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Share Name | Share Symbol | Market | Type |
---|---|---|---|
The Advisory Board Company (MM) | NASDAQ:ABCO | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 53.825 | 53.70 | 53.85 | 0 | 01:00:00 |
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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¨
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Delaware
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52-1468699
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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2445 M Street, NW, Washington, D.C.
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20037
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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þ
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Accelerated filer
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¨
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Non-accelerated filer
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o
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Page No.
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Item 1.
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Financial Statements.
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March 31,
2017 |
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December 31,
2016 |
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(unaudited)
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|
||||
ASSETS
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||||
Current assets:
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|
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|
||||
Cash and cash equivalents
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$
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150,080
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|
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$
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91,151
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Membership fees receivable, net
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548,491
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605,517
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Prepaid expenses and other current assets
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22,375
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18,965
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Total current assets
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720,946
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715,633
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Construction in progress
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86,828
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63,368
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Property and equipment, net
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162,668
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171,281
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Intangible assets, net
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250,036
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255,053
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Deferred incentive compensation and other charges
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63,556
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72,178
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Goodwill
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737,023
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739,507
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Equity method investments
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13,711
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19,858
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Total assets
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$
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2,034,768
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$
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2,036,878
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Deferred revenue, current
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$
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537,464
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$
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564,237
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Accounts payable and accrued liabilities
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71,805
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67,702
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Accrued incentive compensation
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24,845
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25,521
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Debt, current
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56,554
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49,347
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Total current liabilities
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690,668
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706,807
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Deferred revenue, net of current portion
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145,236
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170,357
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Deferred income taxes
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87,630
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89,013
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Debt, net of current portion
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458,592
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472,739
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Financing obligation
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86,828
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63,368
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Other long-term liabilities
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17,398
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17,550
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Total liabilities
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1,486,352
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1,519,834
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Stockholders’ equity:
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Preferred stock, par value $0.01; 5,000,000 shares authorized, zero shares issued and outstanding
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—
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—
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Common stock, par value $0.01; 135,000,000 shares authorized, 40,391,162 and 40,192,980 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
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404
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402
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Additional paid-in capital
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794,293
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|
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782,399
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Accumulated deficit
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(247,310
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)
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(266,218
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)
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Accumulated other comprehensive income
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1,029
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461
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Total stockholders’ equity
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548,416
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517,044
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Total liabilities and stockholders’ equity
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$
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2,034,768
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$
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2,036,878
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Three Months Ended
March 31, |
||||||
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2017
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2016
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||||
Revenue
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$
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194,539
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$
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200,735
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Costs and expenses:
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Cost of services, excluding depreciation and amortization
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98,642
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95,949
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Member relations and marketing
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32,855
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32,395
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General and administrative
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39,088
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31,828
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Depreciation and amortization
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22,334
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19,767
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Operating income
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1,620
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20,796
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Other expense:
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Interest expense
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(4,500
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)
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(4,821
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)
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Other income, net
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233
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61
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Total other expense, net
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(4,267
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)
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(4,760
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)
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(Loss) income before benefit (provision) for income taxes and gains (losses) from equity method investments
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(2,647
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)
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16,036
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Benefit (provision) for income taxes
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724
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(5,663
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)
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Gains (losses) from equity method investments
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21,577
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(34
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)
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Net income
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$
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19,654
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$
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10,339
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Earnings per share
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Net income per share—basic
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$
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0.49
