The Advisory Board (ABCO) Q2 2017 Results - Earnings Call Transcript

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

The Advisory Board Co. (NASDAQ:ABCO) Q2 2017 Earnings Call August 8, 2017 5:30 PM ET

Executives

Robert P. Borchert - The Advisory Board Co.

Robert W. Musslewhite - The Advisory Board Co.

Michael T. Kirshbaum - The Advisory Board Co.

Analysts

Ryan S. Daniels - William Blair & Co. LLC

Jamie Stockton - Wells Fargo Securities LLC

Mohan Naidu - Oppenheimer & Co., Inc.

Sean W. Wieland - Piper Jaffray & Co.

Nicholas M. Jansen - Raymond James & Associates, Inc.

Matthew D. Gillmor - Robert W. Baird & Co., Inc.

Richard Collamer Close - Canaccord Genuity Group, Inc.

Stephanie J. Davis - JPMorgan Securities LLC

Matthew G. Hewitt - Craig-Hallum Capital Group LLC

Operator

Good day, everyone and welcome to The Advisory Board Q2 2017 Earnings Conference Call and Webcast. All participants will be in listen-only mode. And please note that today's event is being recorded.

I would now like to turn the conference over to Mr. Robert Borchert, Vice President of Investor Relations. Please go ahead.

Robert P. Borchert - The Advisory Board Co.

Thank you, William, and welcome to The Advisory Board Company's conference call for the second quarter ended June 30, 2017. With me today are Robert Musslewhite, our Chairman and Chief Executive Officer; and Michael Kirshbaum, our Chief Financial Officer. The webcast of this call will be archived and available beginning this evening in the Investor Relations section of the advisoryboardcompany.com website under News & Events, and it will be archived for at least 30 days.

This conference call may contain forward-looking statements within the meaning on the Private Securities Litigation Reform Act of 1995, including statements regarding The Advisory Board Company's expected financial performance for calendar of 2017. Any statements made during this call that are not historical fact may therefore be deemed to be forward-looking statements. In addition, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements that may be affected by important factors set forth in The Advisory Board Company's filings with the Securities and Exchange Commission, and our second quarter news release.

Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company has no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Following our prepared remarks, we would like each analyst to ask only one question, so that everyone in the queue will have an opportunity to pose a question.

At this time, I'd like to turn the call over to our CEO, Robert Musslewhite.

Robert W. Musslewhite - The Advisory Board Co.

Thank you, Robert. I will start with a short summary of our second quarter financial performance and follow that with brief updates on our healthcare and education businesses. I will then turn it over to Michael to provide a more detailed review of our financial performance, before we open the lines for your questions. As you know, we announced in February that our board of directors is exploring and evaluating a range of potential strategic alternatives, focused on maximizing shareholder value. This review is ongoing and we do not intend to comment further until the board concludes its process. Our entire team remains focused on our business and continuing to deliver outstanding service and value to our members.

Turning to an overview of our recent performance, we delivered solid overall results in the second quarter. Adjusted revenue was approximately $2.8 million above the high-end of our guidance range, while adjusted EBITDA came in within our guidance range. Education again generated strong revenue growth of 19% while health care revenue was down 3% on an adjusted basis as expected. Within our healthcare business, as expected, we've seen areas of strength and momentum along with areas where we continued to face challenges.

Among the most exciting areas of early success have been in expanding research relationships as our Q1 realignment of our commercial model is beginning to have a positive impact. We also saw positive sales momentum for technology in the areas of health system growth and revenue cycle where members attach to our products that deliver clear and consistent revenue impact. And in consulting, we had another solid quarter overall particularly in our EMR implementation and optimization work.

In terms of challenges, we still face some headwinds in some areas of technology particularly clinical alignment technology. While this is in line with our expectations, we are optimistic that our pivot to an enterprise analytics offering and layer will improve sales in this area across the second half. We also continue our efforts to evolve our overall portfolio and leverage the power of aligning technology and consulting into deep and comprehensive solutions across the three focus areas of health system growth, care variation and revenue cycle. As we better conform our broad array of products into unified solutions that match what the market increasingly demands, we expect this will drive future growth.

