The Advisory Board Company F2Q09 (Qtr End 09/30/08) Earnings Call Transcript

Nov.18.08 | About: The Advisory (ABCO)

The Advisory Board Company (NASDAQ:ABCO)

F2Q09 (Qtr End 09/30/08) Earnings Call Transcript

November 5, 2008, 6:00 pm ET

Executives

Frank Williams – Executive Chairman

Robert Musslewhite – CEO

Michael Kirshbaum – CFO

Analysts

Vance Edelson – Morgan Stanley

Brandon Dobell – William Blair

Weizenbaum [ph]

David Cohen – Midwood Capital

Jim Bradshaw – Bares Capital Management

Scott Schneeberger – Oppenheimer

Operator

Welcome to The Advisory Board Company second quarter earnings conference call. As a reminder, this conference is being recorded. Your host for the call today is Mr. Frank Williams, Executive Chairman of The Advisory Board Company. This called will be archived and available from 8:00 PM this evening until 8:00 PM November 12 via web cast on the company’s web site in the section entitled The Firm found under tab Investor Relations.

Also as a reminder, this discussion may contain forward looking statements concerning future results, performance and expectations within the meaning of the Private Securities Litigation Reform Act of 1995 and other applicable federal securities laws. These statements are based on the company’s current expectation and assumption that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.

These risks and uncertainties include but are not limited to economic and other condition in the market and with the company operates, expansion of the business offerings, future financial results and other factors discussed already in the company’s filings with the Securities and Exchange Commission. Consequently actual operation or results may differ materially from the results discussed in the forward looking statements. The company undergoes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

At this time, I will turn the call over to the company’s Executive Chairman, Mr. Frank Williams.

Frank Williams

Thank you and good evening.

I am Frank Williams, Executive Chairman of The Advisory Board, and I am joined this evening by Robert Musslewhite, our Chief Executive Officer, and Michael Kirshbaum, our Chief Financial Officer.

In terms of this evening’s call, I have organized the discussion into four sections. First I will give you a brief summary of our performance for the quarter that ended September 30, 2008. I’ll then turn it over to Robert to provide additional information about the overall environment and an update on the business. Michael will then take us through a more detailed review of the financials. And Robert will close with a discussion of our strategic and operational priorities. Of course, we’ll be happy to take you questions at the close of the call.

Let me start with our financial results. In the quarter ended September 30, 2008, Advisory Board revenues were $57.6 million, up 6% from $54 million last year. Net income 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 value grew 6% to $230.6 million. Our results were largely in line with the expectations that we outlined at the end of last quarter, and are reflective of the current macroeconomic environment. The slower growth in contract value is a result of the more difficult new business environment that we began seeing in the May time period and which has continued through the September quarter.

Given the fluidity of the overall economy, as well as the importance of strong performance in the December quarter in setting up next year’s growth, I wanted to make sure that we provided a clear sense of the overall environment, as well as some more granular detail on what we are seeing across the business.

With that in mind, let me turn the call over to Robert to give a more detailed performance update.

Robert Musslewhite

Thanks, Frank.

I thought I’d begin with a review of product quality and renewals, details on the new business environment and sources of growth and an update on key operational issues.

First, from the core program perspective, we’ve continued to see strong renewal performance with high program utilization and attachment to our research agendas. We’ve done significant work across programs to respond to the environment and help members understand the likely impact of broader economic forces and the dynamics of their reimbursement environment, financial strategy and future growth prospects.

Further, we’ve invested considerable resources in accelerating the financial benefit our members receive through their research, and in ensuring that members are leveraging all resources available to them through each programs in order to achieve these results. As I will discuss later, these initiatives have had strong impact for our members and have been very well received.

Finally, we’re feeling good about our work in the education space. Across the last several months, we’ve held member meetings in each of the programs and have achieved excellent penetration and outstanding feedback on the content presented. It is encouraging to have this evidence that our value proposition in this segment is strong.