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$
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0.25
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Net income per share—diluted
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$
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0.48
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$
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0.25
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Weighted average number of shares outstanding:
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Basic
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40,253
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41,492
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Diluted
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41,041
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41,873
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Three Months Ended
March 31, |
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2017
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2016
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||||
Net income
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$
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19,654
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$
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10,339
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Other comprehensive income (loss):
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Net unrealized gain (loss) on cash flow hedges, net of income tax (benefit) expense of $311 and $(1,568) for the three months ended March 31, 2017 and 2016, respectively
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568
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(2,437
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)
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Comprehensive income
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$
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20,222
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$
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7,902
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Three Months Ended
March 31, |
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2017
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2016
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||||
Cash flows from operating activities:
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Net income
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$
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19,654
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$
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10,339
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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22,334
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19,767
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Amortization of debt issuance costs
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341
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340
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Deferred income taxes
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2,359
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(48
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)
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Excess tax deficiency/(benefit) from stock-based awards
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207
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(1,269
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)
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Stock-based compensation expense
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5,711
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6,982
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Gain on partial sale of equity method investment
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(23,392
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)
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|
—
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Losses from equity method investments
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1,815
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34
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Changes in operating assets and liabilities (net of the effect of acquisitions):
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||||
Membership fees receivable
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57,026
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|
|
51,389
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||
Prepaid expenses and other current assets
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(3,428
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)
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|
4,414
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|
||
Deferred incentive compensation and other charges
|
9,423
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|
|
8,214
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|
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Deferred revenue
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(51,894
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)
|
|
(57,794
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)
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Accounts payable and accrued liabilities
|
(10,067
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)
|
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(11,596
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)
|
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Acquisition-related earn-out payments
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(196
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)
|
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(1,432
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)
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Accrued incentive compensation
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(676
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)
|
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(1,876
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)
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Other long-term liabilities
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(550
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)
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|
(260
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)
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Net cash provided by operating activities
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28,667
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27,204
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Cash flows from investing activities:
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Purchases of property and equipment
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(7,970
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)
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(9,632
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)
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Capitalized external-use software development costs
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(734
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)
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(836
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)
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Cash paid for acquisitions
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—
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|
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(1,900
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)
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Cash received from partial sale of equity method investment
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41,366
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—
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Net cash provided by (used in) investing activities
|
32,662
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(12,368
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)
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Cash flows from financing activities:
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Pay down of debt
|
(7,187
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)
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(7,187
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)
|
||
Proceeds from issuance of common stock from exercise of stock options
|
5,686
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|
3,019
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Withholding of shares to satisfy employee tax withholding for vested restricted stock units
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(797
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)
|
|
(396
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)
|
||
Proceeds from issuance of common stock under employee stock purchase plan
|
84
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|
|
120
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|
||
Acquisition-related earn-out payments
|
(186
|
)
|
|
(3,600
|
)
|
||
Excess tax benefits from stock-based awards
|
—
|
|
|
1,269
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|
||
Purchases of treasury stock
|
—
|
|
|
(27,449
|
)
|
||
Net cash used in financing activities
|
(2,400
|
)
|
|
(34,224
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)
|
||
Net increase (decrease) in cash and cash equivalents
|
58,929
|
|
|
(19,388
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)
|
||
Cash and cash equivalents, beginning of period
|
91,151
|
|
|
71,825
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|
||
Cash and cash equivalents, end of period
|
$
|
150,080
|
|
|
$
|
52,437
|
|
•
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Level 1—Quoted prices in active markets for identical assets or liabilities.
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•
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Level 2—Observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
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•
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Level 3—Unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies.
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Fair value
as of March 31,
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Fair value measurement as of March 31, 2017
using fair value hierarchy |
||||||||||||
|
2017
|
|
Level 1
|
|
Level 2
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Level 3
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||||||||
Financial assets
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents (1)
|
$
|
150,080
|
|
|
$
|
150,080
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate swaps (2)
|
1,845
|
|
|
—
|
|
|
1,845
|
|
|
—
|
|
||||
Financial liabilities
|
|
|
|
|
|
|
|
||||||||
Contingent earn-out liabilities (3)
|
1,185
|
|
|
—
|
|
|
—
|
|
|
1,185
|
|
||||
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||||||||
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Fair value
as of December 31,
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Fair value measurement as of December 31, 2016
using fair value hierarchy
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||||||||||||
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2016
|
|
Level 1
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|
Level 2
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Level 3
|
||||||||
Financial assets
|
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|
|
|
|
||||||||
Cash and cash equivalents (1)
|
$
|
91,151
|
|
|
$
|
91,151
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate swaps (2)
|
1,044
|
|
|
—
|
|
|
1,044
|
|
|
—
|
|
||||
Financial liabilities
|
|
|
|
|
|
|
|
|
|||||||
Contingent earn-out liabilities (3)
|
1,164
|
|
|
—
|
|
|
—
|
|
|
1,164
|
|
(1)
|
Fair value is based on quoted market prices.