An early example of these comprehensive solutions we are crafting with members is a recently signed multi-year agreement with one of the largest health systems in the United States. We're partnering with them to reduce care variation through an integrated clinical structure, as part of their system-wide strategic plan. We are essentially creating an internal best practice research team, focused on six high priority clinical areas, including heart failure and joint replacement, and we will leverage Advisory Board's deep expertise to identify, package and roll out best practices in each clinical area across the system.

We'll pay special attention to ensuring that the practices are replicable and easy to implement, so a health system of this size can reduce unwarranted care variation, not just in one clinical area or in one region, but at scale. Our team is on the ground and working hard, hand-in-hand with a member, and we will look to accelerate and sustain improvements, so the health system can attain their bold goal to be a national leader in eliminating preventable disparities in healthcare outcomes. I expect to have good news to share very soon on the value delivered through this work.

Turning to our education business, we continued to see strong performance across the board. Throughout the education sector, the issues where we specialize, enrollment and student success, continued to be the top-two up-at-night concerns. Further our expertise in the exponential value we deliver, have earned us a position of trust in the industry. So, we are consistently the first place our members turn, as they seek to address their most important problems.

In terms of recent highlights from the business, our research business has had a great start to the year with strong sales and outstanding member feedback on our timely work on such topics as the impact of new immigration policies, attracting non-traditional students, such as career changers and integrating academic and career development. Our enrollment management business also had a great start to the year, with strong growth in both the undergraduate and the newer adult learner work that we're doing. Finally in our student success work, we continued to see great momentum. In the first half of the year, we were chosen by two states' community college systems as their student success partner. In addition, two four-year state systems are also bringing us in across the system based on early work done with individual campuses.

Increasingly campuses are using our technology in comprehensive ways. One university got faculty and staff across the entire campus to use EAB student success data and analytics through a coordinated effort and commitment to student achievement. Now more than 340 professional and faculty academic advisors on campus proactively identify students at risk of dropping out. By using student success technology so broadly, the university achieved a 6.8 percentage point increase in retention since 2012, which translated to $1.7 million in additional revenue. With examples like this of comprehensive uses of our technologies and 450 colleges and universities leveraging EAB analytics, workflow and communications platforms to support students and improve overall outcomes, it is clear that we're having a meaningful positive impact on our country's educational business.

With that, I'll turn things over to Michael.

Michael T. Kirshbaum - The Advisory Board Co.

Thanks, Robert. Today, I'll cover highlights of our second quarter financial results, including a summary of our cash flow and balance sheet. Please refer to today's press release and slide presentation to review our financial and non-GAAP reconciliation schedules as a supplement to my comments. These can be found in the Investor Relations section of our website, advisoryboardcompany.com.

A quick review of our second quarter top line results shows adjusted revenue for the quarter of $199.8 million, which was $2.8 million above our guidance range for the quarter and up 3.2% from last year's second quarter. We had two dynamics drive revenue above guidance. In healthcare, while revenue excluding exited programs was down 3.3% overall compared to last year, we had strong revenue performance in consulting, driven by a shift towards shorter duration engagements in the first half of the year. Second, education revenue grew 19% as our enrollment business saw an increase in early deployments, which pulled in revenue earlier in the year. One note, this year's Q2 revenue from exited programs, the difference between GAAP and adjusted revenue, was less than $500,000, as we have transitioned members off these programs more quickly than initially anticipated.

Contract value of $723.2 million decreased 4.4% from June 30 last year after adjusting both periods for exited programs. Contract value grew across all of our education offerings and the year-over-year decline in healthcare was due to two factors. First is sales timing, as we had a strong first half and slower second half of sales in 2016 and for 2017, as we've discussed, we anticipate a more back-half weighted year in sales based on the commercial model changes we made in January. The second factor is the timing of consulting engagements as we had several large contracts finish earlier than initially forecast, which delivered strong revenue growth in the second quarter, but did not get captured in the June 30 contract value record date. Importantly, we have seen consistent renewal performance across all of our offerings.

Second quarter adjusted EBITDA of $44.3 million finished within our guidance range, near the low-end due to three factors. First was increased one-time external contractor cost to support several consulting projects, particularly around EMR implementation work. Second, we had higher technology development operating expenses, which was offset by lower capital expenditures in the quarter due to the mix of capitalizable development work. And third was higher G&A expenses from third-party tax audit and accounting advisors for work not associated with our strategic review.

