WASHINGTON, Oct. 30, 2006 (PRIMEZONE) -- The Advisory Board Company (Nasdaq:ABCO) today announced financial results for the second quarter of its fiscal year ending March 31, 2007. For the quarter, revenues increased 15% to $46.7 million, from $40.5 million for the second quarter of fiscal year 2006. Net income was $7.2 million, or $0.37 per diluted share, compared to $7.0 million, or $0.35 per diluted share, for the same period a year ago. Contract value grew 17% to $186.3 million as of September 30, 2006, up from $159.8 million as of September 30, 2005.
For the six months ended September 30, 2006, revenues increased 15% to $90.9 million, from $79.2 million for the same period of fiscal year 2006. Net income was $13.7 million, or $0.70 per diluted share, compared to $13.7 million, or $0.68 per diluted share, for the same period a year ago.
Effective April 2006, the Company adopted Statement of Financial Accounting Standards No. 123R (SFAS No. 123R), which provides the accounting rules for share-based compensation. In addition, in February 2006, the Company received notification that it had been certified as a Qualified High Technology Company (QHTC) for income tax purposes. To analyze results on a comparable basis to the prior year, the Company's management uses and is providing adjusted financial results, including adjusted net income and earnings per diluted share that excludes share-based compensation expense and employer taxes paid in connection with exercises of employee stock options. The adjusted results for all periods presented also include effective income tax rates calculated assuming adoption of the provisions of SFAS No. 123R and the Company's certification as a QHTC.
Including the adjustments discussed above, adjusted net income for the second quarter of fiscal year 2007 was $9.3 million, up 23% from $7.6 million for the second quarter of fiscal year 2006. Adjusted earnings per diluted share for the second quarter of fiscal year 2007 was $0.48, an increase of 26% from $0.38 in the same quarter in the prior year. Adjusted net income for the six months ended September 30, 2006 was $17.9 million, or $0.91 per diluted share compared to $14.9 million or $0.75 per diluted share in the same period a year ago. A reconciliation of the Company's reported and adjusted results is set forth in the notes to the financial highlights table included below.
Frank Williams, Chairman and Chief Executive Officer, commented, "We are quite pleased with our financial results for the second quarter. Our contract value growth of 17% was driven by a healthy renewal environment, as well as success in cross-selling and the strong performance of our new program introductions. Our success continues to be driven by cutting-edge, highly applicable research, as well as an ongoing focus on program innovation. Our model of providing proven best practices continues to resonate in the marketplace as our members consistently report that our membership programs are having a dramatic positive impact on their most important strategic and operational issues."
He added, "I am also pleased to announce our latest launch, the Bad Debt Performance Program. This program assists Chief Financial Officers in improving bad debt performance by integrating best practices and improved information and analytics to support hospitals' efforts to increase self-pay collections and appropriately identify charity care. Through best practice research, performance benchmarking data, and a robust, web-based analytical tool, the program enhances a member institution's ability to classify accounts based on likelihood to pay, develop workflow based on the classifications and prioritize collections efforts, thereby optimizing collections resources and reducing bad debt. We have already established a strong charter membership for the program, including St. Jude Medical Center, Meridian Health System, H. Lee Moffitt Cancer Center, Roper St. Francis Healthcare, Riverside Health System and Rush North Shore Medical Center. The program is off to a strong start, and we are very excited about its potential."
Share Repurchase
During the three months ended September 30, 2006, the Company repurchased 245,039 shares of its common stock at a total cost of approximately $11.9 million. Through September 30, 2006, the Company has repurchased shares at a total cost of approximately $109.6 million and has $40.4 million available under the program for future share repurchases. Repurchases will continue to be made in open market and privately negotiated transactions subject to market conditions. No minimum number of shares has been fixed. The Company is funding its share repurchases with cash on hand and cash generated from operations.
Outlook for Remainder of Calendar Year 2006
For the quarter ending December 31, 2006, the Company's revenue guidance is approximately $48.5 million and adjusted diluted earnings per share guidance is $0.43. The Company increased its adjusted diluted earnings per share guidance for the four quarters ending December 31, 2006 to $1.80. Adjusted diluted earnings per share excludes share-based compensation under FAS No. 123R and employer taxes paid in connection with the exercise of employee stock options.
