Print Page  |  Close Window

Press Release

The Corporate Executive Board Reports Third Quarter Earnings of $0.47 Per Diluted Share and 29% Revenue Growth

WASHINGTON--(BUSINESS WIRE)--Oct. 25, 2005--The Corporate Executive Board Company (CEB) (NASDAQ/NM: EXBD) today announced financial results for the third quarter and nine months ended September 30, 2005. Revenues for the third quarter increased 29.0% to $93.4 million from $72.4 million for the third quarter of 2004. Net income increased 63.9% to $19.6 million from $12.0 million. Earnings per diluted share for the third quarter increased 56.7% to $0.47 from $0.30 for the third quarter of 2004.

For the first nine months of 2005, revenues were $262.4 million, a 28.9% increase from $203.6 million for the first nine months of 2004. Net income grew 46.7% to $53.8 million from $36.7 million. Earnings per diluted share for the first nine months of 2005 increased 42.4% to $1.31 from $0.92 for the same prior-year period.

In August 2004, the Company entered into a new lease agreement for office facilities in Rosslyn, Virginia beginning in 2008. Under the terms of the new lease, several of CEB's prior leases have been assumed by the new lessor. With these lease transactions, the Company recorded a one time non-cash charge of $5.2 million in the three months ended September 30, 2004 related to the assumption of CEB's existing leases by the new lessor. To present results on a comparable basis, the Company is providing adjusted income and earnings per diluted share that exclude this non-cash charge.

With this change, net income for the third quarter of 2005 increased 27.0% to $19.6 million from an adjusted $15.4 million in 2004. Net income for first nine months of 2005 increased 34.0% to $53.8 million from an adjusted $40.1 million in 2004. Earnings per diluted share for the third quarter of 2005 increased 23.7% to $0.47 from an adjusted $0.38. Earnings per diluted share for the first nine months of 2005 increased 29.7% to $1.31 from an adjusted $1.01 in 2004. A reconciliation of CEB's reported and adjusted results is set forth in the notes to the Financial Highlights section below.

During the quarter ended September 30, 2005, the Company acquired substantially all of the assets and technology of the Executive Performance Group (EPG) to support the launch of the Shared Services Roundtable membership program. Under the terms of the EPG acquisition agreement, the initial purchase price of $8.2 million will be increased if certain future business operating conditions are achieved on or before December 31, 2008. Any additional payments would be recorded as a purchase price adjustment.

Tom Monahan, CEO of the Corporate Executive Board commented, "We are obviously very happy with our third quarter performance. With our cross-sell ratio climbing to 3.74 from 3.24 this time last year, new clients running at the high end of their target range, continued modest price increases and a strong suite of new program launches, we are well positioned going into the close of 2005. You can see the total impact of these key growth metrics reflected in our 29.7% contract value growth for the quarter - the best leading indicator for our business.

"Today, I am also delighted to announce our 35th and 36th membership programs: the Compensation Roundtable and the Shared Services Roundtable, each of which serves an exciting group of senior executives facing important corporate challenges. The Compensation Roundtable, which serves the senior HR executives responsible for designing and administering compensation plans for the organization, has already begun helping members address urgent issues such as introducing alternatives to equity-based compensation systems and ensuring that plan design maximizes the retention and attraction of key employees. As always, the program's inaugural research and service agenda benefit from the guidance of a tremendous group of charter members, including Abbott Laboratories, Freddie Mac, Nokia Corporation and U.S. Bancorp. The program is off to a strong start and is already receiving very positive feedback from our early members.

"I'm also pleased to announce the launch the Shared Services Roundtable, which serves the very senior executives responsible for driving the performance of companywide shared services centers. SSR will help these executives manage a growing volume of Finance and HR transactions to ever-higher quality standards at a decreasing cost. To accelerate the launch of this program, CEB has acquired the assets of the Executive Performance Group, a leading provider of data and research about Finance and HR processes to senior finance and shared services executives. In addition to their proven web-based benchmarking methodology, EPG brings with it a great list of charter members, a library of completed research and online performance benchmarks and a terrific research team. The current list of charter members includes Best Buy Co., Inc., Merrill Lynch & Co., Inc., Motorola, Inc., and The Dow Chemical Company. The early feedback from our members has also been very positive."

Share Repurchase

During the nine months ended September 30, 2005, the Company repurchased approximately 810,170 shares of its common stock at a total cost of approximately $57.4 million. Repurchases will continue to be made in the open market and through privately negotiated transactions subject to market conditions. No minimum number of shares has been fixed. The Company has funded, and expects to continue to fund, its share repurchases with cash on hand and cash generated from operations. At September 30, 2005, the Company had $492.6 million in cash and marketable securities and no debt.

Outlook for 2005

The following statements summarize the Company's guidance for 2005.

The Company is increasing its target revenue guidance for the fourth quarter to $98 million. For the full year, the Company expects continued modest expansion in the operating margin within its target annual range of 25-30%. As in the past, the operating margin may fluctuate on a quarterly basis.

For 2005, the Company expects interest income of approximately $13.4 million, an effective income tax rate of approximately 33.5% and diluted weighted shares outstanding of approximately 41.0 million to 41.2 million.

