WASHINGTON, July 27, 2016 /PRNewswire/ -- The Advisory Board Company (NASDAQ: ABCO), a leading provider of insight-driven technology, research, and services for organizations in transforming industries, today announced financial results for the quarter ended June 30, 2016. 

The Advisory Board Company. (PRNewsFoto/The Advisory Board Company)

 

Highlights from the second quarter of 2016 are as follows (all comparisons are to the quarter ended June 30, 2015):

GAAP Highlights:

  • Revenue of $198.4 million, an increase of 8.1%
  • Net income of $7.5 million, a decrease of 2.2%
  • Earnings per diluted share of $0.18, unchanged

Non-GAAP and Other Highlights:

  • Contract value of $774.9 million, an increase of 5%
  • Adjusted EBITDA of $47.7 million, an increase of 5%
  • Non-GAAP earnings per diluted share of $0.47, an increase of 21%

Robert Musslewhite, Chairman and Chief Executive Officer of The Advisory Board Company, commented, "At the close of the June quarter, I am pleased that the company is performing well against expectations for the year and that we continue to make progress on our key strategic initiatives.  In particular, the performance of the Royall & Company business has improved substantially over the course of the last year.  Strong member attachment to Royall's data and insight-driven capabilities is not only playing out in the Royall financial results, but is also contributing significantly to our overall relationships with colleges and universities because we are able to serve them in a more robust way across the student lifecycle.  As a result, we are set up for solid mid-teens revenue growth in Royall across the next fiscal year, and now have the robust growth platform we envisioned when we acquired the business last year."

Mr. Musslewhite concluded, "Given the complexity members face today in both of the markets we serve, the need for our help remains acute, and we continue to deliver deep value to both our health care and education members.  This member value is driven first and foremost by our passionate and dedicated people.  We are committed to their engagement, development, opportunity, and growth, and were excited that for the eighth year running we were honored as one of Modern Healthcare's Best Places to Work.  We view this honor as a tangible reminder of the importance of our ongoing investment in our employees and their hard work to make the critical improvements needed today in health care, education, and our communities."

Second Quarter Financial Review

Revenue increased 8% to $198.4 million for the quarter ended June 30, 2016, up from $183.6 million for the quarter ended June 30, 2015. Contract value increased 5% to $774.9 million as of June 30, 2016, up from $741.7 million as of June 30, 2015.

Net income was $7.5 million, or $0.18 per diluted share, for the quarter ended June 30, 2016, compared to net income of $7.7 million, or $0.18 per diluted share, for the quarter ended June 30, 2015. Adjusted net income was $19.0 million for the quarter ended June 30, 2016, up from $16.9 million for the quarter ended June 30, 2015. Non-GAAP earnings per diluted share was $0.47 for the quarter ended June 30, 2016, up from $0.39 for the quarter ended June 30, 2015.

Adjusted EBITDA increased 5% to $47.7 million for the quarter ended June 30, 2016, up from $45.6 million for the quarter ended June 30, 2015.

Adjusted net income, non-GAAP earnings per diluted share, and adjusted EBITDA are non-GAAP financial measures.

Year-to-Date Financial Review

Revenue increased 10% to $399.1 million for the six-month period ended June 30, 2016, up from $362.9 million for the six-month period ended June 30, 2015. Net income was $17.8 million, or $0.43 per diluted share, for the six-month period ended June 30, 2016, compared to a net loss of $14.4 million, or $0.35 per diluted share, for the six-month period ended June 30, 2015. Adjusted EBITDA was $95.1 million for the six-month period ended June 30, 2016, up from $84.5 million for the six-month period ended June 30, 2015. Adjusted net income was $38.4 million for the six-month period ended June 30, 2016, up from $29.4 million for the six-month period ended June 30, 2015. Non-GAAP earnings per diluted share was $0.93 for the six-month period ended June 30, 2016, compared to $0.70 for the six-month period ended June 30, 2015.