In terms of the new business environment, conversion rates have continued at roughly the same levels we’ve seen since May and June. Breaking down the sales process into its components, we continue to see strong attachment in the market through our offerings, and we were able to build healthy new business pipelines. However closing the business has become more challenging as uncertainty about 2009 budgets has led to increased conservatism in the market.

As we talk to our members about the economy, they’ve not been reporting rapid deterioration in their current financial performance. However, members are generally adopting more of a wait and see attitude relative to new purchase decisions, in some cases postponing the decision with the hopes that they will be able to gain additional clarity about projected finances in 2009. Examining sources of growth, we are seeing the impact of the environment primarily in cross sell and new program roll outs with slightly less impact on price increase.

Turning to our analytical tools programs, I wanted to update you on the work we’ve been doing to build out infrastructure that will address scalability on a long term basis. We continue to make good progress in creating a more predictable data extraction process in ensuring smooth and consistent implementations. As expected, during this period, we’re still seeing some impact from delayed start dates and extended membership terms. We’re confident however that our investment in this area is an important one and that it will set us up well for the longer term.

Turning to the plan we discussed in our last call that we put in place over the summer, we’ve done a great deal of work to execute at a high standard from our renewal and new business perspective, particularly given that 40% of renewals and new business traditionally come in across the December quarter. Because this period is a critical one in setting up next year’s performance, we currently have intense organizational focus on executing against this plan. The three elements of the plan are, driving strong sales execution, enhancing our program value propositions, and leveraging thoughtful investments in new product development to set up our forward growth objectives.

Let me now update you on each of these initiatives in turn. Given the current environment, nothing is more important than strong sales execution. We continue to drive urgency on this point across the company by engaging the entire senior team as well as the best minds from our research organization in supporting our sales efforts. This group continues to assist in honing our message to key segments, enriching training for sales teams, and continuously evaluating talent allocation to ensure that top talent is deployed against the best opportunities.

We are also very focused on building and maintaining a strong base of sales talent, taking advantage of the positive hiring environment, maintaining strong recruiting pipelines, and moving aggressively to bring new talent into the sales force. As we do so, we are also investing additional resources in training and on boarding to minimize the time to productive visits and providing deeper support out in the field to improve effectiveness on those early sales calls.

From a program perspective, the challenges in the broader environment actually provide us with an important opportunity to illustrate for our members the power and impact of our timely research tools and services. As I mentioned earlier, across the last few months, we’ve developed a comprehensive approach across all of our programs to help our members address the concerns raised by the economy, and I thought I’d share a few examples.

First, our research teams across all terrains have done extensive outreach to provide immediate in depth analysis to help members make sense of the news and understand the likely impact on their institutions. For our members meetings attended by more than 500 CEOs and CFOs to action memos from our programs heads, to online rapid response companions of best practices, our teams have created a vast set of opportunities for members to access our insight on the complex and unpredictable environment in the ways that are most directly helpful to their daily work.

In addition to our analysis, during this time, we are directly supporting members in the critical decisions that they face. Whether they are leveraging our margin performance audit tools to services cost saving opportunities, revamping their capital allocation process using our tools kits, or leveraging our clinical technology assessments to guide specific new technology purchase decisions, members are relying on our guidance to make decisions on key issues quickly and with confidence.

Finally, through their work with us, members are seeing the measurable financial impact so critical in times of economic uncertainties. A member of our bad debt performance program has increased collections by more than $600,000 this year alone. A member of our supply chain performance program has seen more than $0.5 million in improved contract performance. And another member leveraged through our best practice installation programs to triple emergency department cash collection in less than one year. Across all of our programs, we are seeing these types of hard financial results, documenting impact and sharing success stories to enhance the collective performance of our membership as a whole.

The last element of our plan is continuing our ongoing focus on robust new product development in order to take advantage of our $4 billion five year organic growth opportunity. As we discussed in our last call, we’ve a number of strong new initiatives underway and we continue to prioritize their development. In order to best execute against these and the other opportunities within our pipeline of more than 25 MPD concepts, we’ve allocated additional talent to ensure we’re able to move aggressively to bring the right products to market at the right time.

