CEB Reports Third Quarter Results and Updates 2013 Guidance

CEB Reports Quarterly Total Revenue Growth of 22.4%

CEB Segment Contract Value Growth of 10.2%

Business Wire

ARLINGTON, Va.--(BUSINESS WIRE)--

The Corporate Executive Board Company (“CEB” or the “Company”) (CEB) today announces financial results for the third quarter and nine months ended September 30, 2013. Revenue increased 22.4% to $201.7 million in the third quarter of 2013 from $164.7 million in the third quarter of 2012. Net loss in the third quarter of 2013 was $5.4 million, or $0.16 per diluted share, compared to a net loss of $0.5 million, or $0.01 per diluted share, in the same period of 2012. Included in the net loss for the third quarter of 2013 is a $22.6 million goodwill impairment loss for Personnel Decision Research Institutes, Inc. (“PDRI”) and $6.7 million of pre-tax debt extinguishment costs associated with the refinancing of the Company’s senior secured credit facilities in August 2013. Adjusted net income was $29.1 million and Non-GAAP diluted earnings per share were $0.86 in the third quarter of 2013 compared to $26.4 million and $0.78 in the same period of 2012, respectively.

In the first nine months of 2013, revenue was $596.6 million, a 39.1% increase from $428.9 million in the first nine months of 2012. Net income in the first nine months of 2013 was $19.4 million, or $0.57 per diluted share, compared to $29.9 million, or $0.88 per diluted share, in the same period of 2012. Adjusted net income was $76.6 million and Non-GAAP diluted earnings per share were $2.26 in the first nine months of 2013 compared to $62.6 million and $1.85 in the same period of 2012, respectively.

“We were pleased to see continued solid growth across the majority of our business during the third quarter,” said Tom Monahan, Chairman and CEO. “This progress has been offset by persistent headwinds in certain places – most notably the US Federal government. While we don’t expect trends in this sector to reverse in the near term, sustained strength in other areas of the company – including 10.2% CEB segment Contract Value growth, and double digit constant currency Adjusted revenue growth in the SHL Talent Measurement Solutions segment – give us great confidence that we are setting up for a solid close to 2013 and strong start to 2014.”

OUTLOOK FOR 2013

The Company updates its 2013 annual guidance as follows: Adjusted revenue of $817 to $827 million, revenue of $807 to $817 million, capital expenditures of $29 to $31 million, Non-GAAP diluted earnings per share of $3.00 to $3.15, an Adjusted EBITDA margin between 25.0% and 25.5%, and depreciation and amortization expense of $61 to $62 million. Adjusted revenue refers to revenue before the impact of the reduction of SHL revenue recognized in the post-acquisition period to reflect the adjustment of deferred revenue at the SHL acquisition date to fair value. The estimated reduction in 2013 revenue to reflect the impact of the deferred revenue fair value adjustment is approximately $10 million.

SEGMENT HIGHLIGHTS

Since the August 2012 acquisition of SHL Group Holdings I Limited and its subsidiaries (“SHL”), the Company has had two operating segments, CEB and SHL. The CEB segment includes the historical CEB products and services provided to senior executives and their teams to drive corporate performance. The SHL segment, now referred to as the “SHL Talent Measurement Solutions” segment includes the SHL products and services of cloud-based solutions for talent assessment and talent mobility as well as professional services that support those solutions. PDRI, a subsidiary acquired as part of the SHL acquisition, is included in the CEB segment. PDRI provides customized personnel assessment tools and services to various agencies of the US government. Our 2012 financial results only include the results of operations of SHL and PDRI from August 2, 2012.

CEB Segment

Revenue increased 10.1% in the third quarter of 2013 to $158.7 million from $144.2 million in the same period of 2012. There was $6.0 million of PDRI revenue included in CEB segment revenue in the third quarter of 2013 and $5.1 million in the same period of 2012. Adjusted EBITDA in the third quarter of 2013 was $45.0 million compared to $42.5 million in the same period of 2012. Adjusted EBITDA margin in the third quarter of 2013 was 28.4% of segment Adjusted revenue compared to 29.4% in the third quarter of 2012.