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(2)
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Fair value is determined using market standard models with observable inputs.
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(3)
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This fair value measurement is based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and general macroeconomic environment and industry trends.
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Three Months Ended
March 31, |
||||||
|
2017
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|
2016
|
||||
Beginning balance
|
$
|
1,164
|
|
|
$
|
7,250
|
|
Addition due to acquisition
|
—
|
|
|
357
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|
||
Fair value change in Clinovations contingent earn-out liability (1)
|
239
|
|
|
(1,070
|
)
|
||
Fair value change in other contingent earn-out liabilities (1)
|
164
|
|
|
—
|
|
||
Southwind earn-out payments
|
—
|
|
|
(1,032
|
)
|
||
Other earn-out payments
|
(382
|
)
|
|
—
|
|
||
GradesFirst earn-out payments
|
—
|
|
|
(4,000
|
)
|
||
Ending balance
|
$
|
1,185
|
|
|
$
|
1,505
|
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|
As of
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||||||
|
March 31, 2017
|
|
December 31, 2016
|
||||
Leasehold improvements
|
$
|
69,777
|
|
|
$
|
69,465
|
|
Furniture, fixtures, and equipment
|
70,963
|
|
|
70,362
|
|
||
Software
|
237,305
|
|
|
231,952
|
|
||
Property and equipment, gross
|
378,045
|
|
|
371,779
|
|
||
Accumulated depreciation and amortization
|
(215,377
|
)
|
|
(200,498
|
)
|
||
Property and equipment, net
|
$
|
162,668
|
|
|
$
|
171,281
|
|
Balance as of December 31, 2016
|
$
|
739,507
|
|
Acquisitions
|
—
|
|
|
Adjustment related to Royall acquisition (1)
|
(2,484
|
)
|
|
Balance as of March 31, 2017
|
$
|
737,023
|
|
|
|
|
As of March 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||||||
|
Weighted
average
useful life
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
||||||||||||
Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Internally developed software for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capitalized software
|
5.0
|
|
$
|
20,766
|
|
|
$
|
(10,868
|
)
|
|
$
|
9,898
|
|
|
$
|
20,034
|
|
|
$
|
(9,998
|
)
|
|
$
|
10,036
|
|
Acquired intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Developed software
|
5.2
|
|
9,450
|
|
|
(8,700
|
)
|
|
750
|
|
|
9,450
|
|
|
(8,575
|
)
|
|
875
|
|
||||||
Customer relationships
|
16.2
|
|
277,710
|
|
|
(47,332
|
)
|
|
230,378
|
|
|
277,710
|
|
|
(42,978
|
)
|
|
234,732
|
|
||||||
Trademarks
|
8.6
|
|
14,900
|
|
|
(6,215
|
)
|
|
8,685
|
|
|
14,900
|
|
|
(5,923
|
)
|
|
8,977
|