Today I am excited to announce our newest launch, the Patient Registration Performance Program, a particularly timely new introduction as today’s economic challenges bring a spotlight to hospitals’ revenue cycle performance. We’re receiving feedback from member revenue cycle officers, this membership provides a comprehensive program to assist health systems in improving their front end revenue cycle performance through the proactive management of the patient registration process.

As background, research shows that more than 75% of the errors that give rise to coverage denials originate at the point of patient registration. To address this issue, the Patient Registration Performance Program provides a web based analytic tool that audits the registration process, surfaces patterns and registration errors, and allows for improved standardization of registration work flow. The tool is complemented by The Advisory Board’s rich body of research and best practices in increasing collections in a dynamic payment environment.

Together, the services assist members in hardwiring accountability for front end revenue cycle performance thereby enhancing cash acceleration and staff efficiency while reducing avoidable denials. Our early work shows that improved registration accuracy can accelerate cash collections by 15% yielding AR improvements of more than 4 days and resulting in an impact of approximately $6 million to $7 million for an average sized hospital.

As always we’ve worked with a strong group of charter advisers for the program including Tri City Medical Center, Cheyenne Regional Medical Center, Munroe Regional Medical Center, and West Jefferson Medical center. The launch of the Patient Registration Performance Program brings our total number of programs to 39, 11 of which are web based tools programs, and we are excited about its potential to provide value to our members.

Also in terms of our recent physician management launch, we are seeing an encouraging response from the membership and real attachment to the issue. It is still early on, but we feel good about the prospects in this terrain and are excited about the program’s potential as we head into next year.

In terms of our organization, we continue to scale our direct sales force in line with our plans for the year with a 113 sales teams currently in place, up from 101 teams at this time last year. Total Advisory Board head count now stands at more than 975 people and we have the depth of talent to scale our organization to accommodate future growth.

Let me now turn it over to Michael to review our financial results in greater detail.

Michael Kirshbaum

Thanks, Robert.

I’ve organized today’s financial review around five categories

income statement, balance sheet, cash flow, contract value and the outlook for the remainder of calendar year 2008.

First the income statement, a quick reminder that we are on a March 31 fiscal year end which means we’ve just finished the second quarter of fiscal year 2009. For the quarter just ended, our revenue increased 6.7% to $57.6 million, up from $54 million in the same period last year. Income from operations, net income and earnings per diluted share were $7 million, $5.4 million and $0.32 respectively for the quarter ending September 30, 2008, compared to $11.2 million, $8.5 million, and $0.45 respectively the same quarter last year.

Cost of services increased to 50.3% of revenue compared to 45.1% of revenue in the same quarter of the prior year. The increase in cost of services is primarily due to the increased cost associated with new programs launches, increased consultant and licensing fees associated with some of our newer analytic tool programs, and cost from our Crimson acquisition.

The increase in cost of services as a percentage of revenue is attributable to the factors mentioned above as well as the impact of lower revenue growth on our largely fixed cost structure. Member relations and marketing expense were 22.7% of revenue compared to 20.7% of revenue in the same quarter the prior year. The increase in expenses is attributable mainly to the continuing investment in expanding our number of sales teams. We currently have 113 sales teams in place compared to 101 in September 2007.

G&A expense in the quarter increased to 12.5% of revenue compared to 11.8% of revenue in the same quarter the prior year due to increased new product development costs as well as increases in staffing in our recruiting, benefits and training departments required to support our overall head count growth.

Depreciation and amortization expense in the quarter increased to 2.3% of revenue compared to 1.6% of revenue in the same quarter the prior year. The increase is primarily due to the amortization of capitalized cost related to the development of analytic tools for some of our newer programs, the amortization of intangibles from the Crimson acquisition and the additional depreciation expense related to the expansion of additional floors in our headquarters facility.

