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The Advisory Board Company Reports Fiscal Year 2009 Second Quarter Results

Thursday, November 6, 2008 General News J E 4
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WASHINGTON, Nov. 5 The Advisory Board Company(Nasdaq: ABCO) today announced financial results for the second quarter of itsfiscal year ending March 31, 2009. Revenue for the quarter increased 7% to$57.6 million, from $54.0 million in the second quarter of fiscal 2008. Netincome was $5.4 million, or $0.32 per diluted share, compared to $8.5 million,or $0.45 per diluted share, for the same period a year ago. Contract valuegrew 6% to $230.6 million as of September 30, 2008, up from $217.5 million asof September 30, 2007.

For the six months ended September 30, 2008, revenue increased 9% to$114.8 million, from $105.1 million for the six months ended September 30,2007. Net income for the six months ended September 30, 2008 was $11.7million, or $0.68 per diluted share, compared to $15.6 million, or $0.83 perdiluted share, for the same period a year ago.

Robert Musslewhite, Chief Executive Officer of The Advisory Board Company,commented, "Our overall performance for the quarter was in line with ourexpectations given the current macroeconomic environment. While we are seeingstrong performance in program utilization, research quality metrics andrenewal rates, the new business environment continues to be challenging due tomember uncertainty about the budget outlook for 2009. As a result, the teamis working hard to emphasize the strong financial impact of our best practiceresearch and to ensure superior sales execution and new program introductionsto set up future growth."

Mr. Musslewhite added, "I am also pleased to announce our latest launch,the Patient Registration Performance Program. This program provides acomprehensive toolkit to assist health systems in improving their front-endrevenue cycle performance through the proactive management of the patientregistration process. Through best practice research, performance benchmarkingdata, and a robust, web-based analytical tool, the program assists members increating an infrastructure to hardwire accountability for this critical pointof the revenue cycle process. The membership allows the participatinginstitutions to achieve measurable financial gains through enhanced cashacceleration and staff efficiency, as well as reduced avoidable denials, whichvastly improve overall collections performance. We have already established astrong charter membership for the program, including Tri-City Medical Center,Cheyenne Regional Medical Center, Munroe Regional Medical Center, and WestJefferson Medical Center. The program is off to a good start, and we are veryexcited about its potential."

Share Repurchase

During the three months ended September 30, 2008, the Company repurchased1,086,517 shares of its common stock at a total cost of approximately $34.5million. To date, the Company has repurchased 6,400,445 shares of its commonstock at a total cost of approximately $285.9 million.

Outlook for the Remainder of Calendar Year 2008

For the quarter ending December 31, 2008, the Company expects revenue in arange of approximately $59.2 million to $60.0 million, and earnings perdiluted share in a range of approximately $0.36 to $0.39. Included in theearnings per diluted share estimates is approximately $0.14 to $0.15 ofshare-based compensation and related expense for the three months endingDecember 31, 2008.

Web and Conference Call Information

The Company will hold an investor conference call to discuss its secondquarter performance this evening, November 5, 2008, at 6:00 p.m. EasternStandard Time. The conference call will be available via live web cast on theCompany's web site at http://www.advisoryboardcompany.com in the sectiontitled "Investor Relations" found under the tab "The Firm." To participate bytelephone, the dial-in number is 800.259.0251 and the access code is 76841343.Investors are advised to dial-in at least five minutes prior to the call toregister. The web cast will be archived for seven days: from 8:00 p.m.Wednesday, November 5, until 8:00 p.m. Wednesday, November 12, 2008.

About The Advisory Board Company

The Advisory Board Company provides best practices research, analysis,executive education and leadership development, decision support tools andinstallation support services primarily to the health care industry, focusingon business strategy, operations and general management issues. The Companyprovides best practices and research through discrete programs to a membershipof more than 2,700 organizations, including leading hospitals, health systems,pharmaceutical and biotech companies, health care insurers, medical devicecompanies, universities and other education institutions. Members of eachprogram are typically charged a fixed annual fee and have access to anintegrated set of services that may include best practice research studies,executive education seminars, customized research briefs, decision supporttools, and web-based access to the program's content database.

Forward-Looking Statements

This news release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995. These statements arebased on information available to the Company as of November 5, 2008, the dateof this news release, as well as the Company's current projections, forecastsand assumptions, and involve risks and uncertainties. You are hereby cautionedthat these statements may be affected by certain factors, including those setforth below. Consequently, actual operations and results may differ materiallyfrom the results discussed in the forward-looking statements, and reportedresults should not be considered as an indication of future performance.Factors that could cause actual results to differ materially from thoseindicated by forward-looking statements include, among others, the dependenceon renewal of membership-based services, dependence on key personnel, the needto attract and retain qualified personnel, management of growth, new productdevelopment, competition, risks associated with anticipating market trends,industry consolidation, variability of quarterly operating results, possiblevolatility in the Company's stock price, the impact on our financialsassociated with some of our newer programs that are more dependent upontechnology, share-based compensation expense under SFAS No. 123R including theeffect of the amount, type and timing of future stock-based compensationgrants, and various factors related to income and other taxes, includingwhether the District of Columbia withdraws the Company's status as a QualifiedHigh-Tech Company, as well as those risks and uncertainties described in theCompany's Annual Report on Form 10-K for the fiscal year ended March 31, 2008and also disclosed from time to time in its subsequent reports on Form 10-Qand Form 8-K, which are available on the Company's website atwww.advisoryboardcompany.com in the "Investor Relations" section and at theSEC's website at www.sec.gov. Additional information will also be set forth inthe Company's report on Form 10-Q for the fiscal quarter ended September 30,2008, which will be filed with the SEC in November 2008.