Revenue increased 13.5% in the first nine months of 2013 to $463.7 million from $408.4 million in the same period of 2012. There was $19.1 million of PDRI revenue included in CEB segment revenue in the first nine months of 2013 and $5.1 million in the same period of 2012. Adjusted EBITDA was $124.9 million in the first nine months of 2013 compared to $111.6 million in the same period of 2012. Adjusted EBITDA margin in the first nine months of 2013 was 26.9% of segment Adjusted revenue compared to 27.3% in the first nine months of 2012.

Contract Value at September 30, 2013 increased 10.2% to $575.9 million compared to $522.4 million at September 30, 2012. Wallet retention rate at September 30, 2013 was 98% compared to 99% at September 30, 2012. Contract Value per member institution increased 3.5% at September 30, 2013 to $90,896 from $87,844 at September 30, 2012.

In the third quarter of 2013, the Company performed impairment testing of its PDRI reporting unit as a result of insights into the impact of US government sequestration and spending cuts. As a result, the Company recorded an after-tax goodwill impairment loss of $22.6 million. This loss had no impact on cash flows.

SHL Talent Measurement Solutions Segment

Revenue increased in the third quarter of 2013 to $43.0 million from $20.5 million in the same period of 2012. Adjusted EBITDA in the third quarter of 2013 was $5.1 million, which includes a foreign currency remeasurement loss of $1.6 million, compared to $8.0 million in the same period of 2012. Adjusted EBITDA margin in the third quarter of 2013 was 11.5% of segment Adjusted revenue compared to 27.6% in the third quarter of 2012.

Revenue was $133.0 million in the first nine months of 2013. Adjusted EBITDA was $23.5 million and Adjusted EBITDA margin was 16.6% of segment Adjusted revenue in the first nine months of 2013. Segment results for the first nine months of 2012 were the same as the third quarter of 2012.

Wallet retention rate at September 30, 2013 was 97% compared to 101% at September 30, 2012. Unlike CEB members, a majority of SHL customers do not typically enter into contracts for fixed periods, so Contract Value is not a relevant operating statistic for the segment.

NON-GAAP FINANCIAL MEASURES

This press release and the accompanying tables, as well as earnings discussions, include a discussion of Adjusted revenue, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted net income, and Non-GAAP diluted earnings per share, all of which are non-GAAP financial measures provided as a complement to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The term “Adjusted revenue” refers to revenue before the impact of the reduction of SHL revenue recognized in the post-acquisition period to reflect the adjustment of deferred revenue at the SHL acquisition date to fair value (the “deferred revenue fair value adjustment”).

The term “Adjusted EBITDA” refers to net income before loss from discontinued operations, net of provision for income taxes; interest expense, net; depreciation and amortization; provision for income taxes; the impact of the deferred revenue fair value adjustment; acquisition related costs; impairment loss; debt extinguishment costs; share-based compensation; costs associated with exit activities; restructuring costs; and gain on acquisition.

The term “Adjusted EBITDA margin” refers to Adjusted EBITDA as a percentage of Adjusted revenue.

The term “Adjusted net income” refers to net income before loss from discontinued operations, net of provision for income taxes and excludes the after tax effects of the impact of the deferred revenue fair value adjustment; acquisition related costs; share-based compensation; impairment loss; debt extinguishment costs; amortization of acquisition related intangibles; costs associated with exit activities; restructuring costs; and gain on acquisition.

“Non-GAAP diluted earnings per share” refers to diluted earnings per share before the per share effect of loss from discontinued operations, net of provision for income taxes and excludes the after tax per share effects of the impact of the deferred revenue fair value adjustment; acquisition related costs; share-based compensation; impairment loss; debt extinguishment costs; amortization of acquisition related intangibles; costs associated with exit activities; restructuring costs; and gain on acquisition.

We believe that these non-GAAP financial measures are relevant and useful supplemental information for evaluating our results of operations as compared from period to period and as compared to our competitors. We use these non-GAAP financial measures for internal budgeting and other managerial purposes, including comparison against our competitors, when publicly providing our business outlook, and as a measurement for potential acquisitions. These non-GAAP financial measures are not defined in the same manner by all companies and therefore may not be comparable to other similarly titled measures used by other companies.

