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The Advisory Board (NASDAQ:ABCO)

Q1 2015 Earnings Call

July 31, 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

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

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

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

Elizabeth Blake

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

Eric Percher - Barclays Capital, Research Division

Ato Garrett - Deutsche Bank AG, Research Division

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

Matthew J. Kempler - Sidoti & Company, LLC

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

Sean W. Wieland - Piper Jaffray Companies, Research Division

Operator

Welcome to The Advisory Board Company's First Quarter Earnings Conference Call. As a reminder, this conference is being recorded. Your host for today is Mr. Robert Musslewhite, Chief Executive Officer of The Advisory Board Company. This call will be archived and available from 8 p.m. this evening until 11 p.m. on August 7 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 the 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 others, set forth in The Advisory Board Company's filings with the Securities and Exchange Commission and in its first 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 first 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. 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.

We have a 3-part agenda for this evening's call. First, I will give you a summary of our performance for the quarter ended June 30, 2014, covering our financial results, as well as a discussion of some of the notable developments of the quarter. I will then turn it over to Michael to take us through a more detailed review of the financials. And finally, I will close with an update on our key operational and strategic priorities. As always, we will be happy to take questions at the end of the session.

In the quarter ended June 30, 2014, Advisory Board revenues increased 15% to $141.8 million from $123.2 million in the quarter ended June 30, 2013. Adjusted EBITDA was $24.0 million for the quarter compared to $22.5 million in the first quarter of fiscal 2014. Contract value increased 15% to $548.4 million as of June 30, 2014, up from $475.8 million as of June 30, 2013.

We are pleased with our solid performance for the quarter and our continued track record of growth. As I take stock of our results, the driver of our success is clear. Our comprehensive portfolio and outstanding service drive tangible results for our members on the problems that are most important to them.

Today, our members are facing unprecedented changes in the structures of the health care and higher education systems. Their tasks are complicated and their imperative is twofold: optimize operations under today's systems, while also building infrastructure to succeed under vastly different incentives in the not-too-distant future.

In these times of complexity, there's, nonetheless, one constant for our members, that they can reliably turn to The Advisory Board Company for measurable, tangible results across a wide range of their operational and strategic issues. Our 4,500 members vote with their feet, and the 90% member renewal rate we earned this year is a testament to the value they derive from their work with us.

The stories of member value that I hear each day are among the highlights of my work. They speak to the exceptional quality of the products we provide, the driving insights that differentiates all of our work and most of all, the passion and dedication of our incredible employees who are driven beyond measure to make a difference for our members, and in health care and higher education more broadly.

I wanted to share some of those stories today. First, on the health care side. Nurse leaders at a 715-bed hospital, part of a larger system, were seeking to improve quality of care measures. Given that research has shown that roughly 40% of falls that occur in hospitals result in some injury, and that mortality in older patients is associated with pressure ulcers. These were 2 of their primary areas of focus. As members of our Nursing Executive Center Research and Insights program, these nurse leaders had access to a robust set of resources, focused exactly on these 2 important care quality issues. Through our resources and tools, they were able to implement the best practices we had identified from across the country, and they had tremendous results. Care improvement efforts yielded a 38% decrease in pressure ulcers and a 53% decrease in falls with injury. Together, these improvements resulted in an estimated $3 million in cost avoidance for the hospital and, of course, improved care for patients.

A 200-bed hospital in the south wanted to increase its point-of-service payment collections. However, front-line staff did not have enough time or information to evaluate payer contracts in order to accurately calculate estimates due. Through our Payment Navigation Performance Program, one of our software-based programs, the hospital was able to get frontline staff accurate care cost estimates, which, along with other innovative uses of the data, yielded $6.2 million in collections over their baseline.

MissionPoint, the Accountable Care Organization for Nashville-based St. Thomas Health, part of Ascension Health, used Crimson to collaborate with its clinically integrated network of 1,600 physicians to decrease overall cost of care by more than 12% for St. Thomas Health's employee population. MissionPoint also reduced its avoidable admissions rate for the same population from 4.5% to 2.2% and its emergency department revisits within 3 days at Saint Thomas Health facilities from 1.85% to 0. These dramatic improvements not only impacted MissionPoint's economics, but also have improved the lives of hundreds of patients. In addition, the work provides the roadmap to apply the same changes to the broader population, expanding the impact to thousands and thousands of patients.

Beyond these results, MissionPoint is also a terrific example of an organization effectively using the broader Crimson software platform across multiple products to improve care. One of the most moving member stories I've heard recently is the story of Brian [ph], a MissionPoint Care Manager, told us recently about how their Crimson portfolio helped one of his patients, Sue [ph]. Sue's [ph]an elderly diabetic with a tumor impacting her digestive system. Because of her symptoms, Sue [ph]was not confident enough to leave the house. She doesn't have much family, lived off of mostly food delivery services, which are not great for her diabetes, didn't exercise and was becoming depressed.

Given Sue's [ph] limited ability to leave the house, she rarely went to see the doctor and as such, had a growing list of care gaps. Sue [ph] was truly slipping through the cracks.

Through the prospective risk scores and filters in Crimson Population Risk Management, Brian [ph] was able to identify that Sue [ph] was in trouble. Pulling up her patient profile on our tool, he learned all he could about her condition, prior diagnosis, medications and doctors' visits and gave her a call. And over the course of a few months, using Crimson Care Management as his workflow tool, Brian [ph] was able to help Sue [ph] take steps that dramatically changed her situation. He helped her get on a nutrition plan to address her diabetes, teaching her how to juice, and built up her confidence so that she was able to leave the house, not only to go to the doctor for follow-up appointments, but also to start swimming 4 days a week at the local pool. Working with her primary care physician's practice using Crimson's registry functionality, which is embedded in the practice workflow, Brian [ph] was able to get her into the office to close all gaps in care and start managing her diabetes. Sue [ph] still has a very serious condition. But in no small part due to the applications that we design, build and service, Sue [ph] will not only likely live longer but will have a better quality of life.

Of course, it was incredibly motivating to our team to hear this story. It is fantastic knowing that our work has such a tangible positive effect, and these were just a few examples. There are many more great stories of measurable value, impact and ROI across all of our memberships. For our members, these results are a compelling reason they want to work with us in deeper and more meaningful ways over time.