The Company will hold an investor conference call to discuss its second quarter performance this evening, October 30, 2006, at 6:00 p.m. Eastern time. The conference call will also be available via live web cast on the Company's web site at www.advisoryboardcompany.com in the section entitled "Investor Information" found under the tab "About Us." To participate by telephone, the dial-in number is 866.270.6057 and the access code is 84515385. 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 8:00 p.m. Monday, October 30, until 8:00 p.m. Monday, November 6, 2006.
Forward Looking Statements
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are hereby cautioned that these statements may be affected by certain factors, among others, set forth below and in the Company's filings with the Securities and Exchange Commission, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. 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, the possible impact on our financials associated with some of our newer programs that are more dependent upon technology, various factors that could affect our income tax rate or our ability to use our existing deferred tax assets, whether the Office of Tax and Revenue of the District of Columbia withdraws our QHTC status, the effect of the amount, type and timing of future share-based compensation arrangements, changes in estimates or assumptions under SFAS No. 123R, and possible volatility of our stock price. These and other factors are discussed more fully in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
About The Advisory Board Company
The Advisory Board Company provides best practices research and analysis to the health care industry, focusing on business strategy, operations and general management issues. The Company provides best practices and research through discrete annual programs to a membership of more than 2,500 hospitals, health systems, pharmaceutical and biotech companies, health care insurers, and medical device companies 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
September 30, Selected
------------------ Growth
2006 2005 Rates
Financial Highlights ------- ------- --------
(GAAP, as reported)
--------------------
Revenues $46,727 $40,487 15.4%
Cost of services $21,575 $17,487
Member relations and marketing $ 9,805 $ 8,229
General and administrative $ 5,711 $ 4,035
Income from operations $ 9,111 $10,285
Net income $ 7,173 $ 6,960 3.1%
Basic earnings per share $ 0.38 $ 0.36 5.6%
Diluted earnings per share $ 0.37 $ 0.35 5.7%
Weighted average common
shares outstanding
Basic 18,821 19,093
Diluted 19,447 20,020
Financial Highlights (Adjusted) (a)
----------------------------------
Adjusted cost of services $20,536 $17,487
Adjusted member relations
and marketing $ 9,102 $ 8,229
Adjusted general and administrative $ 4,270 $ 4,035
Adjusted income from operations $12,294 $10,285 19.5%
Adjusted net income $ 9,277 $ 7,568 22.6%
Adjusted diluted earnings per share $ 0.48 $ 0.38 26.3%
Adjusted diluted weighted average
common shares outstanding 19,447 19,912
Adjusted percentages of revenues (a)
Adjusted cost of services 43.9% 43.2%
Adjusted member relations
and marketing 19.5% 20.3%
Adjusted general and administrative 9.1% 10.0%
Adjusted income from operations 26.3% 25.4%
Six Months Ended
September 30, Selected
------------------ Growth
2006 2005 Rates
Financial Highlights ------- ------- --------
(GAAP, as reported)
---------------------
Revenues $90,932 $79,234 14.8%
Cost of services $42,490 $33,996
Member relations and marketing $19,247 $16,294
General and administrative $11,076 $ 7,859
Income from operations $17,224 $20,201
Net income $13,672 $13,690 -0.1%
Basic earnings per share $ 0.72 $ 0.71 1.4%
Diluted earnings per share $ 0.70 $ 0.68 2.9%
Weighted average common
shares outstanding
Basic 18,880 19,158
Diluted 19,600 20,006
Financial Highlights (Adjusted) (a)
-----------------------------------
Adjusted cost of services $40,347 $33,996
Adjusted member relations
and marketing $17,859 $16,294
Adjusted general and administrative $ 8,205 $ 7,859
Adjusted income from operations $23,626 $20,201 17.0%
Adjusted net income $17,904 $14,886 20.3%
Adjusted diluted earnings per share $ 0.91 $ 0.75 21.3%
Adjusted diluted weighted average
common shares outstanding 19,600 19,906
Adjusted percentages of revenues (a)
Adjusted cost of services 44.4% 42.9%
Adjusted member relations and marketing 19.6% 20.6%
Adjusted general and administrative 9.0% 9.9%
Adjusted income from operations 26.0% 25.5%
(a) In order to allow investors to assess results on a basis
consistent with those used by management, the following tables
reconcile GAAP to adjusted amounts for the three and six months
ended September 30, 2006 and 2005, respectively. Adjusted results
exclude the share-based compensation expense recognized by the
Company in accordance with SFAS No. 123R and employer taxes paid
in connection with the exercise of employee stock options. In
addition, for comparison purposes the Company's effective tax
rate and diluted share count for the three and six months ended
September 30, 2005 have been adjusted to reflect the Company's
certification as a QHTC and include the effects of SFAS No. 123R.
