The Advisory Board Management Discusses Q3 2014 Results - Earnings Call Transcript

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 |  About: The Advisory Board Company (ABCO)
by: SA Transcripts

The Advisory Board (NASDAQ:ABCO)

Q3 2014 Earnings Call

February 06, 2014 5:30 pm ET

Executives

Robert W. Musslewhite - Chairman and Chief Executive Officer

Michael T. Kirshbaum - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

Sean W. Wieland - Piper Jaffray Companies, Research Division

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Ryan Daniels - William Blair & Company L.L.C., Research Division

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Elizabeth Blake

Stephen Lynch - Wells Fargo Securities, LLC, Research Division

Richard C. Close - Avondale Partners, LLC, Research Division

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Mohan A. Naidu - Stephens Inc., Research Division

Matthew J. Kempler - Sidoti & Company, LLC

Operator

Welcome to The Advisory Board Company's Third Quarter Earnings Conference Call. As a reminder, this conference call is being recorded. Your host for the call today is Mr. Robert Musslewhite, Chief Executive Officer of The Advisory Board Company. This call will be archived and available from 8:00 p.m. this evening until 11:00 p.m. on February 13 via webcast on the company's website in the section entitled Investor Relations.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding The Advisory Board Company's expected quarterly and annual financial performance for calendar 2014. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among the others set forth in The Advisory Board Company's filings with the Securities and Exchange Commission and in its third fiscal quarter news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

For additional information on the company's results and outlook, please refer to its third fiscal quarter news release. The company undertakes 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 Chief Executive Officer, Mr. Robert Musslewhite.

Robert W. Musslewhite

Thank you, and good evening. I'm Robert Musslewhite, Chairman and CEO of The Advisory Board Company, and I'm joined today by Michael Kirshbaum, our Chief Financial Officer.

This, our February call, is, in many ways, our most important call each year. In today's discussion, we recap our full calendar year results, which, because we operate the business on a calendar year basis, give the most complete reflection of our overall performance. It is also our moment of greatest visibility into our forward growth, with over 85% of our revenue fully visible for the upcoming year. Thus, we are also providing our guidance for calendar year 2014 at this time.

We have a 3-part agenda for this evening's call. First, I will give you a summary of our calendar year ended December 31, 2013, covering our financial results and the drivers of our business performance. I will then turn it over to Michael to take us through a more detailed review of the financials and other key performance metrics, as well as our guidance for calendar year 2014. Finally, I will close with updates on our strategic and operational priorities for the year ahead. Of course, as always, we will be happy to take questions at the end of the call.

Revenue for the quarter increased 13% to $131.0 million from $116.2 million in the quarter ended December 31, 2012.

Net income was $3.8 million, or $0.10 per diluted share, compared to $4.6 million, or $0.13 per diluted share, for the same period a year ago. Adjusted EBITDA was $21.4 million for the quarter compared to $19.7 million in the quarter ending December 31, 2012.

On a calendar year basis, revenue increased 16% to $502.3 million from $431.6 million in the year ended December 31, 2012. Adjusted EBITDA was up 10% to $89.3 million for the year compared to $81.4 million for the year ended -- ending December 31, 2012. Contract value grew 16% to $522.5 million as of December 31, 2013, up from $450.0 million as of December 31, 2012.

I'm pleased that 2013 was another year of strong performance for The Advisory Board Company. We again not only achieved the mid-teens growth rate, but also reinvested in the business while delivering solid bottom line growth, and we extended our track record of taking advantage of our market-leading position in our industries to drive exceptional impact for our members and strong financial returns to our investors.

Further, our unique business model and high renewal rates provide tremendous forward insight into future performance, and I'm pleased to have visibility into another strong year for calendar 2014. Our expectations for mid-teens growth and margin expansion represent consistent execution against our formula and will set us up for many more years of delivering member impact and strong investor returns.

Considering a longer time horizon, the consistency in our model is evident. Over the last 5 years, our contract value has had a compound annual growth rate of 18%, a particularly remarkable rate given that, that time period includes the downturn of '08 and '09. This, along with the other markers of our consistent performance, such as revenue and earnings visibility, member growth and member penetration, or contract value per member growth, illustrates the power of our formula in action.

The fundamental building block behind our success is our ability to deliver deep, tangible value to members. In doing so, we create a virtuous cycle. By providing them with high value, we earn our members' trust and the right to work with them in deeper and more comprehensive ways. This drives incremental growth for us, which, given our scalable model, is very profitable growth.

Our profitable growth affords us the ability both to reinvest in the business, developing new ways to serve member needs and to deliver strong results for our shareholders. This formula animates our strategy and is key to our ability to sustain ongoing mid-teens growth rates for years into the future.

Another key to our growth is our ability to understand and meet member needs. Our position at the center of the industry's reserve and our close relationships with individual member executives, along with the expertise derived from our 30 years of research, provide unique inputs that have fueled our success in launching new products that solve important member problems.

Right now, given the movement in the health care market toward value-based care, perhaps the most pressing set of issues for our members is around population health management. Now this term is a big buzzword in the industry right now. For those of you out in San Francisco earlier this month -- or last month, I know we all heard it thrown around quite a bit, and different folks use it to talk about quite different issues.

Often, when the term is used, it refers to the population side of the equation, as in how to best care for a certain population of people? This involves understanding which people can come into a health system and how they can access the system, identifying the people at higher risk for poor health outcomes, putting in place the tools to help deliver the right care to those patients and ensuring that care is delivered in the right setting, whether inside the hospital or outside of it, and whether during the episode of care or before and after.

With our Crimson portfolio, we've built a powerful set of solutions to inflect health system performance on the people part of the population health imperative. What is often left in the forefront is the other side of the equation required for effective population health management, and that is the whole contracting and payment side, the actual assumption of risk for cost and outcomes.

This covers questions like, who should help systems strike contracts with? For which patients or populations and for which aspects of care? What are the terms? What risks do they carry? What are the financial implications? How can care be optimally delivered under these contracts? And given the increasing complexity in contracts, how can health systems be sure that they are being paid properly according to the contracts they have struck?

Our research provides insight into the hallmarks of a best-practice approach on both sides. I've spoken often of our work on the people side. Today, I want to focus more on the latter set of issues about how to best approach the financial aspects of population health management.