|
||||||
Non-compete agreements
|
3.8
|
|
1,400
|
|
|
(1,400
|
)
|
|
—
|
|
|
1,400
|
|
|
(1,400
|
)
|
|
—
|
|
||||||
Customer contracts
|
4.7
|
|
6,449
|
|
|
(6,124
|
)
|
|
325
|
|
|
6,449
|
|
|
(6,016
|
)
|
|
433
|
|
||||||
Total intangibles
|
|
|
$
|
330,675
|
|
|
$
|
(80,639
|
)
|
|
$
|
250,036
|
|
|
$
|
329,943
|
|
|
$
|
(74,890
|
)
|
|
$
|
255,053
|
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Dilution gain
|
$
|
—
|
|
|
$
|
2,026
|
|
Gain on partial sale of investment
|
38,117
|
|
|
—
|
|
||
Allocated share of losses
|
(2,898
|
)
|
|
(2,221
|
)
|
||
Tax (expense) benefit
|
(13,642
|
)
|
|
161
|
|
||
Gains (losses) from equity method investments
|
$
|
21,577
|
|
|
$
|
(34
|
)
|
|
As of
|
||||||
|
March 31, 2017
|
|
December 31, 2016
|
||||
Assets:
|
|
|
|
||||
Current assets
|
$
|
339,487
|
|
|
$
|
154,555
|
|
Non-current assets
|
923,591
|
|
|
921,556
|
|
||
Total assets
|
$
|
1,263,078
|
|
|
$
|
1,076,111
|
|
Liabilities and members’ equity:
|
|
|
|
||||
Current liabilities
|
$
|
225,815
|
|
|
$
|
131,926
|
|
Non-current liabilities
|
134,797
|
|
|
24,654
|
|
||
Total liabilities
|
360,612
|
|
|
156,580
|
|
||
Members’ equity
|
902,466
|
|
|
919,531
|
|
||
Total liabilities and members’ equity
|
$
|
1,263,078
|
|
|
$
|
1,076,111
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Revenue
|
$
|
106,238
|
|
|
$
|
49,449
|
|
Cost of revenue (exclusive of depreciation and amortization)
|
67,528
|
|
|
28,611
|
|
||
Gross profit
|
$
|
38,710
|
|
|
$
|
20,838
|
|
|
|
|
|
||||
Net loss
|
$
|
(23,150
|
)
|
|
$
|
(174,799
|
)
|
|
As of
|
||||||
|
March 31, 2017
|
|
December 31, 2016
|
||||
Assets:
|
|
|
|
||||
Current assets
|
$
|
217,538
|
|
|
$
|
264,966
|
|
Non-current assets
|
936,908
|
|
|
934,873
|
|
||
Total assets
|
$
|
1,154,446
|
|
|
$
|
1,199,839
|
|
Liabilities and shareholders' equity:
|
|
|
|
||||
Current liabilities
|
$
|
104,439
|
|
|
$
|
131,941
|
|
Non-current liabilities
|
153,267
|
|
|
155,784
|
|
||
Total liabilities
|
257,706
|
|
|
287,725
|
|
||
Total shareholders' equity attributable to Evolent Health, Inc.
|
750,471
|
|
|
702,526
|
|
||
Non-controlling interests
|
146,269
|
|
|
209,588
|
|
||
Total liabilities and shareholders’ equity
|
$
|
1,154,446
|
|
|
$
|
1,199,839
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2017
|
|
2016
|
||||
Revenue
|
|
$
|
106,238
|
|
|
$
|
49,449
|
|
Cost of revenue (exclusive of depreciation and amortization)
|
|
67,528
|
|
|
28,611
|
|
||
Gross profit
|
|
$
|
38,710
|
|
|
$
|
20,838
|
|
|
|
|
|
|
||||
Loss before income taxes and non-controlling interests
|
|
$
|
(22,744
|
)
|
|
$
|
(174,799
|
)
|
Net loss
|
|
$
|
(23,149
|
)
|
|
$
|
(173,811
|
)
|
Loss attributable to Evolent Health, Inc.