THE ADVISORY BOARD COMPANY
RECONCILIATION OF GAAP TO ADJUSTED RESULTS
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, 2006
-----------------------------------------------------
Employer
taxes
paid upon Tax
exercise benefit
Financial of associated
statement GAAP, as Share-based employee with QHTC
descriptions reported compensation options status Adjusted
-------------- -------- ------------ ------- ---------- --------
Cost of
services $ 21,575 (1,038) (1) -- $20,536
Member
relations and
marketing $ 9,805 (701) (2) -- $ 9,102
General and ad-
ministrative $ 5,711 (1,399) (42) -- $ 4,270
Income from
operations $ 9,111 3,138 45 -- $12,294
Net income $ 7,173 2,074 30 -- $ 9,277
Diluted
earnings per
share $ 0.37 0.11 -- -- $ 0.48
Diluted
weighted
average shares 19,447 -- -- -- 19,447
Three Months Ended September 30, 2005
-----------------------------------------------------
Employer
taxes
paid upon Tax
exercise benefit
Financial of associated
statement GAAP, as Share-based employee with QHTC
descriptions reported compensation options status Adjusted
-------------- -------- ------------ ------- ---------- --------
Cost of
services $ 17,487 -- -- -- $ 17,487
Member
relations and
marketing $ 8,229 -- -- -- $ 8,229
General and ad-
ministrative $ 4,035 -- -- -- $ 4,035
Income from
operations $ 10,285 -- -- -- $ 10,285
Net income $ 6,960 -- -- 608 $ 7,568
Diluted
earnings per
share $ 0.35 -- -- 0.03 $ 0.38
Diluted
weighted
average shares 20,020 (177) -- 69 19,912
Six Months Ended September 30, 2006
-----------------------------------------------------
Employer
taxes
paid upon Tax
exercise benefit
Financial of associated
statement GAAP, as Share-based employee with QHTC
descriptions reported compensation options status Adjusted
-------------- -------- ------------ ------- ---------- --------
Cost of
services $ 42,490 (2,090) (53) -- $ 40,347
Member
relations and
marketing $ 19,247 (1,384) (4) -- $ 17,859
General and ad-
ministrative $ 11,076 (2,780) (91) -- $ 8,205
Income from
operations $ 17,224 6,254 148 -- $ 23,626
Net income $ 13,672 4,134 98 -- $ 17,904
Diluted
earnings per
share $ 0.70 0.21 -- -- $ 0.91
Diluted
weighted
average shares 19,600 -- -- -- 19,600
Six Months Ended September 30, 2005
-----------------------------------------------------
Employer
taxes
paid upon Tax
exercise benefit
Financial of associated
statement GAAP, as Share-based employee with QHTC
descriptions reported compensation options status Adjusted
-------------- -------- ------------ ------- ---------- --------
Cost of
services $ 33,996 -- -- -- $ 33,996
Member
relations and
marketing $ 16,294 -- -- -- $ 16,294
General and ad-
ministrative $ 7,859 -- -- -- $ 7,859
Income from
operations $ 20,201 -- -- -- $ 20,201
Net income $ 13,690 -- -- 1,196 $ 14,886
Diluted
earnings per
share $ 0.68 -- -- 0.07 $ 0.75
Diluted
weighted
average shares 20,006 (154) -- 54 19,906
Reconciliation of non-GAAP Financial Measures
The Company believes its calculations of adjusted results, including adjusted net income and diluted earnings per share, provide additional information about the Company's ongoing operating performance as well as additional information to compare to prior periods. The Company's management uses the adjusted presentations to evaluate projected operating results on a basis that allows for comparability without regard to changes affecting variables arising from its stock-based compensation programs and the timing of notification of the Company's QHTC tax status, and provides such information publicly to allow investors to assess results on a basis consistent with those used by