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Form 10-Q CORPORATE EXECUTIVE BOAR For: Mar 31

May 4, 2015 4:21 PM EDT
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-34849

 

 

THE CORPORATE EXECUTIVE BOARD COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   52-2056410

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

1919 North Lynn Street

Arlington, Virginia

  22209
(Address of principal executive offices)   (Zip Code)

(571) 303-3000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address or former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The Company had 33,460,457 shares of common stock, par value $0.01 per share, outstanding at April 24, 2015.

 

 

 


Table of Contents

THE CORPORATE EXECUTIVE BOARD COMPANY

INDEX TO FORM 10-Q

 

PART I. FINANCIAL INFORMATION

  3   

Item 1. Financial Statements

  3   

Condensed Consolidated Balance Sheets

  3   

Condensed Consolidated Statements of Operations

  4   

Condensed Consolidated Statements of Comprehensive (Loss) Income

  5   

Condensed Consolidated Statements of Cash Flows

  6   

Notes to Condensed Consolidated Financial Statements (Unaudited)

  7   

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

  13   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

  23   

Item 4. Controls and Procedures

  23   

PART II. OTHER INFORMATION

  23   

Item 1. Legal Proceedings

  23   

Item 1A. Risk Factors

  23   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  23   

Item 3. Defaults Upon Senior Securities

  23   

Item 4. Mine Safety Disclosures

  23   

Item 5. Other Information

  23   

Item 6. Exhibits

  24   

Signatures

  25   

 

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

THE CORPORATE EXECUTIVE BOARD COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

     March 31,
2015
    December 31,
2014
 
     (Unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 204,207     $ 114,934  

Accounts receivable, net

     190,915       283,069  

Deferred income taxes, net

     19,936       19,834  

Deferred incentive compensation

     28,397       25,779  

Prepaid expenses and other current assets

     28,000       21,245  
  

 

 

   

 

 

 

Total current assets

  471,455     464,861  

Deferred income taxes, net

  848     909  

Property and equipment, net

  109,317     112,524  

Goodwill

  423,153     441,207  

Intangible assets, net

  241,330     260,383  

Other non-current assets

  82,249     77,500  
  

 

 

   

 

 

 

Total assets

$ 1,328,352   $ 1,357,384  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable and accrued liabilities

$ 68,672   $ 89,696  

Accrued incentive compensation

  65,527     65,731  

Deferred revenue

  478,665     452,679  

Deferred income taxes, net

  396     190  

Debt – current portion

  17,769     15,269  
  

 

 

   

 

 

 

Total current liabilities

  631,029     623,565  

Deferred income taxes

  31,556     34,563  

Other liabilities

  124,730     122,832  

Debt – long term

  485,218     490,287  
  

 

 

   

 

 

 

Total liabilities

  1,272,533     1,271,247  

Stockholders’ equity:

Common stock, par value $0.01; 100,000,000 shares authorized, 45,241,859 and 45,040,249 shares issued, and 33,479,259 and 33,445,394 shares outstanding at March 31, 2015 and December 31, 2014, respectively

  452     450  

Additional paid-in capital

  469,388     460,913  

Retained earnings

  370,102     363,542  

Accumulated elements of other comprehensive income

  (37,692 )   (5,589

Treasury stock, at cost, 11,762,600 and 11,594,815 shares at March 31, 2015 and December 31, 2014, respectively

  (746,431 )   (733,179
  

 

 

   

 

 

 

Total stockholders’ equity

  55,819     86,137  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$ 1,328,352   $ 1,357,384  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

THE CORPORATE EXECUTIVE BOARD COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended March 31,  
     2015     2014  

Revenue

   $ 221,599      $ 209,437  

Costs and expenses:

    

Cost of services

     78,659        77,238  

Member relations and marketing

     66,085        66,763  

General and administrative

     28,805        29,125  

Acquisition related costs

     —          1,339   

Restructuring costs

     1,238        —     

Depreciation and amortization

     16,842        16,494  
  

 

 

   

 

 

 

Total costs and expenses

  191,629      190,959  
  

 

 

   

 

 

 

Operating profit

  29,970      18,478  

Other income (expense), net

Interest income and other

  5,726      (510 )

Interest expense

  (4,439   (4,926
  

 

 

   

 

 

 

Other income (expense), net

  1,287      (5,436 )
  

 

 

   

 

 

 

Income before provision for income taxes

  31,257      13,042  

Provision for income taxes

  12,167      5,386  
  

 

 

   

 

 

 

Net income

$ 19,090    $ 7,656  
  

 

 

   

 

 

 

Basic earnings per share

$ 0.57    $ 0.23  

Diluted earnings per share

$ 0.56    $ 0.22  

Weighted average shares outstanding:

Basic

  33,517      33,639  

Diluted

  33,855      34,072  

Dividends declared and paid per share

$ 0.375    $ 0.2625   

See accompanying notes to condensed consolidated financial statements.

 

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THE CORPORATE EXECUTIVE BOARD COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2015     2014  

Net income

   $ 19,090     $ 7,656  

Other comprehensive (loss) income:

    

Foreign currency translation adjustment

     (31,520     1,981   

Foreign currency hedges, net of tax (expense) benefit of ($0.3) million and $0.1 million in 2015 and 2014, respectively

     591        (152

Interest rate swaps, net of tax benefit of $0.8 million and $0.1 million in 2015 and 2014, respectively

     (1,174     (179
  

 

 

   

 

 

 

Comprehensive (loss) income

$ (13,013 $ 9,306   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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THE CORPORATE EXECUTIVE BOARD COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Three Months Ended March 31,  
     2015     2014  

Cash flows from operating activities:

    

Net income

   $ 19,090      $ 7,656   

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

    

Equity method investment loss

     837        —     

Depreciation and amortization

     16,842        16,494   

Amortization of credit facility issuance costs

     649        642   

Deferred income taxes

     (879     (1,150

Share-based compensation

     4,403        3,980   

Excess tax benefits from share-based compensation arrangements

     (3,829     (2,627

Foreign currency remeasurement (gain) loss

     (3,132     259   

Changes in operating assets and liabilities:

    

Accounts receivable, net

     90,359        82,742   

Deferred incentive compensation

     (2,718     (2,140

Prepaid expenses and other current assets

     (7,065     (7,190

Other non-current assets

     (6,008     5   

Accounts payable and accrued liabilities

     (16,607     (15,280

Accrued incentive compensation

     386        1,576   

Deferred revenue

     29,537        28,946   

Other liabilities

     2,253        605   
  

 

 

   

 

 

 

Net cash flows provided by operating activities

  124,118      114,518   

Cash flows from investing activities:

Purchases of property and equipment

  (6,112   (11,033

Cost method and other investments

  (339   —     

Acquisition of businesses, net of cash acquired

  —        (58,959
  

 

 

   

 

 

 

Net cash flows used in investing activities

  (6,451   (69,992

Cash flows from financing activities:

Payments of credit facility

  (2,688   (2,688

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

  366      249   

Excess tax benefits from share-based compensation arrangements

  3,829      2,627   

Purchase of treasury shares

  (6,092   —     

Withholding of shares to satisfy minimum employee tax withholding for restricted stock units

  (6,605   (4,490

Payment of dividends

  (12,530   (8,826
  

 

 

   

 

 

 

Net cash flows used in financing activities

  (23,720   (13,128

Effect of exchange rates on cash

  (4,674   690   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

  89,273      32,088   

Cash and cash equivalents, beginning of period

  114,934      119,554   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

$ 204,207    $ 151,642   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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THE CORPORATE EXECUTIVE BOARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Business and Basis of Presentation

The Corporate Executive Board Company (“CEB” or the “Company”) is a member-based advisory company that equips senior executives and their teams with insight and actionable solutions to drive corporate performance by combining the best practices of thousands of member companies with its proprietary research methodologies, benchmarking assets, and human capital analytics. This distinctive approach, pioneered by CEB, enables executives to harness peer perspectives and tap into breakthrough innovation without costly consulting or reinvention.

The accompanying condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and disclosures required for complete consolidated financial statements are not included. It is recommended that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and related notes in CEB’s 2014 Annual Report on Form 10-K.

In management’s opinion, all adjustments, consisting of a normal recurring nature, considered necessary for a fair presentation of the condensed consolidated financial position, results of operations, and cash flows at the dates and for the periods presented have been included. The condensed consolidated balance sheet presented at December 31, 2014 has been derived from the financial statements that were audited by CEB’s independent registered public accounting firm. The results of operations for the three months ended March 31, 2015 may not be indicative of the results that may be expected for the year ended December 31, 2015 or any other period within 2015.

In the fourth quarter of 2014, the Company adjusted the classification of certain costs within the SHL Talent Measurement segment. To conform to the current year presentation, the Company reclassified approximately $0.9 million and $0.6 million from Cost of services and Member relations and marketing, respectively, to General and administrative in the three months ended March 31, 2014. The reclassification did not have an impact on total costs and expenses or operating profit.