The Company is also raising its guidance on earnings per diluted share for the fourth quarter and the full year to $0.51 and $1.82, respectively.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth below and in CEB's 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. 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, difficulties we may experience in anticipating market trends, our need to attract and retain a significant number of highly skilled employees, 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, various factors that could affect our estimated income tax rate or our ability to use our existing deferred tax assets, whether the Washington, D.C. Office of Tax and Revenue withdraws our QHTC status 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 CEB's filings with the U.S. Securities and Exchange Commission, including, but not limited to, its 2004 Annual Report on Form 10-K. The forward-looking statements in this press release are made as of October 25, 2005 and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

The Corporate Executive Board Company is a leading provider of best practices research and analysis focusing on corporate strategy, operations and general management issues. CEB provides its integrated set of services currently to more than 2,300 of the world's largest and most prestigious corporations, including over 80% of the Fortune 500. These services are provided primarily on an annual subscription basis and include best practices research studies, executive education seminars, customized research briefs and Web-based access to a library of over 275,000 corporate best practices.


                 THE CORPORATE EXECUTIVE BOARD COMPANY
                         Financial Highlights
                 (in thousands, except per share data)

                             Three Months Ended    Nine Months Ended
                                September 30,         September 30,
                             ------------------    ------------------
                                2005     2004        2005      2004
                                ----     ----        ----      ----
Financial Highlights
Revenues                       $93,432  $72,424    $262,391  $203,601
Net income                     $19,597  $11,954    $ 53,785  $ 36,667
Basic earnings per share       $  0.49  $  0.31    $   1.36  $   0.96
Diluted earnings per share     $  0.47  $  0.30    $   1.31  $   0.92
Weighted average shares
 outstanding:
  Basic                         39,808   38,990      39,585    38,131
  Diluted                       41,336   40,379      41,049    39,674

Adjusted operating income (1)  $25,975  $20,630    $ 71,212  $ 53,006
  Adjusted net income (1)      $19,597  $15,432    $ 53,785  $ 40,145
Adjusted diluted earnings per
 share (1)                     $  0.47  $  0.38    $   1.31  $   1.01

(1) Reconciliation of GAAP to adjusted operating income, adjusted net
    income and adjusted diluted earnings per share:

Operating income, as reported  $25,975  $15,420    $ 71,212  $ 47,796
  Non-cash lease
   restructuring costs              --    5,210          --     5,210
                               -------  -------    --------  --------
  Adjusted operating income    $25,975  $20,630    $ 71,212  $ 53,006
                               =======  =======    ========  ========

Net income, as reported        $19,597  $11,954    $ 53,785  $ 36,667
  Non-cash lease restructuring
   costs, net of tax                --    3,478          --     3,478
                               -------  -------    --------  --------
  Adjusted net income          $19,597  $15,432    $ 53,785  $ 40,145
                               =======  =======    ========  ========

Diluted earnings per share,
 as reported                   $  0.47  $  0.30    $   1.31  $   0.92
  Non-cash lease restructuring
   costs, net of tax                --     0.08          --      0.09
                               -------  -------    --------  --------
  Adjusted diluted earnings
   per share                   $  0.47  $  0.38    $   1.31  $   1.01
                               =======  =======    ========  ========

The Company believes its calculation of adjusted income from
operations, net income and diluted earnings per share provides
additional information about CEB's ongoing operating performance and
provides additional information to compare to prior periods. Adjusted
financial results should not be considered as measures of financial
performance under accounting principles generally accepted in the
United States, and the items excluded from them are significant
components in understanding and assessing financial performance.
Because adjusted financial results are not measurements determined in
accordance with accounting principles generally accepted in the United
States and are thus susceptible to varying calculations, they may not
be comparable as presented to other similarly titled measures of other
companies.

                 THE CORPORATE EXECUTIVE BOARD COMPANY
             Operating Statistic and Financial Highlights
                 (in thousands, except per share data)
                              (Unaudited)

                         Three Months Ended         Nine Months Ended
                Selected   September 30,   Selected   September 30,
                 Growth  ------------------ Growth  -----------------
                 Rates     2005      2004   Rates    2005      2004
                -------- -------    ------- ------  ------    -------

Operating
  Statistic

Contract value(1)
 (at period end)   29.7% $350,730  $270,497

Financial
 Highlights
Revenues           29.0% $ 93,432  $ 72,424  28.9% $262,391  $203,601
Cost of services           31,075    21,852          87,220    65,484
                         --------  --------        --------  --------
     Gross profit          62,357    50,572         175,171   138,117

Member relations
 and marketing             23,734    18,657          68,696    55,101
General and
 administrative            11,015     9,320          29,749    24,297
Depreciation                1,633     1,965           5,003     5,305
Non-cash lease
 restructuring
 costs                         --     5,210              --     5,210
Stock option and
 related expenses              --        --             511       408
                         --------  --------        --------  --------
     Income from
      operations           25,975    15,420          71,212    47,796

