EXBD Corporate Executive Board Company (The) Common Stock (MM)

The Corporate Executive Board Company (“CEB” or the “Company”) (NASDAQ: EXBD) today announces financial results for the second quarter and six months ended June 30, 2010. Revenues decreased 1.0% to $109.6 million for the second quarter of 2010 from $110.7 million for the second quarter of 2009. Net income for the second quarter of 2010 was $11.0 million, or $0.32 per diluted share, compared to $4.9 million, or $0.14 per diluted share, for the same period of 2009. Included in net income for the second quarter of 2009 are pre-tax charges of $11.5 million for non-cash costs associated with exit activities and $4.2 million of restructuring costs resulting from a voluntary separation program. Excluding these charges, net of tax, adjusted net income was $14.4 million and non-GAAP diluted earnings per share was $0.41 for the second quarter of 2009.

For the first six months of 2010, revenues were $209.8 million, an 8.1% decrease from $228.1 million for the first six months of 2009. Net income for the first six months of 2010 increased to $22.6 million from $18.0 million for the same period in 2009. Diluted earnings per share for the first six months of 2010 was $0.66, an increase from $0.53 for the same period in 2009. Excluding the effects, net of tax, of costs associated with exit activities and restructuring costs, adjusted net income was $28.0 million and non-GAAP diluted earnings per share was $0.82 for the first six months of 2009.

Contract Value at June 30, 2010 increased 2.1% as compared to June 30, 2009 as a result of an increase in the purchase of memberships by middle market clients, the acquisitions of Tower Group and Iconoculture, and improved cross-sales of large corporate memberships. As previously discussed, growth from these factors was offset to some degree by reductions in contract value as a result of discontinued programs. The average cross-sell ratio was 2.89, reflecting cross-sell ratios of 3.29 for the traditional large corporate market and 1.91 for middle market customers.

“We continue to see encouraging returns from focus on our priorities and great execution by our teams,” said Thomas Monahan, Chairman and Chief Executive Officer. “By linking great research and data to urgent member work and decisions, our teams have driven strong renewal outcomes and solid progress on sales. In light of these trends, we are updating our 2010 outlook to reflect continued improvement in our performance and to incorporate the impact of the previously-announced Iconoculture acquisition.”

OUTLOOK FOR 2010

The Company updates its 2010 annual guidance as follows: Revenues of $430 to $440 million; Non-GAAP diluted earnings per share of $1.20 to $1.35; Depreciation and amortization expense of $19.0 to $21.0 million; capital expenditures of approximately $6.0 to $8.0 million; and an Adjusted EBITDA margin of between 21.5% and 23.5%.

NON-GAAP FINANCIAL MEASURES

This press release and the accompanying tables include a discussion of EBITDA, Adjusted EBITDA, Adjusted net income, and Non-GAAP diluted earnings per share, 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 “EBITDA” refers to a financial measure that we define as earnings before interest income, net, depreciation and amortization, and provision for income taxes. The term “Adjusted EBITDA” refers to a financial measure that we define as earnings before interest income, net, depreciation and amortization, provision for income taxes, impairment loss, costs associated with exit activities, restructuring costs, and gain on acquisition. The term “Adjusted net income” refers to net income excluding the after tax effects of impairment loss, costs associated with exit activities, restructuring costs, and gain on acquisition. “Non-GAAP diluted earnings per share” refers to net income excluding the after tax per share effects of impairment loss, costs associated with exit activities, restructuring costs, and gain on acquisition.

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 GAAP results is provided below.

   

Three Months Ended

Six Months Ended

June 30,

June 30,

2010

 

2009

2010

  2009 Net income

$

10,980

$ 4,946

$

22,613

$ 18,018 Interest income, net

(363

)

(475 )

(799

)

(1,073 ) Depreciation and amortization

5,639

6,263

10,774

12,236 Provision for income taxes

 

7,923

    3,297    

16,108

    12,015   EBITDA

$

24,179

$ 14,031

$

48,696

$ 41,196 Costs associated with exit activities

--

11,518

--

11,518 Restructuring costs  

--

    4,244    

--

    5,188   Adjusted EBITDA

$

24,179

  $ 29,793  

$

48,696

  $ 57,902    

Three Months Ended

Six Months Ended

June 30,

June 30,

2010

2009

2010

2009 Net income

$

10,980

$ 4,946

$

22,613

$ 18,018 Adjustments, net of tax: Costs associated with exit activities

--

6,911

--

6,911 Restructuring costs  

--

    2,546    

--

    3,113   Adjusted net income

$

10,980

  $ 14,403  

$

22,613

  $ 28,042    

Three Months Ended

Six Months Ended

June 30,

June 30,

2010

2009

2010

2009 GAAP diluted earnings per share

$

0.32

$ 0.14

$

0.66

$ 0.53 Adjustments, net of tax: Costs associated with exit activities

--

0.20

--

0.20 Restructuring costs  

--

    0.07    

--

    0.09   Non-GAAP diluted earnings per share

$

0.32

  $ 0.41  

$

0.66

  $ 0.82    

With respect to the Company’s 2010 annual guidance, reconciliations of Non-GAAP diluted earnings per share to GAAP diluted earnings per share, Adjusted net income to net income, and Adjusted EBITDA to Net income as projected for 2010 are not provided because CEB cannot, without unreasonable effort, determine the components of GAAP diluted earnings per share and net income to provide reconciliations to Non-GAAP diluted earnings per share and Adjusted EBITDA for its 2010 fiscal year with certainty at this time.

