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The Advisory Board Company Reports Fiscal Year 2008 Third Quarter Results
Date:2/5/2008

Company Reports Quarterly Revenue of $55.9 Million and Contract Value

Growth of 16%

Issues Guidance for Calendar Year 2008; Announces New Program Launch

WASHINGTON, Feb. 5 /PRNewswire-FirstCall/ -- The Advisory Board Company (Nasdaq: ABCO) today announced financial results for the third quarter of its fiscal year ending March 31, 2008. Revenue for the quarter increased 15% to $55.9 million, from $48.6 million in the third quarter of fiscal 2007. Net income was $7.9 million, or $0.42 per diluted share, compared to $6.5 million, or $0.34 per diluted share, for the same period a year ago. Contract value grew 16% to $225.4 million as of December 31, 2007, up from $194.1 million as of December 31, 2006.

For the nine months ended December 31, 2007, revenue increased 15% to $161.0 million, from $139.5 million for the nine months ended December 31, 2006. Net income for the nine months ended December 31, 2007 was $23.5 million, or $1.25 per diluted share, compared to $20.2 million, or $1.03 per diluted share, for the same period a year ago.

To analyze results on a comparable basis to periods prior to the implementation of SFAS No. 123R, the Company's management uses and is providing adjusted financial results, including adjusted net income and earnings per diluted share, that exclude share-based compensation expense. Adjusted net income for the third quarter of fiscal year 2008 was $10.3 million, up from $8.5 million for the third quarter of fiscal year 2007. Adjusted earnings per diluted share for the third quarter of fiscal year 2008 increased 25% to $0.55, from $0.44 in the same quarter of the prior year. See the "Reconciliation of Non-GAAP Financial Measures" section below for a reconcidered as an indication of future performance. 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, possible volatility in the Company's stock price, the impact on our financials associated with some of our newer programs that are more dependent upon technology, share-based compensation expense under SFAS No. 123R including the effect of the amount, type and timing of future stock- based compensation grants, and various factors related to income and other taxes, including whether the District of Columbia withdraws the Company's status as a Qualified High-Tech Company, as well as those risks and uncertainties described in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2007 and also disclosed from time to time in its subsequent reports on Form 10-Q and Form 8-K, which are available on the Company's website at http://www.advisoryboardcompany.com in the "Investor Relations" section and at the SEC's website at http://www.sec.gov. Additional information will also be set forth in the Company's report on Form 10-Q for the quarter ended December 31, 2007, which will be filed with the SEC in February 2008.

Accordingly, readers are cautioned not to place undue reliance on forward- looking statements made in this news release, which speak only as of the date of this press release, and the Company does not undertake to update these statements, whether as a result of circumstances or events that arise after the date they are made, new information, or otherwise. You should, however, consult any further disclosures the Company may make in its future filings of its reports on Form 10-K, Form 10-Q and Form 8-K.

THE ADVISORY BOARD COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

AND OTHER OPERATING STATISTICS

(In thousands, except per share data)

Three Months Ended Selected Nine Months Ended Selected

December 31, Growth December 31, Growth

2007 2006 Rates 2007 2006 Rates

Statements of

Operations

Revenues $55,912 $48,611 15.0% $161,045 $139,543 15.4%

Cost of services 26,107 23,334 74,775 65,824

Member relations

and marketing 11,869 10,562 33,654 29,808

General and

administrative 6,754 5,938 19,457 17,015

Depreciation 948 562 2,598 1,457

Income from

operations 10,234 8,215 30,561 25,439

Interest income 1,629 1,686 4,720 5,145

Income before

provision for

income taxes 11,863 9,901 19.8% 35,281 30,584 15.4%

Provision for

income taxes 3,951 3,356 11,752 10,367

Net income $7,912 $6,545 20.9% $23,529 $20,217 16.4%

Earnings per share

Basic $0.44 $0.35 $1.30 $1.07

Diluted $0.42 $0.34 23.5% $1.25 $1.03 21.4%

Weighted average

common shares

outstanding

Basic 18,090 18,694 18,097 18,818

Diluted 18,871 19,461 18,825 19,554

Contract Value

(at end of

period) $225,429 $194,077 16.2%

Percentages of

Revenues

Cost of services 46.7% 48.0% 46.4% 47.2%

Member relations

and marketing 21.2% 21.7% 20.9% 21.4%

General and

administrative 12.1% 12.2% 12.1% 12.2%

Depreciation and

loss on disposal

of assets 1.7% 1.2% 1.6% 1.0%

Income from

operations 18.3% 16.9% 19.0% 18.2%

Net income 14.2% 13.5% 14.6% 14.5%

THE ADVISORY BOARD COMPANY

CONSOLIDATED BALANCE SHEETS

(In thousands)