This includes, first, maximizing current contract yield by tracking contract terms, identifying underpayments and insisting upon payer accountability. Second, identifying the best timing for entry into risk contracting through continuous monitoring of market and organizational readiness. And, third, developing the capacity to rapidly analyze data when faced with value and risk-based payment opportunities so that health systems can intelligently enter into these types of contracts. Informed by our research, we've developed a number of programs to support members as they pursue this best-practice approach.

For example, our payment integrity performance program, based on software from our 2010 acquisition of Concuity, helps members hardwire our best practice workflow intervention, advance payment calculations and sophisticated payer contract modeling to halt revenue leakage and ensure proper payment under each contract.

By incorporating terms from each of the many individual contracts the health system has across a variety of payers, both public and private, our SaaS-based platform is able to pinpoint any payment defects as payments are received. This allows hospitals to work aggressively with payers to correct underpayments and inappropriate denials.

Through their participation in this program, hospitals and health systems are able to maximize their yield across all payers and contracts. In the last year alone, our members collected $86 million in denials and $39 million in underpayments through participation in the payment integrity performance program.

Obviously we're thrilled with our progress here. Overall, the Concuity acquisition is delivering the strategic value we anticipated, providing a robust contract management technology foundation, allowing new insights into value-based care and forming the centerpiece of many of our largest revenue cycle accounts due to its pivotal role in financial operations and track record of hard ROI delivery.

Today we are excited to introduce our next phase of work in this area. I'm very pleased to announce the launch of our Payment Integrity Forecaster Program. As we've discussed, payments to health care providers are becoming increasingly complex. The drive to value-based payment adds new variables such as payments adjusted based on predetermined clinical quality measures. This can include things like retrospective adjustments for excessive readmission rates or hospital-acquired infections, and they make the equation of how payments are calculated much more intricate.

In addition, contracts that shift more risk to providers raise the premium on understanding the economics of caring for an individual across longer time periods and multiple care settings, some of these outside the provider's own network. This new complexity strains a provider's ability to gauge the financial prospects of a new contract with the commercial insurer or participating in a government-sponsored risk-based payment program. It also increases the likelihood of payment errors once these contracts are executed.

Our renewable software membership program, Payment Integrity Forecaster, provides a web-based solution that enables members to understand and project financial scenarios under value-based care dynamics. Built on the payment integrity performance program platform, Payment Integrity Forecaster is a uniquely flexible contracting solution able to integrate data across multiple care settings. The software facilitates analysis to the financial characteristics of a proposed risk-based contract, a value-based payment pilot, or even an independent clinical quality improvement initiative.

Payment Integrity Forecaster incorporates proprietary IP from our payment integrity performance program on common contracting techniques such as carve-outs, stop-loss provisions and outlier payments. This allows users not only to understand the economics of a value-based initiative but also, importantly, to proactively design contracts around anticipated areas of clinical quality improvement.

In a time of tremendous flux, where providers are so often buffeted by changes in the prevailing industry wins, the Payment Integrity Forecaster Program provides our members the tools to do more than just survive a difficult transition and to instead be agents of change and be fairly paid for making smart changes to drive better care quality. We are very excited about the addition of this new capability to our robust portfolio of programs to help our members thrive under value-based care, and we look forward to providing strong impact to members through this program.

The Payment Integrity Forecaster Program is a great example of the way our formula works, leveraging our unique expertise to develop a portfolio to address all aspects of a member problem, starting at one point with a product in a particular problem area and expanding to address different aspects of it with new programs as we learn more from our members and, overall, becoming increasingly embedded in the way our members develop their strategy and execute their operations.

As proven as this model has been in health care, we are also developing a similarly strong track record in our higher education practice. One reason for our success here is that the higher education market has many similar attributes to the health care market, and our business model and approach are well suited to both. Like health care, higher education is a large fragmented market, where providers face common problems and tremendous complexity. Further, both health systems and institutions of higher education exhibit an ethic of sharing for the greater good, meaning an inclination to share best practices to elevate overall outcomes, which our business model both depends upon and facilitates.

Costs in both sectors have consistently grown faster than GDP, with costs falling increasingly to the end user: The patient or the student. With cuts to federal and state budgets and more and more price-conscious end users, both sectors are facing revenue pressure, and a new value-focused orientation from all payers is forcing both hospitals and universities to provide more transparency on and responsibility for outcomes, whether patient health or student success.

These factors, along with new technologies, are making fundamental business model transformation imperative for providers in both sectors. As they seek to improve efficiencies, increase value and lower costs, hospitals and universities have an acute need for help.

Since we launched it in 2007, our higher education practices succeeded in meeting this need for help and, in so doing, has flourished. Through best-practice membership programs, we now serve key executives at the top of the university: community college presidents, provosts, chief business officers, heads of student affairs and deans of continuing an online education.

We have more than 600 institutions in our membership, including 88 of the U.S. News & World Report top 100 universities, 2/3 of all research universities in the country and nearly 90% of the top U.S. research universities based on the Carnegie Classification. We work with the leading universities such as Harvard, Brown, Georgetown and John Hopkins, and also with a significant number of state university system offices, including the Cal State system, Pennsylvania State system and the University of Colorado system.

Our growth and success in this market rests on the fact that we're helping universities with their top issues: how to improve student retention and graduation rates; how to lower the cost of education; with overall enrollments falling, how to tap new markets such as international students and working adults; and how to navigate the massive future change to education associated with online learning.

In essence, just like health systems, universities are being enforced to fundamentally rethink everything about their business model. That we are focused on the right issues and are meaningfully inflecting them is borne out not only by our growth but also by all of our value metrics as we saw meeting scores, meeting attendance rates and renewal rates all at record high levels across last year in this business. Members always vote with their feet, and they are telling us that our value proposition here is strong.

Further, because we have the lessons of our health care business to inform us, we were able not only to scale our high end business more quickly but also to fast forward the business evolution, moving expeditiously to offer memberships that deepen our work with our members.

In fact, from our strong research base, we have already launched our first software membership in higher education focused on leveraging analytics to inflect student success. Given the similarities between the 2 markets, we continue to be confident in our ability to provide value for colleges and universities and to grow our higher education business. And so I'm very pleased to announce today our latest higher education launch, our Advancement Forum.

