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CEB Reports Fourth Quarter Results And Provides 2013 Guidance

ABOUT CEB

CEB is the leading member-based advisory company. By combining the best practices of thousands of member companies with our advanced research methodologies and human capital analytics, we equip senior leaders and their teams with insight and actionable solutions to transform operations. This distinctive approach, pioneered by CEB, enables executives to harness peer perspectives and tap into breakthrough innovation without costly consulting or reinvention. The CEB member network includes more than 16,000 executives and the majority of top companies globally. For more information visit www.executiveboard.com.

 
 
 
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY Financial Highlights and Other Operating Statistics

 
 
 

Selected

Percentage

Changes

 

Three Months Ended

December 31,

   

Selected

Percentage

Changes

  Year Ended

December 31,

2012     2011 2012   2011
Financial Highlights:    
(In thousands, except per share data)
 
Revenue 46.8 % $ 193,720 $ 131,951 28.5 % $ 622,654 $ 484,663
Income from continuing operations (63.9 )% $ 7,181 $ 19,873 (35.5 )% $ 37,051 $ 57,447
Net income (57.6 )% $ 7,181 $ 16,950 (29.6 )% $ 37,051 $ 52,655
Adjusted net income 8.5 % $ 23,561 $ 21,706 34.0 % $ 86,153 $ 64,317
Earnings per diluted share from continuing operations (64.4 )% $ 0.21 $ 0.59 (34.1 )% $ 1.10 $ 1.67
Non-GAAP diluted earnings per share 6.2 % $ 0.69 $ 0.65 36.4 % $ 2.55 $ 1.87
 
Other Operating Statistics:
CEB segment Contract Value (in thousands)* 12.5 % $ 561,823 $ 499,424
CEB segment Member institutions 6.1 % 6,090 5,738
CEB segment Contract Value per member institution 6.0 % $ 92,252 $ 87,040
CEB segment Wallet retention rate** 102 % 100 %
SHL segment Wallet retention rate*** 97 % -
 

* We define “CEB segment Contract Value,” at the end of the quarter, as the aggregate annualized revenue attributed to all agreements in effect on such date, without regard to the remaining duration of any such agreement. CEB segment Contract Value does not include the impact of PDRI.

 

** We define “CEB segment Wallet retention rate,” at the end of the quarter, as the total current year CEB segment Contract Value from prior year members as a percentage of the total prior year CEB segment Contract Value. The CEB segment Wallet retention rate does not include the impact of PDRI.

 

*** We define “SHL segment Wallet retention rate,” at the end of the quarter on a constant currency basis, as the last current 12 months of total SHL segment Adjusted Revenue from prior year customers as a percentage of the prior 12 months of total SHL segment Adjusted Revenue.

 
 
 
 
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY Consolidated Statements of Operations (In thousands, except per share data)

 
 
 

Three Months Ended

December 31,

  Year Ended

December 31,

2012   2011 2012   2011
(Unaudited)   (Unaudited)
 
Revenue (1) $ 193,720 $ 131,951 $ 622,654 $ 484,663
Costs and expenses:
Cost of services 72,606 43,302 223,766 167,258
Member relations and marketing 54,497 35,923 178,204 142,324
General and administrative 22,403 14,635 73,629 61,668
Acquisition related costs (2) 3,243 24,529
Depreciation and amortization   15,597   4,702   37,858   16,928
Total costs and expenses   168,346   98,562   537,986   388,178
 
Operating profit 25,374 33,389 84,668 96,485
Other (expense) income, net
Interest income and other (3) (715 ) 731 1,834 372
Interest expense   (6,655 )   (192 )   (11,882 )   (550 )
Other (expense) income, net   (7,370 )   539   (10,048 )   (178 )
Income from continuing operations before provision for income taxes 18,004 33,928 74,620 96,307
Provision for income taxes   10,823   14,055   37,569   38,860
Income from continuing operations 7,181 19,873 37,051 57,447
Loss from discontinued operations, net of provision for income taxes     (2,923 )     (4,792 )
Net income $ 7,181 $ 16,950 $ 37,051 $ 52,655
 