Note 2. Recent Accounting Pronouncements

Not yet adopted

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be adopted on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect this ASU will have a material impact on the Company’s consolidated financial statements or related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, and changes disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, and may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for existing contracts with remaining performance obligations. In April 2015, the FASB proposed a one-year deferral of the effective date to periods beginning after December 15, 2017 with early adoption permitted as early as the initial effective date. The Company is in the process of evaluating the methods of adoption allowed by the ASU and assessing its impact on the Company’s consolidated financial statements and related disclosures.

Note 3. Acquisitions and Investments

KnowledgeAdvisors

On February 28, 2014, the Company completed the acquisition of 100% of the equity interests of KnowledgeAdvisors™, Inc. (“Metrics That Matter™”). The purchase price, net of cash acquired, was $50.9 million. Metrics That Matter™ is a provider of analytics solutions for talent development professionals. Metrics That Matter™ analytics platform provides benchmarks that gauge the effectiveness of learning and development programs and allows Chief Human Resources Officers and Chief Learning Officers to improve employee competencies and generate stronger returns on talent investments. The allocation of the purchase price was finalized in the first quarter of 2015.

Talent Neuron

On January 14, 2014, the Company acquired the Talent Neuron™ platform from Zinnov LLC for a cash payment of approximately $8.0 million. The Talent Neuron™ platform is a web-based solution started in 2011 that provides global talent market intelligence data, software, and decision support to assist executives with key talent planning activities. The allocation of the purchase price was finalized as of December 31, 2014.

Other Investments

At March 31, 2015, the Company had approximately 20% equity ownership in Target Accounting Selling Group Limited (“TAS”), for which it accounts using the equity method of accounting. During the three months ended March 31, 2015, the Company recognized $0.8 million of net losses related to its TAS investment, which are included in Interest income and other in the Company’s condensed consolidated statements of operations. At March 31, 2015 and December 31, 2014, the aggregate carrying amount of $6.7 million and $7.5 million, respectively, was included in Other non-current assets in the condensed consolidated balance sheets.

During the three months ended March 31, 2015, the Company made an additional investment of $0.3 million in one of its existing private entity investments. At March 31, 2015 and December 31, 2014, the Company held a total of four investments in private entities, for which the cost method is used, with an aggregate carrying amount of $18.8 million and $18.5 million, respectively, included in Other non-current assets in the condensed consolidated balance sheets. As the Company either holds instruments that are other than common stock or in-substance common stock and do not have readily determinable fair values or where common stock or in-substance common stock is held, the Company believes that due to the size and nature of the investments, it is not able to exercise significant influence on the investee entities. These investments are carried at their original cost and evaluated each reporting period as to whether an event or change in circumstances has occurred in that period that may have an adverse effect on the net realizable value of the assets. Because the investee entities are private companies without exchange traded securities, the fair value of the underlying investment is not practicable to estimate.

In 2014, the Company purchased a $2.6 million senior subordinated convertible promissory note (the “Convertible Note”) from one of its existing private entity investments. The Convertible Note matures on August 12, 2018 and bears annual interest of 8%. The Company has the right to elect to convert the outstanding principal and unpaid accrued interest to common shares of the investee at any time on or prior to the maturity date. Further, the Convertible Note provides an automatic conversion to preferred shares upon the investee’s equity financing event. The Company has bifurcated the automatic conversion feature since it represents an embedded derivative. The Company has accounted for the Convertible Note as an available-for-sale security. The fair value of the Convertible Note and the bifurcated automatic conversion feature of approximately $2.6 million are included in Other non-current assets in the condensed consolidated balance sheet at March 31, 2015 and December 31, 2014.

 

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Table of Contents

Note 4. Fair Value Measurements

Measurements

The fair value hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

    Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

    Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

    Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company has segregated all assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the tables below (in thousands):

 

     March 31, 2015      December 31, 2014  
     Level 1      Level 2      Level 3      Level 1      Level 2      Level 3  

Financial assets

                 

Cash and cash equivalents

   $ 204,207       $ —        $ —        $ 114,934       $ —        $ —    

Investments held through variable insurance products in a Rabbi Trust

     —          20,020         —          —          19,357         —    

Available-for-sale securities

     —          —          2,643         —          —          2,643   

Forward currency exchange contracts

     —           1,230         —           —           —           —     

Financial liabilities

                 

Forward currency exchange contracts

   $ —        $ 382       $ —        $ —        $ 23       $ —    

Interest rate swaps

     —          2,673         —           —          717         —    

Investments held through variable insurance products in a Rabbi Trust consist of mutual funds available only to institutional investors. The fair value of these investments are based on the fair value of the underlying investments held by the mutual funds allocated to each share of the mutual fund using a net asset value approach. The fair value of the underlying investments held by the mutual funds are observable inputs. The fair value of foreign currency exchange contracts and interest rate swaps are based on bank quotations for similar instruments using models with market-based inputs.

There were no material changes in the Level 3 available-for-sale securities during the three months ended March 31, 2015.

The fair value of the Company’s long term debt is based on Level 2 inputs using quoted market prices for similar issuances after considering observable market-based inputs such as quality, interest rates, and other characteristics. The carrying value of the Company’s long term debt approximates its fair value as the terms and interest rates approximate market rates.

Certain assets, such as goodwill and intangible assets, and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is impairment). During the quarter ended June 30, 2014, the Company recorded an impairment loss of $39.7 million. Of this amount, $20.8 million related to the customer list intangible asset and $18.9 million related to the goodwill of the Personnel Decisions Research Institutes, Inc. (“PDRI”) reporting unit. This loss did not impact the Company’s liquidity position or cash flows. There were no goodwill or intangible asset impairment charges during the three months ended March 31, 2015 and 2014.

Note 5. Accounts Receivable, net

Accounts receivable, net consists of the following (in thousands):

 

     March 31, 2015      December 31, 2014  

Billed

   $ 116,903      $ 203,575  

Unbilled

     76,058        81,707  
  

 

 

    

 

 

 
  192,961     285,282  

Allowance for uncollectible revenue

  (2,046 )   (2,213 )
  

 

 

    

 

 

 

Accounts receivable, net

$ 190,915   $ 283,069  
  

 

 

    

 

 

 

 

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Table of Contents

Note 6. Goodwill

Changes in the carrying amount of goodwill were as follows (in thousands):

 

     March 31, 2015     December 31, 2014  
     CEB segment     SHL Talent
Measurement
segment
    Total     CEB segment     SHL Talent
Measurement
segment
    Total  

Gross goodwill, beginning of period

   $ 134,723      $ 347,984      $ 482,707      $ 93,719      $ 371,656      $ 465,375   

Goodwill acquired

     —          —          —          43,584        —         43,584   

Purchase accounting adjustments

     (1,415     —          (1,415     (2,479     —         (2,479

Impact of foreign currency

     (618     (16,021     (16,639     (101     (23,672     (23,773
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross goodwill, end of period

  132,690      331,963      464,653      134,723      347,984      482,707   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss, beginning of period

  (41,500   —       (41,500   (22,600   —       (22,600

Impairment loss

  —        —        —        (18,900   —       (18,900
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss, end of period

  (41,500   —       (41,500   (41,500   —       (41,500
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net goodwill, end of period

$ 91,190    $ 331,963    $ 423,153    $ 93,223    $ 347,984    $ 441,207   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill for certain of the Company’s foreign subsidiaries is recorded in their functional currency, which is their local currency, and therefore is subject to foreign currency translation adjustments.

Note 7. Other Liabilities

Other liabilities consist of the following (in thousands):

 

     March 31, 2015      December 31, 2014  

Deferred compensation

   $ 19,515      $ 19,145  

Lease incentives

     38,837        39,628  

Deferred rent benefit

     37,435        37,104  

Deferred revenue – long term

     15,437        13,867  

Other

     13,506        13,088  
  

 

 

    

 

 

 

Total other liabilities

$ 124,730   $ 122,832  
  

 

 

    

 

 

 

Note 8. Stockholders’ Equity and Share-Based Compensation

Share-Based Compensation

Share-based compensation expense is recognized on a straight-line basis, net of an estimated forfeiture rate, for those shares expected to vest over the requisite service period of the award, which is generally the vesting term of three or four years. Forfeitures are estimated at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate is based on historical experience.

The Company recognized total share-based compensation costs of $4.4 million and $4.0 million in the three months ended March 31, 2015 and 2014, respectively. These amounts are allocated to Cost of services, Member relations and marketing, and General and administrative expenses in the condensed consolidated statements of operations. At March 31, 2015, $37.5 million of total estimated unrecognized share-based compensation cost is expected to be recognized over a weighted-average period of approximately 3 years.

During the three months ended March 31, 2015, the Company granted 280,131 restricted stock units (“RSUs”) and 31,941 performance based restricted stock units (“PSAs”) with weighted-average grant date fair value of $73.12 and $72.39, respectively. Additionally, 198,273 RSUs with weighted-average grant date fair value of $48.31 vested during the three months ended March 31, 2015.

