The Advisory Board Company Reports Results For Quarter Ended September 30, 2014
Company Reports Quarterly Revenue of $144 Million and Contract Value of $562 million; announces a change to its fiscal year end
WASHINGTON, Nov. 6, 2014 /PRNewswire/ -- The Advisory Board Company (NASDAQ: ABCO), a global technology, research, and services company providing a leading cloud-based performance platform for the health care and higher education industries, today announced financial results for the quarter ended September 30, 2014, highlighted by 14% growth in contract value and 12% growth in quarterly revenue.
Robert Musslewhite, Chairman and Chief Executive Officer of The Advisory Board Company, commented, "We again achieved continued growth and strong bottom line performance in the third calendar quarter. Our record contract value of nearly $562 million illustrates the outstanding value we deliver to our members, and our adjusted EBITDA and non-GAAP earnings per share growth demonstrate the scalability inherent in our business model. While we ended the quarter slightly behind where we wanted to be on revenue, we are on track to finish within our guidance range for this year, and we are positioned well for a strong finish, which will set up solid revenue and earnings performance in calendar 2015. As we head into this important period, our highest priority is strong execution on sales and renewals."
Mr. Musslewhite continued, "The health care and higher education industries need us now more than ever, given the high degree of change and complexity our members face in both markets. And given our best-in-class products, proven value delivery model, extensive member network, and outstanding talent, we are in the ideal position to solve our members' most complex challenges and generate enormous positive impact."
Revenue for the quarter increased 12% to $144.2 million, from $128.3 million for the quarter ended September 30, 2013. Contract value increased 14% to $561.6 million as of September 30, 2014, up from $491.3 million as of September 30, 2013. For the quarter ended September 30, 2014, net income attributable to common stockholders was $6.5 million, or $0.18 per diluted share, compared to net income attributable to common stockholders of $9.0 million, or $0.24 per diluted share, for the quarter ended September 30, 2013. For the quarter ended September 30, 2014, adjusted EBITDA was $25.4 million, up from $22.3 million for the quarter ended September 30, 2013. Adjusted net income for the quarter ended September 30, 2014 was $15.9 million, or $0.43 per diluted share, compared to $11.4 million, or $0.31 per diluted share, for the quarter ended September 30, 2013. Adjusted EBITDA, adjusted net income, and non-GAAP earnings per diluted share are all non-GAAP financial measures.
For the six months ended September 30, 2014, revenue increased 14% to $286.0 million, from $251.6 million for the six months ended September 30, 2013. Net income attributable to common stockholders was $3.3 million, or $0.09 per diluted share, for the six months ended September 30, 2014, compared to net income attributable to common stockholders of $12.7 million, or $0.35 per diluted share, for the same period in the prior fiscal year. For the six months ended September 30, 2014, adjusted EBITDA was $49.4 million, up from $44.8 million for the six months ended September 30, 2013. Adjusted net income for the six months ended September 30, 2014 was $26.9 million, or $0.73 per diluted share, compared to $22.7 million, or $0.62 per diluted share, for the six months ended September 30, 2013.
Change in Fiscal Year
The Company announced a change to its financial reporting periods to make its fiscal year consistent with the calendar year. Historically, the Company's fiscal year end has been March 31. The fiscal year will be December 31 beginning with the current transition period ending December 31, 2014.
The Company intends to file a Transition Report on Form 10-K covering the nine-month transition period from April 1, 2014 to December 31, 2014.
Outlook for Calendar Year 2014
The Company revised its previously announced calendar year 2014 guidance for revenue, adjusted EBITDA, and non-GAAP earnings per diluted share. For calendar year 2014, the Company expects revenue to be in a range of approximately $570 million to $575 million, revised from $570 million to $580 million previously, adjusted EBITDA to be in a range of approximately $97 million to $100 million, revised from $97 million to $103 million previously, and non-GAAP earnings per diluted share to be in a range of approximately $1.27 to $1.32, revised from $1.14 to $1.25 previously. For calendar year 2014, the Company expects amortization from acquisition-related intangible assets to be approximately $11 million.