December 31, March 31,

2007 2007

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents $29,068 $13,195

Marketable securities 10,675 12,718

Membership fees receivable, net 93,313 57,671

Prepaid expenses and other current assets 3,777 3,123

Deferred income taxes 18,630 21,673

Total current assets 155,463 108,380

Fixed assets, net 20,974 17,421

Intangible assets, net 1,117 1,011

Goodwill 5,426 5,426

Deferred incentive compensation and

other charges 22,827 13,857

Deferred income taxes, net of current

portion 3,114 6,629

Marketable securities 132,046 133,450

Total assets $340,967 $286,174

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Deferred revenues $142,096 $114,069

Accounts payable and accrued liabilities 24,611 18,721

Accrued incentive compensation 10,069 10,608

Total current liabilities 176,776 143,398

Long-term deferred revenues 10,187 2,925

Other long-term liabilities 1,528 1,387

Total liabilities 188,491 147,710

Stockholders' equity:

Common stock 214 208

Additional paid-in capital 210,027 181,380

Retained earnings 104,491 80,962

Accumulated elements of comprehensive

income 472 (1,156)

Treasury stock (162,728) (122,930)

Total stockholders' equity 152,476 138,464

Total liabilities and stockholders'

equity $340,967 $286,174

THE ADVISORY BOARD COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended December 31,

2007 2006

Cash flows from operating activities:

Net income $23,529 $20,217

Adjustments to reconcile net income

to net cash provided by

operating activities -

Depreciation 2,598 1,457

Amortization of intangible assets 188 143

Deferred income taxes 11,032 9,417

Excess tax benefits from share-based

payments (5,377) (4,905)

Share-based compensation expense 10,443 9,165

Amortization of marketable securities

premiums 716 732

Changes in operating assets and

liabilities:

Member fees receivable (35,642) (35,185)

Prepaid expenses and other current

assets (654) 142

Deferred incentive compensation and

other charges (8,970) (3,375)

Deferred revenues 35,289 26,901

Accounts payable and accrued liabilities 5,890 2,222

Accrued incentive compensation (539) 1,459

Other liabilities 141 876

Net cash flows provided

by operating activities 38,644 29,266

Cash flows from investing activities:

Purchases of property and equipment (6,151) (5,954)

Capitalized software development costs (294) (320)

Cash paid for acquisition, net of cash

acquired - (895)

Redemption of marketable securities 31,605 11,500

Purchases of marketable securities (26,345) (9,500)

Net cash flows used in investing activities (1,185) (5,169)

Cash flows from financing activities:

Proceeds on issuance of stock from exercise

of stock options 12,504 3,671

Proceeds on issuance of stock under employee

stock purchase plan 331 316

Excess tax benefits from share-based

compensation arrangements 5,377 4,905

Purchases of treasury stock (39,798) (32,235)

Net cash flows used in

financing activities (21,586 (23,343)

Net increase in cash and cash equivalents 15,873 754

Cash and cash equivalents, beginning of period 13,195 21,678

Cash and cash equivalents, end of period $29,068 $22,432

iliation of the Company's adjusted financial results with the results presented in accordance with generally accepted accounting principles ("GAAP").

Frank Williams, Chairman and Chief Executive Officer of The Advisory Board Company, commented, "We are very pleased with our financial results for the quarter and for the calendar year. Our strong revenue performance and 16% growth in contract value illustrate the continued market attachment to our model of providing proven best practices to address the complexity inherent in today's healthcare and education fields. Across the quarter, we saw consistent demand for our membership programs, driven by our cutting-edge research agendas, heavy member utilization of program services and analytical tools, and the continued impact we are having on our members' most important issues. We continue to see a favorable market environment for renewals, cross-selling and new program launches, which are the primary growth drivers of our business."

Williams added, "I am also pleased today to announce the launch of the University Provost Program, our second program in the education vertical. The University Provost Program is a renewable membership program that provides best practice research, peer networking, and tools to help Provosts better manage university operations, set institutional priorities, and measure and improve performance. Provost feedback has been very positive about our ability to provide proven best practices to assist with today's difficult issues in higher education, such as the continued push to demonstrate academic outcomes, increased competition for research funding, and the challenge of faculty recruitment and retention. As always, we have established a strong charter membership for the program, including Duke University, College of William and Mary, Dartmouth College, New York University, University of North Carolina, University of California, Washington University, and University of Illinois. The group has provided valuable input regarding the design of the program and its inaugural research agenda. With this initial cohort of progressive institutions, we have established a strong foundation for the future growth and success of the program."