|
|
$
|
(18,012
|
)
|
|
$
|
(122,740
|
)
|
|
As of
March 31, 2017
|
||
2.99% term facility due fiscal 2020 ($417,500 face value less unamortized discount of $2,354)
|
$
|
415,146
|
|
Revolving credit facility
|
100,000
|
|
|
Less: Amounts due in next twelve months ($57,500 face value less unamortized discount of $946)
|
(56,554
|
)
|
|
Total long-term debt
|
$
|
458,592
|
|
|
Number of
performance-based options
|
|
Weighted
average
exercise
price
|
|
Number of
service-based options
|
|
Weighted
average
exercise
price
|
||||||
Outstanding, as of December 31, 2015
|
2,013,325
|
|
|
$
|
50.42
|
|
|
1,843,110
|
|
|
$
|
41.73
|
|
Granted
|
319,900
|
|
|
28.20
|
|
|
978,668
|
|
|
28.20
|
|
||
Exercised
|
—
|
|
|
—
|
|
|
(233,030
|
)
|
|
15.21
|
|
||
Forfeited
|
(80,370
|
)
|
|
49.92
|
|
|
(22,195
|
)
|
|
53.38
|
|
||
Outstanding, as of March 31, 2016
|
2,252,855
|
|
|
$
|
47.28
|
|
|
2,566,553
|
|
|
$
|
38.88
|
|
|
|
|
|
|
|
|
|
||||||
|
Number of
performance-based options |
|
Weighted
average exercise price |
|
Number of
service-based options |
|
Weighted
average exercise price |
||||||
Outstanding, as of December 31, 2016
|
2,117,855
|
|
|
$
|
47.11
|
|
|
2,525,178
|
|
|
$
|
39.28
|
|
Granted
|
—
|
|
|
—
|
|
|
200,324
|
|
|
46.95
|
|
||
Exercised
|
—
|
|
|
—
|
|
|
(168,078
|
)
|
|
33.83
|
|
||
Forfeited
|
(43,497
|
)
|
|
51.18
|
|
|
(31,395
|
)
|
|
40.80
|
|
||
Expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||
Outstanding, as of March 31, 2017
|
2,074,358
|
|
|
$
|
47.02
|
|
|
2,526,029
|
|
|
$
|
40.24
|
|
Exercisable, as of March 31, 2017
|
521,822
|
|
|
$
|
35.83
|
|
|
1,089,022
|
|
|
$
|
42.14
|
|
|
Number of
performance-based RSUs
|
|
Weighted average
grant date
fair value
|
|
Number of
service-based RSUs
|
|
Weighted average
grant date
fair value
|
||||||
Non-vested, December 31, 2015
|
301,032
|
|
|
$
|
39.10
|
|
|
839,613
|
|
|
$
|
52.82
|
|
Granted
|
17,292
|
|
|
32.25
|
|
|
278,996
|
|
|
28.20
|
|
||
Forfeited
|
(19,598
|
)
|
|
51.11
|
|
|
(20,172
|
)
|
|
53.89
|
|
||
Vested
|
—
|
|
|
—
|
|
|
(34,771
|
)
|
|
64.23
|
|
||
Non-vested, March 31, 2016
|
298,726
|
|
|
$
|
37.91
|
|
|
1,063,666
|
|
|
$
|
45.97
|
|
|
|
|
|
|
|
|
|
||||||
|
Number of
performance-based RSUs |
|
Weighted average
grant date fair value |
|
Number of
service-based RSUs |
|
Weighted average
grant date fair value |
||||||
Non-vested, December 31, 2016
|
257,580
|
|
|
$
|
35.34
|
|
|
968,084
|
|
|
$
|
42.13
|
|
Granted
|
106,870
|
|
|
46.95
|
|
|
218,120
|
|
|
46.94
|
|
||
Forfeited
|
(29,359
|
)
|
|
51.54
|
|
|
(25,513
|
)
|
|
50.64
|
|
||
Vested
|
(14,570
|
)
|
|
49.92
|
|
|
(31,400
|
)
|
|
64.92
|
|
||
Non-vested, March 31, 2017
|
320,521
|
|
|
$
|
37.06
|
|
|
1,129,291
|
|
|
$
|
42.23
|
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Stock-based compensation expense included in:
|
|
|
|
||||
Costs and expenses:
|
|
|
|
||||
Cost of services
|
$
|
1,258
|
|
|
$
|
2,187
|
|
Member relations and marketing
|
1,146
|
|
|
1,114
|
|
||
General and administrative
|
3,307
|
|
|
3,681
|
|
||
Total costs and expenses
|
$
|
5,711
|
|
|
$
|
6,982
|
|
|
Three Months Ended
March 31, |
||||
|
2017
|
|
2016
|
||
Basic weighted average common shares outstanding
|
40,253
|
|
|
41,492
|
|
Effect of dilutive outstanding stock-based awards
|
788
|
|
|
381
|
|
Diluted weighted average common shares outstanding
|
41,041
|
|
|
41,873
|
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Cash paid (received) for:
|
|
|
|
||||
Income taxes
|
$
|
6
|
|
|
$
|
(245
|
)
|
Interest
|
$
|
3,687
|
|
|
$
|
3,754
|
|
|
|
|
|
||||
Non-cash activities:
|
|
|
|
||||
Increase in estimated cost of construction of a building under a build-to-suit lease
|
$
|
23,460
|
|
|
$
|
4,906
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
•
|
Best practices research
. Our best practices research and insight programs provide the foundation for all of our other programs. These programs are focused on understanding industry dynamics, identifying best-demonstrated management practices, critically evaluating widely-followed but ineffective practices, and analyzing emerging trends within the health care and education industries. We communicate and teach best practices across our broad network through independent forums for each key leadership constituency.
|
•
|
Technology.