In connection with the SHL acquisition, we changed the definitions of our non-GAAP measures to adjust for the impact of the deferred revenue fair value adjustment to the opening balance sheet resulting from purchase accounting, amortization of related intangibles, acquisition related costs, and share-based compensation. This change was made to provide a more comprehensive understanding of our core operating results by eliminating the effect of acquisition related items from our GAAP operating results. The SHL acquisition was the first acquisition of sufficient size to cause these items to be significant. We believe that excluding these items is important in illustrating what our core operating results would have been had we not incurred these acquisition related items since the nature, size, and number of acquisitions can vary from period to period.

Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

  • Certain business combination accounting entries and expenses related to acquisitions: We have adjusted for the impact of the deferred revenue fair value adjustment, amortization of acquisition related intangibles, and acquisition related costs. We incurred significant expenses primarily in connection with our SHL acquisition and also incurred certain other operating expenses, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. We believe that excluding these acquisition related items from our non-GAAP financial measures provides useful supplemental information to our investors and is important in illustrating what our core operating results would have been had we not incurred these acquisition related items since the nature, size, and number of acquisitions can vary from period to period.
  • Share-based compensation: Although share-based compensation is a key incentive offered to our employees, we evaluate our operating results excluding such expense. Accordingly, we exclude share-based compensation from our non-GAAP financial measures because we believe it provides valuable supplemental information that helps investors have a more complete understanding of our operating results. In addition, we believe the exclusion of this expense facilitates the ability of our investors to compare our operating results with those of other peer companies, many of which also exclude such expense in determining their non-GAAP measures, given varying valuation methodologies, subjective assumptions, and the variety and amount of award types that may be utilized.
  • Impairment loss and debt extinguishment costs: We believe that excluding these items from our non-GAAP financial measures provides useful supplemental information to our investors and is important in illustrating what our core operating results would have been had we not incurred these items. The Company excludes these items because management does not believe they correlate to the ongoing operating results of the business.

These non-GAAP measures may be considered in addition to results prepared in accordance with GAAP, but they should not be considered a substitute for, or superior to, GAAP results. We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting.

A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in the accompanying tables.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements using words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” and variations of such words or similar expressions are intended to identify forward-looking statements. In addition, all statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to our 2013 annual guidance. You are hereby cautioned that these statements are based upon our expectations at the time we make them and may be affected by important factors including, among others, the factors set forth below and in our filings with the U.S. Securities and Exchange Commission (“SEC”), and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. Factors that could cause actual results to differ materially from those indicated by forward-looking statements include, among others, our dependence on renewals of our membership-based services, the sale of additional programs to existing members and our ability to attract new members, our potential failure to adapt to changing member needs and demands, our potential failure to develop and sell, or expand sales markets for our SHL tools and services, our potential inability to attract and retain a significant number of highly skilled employees or successfully manage succession planning issues, fluctuations in operating results, our potential inability to protect our intellectual property rights, our potential inability to adequately maintain and protect our information technology infrastructure and our member and client data, potential confusion about our rebranding, including our integration of the SHL brand, our potential exposure to loss of revenue resulting from our unconditional service guarantee, exposure to litigation related to our content, various factors that could affect our estimated income tax rate or our ability to use our existing deferred tax assets, changes in estimates, assumptions or revenue recognition policies used to prepare our consolidated financial statements, our potential inability to make, integrate and maintain acquisitions and investments, the amount and timing of the benefits expected from acquisitions and investments including our acquisition of SHL, the risk that we will be required to recognize additional impairments to the carrying value of the significant goodwill and amortizable intangible asset amounts included in our balance sheet as a result of our acquisitions, which would require us to record charges that would reduce our reported results, our potential inability to effectively manage the risks associated with the indebtedness we incurred and the senior secured credit facilities we entered into in connection with our acquisition of SHL or any additional indebtedness we may incur in the future, our potential inability to effectively manage the risks associated with our international operations, including the risk of foreign currency exchange fluctuations, our potential inability to effectively anticipate, plan for and respond to changing economic and financial markets conditions, especially in light of ongoing uncertainty in the worldwide economy, the US economy (including sequestration under the Budget Control Act of 2011), and possible volatility of our stock price. Various important factors that could cause our actual results to differ from our expected or historical results are discussed more fully in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of our filings with the SEC, including, but not limited to, our 2012 Annual Report on Form 10-K filed on March 1, 2013. The forward-looking statements in this presentation are made as of October 28, 2013, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

ABOUT CEB

CEB, the leading member-based advisory company, equips more than 10,000 organizations around the globe with insights, tools and actionable solutions to transform enterprise performance. By combining advanced research and analytics with best practices from member companies, CEB helps leaders realize outsized returns by more effectively managing talent, information, customers and risk. Member companies include approximately 85% of the Fortune 500, half the Dow Jones Asian Titans, and nearly 85% of the FTSE 100. More at cebglobal.com.