Basic earnings (loss) per share $ 0.21 $ 0.51 $ 1.11 $ 1.55
Continuing operations 0.21 0.60 1.11 1.69
Discontinued operations $ $ (0.09 ) $ $ (0.14 )
 
Diluted earnings (loss) per share $ 0.21 $ 0.50 $ 1.10 $ 1.53
Continuing operations 0.21 0.59 1.10 1.67
Discontinued operations $ $ (0.09 ) $ $ (0.14 )
 
Weighted average shares outstanding
Basic 33,463 33,298 33,462 34,071
Diluted 33,802 33,583 33,821 34,419
 
Percentages of Adjusted Revenue
Cost of services 35.9 % 32.8 % 35.0 % 34.5 %
Member relations and marketing 26.9 % 27.2 % 27.9 % 29.4 %
General and administrative 11.1 % 11.1 % 11.5 % 12.7 %
Depreciation and amortization 7.7 % 3.6 % 5.9 % 3.5 %
Operating profit 12.5 % 25.3 % 13.2 % 19.9 %
Adjusted EBITDA (4) 27.0 % 30.8 % 27.2 % 24.9 %
 

_________________________________________________________________________________________________________________________

(1) Net of an $8.7 million and $17.1 million reduction to reflect the impact of the SHL deferred revenue fair value adjustment in the three months and year ended December 31, 2012, respectively.

(2) Acquisition related costs incurred in the year ended December 31, 2012 primarily relate to the acquisition and integration of SHL and include $14.7 million of transaction costs, a $5.1 million settlement of the forward currency contract that the Company put in place on July 2, 2012 to hedge its obligation to pay a portion of the gross SHL purchase price in British pound sterling, and $4.7 million of integration costs.

(3) Interest income and other in the three months ended December 31, 2012 includes a $0.3 million increase in the fair value of deferred compensation plan assets, $0.1 million of interest income offset by $1.1 million of foreign currency losses. Interest income and other in the three months ended December 31, 2011 includes a $0.9 million increase in the fair value of deferred compensation plan assets and $0.2 million of interest income offset by a $0.4 million foreign currency loss. Interest income and other for the year ended December 31, 2012 includes a $1.7 million increase in the fair value of deferred compensation plan assets, $1.1 million of interest income and $0.3 million of other income offset by $1.3 million of foreign currency losses. Interest income and other for the year ended December 31, 2011 includes $1.2 million of interest income offset by $0.5 million decrease in the fair value of deferred compensation plan assets and a $0.3 million foreign currency loss.

(4) See “NON-GAAP Financial Measures” for further explanation.

 
 
 
 
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY Segment Operating Results (In thousands)

 
 
 

Three Months Ended

December 31,

  Year Ended

December 31,

2012   2011 2012   2011
(Unaudited)   (Unaudited)
Adjusted Revenue (1)
CEB segment $ 155,660 $ 131,951 $ 564,062 $ 484,663
SHL segment (2)   46,808     75,726  
$ 202,468 $ 131,951 $ 639,788 $ 484,663
 
Adjusted EBITDA (1)
CEB segment $ 43,037 $ 40,619 $ 154,600 $ 120,757
SHL segment   11,598     19,589  
$ 54,635 $ 40,619 $ 174,189 $ 120,757
 
Adjusted EBITDA Margin (1)
CEB segment 27.6 % 30.8 % 27.4 % 24.9 %
SHL segment   24.8     25.9  
  27.0 %   30.8 %   27.2 %   24.9 %
 

(1) See “Non-GAAP Financial Measures” for further explanation.

(2) Includes an $8.7 million and $17.1 million increase to revenue to reflect the impact of the SHL deferred revenue fair value adjustment in the three months and year ended December 31, 2012, respectively.