Our GAAP effective tax rate was 47% in the second quarter 2017, 9 percentage points higher than a year-ago for two reasons. First, the impact of Evolent tax in our FIN 18 rate calculation. After adjusting for Evolent, to be consistent with our historical presentation, our Q2 adjusted effective tax rate was 42.7%, versus 38.1% for last year's second quarter. Second, new accounting guidance on the treatment of equity windfalls generated in the quarter had an eight-point impact on our quarterly rate in Q2. This new guidance can cause quarter-to-quarter volatility in tax rate since any equity windfall or shortfall now impacts the income statement each quarter, where previously changes went through equity. Our year-to-date adjusted tax rate is 37%, and for the full year, we still expect to finish with a tax rate within a range of 36% to 38%. Q2 2017 non-GAAP adjusted EPS of $0.37 was down from the year-ago second quarter, due to tax rate as well as higher operating and G&A expenses as I just noted.

Page 8 of the slide presentation highlights our cash flow. Excluding $23.9 million of cash costs related to restructuring and related severance through June, for the first six months of 2017, free cash flow from continuing operations improved to $24.3 million, up from $1.6 million in the year-ago six-month period. Our debt balance as of June 30, 2017, was $501 million, which is approximately 2.7 times our last 12-month adjusted EBITDA. Net of the $144 million of cash we currently have in the balance sheet, our net debt-to-EBITDA ratio is approximately 1.9 times, which is almost one turn lower than our leverage ratio a year-ago. For year-end 2017, we continue to target a gross leverage ratio of less than 2.5 times trailing adjusted EBITDA. We sold some of our Evolent Health shares during the second quarter for gross proceeds of $30.5 million. While not visible on our balance sheet, the gross value of our remaining Evolent investment as of June 30, before any tax impact was worth approximately $141 million based on the Evolent closing price yesterday.

Page 9 is our financial guidance for 2017, which remains unchanged from February-May. Please note that these numbers exclude exited programs and restructuring costs.

Now, I'll turn things back over to Robert for some closing comments.

Robert W. Musslewhite - The Advisory Board Co.

Thank you, Michael. The Advisory Board Company continues to be very well-positioned in two high demand target markets with a distinct set of research, technology, and services capabilities that drive significant member ROI.

We have a powerful economic model that includes very high renewal rates and scalable programs that consistently deliver solid financial performance. Healthcare and education are both huge markets experiencing a great deal of change and complexity, and they provide us with tremendous opportunities to deliver distinct solutions and strong value to our members. Our solid first half of the year is a reflection of how much our employees live out our mission and want to make meaningful impact in healthcare and education and how they bring that ethic to their work every day with members. I'm very proud and grateful of how everyone here has stepped up and focused on the tasks at hand.

With that, let me hand it over to Robert.

Robert P. Borchert - The Advisory Board Co.

Thank you. And just to reiterate Robert's earlier statement, we do not intend to comment further on our board's strategic review process. So, we ask that you please limit your questions to our business performance and outlook, and the market environment. And as always we will limit you to one question. If you'd like to ask another question, please jump back into the queue.

So, William, you can now open up the lines for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. And the first questioner today is going to be Ryan Daniels with William Blair. Please go ahead.

Ryan S. Daniels - William Blair & Co. LLC

Yeah, thanks for taking the questions. I'll start with just a macro one for you, Robert, I'm curious, if you are noticing any material changes in the healthcare client base either from fatigue from all the ACA repeal and replace or perhaps more of a move forward now that it's come to a halt. Just kind of curious, what your sale teams are telling you and a derivative of what your pipeline in the back half of the year looks like for some of your products? Thanks.

Robert W. Musslewhite - The Advisory Board Co.

Hey, Ryan, I'll take that one, it's Robert. I think the biggest change we've seen this year, obviously there has been regulatory uncertainty now for a while, which we saw at the end of last year and into this year and it clearly has continued. I'd say equally or bigger change have been that it's just a more difficult year for providers and health systems. It's a tougher margin year, so they've had a combination of generally slower volumes, some of the easier cost levers have already been taken, and tougher ones remain like clinical variation and pile regulatory uncertainty on top of that. I think every member kind of looks ahead and sees more challenges and if I kind of give a generalization across the member base, that drives a little more consolidation, it drives people to be more open to various options like that and taking more aggressive moves to take out costs.