Our cloud-based software applications allow members to combine insights derived from our best practices research with their own operational and financial data and third-party and proprietary data to benchmark performance; identify and assess revenue, cost, quality, and performance improvement opportunities; and implement identified best practices.
|
•
|
Data-enabled services
. We draw on our extensive data assets, distinctive technology platforms, proven processes, and deep expertise gained over years of experience to apply best practices and enablement services to directly produce results for our members.
|
•
|
Consulting services.
Our consulting services programs assist our members’ own efforts to set strategic direction, address key operational challenges, and improve their performance. We deploy our experts to work side-by-side with members implementing best practice solutions and driving change in their organizations.
|
•
|
Cost of services
includes the costs associated with the production and delivery of our products and services, consisting of compensation for research, creative, data, and analysis personnel, consultants, software developers, and in-house faculty; costs of the organization and delivery of membership meetings, teleconferences, and other events; production and distribution of published materials; technology license fees; costs of developing and supporting our cloud-based content and software; and fair value adjustments to acquisition-related earn-out liabilities.
|
•
|
Member relations and marketing expense
includes the costs of acquiring new members and the costs of account management, and consists of compensation (including sales incentives); travel and entertainment expenses; costs for training personnel; sales and marketing materials; and associated support services.
|
•
|
General and administrative expense
includes the costs of human resources and recruiting; finance and accounting; legal support; management information systems; real estate and facilities management; corporate development; new program development; and other administrative functions.
|
•
|
Depreciation and amortization expense
includes the cost of depreciation of our property and equipment; amortization of costs associated with the development of software and tools that are offered as part of certain of our membership programs; and amortization of acquired intangibles.
|
•
|
Impairment of capitalized software
includes the impairment charge taken to write down acquired technology and internally developed capitalized software balances to their fair value.
|
•
|
Goodwill impairment
includes the impairment charge taken to write down goodwill to its estimated fair value.
|
|
Three Months Ended March 31,
|
||||||||||||
|
2017
|
|
2016
|
||||||||||
Revenue
|
$
|
194,539
|
|
|
100.0
|
%
|
|
$
|
200,735
|
|
|
100.0
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
||||||
Cost of services, excluding depreciation and amortization
|
98,642
|
|
|
50.7
|
%
|
|
95,949
|
|
|
47.8
|
%
|
||
Member relations and marketing
|
32,855
|
|
|
16.9
|
%
|
|
32,395
|
|
|
16.1
|
%
|
||
General and administrative
|
39,088
|
|
|
20.1
|
%
|
|
31,828
|
|
|
15.9
|
%
|
||
Depreciation and amortization
|
22,334
|
|
|
11.5
|
%
|
|
19,767
|
|
|
9.8
|
%
|
||
Total costs and expenses
|
192,919
|
|
|
99.2
|
%
|
|
179,939
|
|
|
89.6
|
%
|
||
Operating income
|
1,620
|
|
|
0.8
|
%
|
|
20,796
|
|
|
10.4
|
%
|
||
Other expense:
|
|
|
|
|
|
|
|
||||||
Interest expense
|
(4,500
|
)
|
|
(2.3
|
)%
|
|
(4,821
|
)
|
|
(2.4
|
)%
|
||
Other income, net
|
233
|
|
|
0.1
|
%
|
|
61
|
|
|
—
|
%
|
||
Total other expense, net
|
(4,267
|
)
|
|
(2.2
|
)%
|
|
(4,760
|
)
|
|
(2.4
|
)%
|
||
(Loss) income before benefit (provision) for income taxes and gains (losses) from equity method investments
|
(2,647
|
)
|
|
(1.4
|
)%
|
|
16,036
|
|
|
8.0
|
%
|
||
Benefit (provision) for income taxes
|
724
|
|
|
0.4
|
%
|
|
(5,663
|
)
|
|
(2.8
|
)%
|
||
Gains (losses) from equity method investments