 
 
 
 
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

 
 
  December 31,
2012     2011
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 72,699 $ 133,429
Marketable securities 3,794
Accounts receivable, net (1) 239,599 154,255
Deferred income taxes, net 15,669 17,844
Deferred incentive compensation 19,984 17,330
Prepaid expenses and other current assets   19,068   21,624
Total current assets 367,019 348,276
 
Deferred income taxes, net 283 20,490
Marketable securities 6,722
Property and equipment, net 96,962 80,981
Goodwill 471,299 29,492
Intangible assets, net 335,191 13,581
Other non-current assets   51,495   34,150
Total assets $ 1,322,249 $ 533,692
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities $ 84,363 $ 46,067
Accrued incentive compensation 53,927 37,884
Deferred revenue (2) 365,747 284,935
Deferred income taxes, net 3,537
Debt – current portion   12,479  
Total current liabilities 520,053 368,886
 
Deferred income taxes 59,773 1,436
Other liabilities 98,641 83,806
Debt – long term   528,280  
Total liabilities 1,206,747 454,128
 
Total stockholders' equity   115,502   79,564
Total liabilities and stockholders' equity $ 1,322,249 $ 533,692
 

(1) Includes accounts receivable, net, of $52.2 million at December 31, 2012 related to the SHL segment and PDRI.

(2) Includes deferred revenue of $41.6 million at December 31, 2012 related to the SHL segment and PDRI.

 
 
 
 
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

 
 
  Year Ended December 31,
2012   2011
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 37,051 $ 52,655
Adjustments to reconcile net income to net cash flows provided by operating activities:
Loss on disposal of discontinued operations 3,503
Depreciation and amortization 37,858 17,710
Amortization of credit facility issuance costs 1,771
Deferred income taxes (8,457 ) 21,211
Share-based compensation 9,214 8,118
Excess tax benefits from share-based compensation arrangements (2,101 ) (1,949 )
Foreign currency translation loss 229 330
Amortization of marketable securities premiums, net 68 194
Changes in operating assets and liabilities:
Accounts receivable, net (39,714 ) (13,088 )
Deferred incentive compensation (2,644 ) (1,723 )
Prepaid expenses and other current assets 18,481 (11,517 )
Other non-current assets (7,444 ) (2,661 )
Accounts payable and accrued liabilities 405 (5,464 )
Accrued incentive compensation 10,742 (2,708 )
Deferred revenue 58,871 34,200
Other liabilities   7,825   1,440
Net cash flows provided by operating activities 122,155 100,251
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (17,498 ) (10,203 )
Acquisition of businesses, net of cash acquired (669,086 ) (6,193 )
Proceeds from sale of discontinued operations 1,779
Cost method investment (150 )
Maturities of marketable securities   10,254   9,845
Net cash flows used in investing activities (676,330 ) (4,922 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 555,000
Payments of credit facility (10,000 )
Credit facility issuance costs (19,176 ) (542 )
Proceeds from the exercise of common stock options 1,423 1,660
Proceeds from issuance of common stock under the employee stock purchase plan 613 502
Acquisition of businesses, contingent consideration (3,650 )
Excess tax benefits from share-based compensation arrangements 2,101 1,949
Withholding of shares to satisfy minimum employee tax withholding for restricted stock units (3,767 ) (3,001 )
Purchase of treasury shares (10,007 ) (40,307 )
Payment of dividends   (23,403 )   (20,426 )
Net cash flows provided by (used in) financing activities 492,784 (63,815 )
 
Effect of exchange rates on cash   661   (583 )
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (60,730 ) 30,931
Cash and cash equivalents, beginning of year   133,429   102,498
Cash and cash equivalents, end of year $ 72,699 $ 133,429
 
 
 
 
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY Reconciliation of Non-GAAP Financial Measures (In thousands, except per share data)

 

A reconciliation of each of the non-GAAP measures to the most directly comparable GAAP measure is provided below.

 

Adjusted Revenue

 
  Three Months Ended December 31, 2012     Year Ended December 31, 2012
CEB     SHL     Total CEB     SHL     Total
Revenue $ 155,660 $ 38,060 $ 193,720 $ 564,062 $ 58,592 $ 622,654
Impact of the deferred revenue fair value adjustment     8,748   8,748     17,134   17,134
Adjusted revenue $ 155,660 $ 46,808 $ 202,468 $ 564,062 $ 75,726 $ 639,788
 