In addition to our health care members, our higher education members are reporting that we deliver both measurable ROI and outstanding strategic insights. Consequently, we've had strong success at building our membership in this area since our first launch in 2007. We now have more than 600 member institutions, ranging from top private universities, such as Harvard and Georgetown; to large state schools, like Penn State and UVA; to community colleges, including Northern Virginia Community College and the Community Colleges of Spokane. We've also been working on Duke but haven't had much success. Maybe if that renowned Duke alum Michael Kirshbaum would finally just give to the annual fund, we'd get an in.

Our 6 research memberships serve the provost, head of student affairs, university business executives, leader of continuing and online education and university advancement officers, as well as the leaders of community colleges. In addition, our first performance technology launch for higher education, the student success performance program, is off to a great start.

As with our health care members, our unyielding focus on value for our higher education members is critical to our success. I wanted to share just 2 of the stories I've heard recently from our members. First, through its work with our student success performance program's predictive data and pathway analytics, Southern Illinois University achieved a 3.6% increase in retention and realized nearly $0.5 million in additional tuition revenue across the last academic year. Their provost said, "Higher education has lagged behind other industries in terms of how it uses data. When we joined the student success performance program, we were looking for a way to leverage data to prioritize our student success efforts and decision-making at the administrative level, while enhancing individual interventions at the student level. The program offered us the opportunity to do both, and the initial return on this investment has exceeded our expectations."

Second, during a recent call with Colorado College, a member of our student affairs program, the Vice President of Student Affairs shared that our study on next-generation career services completely changed their approach, leading them to increase transparency, enhance campus-wide partnerships, build new touch points for student-alumni interactions and work with employers in innovative ways. He said, "The Education Advisory Board reframed the paradigm for us, and we used this work to build a new model. We could not have done it without your help."

Across all our programs in both health care and higher education, our continued focus on driving value for members remains the foundation of all we do. Members get results from working with us, which makes them eager to partner with us more closely. This allows us to better understand their needs and develop new offerings that solve their most important problems. This, in turn, drives additional value for them and growth for us. This virtuous cycle is the basis of our successful business model, and I'm always excited to celebrate stories that illustrate our member impact.

Before I turn things over to Michael, I wanted to announce our latest new product launch, Crimson Medical Referrals. As our members seek opportunities for growth and improving their bottom lines, the issue of physician network building and management has come to the fore. It is an important strategic issue, both today and into the future.

In the current fee-for-service environment, providers must work to keep patients and the associated revenue in their system. In the risk-based models likely to become prevalent in the future, patient flow into the system and through the network becomes a critical tool, as providers seek to ensure that their patient populations are treated in the most effective and cost-efficient manner.

Despite the current and future strategic importance of referrals, most providers do not have the tools to effectively manage them. This complex task is usually completed by physician office staff who must make a match using frustrating manual processes, out-of-date information on insurance and appointment availability and asynchronous tools, such as email, voice mail and fax. The end result is far too many situations where the patient ultimately does not see the best physician for their condition and does not receive the needed care. This has significant financial impact. In fact, our research estimates that annual loss due to poor referral management is between $50 million and $125 million for the average hospital. Further, the cumulative societal impact is even greater when you consider the patients who are relying on referrals to get the care and treatment they need and who often do not because of poor processes.

Crimson Medical Referrals is a renewable software program that completely revolutionizes the referrals process. Based on the technology of Medical Referrals Source, which we acquired last year, it provides a cloud-based workflow solution, which does a smart search of unique physician attributes, such as subspecialty and insurance networks, and uses a customizable rules engine to identify appropriate matches. Then through an intuitive user-friendly interface, the tool helps the referral managers at physician offices actually complete the referral instantly. No more faxes, emails or missed calls.

The software is Google-like in its ability to run searches for best-for-patient specialists, providing accurate, quick matches on insurance, subspecialty and procedures. It also serves as a helpful feedback loop to the referring physician for enhanced clinical coordination.

In addition to helping get patients to the best-quality specialists for their condition, the software helps improve care coordination across the entire network, including independent care settings, and it significantly reduces referral processing time from both in and out-of-network physician offices.

We were very excited about this new program to streamline referral execution, capture independent business and enhance care coordination across the delivery network. The program both complements and bolsters our large and growing Crimson Market Advantage membership, and we anticipate that the real-time scheduling technology from our recent HealthPost acquisition will also be a significant addition to this suite of products. The initial reaction in the market to Crimson Medical Referrals has been very positive, and the program is off to a solid start.

Let me now turn the agenda over to Michael to review our financial results in more detail.

Michael T. Kirshbaum

Thanks, Robert. Today's financial review will cover 5 categories: income statement, balance sheet, cash flow, contract value and outlook for the remainder of calendar 2014.

First, the income statement. A quick reminder that we're on a March 31 fiscal year end, which means we just finished the first quarter of fiscal year 2015. For the quarter just ended, our revenue increased 15.1% to $141.8 million, up from $123.2 million in the same period the prior year. Adjusted EBITDA for the quarter ending June 30, 2014, was $24 million, up from $22.5 million in the same period the prior year.

Adjusted net income was $11 million, and non-GAAP earnings per diluted share were $0.30 for the quarter ending June 30, 2014, compared to adjusted net income of $11.4 million and non-GAAP earnings per diluted share of $0.31 in the quarter ending June 30, 2013. These adjusted numbers exclude transaction-related costs and amortization, equity and loss of an unconsolidated entity, increase in charge of the redemption value of our noncontrolling interest, losses on investment and common stock warrants, as well as share-based compensation expense. The reconciliation of GAAP to adjusted and non-GAAP results can be found in our press release.

GAAP net loss attributable to common stockholders and earnings per diluted share for the quarter ending June 30, 2014, were $3.2 million and $0.09 per share, respectively. GAAP results for the quarter include a $7 million or $0.19 noncash charge related the fair value adjustment from a noncontrolling interest.

The cost of services increased to $74.2 million or 52.3% of revenue in the quarter ending June 30, 2014, compared to $66 million or 53.5% of revenue in the same quarter the prior year. The increase is primarily related to increases in expenses for new and growing programs, inclusive of our recent acquisitions of HealthPost, Care Team Connect and MRS.

Member relations and marketing expense was $26.6 million or 18.7% of revenue in the quarter ending June 30, 2014, compared to $22.2 million or 18% of revenue in the same quarter the prior year. We currently have 200 sales teams in place, up from 177 in the same quarter last year.