 

THE CORPORATE EXECUTIVE BOARD COMPANY

Financial Highlights and Other Operating Statistics

 
   

Selected
Percentage
Changes

    Three Months Ended

September 30,

   

Selected
Percentage
Changes

    Nine Months Ended

September 30,

2013     2012 2013     2012
Financial Highlights:
(In thousands, except per share data)
 
Revenue 22.4 % $ 201,735 $ 164,749 39.1 % $ 596,617 $ 428,934
Adjusted revenue 17.3 % $ 203,102 $ 173,135 38.4 % $ 605,443 $ 437,320
Net (loss) income $ (5,383 ) $ (456 ) $ 19,393 $ 29,869
Adjusted net income $ 29,139 $ 26,362 $ 76,587 $ 62,591
Adjusted EBITDA $ 50,139 $ 50,446 $ 148,362 $ 119,553
Adjusted EBITDA margin 24.7 % 29.1 % 24.5 % 27.3 %
Diluted (loss) earnings per share $ (0.16 ) $ (0.01 ) $ 0.57 $ 0.88
Non-GAAP diluted earnings per share $ 0.86 $ 0.78 $ 2.26 $ 1.85
 
 
Other Operating Statistics:
CEB segment Contract Value (in thousands)* 10.2 % $ 575,878 $ 522,397
CEB segment Member institutions 6.6 % 6,336 5,944
CEB segment Contract Value per member institution 3.5 % $ 90,896 $ 87,844
CEB segment Wallet retention rate** 98 % 99 %
SHL Talent Measurement Solutions segment Wallet retention rate*** 97 % 101 %
 
*   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 segment Contract Value from prior year members as a percentage of the total prior year segment Contract Value. The CEB segment Wallet retention rate does not include the impact of PDRI.

 
***

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

 
 

THE CORPORATE EXECUTIVE BOARD COMPANY

Consolidated Statements of Operations

(In thousands, except per share data)

 
    Three Months Ended

September 30,

    Nine Months Ended

September 30,

2013     2012 2013     2012
(Unaudited) (Unaudited)
 
Revenue (1) $ 201,735 $ 164,749 $ 596,617 $ 428,934
Costs and expenses:
Cost of services 72,387 60,182 219,175 151,161
Member relations and marketing 60,481 46,966 174,377 123,707
General and administrative 21,213 19,102 71,683 51,226
Acquisition related costs (2) 4,022 18,557 7,044 21,286
Impairment loss 22,600 22,600
Depreciation and amortization   15,287     11,296     44,776     22,261  
Total costs and expenses   195,990     156,103     539,655     369,641  
 
Operating profit 5,745 8,646 56,962 59,293
Other (expense) income, net
Interest income and other (3) (2,093 ) 1,619 (797 ) 2,549
Interest expense (4,956 ) (4,962 ) (17,596 ) (5,227 )
Debt extinguishment costs   (6,691 )       (6,691 )    
Other (expense) income, net   (13,740 )   (3,343 )   (25,084 )   (2,678 )
(Loss) income before provision for income taxes (7,995 ) 5,303 31,878 56,615
Provision for income taxes   (2,612 )   5,759     12,485     26,746  
Net (loss) income $ (5,383 ) $ (456 ) $ 19,393   $ 29,869  
 
Basic (loss) earnings per share $ (0.16 ) $ (0.01 ) $ 0.58 $ 0.89
Diluted (loss) earnings per share $ (0.16 ) $ (0.01 ) $ 0.57 $ 0.88
 
Weighted average shares outstanding
Basic 33,597 33,546 33,519 33,460
Diluted 33,933 33,863 33,899 33,809
 
