THE ADVISORY BOARD COMPANY REPORTS FISCAL YEAR 2008 THIRD QUARTER RESULTS
Company Reports Quarterly Revenue of $55.9 Million and Contract Value Growth of 16% Issues Guidance for Calendar Year 2008; Announces New Program Launch
WASHINGTON, D.C.— (February 5, 2008) — The Advisory Board Company (NASDAQ: ABCO) today announced financial results for the third quarter of its fiscal year ending March 31, 2008. Revenue for the quarter increased 15% to $55.9 million, from $48.6 million in the third quarter of fiscal 2007. Net income was $7.9 million, or $0.42 per diluted share, compared to $6.5 million, or $0.34 per diluted share, for the same period a year ago. Contract value grew 16% to $225.4 million as of December 31, 2007, up from $194.1 million as of December 31, 2006.
For the nine months ended December 31, 2007, revenue increased 15% to $161.0 million, from $139.5 million for the nine months ended December 31, 2006. Net income for the nine months ended December 31, 2007 was $23.5 million, or $1.25 per diluted share, compared to $20.2 million, or $1.03 per diluted share, for the same period a year ago.
To analyze results on a comparable basis to periods prior to the implementation of SFAS No. 123R, the Company’s management uses and is providing adjusted financial results, including adjusted net income and earnings per diluted share, that exclude share-based compensation expense. Adjusted net income for the third quarter of fiscal year 2008 was $10.3 million, up from $8.5 million for the third quarter of fiscal year 2007. Adjusted earnings per diluted share for the third quarter of fiscal year 2008 increased 25% to $0.55, from $0.44 in the same quarter of the prior year. See the “Reconciliation of Non-GAAP Financial Measures” section below for a reconciliation of the Company’s adjusted financial results with the results presented in accordance with generally accepted accounting principles (“GAAP”).
Frank Williams, Chairman and Chief Executive Officer of The Advisory Board Company, commented, “We are very pleased with our financial results for the quarter and for the calendar year. Our strong revenue performance and 16% growth in contract value illustrate the continued market attachment to our model of providing proven best practices to address the complexity inherent in today’s healthcare and education fields. Across the quarter, we saw consistent demand for our membership programs, driven by our cutting-edge research agendas, heavy member utilization of program services and analytical tools, and the continued impact we are having on our members’ most important issues. We continue to see a favorable market environment for renewals, cross-selling and new program launches, which are the primary growth drivers of our business.”
Williams added, “I am also pleased today to announce the launch of the University Provost Program, our second program in the education vertical. The University Provost Program is a renewable membership program that provides best practice research, peer networking, and tools to help Provosts better manage university operations, set institutional priorities, and measure and improve performance. Provost feedback has been very positive about our ability to provide proven best practices to assist with today’s difficult issues in higher education, such as the continued push to demonstrate academic outcomes, increased competition for research funding, and the challenge of faculty recruitment and retention. As always, we have established a strong charter membership for the program, including Duke University, College of William and Mary, Dartmouth College, New York University, University of North Carolina, University of California, Washington University, and University of Illinois. The group has provided valuable input regarding the design of the program and its inaugural research agenda. With this initial cohort of progressive institutions, we have established a strong foundation for the future growth and success of the program.”
Outlook for Calendar Year 2008
Although the Company operates on a fiscal year ending March 31, 2008, the following statements summarize the Company’s guidance for calendar year 2008. For the twelve months ending December 31, 2008, the Company estimates revenue of approximately $243.0 million. For calendar year 2008, the Company estimates GAAP income from operations of approximately $45.7 million, compared to $39.7 million for calendar year 2007. The Company estimates GAAP earnings per diluted share of approximately $1.86 for calendar year 2008, compared to $1.63 for calendar year 2007. Included in the calendar year 2008 income from operations and earnings per diluted share estimates is approximately $0.49 to $0.52 of share-based compensation and related expense. The Company expects an effective income tax rate of approximately 33.3% for calendar year 2008. For the quarter ending March 31, 2008, the Company estimates revenue of approximately $57.9 million and GAAP earnings per diluted share of approximately $0.46.
Share Repurchase
During the three months ended December 31, 2007, the Company repurchased 156,190 shares of its common stock at a total cost of approximately $10.0 million. To date, the Company has repurchased 4,312,627 shares of its common stock at a total cost of approximately $195.9 million. Repurchases will continue to be made from time to time in open market and privately negotiated transactions subject to market conditions. No minimum number of shares has been fixed. The Company intends to fund its share repurchases with cash on hand and cash generated from operations. At December 31, 2007, the Company had approximately $171.8 million in cash and marketable securities and no debt.
