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CEB > SEC Filings for CEB > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for CORPORATE EXECUTIVE BOARD CO | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CORPORATE EXECUTIVE BOARD CO


10-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion includes forward-looking statements that involve certain risks and uncertainties. For additional information regarding forward looking statements and risk factors, see "Forward-looking statements" and Part II, Item IA. "Risk Factors."

Executive Overview

We deliver member-based advisory services, talent measurement assessments, and management solutions. We equip senior executives and their teams with essential information, actionable insights, analytical tools, and advisory support. Through our acquisition of SHL Group Holdings I and its subsidiaries ("SHL"), we also provide cloud-based talent measurement and management solutions.

Revenue was $190.3 million and $128.5 million for the three months ended March 31, 2013 and 2012, respectively. Total costs and expenses were $167.6 million and $103.3 million for the three months ended March 31, 2013 and 2012, respectively. Operating results include the impact of acquired companies from the date of acquisition: Valtera, Inc. ("Valtera") was acquired on February 4, 2012 and SHL was acquired on August 2, 2012.

Our acquisition of SHL, headquartered in the UK, significantly increased the breadth and geographic scope of our operations. As a result of the incurrence of substantial new indebtedness and the use of a significant amount of our cash on hand, our financial condition differs significantly from prior periods, and our operating results over the next year will likely not be comparable to our operating results for prior periods and we are more exposed to foreign currency exchange rate fluctuations.

With the SHL acquisition, we now have two operating segments, CEB and SHL.

CEB Segment

The CEB segment helps senior executives and their teams drive corporate performance by identifying and building on the proven best practices of the world's best companies. We primarily deliver our products and services to a global client base through annual, fixed-fee membership subscriptions. Billings attributable to memberships for our CEB products and services initially are recorded as deferred revenue and then generally are recognized on a pro-rata basis over the membership contract term, which typically is 12 months. Generally, a member may request a refund of its membership fee during the membership term under our service guarantee. Refunds are provided from the date of the refund request on a pro-rata basis relative to the remaining term of the membership.

We offer comprehensive data analysis, research, and advisory services that align to executive leadership roles and key recurring decisions. To fully support our members, our products and services are offered across a wide range of industries and focus on several key corporate functions including: Finance, Corporate Services, and Corporate Strategy; Human Resources; Information Technology; Legal, Risk, and Compliance; and Sales, Marketing, and Communications.

In addition to these corporate functions, the CEB segment serves operational business leaders in the financial services industry and government agencies through insights, tools, and peer collaboration designed to drive effective executive decision making. The CEB segment also includes the results of operations for PDRI, a service provider of customized personnel assessment tools and services to various agencies of the US government.

SHL Segment

The SHL segment is a global provider of cloud-based solutions for talent assessment and decision support, enabling client access to data, analytics and insights for assessing and managing employees and applicants. SHL primarily delivers assessments, consulting and training services. Assessment services are available online through metered and subscription arrangements. Consulting services are generally provided to customize assessment services and face to face assessments, delivered for a fixed fee. Training services consist of either bespoke or public courses related to use of assessments. The SHL segment represents the acquired SHL business except for PDRI.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q includes 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 operating results provided in accordance with accounting principles generally accepted in the United States of America ("GAAP").

The term "Adjusted revenue" refers to revenue before 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 a financial measure that we define as 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; 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, 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, 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 operating results 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, when publicly providing the Company's 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 similar titled measures used by other companies.


Table of Contents

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 each of the non-GAAP measures to the most directly comparable GAAP measure is provided below (in thousands):

The table below reconciles revenue to Adjusted revenue (in thousands):

                                                           Three Months Ended March 31,
                                                             2013                 2012
Revenue                                                 $      190,272       $      128,467
Impact of the deferred revenue fair value adjustment             4,509                   -

Adjusted revenue                                        $      194,781       $      128,467

The table below reconciles Net income to Adjusted EBITDA (in thousands):

                                                             Three Months Ended March 31,
                                                             2013                   2012
Net income                                               $      11,208          $      15,561
Interest expense (income), net                                   6,349                    (77 )
Depreciation and amortization                                   14,706                  5,029
Provision for income taxes                                       6,646                 10,994
Impact of the deferred revenue fair value adjustment             4,509                     -
Acquisition related costs                                          998                    476
Share-based compensation                                         2,766                  1,968

Adjusted EBITDA                                          $      47,182          $      33,951

Adjusted EBITDA Margin                                            24.2 %                 26.4 %

The table below reconciles Net income to Adjusted net income (in thousands):

                                                               Three Months Ended March 31,
                                                                 2013                 2012
Net income                                                  $       11,208       $       15,561
Impact of the deferred revenue fair value adjustment (1)             3,210                   -
Acquisition related costs (1)                                          624                  279
Share-based compensation (1)                                         1,690                1,182
Amortization of acquisition related intangibles (1)                  5,955                  825

Adjusted net income                                         $       22,687       $       17,847

(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: 29% for the deferred revenue fair value adjustment; 37% for acquisition related costs; 39% for share-based compensation; and 32% for amortization of acquisition related intangibles.

The table below reconciles Diluted earnings per share to Non-GAAP diluted earnings per share:

                                                          Three Months Ended March 31,
                                                          2013                     2012
Diluted earnings per share                           $         0.33           $         0.46
Impact of the deferred revenue fair value
adjustment                                                     0.10                       -
Acquisition related costs                                      0.01                     0.01
Share-based compensation                                       0.05                     0.04
Amortization of acquisition related
intangibles                                                    0.18                     0.02

Non-GAAP diluted earnings per share                  $         0.67           $         0.53

Critical Accounting Policies

Our accounting policies require us to apply methodologies, estimates and judgments that have a significant impact on the results we report in our consolidated financial statements. In our 2012 Annual Report on Form 10-K, we discussed those material policies that we believe are critical and require the use of complex judgment in their application. There have been no changes to our critical accounting policies since that time.


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