Percentages of Adjusted Revenue
Cost of services 35.6 % 34.8 % 36.2 % 34.6 %
Member relations and marketing 29.8 % 27.1 % 28.8 % 28.3 %
General and administrative 10.4 % 11.0 % 11.8 % 11.7 %
Depreciation and amortization 7.5 % 6.5 % 7.4 % 5.1 %
Operating profit 2.8 % 5.0 % 9.4 % 13.6 %
Adjusted EBITDA (4) 24.7 % 29.1 % 24.5 % 27.3 %
 
(1)   Net of a $1.4 million and $8.8 million reduction to reflect the impact of the SHL deferred revenue fair value adjustment in the three and nine months ended September 30, 2013, respectively, and $8.4 million reduction in the three and nine months ended September 30, 2012.
(2) Acquisition related costs in the three and nine months ended September 30, 2013 primarily relate to the integration of SHL. Acquisition related costs in the three and nine months ended September 30, 2012 primarily relate to transaction and integration costs associated with the SHL acquisition.
(3) Interest income and other in the three months ended September 30, 2013 includes interest income of $0.1 million and a $0.8 million in the fair value of deferred compensation plan assets offset by a $2.6 million foreign currency loss and $0.4 million of other expense. Interest income and other in the three months ended September 30, 2012 includes a $0.6 million increase in the fair value of deferred compensation plan assets, $0.5 million of interest income, $0.3 million of other income, and a $0.2 million foreign currency gain. Interest income and other in the nine months ended September 30, 2013 includes a $1.4 million increase in the fair value of deferred compensation plan assets, $0.3 million of other income and $0.2 million of interest income offset by a $2.7 million foreign currency loss. Interest income and other in the nine months ended September 30, 2012 includes a $1.4 million increase in the fair value of deferred compensation plan assets, $0.9 million of interest income, and $0.2 million of other income.
(4) See “Non-GAAP Financial Measures” for further explanation.
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY

Segment Operating Results

(In thousands)

 
    Three Months Ended

September 30,

    Nine Months Ended

September 30,

2013     2012 2013     2012
(Unaudited) (Unaudited)
Adjusted Revenue (1)
CEB segment $ 158,709 $ 144,217 $ 463,666 $ 408,402
SHL Talent Measurement Solutions segment (2)   44,393     28,918     141,777     28,918  
$ 203,102   $ 173,135   $ 605,443   $ 437,320  
 
Adjusted EBITDA (1)
CEB segment $ 45,014 $ 42,455 $ 124,879 $ 111,562
SHL Talent Measurement Solutions segment   5,125     7,991     23,483     7,991  
$ 50,139   $ 50,446   $ 148,362   $ 119,553  
 
Adjusted EBITDA Margin (1)
CEB segment 28.4 % 29.4 % 26.9 % 27.3 %
SHL Talent Measurement Solutions segment   11.5     27.6     16.6     27.6  
  24.7 %   29.1 %   24.5 %   27.3 %
 
(1)   See “Non-GAAP Financial Measures” for further explanation.
(2) Includes a $1.4 million and $8.8 million increase to revenue in the three and nine months ended September 30, 2013 and a $8.4 million increase to revenue in the three and nine months ended September 30, 2012, respectively, to reflect the impact of the SHL deferred revenue fair value adjustment
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 
    September 30, 2013     December 31, 2012
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 77,847 $ 72,699
Accounts receivable, net (1) 183,870 239,599
Deferred income taxes, net 15,198 15,669
Deferred incentive compensation 21,143 19,984
Prepaid expenses and other current assets   41,019   19,068
Total current assets 339,077 367,019
 
Deferred income taxes, net 3,424 283
Property and equipment, net 108,505 96,962
Goodwill 446,696 471,299
Intangible assets, net 313,548 335,191
Other non-current assets   58,961   51,495
Total assets $ 1,270,211 $ 1,322,249
 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities $ 75,945 $ 84,363
Accrued incentive compensation 43,690 53,927
Deferred revenue (2) 350,255 365,747
Deferred income taxes, net 1,245 3,537
Debt – current portion   10,277   12,479
Total current liabilities 481,412 520,053
 
Deferred income taxes 51,010 59,773
Other liabilities 111,931 98,641
Debt – long term   508,121   528,280
Total liabilities 1,152,474 1,206,747
 

Total stockholders’ equity

  117,737   115,502

Total liabilities and stockholders’ equity

$ 1,270,211 $ 1,322,249
 
(1)   Includes accounts receivable, net of $59.2 million and $52.2 million at September 30, 2013 and December 31, 2012, respectively, related to the SHL Talent Measurement Solutions segment and PDRI.
(2) Includes deferred revenue of $60.0 million and $41.6 million at September 30, 2013 and December 31, 2012, respectively, related to the SHL Talent Measurement Solutions segment and PDRI.
 