Web and Conference Call Information
The Company will hold a live conference call to discuss its fiscal year 2008 third quarter news release this evening, February 5, 2008, at 6:00 p.m. Eastern Standard Time. The conference call will be available via live audio webcast on the Company’s web site atwww.advisoryboardcompany.com in the section entitled “The Firm” found under the tab “Investor Relations.” To participate by telephone, the dial-in number is 888.873.4896 and the access code is 20590693. Please be advised to dial-in at least five minutes prior to the call to register. The webcast will be archived for seven days: from 8:00 p.m. Tuesday, February 5, until 8:00 p.m. Tuesday, February 12, 2008.
About The Advisory Board Company
The Advisory Board Company provides best practices research and analysis primarily to the health care industry, focusing on business strategy, operations and general management issues. The Company provides best practices and research through discrete programs to a membership of more than 2,600 hospitals, health systems, pharmaceutical and biotech companies, health care insurers, medical device companies, and universities in the United States. Each program typically charges a fixed annual fee and provides members with such services as best practice research reports, executive education, on-line analytical tools, and other supporting research services.
THE ADVISORY BOARD COMPANY FINANCIAL HIGHLIGHTS (In thousands, except per share data) (Unaudited)
Three Months Ended
Selected
December 31,
Growth
2007
2006
Rates
Financial Highlights (GAAP, as reported) Revenues
$
55,912
$
48,611
15.0
%
Cost of services
$
26,107
$
23,334
Member relations and marketing
$
11,869
$
10,562
General and administrative
$
6,754
$
5,938
Income from operations
$
10,234
$
8,215
Net income
$
7,912
$
6,545
20.9
%
Basic earnings per share
$
0.44
$
0.35
25.7
%
Diluted earnings per share
$
0.42
$
0.34
23.5
%
Weighted average common shares outstanding Basic
18,090
18,694
Diluted
18,871
19,461
Financial Highlights (Adjusted) (1) Adjusted cost of services
$
24,631
$
22,293
Adjusted member relations and marketing
$
11,168
$
9,859
Adjusted general and administrative
$
5,351
$
4,770
Adjusted income from operations
$
13,814
$
11,127
24.1
%
Adjusted net income
$
10,300
$
8,469
21.6
%
Adjusted diluted earnings per share
$
0.55
$
0.44
25.0
%
Diluted weighted average common shares outstanding
18,871
19,461
Adjusted percentages of revenues (1) Adjusted cost of services
44.1
%
45.9
%
Adjusted member relations and marketing
20.0
%
20.3
%
Adjusted general and administrative
9.6
%
9.8
%
Adjusted income from operations
24.7
%
22.9
%
Nine Months Ended
Selected
December 31,
Growth
2007
2006
Rates
Financial Highlights (GAAP, as reported) Revenues
$
161,045
$
139,543
15.4
%
Cost of services
$
74,775
$
65,824
Member relations and marketing
$
33,654
$
29,808
General and administrative
$
19,457
$
17,015
Income from operations
$
30,561
$
25,439
Net income
$
23,529
$
20,217
16.4
%
Basic earnings per share
$
1.30
$
1.07
21.5
%
Diluted earnings per share
$
1.25
$
1.03
21.4
%
Weighted average common shares outstanding Basic
18,097
18,818
Diluted
18,825
19,554
Financial Highlights (Adjusted) (1) Adjusted cost of services
$
70,995
$
62,693
Adjusted member relations and marketing
$
31,530
$
27,721
Adjusted general and administrative
$
14,918
$
13,068
Adjusted income from operations
$
41,004
$
34,604
18.5
%
Adjusted net income
$
30,497
$
26,276
16.1
%
Adjusted diluted earnings per share
$
1.62
$
1.34
20.9
%
Diluted weighted average common shares outstanding
18,825
19,554
Adjusted percentages of revenues (1) Adjusted cost of services
44.1
%
44.9
%
Adjusted member relations and marketing
19.6
%
19.9
%
Adjusted general and administrative
9.3
%
9.4
%
Adjusted income from operations
25.5
%
24.8
%
(1)
In order to allow investors to assess results on a basis consistent with those used by management, the tables below under “Reconciliation of Non-GAAP Financial Measures” reconcile GAAP to adjusted amounts for the three and nine months ended December 31, 2007 and 2006. Adjusted results exclude the share-based compensation expense recognized by the Company in accordance with SFAS No. 123R. Adjusted results include the employer taxes paid in connection with the exercise of employee stock options of $70,000 and $283,000 for the three and nine months ended December 31, 2007, respectively, and $58,000 and $206,000 for the three and nine months ended December 31, 2006, respectively.