Share Repurchase

During the quarter ended June 30, 2016, the Company repurchased approximately 803,000 shares of its common stock at a total cost of $26.2 million.  Since 2004, the Company has repurchased approximately 19.6 million shares of its common stock at a total cost of $505.5 million.  As of June 30, 2016, the Company had $44.5 million remaining on its share repurchase authorization.

Outlook for Calendar Year 2016 

The Company is raising its financial guidance for calendar year 2016. The Company expects revenue to be in a range of $817 million to $830 million, revised from a previous range of $810 million to $830 million. The Company expects adjusted EBITDA to be in a range of $190 million to $195 million, revised from a previous range of $188 million to $195 million, and non-GAAP earnings per diluted share to be in a range of $1.83 to $1.90, revised from a previous range of $1.63 to $1.73.  For the year, the Company expects stock-based compensation expense to be approximately $32 million, interest expense to be approximately $19 million, amortization of acquisition-related intangible assets to be approximately $29 million, amortization of non-acquisition related assets to be approximately $50 million, capital expenditures to be approximately $60 million, share count to be approximately 41 million, and effective tax rate to be in a range of 38%-40%. 

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its second quarter performance this evening, July 27, 2016, 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 Wednesday, July 27, 2016, until 11:00 p.m. Eastern Time on Wednesday, August 3, 2016. The Company invites all interested parties to attend the conference call, including the lenders under the Company's senior secured credit facilities. 

A supplemental presentation of information complementary to the information presented in this release and that will be discussed on the conference call will be made available on the Company's website at www.advisory.com/IR prior to the conference call and will be archived for the same duration as the webcast.

About The Advisory Board Company

The Advisory Board Company is a best practices firm that uses a combination of research, technology, and consulting to improve the performance of 5,500+ health care organizations and educational institutions.  Headquartered in Washington, D.C., with offices worldwide, The Advisory Board Company forges and finds the best new ideas and proven practices from its network of thousands of leaders, then customizes and hardwires them into every level of member organizations, creating enduring value.  For more information, visit www.advisory.com.

Non-GAAP Financial Measures 

This news release presents information about the Company's historical and expected non-GAAP earnings per diluted share and adjusted EBITDA, as well as the Company's historical adjusted revenue, adjusted net income, adjusted effective tax rate, and adjusted weighted average common shares outstanding-diluted, all of 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"). A reconciliation of each of the foregoing historical non-GAAP financial measures to the most directly comparable historical GAAP financial measures is provided in the accompanying tables found at the end of this release for each of the fiscal periods indicated.

No reconciliation of the Company's expected adjusted EBITDA and non-GAAP earnings per diluted share for 2016 is included in this news release. Both of these non-GAAP financial measures exclude the impact and tax-effected impact of M&A-related charges, stock-based compensation expense, and other fair value and non-cash charges. The Company is not able, without unreasonable efforts, to accurately forecast this reconciling information at the level of precision that would be required to be included in the most directly comparable GAAP financial measures.

Caution Regarding Forward-Looking Statements

Statements in this news release that relate to future results and events are forward-looking statements and are based on the Company's expectations as of the date of this news release. In some cases, you can identify these statements by such forward-looking words as "anticipate," "believe," "estimate," "expect," "guidance," "intend," "may," "outlook," "plan," "potential," "should," "will," "would," or similar words or expressions. Forward-looking statements in this news release include the Company's expectations regarding its performance and results for fiscal 2016 with respect to revenue, adjusted EBITDA, non-GAAP earnings per diluted share, stock-based compensation expense, interest expense, amortization of acquisition-related intangible assets, amortization of non-acquisition related assets, capital expenditures, and the Company's effective tax rate. 

Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties, and other factors, including those relating to:  factors that adversely affect the financial condition of the health care and education industries; federal and state law and regulations governing the health care and education industries and our members' and our respective compliance with those applicable laws and regulations; effects of federal and state privacy and security laws and cyberattacks and other data security breaches; liability for failure to provide accurate information or for deficient submissions to third party payors; compliance with federal and state laws governing healthcare fraud and abuse or reimbursement; the Company's ability to attract new members, obtain renewals from existing members, and sell additional products and services; maintenance of the Company's reputation and expansion of its name recognition; the Company's ability to offer new and valuable products and services; effects of competition; the Company's ability to maintain a highly-skilled workforce; unsuccessful design or implementation of our software or delivery of our consulting and management services; delays in generating revenue; disruptions in service or operational failures at our data centers or at other service provider locations; ability to collect and maintain member and third party data and to obtain proper permissions and waivers for use and disclosure of information received from members or on their behalf; maintenance of third-party providers and strategic alliances and entry into new alliances; ability to license, integrate, and access third-party technologies and data; potential liability claims; protection of the Company's intellectual property; claims of infringement, misappropriation, or violation of proprietary rights of third parties; limitations associated with use of open source technology; estimates and assumptions used to prepare the Company's consolidated financial statements and any changes made to those estimates; any significant increase in bad debt in excess of recorded estimates; failure to realize the anticipated benefits of the Company's acquisition of Royall; the inability to integrate successfully the operations of Royall and other acquisitions into the Company's business; business and financial risks associated with the pursuit of acquisition opportunities; any significant additional impairment of the Company's goodwill; the Company's ability to realize a return on its strategic investments; potential imposition of sales and use taxes on sales of the Company's services; the Company's ability to realize fully its deferred tax assets; the potential effects of changes in, or interpretations of, tax rules on our effective tax rates; inherent limitations in, and the potential impact of any failure to maintain, effective internal control over financial reporting; effects of issuance of additional capital stock; provisions in the Company's charter and bylaws that could discourage takeover attempts; and limitations caused by our level of debt, interest payment obligations, and covenants under our senior credit agreement.

This list of risks, uncertainties, and other factors is not complete. The Company discusses some of these matters more fully, as well as certain risk factors that could affect the Company's business, financial condition, results of operations, and prospects, in its filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year ended December 31, 2015, quarterly reports on Form 10-Q, and current reports on Form 8-K. These filings are available for review through the Securities and Exchange Commission's website at www.sec.gov. Any or all forward-looking statements the Company makes may turn out to be wrong, and can be affected by inaccurate assumptions the Company might make or by known or unknown risks, uncertainties, and other factors, including those identified in this news release. Accordingly, you should not place undue reliance on the forward-looking statements made in this news release, which speak only as of its date. The Company does not undertake to update, and expressly disclaims any duty 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.

Reconciliation of Non-GAAP Financial Measures

This news release presents information about the Company's adjusted revenue, adjusted EBITDA, adjusted net income, non-GAAP earnings per diluted share, adjusted effective tax rate, and adjusted weighted average common shares outstanding-diluted, which are non-GAAP financial measures provided as a complement to the results provided in accordance with GAAP.

A reconciliation of each of the foregoing historical non-GAAP financial measures to the most directly comparable historical GAAP financial measures is provided below for each of the fiscal periods indicated.


Three Months Ended


Six Months Ended


June 30,


June 30,


2016


2015


2016


2015









Revenue

$ 198,382


$ 183,583


$ 399,117


$ 362,905

Effect on revenue of fair value adjustments to
  acquisition-related deferred revenue


6,617



12,499

     Adjusted revenue

$ 198,382


$ 190,200


$ 399,117


$ 375,404


















Three Months Ended


Six Months Ended


June 30,


June 30,


2016


2015


2016


2015









Net income (loss)

$    7,495


$   7,666


$   17,834


$ (14,406)

Effect on revenue of fair value adjustments to
  acquisition-related deferred revenue


6,617



12,499

Equity in loss (income) of unconsolidated entities

411


(4,000)


445


(1,621)