Dividends

In February 2015, the Board of Directors declared a first quarter 2015 cash dividend of $0.375 per share. The dividend of $12.5 million was paid on March 31, 2015 to stockholders of record at the close of business on March 16, 2015.

On April 24, 2015 the Board of Directors declared a second quarter cash dividend of $0.375 per share. The dividend is payable on June 30, 2015 to stockholders of record at the close of business on June 15, 2015.

Share Repurchases

In February 2015, the Company’s Board of Directors approved a $100 million stock repurchase program, which is authorized through December 31, 2016. Repurchases may be made through open market purchases or privately negotiated transactions. The timing of repurchases and the exact number of shares of common stock to be repurchased will be determined by the Company’s management, in its discretion, and will depend upon market conditions and other factors. The program will be funded using cash on hand and cash generated from operations. The Company repurchased approximately 84,000 shares for an aggregated purchase price of $6.6 million in the three months ended March 31, 2015.

Note 9. Derivative Instruments and Hedging Activities

The Company’s international operations are subject to risks related to currency exchange fluctuations. The Company uses forward currency contracts, designated as cash flow hedging instruments, to protect against foreign currency exchange rate risks inherent with revenue and cost reimbursement transactions. A forward currency contract obligates the Company to exchange a predetermined amount of one currency to make equivalent payments in another currency equal to the value of such exchanges.

In January 2015, the Company entered into forward currency contracts, which will settle at various times through December 31, 2015, to reduce the Company’s exposure to foreign currency exchange rate fluctuations. These contracts have been designated as cash flow hedges of anticipated revenues and expenses to be recognized in the local currency and are expected to have no or an immaterial amount of ineffectiveness. The notional amount of outstanding forward currency contracts was AU$6.5 million, £11.8 million, and €9.1 million.

In October 2013, the Company entered into interest rate swap arrangements with notional amounts totaling $275 million which amortize to $232 million through the August 2, 2018 maturity date of the Term A-1 Loan. The interest rate swap arrangements will effectively fix the Company’s interest payments on the hedged debt at approximately 1.34% plus the credit spread on the Term A-1 Loan. The arrangements, designated as cash flow hedging instruments, protect against adverse fluctuations in interest rates by reducing the Company’s exposure to variability in cash flows relating to interest payments on a portion of its outstanding debt.

 

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The Company formally documents all relationships between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking hedge transactions. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows from foreign currency exchange contracts is 12 months and from interest rate swaps is 41 months. The forward currency contracts and interest rate swaps are recognized in the condensed consolidated balance sheets at fair value. The Company’s asset and liability derivative positions are offset on a counterparty by counterparty basis if the contractual agreement provides for the net settlement of contracts with the counterparty in the event of default or termination of any one contract. Changes in the fair value measurements of the derivative instruments are reflected as adjustments to other comprehensive income (“OCI”) until such time as the actual foreign currency expenditures or interest payments are made and the unrealized gain/loss is reclassified from accumulated OCI to current earnings.

The fair value of derivative instruments on the Company’s condensed consolidated balance sheets was as follows (in thousands)

 

Balance Sheet Location

  March 31, 2015     December 31, 2014  

Derivatives designated as hedging instruments:

   

Asset Derivatives

   

Prepaid expenses and other current assets (foreign currency contracts)

  $ 1,230     $ —     

Liability Derivatives

   

Accounts payable and accrued liabilities (foreign currency contracts)

  $ 382      $ 23   

Other liabilities (interest rate swaps)

    2,673        717   

The pre-tax effect of derivative instruments on the Company’s condensed consolidated statements of operations was as follows (in thousands):

 

     Amount of Gain (Loss)
Recognized in OCI on
Derivative (Effective portion)
 
     Three Months Ended
March 31,
 

Derivatives in Cash Flow Hedging Relationships

   2015      2014  

Forward currency contracts

   $ 1,076       $ 100   

Interest rate swap arrangements

     (2,741      (1,106
     Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective portion)
 
     Three Months Ended
March 31,
 

Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective portion)

   2015      2014  

Revenue

   $ 312       $ —     

Cost of services

     (23      159   

Member relations and marketing

     (22      131   

General and administrative

     (7      63   

Interest expense

     (784      (808

Other income (expense), net

     (94      —     
  

 

 

    

 

 

 
$ (618 $ (455
  

 

 

    

 

 

 

Note 10. Restructuring Costs

In the fourth quarter of 2014, the Company committed to a workforce reduction plan (the “2014 Plan”) as it identified areas where changes to structure as a result of technology investments or process improvement created redundancies. Total pretax restructuring charges related to the 2014 Plan are estimated to be approximately $3.3 million, consisting primarily of severance and related termination benefits, of which the Company recorded $1.8 million in the fourth quarter of 2014. The remaining costs are expected to be recognized and all of the cash is expected to be paid in 2015.

Changes to the 2014 Plan restructuring liability are, as follows (in thousands):

 

     March 31, 2015      December 31, 2014  

Balance, beginning of period

   $ 1,830      $ —    

Costs incurred

     1,238        1,830  

Cash payments

     (1,016 )      —    
  

 

 

    

 

 

 

Balance, end of period

$ 2,052   $ 1,830  
  

 

 

    

 

 

 

 

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Note 11. Income Taxes

The Company computes its provision for income taxes by applying the estimated annual effective tax rate to income from operations and adjusting the provision for discrete tax items recorded during the period. US income taxes are not provided for the undistributed earnings of the Company’s foreign subsidiaries including SHL, as such earnings are deemed to be permanently reinvested locally.

The effective income tax rate in the three months ended March 31, 2015 and 2014 was 38.9% and 41.3% respectively. The effective income tax rate differed from the federal statutory rate of 35% due to state taxes, including the tax impact of state tax law changes in 2015, partly offset by the benefits of nontaxable foreign currency translation gains and the effect of financing transactions in the UK.

The Company made income tax payments of $20.2 million and $8.7 million in the three months ended March 31, 2015 and 2014, respectively. The Company had net prepaid income taxes of $6.9 million at March 31, 2015.

Note 12. Earnings per Share

A reconciliation of basic to diluted weighted average common shares outstanding is as follows (in thousands):

 

     Three Months Ended
March 31,
 
     2015      2014  

Basic weighted average common shares outstanding

     33,517        33,639  

Effect of dilutive common shares outstanding

     338        433  
  

 

 

    

 

 

 

Diluted weighted average common shares outstanding

  33,855     34,072  
  

 

 

    

 

 

 

Approximately 0.1 million shares in the three months ended March 31, 2014 have been excluded from the calculation of the dilutive effect shown above because their impact would be anti-dilutive. These shares related to share-based compensation awards.

Note 13. Commitments and Contingencies

Contingencies

From time to time, the Company is subject to litigation related to normal business operations. The Company vigorously defends itself in litigation and is not currently a party to, and the Company’s property is not subject to, any legal proceedings likely to materially affect the Company’s financial results.

The Company continues to evaluate potential tax exposures relating to sales and use, payroll, income and property tax laws, and regulations for various states in which the Company sells or supports its goods and services. Accruals for potential contingencies are recorded by the Company when it is probable that a liability has been incurred and the liability can be reasonably estimated. As additional information becomes available, changes in the estimates of the liability are reported in the period that those changes occur. The Company had a $4.5 million liability at March 31, 2015 and December 31, 2014, relating to certain sales and use tax regulations for states in which the Company sells or supports its goods and services. In April 2015, we paid approximately $3.7 million under a voluntary sales tax disclosure agreement.

Note 14. Changes in Accumulated Other Comprehensive Income (Loss)

Accumulated elements of other comprehensive income (loss) (“AOCI”) is a balance sheet item in the stockholders’ equity section of the Company’s condensed consolidated balance sheets. It is comprised of items that have not been recognized in earnings but may be recognized in earnings in the future when certain events occur. Changes in each component of AOCI in the three months ended March 31, 2015 are, as follows (in thousands)

 

    Cash Flow Hedge,
Net of Tax
    Foreign Currency
Translation
Adjustments
    Total  

Balance, beginning of year

  $ (429   $ (5,160   $ (5,589

Current period activity:

     

Net unrealized losses

    (939     —          (939

Reclassification of losses into earnings

    356        —          356   

Net translation of investments in foreign operations

    —          (21,746     (21,746

Net translation of intra-entity loans

    —          (9,774     (9,774
 

 

 

   

 

 

   

 

 

 

Net change in Accumulated other comprehensive income (loss)

  (583   (31,520   (32,103
 

 

 

   

 

 

   

 

 

 

Balance, end of period

$ (1,012 $ (36,680 $ (37,692
 

 

 

   

 

 

   

 

 

 

The translation impact of the intra-entity loans included in AOCI relates to those intercompany loans which the Company deems to be of a long-term investment nature.