|
21,577
|
|
|
11.1
|
%
|
|
(34
|
)
|
|
—
|
%
|
||
Net income
|
$
|
19,654
|
|
|
10.1
|
%
|
|
$
|
10,339
|
|
|
5.2
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Stock-based compensation expense included in:
|
|
|
|
||||
Costs and expenses:
|
|
|
|
||||
Cost of services
|
$
|
1,258
|
|
|
$
|
2,187
|
|
Member relations and marketing
|
1,146
|
|
|
1,114
|
|
||
General and administrative
|
3,307
|
|
|
3,681
|
|
||
Total costs and expenses
|
$
|
5,711
|
|
|
$
|
6,982
|
|
•
|
Losses (income) from exited programs:
We have excluded income (loss) from exited programs. These include revenue and direct costs, including salary and benefits. We believe that the exclusion of such amounts allows investors to better understand out core continuing operations.
|
•
|
Gain (loss) from equity method investments:
We have excluded our proportionate share of income (loss) and other gains recorded in connection with our equity method investments. Our management believes that the exclusion of such amounts allows investors to better understand our core operating results.
|
•
|
Amortization of acquisition-related intangible assets:
Amortization of acquisition-related intangible assets consists of amortization of customer relationships, developed technology, and trade names. Amortization charges for acquired intangible assets are significantly affected by the timing and magnitude of our acquisitions, and these charges may vary in amount from period to period. We exclude these charges to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.
|
•
|
Fair value adjustments to acquisition-related earn-out liabilities:
We have excluded the impact of acquisition-related contingent consideration non-cash adjustments due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions with respect to fair value estimates. The amount and frequency of such adjustments are not consistent across transactions and are significantly affected by the timing and size of our acquisitions, the future outlook of the acquired business, the estimated discount rate, and the nature of the transaction consideration.
|
•
|
Build-to-suit land rent
: We entered into a 16-year lease for our new corporate headquarters in December 2015, which is currently being constructed in Washington D.C. The lease has an anticipated start date of mid-2019. We have concluded that we are the deemed owner of the building (for accounting purposes only) during the construction period and that the lease qualifies for build-to-suit accounting. We recognize expense on a portion of future lease payments that are estimated to represent the underlying land lease. We exclude these costs for purposes of calculating non-GAAP measures because we believe these costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of our current operating performance or comparisons to our operating performance in other periods.
|
•
|
Stock-based compensation expense:
Although stock-based compensation is a key incentive offered to our employees, we evaluate our operating results excluding such expense because the expense can vary significantly from period to period based on our share price, as well as the timing, size, and nature of equity awards granted. In addition, our management believes that the exclusion of this expense facilitates the ability of our investors to compare our operating results with those of other companies, many of which also exclude such expense in determining their non-GAAP financial measures.
|
•
|
Restructuring charges:
We have excluded costs associated with our formal restructuring plan announced on January 3, 2017. These costs are primarily related to employee termination costs and benefits and costs to terminate leases. We exclude these restructuring costs for purposes of calculating non-GAAP measures because we believe that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of our current operating performance or comparisons to our operating performance in other periods.
