The Advisory Board Company Reports Fiscal 2004 Fourth Quarter And Year-End Results

WASHINGTON, May 5 /PRNewswire-FirstCall/ -- The Advisory Board Company today announced financial results for the fourth quarter and fiscal year ended March 31, 2004. For the quarter, revenues increased 17% to $32.2 million, from $27.4 million for the fourth quarter of fiscal 2003. Net income was $5.0 million, or $0.26 per diluted share, compared to $4.8 million, or $0.27 per diluted share, for the same period a year ago. Pro forma net income was $5.7 million, or $0.30 per diluted share, compared to $4.9 million, or $0.27 per diluted share, for the same period a year ago. Pro forma results exclude special compensation and stock option related expenses.

Revenues for the year ended March 31, 2004 increased 21% to $121.8 million, from $100.7 million in fiscal 2003. Net income for the period was $18.7 million, or $1.00 per diluted share, compared to $14.4 million, or $0.85 per diluted share, for the same period a year ago. Pro forma net income was $19.7 million, or $1.06 per diluted share, versus $15.1 million, or $0.89 per diluted share, in the prior year.

Contract value grew 17% to $124.9 million as of March 31, 2004, up from $106.7 million as of March 31, 2003. The Company's member renewal rate for fiscal 2004 was 87%. At the end of the fiscal year, the Company served a membership of 2,347 institutions, as compared to a membership of 2,297 institutions at the end of the last fiscal year.

Frank Williams, chief executive officer of The Advisory Board Company, commented, "We are pleased with our financial results both for the fourth quarter and for the fiscal year. In a challenging healthcare environment we delivered fiscal year revenue growth of 21% with strong margins and continued growth in earnings per share. Our growth has been driven by four key sources: new program launches, the addition of new member institutions, cross-selling existing programs to our current members, and price increases. Across fiscal year 2004, our average contract value per member institution grew to $53,229, up from $46,472 at the same time last year."

He added, "We also achieved a member renewal rate of 87%, which is at the high end of our expected range of 84%-88%. This metric -- one of the most important indicators of our overall business performance -- demonstrates that our programs consistently provide our members with tangible best practice solutions to address their most important strategic and operational issues.

"I am also pleased to announce our latest launch, the Revenue Cycle Performance Program. This new membership program assists Chief Financial Officers in measuring, analyzing and comparing their performance across the revenue cycle. The program provides members with continuous business intelligence on the drivers of revenue cycle performance, comparative benchmarks, and supporting best practices research. The combination of services enhances a member institution's ability to surface problems, make faster decisions and drive financial accountability across the organization. As always, this program benefited from the advice and guidance of a stellar group of charter members, including Duke University Medical Center, Evanston Northwestern Healthcare, Ohio State University Medical Center and Cedars-Sinai Medical Center."

Share Repurchase

During the three months ended March 31, 2004, the Company repurchased 349,320 shares of its common stock at a total cost of approximately $12.2 million.

Outlook for Remainder of Calendar Year 2004

The Company reiterated its previously announced guidance for the next calendar quarter of $32.6 million of revenue and pro forma earnings per diluted share of $0.28. Combined with results from the quarter ended March 31, 2004, the Company's full calendar year revenue and pro forma earnings per diluted share guidance is $135.2 million and $1.19, respectively.

The Company will hold an investor conference call to discuss its fourth quarter performance this evening, May 5, 2004, at 6:00 p.m. Eastern Daylight Time. The conference call will also be available via live web cast on the Company's web site at http://www.advisoryboardcompany.com/ in the section entitled "Other Information" found under the tab "About Us." Investors will also be able to listen to the call by dialing 800-299-9630, and entering the access code 51770523, shortly before the scheduled start time. The conference call replay will be archived on the Company's web site for seven days: from 8:00 p.m. Wednesday, May 5th until 8:00 p.m. Wednesday, May 12th. To listen to the archived call by telephone: dial either 888-286-8010 or 617-801-6888, and enter reservation number 32841021.

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 over 2,300 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 best practices, research reports, executive education and other supporting research services.

The Company presents pro forma results to provide comparisons with prior periods in a manner it believes would be consistent if it had been a public company prior to fiscal 2002. Pro forma results exclude special compensation and stock option related expense. For historical results, a reconciliation between pro forma and GAAP is shown in the attached schedule. The Company is not able to reconcile its outlook for the remainder of calendar year 2004 to GAAP as stock option related expense is dependent upon a number of unknown factors, including future stock price.

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 and various factors that could affect the estimated tax rate. These 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.

