THE ADVISORY BOARD COMPANY Value Stock - Dividend - Research Selection

We are a leading provider of insight-driven performance improvement solutions to the rapidly changing health care and education industries. Through our subscription-based membership programs, software, data-enabled services, and consulting capabilities, we leverage our intellectual capital to help our clients, which we refer to as our members, solve their most critical business problems. As of the date of this report, we served approximately 5,600 members.

We provide members with best-practice industry research, and insights that they need to thrive in a dynamic market. We then help to guide and support our members in the implementation of these best practices through proprietary, high-value technology, services, and consulting capabilities. All of our programs are rooted in best practices and extend across four key areas:

• Best practices research. Our best practices research and insight programs provide the foundation for all of our other programs. These programs are focused on understanding industry dynamics, identifying best-demonstrated management practices, critically evaluating widely-followed but ineffective practices, and analyzing emerging trends within the health care and education industries. We communicate and teach best practices across our broad network through independent forums for each key leadership constituency.

• Technology. Our cloud-based software applications allow members to combine insights derived from our best practices research with their own operational and financial data and third-party and proprietary data to benchmark performance; identify and assess revenue, cost, quality, and performance improvement opportunities; and implement identified best practices.

• Data-enabled services. We draw on our extensive data assets, distinctive technology platforms, proven processes, and deep expertise gained over years of experience to apply best practices and enablement services to directly produce results for our members.

• Consulting services. Our consulting services programs assist our members’ own efforts to set strategic direction, address key operational challenges, and improve their performance. We deploy our experts to work side-by-side with members implementing best practice solutions and driving change in their organizations.

Corporate Information

We were incorporated in Maryland in 1979 and reincorporated in Delaware in 2001. The mailing address of our principal executive offices is 2445 M Street, N.W., Washington, D.C., 20037, and our telephone number is (202) 266-5600.

Our Markets

Across our more than 35-year history, we have focused on providing insight-driven, differentiated, scalable, and renewable solutions to the rapidly transforming health care and education industries. Within the health care market, we primarily serve U.S. hospitals and health systems, and also sell programs to international hospitals, independent medical groups, post-acute care facilities, pharmaceutical, biotechnology, and medical device companies, as well as to health care insurers and other service providers. The Centers for Medicare and Medicaid Services estimated that spending in the United States for health care services was expected to be approximately $3.4 trillion in 2016, or approximately 18.1% of the country’s Gross Domestic Product (GDP), and was expected to grow to over $5.5 trillion, or 19.9% of GDP, by 2025.

Within the education market, we serve a range of public and private colleges, universities, and K-12 schools. The U.S. Department of Education estimates education institutions to be a $1.2 trillion market involving the participation of more than 85.7 million students and more than 136,000 institutions, including both degree-granting and other education organizations.

Both health care and education organizations rely on external service providers to help them develop strategies, consolidate and analyze data, improve operations and processes, and train staff in order to remain competitive in a dynamic industry environment. We believe that certain characteristics of the health care and education industries make them especially suited for our business model of standardized delivery of services and software rooted in shared best practices:

• Undergoing transformation: Both the health care and education industries are undergoing tremendous change. Health care providers are facing an aging population, increasing cost and margin pressures, new regulations related to the Affordable Care Act and now the potential amendment or repeal of certain components of the Affordable Care Act, and movement from fee-for-service to value-based reimbursement. Colleges and universities are confronting a slower growing student population, shrinking state budgets, rising cost concerns, heightened attention to value and outcomes, and a movement towards performance-based funding. During these times of significant change, health care and education institutions are in greater need of, and are actively seeking, best practices to address their mounting challenges.

• Common and complex industry-wide issues: Health care and education organizations of all types and sizes face many of the same complex strategic, operational, and management issues. Institutions are working to increase revenue, reduce costs, improve productivity and performance, manage innovation, reengineer business processes, and comply with new government regulations. Because the delivery of health care and education services is based on complex, interrelated processes, there is widespread interest in, and broad applicability of, standardized programs that address the major challenges facing the industries.

• Fragmented target industries: We believe that our target market consists of over 15,000 health care organizations and over 5,000 education institutions. Many of these organizations deliver services primarily on a local or regional basis. As a result of this fragmentation, best practices that are pioneered in local or regional markets are rarely widely known throughout the industry.

• Willingness to share best practices: We believe that health care and education organizations display a relatively high propensity to share best practices. Many health systems and universities are non-profit organizations or compete in a limited geographic market and do not consider organizations outside their market to be their competitors. In addition, the health care and education industries have a charter above commerce in serving their communities and their end customers, and have a long tradition of disseminating information as part of ongoing research and education activities.

• Need for data and analytics: Health care data resides in numerous source systems both within and dispersed across a variety of organizations, including hospitals, physician practices, and government and commercial payers. Education data similarly is derived from a broad range of sources, which encompass students, parents, employers, high schools, colleges and universities, and other non-traditional education institutions. To achieve higher-quality outcomes and control costs, organizations within these markets exhibit a strong and continuing need for data and the systematic analysis of data to help them understand their current performance and identify opportunities for improvement.

• Value orientation: A membership model that provides access to best practice insight, software applications, and value-added services on a syndicated basis appeals to many value-focused health care and education organizations that may be reluctant to make discretionary investments in an exclusive, higher-priced, customized engagement or tailored software solution to address their critical issues.