Outlook for Calendar Year 2008

Although the Company operates on a fiscal year ending March 31, 2008, the following statements summarize the Company's guidance for calendar year 2008. For the twelve months ending December 31, 2008, the Company estimates revenue of approximately $243.0 million. For calendar year 2008, the Company estimates GAAP income from operations of approximately $45.7 million, compared to $39.7 million for calendar year 2007. The Company estimates GAAP earnings per diluted share of approximately $1.86 for calendar year 2008, compared to $1.63 for calendar year 2007. Included in the calendar year 2008 income from operations and earnings per diluted share estimates is approximately $0.49 to $0.52 of share-based compensation and related expense. The Company expects an effective income tax rate of approximately 33.3% for calendar year 2008. For the quarter ending March 31, 2008, the Company estimates revenue of approximately $57.9 million and GAAP earnings per diluted share of approximately $0.46.

Share Repurchase

During the three months ended December 31, 2007, the Company repurchased 156,190 shares of its common stock at a total cost of approximately $10.0 million. To date, the Company has repurchased 4,312,627 shares of its common stock at a total cost of approximately $195.9 million. Repurchases will continue to be made from time to time in open market and privately negotiated transactions subject to market conditions. No minimum number of shares has been fixed. The Company intends to fund its share repurchases with cash on hand and cash generated from operations. At December 31, 2007, the Company had approximately $171.8 million in cash and marketable securities and no debt.

Web and Conference Call Information

The Company will hold a live conference call to discuss its fiscal year 2008 third quarter news release this evening, February 5, 2008, at 6:00 p.m. Eastern Standard Time. The conference call will be available via live audio webcast on the Company's web site at http://www.advisoryboardcompany.com in the section entitled "The Firm" found under the tab "Investor Relations." To participate by telephone, the dial-in number is 888.873.4896 and the access code is 20590693. Please be 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. Tuesday, February 5, until 8:00 p.m. Tuesday, February 12, 2008.

About The Advisory Board Company

The Advisory Board Company provides best practices research and analysis primarily to the health care industry, focusing on business strategy, operations and general management issues. The Company provides best practices and research through discrete programs to a membership of more than 2,600 hospitals, health systems, pharmaceutical and biotech companies, health care insurers, medical device companies, and universities in the United States. Each program typically charges a fixed annual fee and provides members with such services as best practice research reports, executive education, on-line analytical tools, and other supporting research services.

THE ADVISORY BOARD COMPANY

FINANCIAL HIGHLIGHTS

(In thousands, except per share data)

(Unaudited)

Three Months Ended Selected

December 31, Growth

2007 2006 Rates

Financial Highlights

(GAAP, as reported)

Revenues $55,912 $48,611 15.0%

Cost of services $26,107 $23,334

Member relations

and marketing $11,869 $10,562

General and administrative $6,754 $5,938

Income from operations $10,234 $8,215

Net income $7,912 $6,545 20.9%

Basic earnings per share $0.44 $0.35 25.7%

Diluted earnings per share $0.42 $0.34 23.5%

Weighted average common

shares outstanding

Basic 18,090 18,694

Diluted 18,871 19,461

Financial Highlights

(Adjusted) (1)

Adjusted cost of

services $24,631 $22,293

Adjusted member relations

and marketing $11,168 $9,859

Adjusted general and

administrative $5,351 $4,770

Adjusted income from

operations $13,814 $11,127 24.1%

Adjusted net income $10,300 $8,469 21.6%

Adjusted diluted earnings

per share $0.55 $0.44 25.0%

Diluted weighted average

common shares outstanding 18,871 19,461

Adjusted percentages of

revenues (1)

Adjusted cost of services 44.1% 45.9%

Adjusted member relations

and marketing 20.0% 20.3%

Adjusted general and

administrative 9.6% 9.8%

Adjusted income from

operations 24.7% 22.9%

Nine Months Ended Selected

December 31, Growth

2007 2006 Rates

Financial Highlights

(GAAP, as reported)

Revenues $161,045 $139,543 15.4%

Cost of services $74,775 $65,824

Member relations and

marketing $33,654 $29,808

General and administrative $19,457 $17,015

Income from operations $30,561 $25,439

Net income $23,529 $20,217 16.4%

Basic earnings per share $1.30 $1.07 21.5%

Diluted earnings per share $1.25 $1.03 21.4%

Weighted average common

shares outstanding

Basic 18,097 18,818

Diluted 18,825 19,554

Financial Highlights

(Adjusted) (1)