Note 15. Segment Information

Operating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker of an enterprise. The Company has two reportable segments, CEB and SHL Talent Measurement. The CEB segment, which includes the Company’s historical business operations prior to the acquisition of SHL, provides comprehensive data analysis, research, and advisory services that align to executive leadership roles and key recurring decisions. CEB’s products and services focus on several key corporate functions across a wide range of industries. The CEB segment also includes the operations of PDRI, a service provider of customized personnel assessment tools and services to various agencies of the US government and also to commercial enterprises, and recently-acquired Metrics That Matter™ and Talent Neuron™.

The SHL Talent Measurement segment, which includes the operations of SHL (other than PDRI), provides cloud-based solutions for talent assessment, talent mobility, and decision support as well as professional services that support those solutions, enabling client access to data, analytics and insights for assessing and managing employees and applicants. SHL Talent Measurement provides assessments that assist customers in determining potential candidates for employment and career planning, consulting services that are customizations to the assessments, and training services related to use of assessments.

The Company evaluates the performance of its operating segments based on segment Adjusted revenue, segment Adjusted EBITDA, and segment Adjusted EBITDA margin. The Company defines segment Adjusted revenue as segment revenue before the impact of the reduction of SHL and Metrics That Matter™ revenue recognized in the post-acquisition period to reflect the adjustment of deferred revenue at the acquisition date to fair value (the “deferred revenue fair value adjustment”). The Company defines segment Adjusted EBITDA as segment net income (loss) before loss from discontinued operations, net of provision for income taxes; provision for income taxes;

 

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interest expense, net; net non-operating foreign currency gain (loss); equity method investment loss; depreciation and amortization; the impact of the deferred revenue fair value adjustment; acquisition related costs; restructuring costs; share-based compensation; gain on cost method investment; debt extinguishment costs; impairment loss; costs associated with exit activities; and gain on acquisition. This measure was revised in 2015 to exclude from Adjusted EBITDA non-operating foreign currency (gain) loss. Non-operating foreign currency (gain) loss primarily results from the remeasurement of foreign currency cash, receivable and payable balances held by CEB US and subsidiaries with the USD as their functional currency, USD cash balances held by subsidiaries with a functional currency other than the USD, certain intercompany notes, the balance sheets of non-US subsidiaries whose functional currency is the USD and any gain or loss on foreign currency hedges relating to these items included in net income. Segment Adjusted EBITDA margin refers to segment Adjusted EBITDA as a percentage of segment Adjusted revenue.

Management uses these non-GAAP financial measures to evaluate and compare segment operating performance. These segment 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.

Information for the Company’s reportable segments was as follows (in thousands):

 

     Three Months Ended
March 31,
 
     2015     2014  

Revenue

    

CEB segment

   $ 172,894     $ 160,719  

SHL Talent Measurement segment

     48,705       48,718  
  

 

 

   

 

 

 

Total revenue

$ 221,599   $ 209,437  
  

 

 

   

 

 

 

Adjusted revenue

CEB segment

$ 172,948   $ 161,019  

SHL Talent Measurement segment

  49,070     49,702  
  

 

 

   

 

 

 

Total Adjusted revenue

$ 222,018   $ 210,721  
  

 

 

   

 

 

 

Operating profit (loss)

CEB segment

$ 30,935    $ 22,374   

SHL Talent Measurement segment

  (965   (3,896
  

 

 

   

 

 

 

Total operating profit

$ 29,970    $ 18,478   
  

 

 

   

 

 

 

Adjusted EBITDA

CEB segment

$ 44,363   $ 35,628  

SHL Talent Measurement segment

  8,774     6,196  
  

 

 

   

 

 

 

Total Adjusted EBITDA

$ 53,137   $ 41,824  
  

 

 

   

 

 

 

Adjusted EBITDA margin

CEB segment

  25.7   22.1

SHL Talent Measurement segment

  17.9   12.5

Total Adjusted EBITDA margin

  23.9   19.8

Depreciation and amortization

CEB segment

$ 8,822   $ 7,792  

SHL Talent Measurement segment

  8,020     8,702  
  

 

 

   

 

 

 

Total depreciation and amortization

$ 16,842   $ 16,494  
  

 

 

   

 

 

 

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

 

     Three Months Ended
March 31,
 
     2015      2014  

Revenue

   $ 221,599      $ 209,437  

Impact of deferred revenue fair value adjustment

     419         1,284  
  

 

 

    

 

 

 

Adjusted revenue

$ 222,018    $ 210,721   
  

 

 

    

 

 

 

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

 

     Three Months Ended
March 31,
 
     2015     2014  

Net income

   $ 19,090     $ 7,656  

Provision for income taxes

     12,167        5,386   

Interest expense, net

     4,344        4,808   

Non-operating foreign currency (gain) loss

     (6,203     877   

Equity method investment loss

     837        —     

Depreciation and amortization

     16,842        16,494   

Impact of the deferred revenue fair value adjustment

     419        1,284   

Acquisition related costs

     —          1,339   

Restructuring costs

     1,238        —     

Share-based compensation

     4,403        3,980   
  

 

 

   

 

 

 

Total Adjusted EBITDA

$ 53,137    $ 41,824   
  

 

 

   

 

 

 

Total Adjusted EBITDA margin

  23.9   19.8
  

 

 

   

 

 

 

 

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Table of Contents

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.”

Business Overview

We are a leading member-based advisory company that equips senior executives and their teams with insight and actionable solutions to drive corporate performance. Our mission is to unlock the potential of organizations and leaders by advancing the science and practice of management. We do this by combining our advanced research and analytics with best practices of thousands of member companies with our proprietary research methodologies, benchmarking assets, and human capital analytics.

We operate through two reporting segments. The CEB segment includes the legacy CEB products and services provided to senior executives and their teams; PDRI, a subsidiary acquired as part of the 2012 acquisition of SHL; and our 2014 acquisitions, Metrics That Matter™ and the Talent Neuron™ platform. PDRI provides customized personnel assessment tools and services to various agencies of the US government and also to commercial enterprises. The SHL Talent Measurement segment provides cloud-based solutions for talent assessment, talent development, and talent strategy and analytics; decision support; as well as professional services to support those solutions.

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.

Our membership subscriptions include continuous access to 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: Human Resources; Finance; Innovation and Strategy; Legal, Risk and Compliance; Marketing and Communications; Sales and Service; and Information Technology. 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 offers professional services to Human Resources and Sales executives. Human Resources based professional services address the entire employee life cycle, helping executives improve business performance by realizing the value and potential of their people. Sales based professional services assist our member companies with changing the way they engage customers to ensure greater success through sales management training, sales staff development and organizational alignment. The term of professional services engagements varies based on the depth of the service purchased and the size of the member organization.

SHL Talent Measurement Segment

The SHL Talent Measurement segment represents the acquired SHL business, excluding PDRI, and is a global provider of cloud-based solutions for talent assessment, talent development, and talent strategy and analytics, decision support, as well as professional services to support these solutions, enabling client access to data, analytics, and insights for assessing and managing employees and applicants. SHL Talent Measurement 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.

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, Non-GAAP diluted earnings per share, and constant currency financial information, all of 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 “Adjusted revenue” refers to revenue before the impact of the reduction of SHL and Metrics That Matter™ revenue recognized in the post-acquisition period to reflect the adjustment of deferred revenue at the acquisition date to fair value (the “deferred revenue fair value adjustment”).

The term “Adjusted EBITDA” refers to net income (loss) before loss from discontinued operations, net of provision for income taxes; provision for income taxes; interest expense, net; net non-operating foreign currency gain (loss); equity method investment loss; depreciation and amortization; the impact of the deferred revenue fair value adjustment; acquisition related costs; restructuring costs; share-based compensation; gain on cost method investment; debt extinguishment costs; impairment loss; costs associated with exit activities; 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 (loss) before loss from discontinued operations, net of provision for income taxes and excludes the after tax effects of the impact of net non-operating foreign currency gain (loss); equity method investment loss; amortization of acquisition related intangibles; the deferred revenue fair value adjustment; acquisition related costs; restructuring costs; share-based compensation; gain on cost method investment; debt extinguishment costs; impairment loss; costs associated with exit activities; and gain on acquisition.

“Non-GAAP diluted earnings per share” refers to diluted earnings (loss) 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 net non-operating foreign currency gain (loss); equity method investment loss; amortization of acquisition related intangibles; the impact of the deferred revenue fair value adjustment; acquisition related costs; restructuring costs; share-based compensation; gain on cost method investment; debt extinguishment costs; impairment loss; costs associated with exit activities; and gain on acquisition.

We believe that these non-GAAP financial measures are relevant and useful supplemental information for evaluating our results of operations 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, including comparison against our competitors, when publicly providing our 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 similarly titled measures used by other companies.

 

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Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

 

    Certain business combination accounting entries and expenses related to acquisitions: We have adjusted for the impact of the deferred revenue fair value adjustment, amortization of acquisition related intangibles, and acquisition related costs. We incurred transaction and certain other operating expenses in connection with our acquisitions which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. We believe that excluding these acquisition related items from our non-GAAP financial measures provides useful supplemental information to our investors and is important in illustrating what our core operating results would have been had we not incurred these acquisition related items since the nature, size, and number of acquisitions can vary from period to period.