Fundraising by colleges and universities in the U.S. is big business. Data shows they brought in over $30 billion in 2012 and while last year's final data has not yet been reported by the Council for Aid to Education, by all accounts, that number grew in 2013. With pressure on university revenues, pressure to keep tuition prices down, greater competition for students, tighter state funding environment, fundraising is taking on increasing prominence for all universities looking for alternative sources of revenues, both public and private.

Public universities, which are relatively late to the fundraising game, are asking how to create a culture of giving among students and alumni who traditionally hadn't thought or been encouraged to give. And both public and private institutions are now investing more in major gift officers and, therefore, need to learn how to maximize productivity of these often expensive employees.

The Advancement Forum is the renewable research program for university advancement officers that provides best-practice research, peer networking and benchmarking tools to help address these key issues. The program both leverages the insights from our long-standing and well-regarded health care philanthropy program and conducts original research focused on such university-specific topics as driving ROI from alumni relations and engaging with the broader academy.

The Advancement Forum is off to a great start, and we are confident that it will provide outstanding value to members. In addition, we are excited to expand our research footprint serving higher education as this has consistently proven to be a platform for future growth and new ways to help solve our members' most pressing problems.

With that, I'll turn things over to Michael for his review of the financials and guidance for calendar year 2014.

Michael T. Kirshbaum

Thanks, Robert. Today's financial review will cover 5 categories: income statement, balance sheet, cash flow, contract value and outlook for calendar year 2014. First, the income statement, a quick reminder we're on [ph] March 31 fiscal yearend, which means we just finished the third quarter of fiscal year 2014.

For the quarter just ended, our revenue increased 12.7% to $130 million -- $131 million, up from $116.2 million from the same period the prior year. Adjusted EBITDA for the quarter ending December 31, 2013 was $21.4 million, up from $19.7 million in the same period the prior year.

Adjusted net income was $9.5 million, and non-GAAP earnings per diluted share was $0.26 for the quarter ending December 31, 2013, compared to adjusted net income of $10.3 million and non-GAAP earnings per diluted share of $0.28 in the quarter ended December 31, 2012.

These adjusted numbers exclude transaction-related costs and amortization, equity and loss among consolidated entity, as well as share-based compensation expense. The reconciliation of GAAP to the non-GAAP results can be found in our press release.

GAAP net income attributable to common stockholders and earnings per diluted share for the quarter ended December 31, 2013, were $3.8 million and $0.10, respectively. Cost of services increased to $69.5 million, or 53.1% of revenue, in the quarter ending December 31, 2013, compared to $62.8 million, or 54% of revenue, in the same quarter the prior year. The increases in cost of services are due to increased expenses for new and growing programs, inclusive of our acquisitions of ActiveStrategy, 360Fresh, MRS and Care Team Connect during the prior 18 months.

You'll notice in our press release financials and upcoming 10-Q that we have made a small change to prior year period cost of services. Included in cost of services are cost of staffing to develop our software, a portion of which each quarter we capitalize as they are creating new functionality.

We use a consistent and conservative methodology over the years when capitalizing staff cost. However, in reviewing our financials this quarter with our audit firm, it has been determined that we need to modify our practice, a result of which that we can capitalized slightly more costs, which we are retrospectively adjusting prior periods to reflect this change. This will have an impact -- the effect of reducing expense and increasing income in prior periods.

The amounts are not substantial, with net income impact of approximately $150,000 per quarter, or about $0.05, for fiscal year 2012 and 2013. You'll notice similar adjustments in depreciation and amortization resulting to this change in prior periods as well.

Member relations and marketing expense was $25.5 million, or 19.5% of revenue, in the quarter ending December 31, 2013, compared to $21.8 million, or 18.8% of revenue, in the same quarter the prior year. We currently have 190 sales teams in place, up from 175 sales teams in place in the quarter ending December 31, 2012.

G&A expense increased to $19.4 million, or 14.8% of revenue, in the quarter ended December 31, 2013, compared to $16.6 million, or 14.3% of revenue, in the same quarter the prior year, due primarily to increased investment in our core management group to support our growing employee base, as well as an increased investment on new product development and corporate development groups.

Depreciation and amortization expense in the quarter was $8.7 million, or 6.6% of revenue, compared to $5.3 million, or 4.6% of revenue, in the same quarter the prior year. The increase is due to capital investments in our growing technology programs, the recent MRS and Care Team Connect acquisitions, as well as additional depreciation from leasehold improvements relating to expansion space in our Austin, San Francisco and Washington, D.C. offices.

Other income net in the quarter was $360,000 compared to $738,000 in the same period the prior year due to a decrease in interest income with smaller cash balances.

Now moving on to our fiscal year income statement results -- income statement [ph] results. For the 9 months ending December 31, 2013, revenue increased 15.5% to $382.6 million, up from $331.1 million last year.

GAAP net income attributable to common stockholders and earnings per diluted share for the 9 months ending December 31, 2013, were $16.5 million and $0.45, respectively. Adjusted EBITDA, adjusted net income and non-GAAP earnings per diluted share were $66.2 million and $32.3 million and $0.88, respectively, for the 9 months ending December 31, 2013, compared to $61.3 million, $33.1 million and $0.91, respectively, for the comparable period of the prior fiscal year.

Turning to the balance sheet. Membership fees receivable, which excludes long-term receivables, was $464.5 million as of December 31, 2013, compared to $367.9 million as of December 31, 2012. Excluding the effects of progress payments, average DSOs on billed AR were 58 days as of December 31, 2013, compared to 55 days as of December 31, 2012.

Total deferred revenue, net of amounts that we've built out for 12 months, was $617.1 million as of December 31, 2013, an increase of 21% over December 31, 2012. Excluding long-term deferred, the curved portions of deferred revenue balance as of December 31, 2013, was $452 million, up 14% over the prior year.

Looking at cash flow, during the 3 months ended December 31, 2013, cash flow provided by operating activities increased 21% to $38 million, up from $31.4 million in the same quarter last year. For the 9 months ending December 31, 2013, cash flow generated from operations was $73.6 million compared to $74.2 million the prior fiscal year. For fiscal year 2014, we continue to expect cash flow generated from operations to be our typical range of 1.5x to 2x adjusted net income.