Moving on to our six month income statement results, for the six months ending September 30, 2008, revenue increased 9.2% to $114.8 million, up from $105.1 million last year. Income from operations, net income and earnings per diluted share were $15.3 million, $11.7 million and $0.68 respectively for the six months ending September 30, 2008, compared to $20.3 million, $15.6 million and $0.83 respectively for the same period last year.

Turning to the balance sheet, membership fees receivable, which exclude long term receivables, increased to $99.3 million as of September 30, 2008, versus $68.6 million as of September 30, 2007. DSOs, which we calculate using average receivables, were 158 days in the quarter ended September 30, 2008, up from 143 days last quarter and up from 116 days in September 30, 2007. Excluding receivables associated with the revenue from multi year contracts that will be recognized beyond 12 months, DSOs were 133 days in the quarter ended September 30, 2008, compared to 110 days in the prior year.

The increase in DSOs is primarily due to the continued increase in mix for our higher price point programs which include more progress billings. Excluding the effect of progress payment, DSOs on bill day remain consistent with our expectations and was 55 days as of September 30, 2008, similar to the same metric in 2007, which was 52 days.

Deferred revenue, net of amounts that we billed out for 12 months, increased 26.2% to $150.2 million as at September 30, 2008, up from $119 million in September 30, 2007. Excluding prepaid contracts and long term deferred, deferred revenue balance as of September 30, 2008, was $130.7 million, up 18% over the prior year.

Turning to cash flow, during the three months ended September 30, 2008, we generated $12.2 million of cash from operating activities compared to 14.8 million in the same quarter last year. For the six months ending September 30, 2008, cash flow generated from operations was $12.3 million compared to $14.6 million in the same period last year. For fiscal year 2009, we continue to expect cash flow from operations to be approximately one and a half to two times net income.

Capital expenditures for the three months ending September 30, 2008, were approximately $3.8 million, of which $1.3 million was related to the capitalized development and hardware associated with the analytic tools including some of our newer programs and $1.8 million was related to the build out of a new floor in our DC headquarters. For fiscal year 2009, we expect capital expenditures to be approximately $15 million.

For the three months ended September 30, 2008, we repurchased 34.5 million of stock or approximately 1.1 million shares. This brings our total share repurchase since the inception of the program in 2004 to $285.9 million or approximately 6.4 million shares. As of September 30, 2008, the remaining authorized repurchased amount was $64.1 million. As of September 30, 2008, our cash, cash equivalents and marketable securities balances were approximately $88 million.

As for contract values, contract value increased 6% to $230.6 million as of September 30, 2008, up from $217.5 million as of September 30, 2007. We define contract value as the aggregate annualized revenue attributable to all agreements in effect at any given point in time without regard to initial term or remaining duration of any such agreement. For contracts with more than 12 months duration, we include only 12 months in contract value.

With respect to the remainder of calendar 2008, the following comments are intended to fall under the safe harbor provision outlined at the beginning of the call, and are based on preliminary assumptions which are subject to change over time. For calendar year 2008, we expect revenue and earnings per diluted share to be consistent with the lower end of our annual guidance range. For the quarter ending December 30, 2008, we expect revenue of approximately $59.2 million to $60 million, and earnings per diluted share of approximately $0.36 to $0.39. Included in this earnings per diluted share guidance is approximately $0.14 to $0.15 of share based compensation and related expense for the December quarter.

This concludes the financial summary. I’ll now turn things back over to Robert.

Robert Musslewhite

Thanks, Michael.

I would like to close by offering a few comments on our plans for the next several quarters and then we will be happy to take questions.

Across the coming months, our focus is on mitigating the impact of the broader economy while also enhancing critical areas that will serve us well in any market environment. Sales performance, new product development and investing in our employees and building the organization. Of course, sales performance is and will continue to be a top priority.