Provision for income taxes

4,870


3,372


10,533


3,094

Interest expense

4,389


5,154


9,210


10,766

Other expense, net

923


128


862


1,247

Loss on financing activities




17,398

Depreciation and amortization

18,917


18,499


38,684


35,773

Acquisition and similar transaction charges


961



6,610

Fair value adjustments to acquisition-related
  earn-out liabilities

1,775


(1,427)


705


(1,083)

Build-to-suit land rent

995



1,871


Vacation accrual adjustment




(850)

Stock-based compensation expense

7,965


8,631


14,947


15,036

     Adjusted EBITDA

$   47,740


$   45,601


$   95,091


$   84,463


















Three Months Ended


Six Months Ended


June 30,


June 30,


2016


2015


2016


2015









Net income (loss)

$    7,495


$    7,666


$   17,834


$ (14,406)

Effect of adjusted tax rate on net income (loss)


332



8,861

Effect on revenue of fair value adjustments to
  acquisition-related deferred revenue, net of tax


3,758



7,046

Equity in loss (income) of unconsolidated entities

411


(4,000)


445


(1,621)

Amortization of acquisition-related intangibles, net of tax

4,437


4,562


9,116


8,782

Loss on financing activities, net of tax




9,725

Acquisition and similar transaction charges, net of tax


546



3,704

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

1,099


(811)


407


(619)

Gain on investment in common stock warrants,
  net of tax


(40)



(40)

Build-to-suit land rent, net of tax

616



1,183


Vacation accrual adjustment, net of tax




(475)

Stock-based compensation expense, net of tax

4,930


4,902


9,447


8,483

Adjusted net income

$   18,988


$   16,915


$   38,432


$   29,440


















Three Months Ended


Six Months Ended


June 30,


June 30,


2016


2015


2016


2015









Net income (loss) per share - diluted

$    0.18


$   0.18


$    0.43


$    (0.35)

Effect of adjusted tax rate on net income (loss)


0.01



0.22

Effect of adjusted weighted average common
  shares outstanding – diluted on (loss) earnings
  per share




0.01

Effect on revenue of fair value adjustments to
  acquisition-related deferred revenue, net of tax


0.09



0.17

Equity in loss (income) of unconsolidated entities

0.01


(0.09)


0.01


(0.03)

Amortization of acquisition-related intangibles,
  net of tax

0.11


0.11


0.22


0.21

Loss on financing activities, net of tax




0.23

Acquisition and similar transaction charges, net of tax


0.01



0.09

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

0.03


(0.02)


0.01


(0.02)

Gain on investment in common stock warrants,
  net of tax


(0.01)



(0.01)

Build-to-suit land rent, net of tax

0.02



0.03


Vacation accrual adjustment, net of tax




(0.01)

Stock-based compensation expense, net of tax

0.12


0.11


0.23


0.19

Non-GAAP earnings per diluted share

$    0.47


$    0.39


$    0.93


$    0.70


















Three Months Ended


Six Months Ended


June 30,


June 30,


2016


2015


2016


2015









Effective tax rate

38.1%


47.9%


36.6%


(23.9%)

Effect on tax rate of Washington, D.C. tax law
  change, including write-off of Washington, D.C.
  income tax credits




73.2%

Effect on tax rate of loss on financing activities


0.9%



(8.5%)

Effect on tax rate of asset impairment








Effect on tax rate of unconsolidated equity method
  investment related FIN 48 liability


(14.9%)



Effect on tax rate of Royall acquisition costs and
  other acquisition-related tax items


9.3%



2.8%

     Adjusted effective tax rate

38.1%


43.2%


36.6%


43.6%


















Three Months Ended


Six Months Ended


June 30,


June 30,


2016


2015


2016


2015









Weighted average common shares outstanding
  – diluted

40,570


42,914


41,222


41,686

Diluted shares outstanding (1)




555

Adjusted weighted average common
  shares outstanding – diluted

40,570


42,914


41,222


42,241









 

(1)     For non-GAAP purposes the Company has net income and therefore has included diluted shares in its calculation of non-GAAP earnings per diluted share.