So, that's probably the bigger change, obviously they want to move more aggressively to value and taking on risk, but with the uncertainty that you mentioned regulatorily around CMS and what will happen in Congress, it's created a bit of wait-and-see that makes it hard for them to make bold decisions against risk. And so the defaults in a tougher margin environment has been going after cost.

In terms of what it means for us, obviously in research, members are seeing it now more than ever, so it helps us there. Outside of research, it means, we are seeing stronger demand in places, where we deliver clear bottom-line ROI in a relatively short-timeframe, so things like revenue cycle, cost work, risk-adjusted reimbursement and then our work in Crimson Market Advantage and Planning 20/20, that drive your overall top-line benefit. It's probably a little slower in places where ROI capture is difficult and where regulation may impact it. So, I mentioned clinical alignment. Technology, that's a place where it probably impacts us a little more. Again, uncertainty always helps in research, but I think we would like it to get a little more stability in terms of the regulatory environment, in terms of what members having something to plan against because I do think that they're going to be willing to move forward and make some bolder investments once there is a little more clarity.

Operator

And the next questioner today will be Jamie Stockton with Wells Fargo. Please go ahead.

Jamie Stockton - Wells Fargo Securities LLC

Hey. Good evening. Thanks for taking my question. Look, I think that there are a lot of people who're going to focus on the contract value number and how it trended sequentially, and I hear the commentary around consulting really drained that number a little bit, because you had a strong first half and you guys expect some of the kind of revamp from a sales standpoint to disproportionately benefit the second half. Just for people who do look pretty hard at that sequential decline in the contract value number and try to extrapolate forward, do you have any updated thoughts on what kind of the long-term growth profile of the healthcare business should be? I'll just stop there.

Robert W. Musslewhite - The Advisory Board Co.

Yeah. Thanks, Jamie. It's Robert. I think, Michael explained sort of the dynamics that gave you the quarter-over-quarter number. In general, I think, we've always felt like, like you said, this will be a back-weighted year in terms of sales acceleration and I think we still expect that. And with a good second half, we would like to get the healthcare business back to single-digit growth and that's always been the objective across this year, and the overall business then combined with a very rapidly growing higher ed business would have the potential to be in the high single-digit, low double-digit range.

And so that's been the hope. Obviously when you have a sales model change and you kind of push stuff into the back weighted part of the year, there is a lot more go-get than there might be at this time of year. So, we are chasing it, but if you look at pipeline metrics and look at how the year's paced and look at the acceleration in Q2 over Q1 in places like research and technology, I think we feel like we are on the trajectory that we expected. So, again, we are not in the business of giving 2018 guidance at this point. We have a lot of work left to do across the year, but I think the hope is that the restructuring and taking out some programs where we didn't see the growth, the revamp to the sales model, the acceleration across this year, whether it happens right away in 2018 or a little beyond, gets back to the right growth rate for the business.

Operator

And our next questioner today will be Mohan Naidu with Oppenheimer. Please go ahead.

Mohan Naidu - Oppenheimer & Co., Inc.

Thanks for taking my questions. Maybe Michael for you, on the numbers, how do you see the revenues I guess balancing out between Q3 and Q4? I'm just looking at the cadence given the contract value right now, it looks like you need higher conversion from the contract value than usual?

Michael T. Kirshbaum - The Advisory Board Co.

Yeah. Mohan, if you go back to the beginning of the year, when we provided guidance we talked about having a more back weighted year as revenue grew across the year due to how the sales paced out as Robert mentioned. We expected the sales to be more back weighted this year and how consulting timing would work. For each of the first two quarters, we've finished in line with our guidance range. We haven't provided detail on the second half. We've kept our guidance range intact from the beginning of the year and so I think if you look at sort of how we paced historically to get a sense of what we think for the second half.

Operator

And the next question today will come from Sean Wieland with Piper Jaffray. Please go ahead.

Sean W. Wieland - Piper Jaffray & Co.

Hi, thanks. So, I won't ask about the process. But can I ask any impact that the strategic review process is having on either employee relations, employee retention or I think you mentioned customer renewals are in line, but any impact there?