As I mentioned earlier in the call, leadership across the firm is engaged in ensuring that our sales execution is at the highest standard. In addition to the current initiatives I’ve already mentioned, we are looking ahead to next year in introducing innovative methodologies to continue to improve our targeting of member specific needs. We began developing new processes and approaches to capture and funnel the knowledge we received about our member organizations through each of our myriad of interactions, thoughtfully synthesizing and processing all this information in the context of tailored member service and growth plans will increase our values as trusted advisor term members as well as enhancing opportunities for future relationship expansion.

In terms of new product development, we continue to pursue with tremendous energy and we are confident about the potential of the many business ideas in our pipeline. Of course given the environment, in the near term we will continue to launch programs to serve members on critical nuts and bolts operational issues. Across the medium term, there are also large and important strategic trends that we know will provide us opportunities to deliver significant value to our members and rapidly expand our products and services. These include among others the continued and accelerated market push for quality and transparency, paid for performance reimbursement scenarios, the increased role of the consumer and provider choice and the need to increase profitable growth.

While we’ve faced some current economic headwinds, we continue to feel good about the long term growth potential within the US healthcare market given the many complex issues that we can effectively address in a membership model and the fact that our average member is still spending only a small portion of their related professional services budget on The Advisory Board. In addition, we are also excited about a few of the other market segments we are emphasizing for expansion, including our early work in higher education in the international market, both of which have been met with enthusiastic feedback from members.

Finally, as always, my leadership team and I are very focused on the organization, expanding our talent base, developing our existing staff and harnessing the energy of an engaged workforce are critical to our long term growth. In this more challenging economy, daily conversations with members underscore for our employees the importance of our work.

With this powerful reminder of our mission, our nearly 1,000 employees stand fully committed to serving our membership and making a meaningful impact on the healthcare and education sectors. It is impressive to see this dedication and it gives me confidence in the future that this talented group can build together.

With that, let me now turn to your questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Vance Edelson from Morgan Stanley. Please proceed.

Vance Edelson – Morgan Stanley

Hi, thanks. It’s Vance Edelson. Could you just comment when it comes to the selling process and the retention efforts, if you could give us a feel for the flexibility that you might have in terms of pricing as a middle ground between keeping a customer and losing one or not being able to sell them a new service? Do you have flexibility in that regard, would you say? Thanks.

Robert Musslewhite

Hi, Vance. You know the pricing environment for us has remained relatively stable. We don’t do a lot of discounting as our prices are still low on a relative basis that it’s generally not a preferred lever for us. Of course, in select situations where we feel it can move the needle on decisions, we’ll absolutely do it.

Vance Edelson – Morgan Stanley

Okay, thanks. And in terms of the – I may have missed it, but the member relations and marketing expenses ticked up a little bit, are there one timers there or is that a decent run rate going forward?

Michael Kirshbaum

I think if you think of the expense growth year-over-year, that’s mostly due to the increase in sales teams that we generally have been running this year about 50% growth over the prior year and historically have staff in the kind of 10% to 50% increase in terms of sales teams. As a percentage of revenue, a little bit of it is debt increase cost compared to lower revenue growth.

Vance Edelson – Morgan Stanley

Okay. And just one more for you, in terms of the uses of that cash going forward, does the share buyback remain a priority would you say at this point?

Michael Kirshbaum

Yes, I think we’ve been pleased with the performance of the share repurchase program and we’ll continue to do that opportunistically.

Vance Edelson – Morgan Stanley

Okay, great. Thanks a lot, guys.

Robert Musslewhite

Thank you.

Operator

And your next question comes from the line of Brandon Dobell from William Blair. Please proceed.

Brandon Dobell – William Blair

Hi, guys. Thanks. Trying to gauge your customers and buyer behavior, however you want to term it, relative to the general corporate spending environment versus what the states are starting to see from a budgetary perspective. Do you think there is more or less relevance to one of those or two as you think about the new business trends and your customer’s ability to renew at the same rate those kinds of things?