 

    Share-based compensation: Although share-based compensation is a key incentive offered to our employees, we evaluate our operating results excluding such expense. Accordingly, we exclude share-based compensation from our non-GAAP financial measures because we believe it provides valuable supplemental information that helps investors have a more complete understanding of our operating results. In addition, we believe the exclusion of this expense facilitates the ability of our investors to compare our operating results with those of other peer companies, many of which also exclude such expense in determining their non-GAAP measures, given varying valuation methodologies, subjective assumptions, and the variety and amount of award types that may be utilized.

 

    Net non-operating foreign currency gain (loss): Beginning in the first quarter of 2015, we adjusted for the impact of net non-operating foreign currency gains (losses) included in other income (expense). These items primarily result from the remeasurement of foreign currency cash balances held by CEB US and subsidiaries with the USD as their functional currency, USD cash balances held by subsidiaries with a functional currency other than the USD, certain intercompany notes, and the balance sheets of non-US subsidiaries whose functional currency is the USD. We believe this information is useful to investors to facilitate comparison of operating results and better identify trends in our businesses.

 

    Equity method investment loss and restructuring costs: We believe that excluding these items from our non-GAAP financial measures provides useful supplemental information to our investors and is important in illustrating what our core operating results would have been had we not incurred these items. We exclude these items because management does not believe they correlate to the ongoing operating results of the business.

CEB is a global company that reports financial information in USD. Foreign currency exchange rate fluctuations affect the amounts reported from translating its foreign revenues and expenses into USD. These rate fluctuations can have a significant effect on our reported operating results. As a supplement to our reported operating results, we present constant currency financial information, which is a non-GAAP financial measure. We use constant currency financial information to provide a framework to assess how our business performed excluding the effects of changes in foreign currency translation rates. Management believes this information is useful to investors to facilitate comparison of operating results and better identify trends in our businesses. To calculate Adjusted revenue on a constant currency basis, Adjusted revenue in the current period for amounts recorded in currencies other than the USD is translated into USD at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period). To calculate Adjusted EBITDA on a constant currency basis, Adjusted EBITDA in the current period for amounts recorded in currencies other than the USD is translated into USD at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period). In addition, Adjusted EBITDA on a constant currency basis excludes the net non-operating foreign currency gain (loss).

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 the most directly comparable GAAP measure is provided below (in thousands, except per-share amounts):

Adjusted Revenue

 

     Three Months Ended March 31, 2015      Three Months Ended March 31, 2014  
     CEB      SHL Talent
Measurement
     Total      CEB      SHL Talent
Measurement
     Total  

Revenue

   $ 172,894       $ 48,705       $ 221,599       $ 160,719       $ 48,718       $ 209,437   

Impact of the deferred revenue fair value adjustment

     54         365         419         300         984         1,284   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted revenue

$ 172,948    $ 49,070    $ 222,018    $ 161,019    $ 49,702    $ 210,721   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Constant Currency Adjusted Revenue

 

     Three Months Ended March 31, 2015  
     CEB      SHL Talent
Measurement
     Total  

Adjusted Revenue

   $ 172,948       $ 49,070       $ 222,018   

Currency exchange rate fluctuations

     2,626         4,594         7,220   
  

 

 

    

 

 

    

 

 

 

Constant currency Adjusted revenue

$ 175,574    $ 53,664    $ 229,238   
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

 

     Three Months Ended March 31, 2015     Three Months Ended March 31, 2014  
     CEB     SHL Talent
Measurement
    Total     CEB     SHL Talent
Measurement
    Total  

Net income

       $ 19,090          $ 7,656   

Provision for income taxes

         12,167            5,386   

Interest expense, net

         4,344            4,808   

Other (income) expense, net

         (5,631         628   
      

 

 

       

 

 

 

Operating profit (loss)

$ 30,935    $ (965   29,970    $ 22,374    $ (3,896   18,478   

Other income (expense), net

  3,408      2,223      5,631      (81   (547   (628

Net non-operating foreign currency (gain) loss

  (3,810   (2,393   (6,203   387      490      877   

Equity method investment loss

  643      194      837      —        —        —     

Depreciation and amortization

  8,822      8,020      16,842      7,792      8,702      16,494   

Impact of the deferred revenue fair value adjustment

  54      365      419      300      984      1,284   

Acquisition related costs

  —        —        —        1,339      —        1,339   

Restructuring costs

  290      948      1,238      —        —        —     

Share-based compensation

  4,021      382      4,403      3,517      463      3,980   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$ 44,363    $ 8,774    $ 53,137    $ 35,628    $ 6,196    $ 41,824   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

  25.7   17.9   23.9   22.1   12.5   19.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Constant Currency Adjusted EBITDA

 

     Three Months Ended March 31, 2015  
     CEB      SHL Talent
Measurement
     Total  

Adjusted EBITDA

   $ 44,363       $ 8,774       $ 53,137   

Currency exchange rate fluctuations

     148         1,416         1,564   
  

 

 

    

 

 

    

 

 

 

Constant currency Adjusted EBITDA

$ 44,511    $ 10,190    $ 54,701   
  

 

 

    

 

 

    

 

 

 

Adjusted Net Income

 

     Three Months Ended
March 31,
 
     2015      2014  

Net income

   $ 19,090       $ 7,656   

Net non-operating foreign currency (gain) loss (1)

     (5,388      794   

Equity method investment loss (1)

     577         —     

Amortization of acquisition related intangibles (1)

     6,368         6,500   

Impact of the deferred revenue fair value adjustment (1)

     310         908   

Acquisition related costs (1)

     —           802   

Restructuring costs (1)

     860         —     

Share-based compensation (1)

     2,733         2,458   
  

 

 

    

 

 

 

Adjusted net income

$ 24,550    $ 19,118   
  

 

 

    

 

 

 

Non-GAAP Diluted Earnings per Share

 

     Three Months Ended
March 31,
 
     2015      2014  

Diluted earnings per share

   $     0.56       $ 0.22   

Net non-operating foreign currency (gain) loss (1)

     (0.16      0.02   

Equity method investment loss (1)

     0.02         —     

Amortization of acquisition related intangibles (1)

     0.19         0.19   

Impact of the deferred revenue fair value adjustment (1)

     0.01         0.03   

Acquisition related costs (1)

     —           0.03   

Restructuring costs (1)

     0.03         —     

Share-based compensation (1)

     0.08         0.07   
  

 

 

    

 

 

 

Non-GAAP diluted earnings per share

$ 0.73    $     0.56   
  

 

 

    

 

 

 

 

(1) Adjustments are net of the annual estimated income tax effect using statutory rates based on the relative amounts allocated to each jurisdiction in the applicable period. The following income tax rates were used: 13% in 2015 and 10% in 2014 for the net non-operating foreign currency (gain) loss; 31% in 2015 for the equity method investment loss; 29% in 2015 and 30% in 2014 for the amortization of acquisition related intangibles; 26% in 2015 and 29% in 2014 for the impact of the deferred revenue fair value adjustment; 40% in 2014 for acquisition related costs; 31% in 2015 for restructuring costs; and 38% in 2015 and 2014 for share-based compensation.

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 2014 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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Consolidated Results of Operations

The following table presents an overview of our results of operations (in thousands):

 

     Three Months Ended
March 31,
 
     2015      2014  

Revenue

   $ 221,599      $ 209,437  

Costs and expenses:

     

Cost of services

     78,659         77,238   

Member relations and marketing

     66,085         66,763   

General and administrative

     28,805         29,125   

Acquisition related costs

     —           1,339   

Restructuring costs

     1,238         —     

Depreciation and amortization

     16,842         16,494   
  

 

 

    

 

 

 

Total costs and expenses

  191,629      190,959   
  

 

 

    

 

 

 

Operating profit

  29,970      18,478   

Other income (expense), net

Interest income and other

  5,726      (510

Interest expense

  (4,439   (4,926
  

 

 

    

 

 

 

Total other income (expense), net

  1,287      (5,436
  

 

 

    

 

 

 

Income before provision for income taxes

  31,257      13,042   

Provision for income taxes

  12,167      5,386   
  

 

 

    

 

 

 

Net income

$ 19,090    $ 7,656   
  

 

 

    

 

 

 

In the fourth quarter of 2014, we adjusted our classification of certain costs within the SHL Talent Measurement segment. To conform to the current year presentation, we reclassified approximately $0.9 million and $0.6 million from Cost of services and Member relations and marketing, respectively, to General and administrative in the three months ended March 31, 2014.

See “Segment Results” below for a discussion of revenue and costs and expenses by segment.