management. Although these non-GAAP financial measures adjust expense and other items to exclude the accounting treatment of share-based compensation expense, they 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. Accordingly, a limitation of these adjusted results is that they do not reflect all of the elements of compensation that the Company believes to be necessary to attract and retain employees and they may not be comparable with results of companies that maintain different compensation programs or account for such programs on a different basis. Management compensates for this aspect of the non-GAAP financial measures by separately evaluating its share-based compensation arrangements. The Company is not able to reconcile its outlook for the remainder of calendar year 2006 to GAAP as future results are dependent upon a number of unknown factors, including the extent (if any) to which employee stock options are exercised, whether employees forfeit outstanding options upon termination from the Company, and future stock price.
THE ADVISORY BOARD COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER OPERATING STATISTICS
(In thousands, except per share data)
Three Months Ended Six Months Ended
September 30, Selected September 30, Selected
------------------ Growth ------------------ Growth
Statements of 2006 2005 Rates 2006 2005 Rates
Operations -------- -------- ----- -------- -------- -----
-------------
Revenues $ 46,727 $ 40,487 15.4% $ 90,932 $ 79,234 14.8%
-------- -------- -------- --------
Cost of
services (a) 21,575 17,487 42,490 33,996
Member relations
and
marketing (a) 9,805 8,229 19,247 16,294
General and
administra-
tive (a) 5,711 4,035 11,076 7,859
Depreciation 525 451 895 884
-------- -------- -------- --------
Income from
operations 9,111 10,285 17,224 20,201
Interest income 1,741 1,412 3,459 2,807
-------- -------- -------- --------
Income before
provision for
income taxes 10,852 11,697 -7.2% 20,683 23,008 -10.1%
Provision for
income
taxes (b) (3,679) (4,737) (7,011) (9,318)
-------- -------- -------- --------
Net income $ 7,173 $ 6,960 3.1% $ 13,672 $ 13,690 -0.1%
======== ======== ======== ========
Earnings per
share
Basic $ 0.38 $ 0.36 $ 0.72 $ 0.71
Diluted $ 0.37 $ 0.35 5.7% $ 0.70 $ 0.68 2.9%
Weighted average
common shares
outstanding
Basic 18,821 19,093 18,880 19,158
Diluted 19,447 20,020 19,600 20,006
Contract Value
(at end of
period) $186,316 $159,810 16.6%
Percentages of
Revenues
--------------
Cost of
services (a) 46.2% 43.2% 46.7% 42.9%
Member
relations and
marketing (a) 21.0% 20.3% 21.2% 20.6%
General and
administra-
tive (a) 12.2% 10.0% 12.2% 9.9%
Depreciation
and loss on
disposal of
assets 1.1% 1.1% 1.0% 1.1%
Income from
operations (a) 19.5% 25.4% 18.9% 25.5%
Net income (a)(b) 15.4% 17.2% 15.0% 17.3%
---------------------------------------------------------------------
(a) Effective April 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123R, "Share-Based Payment"
(SFAS No. 123R), which provides the accounting rules for
share-based compensation. During the three and six months ended
September 30, 2006, the Company recognized approximately $1.0
million and $2.1 million in cost of services, approximately $0.7
million and $1.4 million in member relations and marketing, and
approximately $1.4 million $2.8 million in general and
administrative expense for share-based compensation related to
the adoption of SFAS No. 123R and in employer taxes associated
with the exercise of employee stock options. The Company has
recorded all these expenses in the same line items as other
compensation paid to the relevant categories of employees.