Robert Musslewhite

Hi, Brandon. Yes, on the overall environment, I think obviously we are hearing a lot about the tough macroeconomic environment. The way that’s playing out is uncertainty into forward budgets like I said. And a lot of times, we’ve great pipelines but it becomes difficult to close those out, just a lot more hoops to go through, members scrutinizing decisions a little more and decisions pushing out forward.

On the positive side of that, I think we’ve seen strong renewals and attachment to our agendas and continue to see heavy utilization program services. So, that’s a good balance there. In terms of what we look for members on the environment, I think first you’d love to see members feeling like they had a little more certainly around volumes and reimbursement trends, and I think if we felt like members got a little more certainty around those things, it would result in a little more confidence around the future budget environment and enable them to make – have more certainty in their purchase decisions.

Brandon Dobell – William Blair

Okay. Given that the new business trends, I guess I am trying to gauge your commitment to kind of the continued level of spend or the pace of the spending, is there a point at which, let’s take the bare case scenario which says the new business environment remains difficult for two, three, four more quarters, just given people’s uncertainty about those aspects you were talking about. At what point do you take a step back and say, all right, we’re going to have a change in environment for a while and the balance between expenses and margin needs to change a little bit. Given the historical perspective on balancing those two, how should we think about your team’s philosophy on those issues?

Robert Musslewhite

Yes, that’s a good question. Obviously we remain focused on both top line growth and bottom line growth, and I think that’s always been something that we’ve spent a lot of time focused on. We’re very cost conscious, we scrutinize every expense and ensure that we are investing in the areas of highest return and we will continue to do that. I think if you look ahead to next year, we remain excited about our growth potential and have a good growth strategy in place, and generally we believe we need to keep investing in the growth of the business. So in a largely fixed cost business, the things that you look at if you wanted to really shift focus would be cutting program services to members or cutting back on sales investments or cutting back on new program investment. And right now we don’t feel like it is prudent to pull back on those given the opportunities in front of us.

Brandon Dobell – William Blair

That’s fair. And a final question, given that we’re only a third of the way through the quarter, I would imagine that historically October isn’t a good predictor of what happens in this quarter and maybe even less so this time around. But from what you’ve seen so far, anything that you can discern from a customer behavior that’s different from what you saw in September or the conversation is changing or is it just that as you outlined in the beginning, people are just kind of holding their hands up and saying, let’s hold on for a second here, how do we look at what October could tell us about your business right now?

Robert Musslewhite

Yes. As you indicated, if you look back September, we hadn’t seen any noticeable change. At that point, it felt like new business was continuing to have lots of scrutiny. Renewals did remain strong during that period. In terms of this quarter, you are right that it is largely back weighted, so if you look at most of our sales and renewals in the quarter that are going to come in the next eight weeks. So October is not a great predictor as I discussed earlier. We are investing a great deal of time, energy and focus on inflecting our sales performance and driving renewals. And given that we continue to see strong renewals through September, we are helping our work and some improvement in the environment would really help us have some impact from that work this quarter.

Brandon Dobell – William Blair

Okay. Thanks, guys. Appreciate it.

Operator

(Operator instructions) And your next question comes from the line of Mr. Weizenbaum [ph]. Please proceed.

Weizenbaum

Hi. Thank you very much for taking my question. I wanted to ask you a little bit on the contract value metric which I think was down for the first time ever sequentially, is that all due to the weakness in bookings or some of that, just some of the longer term contracts, where the tail end of that contract value is not captured in that metric?

Michael Kirshbaum

Yes, this is Michael. I think the decline in contract value is mainly due to three factors. I think we mentioned on the last quarter first the biggest impact is our new sales performance in the June quarter – in the September quarter. Second, we are still experiencing some delays and member restarts in two of our analytic tool programs, where it’s taken a little bit longer to get some of our members, get them up and running on the tool, which has an effect on our core revenue and contract value. And third, we still do see the impact of multi year contracts that we started at the end of last year, taking some of that and spreading it across a longer period of time. I think the decline in contract value this quarter was mostly attributable to those factors.

Weizenbaum

Are there any weeding amongst them? Is it primarily just the new bookings?