 

THE CORPORATE EXECUTIVE BOARD COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
    Nine Months Ended September 30,
2013     2012
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,393 $ 29,869
Adjustments to reconcile net income to net cash flows provided by operating activities:
Impairment loss 22,600
Debt extinguishment costs 6,691
Exit costs 1,007
Depreciation and amortization 44,776 22,261
Amortization of credit facility issuance costs 2,308 518
Deferred income taxes (8,530 ) 1,578
Share-based compensation 9,123 6,717
Excess tax benefits from share-based compensation arrangements (4,036 ) (1,938 )
Net foreign currency remeasurement and translation loss (gain) 1,064 (370 )
Amortization of marketable securities premiums, net 68
Changes in operating assets and liabilities:
Accounts receivable, net 56,554 48,172
Deferred incentive compensation (1,059 ) (1,116 )
Prepaid expenses and other current assets (21,665 ) (4,148 )
Other non-current assets (1,107 ) 1,145
Accounts payable and accrued liabilities (11,863 ) (8,598 )
Accrued incentive compensation (10,180 ) (3,691 )
Deferred revenue (16,693 ) (16,273 )
Other liabilities   6,621     3,135  
Net cash flows provided by operating activities 95,004 77,329
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (23,038 ) (11,778 )
Cost method investments (11,213 )
Acquisition of businesses, net of cash acquired (669,476 )
Maturities of marketable securities       5,130  
Net cash flows used in investing activities (34,251 ) (676,124 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 5,000 555,000
Payments of credit facility (29,314 )
Proceeds from the exercise of common stock options 1,098 1,202
Proceeds from the issuance of common stock under the employee stock purchase plan 653 461
Excess tax benefits from share-based compensation arrangements 4,036 1,938
Credit facility issuance costs (4,156 ) (19,176 )
Purchase of treasury shares (2,751 )
Withholding of shares to satisfy minimum employee tax withholding for restricted stock units (6,556 ) (3,618 )
Payment of dividends   (22,624 )   (17,570 )
Net cash flows (used in) provided by financing activities (54,614 ) 518,237
 
Effect of exchange rates on cash   (991 )   209  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,148 (80,349 )
Cash and cash equivalents, beginning of year   72,699     133,429  
Cash and cash equivalents, end of year $ 77,847   $ 53,080  
 
 

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 September 30, 2013 Three Months Ended September 30, 2012
CEB     SHL     Total CEB     SHL     Total
Revenue $ 158,709 $ 43,026 $ 201,735

$

144,217 $ 20,532 $ 164,749
Impact of the deferred revenue fair value adjustment     1,367   1,367     8,386   8,386
Adjusted revenue $ 158,709 $ 44,393 $ 203,102

$

144,217 $ 28,918 $ 173,135
 
Nine months ended September 30, 2013 Nine Months Ended September 30, 2012
CEB SHL Total CEB SHL Total
Revenue $ 463,666 $ 132,951 $ 596,617

$

408,402 $ 20,532 $ 428,934
Impact of the deferred revenue fair value adjustment     8,826   8,826     8,386   8,386
Adjusted revenue $ 463,666 $ 141,777 $ 605,443

$

408,402 $ 28,918 $ 437,320
 
   

Adjusted EBITDA

Three Months Ended September 30, 2013     Three Months Ended September 30, 2012
CEB     SHL     Total CEB     SHL     Total
Net (loss) income $ (4,157 ) $ (1,226 ) $ (5,383 ) $ 2,595 $ (3,051 ) $ (456 )
Interest expense, net 4,901 4,901 4,423 4,423
Depreciation and amortization 6,964 8,323 15,287 6,055 5,241 11,296
Provision for income taxes 2,401 (5,013 ) (2,612 ) 8,899 (3,140 ) 5,759
Impact of the deferred revenue fair value adjustment 1,367 1,367 8,386 8,386
Acquisition related costs 2,808 1,214 4,022 18,028 529 18,557
Impairment loss 22,600 22,600
Debt extinguishment costs 6,691 6,691
Share-based compensation   2,806     460     3,266     2,455     26     2,481  
Adjusted EBITDA $ 45,014   $ 5,125   $ 50,139   $ 42,455   $ 7,991   $ 50,446  
 