Non-GAAP Financial Measures
This press release and the accompanying tables present information about the Company's 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"). The term "adjusted EBITDA" for the three and six months ended September 30, 2014 and 2013 refers to net income attributable to common stockholders before adjustment for the items set forth in the first table. The term "adjusted net income" for the three and six months ended September 30, 2014 and 2013 refers to net income attributable to common stockholders excluding the net of tax effect of the items set forth in the second table below. The term "non-GAAP earnings per diluted share" for the three and six months ended September 30, 2014 and 2013 refers to earnings per diluted share excluding the net of tax effect of the items set forth in the third table below.
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 or 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, including fair value adjustments to acquisition-related earn-out liabilities, equity in loss of unconsolidated entity, and gains and losses on investment in common stock warrants, cannot reasonably be estimated or predicted at this time.
| Three Months Ended |
Six Months Ended |
||||||
| September 30, |
September 30, |
||||||
| 2014 |
2013 |
2014 |
2013 |
||||
| Net income attributable to common |
$ 6,490 |
$ 9,002 |
$ 3,313 |
$ 12,695 |
|||
| Equity in loss of unconsolidated entities |
1,197 |
(1,326) |
3,347 |
1,907 |
|||
| Accretion of non-controlling interest to |
(150) |
— |
6,890 |
||||
| Provision for income taxes |
710 |
4,805 |
4,643 |
9,140 |
|||
| Other income, net |
851 |
(1,091) |
141 |
(1,614) |
|||
| Depreciation and amortization |
9,679 |
6,886 |
18,757 |
13,240 |
|||
| Acquisition and similar transaction charges |
— |
573 |
268 |
573 |
|||
| Fair value adjustments to acquisition-related |
(400) |
(950) |
(500) |
(250) |
|||
| Vacation accrual adjustment (1) |
850 |
— |
850 |
— |
|||
| Stock-based compensation expense |
6,175 |
4,407 |
11,716 |
9,066 |
|||
| Adjusted EBITDA |
$ 25,402 |
$ 22,306 |
$ 49,425 |
$ 44,757 |
|||
| Three Months Ended |
Six Months Ended |
|||||||||
| September 30, |
September 30, |
|||||||||
| 2014 |
2013 |
2014 |
2013 |
|||||||
| Net income attributable to common |
$ 6,490 |
$ 9,002 |
$ 3,313 |
$ 12,695 |
||||||
| Equity in loss of unconsolidated entities |
1,197 |
(1,326) |
3,347 |
1,907 |
||||||
| Accretion of non-controlling interest to |
(150) |
— |
6,890 |
— |
||||||
| Amortization of acquisition-related intangibles, |
2,261 |
1,231 |
3,713 |
2,367 |
||||||
| Acquisition and similar transaction charges, net |
— |
352 |
162 |
352 |
||||||
| Fair value adjustments to acquisition-related |
(366) |
(584) |
(427) |
(154) |
||||||
| Loss on investment in common stock warrants, |
— |
— |
108 |
— |
||||||
| Vacation accrual adjustment, net of tax (1) |
777 |
— |
777 |
— |
||||||
| Stock-based compensation expense, net of tax |
5,643 |
2,710 |
8,994 |
5,576 |
||||||
| Adjusted net income |
$ 15,852 |
$ 11,385 |
$ 26,877 |
$ 22,743 |
||||||
| Three Months Ended |
Six Months Ended |
|||||||||
| September 30, |
September 30, |
|||||||||
| 2014 |
2013 |
2014 |
2013 |
|||||||
| Net income attributable to common shareholders |
$ 0.18 |
$ 0.24 |
$ 0.09 |
$ 0.35 |
||||||
| Equity in loss of unconsolidated entities |
0.03 |
(0.03) |
0.09 |
0.05 |
||||||
| Accretion of non-controlling interest to |
— |
— |
0.19 |
— |
||||||
| Amortization of acquisition-related intangibles, |
0.06 |
0.03 |
0.11 |
0.06 |
||||||
| Acquisition and similar transaction charges, net |
— |
0.01 |
— |
0.01 |
||||||
| Fair value adjustments to acquisition-related |
(0.01) |
(0.02) |
(0.01) |
— |
||||||
| Loss on investment in common stock warrants, |
— |
— |
— |
— |
||||||
| Vacation accrual adjustment, net of tax (1) |
0.02 |
— |
0.02 |
— |
||||||
| Stock-based compensation expense, net of tax |
0.15 |
0.08 |
0.24 |
0.15 |
||||||
| Non-GAAP earnings per diluted share |
$ 0.43 |
$ 0.31 |
$ 0.73 |
$ 0.62 |
||||||
| (1) The Company maintains a "use it or lose it" employee vacation policy based on a March 31 fiscal year end. During the quarter, and in anticipation of the fiscal year end change announced herein, the Company recorded an incremental adjustment to vacation accrual at September 30, 2014. We expect that this liability will be utilized by March 31, 2015 as employees either use or lose vacation. Prior amounts were not material. |
||||||||||
Web and Conference Call Information
As previously announced, the Company will hold a conference call to discuss its second quarter performance this evening, November 6, 2014, at 5:30 p.m. Eastern Time. The conference call will be available via live webcast on the Company's website at www.advisory.com/IR. To participate by telephone, the dial-in number is 888.336.7150. Participants are 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. Eastern Time on Thursday, November 6, 2014, until 11:00 p.m. Eastern Time on Thursday, November 13, 2014.