Michael Kirshbaum

New bookings is the most substantial of those.

Weizenbaum

Are your members asking you to get more creative in terms of you know instead of billing them annually in advance, maybe going to quarterly in advance and even just break your annual contract, are you seeing more of that?

Michael Kirshbaum

That’s a good question. We’ve seen a little bit of it, but I wouldn’t say anything broad based in the market.

Weizenbaum

Okay. And then just sort of following up on some of the other questions that we had on the cost structure, the amount of sales teams added, there’s been a big improvement over there, how much longer will you continue that team trajectory?

Michael Kirshbaum

I know you are familiar with our model. The best sort of margin lever and cost saving lever we have is to generate new sales, so the incremental contribution from each incremental sales is still high. So continuing to invest in new markets which pay for themselves pretty quickly in terms of bringing new dollars, continuing to launch new programs that drive top line growth, those are the best levers we have to improve bottom line performance. Now striking the value, the optimization there makes sure we’re doing the balancing act is something we’ve already done, we’ll continue to do, and we’ll scrutinize every expense, and make sure we are getting the highest return possible from it. So, that’s our thinking now, and obviously as we go into the budget cycle for next year, a lot of that will depend on where we actually end up this year, what our revenue growth will look like for next year and how much of that we want to reinvest in terms of putting it toward new growth opportunities.

Weizenbaum

How much capital do you need to run the business on a regular basis? You are continuing to repurchase stock which shows confidence in the numbers, but how much do you feel that you need just to be able to show your clients, number one, and just for your own comfort?

Michael Kirshbaum

Well, I think in order to run the business, if you really want to take a look at it, it’s very little. The business generates cash pretty quickly returning cash well ahead of net income. We have negative working capital, we could take a lot of the cash off the balance sheet if we wanted to I think. And in today’s environment, having a conservative balance sheet is pretty prudent. We have historically had a conservative – I think we will continue to do so. We have like using some of the excess cash for shareholders repurchase and I think we will continue to do that opportunistically. We’ve got about $54 million remaining on our authorization, but in answering your question, we don’t need a lot of capital to run the business and we have been returning a lot of the excess to shareholders, but we do want to make sure we are being conservative in the current environment.

Weizenbaum

Is it fair to assume that the share repurchase has slowed down a little bit, just cash flow characteristics are slowing with the sale just given the credit market and the uncertainty out there that you guys will be a little bit more conservative on that?

Michael Kirshbaum

I think we’ve always been opportunistic and we don’t have sort of the regular pacing per quarter. We’ve been up and down depending on cash flows in the quarter, depending on share price and interest rates addition other uses of the capital. So I think you will continue to see us do some, but certain quarters will be more, some quarters will be less.

Weizenbaum

All right, thanks a lot.

Operator

And your next question comes from the line of David Cohen from Midwood Capital. Please proceed.

David Cohen – Midwood Capital

Hi, guys. I was wondering what the impact from bottom line standpoint was Crimson in the quarter?

Robert Musslewhite

Yes, I think if you go back to our original announcement on Crimson, we expected about $0.10 of dilution from Crimson on the year. I think for the quarter where we had that acquisition effective on the end of April, so a couple of cents of dilution on the quarter from Crimson.

David Cohen – Midwood Capital

Okay. And is there anyway can you quantify sort of the ramp in your education vertical, the sales traction you had there?

Robert Musslewhite

I think and we are continually pleased with the performance of our education business. It’s seen incredibly strong meeting scores, good member attachment to our research, strong utilization of our services, and our sales performance there has been within our expected ranges. It’s still a small portion of our overall business, but we are happy with the results.

David Cohen – Midwood Capital

Okay. And the last question, I think you said $15 million capex in fiscal ’09, is that it? That was the number?

Michael Kirshbaum

That’s right, $15 million.

David Cohen – Midwood Capital

And beyond this year, where do you think that is going to go? I mean it’s basically a people intensive business, what’s the normalized level of capital that you deploy?