Robert W. Musslewhite - The Advisory Board Co.

Yes, you can ask it. And if I was mean I'd say that's the answer to your question but I'll actually tell you what it is, Sean. So, when we start with members, the good news is we have constant dialogue with all our members. We hear from them frequently and obviously they are very interested in our future path and many express their curiosity to us and to their account relationship owners. So we do hear from them a lot.

I'd say, in general, it's curiosity, in some isolated cases, specific members that are considering a large new commitment or partnership with us do want to wait until we conclude our review to move ahead. But that's a limited number, and overall members continue to sign deals, and for us it's business as usual as much as possible.

I think on the employee side, we've been going through this now for a while, and so I give our employees a lot of credit. I mean, people have come off a restructuring on the healthcare side, put their heads down and really tried to lean in to some of the changes we're making to set up the business really well for the future. And in large part, that's what's been happening across the business this year.

So, as a leader, it's always a little frustrating not to be able to just be completely open with everything that's going on, and have to kind of keep a process confidential until an outcome can be announced. But I think people understand that and they've done a nice job of working through it. So I've been really proud of the organization in terms of how they've responded.

So I think that covers kind of both parts of your question, Sean, if I missed something obviously hop back in.

Operator

And the next question today will come from Nicholas Jansen with Raymond James & Associates. Please go ahead.

Nicholas M. Jansen - Raymond James & Associates, Inc.

Hey, guys, just on healthcare selling activity, it felt like, on the 1Q call you talked about a little bit of momentum after the reset, did that stall at all or how do we think about the progression throughout the quarter and then quickly on Royall, how was their selling season in their most important quarter as we think about the next 12 months of their growth? Thanks.

Robert W. Musslewhite - The Advisory Board Co.

Sure. It's Rob. I'll take the first part. Q2, we saw acceleration from Q1, especially in the places where we hoped to see it, which is research and technology and as the sales model starts to kick-in, and again, we're hoping for more acceleration across the second half, and if we look at our early pipeline metrics, they do support that. So that's the good news. Consulting is probably a little bit flatter but that's the nature of consulting as you get a little bit of up and down each quarter and that can happen.

So, again, we feel like the pipeline for consulting is good and we also expect the consulting back-weighted year even as the mix shifts a little more to the renewable versus consulting in the second half. So, I'd say, the answer is yes, and in the right places. Michael, I don't know if you want to take the Royall question?

Michael T. Kirshbaum - The Advisory Board Co.

Yeah. On the second part on Royall, we have seen very strong sales through the first half of the year. We are in the midst of the renewal season. Renewals look to be consistent with historical performance. So, overall growth in Royall in the enrollment business has been in line with our expectations if not little bit better.

Operator

And our next question today will come from Matthew Gillmor with Robert Baird. Please go ahead.

Matthew D. Gillmor - Robert W. Baird & Co., Inc.

Hey, thanks for the question. I wanted to ask one on the education side. You mentioned the growth accelerated 19% and maybe there's a little bit of a pull forward of revenue. Can you just sort of characterize what that is, and does that degrade at all the 3Q revenue? Is that a true pull forward or something different?

Michael T. Kirshbaum - The Advisory Board Co.

Yeah, Matt. It's Michael. Yes, we anticipated at the beginning of the year education growing mid-teens number. So 19% was a higher quarter than anticipated and that's what drove some of the revenue over performance relative to the guidance range. It is largely timing related. It's largely in the Royall enrollment business where, again, we're in the busiest sales and renewal period now. We did a good job of getting renewals and contracted in and some of the work started early which pulls revenue forward from the second half into the second quarter. So it's good performance on contracting and early deployments which drives additional revenue but largely it's timing within the year.

Operator

And the next question today will come from Richard Close with Canaccord Genuity. Please go ahead.

Richard Collamer Close - Canaccord Genuity Group, Inc.

Yeah. I was wondering if you could go a little bit more in depth in terms of what gives you the confidence with respect to the back half of the year in terms of driving new sales. Just want to understand that better since the sales model has changed? And then, if you could comment at all with respect to that in the pipeline in terms of the size of deals that you're looking at on the healthcare side?

Robert W. Musslewhite - The Advisory Board Co.

