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Advisory Board Company Reports Operating Results (10-Q)

February 11, 2013 | About:
10qk

10qk

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Advisory Board Company (ABCO) filed Quarterly Report for the period ended 2012-12-31.

Advisory Board Company has a market cap of $1.75 billion; its shares were traded at around $50.15 with a P/E ratio of 70.8 and P/S ratio of 4.3. Advisory Board Company had an annual average earning growth of 2.2% over the past 10 years.
This is the annual revenues and earnings per share of ABCO over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of ABCO.


Highlight of Business Operations:

Overview. Net income attributable to common stockholders decreased to $4.4 million in the three months ended December 31, 2012 from $8.1 million in the three months ended December 31, 2011. The decrease in net income was primarily attributable to increases of $11.6 million in cost of services incurred for new and growing programs, including our 2011 acquisition of PivotHealth, LLC, or “PivotHealth,” as well as our 2012 acquisitions of ActiveStrategy, Inc., or “ActiveStrategy,” and 360Fresh, Inc., or “360Fresh,” increases of $3.4 million in marketing and member relations due to an increase in sales teams to 175, and increases of $4.2 million in general and administrative expenses related to increases in finance, information technology, and human resources expense incurred to support our growing employee base. Also attributing to the decrease in net income was an increase of $1.5 million in depreciation and amortization, an increase in our loss from our investment in Evolent Health, Inc., or “Evolent,” during the quarter of $1.3 million, and a $1.1 million gain on our investment in common stock warrants incurred during the three months ended December 31, 2011, the effect of which was partially offset by a 18.1% increase in revenue during the three months ended December 31, 2012. Net income decreased to $15.8 million in the nine months ended December 31, 2012 from $17.1 million in the nine months ended December 31, 2011. The decrease in net income was primarily attributable to increases of $34.1 million in cost of services incurred for new and growing programs, including our 2011 acquisition of PivotHealth, increases of $7.6 million in marketing and member relations due to an increase in sales teams to 175, and increases of $10.6 million in general and administrative expenses related to increases in finance, information technology, and human resources expense incurred to support our growing employee base and increased legal and external advisory spending related to our new credit facility and acquisition activity. Also attributing to the decrease in net income was an increase of $3.6 million in depreciation and amortization, an increase in our loss from our investment in Evolent during the quarter of $4.0 million, and a $1.1 million gain on our investment in common stock warrants incurred during the nine months ended December 31, 2011, the effect of which was partially offset by a 22.7% increase in revenue during the three months ended December 31, 2012.

Adjusted Net Income and Adjusted EBITDA. Adjusted net income was $10.2 million in the three months ended December 31, 2012 compared to $10.5 million in the three months ended December 31, 2011, and adjusted EBITDA increased to $19.3 million in the three months ended December 31, 2012 from $18.9 million in the three months ended December 31, 2011. Adjusted net income increased 15.3% to $32.7 million in the nine months ended December 31, 2012 from $28.3 million in the nine months ended December 31, 2011, and adjusted EBITDA increased 20.5% to $60.2 million in the nine months ended December 31, 2012 from $50.0 million in the nine months ended December 31, 2011. The increases in adjusted net income and adjusted EBITDA were due to increased revenue, the effect of which was partially offset by the costs of new and growing programs, increased investment in our general and administrative infrastructure to support our growing employee base, and an increase in the number of new sales teams.

Revenue. Total revenue increased 18.1% to $116.2 million in the three months ended December 31, 2012 from $98.5 million in the three months ended December 31, 2011, while contract value increased 18.2% to $450.0 million as of December 31, 2012 from $380.7 million as of December 31, 2011. Total revenue increased 22.7% to $331.1 million in the nine months ended December 31, 2012 from $269.9 million in the nine months ended December 31, 2011. The increases in revenue and contract value were primarily attributable to the introduction and expansion of new programs, including our August 1, 2011 acquisition of PivotHealth and our October 1, 2012 acquisition of ActiveStrategy, our cross-selling of existing programs to existing members, and, to a lesser degree, price increases. We offered 56 membership programs as of December 31, 2012 and 52 membership programs as of December 31, 2011.

Cost of services. Cost of services increased to $63.1 million in the three months ended December 31, 2012 from $51.5 million in the three months ended December 31, 2011. Cost of services increased to $178.5 million in the nine months ended December 31, 2012 from $144.4 million in the nine months ended December 31, 2011. The increases in cost of services for the three and nine months ended December 31, 2012 were primarily due to growth and expansion of our Crimson and Southwind programs, including our 2011 acquisition of PivotHealth, as well as our 2012 acquisitions of ActiveStrategy and 360Fresh. Also affecting cost of services were costs associated with the delivery of program content and tools to our expanded membership base, including increased staffing, licensing fees, and other costs. As a percentage of revenue, cost of services was 54.3% and 52.3% for the three months ended December 31, 2012 and 2011, respectively, and 53.9% and 53.5% for the nine months ended December 31, 2012 and 2011, respectively. As a percentage of revenue, cost of services increased in the three months ended December 31, 2012 partially due to an increase in fair value adjustments to our acquisition-related earn-out liabilities. Cost of services includes fair value adjustments to our acquisition-related earn-out liabilities of $0.9 million in the three months ended December 31, 2012 and ($0.2) million the three months ended December 31, 2011, respectively.

Member relations and marketing. Member relations and marketing expense increased 18.6% to $21.8 million in the three months ended December 31, 2012 from $18.4 million in the three months ended December 31, 2011. As a percentage of revenue, member relations and marketing expense in the three months ended December 31, 2012 and 2011 was 18.8% and 18.7%, respectively. Member relations and marketing expense increased 14.0% to $62.4 million in the nine months ended December 31, 2012 from $54.8 million in the nine months ended December 31, 2011. As a percentage of revenue, member relations and marketing expense in the nine months ended December 31, 2012 and 2011 was 18.9% and 20.3%, respectively. The increases in member relations and marketing expense were primarily attributable to an increase in sales staff and related travel and other associated costs, as well as to an increase in member relations personnel and related costs required to serve our expanding membership base. During the three months ended December 31, 2012 and 2011, we had an average of 175 and 146 new business development teams, respectively.

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