Accordingly, readers are cautioned not to place undue reliance onforward-looking statements made in this news release, which speak only as ofthe date of this news release, and the Company does not undertake to updatethese statements, whether as a result of circumstances or events that ariseafter 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 2008 2007 Rates 2008 2007 Rates Statements of Income Revenue $57,625 $54,029 6.7% $114,842 $105,133 9.2% Cost of services (1) 28,993 24,380 57,547 48,668 Member relations and marketing (1) 13,058 11,173 25,456 21,785 General and administrative (1) 7,214 6,350 14,109 12,703 Depreciation and amortization 1,327 883 2,410 1,650 Income from operations 7,033 11,243 -37.4% 15,320 20,327 -24.6% Interest income and other 948 1,554 2,152 3,091 Income before provision for income taxes 7,981 12,797 17,472 23,418 Provision for income taxes (2,578) (4,261) (5,739) (7,801) Net income $5,403 $8,536 -36.7% $11,733 $15,617 -24.9% Earnings per share Basic $0.32 $0.47 $0.68 $0.86 Diluted $0.32 $0.45 -28.9% $0.68 $0.83 -18.1% Weighted average common shares outstanding Basic 16,922 18,090 17,143 18,100 Diluted 16,989 18,808 17,352 18,802 Contract Value (at end of period) $230,636 $217,530 6.0% Percentages of Revenue Cost of services (1) 50.3% 45.1% 50.1% 46.3% Member relations and marketing (1) 22.7% 20.7% 22.2% 20.7% General and administrative (1) 12.5% 11.8% 12.3% 12.1% Depreciation and amortization 2.3% 1.6% 2.1% 1.6% Income from operations 12.2% 20.8% 13.3% 19.3% Net income 9.4% 15.8% 10.2% 14.9% (1) 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, 2008, the Company recognized approximately $1.2 million and $2.2 million in cost of services, approximately $0.6 million and $1.2 million in member relations and marketing, and approximately $1.7 million and $3.0 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 and the vesting of restricted stock units. During the three and six months ended September 30, 2007, the Company recognized approximately $1.2 million and $2.4 million in cost of services, approximately $0.7 million and $1.5 million in member relations and marketing, and approximately $1.6 million and $3.2 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 and the vesting of restricted stock units. The Company has recorded all these expenses in the same line items as other compensation paid to the relevant categories of employees. THE ADVISORY BOARD COMPANY CONSOLIDATED BALANCE SHEETS (In thousands) September 30, March 31, 2008 2008 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 14,011 $ 17,907 Marketable securities 7,123 8,085 Membership fees receivable, net 99,250 81,538 Prepaid expenses and other current assets 2,705 3,860 Deferred income taxes, net 8,056 12,730 Total current assets 131,145 124,120 Property and equipment, net 32,984 22,897 Intangible assets, net 4,500 1,248 Goodwill 25,721 5,426 Deferred incentive compensation and other charges 21,626 22,208 Deferred income taxes, net of current portion 6,183 5,142 Marketable securities 66,852 124,073 Total assets $289,011 $305,114 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Deferred revenue $134,968 $134,465 Accounts payable and accrued liabilities 30,431 26,994 Accrued incentive compensation 6,177 10,032 Total current liabilities 171,576 171,491 Long-term deferred revenue 15,236 9,682 Other long-term liabilities 1,312 1,412 Total liabilities 188,124 182,585 Stockholders' equity: Common stock 217 215 Additional paid-in capital 228,758 217,170 Retained earnings 124,757 113,024 Accumulated elements of comprehensive income (118) 1,540 Treasury stock (252,727) (209,420) Total stockholders' equity 100,887 122,529 Total liabilities and stockholders' equity $289,011 $305,114 THE ADVISORY BOARD COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six Months Ended September 30, 2008 2007 Cash flows from operating activities: Net income $11,733 $15,617 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,410 1,650 Amortization of intangible assets 402 122 Deferred income taxes 797 7,316 Excess tax benefits from stock-based awards (291) (3,140) Stock-based compensation expense 6,333 6,864 Amortization of marketable securities premiums 410 388 Changes in operating assets and liabilities: Member fees receivable (9,298) (10,919) Prepaid expenses and other current assets 1,172 431 Deferred incentive compensation and other charges 582 (3,650) Deferred revenue 2,136 2,016 Accounts payable and accrued liabilities (128) 1,004 Accrued incentive compensation (3,855) (3,315) Other long-term liabilities (100) 258 Net cash flows provided by operating activities 12,303 14,642 Cash flows from investing activities: Purchases of property and equipment (9,608) (4,132) Capitalized external use software development costs (455) (171) Cash paid for acquisition, net of cash acquired (18,592) - Redemption of marketable securities 62,810 19,875 Purchases of marketable securities (7,579) (9,173) Net cash flows provided by investing activities 26,576 6,399 Cash flows from financing activities: Proceeds from issuance of common stock from exercise of stock options 421 9,634 Withholding of shares to satisfy minimum employee tax withholding (390) (266) Proceeds from issuance of common stock under employee stock purchase plan 210 226 Excess tax benefits from stock-based awards 291 3,140 Purchases of treasury stock (43,307) (29,798) Net cash flows used in financing activities (42,775) (17,064) Net (decrease) increase in cash and cash equivalents (3,896) 3,977 Cash and cash equivalents, beginning of period 17,907 13,195 Cash and cash equivalents, end of period $14,011 $17,172

SOURCE The Advisory Board Company
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