THE ADVISORY BOARD COMPANY STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Twelve Months Ending Selected Ending Selected March 31, Growth March 31, Growth 2004 2003 Rates 2004 2003 Rates Statements of Operations Revenues $32,185 $27,432 17.3% $121,847 $100,714 21.0% Cost of services 13,092 10,555 50,167 41,598 Member relations and marketing 6,447 5,347 24,599 19,842 General and administrative 3,604 3,376 15,445 12,507 Depreciation and loss on disposal of assets 303 401 1,415 1,827 Special compensation and stock option related expense 1,230 83 1,673 1,147 Income from operations 7,509 7,670 28,548 23,793 Interest income 869 449 2,911 1,038 Income before provision for income taxes 8,378 8,119 31,459 24,831 Provision for income taxes (3,393) (3,288) (12,739) (10,392) Net income $4,985 $4,831 $18,720 $14,439 Earnings per share Basic $0.30 $0.33 $1.19 $1.10 Diluted $0.26 $0.27 -3.7% $1.00 $0.85 17.6% Weighted average common shares outstanding Basic 16,709 14,750 15,745 13,139 Diluted 19,063 17,920 18,680 16,996 Percentages of Revenues Cost of services 40.7% 38.5% 41.2% 41.3% Member relations and marketing 20.0% 19.5% 20.2% 19.7% General and administrative 11.2% 12.3% 12.7% 12.4% Depreciation and loss on disposal of assets 0.9% 1.5% 1.2% 1.8% Income from operations 23.3% 28.0% 23.4% 23.6% Net income 15.5% 17.6% 15.4% 14.3% Contract Value (at end of period) $124,929 $106,745 17.0% RECONCILIATION OF PRO FORMA RESULTS (In thousands, except per share data) Pro forma data (1): Income from operations $7,509 $7,670 $28,548 $23,793 Special compensation and stock option related expense 1,230 83 1,673 1,147 Pro forma income from operations 8,739 7,753 30,221 24,940 Interest income 869 449 2,911 1,038 Pro forma income before provision for income taxes 9,608 8,202 33,132 25,978 Pro forma provision for income taxes (3,891) (3,322) (13,418) (10,877) Pro forma net income $5,717 $4,880 $19,714 $15,101 Pro forma earnings per share Basic $0.34 $0.33 $1.25 $1.15 Diluted $0.30 $0.27 11.1% $1.06 $0.89 19.1% Percentages of Revenues Pro forma income from operations (1) 27.2% 28.3% 24.8% 24.8% Pro forma net income (1) 17.8% 17.8% 16.2% 15.0% (1) Excludes special compensation and stock option related expense. THE ADVISORY BOARD COMPANY BALANCE SHEETS (In thousands) March 31, 2004 2003 ASSETS Current assets: Cash and cash equivalents $41,389 $33,301 Marketable securities 3,737 - Membership fees receivable, net 14,338 9,234 Prepaid expenses and other current assets 3,121 1,600 Deferred income taxes 17,123 11,532 Deferred incentive compensation 2,375 2,259 Total current assets 82,083 57,926 Fixed assets, net 6,701 2,891 Deferred income taxes, net of current portion 21,202 - Marketable securities 94,683 57,106 Total assets $204,669 $117,923 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Deferred revenues $72,410 $63,653 Accounts payable and accrued liabilities 8,262 5,484 Accrued incentive compensation 7,704 6,899 Total current liabilities 88,376 76,036 Long-term liabilities: Deferred income taxes 670 392 Total liabilities 89,046 76,428 Stockholders' equity: Common stock 183 148 Additional paid-in capital 88,885 21,821 Accumulated elements of comprehensive income 1,031 552 Retained earnings 37,694 18,974 Treasury stock (12,170) - Total stockholders' equity 115,623 41,495 Total liabilities and stockholders' equity $204,669 $117,923 THE ADVISORY BOARD COMPANY STATEMENTS OF CASH FLOWS (In thousands) Fiscal Year Ended March 31, 2004 2003 Cash flows from operating activities: Net income $18,720 $14,439 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation 1,415 1,722 Loss on disposal of fixed assets - 105 Special compensation arrangements - (363) Deferred income taxes 13,202 6,140 Amortization of marketable securities premiums 755 352 Changes in operating assets and liabilities: Membership fees receivable (5,104) 4,865 Prepaid expenses and other current assets (1,521) (657) Deferred incentive compensation (116) (365) Deferred revenues 8,757 12,115 Accounts payable and accrued liabilities 2,798 4,955 Accrued incentive compensation 805 1,240 Net cash flows provided by operating activities 39,711 44,548 Cash flows from investing activities: Purchases of property and equipment (5,225) (531) Sales of marketable securities 13,350 - Purchases of marketable securities (54,661) (56,515) Net cash flows used in investing activities (46,536) (57,046) Cash flows from financing activities: Issuance of common stock from exercise of stock options 26,772 21,453 Reimbursement of offering costs 149 992 Payment of offering costs (169) (956) Purchase of treasury shares (12,170) - Issuance of common stock under employee stock purchase plan 331 351 Net cash flows provided by financing activities 14,913 21,840 Net increase in cash and cash equivalents 8,088 9,342 Cash and cash equivalents, beginning of period 33,301 23,959 Cash and cash equivalents, end of period $41,389 $33,301

The Advisory Board Company

CONTACT: David Felsenthal, Chief Financial Officer of The Advisory BoardCompany, +1-202-266-5876 or jacobsg@advisory.com

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