About The Advisory Board Company
The Advisory Board Company is a global research, technology, and consulting firm partnering with 4,500 organizations and more than 200,000 leaders across health care and higher education. Through its innovative membership model, the Company 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 website, 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, and amortization of acquisition-related intangibles for calendar year 2014 are based on information available to the Company as of November 6, 2014, the date of this news release, as well as the Company's current projections, forecasts, and assumptions, and are subject to 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 the 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 the Company's software tools and management and advisory services, risks relating to privacy, information security, and other health care-related laws and standards, maintaining our third-party provider relationships and strategic alliances, our ability to license technology from third parties, impairment of goodwill, and various factors related to income and other taxes, 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, 2014, which is available for review on the Company's website at www.advisory.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 Report on Form 10-Q for the quarter ended September 30, 2014 to be filed with the Securities and Exchange Commission.
Accordingly, readers are cautioned not to place undue reliance on the 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 any of 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 |
Six Months Ended |
Selected |
|||||||||||||||||
| September 30, |
Growth |
September 30, |
Growth |
|||||||||||||||||
| 2014 |
2013 |
Rates |
2014 |
2013 |
Rates |
|||||||||||||||
| Statements of Income |
||||||||||||||||||||
| Revenue |
$ 144,220 |
$ 128,341 |
12.4% |
$ 286,040 |
$ 251,557 |
13.7% |
||||||||||||||
| Cost of services, excluding depreciation and amortization (1) (2) |
74,078 |
69,857 |
148,296 |
135,807 |
||||||||||||||||
| Member relations and marketing (1) |
26,792 |
22,198 |
53,368 |
44,386 |
||||||||||||||||
| General and administrative (1) (3) (4) |
24,573 |
18,010 |
47,285 |
35,996 |
||||||||||||||||
| Depreciation and amortization (5) |
9,679 |
6,886 |
18,757 |
13,240 |
||||||||||||||||
| Operating income |
9,098 |
11,390 |
18,334 |
22,128 |
||||||||||||||||
| Other (expense) income, net (6) |
(851) |
1,091 |
(141) |
1,614 |
||||||||||||||||
| Income before provision for income taxes |
||||||||||||||||||||
| and equity in loss of unconsolidated entities |
8,247 |
12,481 |
18,193 |
23,742 |
||||||||||||||||
| Provision for income taxes |
(710) |
(4,805) |
(4,643) |
(9,140) |
||||||||||||||||
| Equity in loss of unconsolidated entities (8) |
(1,197) |
1,326 |
(3,347) |
(1,907) |
||||||||||||||||
| Net income before allocation to noncontrolling interest |
6,340 |
9,002 |
10,203 |
12,695 |
||||||||||||||||
| Net loss and accretion to redemption value attributable to noncontrolling interest (7) |
150 |
- |
(6,890) |
- |
||||||||||||||||
| Net (loss) income attributable to common stockholders |
$ 6,490 |
$ 9,002 |
$ 3,313 |
$ 12,695 |
||||||||||||||||
| Net income attributable to common stockholders per share |
||||||||||||||||||||
| Basic |
$ 0.18 |
$ 0.25 |
$ 0.09 |
$ 0.36 |
||||||||||||||||
| Diluted |
$ 0.18 |
$ 0.24 |
$ 0.09 |
$ 0.35 |
||||||||||||||||
| Weighted average common shares outstanding |
||||||||||||||||||||
| Basic |
36,191 |
35,883 |
36,301 |
35,686 |
||||||||||||||||
| Diluted |
36,703 |
36,897 |
36,871 |
36,758 |
||||||||||||||||
| Contract Value (at end of period) |
$ 561,645 |
$ 491,338 |
14.3% |
|||||||||||||||||