Capital expenditures for the 9 months ending December 31, 2013, were approximately $34.9 million compared to $29 million for the 9 months ending December 31, 2012. For the 3 months ended December 31, 2013, we repurchased $5 million of stock, or approximately 80,000 shares. This brings [ph] our total share repurchase since the inception of program in 2004 to $357 million or approximately 15.9 million shares. As of December 31, 2013, the remaining authorized share repurchase amount was $93 million.

As of December 31, 2013, our cash, cash equivalents and marketable securities were $191.5 million representing approximately $5.16 per diluted share.

As the contract value, contract value increased 16.1% to $522.5 million as of December 31, 2013, up from $450 million as of December 31, 2012. 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 agreements. If the contract is more than 12 months' duration, we include only 12 months in contract value.

With respect to the outlook for calendar year 2014, the following comments are intended to follow the Safe Harbor Provisions outlined at the beginning of the call and are based on preliminary assumptions, which are subject to change over time.

For calendar 2014, we expect revenue to be in the range of approximately $570 million to $580 million. We expect adjusted EBITDA to be in the range of approximately $101 million to $106 million and non-GAAP earnings per diluted share to be in the range of approximately $1.18 to $1.30. For the calendar year, we expect share based compensation expense to be approximately $22 million and expect amortization from acquisition-related intangible assets to be approximately $11 million. For calendar year 2014, we expect an effective tax rate in the range of approximately 38.5% to 39.5%.

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

Robert W. Musslewhite

Thanks, Michael. I would like to conclude with a few comments about the year ahead, and then we'll take any questions you have.

We are gratified by the continued momentum across our business and credit our success to the transformative value our programs provide to our members. We're very excited about the opportunities ahead of us, and we'll capitalize on them by making smart investments, executing on a high standard and continuing to deliver world-class programs that drive significant returns for our members.

To that end, we are focused on 5 organizational priorities for the year. The first priority for 2014 is changing along with our markets. We are in a time of great complexity, with both of the markets we serve changing fast. Health systems and universities are transforming their businesses and seeking new growth strategies. And as our markets move, this is an important year for us. We need to be evolved to [ph] serve them.

We are fortunate to have an unbelievable set of assets to do so. We have unparalleled access to health care and university executives and a proven process for how we listen to the market and develop effective solutions that solve their problems.

As always, we will leverage that and execute at all levels of the firm to ensure that we are delivering meaningful impact on our members' most important problems. A related priority for this year is the continued focus on making smart acquisitions to build our portfolio for meeting member needs. In many cases, good, early solutions already exists out there, and our market access and expertise give us an advantage in identifying companies with valuable technologies, processes or intellectual property that have not yet scaled commercially. In the right circumstances, these can be outstanding opportunities for us to bring to bear our assets in commercial power. Of course, we will continue to ensure that any future acquisitions are consistent with our focus in growing platform and that we invest appropriately in integrating new companies and capabilities effectively into our business.

Our third priority this year is supporting growth at scale. This means building support structures to anticipate and power our future business needs. This includes workspace, technology, communications platforms and protocols about how we interact internally across different parts of our business. As we get bigger and better as a company, the ante on these things goes up, and we intend to make sure that we have the processes and resources in place to continue to grow and deliver tremendous member value.

Our fourth priority is continuing our work to deepen our member relationships and enhance our member relationship management. In 2013, we began several initiatives to migrate to even deeper and more powerful commercial relationships across our portfolio, including work to further align our internal sales and account management organizations to serve members more effectively. We have seen good, strong, early results from our efforts here in terms of both member relationship size and member value.

Because of this impact, we will continue to focus on and evolve our relationship management model in the year to come.

And finally, talent, which undergirds everything we do and is our best asset. We are constantly investing in our people, sustaining a concerted focus on attracting, developing, engaging and retaining exceptional talent. We strive to offer meaningful work, impact, learning, growth and sustainability in every roll throughout the company and across every level of the firm. We share great passion about improving health care and higher education.

Among many things that give me confidence in our future success, our employees rise to the top of the list. Their hard work and dedication was critical to our strong 2013 performance, and I know they will power tremendous achievements in the year to come.

Thank you for participating in tonight's call. We will now open up the line for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Seth Wieland of Piper Jaffray.

Sean W. Wieland - Piper Jaffray Companies, Research Division

It's Sean. So I don't really understand the step up in OpEx. A big step up, particularly member relations, G&A and D&A. Could you take another swing at explaining what the step up is in OpEx? And is this a number that we should use going forward in our model?

Michael T. Kirshbaum

Well, Sean, for the -- I think we're talking about for the December

quarter. And in general, I think you've seen us in prior year in December as we're setting up the following year pull forward some expenses, so pull forward some sales teams, get some things we're doing in the G&A side around certain contract, et cetera, just getting those expenses early so we can get a good start in 2014. So the December quarter is probably slightly higher than it was, obviously, the previous several quarters of calendar '13 and probably not a good run rate to use for '14. It has some onetime expenses and that, again, were pulled forward from the future year as we tend to do in prior years.

Sean W. Wieland - Piper Jaffray Companies, Research Division

Okay, but it does seem like that is even still of a bigger step-up than in prior years, so did you do that maybe more aggressively this year?

Michael T. Kirshbaum

There are probably a couple things in the margins that we did but, in general, it's just the normal pattern that we follow.

Sean W. Wieland - Piper Jaffray Companies, Research Division

Okay. And then a follow-up question on Payment Integrity Forecaster Program, who's the end user and could you articulate an example of a -- of maybe a discrete workflow that the end user might run through with this program to solve a particular problem?

Robert W. Musslewhite

Sure. I think it has various different end users. It tends to be the person in the CFO's office who's responsible for contracts. It's, in some cases, the same person who is going to be managing the contract portfolio of fee-for-service type contracts. In some cases, the CFO, his or herself. In some cases, they have a value-based contracting representative there who tends to be the user, but it's really one who's involved in helping the organization analyze the strategy around risk-based contracting, some health systems that's kind of the payer contracting person across all types of contracts. The -- an example of how someone might use this is, and I think what's unique about our solution relative to other solutions is you can, again, through the Concuity platform, you load all of your current contracts. You also load a lot of information about your clinical performance and what it does is help you model out where risk-based contracts may be relatively advantageous for you to strike and how you would define those contracts, how broad or how limited, and then -- and in so contracting, help you understand while negotiating what the outcome of any sort of cost baseline measures you set in there are likely to be based on your current performance and projected performance. So it really gives health systems the tool to be able to say, given our current landscape of where we stand on service lines, what type of procedures, what types of cases we're seeing, where are the place we should initially be targeting for value-based contracting or risk-based contracting and what are the likely returns from doing so. And then beyond that, if we could optimize and inflect certain areas, so change the volume of this service line or improve the cost on this service line how might we be best served to ensure that it's a profitable endeavor. So it gives a lot of priority to places where you might be able to improve the profitability on any risk-based contracts that you strike.