 

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




 June 30,


 Growth


 June 30,


 Growth




2016


2015


 Rates


2016


2015


 Rates

 Statements of Income












 Revenue (1)

$ 198,382


$ 183,583


8.1%


$ 399,117


$ 362,905


10.0%















 Cost of services, excluding depreciation and
    amortization (2) (3) (4)

96,440


92,536




192,389


188,026



 Member relations and marketing (2) (3)

32,718


29,375




65,113


60,101



 General and administrative (2) (3) (5)

32,219


30,853




64,047


62,527



 Depreciation and amortization (6)

18,917


18,499




38,684


35,773



      Operating income

18,088


12,320


46.8%


38,884


16,478


136.0%

 Other expense












      Interest expense

(4,389)


(5,154)




(9,210)


(10,766)



      Other expense, net

(923)


(128)




(862)


(1,247)



      Loss on financing activities

-


-




-


(17,398)





 Total other expense, net

(5,312)


(5,282)




(10,072)


(29,411)



      Income (loss) before provision for income taxes












        and equity in loss of unconsolidated entities

12,776


7,038




28,812


(12,933)



 Provision for income taxes

4,870


3,372




10,533


3,094



 Equity in loss (income) of unconsolidated entities

(411)


4,000




(445)


1,621



      Net income (loss)

$     7,495


$     7,666




$  17,834


$ (14,406)

















 Net income (loss) per share













 Basic

$      0.19


$      0.18




$      0.44


$     (0.35)




 Diluted

$      0.18


$      0.18




$      0.43


$     (0.35)

















 Weighted average common shares outstanding













 Basic

40,365


42,440




40,928


41,686




 Diluted

40,570


42,914




41,222


41,686

















 Contract Value (at end of period) 

$ 774,879


$ 741,673


4.5%





















 Percentages of Revenue












 Cost of services, excluding depreciation and
    amortization (2) (3) (4)

48.6%


50.4%




48.2%


51.8%



 Member relations and marketing (2) (3)

16.5%


16.0%




16.3%


16.6%



 General and administrative (2) (3) (5)

16.2%


16.8%




16.0%


17.2%



 Depreciation and amortization (6)

9.5%


10.1%




9.7%


9.9%



 Operating income

9.1%


6.7%




9.7%


4.5%



 Net income (loss)

3.8%


4.2%




4.5%


-4.0%















(1)  Amounts include effect on revenue of fair value adjustments to acquisition-related deferred revenue, as follows:


            Revenue

-


6,617




-


12,499















(2)  Amounts include stock-based compensation, as follows:





















            Cost of services

2,493


2,566




4,680


4,458



            Member relations and marketing

1,387


1,455




2,501


2,601



            General and administrative

4,085


4,610




7,766


7,977















(3)  Amounts include Build to suit land expense, as follows:






















            Cost of services

479


-




905


-



            Member relations and marketing

351


-




655


-



            General and administrative

165


-




311


-















(4)  Amounts include fair value adjustments of acquisition-related earn-out liabilities, as follows:



















            Cost of services

1,775


(1,427)




705


(1,083)















(5)  Amounts include acquisition and transaction related costs, as follows:





















             General and administrative

-


961




-


6,610















(6)  Amounts include amortization of acquisition-related intangibles, as follows:





















            Depreciation and amortization

7,168


8,031




14,399


15,580



    

THE ADVISORY BOARD COMPANY

 CONSOLIDATED BALANCE SHEETS

 (In thousands)








June 30,


December 31,



2016


2015



 (unaudited)



 ASSETS





 Current assets:





 Cash and cash equivalents


$            17,487


$            71,825

 Marketable securities, current


-


-

 Membership fees receivable, net


600,496


605,444

 Prepaid expenses and other current assets


20,986


22,543

 Total current assets


638,969


699,812






 Property and equipment, net


187,984


183,057

 Intangible assets, net


264,948


274,721

 Deferred incentive compensation and other charges

69,641


81,181

 Goodwill


740,458


738,200

 Investments in unconsolidated entities


-


706

 Other non-current assets


1,800


1,800

 Total assets


$       1,903,800


$       1,979,477






 LIABILITIES AND STOCKHOLDERS' EQUITY





 Current liabilities:





 Deferred revenue, current


$          568,329


$          581,471

 Accounts payable and accrued liabilities


64,506


74,879

 Accrued incentive compensation


16,765


41,173

 Debt, current


51,946


27,743

 Total current liabilities


701,546


725,266






 Deferred revenue, net of current portion


152,039


173,953

 Deferred income taxes, net of current portion


91,047


93,893

 Debt, net of current portion


501,015


522,086

 Financing obligation


15,054


2,700

 Other long-term liabilities


17,157


12,488

 Total liabilities


1,477,858


1,530,386






 Stockholders' equity:





 Common stock


403


416

 Additional paid-in capital


759,832


744,333

 Accumulated deficit


(331,625)


(295,860)

 Accumulated other comprehensive income


(2,668)


202

 Total stockholders' equity 


425,942


449,091






 Total liabilities and stockholders' equity


$       1,903,800


$       1,979,477






 

THE ADVISORY BOARD COMPANY

 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (In thousands)



 Six Months Ended June 30,



2016


2015

 Cash flows from operating activities:





 Net income (loss) 


$    17,834


$   (14,406)

 Adjustments to reconcile net income (loss) to net cash provided





 by operating activities:





 Depreciation and amortization


38,684


35,774

 Loss on financing activities


-


17,398

 Amortization of debt issuance costs


826


703

 Deferred income taxes


(881)


11,357

 Excess tax benefits from stock-based awards


(633)


(2,745)

 Stock-based compensation expense


14,947


15,035

 (Gain) loss on investment in common stock warrants


-


(70)

 Equity in loss of unconsolidated entities


445


(1,621)

 Changes in operating assets and liabilities (net of the effect of acquisition):




 Membership fees receivable


4,948


(34,872)

 Prepaid expenses and other current assets


7,268


(1,994)

 Deferred incentive compensation and other charges


11,408


869

 Other non-current assets


-


(258)

 Deferred revenue


(35,056)


46,655

 Accounts payable and accrued liabilities


(10,738)


(10,949)

 Acquisition-related earn-out payments


(1,432)


(1,948)

 Accrued incentive compensation


(24,408)


(12,031)

 Other long-term liabilities


(131)


(5,168)

 Net cash provided by operating activities


23,081


41,729






 Cash flows from investing activities:





 Purchases of property and equipment


(19,877)


(23,285)

 Capitalized external-use software development costs


(1,608)


(2,181)

 Cash paid for acquisitions, net of cash acquired


(1,900)


(744,193)

 Cash paid for investment in unconsolidated entity


-


(3,006)

 Sales of marketable securities


-


14,714

 Net cash used in investing activities


(23,385)


(757,951)






 Cash flows from financing activities:





 Proceeds from debt, net


17,000


1,280,292

 Pay down of debt


(14,375)


(732,189)

 Debt issuance costs


-


(2,568)

 Proceeds from issuance of common stock, net of selling costs


-


148,786

 Proceeds from issuance of common stock from exercise of stock options

3,100


3,014

 Withholding of shares to satisfy minimum employee tax withholding

(3,432)


(6,007)

 Proceeds from issuance of stock under employee stock purchase plan

256


263

 Acquisition-related earn-out payments


(3,600)


(1,500)

 Excess tax benefits from stock-based awards


633


2,745

 Purchases of treasury stock


(53,616)


-

 Net cash (used in) provided by financing activities


(54,034)


692,836






 Net decrease in cash and cash equivalents


(54,338)


(23,386)

 Cash and cash equivalents, beginning of period


71,825


72,936

 Cash and cash equivalents, end of period


$    17,487


$     49,550











 

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SOURCE The Advisory Board Company

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