Sure. So this is Robert. If you recall, when we went through the restructuring and rearranged the sales force, essentially we did a couple of things. One is we put a greater number of products in a smaller number of people's hands to sell and organize those by kind of member problem area. Specifically our three terrain areas of revenue cycle, health system growth and care variation and that's kind of all of our technology and consulting products sort of are now in one of these three buckets.

What that does is it's enabled those practice partners who kind of own each portfolio in each area to go out and put together larger deals across a number of products versus selling one discrete product, and the hope would be that that means they are having broader conversations with members. We would expect those to take a little longer but they generally are higher price point type opportunities. So it enables, we feel, like a better opportunity and a better way for us to respond to member problems and to be able to offer a solution back that encompasses multiple parts of our work versus one discrete product. So, larger contracts maybe a little more complex, but right answer for the member is an ultimately higher dollar sales for us.

Putting that in place in Q1 getting everyone trained up, we would expect not a lot of impact from that in the first half of the year. In fact, pulling away from single product sales probably hurts you a little bit in sales first half but it should set up a good pipeline of opportunities into the second half of the year. And, if you look at our pipeline, that's exactly what we see. We see the pipeline having grown in sales more and more each month across the first half of the year. So, we're at a point now where we kind of see things starting to move to the right part of the pipeline across the second half that is largely due to a lot of the activity that took place across the first half of the year.

The other thing we did on the sales model side is we expanded our account relationship model. If you remember, for the prior two years, we had it only for kind of top 140 members or the 140 largest health system organizations out there. We've now expanded that to all of our organizations. Obviously, the ratio is a little bit different but every organization now has an account principal who's the relationship owner for that account and he's responsible for really understanding that member's issues and where they want to focus and that has also allowed us to be a little more strategic in how we bring portfolios of our products together as a solution to those members. And so, again, whereas we used to sell single products sold by different people knocking on doors in that part of the market, it's now a much more strategic sales approach in that market as well, which again, you'll lose a little bit of revenue from the sort of fast cycle time, single product sales, but you're responding to how members want to be sold to, and you're getting more strategic, and you're ultimately able to sell some larger deals over time.

And so, that's the philosophy behind it. And I think, our leading indicators support the fact that we have a good set up and pipeline over the second half of the year to accelerate, based on where we were in the first half of the year. But it's a good point. It's always you're kind of betting ahead, but you're looking at all the information you have in front of you and saying it's where you want to be right now, in terms of set-ups for having the pipeline to deliver a better second half.

Michael, I don't know if you want to take the second part of the question?

Michael T. Kirshbaum - The Advisory Board Co.

Well, I think, in terms of large contract performance, we continue to see a high percentage of the sales come from large contracts, it's around in the 60% range. And so that trend, we've sort of seen over the last couple years has continued although it's stabilized around the 55% to 65% of sales range the last couple of quarters.

Operator

And the next questioner today will be Stephanie Davis with JPMorgan. Please go ahead.

Stephanie J. Davis - JPMorgan Securities LLC

Hey, guys. Thank you for taking my questions. You mentioned in the prepared comments about the revenue transition moving faster than expected. What kind of upside prices have you seen so far, and is there any potential for moving forward in incremental activities, just given the pace?

Michael T. Kirshbaum - The Advisory Board Co.

So, Stephanie, I didn't totally understand the question. So, in terms of revenue, what we saw in the first half of the year, particularly the second quarter coming in ahead of guidance was two factors. One is, in consulting, we've sold just through the first half of the year a little bit more faster turnaround engagements. So, some of the work getting done – getting engagements down to four months versus six months or nine months, so that revenue is recognized faster. And second, the comment I made earlier to a question on our Aroma business where we've pulled forward revenue into Q2 from the second half of the year. As the rest of the year progresses, we have to – the consulting timing, as we've seen, is variable for a lot of reasons and that's caused variability for us in the past in both directions depending on the size of the deals and the timeline and delivery timelines. And so that's just a variable that we do look at each quarter it does cause some quarter-to-quarter fluctuation.

Stephanie J. Davis - JPMorgan Securities LLC

All right. Thanks.

Robert W. Musslewhite - The Advisory Board Co.

Did we answer the right question for you, Stephanie?

Stephanie J. Davis - JPMorgan Securities LLC

Not entirely. I was thinking more about the transitions really quickly compared to what you originally forecasted.