Our operating costs and expenses consist of:

 

    Cost of services, which represents the costs associated with the production of content and delivery of our services, consisting of salaries; share-based compensation; internal and external product advisors; the organization and delivery of membership meetings, seminars, and other events; third-party consulting; ongoing product development costs; production of published materials; costs of developing and supporting our membership Web platform and digital delivery of services and products; and associated support services.

 

    Member relations and marketing, which represents the costs of acquiring new customers and the costs of account management; consisting of salaries; sales incentives; share-based compensation; travel and related expenses; recruiting and training of personnel; sales and marketing materials; and associated support services; as well as the costs of maintaining our customer relationship management software.

 

    General and administrative, which represents the costs associated with the corporate and administrative functions; including human resources and recruiting; finance and accounting; legal; management information systems; facilities management; business development; and other. Costs include salaries; share-based compensation; third-party consulting and compliance expenses; and associated support services.

 

    Acquisition related costs, which represent transaction and integration costs incurred in connection with acquired companies. Integration costs primarily include branding; consolidation of office locations and associated exit costs; and consolidation of technology infrastructure.

 

    Restructuring costs, which consist primarily of severance and related termination benefits associated with our workforce reduction plan (the “2014 Plan”) for approximately 50 employees.

 

    Depreciation and amortization, consisting of amortization of intangible assets and depreciation of our property and equipment, including leasehold improvements; furniture, fixtures and equipment; capitalized software; and website development costs.

Other Income (Expense), net

The following table presents the components of Other income (expense), net (in thousands):

 

     Three Months Ended
March 31,
 
     2015      2014  

Interest expense

   $ (4,439 )    $ (4,926

Increase in fair value of deferred compensation plan assets

     417         188   

Net non-operating foreign currency gain (loss)

     6,203         (877

Equity method investment loss

     (837      —     

Interest income

     95         118   

Other

     (152      61   
  

 

 

    

 

 

 

Other income (expense), net

$ 1,287    $ (5,436
  

 

 

    

 

 

 

The decrease in interest expense in 2015 was primarily due to the repayment of our Term Facilities principal, resulting in a lower principal balance and thus lower interest expense. The net foreign currency gain in 2015 and loss in 2014 were primarily due to the remeasurement of cash held in US dollars by SHL Talent Measurement segment and the remeasurement of the CEB segment foreign subsidiaries whose functional currency is the US dollar. In the three months ended March 31, 2015, we recognized $0.8 million of losses associated with one of our investees, for which we account using the equity method of accounting.

Provision for Income Taxes

The Company computes its provision for income taxes by applying the estimated annual effective tax rate to income from operations and adjusting the provision for discrete tax items recorded during the period. US income taxes are not provided for the undistributed earnings of the Company’s foreign subsidiaries including SHL, as such earnings are deemed to be permanently reinvested locally.

 

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The effective income tax rate in the three months ended March 31, 2015 and 2014 was 38.9% and 41.3% respectively. The effective income tax rate differed from the federal statutory rate of 35% due to state taxes, including the tax impact of state tax law changes in 2015, partly offset by the benefits of nontaxable foreign currency translation gains and the effect of financing transactions in the UK.

The Company made income tax payments of $20.2 million and $8.7 million in the three months ended March 31, 2015 and 2014, respectively. The Company had net prepaid income taxes of $6.9 million at March 31, 2015.

Segment Results

CEB Segment Operating Data

 

     March 31,  
     2015     2014  

CEB segment Contract Value (in thousands) (1)

   $ 663,095      $ 620,830   

Constant currency CEB segment Contract Value (in thousands) (2)

   $ 677,592     

CEB segment Member institutions (3)

     6,961        6,559   

CEB segment Contract Value per member institution

   $ 95,112      $ 94,462   

Constant currency CEB segment Contract Value per member institution (2)

   $ 97,177     

CEB segment Wallet retention rate (4)

     95 %     99 %

Constant currency CEB segment Wallet retention rate (2)

     97  

 

(1) We define “CEB segment Contract Value,” at the end of the quarter, as the aggregate annualized revenue attributed to all agreements in effect on such date, without regard to the remaining duration of any such agreement. CEB segment Contract Value does not include the impact of PDRI.
(2) Calculated on a constant currency basis whereby financial information in the current period for amounts recorded in currencies other than the USD is translated into USD at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period).
(3) We define “CEB segment Member institutions,” at the end of the quarter, as member institutions with Contract Value in excess of $10,000. The same definition is applied to “CEB segment Contract Value per member institution.”
(4) We define “CEB segment Wallet retention rate,” at the end of the quarter, as the total current year segment Contract Value from prior year members as a percentage of the total prior year segment Contract Value. The CEB segment Wallet retention rate does not include the impact of PDRI.

CEB segment Contract Value increased $42.3 million, or 6.8%, at March 31, 2015 compared to March 31, 2014 primarily as a result of increased sales to new and existing large enterprise and middle market members. Constant currency CEB segment Contract Value increased $56.8 million, or 9.1%, at March 31, 2015 compared to March 31, 2014.

CEB Segment Results of Operations

The financial results of operations for the CEB segment (in thousands) are presented below:

 

     Three Months Ended
March 31,
 
     2015      2014  

Revenue

   $ 172,894       $ 160,719   

Costs and expenses:

     

Cost of services

     60,502         58,535   

Member relations and marketing

     51,037         50,397   

General and administrative

     21,308         20,282   

Acquisition related costs

     —           1,339   

Restructuring costs

     290         —     

Depreciation and amortization

     8,822         7,792   
  

 

 

    

 

 

 

Total costs and expenses

  141,959      138,345   
  

 

 

    

 

 

 

Operating profit

$ 30,935    $ 22,374   
  

 

 

    

 

 

 

CEB Segment Revenue

Revenue increased $12.2 million, or 7.6%, to $172.9 million in the three months ended March 31, 2015 from $160.7 million in the three months ended March 31, 2014.The increase in 2015 was primarily due to an increase in sales bookings with new and existing customers and the full quarter impact of Metrics That Matter™, which we acquired on February 28, 2014. In addition, revenue was impacted by fluctuations in foreign currencies against the US Dollar, primarily the British Pound and Australian Dollar.

Adjusted revenue increased $11.9 million, or 7.4 %, to $172.9 million in the three months ended March 31, 2015 from $161.0 million in the three months ended March 31, 2014. Constant currency Adjusted revenue increased $14.6 million, or 9.0%, to $175.6 million in the three months ended March 31, 2015 from $161.0 million in the three months ended March 31, 2014.

CEB Segment Costs and Expenses

Costs and expenses were $142.0 million in the three months ended March 31, 2015, an increase of $3.6 million from $138.3 million in the three months ended March 31, 2014. Changes in compensation and related costs, variable compensation, share-based compensation, third-party consulting costs, travel and related expenses, facilities costs, additional costs from the businesses we acquired, and the impact of changes in the exchange rates of the US dollar to the British pound sterling (“GBP”) and the Australian dollar all contributed to year-over-year variances in costs and expenses. These items are allocated to Cost of services, Member relations and marketing, and General and administrative expenses. We discuss the major components of costs and expenses on an aggregate basis below:

 

    Compensation and related costs, includes salaries, payroll taxes and benefits. The total expense was $71.0 million and $66.2 million in the three months ended March 31, 2015 and 2014, respectively, an increase of $3.8 million. The increase was primarily due to an increase in headcount, including the full quarter impact of additional personnel resulting from our acquisition of Metrics That Matter™.

 

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    Variable compensation consists of sales commissions and annual bonuses. The total expense was $20.1 million and $19.0 million in the three months ended March 31, 2015 and 2014, respectively, an increase of $1.1 million. The increase was primarily due to an increase in the expected payout of annual bonuses.

 

    Share-based compensation costs were $4.0 million and $3.5 million in the three months ended March 31, 2015 and 2014, respectively, an increase of $0.5 million. The increase was primarily due to an increase in the total fair value of awards granted in 2011 through 2015.

 

    Third-party consulting costs were $6.7 million and $9.0 million in the three months ended March 31, 2015 and 2014, respectively, a decrease of $2.3 million. The decrease was primarily due to a decrease in the amount of consulting time used for member-facing technology development and the implementation of operating systems enhancements.

 

    Travel and related expenses were $6.9 million and $7.7 million in the three months ended March 31, 2015 and 2014, respectively, a decrease of $0.8 million. The decrease was primarily due to a decrease in costs incurred in the delivery of advisory and research services.

 

    Allocated facilities costs, consisting primarily of rent, operating expenses, and real estate tax escalations, were $6.8 million and $7.3 million in the three months ended March 31, 2015 and 2014, respectively, a decrease of $0.5 million. The decrease was primarily due to additional sublease income from one of the subtenants of the CEB headquarters, which commenced in 2014.

 

    CEB segment operating expenses are impacted by currency fluctuations, primarily in the value of the GBP compared to the US dollar. The value of the GBP versus the US dollar was approximately $0.14, or 8% lower, on average, in the three months ended March 31, 2015 compared to the same period of 2014. Costs incurred for foreign subsidiaries will fluctuate based on changes in foreign currency rates in addition to other operational factors. We enter into cash flow hedges for our UK subsidiary to mitigate foreign currency risk, which offsets a portion of the impact foreign currency fluctuations have on the segment’s costs and expenses.