Michael Kirshbaum

Yes, I think for us it depends on how many analytical programs we roll out in a given year. In general, our capital needs are pretty low, about $2 million or $3 million a year in maintenance. The balance of that is made up between the $2 million and $3 million and the $15 million from two factors. One is number of analytical tool programs we build in a given year. And second is, as we expand in our building, we’ve take new space and build it out every year, two years, which is a couple million dollars of this year’s capex. So on an ongoing basis, it depends on how many analytic tools are part of the mix. I would think that’s roughly similar to what we did this year is a decent proxy for the next year or two. Beyond that it is hard to have more visibility.

David Cohen – Midwood Capital

Okay, thanks.

Operator

And your next question comes from the line of Jim Bradshaw from Bares Capital Management. Please proceed.

Jim Bradshaw – Bares Capital Management

Thank you. I was going to also ask how you are thinking currently with regards to Crimson, how is that looking? And as well, if you could just speak briefly about how you allocated the sales efforts there versus any other products or your other efforts?

Robert Musslewhite

Sure. Overall, we are pleased with the performance of Crimson and Physician Management Program. I think if you go back to why we are excited about it in the first place, Crimson represented a really best in breed product analytics platform, which had significant importance to our member executives on an issue they cared a lot about and continue to care about. It had a great strategic fit with our own analytical tools platform and growth strategy, a strong management team that we had inherited with the acquisitions that really helps deepen our experience, and really strong long term financial returns. It got us to market quickly with powerful capabilities that we are taking to our current membership. And so I think we are finding all that to hold true. It’s been a strong product launch with great member response and it has fit well with our own tools platform and I think the management team that we inherited has added a lot of value both in terms of Crimson and in helping across the business. And the early financial results have been strong. So we are still very excited about everything that’s going on with Crimson.

Jim Bradshaw – Bares Capital Management

Great. And then as far as the second part of that, the…

Robert Musslewhite

Oh, yes. That’s right. On the sales force, I think we’ve a dedicated team assigned to Crimson, and they are taking out to our members right now and we’ve put our strong sales talent against it.

Jim Bradshaw – Bares Capital Management

Okay, have you already given out the number of sales people you have dedicated there?

Robert Musslewhite

No. We’ve staffed it like a typical programs launch. So if you looked at other program launches, you’d expect to see staffing it the same way. We don’t give specific numbers, but it’s typical of all of our tools programs launches.

Jim Bradshaw – Bares Capital Management

Okay, great. Thank you very much.

Robert Musslewhite

Thanks.

Operator

And your last question comes from the line of Elaji [ph] from Oppenheimer. Please proceed.

Scott Schneeberger – Oppenheimer

Hi, thanks. It’s Scott Schneeberger from Oppenheimer. I apologize. I am getting on the call late, but could you – I understand that the commentary with regard to hiring further sales teams was not necessarily aggressive but that you would continue to do so, and position yourself well I guess coming prepared for when the economy does get better. Could you just elaborate a little bit more on that? Thanks.

Robert Musslewhite

Sure. I think that the posture we are taking is to always be prudent about every expense that we incur. So we won’t invest if we don’t feel like it is going to have significant return for us in the business. I think we are continuing to see is that we are getting strong sales people and especially in this environment able to bring in some good talent into the organization. We believe in the opportunity for putting them against and we are confident that we will see good return I think. The incremental sales person still is profitable for us to bring in. So right now, given where we are, we are looking at that, and I think we want to continue to be aggressive in hiring sales force at our current levels.

Scott Schneeberger – Oppenheimer

Thanks. I appreciate that. I’ll check with you later, thank you.

Operator

And now I’d like to turn the call over to Frank Williams for closing remarks.

Frank Williams

Great. We appreciate everyone participating in the call, and obviously we’ll have an opportunity to see some of you on the road over the coming weeks and look forward to it, and thanks again.

Operator

Thank you for participation in today’s conference. This concludes the presentation, you may now disconnect. Good day.

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