G&A expense increased to $22.7 million or 16% of revenue in the quarter ending June 30, 2014, compared to $18 million or 14.6% of revenue in the same quarter the prior year due primarily to increases in recruiting expenses, as well as expense related primarily to investments of scale and integration of recent acquisitions.

Depreciation and amortization expense in the quarter was $9.1 million or 6.4% of revenue compared to $6.4 million or 5.2% of revenue in the same quarter the prior year. This increase is due to capital investments in our growing technology programs, recent acquisitions, as well as additional depreciation from leasehold improvements relating to expansion space in our Austin, San Francisco and D.C. offices.

Other income net in the quarter was $710,000 compared to $523,000 in the same period the prior year.

Turning to balance sheet. Membership fees receivable, which excludes long-term receivables, was $477 million as of June 30, 2014, compared to $387.2 million as of June 30, 2013. Excluding the effects of progress payments, average DSOs and billed AR were 60 days, down from 61 days as of June 30, 2013.

Total deferred revenue, net of amounts that we billed after 12 months, was $610.2 million as of June 30, 2014, an increase of 17% over the June 30, 2013 balance. Excluding long-term deferred, the current portion of deferred revenue balance as of June 30, 2014, was $462.5 million.

Looking at cash flow. During the 3 months ended June 30, 2014, our cash flow provided by operating activities was $2.2 million compared to cash flow used in operating activities of $3.6 million in the same quarter last year. June is typically our low cash flow quarter of the year due to timing of member payments and our annual bonus cycle. And for fiscal 2015, we continue to expect cash flow generated from operations to be in our typical range of about 1.5x to 2x adjusted net income.

Capital expenditures for the quarter ending June 30, 2014, were approximately $13.3 million compared to $11.7 million last June.

For the 3 months ended June 30, 2014, we repurchased $18 million of stock for approximately 365,000 shares. This brings our total share repurchase since the inception of the program in 2004 to $381 million for approximately 16.4 million shares. As of June 30, 2014, the remaining authorized share repurchase amount was $69 million.

As of June 30, 2014, our cash, cash equivalents and marketable securities balances are approximately $132.4 [ph] million, representing approximately $3.55 per diluted share.

At to contract value, contract value increased 15.3% to $548.4 million as of June 30, 2014, up from $475.8 million as of June 30, 2013. We define contract value as the aggregate annualized revenue attributable to all agreements in effect at any given point in time, without regard to the initial term or remaining duration of these agreements. For contracts of more than 12 months in duration, we only include 12 months of contract value.

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

We are reaffirming our previously announced calendar 2014 guidance for revenue, adjusted EBITDA and non-GAAP earnings per diluted share. For calendar 2014, we expect revenue to be in the range of approximately $570 million to $580 million, adjusted EBITDA to be in range of approximately $97 million to $103 million and non-GAAP earnings per diluted share to be in the range from approximately $1.14 to $1.25.

For calendar 2014, we expect amortization from acquisition-related intangible assets to be approximately $11 million. For the calendar year, we also 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'd like to conclude with a few comments about our priorities headed into the second half of the calendar year, and then we will take any questions you have.

Our first priority is to continue our work to deepen our member relationships and enhance our member relationship management. Our member value stories are testament to the priority we place on, and the success we have in, solving members' most important problems. By doing so, we earn the position of trusted partner and the right to expand our work with our members.

Over the last 18 months, we have put in place new member relationship structures to ensure that we are effectively managing these relationships as they grow. It is exciting to see the effect that this work is having in building relationships and to know that in doing so, we are continuing to enhance our impact on the health care and higher education industries more broadly.

Second, in our last call, I mentioned changing along with our markets. Over the last several years, we have transformed the ways in which we partner with our members by rolling out new software and services off of our established research foundation.

As with the MissionPoint story I mentioned earlier, we continue to push forward here to combine our programs in new and innovative ways to meet member needs in today's complex environment. I'm very excited about the synergies we have unlocked by working cross-functionally and holistically with members and look forward to more of this type of work going forward in both health care and higher education.

Our third priority for this year is to continue to focus on making smart acquisitions, to build our portfolio for meeting member needs. Rapid market changes continue to create what we see as an unprecedented opportunity to serve new member needs in new ways. Our robust organic new program development, which continues apace, has been bolstered by key strategic acquisitions that have been critical in enhancing our offerings in a timely and effective way, such as Medical Referral Source powering our launch of Crimson Medical Referrals. We continue to see many acquisition opportunities during this unique time in the market and are confident in the value that smart acquisitions can provide when thoughtfully integrated and built into our model. Therefore, we continue to invest efforts in both sourcing and evaluating new deals and integrating our recent acquisitions into our portfolio.

Our fourth priority this year is supporting growth at scale. As we continue to launch innovative new programs to help our members, we are also cognizant that our own growth requires that we invest in improving our processes and building new organizational capabilities. We have several internal initiatives under way to do just that, and it is exciting to see our leadership group engage on this set of issues. I'm confident that we are putting the right things in place to serve the enterprise for years to come.

Our final foundational priority is attracting and nurturing credible talent. I'm constantly humbled by the dedication and skill our employees demonstrate, whatever their role is in the organization. We continue to invest in engagement and sustainability initiatives to ensure that we retain our best people. In addition, we are always structuring further development opportunities to ensure that our staff members remains lifelong learners. I was particularly pleased that our employees' incredible community service work was honored this year when in June, we received the 2014 Points of Light Corporate Engagement Award of Excellence, the highest honor for corporate community service work.

Last year, 100% of our staff dived in to help our communities in a way that is consistent with the passion they bring to their everyday work. I'm honored to collaborate with them in service to our members and our communities.

Thank you for participating in tonight's call, and we'll now open up the line for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Joe Foresi of Janney Capital Markets.

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

My first question is -- I just want to get a general sense of what you're seeing out there in the market. We've had contract value, I think, at around 16%, a slight tweak down this quarter. Maybe you could just talk about any changes you're seeing, because it started out to be a pretty solid year, and if there's been any change in the overall demand environment. And I've got one follow-up.