Operator

And the next question is from Matt Hewitt of Craig-Hallum Capital Group.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

Would just like to follow up, last quarter, you had some challenges in the Southwind. You had several contracts that had fallen off, and for various reasons, new ones that hadn't started up yet. And I'm just curious if you could give us an update on that segment.

Robert W. Musslewhite

Yes, I think -- good question. Overall, we're certainly pleased with where our Services business ended the year. If you kind of look at the quarter, it's a good quarter, certainly better than the third quarter or the September quarter, and there's certainly areas of services that continue to be in high demand going into this year. The Practice Management part of Southwind, in particular, it did have a better quarter than the September quarter, which is good to see. But in that part of the business, not by so much, that I'd say it's completely turned around. The larger engagements do take a while to come in and our velocity on marketing those is not yet back to the pace we had prior to the September quarter. If I look forward, I still believe it's a huge area of need for hospitals, and we certainly have a high-impact solution with a lot of great value cases. So my hope is that this part of the business line remains robust and fully recovers this year, but it's probably a little early to make that judgment.

Matthew Hewitt - Craig-Hallum Capital Group LLC, Research Division

And then maybe a follow-up. The Care Team Connect acquisition, maybe an update on the initial feedback you're getting from customers regarding the Crimson Care management piece.

Robert W. Musslewhite

Yes, it hasn't been that long since the acquisition. So in terms of actually delivering to new customers that have come in since the acquisition don't have a real update there. I guess, the update I'd say is that early sales performance, both in terms of metrics and actual sales have been good post acquisition, and we certainly continue to get value stories from customers that the Care Team Connect business brought to The Advisory Board. And we've seen some really strong examples of both rapid implementation and value results for members using that platform. So I think we're very optimistic about what it's going to be as part of our portfolio going forward, but I don't have enough data on an Advisory Board member who bought it since the acquisition who's already getting value from it because we're still in implementation cycles on those new members. Overall, I would say for the high-level answer is that we feel like the integration is going well and feel very optimistic about the performance of the business this year.

Operator

And our next question is from Ryan Daniels of William Blair.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Michael, let me start with one for you. Just in regards to the D&A during the quarter, took a bigger step-up than we anticipated, and I think that's what's probably driving the EPS guidance to deviate a little bit from the adjusted EBITDA guidance growth. So can you comment on what's driving that going forward?

Michael T. Kirshbaum

Yes, sure. There's 2 parts of D&A. Obviously, one is an increase due to the recent acquisition, so the MRS acquisition and Care Team Connect, as we amortize the intangibles from those. That was an increase versus what we had early in the year. Part of it -- the rest of it is basically due to the capital investments we made over the last several years around growing existing products and developing new products, and I think we've seen the CapEx increased a little bit the last couple of years and that is D&A. There's a timing difference to catch up with that and you could start and see that this year, and you'll see it in the next year. And then the last component is, if you remember last year we had a little bit of a step-up in some of our real estate expansion needs, which amortized through D&A as well.

Ryan Daniels - William Blair & Company L.L.C., Research Division

Okay, that's helpful. And then, I guess, my follow-up, a big picture for you, Robert. Tonight's announcement on the new program and tool, obviously split in the health care and higher ed, and you seem to comment on that a little bit more in this call than you have in the past. So I'm curious if you can just discuss how you, as the management team, really balance your time between the 2 businesses and your investment dollars and maybe more importantly, investment in the human capital within the organization in the 2 divisions.

Robert W. Musslewhite

Well, as we've talked about before, it's always -- we love the opportunities on the health care side, and there's tons of opportunities to invest that I think have very productive return for the business on the health care side. So in many ways, the success of higher ed is always a little bit of a riddle because it's been hard to increase investment there if it feels like it comes to the expense of health care. So not that we've fully solved that, but I think on the margin, you see us certainly trying to invest as much as we can on higher education. And if you know our model, the way to grow the business is you have to invest in the new program development team to really source, research and launch new products. And that's kind of the accelerator for the launches, which tend to grow very quickly and fuel the business growth. The other side is in our business development team. Our corporate development team is having some focus on looking out at companies in the higher education space, and I would characterize the last 6 months of last year and into this year as making some human capital investments in both those areas above the rate at which we've done them in the past. So that will hopefully drive -- what you'll see over the next 18 to 24 months is a little bit faster pace of launch on the higher education side than we've been on. So while we've been kind of on the 1-per-year-ish, you might see 1.5 per year on average or something like that. But the hope is that we can continue to accelerate the growth from this business while not compromising what we're doing on the health care side. In terms of the executive team, I think we spend the appropriate amount of time balanced between both. 85% of our business is U.S. hospitals and health systems, and we spend a good portion of our -- part of our time there. The way -- the reason we're able to do that is for the parts of the business outside of that arena, we have very strong and talented managers and leaders who spend all their time in that space. So Ryan, you know Scott Fassbach has been in our higher education business since the beginning and really built up the research side of that business. He's done a great job. Andrew Rosen leads the technology side of our business over there, and those guys are doing fantastic jobs of kind of running that part independently. I could say the same thing on the international side and on the non-hospital side of our business. So I'm not sure I'm answering your question fully, but I think that it feels pretty good about our path forward and how we've been able to try to make the moves without really diverting attention from health care to accelerate the growth in higher education.

Operator

And the next question is from Donald Hooker of KeyBanc.

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

So looking out at your guidance over the next calendar year, I guess, it's -- we're looking mid-teens growth rate and the troubles last quarter with [ph] Southwind. Can you kind of break out kind of the technology growth, from Southwind growth, from maybe some of the research growth that goes into that number going into next year?