Reconciliation of Non-GAAP Financial Measures
The Company believes its calculations of adjusted results to exclude share-based compensation expense provide additional information about the Company’s operating performance. The Company’s management uses the adjusted presentations to evaluate operating results on a basis that is comparable to that used for periods prior to implementation of SFAS No. 123R and provides such information publicly to assist in comparisons to prior periods. For historical results, a reconciliation between results as adjusted and in conformity with GAAP is shown in the attached schedule. Because adjusted financial results are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable as presented to other similarly titled measures of other companies.
Adjusted financial results are not measures of financial performance under GAAP and should not be viewed as a pro-forma presentation reflecting the elimination of the underlying share-based compensation programs, as those programs are an important element of the Company’s compensation structure and generally accepted accounting principles indicate that all forms of share-based payments should be valued and included as appropriate in results of operations. Management compensates for this aspect of the non-GAAP financial measures by separately evaluating its share-based compensation arrangements.
THE ADVISORY BOARD COMPANY RECONCILIATION OF GAAP TO ADJUSTED RESULTS (In thousands, except per share data) (Unaudited)
Three Months Ended December 31, 2007
Share-based
Financial statement descriptions
GAAP, as reported
compensation
Adjusted
Cost of services
$
26,107
$
(1,476
)
$
24,631
Member relations and marketing
$
11,869
$
(701
)
$
11,168
General and administrative
$
6,754
$
(1,403
)
$
5,351
Income from operations
$
10,234
$
3,580
$
13,814
Net income
$
7,912
$
2,388
$
10,300
Diluted earnings per share
$
0.42
$
0.13
$
0.55
Three Months Ended December 31, 2006
Share-based
Financial statement descriptions
GAAP, as reported
compensation
Adjusted
Cost of services
$
23,334
$
(1,041
)
$
22,293
Member relations and marketing
$
10,562
$
(703
)
$
9,859
General and administrative
$
5,938
$
(1,168
)
$
4,770
Income from operations
$
8,215
$
2,912
$
11,127
Net income
$
6,545
$
1,924
$
8,469
Diluted earnings per share
$
0.34
$
0.10
$
0.44
Nine Months Ended December 31, 2007
Share-based
Financial statement descriptions
GAAP, as reported
compensation
Adjusted
Cost of services
$
74,775
$
(3,780
)
$
70,995
Member relations and marketing
$
33,654
$
(2,124
)
$
31,530
General and administrative
$
19,457
$
(4,539
)
$
14,918
Income from operations
$
30,561
$
10,443
$
41,004
Net income
$
23,529
$
6,968
$
30,497
Diluted earnings per share
$
1.25
$
0.37
$
1.62
Nine Months Ended December 31, 2006
Share-based
Financial statement descriptions
GAAP, as reported
compensation
Adjusted
Cost of services
$
65,824
$
(3,131
)
$
62,693
Member relations and marketing
$
29,808
$
(2,087
)
$
27,721
General and administrative
$
17,015
$
(3,947
)
$
13,068
Income from operations
$
25,439
$
9,165
$
34,604
Net income
$
20,217
$
6,059
$
26,276
Diluted earnings per share
$
1.03
$
0.31
$
1.34
Forward Looking Statements
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on information available to the Company as of February 5, 2008, 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, the dependence on renewal of membership-based services, dependence on key personnel, the need to attract and retain qualified personnel, management of growth, new product development, competition, risks associated with anticipating market trends, industry consolidation, variability of quarterly operating results, possible volatility in the Company’s stock price, the impact on our financials associated with some of our newer programs that are more dependent upon technology, share-based compensation expense under SFAS No. 123R including the effect of the amount, type and timing of future stock-based compensation grants, 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, 2007 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 atwww.advisoryboardcompany.com in the “Investor Relations” section 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, 2007, which will be filed with the SEC in February 2008.
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 press 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. You should, however, consult any further disclosures the Company may make in its future filings of its reports on Form 10-K, Form 10-Q and Form 8-K.