| Percentages of Revenue |
||||||||||||||||||||
| Cost of services, excluding depreciation and amortization (1) (2) |
51.4% |
54.4% |
51.8% |
54.0% |
||||||||||||||||
| Member relations and marketing (1) |
18.6% |
17.3% |
18.7% |
17.6% |
||||||||||||||||
| General and administrative (1) (3) (4) |
17.0% |
14.0% |
16.5% |
14.3% |
||||||||||||||||
| Depreciation and amortization (5) |
6.7% |
5.4% |
6.6% |
5.3% |
||||||||||||||||
| Operating income |
6.3% |
8.9% |
6.4% |
8.8% |
||||||||||||||||
| Net income attributable to common stockholders |
4.5% |
7.0% |
1.2% |
5.0% |
||||||||||||||||
| (1) Amounts include stock-based compensation, as follows: |
||||||||||||||||||||
| Cost of services |
1,916 |
1,284 |
4,005 |
2,689 |
||||||||||||||||
| Member relations and marketing |
1,141 |
926 |
2,222 |
1,902 |
||||||||||||||||
| General and administrative |
3,118 |
2,197 |
5,489 |
4,475 |
||||||||||||||||
| (2) Amounts include fair value adjustments of acquisition-related earn-out liabilities, as follows: |
||||||||||||||||||||
| Cost of services |
(400) |
(950) |
(500) |
(250) |
||||||||||||||||
| (3) Amounts include acquisition and transaction related costs, as follows: |
||||||||||||||||||||
| General and administrative |
- |
573 |
268 |
573 |
||||||||||||||||
| (4) Amounts include Vacation accrual adjustment in fiscal year as follows: |
||||||||||||||||||||
| General and administrative |
850 |
- |
850 |
- |
||||||||||||||||
| (5) Amounts include amortization of acquisition-related intangibles, as follows: |
||||||||||||||||||||
| Depreciation and amortization |
2,473 |
2,001 |
4,874 |
3,848 |
||||||||||||||||
| (6) Amounts include loss on investment in common stock warrants, as follows: |
||||||||||||||||||||
| Other income, net |
- |
- |
180 |
- |
||||||||||||||||
| (7) Amount represents non-cash charge to accrete redeemable non-controlling interest to redemption value |
||||||||||||||||||||
| 150 |
- |
6,890 |
- |
|||||||||||||||||
| (8) The equity in loss of unconsolidated entities shown in the table reflects the Company's share of the preliminary results for Evolent Health for the quarter ended September 30, 2014 and is subject to adjustment based on any changes to such preliminary results made by Evolent Health. |
||||||||||||||||||||
| THE ADVISORY BOARD COMPANY |
||||
| CONSOLIDATED BALANCE SHEETS |
||||
| (In thousands) |
||||
| September 30, |
March 31, |
|||
| 2014 |
2014 |
|||
| (unaudited) |
||||
| ASSETS |
||||
| Current assets: |
||||
| Cash and cash equivalents |
$ 26,886 |
$ 23,129 |
||
| Marketable securities, current |
2,402 |
2,452 |
||
| Membership fees receivable, net |
476,908 |
447,897 |
||
| Prepaid expenses and other current assets |
26,553 |
27,212 |
||
| Deferred income taxes, current |
6,944 |
5,511 |
||
| Total current assets |
539,693 |
506,201 |
||
| Property and equipment, net |
116,252 |
102,457 |
||
| Intangible assets, net |
32,909 |
33,755 |
||
| Deferred incentive compensation and other charges |
77,802 |
86,147 |
||
| Deferred income taxes, net of current portion |
- |
|||
| Marketable securities, net of current portion |
85,018 |
161,944 |
||
| Goodwill |
153,028 |
129,424 |
||
| Investments in and advances to unconsolidated entities |
12,509 |
15,857 |
||
| Other non-current assets |
5,370 |
5,550 |
||
| Total assets |
$ 1,022,581 |
$ 1,041,335 |
||
| LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
| Current liabilities: |
||||
| Deferred revenue, current |
$ 460,312 |
$ 459,827 |
||
| Accounts payable and accrued liabilities |
70,122 |
77,815 |
||
| Accrued incentive compensation |
16,624 |
28,471 |
||
| Total current liabilities |
547,058 |
566,113 |
||
| Deferred revenue, net of current portion |
137,889 |
127,532 |
||