Michael T. Kirshbaum

Yes. Don, it's Michael. I think we -- pretty [ph] similar to the way things have grown in the past year, maybe a couple of tweaks so that research enterprise continues to grow really nicely, probably a low double-digit growth there. Part of that is being deflected [ph] by higher education. But if you strip that out, the health care component is still a pretty -- a very high single-digit number. The services component's probably in line with company growth, a little bit slower on the Southwind side, a little faster on the revenue cycle side per Robert's comments earlier. And then the technology piece is slightly faster than the company average, again, with the physicians suite, Crimson product leading the way, but also feeling good momentum in revenue cycle. So it's marginally pretty similar to where we've been in the past, maybe plus or minus a couple points in different areas, but that's how we're forecasting this year.

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Okay. And then my follow-up question. I didn't -- and maybe I missed it, but the big step-up in deferred revenues. Can you walk through that a little bit sequentially from the September to the December quarter?

Michael T. Kirshbaum

Yes, deferred revenues up 14% over the prior year, so pretty similar with how we view contract value growth, deferred revenue growth and how that matches our overall revenue forecast for the year. So that's sort of in line with what we expected. We did have a nice growth in the long-term deferred and that's from increasing the contract length. So I feel like our average contract, our percentage of the business in multiyear contracts has remained pretty high. So we've been able to push up the contract length slightly, which grow that long-term portion faster. But basically, if you follow the business, the growth in deferred revenue versus contract value tends to correlate with more revenue growth.

Operator

And the next question is from Elizabeth Blake of Bank of America Merrill Lynch.

Elizabeth Blake

First, on the new fundraising tool in higher ed, what would the addressable market be there? I guess, what types of schools and maybe how many?

Robert W. Musslewhite

Sure. There are roughly 4,000 or more postsecondary institutions in the U.S., and we kind of feel like our target market is at least the 1,200 4-year and 2-year institutions of sufficient scale. I'd probably say our experience in that market has made that number a little bit higher as we've been able to market programs a little bit lower down. So maybe more like 1,500 4-year and several hundred of the 2-year institutions feels like the best target market for that.

Elizabeth Blake

Okay, great. And then on the heels of, I guess, your first analytics launch in that space, we've been seeing more reports about increasing receptiveness to analytics from university leaders. I guess, how would you characterize these conversations? I mean, have they been maybe even more hesitant in the past and that's what's the hurdle now? Or how are those conversations starting?

Robert W. Musslewhite

I would agree with you. I think there's been quite a bit of receptivity and the pressure to justify performance on metrics has gone up quite a bit over the last couple of years. So we found very, very strong receptivity for that program. It sold very, very well throughout last year and certainly feels like we're in -- on pace for a good year this year in terms of selling that program. So the conversation's been very good. We also have a lot of members who are already getting a lot of value from the program. So the case studies around members using it and being able to already inflect early leading indicators of graduation rates has been very strong.

Elizabeth Blake

Okay, great. And if I could just have one quick one on the Payment Integrity Forecaster Program. So the pricing on that, is that a traditional subscription model? Or is that kind of [indiscernible] on the number of eyes [ph] covered?

Robert W. Musslewhite

No, it's a subscription model. I think -- if you think of it as a typical technology price point for us, it's probably slightly below average, with the original Concuity product being slightly above average. So if you put those 2 together, you tend to average out at a normal program price point. And they all kind of go together. And it's -- I'm sorry, I don't know if I mentioned, it is a subscription model, it's sold in multiyear contracts just like our other technology programs.

Operator

And the next question is from Jamie Stockton of Wells Fargo.

Stephen Lynch - Wells Fargo Securities, LLC, Research Division

This is actually Stephen Lynch, sitting in for Jamie. First off, on your efforts last year to put account managers in place for the top 150 or so health systems, are you guys seeing the fruits of your labor there yet, maybe in the form of better cross-sales within the -- in those accounts?

Robert W. Musslewhite

Well, I think when we did it, we always projected that a year would be around the time we hope to start seeing benefit, and we probably would have said that there was a little bit of risk of just disruption during the early months of doing it. The good news is there -- we didn't see any downtick. And I think we talked about that a little bit last year, so it felt like the disruption cost to success there was minimal. And I'd say if you look back at the fourth calendar quarter, we started to see some good results in terms of upside performance on the cross-sell. A few larger contracts that came through that were direct result of the intelligence gained from the additional account investment. And if you look at this year, we have a lot of confidence that it's going to inflect that segment at a faster rate than the rest of the business. I mean, it just feels like we've really put in place a good foundation there. So yes, I think it's been a good investment. It's probably not super significant to our financial results yet. But I'm anticipating that this year is going to be a bigger inflection even than last year.

Stephen Lynch - Wells Fargo Securities, LLC, Research Division

And then just maybe a quick follow-up to Sean's question from earlier to take it from a different angle maybe. Was the increase in sales and marketing expense in the quarter, was that a result of these incremental investments to improve penetration at the larger health systems? Or is -- are you starting to get more aggressive in the education market? And that would be my last one.

Michael T. Kirshbaum

It's mostly things we typically do in December. So it's pulling forward hires, getting an early start on the sales team, so instead of staffing people up on January 1, trying to get them early in the quarter, so they can get a little bit of training done and get the ground -- hit the ground running and some of the recruiting expenses with -- that come with those, so getting signing bonuses in and search fees, et cetera. And lastly, it's just -- it's sort of normal year-end stuff like people expensing their travel and trying to get through the [indiscernible] during [ph] the year and that shows up a lot in travel-heavy groups like marketing. So it's mostly, sort of, closing out the year and trying to get an early start on next year is what's built in there and there's a little bit of extra expense from some of the staffing sales team to get some of the acquisition we've done recently, et cetera. But it's a -- the larger-than-normal step-up is just for the year-end close stuff.

Operator

And our next question comes from Richard Close of Avondale Partners.

Richard C. Close - Avondale Partners, LLC, Research Division

Can you give us a little bit of an update on the various acquisitions that you've done over the last couple of years and just sort of, if we can get a feel for the 16% contract value growth? How much of that was contribution from some of those acquisitions or maybe a clean organic growth number?

Michael T. Kirshbaum

I'll take the first part -- the second part first because it's easy. The only acquisitions we did in the year that impacted contract value were MRS and Care Team Connect. Both were pretty small so it's less than 1 point, so it's a organic 15-plus contract value number. And then Robert can give more commentary on the acquisitions but I think they've been, from a financial standpoint, performing in line with expectations.

