CEB Inc. (CEB)

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Corporate Executive Board (CEB)

Q3 2012 Earnings Call

November 01, 2012 9:00 am ET

Executives

Thomas L. Monahan - Chairman and Chief Executive Officer

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

Analysts

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

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

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Presentation

Operator

Good morning, welcome to the Corporate Executive Board's Third Quarter 2012 Conference Call. Today's call is being recorded and will be available for replay beginning today and through November 12 by dialing (719) 457-0820. The replay passcode is 8546530. The replay will also be available beginning later today and through November 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 -- or this morning's news release, excuse me.

You will 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 Third Quarter 2012 Earnings Conference Call. Please review the second page of these materials, which includes important information about 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 the Corporate Executive Board's expected quarterly and annual financial performance for fiscal 2012 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're hereby cautioned that these statements may be affected by important factors, among others, set forth in the Corporate Executive Board's filings with the Securities and Exchange Commission and in its third 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 Chairman and Chief Executive Officer, Mr. Tom Monahan. Please go ahead, sir.

Thomas L. Monahan

Thanks, Scott. Good morning, and thanks for calling in and/or logging into the CEB Q3 2012 conference call. Before I begin my remarks, let me say a brief note of thanks to everyone who accommodated our moving the timing of this call. We appreciate the flexibility in light of the weather events this week. Let us also send best wishes to our colleagues on this call or not of this call who have been significantly affected by the weather events.

Let me layout a roadmap for how we'll spend our time together. First, I'll provide a quick summary of the financials. Then I'll walk through our core strategic priorities and our longer-term financial goals. I'll then hand off to Rich who will walk through the financials in a bit more detail.

It was a very busy quarter at CEB. I'm proud of how our teams continued to execute well in a very complex global environment, even as we announced and closed a significant transaction. We emerged from the quarter with great momentum in our largest markets, an even stronger competitive platform and real clarity about where we need to target our energies and closed -- to close the year strong and set up a great 2013.

Revenue for the quarter was $164.7 million, up 35.5% from this quarter last year. Adjusted EBITDA margin for the quarter was 29.1%, up from 23.5% last year at this time. Non-GAAP EPS is $0.78 on the quarter, up from $0.47 last year at this time.

For the full year-to-date, revenue was up 21.6% and non-GAAP EPS is $1.85 through 3 quarters, an increase of 50%. At the highest level, the legacy CEB products are tracking to deliver growth and profit a little ahead of our expectations and our SHL products are tracking below their historical averages due to some transition issues and a few difficult markets. Let me add some color to the financial data. Please turn to Page 3.

The quarter continued to be a tale of 3 regions, 2 with considerable strength and one with some shorter term growth challenges. North America, both across the CEB businesses and our new SHL business, continued to see very healthy rates of organic growth. The APAC area broadly was a source of overall strength.

Even though economic conditions are less than stellar across these regions, our teams generally did a great job linking our resources to the most important drivers of business value in our member P&Ls and earned the right to grow.

Growing in Europe continued to be very difficult. Given SHL's broader exposure to Europe, this affected the overall growth of this business more significantly, which you saw in the 8-K, and continued into the quarter. Obviously we were aware of this exposure and incorporated it into our valuation of the business. At this point, a couple of their markets are tracking below our original projections for '12 but we have a lot of confidence that our go-forward plans for the business will yield solid growth across 2013.

Overall, SHL's growth for the year will fall below their historical trend. While market mix will play a role, I think it's also say safe to say that SHL's growth was affected by distraction factors from the acquisition. Their senior-most management team spent much of Q2 working on the sale and much of Q3 working on the integration in preparing for a few senior management shifts.

Given the solid wallet retention numbers that we're seeing in the business and huge opportunity in front of us, we believe that our ramp back to normal growth ranges is largely within our control but will take several quarters to move through the transition cycle. Overall, we couldn't be more excited about the potential of this combination or with the pace at which our teams are working to make this real for customers.

Conversely, given our overwhelming North American footprint, overall CEB organic growth was quite strong. The sum of these puts and takes not only places us on track for solid growth andn profit in 2012 but anchors our 2013 planning on our now larger portfolio, driving it toward the historical 8% to 13% organic growth rate against the backdrop of industry-leading margins. We'll obviously give you a more concrete picture early in 2013.

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