Other income, net           3,494     2,627           9,667     7,136

Income before
 provision for
 income taxes              29,469    18,047          80,879    54,932
Provision for
 income taxes               9,872     6,093          27,094    18,265
                         --------  --------        --------  --------
     Net income    63.9% $ 19,597  $ 11,954  46.7% $ 53,785  $ 36,667
                         ========  ========        ========  ========

Basic earnings
 per share               $   0.49  $   0.31        $   1.36  $   0.96
Diluted earnings
 per share         56.7% $   0.47  $   0.30  42.4% $   1.31  $   0.92

Weighted average
 shares
 outstanding
  Basic                    39,808    38,990          39,585    38,131
  Diluted                  41,336    40,379          41,049    39,674

Adjusted income
 from operations   25.9% $ 25,975  $ 20,630  34.3% $ 71,212  $ 53,006
Adjusted net
 income            27.0% $ 19,597  $ 15,432  34.0% $ 53,785  $ 40,145
Adjusted diluted
 earnings per
 share             23.7% $   0.47  $   0.38  29.7% $   1.31  $   1.01

Percentages of
 Revenues
Gross profit                 66.7%     69.8%           66.8%     67.8%
Member relations
 and marketing               25.4%     25.8%           26.2%     27.1%
General and
 administrative              11.8%     12.9%           11.3%     11.9%
Adjusted income
 from operations             27.8%     28.5%           27.1%     26.0%
Net income                   21.0%     16.5%           20.5%     18.0%

(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.

                 THE CORPORATE EXECUTIVE BOARD COMPANY
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                            (in thousands)

                                               Sept. 30,   Dec. 31,
                                                 2005        2004
                                              ----------- ----------
                                              (Unaudited)

Assets

Current assets:
   Cash and cash equivalents                    $325,681    $113,996
   Marketable securities                          10,027      50,292
   Membership fees receivable, net                54,297      97,106
   Deferred income taxes, net                     17,106      26,121
   Deferred incentive compensation                 8,389       9,277
   Prepaid expenses and other current assets       7,383       8,107
                                                --------    --------
       Total current assets                      422,883     304,899

Deferred income taxes                              2,164       3,466
Marketable securities                            156,869     252,689
Goodwill and other intangibles                     8,592           -
Property and equipment, net                       18,225      17,397
                                                --------    --------
       Total assets                             $608,733    $578,451
                                                ========    ========
Liabilities and stockholders' equity

Current liabilities:
   Accounts payable and accrued liabilities     $ 29,629    $ 17,450
   Accrued incentive compensation                 20,803      18,213
   Deferred revenues                             177,387     205,494
                                                --------    --------
       Total current liabilities                 227,819     241,157

Other liabilities                                  9,494       9,833
                                                --------    --------
       Total liabilities                         237,313     250,990

Total stockholders' equity                       371,420     327,461
                                                --------    --------
       Total liabilities and
        stockholders' equity                    $608,733    $578,451
                                                ========    ========
                 THE CORPORATE EXECUTIVE BOARD COMPANY
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands)
                              (Unaudited)


                                                   Nine Months Ended
                                                      September 30,
                                                  --------------------
                                                    2005      2004
                                                  --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                   $ 53,785  $  36,667
     Adjustments to reconcile net income to net
      cash
        flows provided by operating activities:
        Depreciation                                 5,171      5,305
        Deferred income taxes                       26,989     17,472
        Non-cash lease restructuring costs              --      5,210
        Amortization of marketable securities
         premiums, net                               1,571      2,071
        Changes in operating assets and
         liabilities:
            Membership fees receivable, net         42,932     19,097
            Deferred incentive compensation            888      1,971
            Prepaid expenses and other current
             assets                                  4,369     (1,857)
            Accounts payable and accrued
             liabilities                             7,904      3,356
            Accrued incentive compensation           2,635       (277)
            Deferred revenues                      (28,686)   (12,937)
            Other liabilities                         (484)       549
                                                  --------- ----------
                Net cash flows provided by
                  operating activities             117,074     76,627
                                                  --------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment, net        (6,378)    (6,609)
     Acquisitions, net of cash acquired             (8,136)         -
     Maturity and sale (purchase) of marketable
        securities, net                            132,357   (160,796)
                                                  --------- ----------
                 Net cash flows provided by (used
                  in) investing activities         117,843   (167,405)
                                                  --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from the exercise of common stock
      options                                       44,977     55,322
     Proceeds from the issuance of common stock
      under the employee stock purchase plan         1,015        662
     Purchase of treasury shares                   (57,390)   (22,736)
     Payment of dividends                          (11,834)    (8,647)
     Reimbursement of common stock offering costs       35        225
     Payment of common stock offering costs            (35)      (121)
                                                  --------- ----------
                 Net cash flows (used in)
                  provided by financing
                  activities                       (23,232)    24,705
                                                  --------- ----------

NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                              211,685    (66,073)

Cash and cash equivalents, beginning of period     113,996    118,568
                                                  --------- ----------

Cash and cash equivalents, end of period          $325,681  $  52,495
                                                  ========  ==========

    CONTACT: The Corporate Executive Board Company
             Timothy R. Yost, 202-777-5455
             heroldl@executiveboard.com
             www.executiveboard.com

    SOURCE: The Corporate Executive Board Company