Robert W. Musslewhite

Sure. Thanks, Joe. I think the market's felt pretty consistent. We continue to see members who foresee in the future some margin pressure coming and feel like they're going to need make investments to gain new capabilities to help manage against that. They also see a shifting reimbursement environment that's creating a need to shift away from a pure fee-for-service system to an environment where they're going to be more accountable for cost and quality metrics and, in some cases, accountable completely for the cost of care for a population of patients, and so that's still driving a lot of interest in what we do. I think, obviously, the one market change that was out there was we did see the ICD-10 postponement. And I think if you kind of play that through our model, it's had a little bit of impact on our mid-cycle work in the revenue cycle. So we have a couple of products that were certainly being marketed around and provide value around the transition to ICD-10. The demand for those has been a little bit slower since that change. Of course, if you go back to last year, in the second half of the year, those programs had a lot of strong demand. So I guess, the way I'd look at it as I anticipate, given the date is now October 2015, those things probably picking up across the rest of the year. But other than that change, everything's continued to feel solid. Renewals have continued to hold up across the business very, very well. So on the renewals front, we continue to see very, very strong attachment momentum.

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

Got it. Okay, and then my second question is just on the EBITDA guidance. It seems like -- I'll, I guess, just ask it this way. Are we tracking to the lower end of that guidance? Because there's seems to be a little bit of a disconnect between that guidance range and EPS. So I'm wondering what the delta is between our model and what the -- what that range is.

Michael T. Kirshbaum

Yes. I'm not sure how you -- how you're viewing the difference between EBITDA and EPS. But obviously, through the first half of the year, EBITDA is on track with what we expected to do. We remain comfortable in the range. Obviously, across the second half of the year, we would expect to continue to see revenue growth and also expense growth as some of the investments we talked about at the beginning of the year ramp up, particularly the acquisition we've made recently and some of the investments Robert talked about in organizational scale. So we'd expect to see revenue growth and expense growth across the year. So earnings relatively flat, maybe a little up and down across the next few quarters. And similarly, for EBITDA, we remain comfortable with that guidance range, given the visibility we have at this point of the year, which is pretty hard.

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

Not to paraphrase, but does this sound like there's a little bit maybe of a bias towards maybe the middle of the range or some uptick in the margin, assuming there's no other acquisitions because...

Michael T. Kirshbaum

It's a relatively narrow range so -- there's a lot of things that can move us in either direction, but I think we remain comfortable with the range, and hard to give more specific guidance on that right now.

Operator

Our next question comes from Donald Hooker of KeyBanc.

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Yes. So just to follow up on the ICD-10 topic, can you quantify the impact by chance? I mean, is it 100 basis points of growth or 50 basis points of growth? Or how should we think about that impact in the June quarter?

Michael T. Kirshbaum

It's pretty small, and it's not just in one quarter. It's probably, as we think about, throughout the year. So it's not a massive number, but we don't have a specific number that we're comfortable disclosing.

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Okay. But it sounds like it was an impact but -- and then I guess, the other thing I was suspecting might be a headwind as well that you're working through is the Southwind. I know this comes up every quarter. But just maybe can you update us on the pipeline there? And I guess, as we get into September, that's going to return to accretive growth?

Robert W. Musslewhite

Sorry, I don't understand the second part of your question but on the first part of your question...

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

In terms of reaccelerating to your -- to the normal growth, I assume now it's sort of a laggard across your revenue lines.

Robert W. Musslewhite

Well, on the -- sort of on the new sales side in Southwind, I think we've felt good about the progress they continue to make. If I look at the pipelines and the activity and heading into the second half of the year, the activity metrics feel really good. It certainly has been relatively on pace this year, and I think if we look to the second half, we're expecting a good second half from them. So I don't think anything's changed about my outlook there other than to say it feels like the activity metrics are pointing in the right direction, and I think that would impact the second part of your question on the revenue side, which, Michael, you want to comment on?

Michael T. Kirshbaum

Yes. I mean, obviously, it's a non-rule [ph] business that has some large contracts in it, so there will some -- a little bit of lumpiness relative to our subscription business. And obviously, in September, there's a little bit of lower comparable for that business in particular. So as Robert said, the activity and the sales through the first half have felt pretty good, but we obviously have to, in a nominal business, make sure we're continuing to generate activity and to close pipeline. So we're -- we pay a lot of attention to that business and the sales pipeline for that as they head into the second half.

Operator

Our next question comes from Shlomo Rosenbaum with Stifel.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

In the terms of the Crimson Medical Referral Source, can you talk about, number one, how -- what kind of traction it has coming out right now? And then based on what -- they way you described it is the HealthPost acquisition already -- is some of the capabilities already in that new product? Or is that something that is yet to come?

Robert W. Musslewhite

Sure. Traction's been good. We have not rushed this one out to market. We wanted to be sure that we understood the delivery and made the right investments around this, which we did across the last year and the beginning of this year to be sure that it's ready to scale. But I think we're very excited about the member reaction. We presented it. Members are uniformly excited about the possibilities it brings. On the HealthPost question, I think we will have another announcement down the line around what we're doing with HealthPost is the best answer to the question. I think, obviously, the scheduling technology that's inherent in HealthPost is very, very linked to what we're trying to do in CMR and certainly, CMR's functionality is greatly enhanced by having a seamless real-time scheduling functionality. But the capabilities of HealthPost go far beyond what we can do within CMR as we talked about last time. So from a -- just a -- how we're treating our business, I think those things working together create a very powerful solution, but I also think there'll be a lot of members who would want HealthPost as a standalone solution. So again, more news to come there across the next couple of quarters.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And as a second question just in terms of organic contract value growth, is that around the 14.5% level? Is it like less than 1% that's what I'm [indiscernible].

Michael T. Kirshbaum

Yes, less than 1% from those -- the 3 acquisitions in the last 12 months.

Operator

Our next question comes from Ryan Daniels of William Blair.

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

Robert, one for you, you highlighted this a little bit in your prepared comments. But in the past, you've talked about stronger account management structures to help foster growth with your larger and maybe more strategic accounts. I'm curious if this is part of it or if you've considered it but going more towards a platform sale. So looking at something like the Crimson suite and having a team that actually goes in and tries to sell the entire suite, especially as it now interplays more with the various solutions on looking at quality, keeping patients in network, making the referral, market advantage, et cetera. Any color there?