Adjusted EBITDA margin   28.4 %   11.5 %   24.7 %   29.4 %   27.6 %   29.1 %
 
Nine Months Ended September 30, 2013 Nine Months Ended September 30, 2012
CEB SHL Total CEB SHL Total
Net income (loss) $ 25,080 $ (5,687 ) $ 19,393 $ 32,920 $ (3,051 ) $ 29,869
Interest expense, net 17,424 17,424 4,288 4,288
Depreciation and amortization 21,256 23,520 44,776 17,020 5,241 22,261
Provision for income taxes 18,839 (6,354 ) 12,485 29,886 (3,140 ) 26,746
Impact of the deferred revenue fair value adjustment 8,826 8,826 8,386 8,386
Acquisition related costs 4,827 2,217 7,044 20,757 529 21,286
Impairment loss 22,600 22,600
Debt extinguishment costs 6,691 6,691
Share-based compensation   8,162     961     9,123     6,691     26     6,717  
Adjusted EBITDA $ 124,879   $ 23,483   $ 148,362   $ 111,562   $ 7,991   $ 119,553  
 
Adjusted EBITDA margin   26.9 %   16.6 %   24.5 %   27.3 %   27.6 %   27.3 %
 

Adjusted Net Income

       
Three Months Ended

September 30,

Nine Months Ended

September 30,

2013     2012 2013     2012
Net (loss) income $ (5,383 ) $ (456 ) $ 19,393 $ 29,869
Impact of the deferred revenue fair value adjustment (1) 1,088 6,105 6,398 6,105
Acquisition related costs (1) 2,624 14,604 4,582 16,227
Share-based compensation (1) 2,015 1,521 5,620 4,064
Impairment loss (2) 18,401 18,401
Debt extinguishment costs (1) 4,001 4,001
Amortization of acquisition related intangibles (1)   6,393     4,588     18,192   6,326
Adjusted net income $ 29,139   $ 26,362   $ 76,587 $ 62,591
 
Three Months Ended

September 30,

Nine Months Ended

September 30,

2013 2012 2013 2012
Diluted (loss) earnings per share $ (0.16 ) $ (0.01 ) $ 0.57 $ 0.88
Impact of the deferred revenue fair value adjustment (1) 0.03 0.18 0.19 0.18
Acquisition related costs (1) 0.08 0.43 0.13 0.48
Share-based compensation (1) 0.06 0.04 0.17 0.12
Impairment loss (2) 0.54 0.54
Debt extinguishment costs (1) 0.12 0.12
Amortization of acquisition related intangibles (1)   0.19     0.14     0.54   0.19
Non-GAAP diluted earnings per share $ 0.86   $ 0.78   $ 2.26 $ 1.85
 
(1)   Adjustments are net of the annual estimated income tax effect using statutory rates based on the relative amounts allocated to each jurisdiction. The following income tax rates were used: 28% in 2013 and 27% in 2012 for the deferred revenue fair value adjustment; 35% in 2013 and 25% in 2012 for acquisition related costs; 38% in 2013 and 39% in 2012 for share-based compensation; 40% in 2013 for debt extinguishment costs; and 32% in 2013 and 30% in 2012 for amortization of acquisition related intangibles.
 
(2) The $22.6 million impairment loss of non-deductible goodwill related to PDRI recognized in the three months ended September 30, 2013 was not treated as a discrete event in the provision for income taxes; rather, it was considered to be a component of the estimated annual effective tax rate. As such, $4.8 million of the income tax effect associated with the non-deductible goodwill impairment loss was reflected in the income tax provision in the three and nine months ended September 30, 2013. The remaining tax effect of $4.2 million will be added back in the fourth quarter of 2013 to bring the full year adjustment to $22.6 million.
 

With respect to the Company’s 2013 annual guidance, reconciliations of 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.

Contact:
Corporate Executive Board Company
Richard S. Lindahl, 571-303-6956
Chief Financial Officer
jconnor@executiveboard.com
www.cebglobal.com

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