(b) In February 2006, the Company received notification from the
Office of Tax and Revenue of the District of Columbia that the
Company had been certified effective January 1, 2004, as a
Qualified High Technology Company ("QHTC") under the New E-Conomy
Transformation Act of 2000, as amended (the "Act"). The results
of operations for the three and six months ended September 30,
2005, were reported prior to the Company's notice of
certification and include income taxes at an effective rate of
40.5%. This certification had the effect of reducing the
Company's statutory income tax rate as well as providing other
benefits. Had the Company received notification of the
certification and adopted the provisions of SFAS No. 123R prior
to reporting results for the three and six months ended September
30, 2005, the Company's reported effective tax rate for fiscal
2006 would have been reduced by 5.2% to an effective rate of
35.3%.
THE ADVISORY BOARD COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, March 31,
2006 2006
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,266 $ 21,678
Marketable securities 13,835 8,484
Membership fees receivable, net 45,445 36,822
Prepaid expenses and other
current assets 3,126 2,876
Deferred income taxes 21,832 19,495
--------- ---------
Total current assets 91,504 89,355
Fixed assets, net 13,898 9,675
Intangible assets, net 921 780
Goodwill 5,426 5,426
Deferred incentive compensation
and other charges 10,759 11,652
Deferred income taxes, net of
current portion 9,724 15,633
Marketable securities 139,163 138,338
--------- ---------
Total assets $ 271,395 $ 270,859
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenues $ 94,653 $ 99,269
Accounts payable and accrued
liabilities 14,241 15,445
Accrued incentive compensation 7,088 8,344
--------- ---------
Total current liabilities 115,982 123,058
Other long-term liabilities 1,602 636
--------- ---------
Total liabilities 117,584 123,694
--------- ---------
Stockholders' equity:
Common stock 205 203
Additional paid-in capital 164,371 152,081
Retained earnings 67,239 53,567
Accumulated elements of
comprehensive income (1,565) (2,618)
Treasury stock (76,439) (56,068)
--------- ---------
Total stockholders' equity 153,811 147,165
--------- ---------
Total liabilities and
stockholders' equity $ 271,395 $ 270,859
========= =========
THE ADVISORY BOARD COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
September 30,
----------------------
2006 2005
-------- --------
Cash flows from operating activities:
Net income $ 13,672 $ 13,690
Adjustments to reconcile net income
to net cash provided by
operating activities -
Depreciation 895 884
Amortization of intangible assets 92 43
Deferred income taxes 6,397 8,827
Excess tax benefits from
share-based payments (3,459) --
Share-based payment expense 6,253 --
Amortization of marketable
securities premiums 511 429
Changes in operating assets
and liabilities:
Member fees receivable (8,623) (3,831)
Prepaid expenses and other
current assets (250) (24)
Deferred incentive
compensation and other
charges 893 (411)
Deferred revenues (4,616) (5,920)
Accounts payable and
accrued liabilities (1,204) 840
Accrued incentive
compensation (1,256) (1,579)
Other liabilities 966 (242)
-------- --------
Net cash flows provided
by operating activities 10,271 12,706
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (5,118) (460)
Capitalized software development costs (233) --
Cash paid for acquisition, net of
cash acquired -- (3,596)
Redemption of marketable securities 3,000 6,400
Purchases of marketable securities (8,000) (15,933)
-------- --------
Net cash flows used in investing activities (10,351) (13,589)
-------- --------
Cash flows from financing activities:
Proceeds on issuance of stock from
exercise of stock options 2,371 344
Proceeds on issuance of stock under
employee stock purchase plan 209 189
Excess tax benefits from share-based
compensation arrangements 3,459 --
Repayment of debt assumed in
acquisition -- (371)
Purchases of treasury stock (20,371) (16,197)
-------- --------
Net cash flows used in financing
activities (14,332) (16,035)
-------- --------
Net decrease in cash and
cash equivalents (14,412) (16,918)
Cash and cash equivalents,
beginning of period 21,678 27,867
-------- --------
Cash and cash equivalents,
end of period $ 7,266 $ 10,949
======== ========