Robert W. Musslewhite

Yes, great question, and it's certainly part of our future. That is going to be more and more, I think, especially as we've built out our product suite around some key member problem areas, a really good way to bring the power of what we do to members in a broader way and create deeper relationships. So our strategy is absolutely down that path. I think executionally, it doesn't happen overnight. We still have a very strong product. It helps [ph] the machine on a per-product basis, and it's given us a great footprint of members that are first users of our technology products where the right answer for them is to get value from using that product and then come with a cross-sell to build around that. So it's not as if we'll be flipping the switch and all of a sudden, selling big solutions. But we have started in our larger potential members to come with an approach that can certainly help them really address a problem from front to end with several of our capabilities bundled together. And that can include not just the technology portion of it like you mentioned, so there can be a great set of multiple Crimson products on the Crimson platform that might solve their network management issues or might solve their clinical management issues. But around that, we can also bring services that help hardwire those -- the data and the workflow into really driving positive change. So yes is the short answer. We're headed that direction. Is it going to be tremendously disruptive to our product sales model right now? No, but I think we're going to be evolving that over time.

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

Okay, that's very helpful color. And then maybe one more just on the income statement. You also talked a little bit about this. But looking at the G&A cost, I know it was up about $4 million sequentially on a GAAP basis. Stock comp in that line looks pretty flat, so a pretty nice uptick there. Is that a good run rate we should continue going forward? And then anything you would call out as kind of the big investment categories in G&A that led to that sequential uptick?

Michael T. Kirshbaum

Yes. I mean, part of it was the last quarter being down from the previous quarter. So last quarter, it was just a little bit of true-up of bonus and things like that. So last quarter was a little bit of a lower number. This quarter, as we talked about, there was -- we did a lot of recruiting, so there's a decent amount of recruitment, signing, search, relo dollars in there, probably a little bit higher-than-normal level. And secondly, we have made some -- when we did -- when we announced the HealthPost acquisition, we talked about some additional integration expenses to integrate that into our portfolio of products, and so that's coming through G&A as well. And those are probably at a slightly higher level this quarter than they will be on an ongoing basis. Now that may -- some of that may still spill into the next quarter and maybe a little bit into December. But as we start thinking about next year, we think we would normalize some of those.

Operator

And our next question comes from Robert Willoughby of Bank of America Merrill Lynch.

Elizabeth Blake

It's actually Elizabeth Blake in for Bob tonight. To follow up on Ryan's question, you've mentioned the recruiting expense a couple of times in the call. I guess, could you elaborate a little bit on what was driving that and maybe what types of physicians you're hiring for?

Michael T. Kirshbaum

Yes, it's really across the board, a handful of new developers as we round out some of our platforms, particularly around some of the acquisitions we made where we were investing behind those businesses, where they came with development team of 2 or 3. But we're supporting them with a team of closer to 10, to 12 to really make scalability investments as we bring members to the platforms, some around new products we launched, definitely in the sales and account management organization, really across the board. And I think we've had some aggressive hiring goals this quarter, and we actually were pretty successful in bringing a lot of people on and some of that just carried some extra expense.

Elizabeth Blake

Okay, that's helpful. And then on CMR, is there anything you'll need to do in particular to drive adoption of that tool, I guess, across the continuum of care, perhaps amongst unaffiliated physicians?

Robert W. Musslewhite

Well, it's a good question. Certainly, the key to CMR being a successful product is adoption throughout the health system. We tend to sell to the health system or to the leaders of a clinically-integrated network, and then they tend to be fostering adoption throughout their physician network. That's obviously kind of our normal sales channel, an easy place to cross-sell. There is an interesting angle, which we haven't yet focused on as much but I think will be a productive sales channel, which is approaching the practices and the physicians directly in certain markets where we end up with good critical mass to be able to drive full market adoption even outside our health systems or clinically-integrated networks. So yes, there's a bunch of tactics to doing that. Through the health system, it's not just the initial sale, but it's also a lot of the work that our team and our dedicated advisers do to help manage adoption, and there's much tactics around that through their networks. And then in terms of the direct-to-practice sales, probably an area we haven't focused as much, but I do think there'll be some interesting approaches into that market, leveraging advertising and other types of levers that I think, down the line, could be interesting. So certainly, a multiple -- multiple paths to driving large adoption.

Elizabeth Blake

So you're saying that potentially in the future, there would be a way to monetize that? Or would you -- I guess, there's a conflict of interest there.

Robert W. Musslewhite

Oh, not a conflict of interest. CMR is beneficial to the referring physician and to the receiving physician. I mean, it's essentially taking a process that isn't working very well today and really hardwiring that and making it easy in real time and providing a seamless opportunity to provide information both ways. So as an example, today, you have an office manager who's trying by telephone to schedule a referral to a physician. If someone doesn't answer, she leaves a message or he leaves a message and a lot of back and forth. We just see a ton of leakage that happens between that initial primary care visit and a specialist. And what CMR does is it ensures that you capture 100% of those. And a lot of times, you can ensure that most of those happen in network. And so when you're thinking about either capturing the economics of the referral or being sure that you're treating people in a consistent manner in a coordinated care setting, so you want to keep people in network to be sure the uniformity of care or the practices is according your standards. You now have a tool that virtually ensures that's going to happen and makes it really easy for the office manager, tailored to his or her workflow to do that. So there's no conflict of interest to go to the health systems and to physicians in the community. There's mutual benefit from getting everyone on board, so no conflict. But obviously, this thing, what -- the real power of it is not just from a couple of health systems buying it. It's from getting larger and larger market adoption in the markets where the health systems are, so that it truly becomes the system of record for referral management across the network. And the great thing is it's completely EMR agnostic. Most systems don't have uniformity across their EMR to practice management systems. And so what it does, it provides that easy-to-use, cloud-based solution across no matter what EMR physician practice management you have to be able to send referrals and send information back and forth.

Operator

Our next question comes from Matt Hewitt of Craig-Hallum Capital Group.

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

I guess, one question and then a follow-up. Regarding ICD-10, obviously, and you mentioned this a little bit, but that creates some near-term pressure that, that was pushed out. But I'm curious if that has created opportunities to maybe bring other products, other programs, solutions to the forefront while the customers kind of hold off on ICD-10?

Robert W. Musslewhite

Yes. Look, it's -- whenever you get a sort of swift and sudden regulatory change like that, we can't adjust overnight. We have a lot of members who were seeing the value proposition in helping them with something related to ICD-10, mid-process that then decide, okay, I can hold off on that relative to other things. But absolutely, in the wake of it, we've certainly adjusted both. Our documentation-related products have a ton of value in the ICD-9 environment, and so you don't really have to pitch them against ICD-10. Certainly, ICD-10 has been a catalyst, but they still deliver a lot of value. So pivoting how we position in the market around those products to get those moving again is something we've done. And then in terms of finding other ways to serve members, absolutely. If it gets pushed down the priority list, other things tend to bubble up the priority list. And every year, we kind of come out of our June quarter and look at allocation of staff, and where we replace talent and where we're pushing on targeting member needs more aggressively versus not. And as part of that process, I'd expect the second half to obviously benefit from a lesser focus around ICD-10 and more focus on other important areas for members.