Adjusted cost of services $70,995 $62,693

Adjusted member relations

and marketing $31,530 $27,721

Adjusted general and

administrative $14,918 $13,068

Adjusted income from

operations $41,004 $34,604 18.5%

Adjusted net income $30,497 $26,276 16.1%

Adjusted diluted earnings

per share $1.62 $1.34 20.9%

Diluted weighted average

common shares outstanding 18,825 19,554

Adjusted percentages of

revenues (1)

Adjusted cost of services 44.1% 44.9%

Adjusted member relations

and marketing 19.6% 19.9%

Adjusted general and

administrative 9.3% 9.4%

Adjusted income from

operations 25.5% 24.8%

(1) In order to allow investors to assess results on a basis consistent

with those used by management, the tables below under "Reconciliation

of Non-GAAP Financial Measures" reconcile GAAP to adjusted amounts

for the three and nine months ended December 31, 2007 and 2006.

Adjusted results exclude the share-based compensation expense

recognized by the Company in accordance with SFAS No. 123R. Adjusted

results include the employer taxes paid in connection with the

exercise of employee stock options of $70,000 and $283,000 for the

three and nine months ended December 31, 2007, respectively, and

$58,000 and $206,000 for the three and nine months ended December 31,

2006, respectively.

Reconciliation of Non-GAAP Financial Measures

The Company believes its calculations of adjusted results to exclude share-based compensation expense provide additional information about the Company's operating performance. The Company's management uses the adjusted presentations to evaluate operating results on a basis that is comparable to that used for periods prior to implementation of SFAS No. 123R and provides such information publicly to assist in comparisons to prior periods. For historical results, a reconciliation between results as adjusted and in conformity with GAAP is shown in the attached schedule. Because adjusted financial results are not measurements determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable as presented to other similarly titled measures of other companies.

Adjusted financial results are not measures of financial performance under GAAP and should not be viewed as a pro-forma presentation reflecting the elimination of the underlying share-based compensation programs, as those programs are an important element of the Company's compensation structure and generally accepted accounting principles indicate that all forms of share- based payments should be valued and included as appropriate in results of operations. Management compensates for this aspect of the non-GAAP financial measures by separately evaluating its share-based compensation arrangements.

THE ADVISORY BOARD COMPANY

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

(In thousands, except per share data)

(Unaudited)

Three Months Ended December 31, 2007

Financial statement GAAP, as Share-based

descriptions reported compensation Adjusted

Cost of services $26,107 $(1,476) $24,631

Member relations and

marketing $11,869 $(701) $11,168

General and administrative $6,754 $(1,403) $5,351

Income from operations $10,234 $3,580 $13,814

Net income $7,912 $2,388 $10,300

Diluted earnings per share $0.42 $0.13 $0.55

Three Months Ended December 31, 2006

Financial statement GAAP, as Share-based

descriptions reported compensation Adjusted

Cost of services $23,334 $(1,041) $22,293

Member relations and

marketing $10,562 $(703) $9,859

General and administrative $5,938 $(1,168) $4,770

Income from operations $8,215 $2,912 $11,127

Net income $6,545 $1,924 $8,469

Diluted earnings per share $0.34 $0.10 $0.44

Nine Months Ended December 31, 2007

Financial statement GAAP, as Share-based

descriptions reported compensation Adjusted

Cost of services $74,775 $(3,780) $70,995

Member relations and

marketing $33,654 $(2,124) $31,530

General and administrative $19,457 $(4,539) $14,918

Income from operations $30,561 $10,443 $41,004

Net income $23,529 $6,968 $30,497

Diluted earnings per share $1.25 $0.37 $1.62

Nine Months Ended December 31, 2006

Financial statement GAAP, as Share-based

descriptions reported compensation Adjusted

Cost of services $65,824 $(3,131) $62,693

Member relations and

marketing $29,808 $(2,087) $27,721

General and administrative $17,015 $(3,947) $13,068

Income from operations $25,439 $9,165 $34,604

Net income $20,217 $6,059 $26,276

Diluted earnings per share $1.03 $0.31 $1.34

Forward Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on information available to the Company as of February 5, 2008, the date of this news release, as well as the Company's current projections, forecasts and assumptions, and involve risks and uncertainties. You are hereby cautioned that these statements may be affected by certain factors, including those set forth below. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements, and reported results should not be cons
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