website at www.advisoryboardcompany.com/IR and at the Securities and Exchange Commission's website at www.sec.gov.  Additional information will also be set forth in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, which will be filed with the Securities and Exchange Commission in February 2012.  

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. The Company does not undertake to update its forward-looking 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



2011


2010


Rates


2011


2010


Rates

Statements of Income












Revenue

$    100,043


$      75,210


33.0%


$    274,589


$   213,000


28.9%














Cost of services (1) (2) (3)

54,237


41,232




152,235


113,091



Member relations and marketing (1)

18,448


17,099




54,946


48,352



General and administrative (1)

12,385


9,742




35,094


27,622



Depreciation and amortization

2,235


1,479




6,303


4,289




Income from operations

12,738


5,658




26,011


19,646



Other income, net (4)

1,625


480




2,870


1,278




Income before provision for income taxes

14,363


6,138




28,881


20,924



Provision for income taxes

(5,702)


(2,204)




(11,146)


(7,512)



Equity in income of unconsolidated entity

(609)


-




(609)


-




Net income

$        8,052


$        3,934




$      17,126


$     13,412
















Earnings per share













Basic

$          0.49


$          0.25




$          1.05


$         0.86




Diluted

$          0.46


$          0.24




$          1.00


$         0.82
















Weighted average common shares outstanding













Basic

16,476


15,796




16,298


15,663




Diluted

17,469


16,600




17,184


16,303
















Contract Value (at end of period)

$    386,633


$    300,165


28.8%




















Percentages of Revenues












Cost of services (1) (2) (3)

54.2%


54.8%




55.4%


53.1%



Member relations and marketing (1)

18.4%


22.7%




20.0%


22.7%



General and administrative (1)

12.4%


13.0%




12.8%


13.0%



Depreciation and amortization

2.2%


2.0%




2.3%


2.0%



Income from operations

12.7%


7.5%




9.5%


9.2%



Net income

8.0%


5.2%




6.2%


6.3%


















(1)

During the three months ended December 31, 2011 and 2010, the Company recognized approximately $0.9 million and $0.6 million in cost of services, approximately $0.6 million and $0.6 million in member relations and marketing, and approximately $1.5 million and $1.0 million in general and administrative expense for share-based compensation.  During the nine months ended December 31, 2011 and 2010, the Company recognized approximately $2.6 million and $2.0 million in cost of services, approximately $1.6 million and $1.5 million in member relations and marketing, and approximately $4.3 million and $3.5 million in general and administrative expense for share-based compensation.  The Company has recorded all these expenses in the same line items as other compensation paid to the relevant categories of employees.



(2)

During the three months ended December 31, 2011 and 2010, the Company recognized approximately ($0.2 million) and $1.1 million in cost of services relating to fair value adjustments of acquisition-related earn out liabilities.  During the nine months ended December 31, 2011 and 2010, the Company recognized $5.3 million and $1.5 million in cost of services relating to fair value adjustments of acquisition-related earn out liabilities.  



(3)

During the three months ended December 31, 2011 and 2010, the Company recognized $1.6 million and $1.1 million of amortization expense of intangible assets in cost of services.  During the nine months ended December 31, 2011 and 2010, the Company recognized $4.4 million and $3.6 million of amortization expense of intangible assets in cost of services.



(4)

During the three and nine months ended December 31, 2011, the Company recognized a $1.1 million gain on an investment in common stock warrants.  The Company has recorded this gain in other income, net.  There was no such gain during the three and nine months ended December 31, 2010.




THE ADVISORY BOARD COMPANY

CONSOLIDATED BALANCE SHEETS

(In thousands)








December 31,


March 31,



2011


2011



(unaudited)



ASSETS





Current assets:





Cash and cash equivalents


$               48,426


$               30,378

Marketable securities


5,876


-

Membership fees receivable, net


267,003


179,162

Prepaid expenses and other current assets


9,829


7,069

Deferred income taxes, net


8,301


5,894

Total current assets


339,435


222,503






Property and equipment, net


45,876


29,529

Intangible assets, net


22,453


18,450

Goodwill


79,661


67,155

Deferred incentive compensation and other charges


54,630


46,226

Deferred income taxes, net of current portion


7,949


9,646

Investment in unconsolidated entity


9,391


-

Other non-current assets


8,600


11,500

Marketable securities


98,643


86,179

Total assets


$             666,638


$             491,188






LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Deferred revenues


$             304,733


$             223,876

Accounts payable and accrued liabilities


62,855


51,957

Accrued incentive compensation


16,859


13,609

Total current liabilities


384,447


289,442






Long-term deferred revenues


67,191


42,139

Other long-term liabilities


20,340


11,015

Total liabilities


471,978


342,596






Stockholders' equity:





Common stock


232


225

Additional paid-in capital


300,525


267,242

Retained earnings


181,575


164,449

Accumulated elements of comprehensive income


2,112


(120)

Treasury stock


(289,784)


(283,204)

Total stockholders' equity


194,660


148,592






Total liabilities and stockholders' equity


$             666,638


$             491,188















THE ADVISORY BOARD COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)








Nine Months Ended December  31,



2011


2010

Cash flows from operating activities:





Net income


$        17,126


$       13,412

Adjustments to reconcile net income to net cash provided by





operating activities:





Depreciation


6,303


4,289

Amortization of intangible assets


4,357


3,575

Deferred income taxes


(1,914)


(753)

Excess tax benefits from stock-based payments


(2,796)


(1,900)

Stock-based compensation expense


8,462


6,980

Amortization of marketable securities premiums


850


448

Gain on investment in common stock warrants


(1,100)


-

Equity in income of unconsolidated entity


609


-

Changes in operating assets and liabilities:





Member fees receivable


(85,777)


(49,389)

Prepaid expenses and other current assets


1,262


(1,932)

Deferred incentive compensation and other charges


(8,404)


(9,975)

Deferred revenues


105,312


65,090

Accounts payable and accrued liabilities


13,228


8,792

Accrued incentive compensation


3,250


(665)

Other long-term liabilities


6,425


(4,341)

Net cash flows provided by operating activities


67,193


33,631






Cash flows from investing activities:





Purchases of property and equipment


(22,650)


(7,396)

Capitalized software development costs


(2,010)


(1,433)

Cash paid for acquisitions, net of cash acquired  


(16,829)


(35,120)

Redemption of marketable securities


16,000


20,080

Purchases of marketable securities


(31,748)


(40,544)

Other investing activities


(10,000)


-

Net cash flows used in investing activities


(67,237)


(64,413)






Cash flows from financing activities:





Proceeds on issuance of stock from exercise of stock options


22,980


11,889

Repurchase of shares to satisfy minimum employee tax withholding


(1,266)


(616)

Proceeds on issuance of stock under employee stock purchase plan

162


139

Excess tax benefits from share-based compensation arrangements


2,796


1,900

Purchases of treasury stock


(6,580)


(6,495)

Net cash flows provided by financing activities


18,092


6,817






Net increase (decrease) in cash and cash equivalents


18,048


(23,965)

Cash and cash equivalents, beginning of period


30,378


61,238

Cash and cash equivalents, end of period


$       48,426


$       37,273














SOURCE The Advisory Board Company