The Corporate Executive Board Company (CEB)

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Corporate Executive Board (CEB)

Q1 2013 Earnings Call

May 02, 2013 9:00 am ET

Executives

Richard S. Lindahl - Chief Financial Officer and Principal Accounting Officer

Thomas L. Monahan - Chairman and Chief Executive Officer

Analysts

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Timothy McHugh - William Blair & Company L.L.C., Research Division

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Ato Garrett - Deutsche Bank AG, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Presentation

Operator

Good morning, and welcome to CEB's First Quarter 2013 Conference Call. Today's call is being recorded and will be available for replay beginning today and through May 12 by dialing (719) 457-0820. The replay passcode is 8645042. The replay will also be available beginning later today and through May 12 at the company's website and at www.earnings.com.

To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and following the Investors link to yesterday's news release. You'll also find a PDF of the supporting materials that the company will use in its prepared remarks this morning by going to the Investors page and following the link to the first quarter 2013 earnings conference call. Please review the second page of these materials, which includes important information about any forward-looking information included in the presentation.

This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding CEB's expected quarterly and annual financial performance for fiscal 2013 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in CEB's filings with the Securities and Exchange Commission and in its first quarter news release.

Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

At this time, for opening remarks, I'd like to turn the conference over to the company's Chief Financial Officer, Mr. Richard Lindahl. Please go ahead, sir.

Richard S. Lindahl

Thank you, Scott, and good morning, everyone. This is Rich Lindahl, CFO of CEB. Thank you for calling or logging in to our first quarter 2013 earnings report.

On today's call, I will review our first quarter financial results and discuss our 2013 guidance. Tom Monahan, our Chief Executive Officer, will then take over to share additional insight on our operations in the quarter and our priorities for the year ahead. Then we will take your questions.

Please turn to Slide 3 of our presentation and we'll start with a quick summary of today's report. The headline is that we are off to a good start in 2013. We enjoyed continued growth in both our CEB and SHL operating segments and have taken important steps forward on our investment plan for the year.

We continue to pursue our growth strategy by leveraging our capabilities even as we navigate around the pockets of volatility that remain in the market. Overall, we are pleased with our progress on the year and comfortable reaffirming our guidance.

Let's turn to Slide 4 for a summary recap of our results. Revenue was $190.3 million in the first quarter of 2013, an increase of 48.1% on a year-over-year basis.

Adjusted EBITDA margin was 24.2% in the first quarter compared to 26.4% in the first quarter of 2012. Diluted earnings per share were $0.33, and non-GAAP diluted earnings per share increased 26.4% to $0.67 for the first quarter of 2013.

Finally, cash flows from operations were $111.4 million in the first quarter, which as you know, is our seasonally strongest cash flow period.

Now let's turn to Slide 5 to review our key operating metrics, which were solid across the board and consistent with the seasonal dynamics of our business. Along with the fourth quarter, the first quarter of the year is typically one of the strongest in terms of total bookings. However, unlike the fourth quarter, the first quarter is more heavily weighted towards contract renewals than new business, as our teams focus on setting up and building their pipelines for the year ahead. As a result, while we usually see good year-over-year growth in the first quarter, on a sequential basis, it is common for contract value, institution accounts and quarterly revenue to decline. The SHL segment shares many of these same characteristics as the CEB segment, and so these outcomes are relatively consistent across the business.

CEB segment contract value at March 31, 2013, was $548.7 million, up 11.9% versus March 31, 2012, and reflecting solid bookings growth over the past year.

For the SHL segment, adjusted revenue was $46.6 million in the first quarter, an increase of 2.2% compared to the first quarter of 2012. Growth in adjusted revenue was somewhat constrained by the stronger U.S. dollar during the quarter. As on a constant currency basis, SHL adjusted revenue growth was 3.6%.

CEB segment wallet retention rate was 100% at March 31, 2013, in the normal range and up slightly compared to the 99% the prior year. SHL segment wallet retention rate was 96% at March 31, 2013, also in the normal range and reflective of the strong recurring revenue we see in that part of the business.

Total CEB segment member institutions grew 5.5% to 6,048 in the first quarter, and we continue to add institutions in both our middle market and large corporate memberships.

Finally, CEB segment contract value per member institution was $90,700 at March 31, a 6.1% increase over the first quarter of 2012.

Please turn now to Slide 6 and I'll review key segment highlights for the quarter. As you can see, our first quarter results benefited from both solid organic gains in our CEB segment and the addition of SHL. CEB segment revenue was $148.1 million in the first quarter, a 15.3% increase compared to $128.5 million in the first quarter of 2012.

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