We believe that EBITDA, Adjusted EBITDA, Adjusted net income, and Non-GAAP diluted earnings per share are relevant and useful supplemental information for our investors. We use these non-GAAP financial measures for internal budgeting and other managerial purposes, when publicly providing the Company’s business outlook and as a measurement for potential acquisitions. A limitation associated with EBITDA and Adjusted EBITDA is that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures. Management compensates for these limitations by also relying on the comparable GAAP financial measure of Income from operations, which includes depreciation and amortization.

FORWARD-LOOKING STATEMENTS

This news 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. 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, 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 member needs and demands, our potential inability to attract and retain a significant number of highly skilled employees, risks associated with the results of restructuring plans, fluctuations in operating results, our potential inability to protect our intellectual property rights, 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 or assumptions used to prepare our 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, 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 and possible volatility of our stock price. These and other factors 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 U.S. Securities and Exchange Commission, including, but not limited to, our 2009 Annual Report on Form 10-K. The forward-looking statements in this press release are made as of August 2, 2010, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

ABOUT THE CORPORATE EXECUTIVE BOARD COMPANY

The Corporate Executive Board drives faster, more effective decision making among the world’s leading executives and business professionals. As the premier, network-based knowledge resource, The Corporate Executive Board provides customers with the authoritative and timely guidance needed to excel in their roles, take decisive action and improve company performance. Powered by an executive network that spans more than 50 countries and represents approximately 85% of the world’s Fortune 500 companies, The Corporate Executive Board offers unique research insights along with an integrated suite of exclusive tools and resources that enable the world’s most successful organizations to deliver superior business outcomes. For more information, visit www.exbd.com.

       

THE CORPORATE EXECUTIVE BOARD COMPANY

Financial Highlights

(In thousands, except per share data)

(Unaudited)

 

Selected

Three Months Ended

Selected

Six Months Ended

Percentage

June 30,

Percentage

June 30,

Changes

2010

 

2009

Changes

2010

  2009

Financial Highlights

(GAAP, as reported):

Revenues (1.0 )%

$

109,577

$ 110,695 (8.1 )%

$

209,752

$ 228,135 Net income

$

10,980

$ 4,946

$

22,613

$ 18,018 Basic earnings per share

$

0.32

$ 0.15

$

0.66

$ 0.53 Diluted earnings per share

$

0.32

$ 0.14

$

0.66

$ 0.53 Weighted average shares outstanding: Basic

34,214

34,105

34,189

34,081 Diluted

34,469

34,276

34,458

34,190        

THE CORPORATE EXECUTIVE BOARD COMPANY

Operating Statistic and Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

Selected

Three Months Ended

Selected

Six Months Ended

Percentage

June 30,

Percentage

June 30,

Changes

2010

  2009

Changes

2010

  2009  

Operating Statistic

Contract Value (1) (at period end)

2.1 %

$

410,117

$ 401,594  

Financial Highlights

Revenues (1.0 )%

$

109,577

$ 110,695 (8.1 )%

$

209,752

$ 228,135   Cost and expenses: Cost of services

39,283

37,951

72,795

76,228 Member relations and marketing

30,155

31,729

55,935

66,539 General and administrative

14,808

14,891

30,280

30,627 Depreciation and amortization

5,639

6,263

10,774

12,236 Costs associated with exit activities

--

11,518

--

11,518 Restructuring costs  

--

    4,244    

--

    5,188   Total costs and expenses

89,885

106,596

169,784

202,336   Income from operations

19,692

4,099

39,968

25,799  

Other (expense) income, net (2)

 

(789

)

  4,144    

(1,247

)

  4,234    

Income before provision for income taxes

18,903

8,243

38,721

30,033 Provision for income taxes  

7,923

    3,297    

16,108

    12,015   Net income

$

10,980

  $ 4,946  

$

22,613

  $ 18,018     Basic earnings per share

$

0.32

$ 0.15

$

0.66

$ 0.53 Diluted earnings per share

$

0.32

$ 0.14

$

0.66

$ 0.53   Weighted average shares outstanding Basic

34,214

34,105

34,189

34,081 Diluted

34,469

34,276

34,458

34,190  

Percentages of Revenues

Cost of services

35.8

%

34.3 %

34.7

%

33.4 % Member relations and marketing

27.5

%

28.7 %

26.7

%

29.2 % General and administrative

13.5

%

13.5 %

14.4

%

13.4 % Depreciation and amortization

5.1

%

5.7 %

5.1

%

5.4 % Income from operations

18.0

%

3.7 %

19.1

%

11.3 %

EBITDA (3)