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

All right, and then maybe a second question. CMS is looking at driving more and more bundled payments. In fact, there was announcement, I believe, today where they're looking at adding more and more types of procedures to a bundled payment methodology. I'm curious, how are you helping customers deal with that? Are there specific programs in particular that you're pointing to as ways to address that shift?

Robert W. Musslewhite

Sure. I think that particular initiative I'd single out -- there's a way we can single out, approach it. But it's also part and parcel of continued efforts to drive to more value-based reimbursement arrangements. So whether it's bundled payments or Medicare-shared savings or capitation-like arrangements or risk-bearing arrangements, they all have attributes where you're requiring a provider now to be accountable for cost within a certain set of episodes or a full episode of care or, in some cases, for a whole patient. And so if you look at our product portfolio, I'd say the majority of our products are tailored to helping members gain capabilities that help them manage in that new reimbursement environment. So that's the macro answer. On bundled payments specifically, there's a couple of ways we're helping members address those. On the one side, really the whole Crimson Clinical suite is designed to help members understand and improve their cost and quality of care by understanding on a per-physician basis who are outliers and who are strong performers among those dimensions. So that's been a product that's a must-have for a member that really wants to succeed with bundles. And then on the financial reimbursement side of bundles, in terms of choosing which bundles and contracting for the bundles even outside of Medicare, we have the products that have been built off our Concuity platform that really help members load and model contracts going forward and have -- provides a lot of visibility into a where a member might be advantaged relative to others in going after something like a bundled arrangement. So it's definitely -- it's one very important initiative. But I tend to step back and view it in the more macro way, which is part and parcel of members continuing to face greater and greater dollars hinged to performing better on cost and quality and visibility around those. And that's driving continued, I think, adoption of the things that we can help members with.

Operator

Our next question comes from Eric Percher of Barclays.

Eric Percher - Barclays Capital, Research Division

I know that this is a big quarter on the health care side. When you look at the education business, how does your -- is there a particularly strong quarter for contract flow? And then also, are we seeing growth in that business in excess of the core business? And is it growing in terms of the contribution? Are we above 8% of contracts at this point?

Robert W. Musslewhite

Yes. At a high level, higher education continues to perform very well. We've seen that kind of very consistently over the last however many quarters. It's been a really strong performer. It's on target. Members have responded very well to our research launches, and we've had a nice start to our technology program launch in that space, and so it's all very good qualitatively.

Michael T. Kirshbaum

Yes. It's a much newer business overall with a much smaller end to grow off of, so the growth rate is faster than corporate average, substantially so. So it will continue to become a bigger and bigger share over time. So yes, it is growing, and it's one of the faster-growing things in our business. To your question of seasonality, it's pretty similar to our health care business where the December quarter is the largest from a sales and [indiscernible] perspective, and the June quarter is the second. And we see virtually identical seasonality patterns across the 2.

Eric Percher - Barclays Capital, Research Division

Okay. And on a separate note, can you remind me of the noncontrolling interest?

Michael T. Kirshbaum

Yes, so it's a little complicated. But if you remember about 2 years ago, we created a partnership with a small consulting firm to deliver a specialized cost -- supply cost engagement. Part of that partnership included a put-call structure that becomes exercisable if certain business conditions are met. That program and that product offering is actually selling pretty well, and so while the put-call is not yet exercisable, from an accounting standpoint, we have to deem it probable because it's more likely than not we're going to get hit thresholds based on performance to date. And therefore, we have to recognize the EPS impact from that structure, taking it through the noncontrolling line in the P&L for about $7 million. There's no transaction right now. There will be no further income statement impact from that this year. But that's -- it's sort of an accounting nuance from this sort of a complicated put-call structure we have with a small business.

Eric Percher - Barclays Capital, Research Division

And can you describe what that was put in place for again?

Michael T. Kirshbaum

So again, we started working with a small consulting firm to pilot things that we could sell and deliver that's sort of specialized expertise they have. And if we -- if the business went well, we wanted the option to acquire it, and they wanted the option -- have a structure in place where they could sell it to us. If we hit certain conditions or mostly based on revenue growth, the number of clients and satisfaction, and that has gone well and we feel like that's trending toward the point where those threshold will be met.

Operator

Our next question comes from Ato Garrett of Deutsche Bank.

Ato Garrett - Deutsche Bank AG, Research Division

Just one quick one on your acquisitions or the acquisition opportunities you mentioned before. Given the number of acquisition opportunities you see, should we expect G&A cost to trend down a little bit as you finish integrating the acquisitions that you've already made? Or will it stay close to its current level as you continue to make acquisitions?

Michael T. Kirshbaum

Yes. Ato, I mentioned earlier, you might not have been on, but there's a little bit of extra G&A from integration this quarter and so obviously, if -- as that normalizes, the G&A percent of -- expense as a percentage of revenue, we think, would go down as we head into next year without any sort of change into what we're doing. Now obviously, if we do different acquisitions, we have to evaluate each one of those for the integration load and the best way to handle that. But we are running a little heavy right now to integrate the recent deals. Because it's been at a pretty high pace in the last 12 months.

Ato Garrett - Deutsche Bank AG, Research Division

Okay, great. And then also I think I might have missed this on the call earlier, but can you confirm the number of sales teams you have at the end of the quarter?

Michael T. Kirshbaum

200.

Operator

Our next question comes from Richard Close of Avondale Partners.

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

Just really quick on product demand and in terms of -- as you look across the base, is there anything that really stands out to you on the positive or negative? I believe in the past -- last couple of quarters, you talked about some, maybe the older products actually picking up some steam, if I'm not mistaken. But I wonder if you could just give us a little bit of the landscape there on the product sets.