Cost of Services

The following table outlines the primary components of Cost of services (in thousands):

 

     Three Months Ended March 31,  
     2015      % of
Revenues
    2014      % of
Revenues
 

Compensation and related

   $ 33,844         19.6   $ 31,061         19.3

Variable compensation

     5,788         3.3        5,888         3.7   

Allocated facilities

     2,958         1.7        3,124         1.9   

Third-party consulting

     5,161         3.0        5,963         3.7   

Travel and related

     2,990         1.7        3,529         2.2   

Share-based compensation

     1,481         0.9        1,192         0.7   

Cost of services increased 3.4%, or $2.0 million, to $60.5 million in the three months ended March 31, 2015 from $58.5 million in the three months ended March 31, 2014. The $2.8 million increase in compensation and related costs was primarily due to an increase in headcount, including the full quarter impact of additional personnel resulting from our acquisition of Metrics That Matter™ on February 28, 2014.

Cost of services as a percentage of revenue was 35.0% and 36.4% in the three months ended March 31, 2015 and 2014, respectively.

Member Relations and Marketing

The following table outlines the primary components of Member relations and marketing (in thousands):

 

     Three Months Ended March 31,  
     2015      % of
Revenues
    2014      % of
Revenues
 

Compensation and related

   $ 26,897         15.6   $ 25,602         15.9

Variable compensation

     11,090         6.4        11,000         6.8   

Allocated facilities

     2,966         1.7        3,391         2.1   

Third-party consulting

     616         0.4        972         0.6   

Travel and related

     3,333         1.9        3,384         2.1   

Share-based compensation

     861         0.5        755         0.5   

Member relations and marketing increased 1.3%, or $0.6 million, to $51.0 million in the three months ended March 31, 2015 from $50.4 million in the three months ended March 31, 2014. The $1.3 million increase in compensation and related costs was primarily due to an increase in headcount, including the full quarter impact of additional personnel resulting from our acquisition of Metrics That Matter™ acquisition.

Member relations and marketing expense as a percentage of revenue was 29.5% and 31.4% in the three months ended March 31, 2015 and 2014, respectively.

 

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General and Administrative

The following table outlines the primary components of General and administrative (in thousands):

 

     Three Months Ended March 31,  
     2015      % of
Revenues
    2014      % of
Revenues
 

Compensation and related

   $ 10,230         5.9   $ 9,557         5.9

Variable compensation

     3,198         1.8        2,144         1.3   

Allocated facilities

     845         0.5        822         0.5   

Third-party consulting

     925         0.5        2,041         1.3   

Share-based compensation

     1,660         1.0        1,563         1.0   

General and administrative increased 5.1%, or $1.0 million, to $21.3 million in the three months ended March 31, 2015 from $20.3 million in the three months ended March 31, 2014. The $0.7 million increases in compensation and related costs was primarily due to increases in headcount. The $1.1 million increase in variable compensation was primarily due to an increase in the estimated payout of annual bonuses. The $1.1 million decrease in third-party consulting costs was primarily due to a decrease in the amount of expense associated with operating system enhancements.

General and administrative expense as a percentage of revenue was 12.3% and 12.6% in the three months ended March 31, 2015 and 2014, respectively.

Acquisition Related Costs

Acquisition related costs were $1.3 million in the three months ended March 31, 2014 and primarily related to the acquisitions and integration of Metrics That Matter™ and Talent Neuron™.

Depreciation and Amortization

The following table outlines the primary components of Depreciation and amortization (in thousands):

 

     Three Months Ended
March 31,
 
     2015      2014  

Depreciation

   $ 5,897       $ 5,134   

Amortization

     2,925         2,658   

Depreciation and amortization increased 13.2%, or $1.0 million, to $8.8 million in the three months ended March 31, 2015 from $7.8 million in the three months ended March 31, 2014. The $0.8 million increase in depreciation is a result of increased investments in hardware and software to support headcount growth and investments in member-facing technology, including internally developed software. The $0.3 million increase in amortization is a result of the Metrics That Matter™ and Talent Neuron™ acquisitions partially offset by the reduction in PDRI amortization, resulting from the second quarter 2014 customer list intangible asset impairment, and completion of useful lives of other intangible assets from prior acquisitions.

Depreciation and amortization expense as a percentage of revenue was 5.1% and 4.8% in the three months ended March 31, 2015 and 2014, respectively.

SHL Talent Measurement Segment Results of Operations

In the fourth quarter of 2014, we adjusted our classification of certain costs within the SHL Talent Measurement segment. To conform to the current year presentation, we reclassified approximately $0.9 million and $0.6 million from Cost of services and Member relations and marketing, respectively, to General and administrative in the three months ended March 31, 2014. The results of operations for the SHL Talent Measurement segment (in thousands) are presented below:

 

     Three Months Ended
March 31,
 
     2015      2014  

Revenue

   $ 48,705      $ 48,718   

Costs and expenses:

     

Cost of services

     18,157         18,703   

Member relations and marketing

     15,048         16,366   

General and administrative

     7,497         8,843   

Restructuring costs

     948         —     

Depreciation and amortization

     8,020         8,702   
  

 

 

    

 

 

 

Total costs and expenses

  49,670      52,614   
  

 

 

    

 

 

 

Operating loss

$ (965 $ (3,896
  

 

 

    

 

 

 

SHL Talent Measurement Segment Revenue

Revenue was unchanged at $48.7 million in three months ended March 31, 2015 and the three months ended March 31, 2014.

Adjusted revenue decreased $0.6 million, or 1.3%, to $49.1 million in the three months ended March 31, 2015 from $49.7 million in the three months ended March 31, 2014. The impact of the deferred revenue fair value adjustment was $0.4 million and $1.0 million in the three months ended March 31, 2015 and 2014, respectively. Constant currency Adjusted revenue increased $4.0 million, or 8.0%, to $53.7 million in the three months ended March 31, 2015 from $49.7 million in the three months ended March 31, 2014.

The SHL reporting unit includes international operations that subject us to risks related to currency exchange fluctuations. The functional currency of the SHL reporting unit subsidiaries are the local currencies. The subsidiaries contract and invoice in local currencies. In addition to the timing of service deliveries and increases and decreases in sales volume, revenue is further impacted by fluctuations in foreign currency rates, specifically, the exchange rate of the British Pound against the Australian Dollar, U.S. Dollar, and Euro.

SHL Talent Measurement Segment Costs and Expenses

Costs and expenses were $49.7 million in the three months ended March 31, 2015, a decrease of $2.9 million from $52.6 million in the three months ended March 31, 2014. The primary expenses recorded by the SHL Talent Measurement segment are compensation and related costs, variable compensation, travel and related costs, facilities costs, and third-party consulting costs. Costs and expenses are also impacted by changes in the exchange rates of GBP against the US dollar, Euro and other currencies. SHL costs and expenses are denominated primarily in the British Pound; therefore, with revenues being denominated in local currencies as discussed above, profits are impacted by the fluctuations in currencies against the British Pound. These items are allocated to Cost of services, Member relations and marketing, and General and administrative expenses. We discuss the major components of costs and expenses on an aggregate basis below:

 

    Compensation and related costs includes salaries, payroll taxes, and benefits. The total expense was $24.3 million and $25.4 million in the three months ended March 31, 2015 and 2014, respectively, a decrease of $1.1 million. The decrease was primarily due to lower headcount and benefits from foreign currency fluctuations against the US Dollar.

 

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    Variable compensation includes sales commissions and annual bonuses. The total expense was $5.0 million and $5.2 million in the three months ended March 31, 2015 and 2014, respectively, a decrease of $0.2 million. The decrease was primarily due to benefits from foreign currency fluctuations against the US Dollar.

 

    Third-party consulting costs include maintenance costs for talent assessment platforms and the use of third parties to deliver services to customers. Third-party consulting costs were $1.9 million and $2.3 million in the three months ended March 31, 2015 and 2014, respectively, a decrease of $0.4 million.

 

    Travel and related expenses primarily relates to sales staff travel and travel incurred to deliver services to customers. The total expense was $1.5 million and $1.9 million in the three months ended March 31, 2015 and 2014, respectively, a decrease of $0.4 million.

 

    Allocated facilities costs consist primarily of rent, operating expenses, and real estate tax escalations. The total expense was $2.1 million and $2.0 million in the three months ended March 31, 2015 and 2014, respectively, an increase of $0.1 million.

 

    The SHL Talent Measurement segment operating expenses are impacted by currency fluctuations, primarily in the value of the GBP compared to the US dollar, Australian dollar, and Euro. Approximately 40% of SHL expenses are based in GBP. The value of the GBP versus the US dollar, on average, decreased by approximately $0.14, or 8%, in the year to date period through March 31, 2015 compared to the same period of 2014. Costs incurred for foreign subsidiaries will fluctuate based on changes in foreign currency rates in addition to other operational factors.