# # #
THE ADVISORY BOARD COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER OPERATING STATISTICS
(In thousands, except per share data)
Three Months Ended
Selected
Nine Months Ended
Selected
December 31,
Growth
December 31,
Growth
2007
2006
Rates
2007
2006
Rates
Statements of Operations
Revenues
$
55,912
$
48,611
15.0
%
$
161,045
$
139,543
15.4
%
Cost of services
26,107
23,334
74,775
65,824
Member relations and marketing
11,869
10,562
33,654
29,808
General and administrative
6,754
5,938
19,457
17,015
Depreciation
948
562
2,598
1,457
Income from operations
10,234
8,215
30,561
25,439
Interest income
1,629
1,686
4,720
5,145
Income before
provision for income
taxes
11,863
9,901
19.8
%
35,281
30,584
15.4
%
Provision for income taxes
3,951
3,356
11,752
10,367
Net income
$
7,912
$
6,545
20.9
%
$
23,529
$
20,217
16.4
%
Earnings per share
Basic
$
0.44
$
0.35
$
1.30
$
1.07
Diluted
$
0.42
$
0.34
23.5
%
$
1.25
$
1.03
21.4
%
Weighted average common shares outstanding
Basic
18,090
18,694
18,097
18,818
Diluted
18,871
19,461
18,825
19,554
Contract Value (at end of period)
$
225,429
$
194,077
16.2
%
Percentages of Revenues
Cost of services
46.7
%
48.0
%
46.4
%
47.2
%
Member relations and marketing
21.2
%
21.7
%
20.9
%
21.4
%
General and administrative
12.1
%
12.2
%
12.1
%
12.2
%
Depreciation and loss on disposal of assets
1.7
%
1.2
%
1.6
%
1.0
%
Income from operations
18.3
%
16.9
%
19.0
%
18.2
%
Net income
14.2
%
13.5
%
14.6
%
14.5
%
THE ADVISORY BOARD COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
March 31,
2007
2007
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
29,068
$
13,195
Marketable securities
10,675
12,718
Membership fees receivable, net
93,313
57,671
Prepaid expenses and other current assets
3,777
3,123
Deferred income taxes
18,630
21,673
Total current assets
155,463
108,380
Fixed assets, net
20,974
17,421
Intangible assets, net
1,117
1,011
Goodwill
5,426
5,426
Deferred incentive compensation and other charges
22,827
13,857
Deferred income taxes, net of current portion
3,114
6,629
Marketable securities
132,046
133,450
Total assets
$
340,967
$
286,174
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Deferred revenues
$
142,096
$
114,069
Accounts payable and accrued liabilities
24,611
18,721
Accrued incentive compensation
10,069
10,608
Total current liabilities
176,776
143,398
Long-term deferred revenues
10,187
2,925
Other long-term liabilities
1,528
1,387
Total liabilities
188,491
147,710
Stockholders’ equity:
Common stock
214
208
Additional paid-in capital
210,027
181,380
Retained earnings
104,491
80,962
Accumulated elements of comprehensive income
472
(1,156
)
Treasury stock
(162,728
)
(122,930
)
Total stockholders’ equity
152,476
138,464
Total liabilities and stockholders’ equity
$
340,967
$
286,174
THE ADVISORY BOARD COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended December 31,
2007
2006
Cash flows from operating activities:
Net income
$
23,529
$
20,217
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation
2,598
1,457
Amortization of intangible assets
188
143
Deferred income taxes
11,032
9,417
Excess tax benefits from share-based payments
(5,377
)
(4,905
)
Share-based compensation expense
10,443
9,165
Amortization of marketable securities premiums
716
732
Changes in operating assets and liabilities:
Member fees receivable
(35,642
)
(35,185
)
Prepaid expenses and other current assets
(654
)
142
Deferred incentive compensation and other charges
(8,970
)
(3,375
)
Deferred revenues
35,289
26,901
Accounts payable and accrued liabilities
5,890
2,222
Accrued incentive compensation
(539
)
1,459
Other liabilities
141
876
Net cash flows provided by operating activities
38,644
29,266
Cash flows from investing activities:
Purchases of property and equipment
(6,151
)
(5,954
)
Capitalized software development costs
(294
)
(320
)
Cash paid for acquisition, net of cash acquired
—
(895
)
Redemption of marketable securities
31,605
11,500
Purchases of marketable securities
(26,345
)
(9,500
)
Net cash flows used in investing activities
(1,185
)
(5,169
)
Cash flows from financing activities:
Proceeds on issuance of stock from exercise of stock options
12,504
3,671
Proceeds on issuance of stock under employee stock purchase plan
331
316
Excess tax benefits from share-based compensation arrangements
5,377
4,905
Purchases of treasury stock
(39,798
)
(32,235
)
Net cash flows used in financing activities
(21,586
)
(23,343
)
Net increase in cash and cash equivalents
15,873
754
Cash and cash equivalents, beginning of period
13,195
21,678
Cash and cash equivalents, end of period
$
29,068
$
22,432
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