Robert W. Musslewhite

Yes, I'd say if you just go backwards, I commented on the Care Team Connect before. It feels like it's very much on track. The MRS acquisition, you haven't announced a product from it but if I take that business and what we feel like it's going to power in our business, some of the early results of early member work we've done after bringing it over, it feels very, very good. I think that's an important area for our members in terms of securing referrals and hardwiring that process. If you go back to last year, I think the one before that would be 360Fresh. 360Fresh, I talked a little bit about it last quarter. 360Fresh feels like it's a really important capability in that it brings us the ability to conduct predictive analytics around all sorts of data, clinical and nonclinical, really anything that the health system wants to incorporate or that we feel like important to model in, in terms of understanding future behavior and results and outcomes more effectively. And so that feels like a capability that has really fueled continued success in our Crimson portfolio, especially. It's probably not going to be as much of an independent revenue stream as much of powering the success of Crimson but we feel like it's been a great capability to have and very distinctive in the market. And then going back to one before that, if you go back to ActiveStrategy, we really were most excited about the iRound product suite within ActiveStrategy. And I'd say that, again, that's followed a very typical new program growth curve, which has been the first part of last year, figuring out the best way to sell it, the best way to build a program around it. And then over the latter half of last year, we saw a very good sales uptake in the program and a lot of incredible value delivered to members and so building additional solutions around that and thinking of ways to expand it in the member base and keeping the sales teams moving this year is something that I think we'll be very much on track with where we hoped it would be at the time of the acquisition. So knock on wood, but we're feeling good about the progress. And all of those from an integration perspective and from a management perspective, also feels very, very good. Feels like the teams have integrated well, having met all the key players of each of the acquired entities. They're very excited about the potential to really expand what they're doing across the broader member set with The Advisory Board. And it feel -- it just feels good at this point.

Richard C. Close - Avondale Partners, LLC, Research Division

All right. I guess a follow-up question on Southwind, not to go down that rabbit hole like we all did last quarter, but it seemed to me when we walked away from the September quarter conference call, we were talking about that it was definitely or probably just a one-quarter situation, and so if you can talk a little bit more about why maybe it didn't snap back as much as maybe you anticipated.

Robert W. Musslewhite

Yes, it's -- the good news is the trend line is in the right direction. So if you look at all the activity metrics, the engagement letter conversion rate, the pipeline activity, all better in fourth quarter than I would have said we felt like it could be coming out of the third quarter -- I'm sorry, calendar quarters. Into this year it feels like we're on pace to deliver the type of growth number that Michael was talking about. The question behind it is always, is there a change in the practice management market? And again, if I look at all the metrics out there and look at the -- what health systems are struggling with, I think, in the margin, the market seems the same. It's an important area for members. It's a place where members need and demand health and where the Southwind solution on the Practice Management side has delivered really strong financial returns for members. So I still attribute it to the fact that you missed on 3 large contracts, then you have to go back out in the market and start generating the pipeline on those large contracts. And if you kind of separate out large and small, the small contract business in the fourth quarter felt fine. It's been taking a while to build up the large contract pipeline and so the only reason why we're not out there saying, "Hey, full recovery," is because it's taking a while to build those back up. I'm optimistic that we can come back at the end of this quarter and say, "Hey, we have some good success on the large contract front as well this quarter and feel like we're kind of back on track on the Practice Management side but we're just not there yet." So it's not -- it's a good question. The quarter was a bit of a surprise when you go back to September quarter. I guess, you don't bounce back immediately from that. But again, I would take where we ended the fourth quarter over some of the outcomes that could have been because we moved in a positive direction. And the other thing I'd mention is that Southwind has diversified quite a bit. So if you think about other areas within Southwind, so even outside the revenue cycle, consulting part, which is doing quite well, within Southwind and other places like clinical integration, value-based care and medical homework, those are growing quite well.

Operator

And the next question will come from Joe Foresi of Janney Montgomery Scott.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

I wonder as you went through the selling season this year, could you talk about any differences in that selling season versus a year ago? And any changes in decision cycles or focus on the part of the hospitals?

Robert W. Musslewhite

I think this calendar fourth quarter, this past one was better than last year's calendar fourth quarter. It felt -- especially when compared against the third quarter. We saw some momentum in the third quarter, which we talked about on this call, kind of in our renewable businesses that really continues in the fourth quarter. We had a good strong end of year on the sale side. And I'd say, if you go back a year ago, it certainly was a good fourth quarter as well but this one, in comparison to -- across the year, there's definitely a little bit of lift. Whereas back in 2012, it was pretty consistent across the year. So if you have to judge it in terms of relative performance across the year, the fourth quarter stood out this year a little more than it did in prior quarter -- in prior years. In terms of where we saw the spike in hospital decision-making, hospitals are looking ahead at a difficult margin situation. But the reality is a lot of them are still doing reasonably well and having reasonable margin performance. Part of that's because they've taken steps to address the cost side of the equation or the revenue side of the equation. Part of it's because they're still performing against a reasonable set of fee-for-service contracts and are -- haven't dived into risk yet. But I think that we felt like this quarter saw, if anything, maybe a little bit of acceleration in decision cycles.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Got it. So I mean, is it fair to say that -- I mean, I guess, has the priorities changed at all in the sense that hospitals have typically been focused on the cost-cutting method? And have you seen an expansion in there in what they are looking for to include -- change the business functions? And could that mean, along with a positive selling season, that you perhaps have a better environment going forward than you had in the past?