Robert W. Musslewhite - The Advisory Board Co.

(30:20)

Stephanie J. Davis - JPMorgan Securities LLC

Discontinuing the revenue. Yeah.

Robert W. Musslewhite - The Advisory Board Co.

The restructuring, go ahead.

Michael T. Kirshbaum - The Advisory Board Co.

So, the discontinued programs, sorry. Yeah. So we announced the discontinued programs in early January. I think we had $17 million of revenue in these programs last year, and we expected them to wind down across this year. I think just working with our members we've been able to transition them to other products or off their products more quickly and so the revenue wind down has happened faster and it's led us to takeoff a little faster too.

Stephanie J. Davis - JPMorgan Securities LLC

All right. Thank you.

Operator

And the next question will be from Matt Hewitt with Craig-Hallum. Please go ahead.

Matthew G. Hewitt - Craig-Hallum Capital Group LLC

Good afternoon. And obviously the ACA and the fate of it and then all of that is impacting some purchasing decisions, it sounds like. But I'm curious how much of an impact there continues to be quite a bit of turnover at the C-suite within the hospitals and health system, and I'm curious how much of an impact that has in addition to the ACA fate on your sales cycles?

Robert W. Musslewhite - The Advisory Board Co.

It's an interesting question. I don't think that turnover per se tends to have a ton of impact, because I think there has always been a reasonable amount of turnover in the industry, especially at the C-suite across hospitals and we tend to know a lot of the members. So, if someone leaves one place and goes to another place, we usually continue that relationship really well.

If it comes in the middle of – if it comes a little bit as a surprise in the middle of a larger deal, obviously, it can disrupt negotiations. But I wouldn't say that that feels like it's something that's happening more frequently now than it has in the past.

The other thing I'd say is since we moved to a relationship model, we have account principals who part of their responsibility is to cultivate relationships across the C-suite. And so we shouldn't be one key executive dependent at any institution. We should have very strong relationship across the C-suite. And so, if one person leaves, hopefully we have good relationships with the others and can continue any evaluations or work that's ongoing there.

Operator

And the next question though will be a follow-up from Richard Close with Canaccord Genuity. Please go ahead.

Richard Collamer Close - Canaccord Genuity Group, Inc.

Yeah. Michael. I just wonder, if you could just sort of, frame the consulting business for us, with respect to the contracts that are ending, in terms of the magnitude there. Would you have been – let's say, those didn't end early, successfully early. Would you have been flat year-over-year on contract value?

Michael T. Kirshbaum - The Advisory Board Co.

I think if you look at the sequential Q1 to Q2, change in contract value in healthcare, almost all of that was due to consulting. If you look at research and technology, pretty stable Q1 to Q2 but consulting, where it was a positive factor in Q1, it was a negative factor in Q2. Again, largely due to timing. We did a lot of work and recognized a lot of revenue, and had good sales early in the year. But if you look at it as a 6/30 snapshot, a lot of those contracts just weren't effective as a 6/30, and that was the biggest change quarter-over-quarter in contract value.

Operator

And the next question will be a follow-up from Jamie Stockton with Wells Fargo. Please go ahead.

Jamie Stockton - Wells Fargo Securities LLC

Hey thanks. I thought I'd sneak one more in here. Michael, just as far as the cost profile is concerned, uptick sequentially in Q2. It sounds like there were some pass-through there that might not necessarily stick around. Can you just give us some sense of how we should expect the cost structure to evolve the rest of this year?

Michael T. Kirshbaum - The Advisory Board Co.

Yeah. I think, the Q2 cost did have a couple of things in it that were one-time in nature. We don't expect to continue to be in the run rate, several million dollars of some of those accounting third-party fees that I mentioned in G&A and a couple of million dollars of external consulting support. So I would expect cost to sequentially come down. Next quarter look a little bit more like we had in Q1, if not a little bit below that.

Operator

This will conclude the question-and-answer session. I would now like to turn the conference back over to Robert Musslewhite for his closing remarks.

Robert W. Musslewhite - The Advisory Board Co.

Thank you all for joining today. I appreciate the questions and the interest. And we'll look forward to seeing many of you in the coming weeks. Thanks again. Bye-bye.

Operator

And the conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.