Adjusted EBITDA

 
  Three Months Ended December 31, 2012   Three Months Ended December 31, 2011
CEB   SHL   Total CEB   SHL       Total
Net income (loss) $ 13,519 $ (6,338 ) $ 7,181 $ 16,950 $ $ 16,950
Loss from discontinued operations, net of provision for income taxes         2,923     2,923
Income (loss) from continuing operations 13,519 (6,338 ) 7,181 19,873 19,873
Interest expense (income), net 6,546 6,546 13 13
Depreciation and amortization 7,351 8,246 15,597 4,702 4,702
Provision for income taxes 11,577 (754 ) 10,823 14,055 14,055
Impact of the deferred revenue fair value adjustment 8,748 8,748
Acquisition related costs 1,673 1,570 3,243
Share-based compensation   2,371   126   2,497   1,976     1,976
Adjusted EBITDA $ 43,037 $ 11,598 $ 54,635 $ 40,619 $ $ 40,619
 
Adjusted EBITDA margin   27.6 %   24.8 %   27.0 %   30.8 %     30.8 %
   
Year Ended December 31, 2012 Year Ended December 31, 2011
CEB   SHL   Total CEB   SHL       Total
Net income (loss) $ 46,440 $ (9,389 ) $ 37,051 $ 52,655 $ $ 52,655
Loss from discontinued operations, net of provision for income taxes         4,792     4,792
Income (loss) from continuing operations 46,440 (9,389 ) 37,051 57,447 57,447
Interest expense (income), net 10,834 10,834 (596 ) (596 )
Depreciation and amortization 24,371 13,487 37,858 16,928 16,928
Provision for income taxes 41,463 (3,894 ) 37,569 38,860 38,860
Impact of the deferred revenue fair value adjustment 17,134 17,134
Acquisition related costs 22,430 2,099 24,529
Share-based compensation   9,062   152   9,214   8,118     8,118
Adjusted EBITDA $ 154,600 $ 19,589 $ 174,189 $ 120,757 $ $ 120,757
 
Adjusted EBITDA margin   27.4 %   25.9 %   27.2 %   24.9 %     24.9 %
 
 
 
 
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY Reconciliation of Non-GAAP Financial Measures (In thousands, except per share data)

 

Adjusted Net Income

 
 

Three Months Ended

December 31,

    Year Ended

December 31,

2012     2011 2012     2011
Net income $ 7,181 $ 16,950   $ 37,051 $ 52,655
Loss from discontinued operations, net of provision for income taxes     2,923     4,792
Income from continuing operations 7,181 19,873 37,051 57,447
Impact of the deferred revenue fair value adjustment (1) 6,369 12,474
Acquisition related costs (1) 2,200 18,427
Share-based compensation (1) 1,523 1,186 5,587 4,839
Amortization of acquisition related intangibles (1)   6,288   647   12,614   2,031
Adjusted net income $ 23,561 $ 21,706 $ 86,153 $ 64,317
 

Non-GAAP Earnings per Diluted Share

 

Three Months Ended

December 31,

Year Ended

December 31,

2012 2011 2012 2011
Earnings per diluted share $ 0.21 $ 0.50 $ 1.10 $ 1.53
Loss from discontinued operations, net of provision for income taxes     0.09     0.14
Earnings per diluted share from continuing operations 0.21 0.59 1.10 1.67
Impact of the deferred revenue fair value adjustment (1) 0.19 0.37
Acquisition related costs (1) 0.06 0.54
Share-based compensation (1) 0.04 0.04 0.16 0.14
Amortization of acquisition related intangibles (1)   0.19   0.02   0.38   0.06
Non-GAAP diluted earnings per share $ 0.69 $ 0.65 $ 2.55 $ 1.87
 

(1) Adjustments are net of the estimated income tax effect using statutory rates based on the relative amounts allocated to each jurisdiction in the applicable period. The following income rates were used: 27% for the deferred revenue fair value adjustment; 25% for acquisition related costs; 39% for share-based compensation; and 31% for amortization of acquisition related intangibles.

 
 
 

With respect to the Company’s 2013 annual guidance, reconciliations net income to Adjusted EBITDA, net income to Adjusted net income, and GAAP diluted earnings per share to Non-GAAP diluted earnings per share as projected for 2013 are not provided because the Company cannot, without unreasonable effort, determine the components of net income and GAAP diluted earnings per share to provide reconciliations for 2013 with certainty at this time.

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