22.1

%

12.7 %

23.2

%

18.1 %

Adjusted EBITDA (3)

22.1

%

26.9 %

23.2

%

25.4 %  

(1)

We define “Contract Value” as of the quarter-end as the aggregate annualized revenue attributed to all agreements in effect on such date, without regard to the remaining duration of any such agreement.

(2)

Other (expense) income, net for the three months ended June 30, 2010 includes $0.4 million of interest income and $0.1 million of foreign currency gain offset by a $0.9 million decrease in the fair value of deferred compensation plan assets and $0.4 million of other expense. Other (expense) income for the three months ended June 30, 2009 includes $0.5 million of interest income, $2.2 million foreign currency gain, and a $1.4 million increase in the fair value of deferred compensation plan assets. Other (expense) income, net for the six months ended June 30, 2010 includes $0.8 million of interest income offset by a $0.3 million decrease in the fair value of deferred compensation plan assets, a $0.8 million foreign currency loss, and $0.9 million of other expense.  Other (expense) income, net for the six months ended June 30, 2009 includes $1.1 million of interest income, $0.8 million increase in the fair value of deferred compensation plan assets, $1.9 million foreign currency gain and $0.4 million of other income.

(3)

See “NON-GAAP FINANCIAL MEASURES” for further explanation.

   

THE CORPORATE EXECUTIVE BOARD COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

June 30, 2010

December 31, 2009

(Unaudited)

Assets

  Current assets: Cash and cash equivalents

$

89,456

$ 31,760 Marketable securities

7,168

18,666 Membership fees receivable, net

80,922

125,716 Deferred income taxes

7,887

7,989 Deferred incentive compensation

12,323

9,721 Prepaid expenses and other current assets  

9,096

  9,584 Total current assets

206,852

203,436   Deferred income taxes

41,934

39,744 Marketable securities

16,385

25,784 Property and equipment, net

83,073

89,462 Goodwill

38,109

27,129 Intangible assets, net

18,245

12,246 Other non-current assets  

28,045

  25,394 Total assets

$

432,643

$ 423,195  

Liabilities and stockholders’ equity

  Current liabilities: Accounts payable and accrued liabilities

$

36,884

$ 48,764 Accrued incentive compensation

23,809

27,975 Deferred revenues  

227,219

  222,053 Total current liabilities

287,912

298,792   Deferred income taxes

1,008

867 Other liabilities  

75,626

  73,259 Total liabilities

364,546

372,918   Total stockholders’ equity  

68,097

  50,277 Total liabilities and stockholders’ equity

$

432,643

$ 423,195  

THE CORPORATE EXECUTIVE BOARD COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Six Months Ended

June 30,

2010

 

2009

CASH FLOWS FROM OPERATING ACTIVITIES: Net income

$

22,613

$ 18,018

Adjustments to reconcile net income to net cash flows provided by operating activities:

Costs associated with exit activities

--

11,518 Depreciation and amortization

10,774

12,236 Deferred income taxes

(1,948

)

(2,486 ) Share-based compensation

3,174

6,320 Amortization of marketable securities premiums, net

221

342 Changes in operating assets and liabilities: Membership fees receivable, net

47,169

59,488 Deferred incentive compensation

(2,602

)

2,790 Prepaid expenses and other current assets

846

(267 ) Other non-current assets

(2,651

)

(874 ) Accounts payable and accrued liabilities

(18,111

)

(27,954 ) Accrued incentive compensation

(4,166

)

(11,607 ) Deferred revenues

(1,568

)

(48,344 ) Other liabilities  

2,366

    587   Net cash flows provided by operating activities  

56,117

    19,767     CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment

(1,217

)

(3,914 ) Acquisition of businesses, net of cash acquired

(8,957

)

(168 ) Maturities of marketable securities  

20,284

    12,805   Net cash flows provided by investing activities  

10,110

    8,723     CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the issuance of common stock under the employee stock purchase plan

153

450 Purchases of treasury shares

(1,167

)

(81 ) Payment of dividends  

(7,517

)

  (18,377 ) Net cash flows used in financing activities  

(8,531

)

  (18,008 )   NET INCREASE IN CASH AND CASH EQUIVALENTS

57,696

10,482   Cash and cash equivalents, beginning of period  

31,760

    16,214     Cash and cash equivalents, end of period

$

89,456

  $ 26,696