Robert W. Musslewhite

Yes. It's a fairly boring answer because products, most of them continue to do quite well. Obviously, I addressed a little bit of the noise in the mid-cycle-oriented or documentation-oriented products around the ICD-10. But in general, we continue to see very strong demand pretty much across the board. Michael addressed higher ed. Higher ed continues to perform very well. In the health care side, our product portfolio is well aligned to providing ROI today, helping members really get better margin. And that ranges from across Crimson Clinical side, the Crimson business side, our revenue cycle programs, our supply and cost and operations focused programs and even our research side. All of those are really in demand today, and it's hard to pick out one that's necessarily performing a lot better than the other. But really across the board, we continue to see good demand, and they're also being viewed as capabilities that are really important in a transforming environment. So the good news is, I'm not picking out one, because they're doing reasonably well really across the board. Different weeks, it feels like different things are spiking based on what we're hearing from members. But I'd say all those areas feel good.

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

Now with respect to the contract value being roughly around 15% in the quarter, was there anything that you look at in terms of your pipeline or deals that were possibly coming across the finish line that may got pushed or maybe even you pulled some forward potentially? And anything to do with timing?

Robert W. Musslewhite

There's always a little timing in the contract value number. There has been a percentage point here and their based on stuff moving in and or out of the quarter. So this 15% number, it's right on track with mid-teens growth and feel like it was a good quarter coming out of it. A little bit of noise from the revenue cycle side and probably made it slightly lower than it would have been otherwise. But no, nothing other than that.

Ato Garrett - Deutsche Bank AG, Research Division

And just one final question, just a clarification on the Southwind comments, I believe a big part of the situation last year was some on the larger side -- contracts on the larger side that either went away or slipped a little bit. Can you provide any details or commentary on the larger part of the Southwind opportunities? Did they -- have they returned in terms of potential deal flow or in the pipeline?

Robert W. Musslewhite

Yes. The short answer is yes. We feel good about the pipeline around larger deals in Southwind, and one of the benefits of missing on some last year is they're not going to end this year. So in terms of the ending dynamic, it's not like we have big elephants that are going away over next few weeks that are going to be hard to refill. But -- so in general, it's been -- I feel like that was what we thought and hoped it was, which was just a little bit of an anomaly across the second half of the last year, especially in the third quarter. And it feels like the group is focused on, and has good activity around, some large deals and, earlier this year, had hit on a couple of them.

Operator

Our next question comes from Matthew Kempler of Sidoti & Company.

Matthew J. Kempler - Sidoti & Company, LLC

Following up on Southwind, I saw in June that you added a leader for the strategy consulting practice. Is that at all tied to any changes that you wanted to bring about within the group?

Robert W. Musslewhite

Sure, and we've been thrilled to bring on Jim Bonnette. He's been fantastic in his early days here, and it's something that we really have thought was an important development for us for a long time and just worked hard to find the right person. I think our perspective there is that there's a ton of transition in the market. Members need a lot of support and coming in from a higher end, maybe even earlier-stage strategic angle, not only allows us to really serve members on these -- this really market transformation that they're facing and help really influence the tough choices they make, but also creates a situation where we're starting with them at an earlier phase than it might otherwise. So when it comes to operationalize the strategy and make changes, we're already working closely with the member through that strategy work. And it enables a lot of opportunity to collaborate with a lot of things that we're doing in other parts of our business, such as Crimson or our research programs.

Matthew J. Kempler - Sidoti & Company, LLC

Okay. And so was that a new practice that you need to build up around that leader? Or do you already have the infrastructure in place for that?

Robert W. Musslewhite

No, we're building a practice around him. It's -- Southwind has a lot of talented consultants. So there's some migration of some people in under him, but we're also continuing to recruit to build up the practice. I think we foresee it as being nice growth opportunity for the overall business. It happens to be in Southwind because consulting, and we haven't -- we have a nice infrastructure for managing that team. But I think Jim, growing that practice, has a lot of linkages to a lot of things we do across our business.

Matthew J. Kempler - Sidoti & Company, LLC

Okay. And then I wanted to follow up on comments earlier about the building out the integrated product suites within Crimson, within population health. I'm wondering, is it too early to tell if Advisory Board is seeing faster adoptions, stronger returns on the integrated programs that we're selling? And if so, to what degree is that a theme that we're using in selecting the next programs either to build out or acquire?

Robert W. Musslewhite

You mean the earlier question about selling as a solution?

Matthew J. Kempler - Sidoti & Company, LLC

Selling as solution just as we're introducing products that are integrated into other products like Crimson Market with MRS. Are we seeing stronger adoption rates because they're bundled together and stronger returns on those products as they come to market?

Robert W. Musslewhite

It's probably too early to have a conclusion directly on that. But I will say that, certainly, we're finding that members who do use multiple products are finding power in the linkages across the products and HealthPost and MRS, now Crimson Medical Referrals, and along with the HealthPost capabilities, is a perfect example. And by the way, those capabilities are really linked to what we do with Crimson Market Advantage. So a member that would be using all 3 would have a tremendously powerful solution in the referral management space. So I would certainly anticipate that proving out, but it -- I'd be premature for me to say that we have that perfect alignment across enough members to have quantifiable results to share with you at this point. But absolutely, that's part of the vision.

Operator

Our next question comes from Nick Jansen of Raymond James.

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

Yes, 2 quick questions for me. In terms of the margin profile over the intermediate term versus the long term, obviously, you guys are making a lot of investments right now to kind of maintain this mid-teens contract value growth. But how should we think about the -- from our regard on modeling, maybe -- and maybe this might be an Analyst Day question in terms of next year, but how do we think about the kind of the intermediate-term profile as some of these acquisitions take a little bit time to ramp on the revenue and you have some of the costs elevated upfront? So just wanted to make sure we're all thinking about margins appropriately over the next couple of quarters.

Robert W. Musslewhite

Sure. Why don't I start and let Michael comment specifically on some of the margin questions. In general, I think, to be clear, the acquisitions we're making right now have very little impact on this year's contract value. I think the question was asked earlier. Maybe a few -- it's less than a percentage point impact on our current contract value. So we're making the acquisition investment. They really are to set up future-year growth. So we see it as the opportunity to continue to add capabilities that help us build around so that we can sustain a mid-teens growth rate years into the future. It's part of our continued product growth and expansion efforts around new areas of member needs. So that is the dynamic that drives our acquisitions. Unfortunately, you take the cost and you do a lot of work on them today. The revenue impact from acquisition tends to be down the line. But it certainly puts us in a position where we feel like we have the tools in place to continue a mid-teens growth rate in the future, which, as you know, at a mid-teens growth rate, we can continue to make smart investments back into the business to continue to grow even beyond that point and still deliver a strong margin profile. So as to this year, Michael, I don't know if you want to...