| Deferred income taxes, net of current portion |
7,515 |
1,556 |
||
| Other long-term liabilities |
8,633 |
8,975 |
||
| Total liabilities |
701,095 |
704,176 |
||
| Redeemable noncontrolling interest |
6,763 |
100 |
||
| The Advisory Board Company's stockholders' equity: |
||||
| Common stock |
360 |
363 |
||
| Additional paid-in capital |
432,178 |
429,932 |
||
| Accumulated deficit |
(117,498) |
(91,468) |
||
| Accumulated other comprehensive (loss) income |
(317) |
(1,541) |
||
| Total stockholders' equity controlling interest |
314,723 |
337,286 |
||
| Equity attributable to noncontrolling interest |
- |
(227) |
||
| Total stockholders' equity |
314,723 |
337,059 |
||
| Total liabilities and stockholders' equity |
$ 1,022,581 |
$ 1,041,335 |
||
| THE ADVISORY BOARD COMPANY |
||||
| UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||
| (In thousands) |
||||
| Six Months Ended September 30, |
||||
| 2014 |
2013 |
|||
| Cash flows from operating activities: |
||||
| Net income before allocation to noncontrolling interest |
$ 10,203 |
$ 12,695 |
||
| Adjustments to reconcile net income before allocation to |
||||
| noncontrolling interest to net cash provided by operating activities: |
||||
| Depreciation and amortization |
18,757 |
13,240 |
||
| Deferred income taxes |
2,639 |
(737) |
||
| Excess tax benefits from stock-based awards |
(2,118) |
(12,839) |
||
| Stock-based compensation expense |
11,716 |
9,066 |
||
| Amortization of marketable securities premiums |
1,018 |
1,358 |
||
| Loss on investment in common stock warrants |
180 |
- |
||
| Equity in loss of unconsolidated entities |
3,347 |
1,907 |
||
| Changes in operating assets and liabilities: |
||||
| Membership fees receivable |
(27,496) |
(16,825) |
||
| Prepaid expenses and other current assets |
2,777 |
8,340 |
||
| Deferred incentive compensation and other charges |
8,345 |
(5,958) |
||
| Deferred revenue |
10,090 |
25,459 |
||
| Accounts payable and accrued liabilities |
(4,620) |
6,281 |
||
| Acquisition-related earn-out payments |
(3,073) |
(1,812) |
||
| Accrued incentive compensation |
(11,847) |
(4,922) |
||
| Other long-term liabilities |
(342) |
316 |
||
| Net cash flows provided by operating activities |
19,576 |
35,569 |
||
| Cash flows from investing activities: |
||||
| Purchases of property and equipment |
(26,634) |
(23,585) |
||
| Capitalized external use software development costs |
(2,522) |
(2,309) |
||
| Investments in and loans to unconsolidated entities |
- |
(15,641) |
||
| Cash paid for acquisitions, net of cash acquired |
(25,830) |
(11,482) |
||
| Redemptions of marketable securities |
77,988 |
43,189 |
||
| Purchases of marketable securities |
- |
(19,824) |
||
| Net cash flows provided by (used in) investing activities |
23,002 |
(29,652) |
||
| Cash flows from financing activities: |
||||
| Proceeds from issuance of stock from exercise of stock options |
2,382 |
13,497 |
||
| Withholding of shares to satisfy minimum employee tax withholding |
(7,611) |
(5,796) |
||
| Credit facility issuance costs |
- |
- |
||
| Proceeds from issuance of stock under employee stock purchase plan |
304 |
256 |
||
| Excess tax benefits from stock-based awards |
2,118 |
12,839 |
||
| Acquisition-related earn-out payments |
- |
- |
||
| Purchases of treasury stock |
(36,014) |
(11,159) |
||
| Net cash flows (used in) provided by financing activities |
(38,821) |
9,637 |
||
| Net increase in cash and cash equivalents |
3,757 |
15,554 |
||
| Cash and cash equivalents, beginning of period |
23,129 |
57,829 |
||
| Cash and cash equivalents, end of period |
$ 26,886 |
$ 73,383 |
||
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SOURCE The Advisory Board Company
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