Robert W. Musslewhite

Well, given all the dynamics in the industry, I never really want to bet on a better environment going forward. These are not high-margin earning enterprises and the path forward to success is rife with complexity and change. And so if I look at -- I'm a health system CEO, I'm looking ahead, and I know that my reimbursement is under pressure. So my revenue line is going to be under pressure and more payments coming in the hands of patients or consumers, and they're going to be more price-sensitive and you just -- you kind of look at those trends and say, "I'm going to feel pressure on the revenue side." So yes, I can invest in ways to manage getting paid on what I should get paid on more effectively and there's still lots of room there for improvement but the macro trend is going to be tougher on the reimbursement side. On the cost side, yes, they're not in the mode of let's slash and burn at all. I think most health systems realize that they need to make sustainable cost improvement, and that means really looking at your operations and finding ways to shift your business model. And that means looking at places like utilization reduction or how the system is set up, what does your network look like, are you taking advantage of synergies across a broader geographic area, things like that. And then members do still want to grow and think about how they can be a sustainable and growing enterprise over the longer term, and that gets into all the areas around population health management that I talked about before, acquisitions, physician relationships, geographical scope, potential exchange products, all the places where there's seem to be pockets of opportunity. And so I guess what I'd say is if you look at that set of issues, it's not like I think that they're going to be in a great budget environment for the next several years, but I think there's a recognition that they do need a lot of extra capabilities to manage through these challenges. So to the extent that, that is something that members realize they need, we have a fantastic portfolio to serve them on all these issues. And so that does drive, I think, a willingness and a need to purchase the types of products that we can bring to them to help with these challenges. So kind of a -- 2 different ways of looking at it, not necessarily great margin environment and a lot of extra money to purchase, but a real need and a recognition that the capabilities that we bring are essential purchases.

Operator

And the next question is from Mohan Naidu of Stephens.

Mohan A. Naidu - Stephens Inc., Research Division

First question, Michael, on the numbers. Your EBITDA is growing pretty healthily but the earnings is not. So the discrepancy, is the majority coming from D&A?

Michael T. Kirshbaum

Yes. I mean, obviously, by definition, the differences are tax rates, interest income and D&A and share counts, and the different things affect different ones. We've seen a little bit of step-up in tax rate due to the fact we have a handful of fixed tax credits and as income grows, the impact of the credit lessens, the tax rate goes up. The other ones are actually a function of investment strategy. So when we think about ways to use the free cash flow of the business, you can accumulate cash and grow earnings -- or grow interest income. You can buy back shares, which, in both those strategies, have short-term inflection on EPS. Conversely, you could invest in longer-term opportunities that, think [ph] as we know through our business, that long-term growth is what ultimately creates the best long-term earnings leverage, but using the capital to make acquisitions or to invest in building technology capabilities and that's what we've done the last several years. So you're starting to see some of the D&A catch up with the CapEx we've done the last couple of years and then there's some growth stuff in there too from building expansion, things like that, which are more step functions than [ph] CapEx, but -- and that's mainly what's happening is you're seeing us take a longer-term growth philosophy, and we would expect that to pay off in longer-term earnings growth but shorter term, it has some EPS pressure.

Mohan A. Naidu - Stephens Inc., Research Division

Okay. Next question, Robert, on -- when you're talking to your hospital customers, ICD-10 is coming up pretty quick. It looks like that's there on their minds. What are they doing? Do you have any solutions that helps them with either [ph] tools or research programs?

Robert W. Musslewhite

Only our tool, Mohan. No, it's -- our ICD-10 program has performed very, very well and I think we have unique approach to how we help our members with it. As we've talked about before, that provides the software tools that really helps through our proprietary risk algorithm, provide a comprehensive picture of all the ICD-10 inflection points and really helps prioritize the places where physicians should focus, physicians and coders, but especially physicians should focus. So that's been a, I think, a new program. But to your point, if you talk to any CIO out there, ICD-10 is a -- is #1 and #2 on the priority list this year because the deadline is coming up in October and they will ensure their systems are compliant and be sure there's not a sort of Y2K-type situation. So we tend to approach it from, let's help you with the broader problem, which is there's going to be tons of documentation leakage. Let's be sure your clinicians are aligned around the highest-impact places to focus because you're not going to be able to cover everything. That's been a successful approach. We also have a consulting engagement around ICD-10 for the same types of things. So that and the technology product have both been good for us and -- but there's dozens, if not hundreds, of different ICD-10 solutions out there that people are selling and some hospitals are using. So it's a crowded market. Did that answer your question?

Mohan A. Naidu - Stephens Inc., Research Division

Yes, it did.

Operator

And next, we have a question from Matthew Kempler of Sidoti & Company.

Matthew J. Kempler - Sidoti & Company, LLC

So you mentioned that the Crimson platform continues to lead the way for technology growth. I'm just wondering, from your view, is that platform getting anywhere near saturation? Or do you think there remains plenty of runway for continued market penetration?

Robert W. Musslewhite

Oh, there's plenty of runway. I mean, the -- there are 5,000 hospitals and health systems out there and even if you cut it for some of the larger ones, I'd say there's still 2,700, 3,000 out there of size. We certainly have research members in that count. We're getting up to that number. So even if you take Crimson, which is certainly our most penetrated program, there's still lots of running room. And we always look at this, is it only larger hospitals that are buying and is it only health systems with multiple facilities? It's really not at all. It's been -- some of our larger members are smaller facilities that have used every single Crimson product that we have and some of our small members are still very, very large members who -- where there's a lot of additional penetration throughout the health system available. So we don't like we're were running up against the wall at all. Part of that is because we continue to invest in the product and improve the value proposition and continue to evolve as members' needs evolve, which is really important. But part of it is it's a must-have capability. I mean, the type of information you get through Crimson, you have to be understanding your differences in cost and quality among your physicians and have a tool that can manage that effectively with your physicians to address the issue. So it's a -- it's kind of an evergreen need out there and certainly feel like we can continue to have good success introducing new members to that program for the next several years.

Matthew J. Kempler - Sidoti & Company, LLC

Okay, great. And then just to follow up on capital expenditures, where are we in terms of the finishing the build-out of the office space? Are we nearing the end and will we see CapEx start to diminish over time?

Michael T. Kirshbaum

We had a fairly big real estate year in calendar '13, still going through real estate plans for '14. But there's a lot to do on the D.C. space. D.C. space is 10 years old this year, and so there's some things, while we're taking more space and expanding on to new floors and then the existing space probably needs a little bit of work. So there will probably be some more real estate CapEx this year and then we haven't -- for the following year, there's a couple offices that are on the docket now. But as of now, I would say, the following year would step down but there's always things that come out throughout -- up throughout the year, acquisitions, et cetera, and growth in different places. So it's hard to forecast that far out but still would probably expect a relatively heavy CapEx year on real estate this year for calendar '14.

Operator

And this concludes our question-and-answer session. I would like to turn the conference back over to Robert Musslewhite for any closing remarks.

Robert W. Musslewhite

Thank you, everyone, for participating tonight. We look forward to seeing a lot of you over the next several months and hope you all have a good evening. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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