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Revenue
|
$
|
194,539
|
|
|
$
|
200,735
|
|
Revenue from exited programs
|
482
|
|
|
5,278
|
|
||
Adjusted revenue
|
$
|
194,057
|
|
|
$
|
195,457
|
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Net income
|
$
|
19,654
|
|
|
$
|
10,339
|
|
Loss (income) from exited programs
|
4,049
|
|
|
(988
|
)
|
||
Depreciation and amortization
|
22,334
|
|
|
19,767
|
|
||
Depreciation and amortization from exited programs
|
(1,238
|
)
|
|
(469
|
)
|
||
(Gain) loss from equity method investments
|
(21,577
|
)
|
|
34
|
|
||
(Benefit) provision for income taxes
|
(724
|
)
|
|
5,663
|
|
||
Interest expense
|
4,500
|
|
|
4,821
|
|
||
Other expense, net
|
(233
|
)
|
|
(61
|
)
|
||
Fair value adjustments to acquisition-related earn-out liabilities
|
400
|
|
|
(1,070
|
)
|
||
Build-to-suit land rent
|
931
|
|
|
876
|
|
||
Stock-based compensation expense
|
5,711
|
|
|
6,982
|
|
||
Restructuring charges
|
11,213
|
|
|
—
|
|
||
Adjusted EBITDA
|
$
|
45,020
|
|
|
$
|
45,894
|
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Net income
|
$
|
19,654
|
|
|
$
|
10,339
|
|
Loss (income) from exited programs
|
4,049
|
|
|
(988
|
)
|
||
(Gain) loss from equity method investments
|
(21,577
|
)
|
|
34
|
|
||
Amortization of acquisition-related intangibles
|
6,807
|
|
|
7,038
|
|
||
Fair value adjustments to acquisition-related earn-out liabilities
|
400
|
|
|
(1,070
|
)
|
||
Build-to-suit land rent
|
931
|
|
|
876
|
|
||
Stock-based compensation expense
|
5,711
|
|
|
6,982
|
|
||
Restructuring charges
|
11,213
|
|
|
—
|
|
||
Income tax effects and adjustments
|
(7,962
|
)
|
|
(4,599
|
)
|
||
Adjusted net income
|
$
|
19,226
|
|
|
$
|
18,612
|
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Net income per diluted share
|
$
|
0.48
|
|
|
$
|
0.25
|
|
Loss (income) from exited programs
|
0.10
|
|
|
(0.02
|
)
|
||
(Gain) loss from equity method investments
|
(0.53
|
)
|
|
—
|
|
||
Amortization of acquisition-related intangibles
|
0.17
|
|
|
0.17
|
|
||
Fair value adjustments to acquisition-related earn-out liabilities
|
0.01
|
|
|
(0.03
|
)
|
||
Build-to-suit land rent
|
0.02
|
|
|
0.02
|
|
||
Stock-based compensation expense
|
0.14
|
|
|
0.17
|
|
||
Restructuring charges
|
0.27
|
|
|
—
|
|
||
Income tax effects and adjustments
|
(0.19
|
)
|
|
(0.12
|
)
|
||
Non-GAAP adjusted earnings per diluted share
|
$
|
0.47
|
|
|
$
|
0.44
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Item 4.
|
Controls and Procedures.
|
1.
|
With respect to the material weakness in the tax controls, although we have made control improvements, we have concluded that the material weakness has not been remediated as of March 31, 2017. Specifically, we have concluded that the internal controls over the tax accounts have not been designed or do not operate at a sufficient level of precision to prevent or detect and correct a material misstatement. The Company identified errors in current and prior periods in the tax accounts that resulted from control deficiencies in the tax process. These errors were not material to the affected financial statements. However, the Company concluded that these control deficiencies in aggregate represent a material weakness as there is a reasonable possibility the controls as currently operating would not prevent or detect and correct a material misstatement.
|
1.
|
With respect to the material weakness in the tax controls, we have made control improvements, including expanded procedures over completeness and accuracy of data utilized in our tax provision and enhanced documentation of management review controls. The Company also plans to add resources with additional experience and technical capability to provide effective oversight of our tax function.
|
Item 1A.
|
Risk Factors.
|
Item 6.
|
Exhibits.
|
|
|
|
|
THE ADVISORY BOARD COMPANY
|
|
|
|
|
|
||
Date: May 9, 2017
|
|
|
|
By:
|
/s/ Michael T. Kirshbaum
|
|
|
|
|
|
Michael T. Kirshbaum
|
|
|
|
|
|
Chief Financial Officer and Treasurer
(Duly Authorized Officer)
|
1 Year The Advisory Board Company (MM) Chart |
1 Month The Advisory Board Company (MM) Chart |
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