Michael T. Kirshbaum

For this year, obviously, we've -- we're half way through the year, so we have tons of revenue visibility at this point of the year. We've made our investment allocation. So our guidance is pretty much what we anticipate doing, so this year's pretty much set. And our focus is really on making sure we're executing and delivering on the growth side so we can set up mid-teens growth for next year. And if we set up mid-teens growth for next year, that creates a lot of incremental contribution, and we get scale off of this year's investments. And we would go into next year and look at what the investment profile looks like for next year and try to decide how we're going to allocate investment dollars to set up future year's growth. So it's hard to have a specific number for this year. A lot it's going to be driven on how we perform this year and what our growth rate is. And if we are successful with setting the business up to grow mid-teens, then we have the ability to potentially have some margin expansion and also make investments that could carry us out into the future. But it's really going to depend on what the growth rate is and then what next year's opportunity set looks like.

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

That's helpful. And then secondly, on the competitive environment, just trying to get a sense of how you stack up and selling into your largest competitors. Obviously, as a GPO business, they're bundling a lot of their products and services together. Just trying to get a better sense of the pricing dynamics. Obviously, they can probably be more aggressive than what maybe you guys can, given the broad array of what they can offer on the other side of the house. So any anecdotal color with regards to either your success selling into those members? Or how do you think about competing effectively longer term if their membership base continues to grow from a GPO perspective?

Robert W. Musslewhite

So I think from a competitive perspective, we tend to have -- there's really no one who's exactly like The Advisory Board. We don't really have competitors on the research side. On the -- there are analytics and software side. We tend to compete by different areas. So Crimson will have a set of competitors on the clinical side, a set of competitors on the business side, tend to be different competitors on the revenue cycle side. So there's really not one competitor that, I'd say, really stacks up across all of what we do. I could go through competitors, and each one is probably not super exciting for you to hear me list them. They're definitely out there. I don't think the dynamics have changed anything over this year. Health care is -- there are a lot of people who have innovative solutions that they're trying to bring to market in health care. I don't think that's -- I think that's only increasing versus decreasing. So we're always going to have competitors for dollars and in trying to help members with these important problems, and the problems are probably more visible today than they've ever been. On the GPOs, in particular, yes, they're masters across subsidizing because the GPO business is so profitable. They would be happy to have another product in if it helped them keep or capture the GPO business. I think the reality is when we compete on value, our products tend to be more valuable and better, and I think ultimately what members want is something that's going to help them over multiple years. They're signing a multiyear contract. They're committing to us. They're going to want someone who can help them really use the tool in effective ways to drive a lot of value, and I still feel good about our value proposition in that light. But again, in all parts of our business, we're always going to have lower-cost competitors who will use price as a lever. And for some members, when price is extremely important, that might suffice. But for most members, it's going to be on the quality of the tool. And again, at the price points we're competing in, there's so much surplus value that if we discount a $150,000 product 5%, that amount of dollar is not meaningful relative to the value they'll receive from getting the right product. Usually, it's this -- we're talking about multiple hundreds of thousands of dollars to millions of dollars of value. So again, I think for most of our members, price tends not to be the ultimate defining factor in their decision.

Operator

Our next question comes from Sean Wieland of Piper.

Sean W. Wieland - Piper Jaffray Companies, Research Division

So quick follow-up on the Crimson Medical Referrals, to be clear, does the sender and the receiver need to have the application on their desktop?

Robert W. Musslewhite

Yes. But it's not a desktop application, so it's more that they need to be able to use it. They need to be planning to use it. The referral manager needs to use it to send the referral, and it's very easily communicated to the receiver, which is going to be part of the health system.

Sean W. Wieland - Piper Jaffray Companies, Research Division

Right. Oh, I mean, in the browser. I mean, they both need...

Robert W. Musslewhite

Yes, we're not doing implementation on a per-site basis or anything like that. I mean, it runs on the cloud.

Sean W. Wieland - Piper Jaffray Companies, Research Division

Okay. The sender and the receiver needs to have a log-in into Crimson Medical Referrals.

Robert W. Musslewhite

Yes.

Sean W. Wieland - Piper Jaffray Companies, Research Division

Okay. And are you -- how are you transitioning the clinical documentation? Are you using a continuity-of-care document or something proprietary that you've done?

Robert W. Musslewhite

Well, it's certainly -- the format of the document is not proprietary. They can exchange, seamlessly, clinical documents in a manner that's in compliance with Meaningful Use 2 regulations, if that's what you're asking. It does not, of course, write and pull into every single EMR. So it tends to convey the clinical information through an MU2-compliant method, but it's not -- we're not necessarily sticking that all into the EMR and pulling it all out of the EMR.

Sean W. Wieland - Piper Jaffray Companies, Research Division

All right. Got it. Any update on Evolent?

Robert W. Musslewhite

Sure. Evolent in -- any update in what category? Do you want the overall story? Or you want the -- is there anything in particular that you're interested in?

Sean W. Wieland - Piper Jaffray Companies, Research Division

How about whatever you think is worth updating us on?

Robert W. Musslewhite

Continue to go well. I think Evolent can -- it's still a startup business with early-stage business challenges and opportunities. But in general, if I have to look at the business plan and look at their progress, they continue to do well. They've developed a nice customer list and have good early client development activity under way. Their work with early members has been generally positive, and I think we're on a path to, through Evolent, do some really neat things in the market. So Evolent feels good. It's certainly not making money yet. But it wasn't in the business plan to make money yet. The investments they're making are because they need to set up a heavy technology and services infrastructure to serve members in a way that can enable members to really outsource a lot of their care management, population health or health plan functions to Evolent, and Evolent can take them on and manage those in a very effective manner. So it's a lot of investment to get to serving members in the way they want, but the contracts are large and long term. And so long as Evolent continues to deliver very well against them, it's going to be a great business model.

Operator

Okay. That was our last question, and this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Musslewhite for any closing remarks.

Robert W. Musslewhite

Great. So for those of you still on, hold September 11, we hope to see you guys at our Investor Day down here in D.C. We have a fantastic day planned and a lot of visibility into several of our different products. We'll be sure that we structure it so that you get to see some stuff that we don't normally cover when we're out on the road talking to you guys or on these calls, get to meet a group of different executives from The Advisory Board than you usually get to interact with. So we're looking forward to it, and I'm sure we'll be following up with some of you by telephone in the coming days. So thank you and enjoy the rest of your summer.

Operator

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

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