Cost of Services

The following table outlines the primary components of Cost of services (in thousands):

 

     Three Months Ended March 31,  
     2015      % of
Revenues
    2014      % of
Revenues
 

Compensation and related

   $ 11,179         23.0   $ 11,526         23.7

Variable compensation

     1,587         3.3        1,276         2.6   

Third party consulting

     1,737         3.6        2,048         4.2   

Travel and related

     656         1.3        857         1.8   

Allocated facilities

     1,058         2.2        999         2.1   

Cost of services decreased 2.9%, or $0.5 million, to $18.2 million in the three months ended March 31, 2015 from $18.7 million in the three months ended March 31, 2014. The $0.3 million decrease in compensation and related costs was primarily due to benefits from foreign currency fluctuations against the US Dollar. The $0.3 million increase in variable compensation was primarily due to higher estimated payouts of performance related bonuses partially offset by benefits from foreign currency fluctuations against the US Dollar.

Cost of services as a percentage of revenue was 37.3% and 38.4% in the three months ended March 31, 2015 and 2014, respectively.

Member Relations and Marketing

The following table outlines the primary components of Member relations and marketing (in thousands):

 

     Three Months Ended March 31,  
     2015      % of
Revenues
    2014      % of
Revenues
 

Compensation and related

   $ 8,718         17.9   $ 9,341         19.2

Variable compensation

     3,037         6.2        3,224         6.6   

Travel and related

     686         1.4        714         1.5   

Allocated facilities

     652         1.3        633         1.3   

Member relations and marketing decreased 8.1%, or $1.3 million, to $15.0 million in the three months ended March 31, 2015 from $16.4 million in the three months ended March 31, 2014. The $0.6 million decrease in compensation and related costs was primarily due to benefits from foreign currency fluctuations against the US Dollar.

Member relations and marketing expense as a percentage of revenue was 30.9% and 33.6% in the three months ended March 31, 2015 and 2014, respectively.

General and Administrative

The following table outlines the primary components of General and administrative (in thousands):

 

     Three Months Ended March 31,  
     2015      % of
Revenues
    2014      % of
Revenues
 

Compensation and related

   $ 4,379         9.0   $ 4,535         9.3

Variable compensation

     389         0.8        673         1.4   

Allocated facilities

     348         0.7        398         0.8   

Travel and related

     111         0.2        320         0.7   

General and administrative decreased 15.2%, or $1.3 million, to $7.5 million in the three months ended March 31, 2015 from $8.8 million in the three months ended March 31, 2014. The decrease in General and administrative was primarily a result of decreases in bonuses, travel and related and legal and accounting fees primarily resulting from foreign currency fluctuations against the US Dollar.

General and administrative expense as a percentage of revenue was 15.4% and 18.2% in the three months ended March 31, 2015 and 2014, respectively.

 

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Depreciation and Amortization

The following table outlines the primary components of Depreciation and amortization (in thousands):

 

     Three Months Ended
March 31,
 
     2015      2014  

Depreciation

   $ 1,927       $ 2,043   

Amortization

     6,093         6,659   

Depreciation and amortization decreased 7.8%, or $0.7 million, to $8.0 million in the three months ended March 31, 2015 from $8.7 million in the three months ended March 31, 2014. Amortization is related to intangible assets acquired in conjunction with the SHL acquisition and impacted by changes in GBP versus the US Dollar.

Depreciation and amortization expense as a percentage of revenue was 16.5% and 17.9% in the three months ended March 31, 2015 and 2014, respectively.

SHL Goodwill

We continue to monitor actual results versus forecasted results and external factors that may impact the enterprise value of the reporting unit or result in impairment indicators requiring an interim goodwill impairment test. The reporting unit’s expenses are denominated primarily in GBP while contracts with customers and revenues are in local currencies. An increase in the value of the GBP versus other global currencies may adversely impact operating results. Other factors that we are monitoring that may impact the fair value of the reporting unit include, but are not limited to: market comparable company multiples, interest rates, and global economic conditions. During the three months ended March 31, 2015, the operating results of the SHL reporting unit were in line with management forecasts and no other impairment indicators were identified.

Liquidity and Capital Resources

On July 2, 2012, we entered into a senior secured credit agreement which was subsequently amended and restated on July 18, 2012, on August 1, 2012, and again on August 2, 2013 (as amended and restated, the “Credit Agreement”). The Credit Agreement provides for (i) a term loan A-1 in an aggregate principal amount of $523.4 million (the “Term A-1 Loan”) and (ii) a $200 million revolving credit facility (the “Revolving Credit Facility”, and together with the Term A-1 Loan, the “Senior Secured Credit Facilities”).

The maturity date of the Term A-1 Loan is August 2, 2018. The principal amount of the Term A-1 Loan amortizes in quarterly installments equal to (i) for the first two years after the closing of the August 2, 2013 amendment, approximately 2% of the original principal amount of the Term A-1 Loan and (ii) for the next three years thereafter, approximately 4% of the original principal amount of the Term A-1 Loan, with the balance payable at maturity. The termination date of the revolving commitment under the Credit Agreement is August 2, 2018. The Term A-1 Loan and Revolving Credit Facility will, at our option, bear interest at the Eurodollar Rate plus 2.25% or a base rate plus 1.25%, as applicable, with future “step-downs” upon achievement of specified first lien net leverage ratios, which we achieved during 2014. As a result, the annual interest rate on the Term A-1 Loan was the Eurodollar Rate plus 2.00%, or 2.18%, at March 31, 2015.

In October 2013, we entered into interest rate swap arrangements with notional amounts totaling $275 million which amortize to $232 million through the August 2, 2018 maturity date of the Term A-1 Loan. The interest rate swap arrangements effectively fix our interest payments on the hedged debt at approximately 1.34% plus the credit spread on the Term A-1 Loan. The arrangements protect against adverse fluctuations in interest rates by reducing our exposure to variability in cash flows relating to interest payments on a portion of our outstanding debt.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and events of default. We are required to comply with a net leverage ratio covenant on a quarterly basis. Mandatory prepayments attributable to excess cash flows will be based on our net leverage ratio and will be determined at the end of each fiscal year. Pursuant to the Amendment on August 2, 2013, a net leverage ratio of 2.0x or higher will trigger mandatory prepayments of 25% and a net leverage ratio of 2.5x or higher will trigger mandatory prepayments of 50% of excess cash flows. Based on current projections, we do not believe that any mandatory prepayments will be required for the year ended December 31, 2015. Thus, no amounts were reclassified to current debt at March 31, 2015. In the event actual results trigger the mandatory prepayment, such prepayment amount will be reclassified from long-term debt to current debt in our condensed consolidated balance sheets. We were in compliance with all of the covenants at March 31, 2015.

In February 2014, we completed the acquisition of 100% of the equity interests of Metrics That Matter™ for a cash payment of $52.7 million, less cash acquired of $1.8 million. In January 2014, we acquired the Talent Neuron™ platform for a cash payment of approximately $8 million.

We had cash and cash equivalents of $204.2 million and $114.9 million at March 31, 2015 and December 31, 2014, respectively. We believe that existing cash and cash equivalents and operating cash flows will be sufficient to support operations, including interest and required principal payments, anticipated capital expenditures, and the payment of dividends, as well as potential share repurchases for at least the next 12 months. Our future cash flows will depend on many factors, including our rate of Contract Value growth and selective investments to expand our market presence and enhance technology. At March 31, 2015, available borrowings under the Revolving Credit Facility were $188.6 million after reduction of availability to cover $11.4 million of outstanding letters of credit. The anticipated cash needs of our business could change significantly if we pursue and make investments in, or acquisitions of, complementary businesses, if economic conditions change from those currently prevailing or from those currently anticipated, or if other unexpected circumstances arise that may have a material effect on the cash flows or profitability of our business. Any of these events or circumstances could involve significant additional funding needs in excess of the identified currently available sources, including our Revolving Credit Facility, and could require us to seek additional financing as an additional source of liquidity to meet those needs. Our ability to obtain additional financing, if necessary, is subject to a variety of factors that we cannot predict with certainty, including our future profitability; our relative levels of debt and equity; the volatility and overall condition of the capital markets; and the market prices of our securities. As a result, any additional financing may not be available on acceptable terms or at all.

Approximately $77 million of our cash was held by our foreign subsidiaries as of March 31, 2015. We manage our worldwide cash requirements by considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations, capital projects, and future acquisitions.

Cash Flows

 

     Three Months Ended March 31,  
     2015      2014  

Net cash flows provided by operating activities

   $ 124,118       $ 114,518   

Net cash flows used in investing activities

     (6,451      (69,992

Net cash flows used in financing activities

     (23,720      (13,128

Our primary uses of cash are to fund acquisitions, capital expenditures, share repurchases, dividend payments and debt service requirements under the Senior Secured Credit Facilities.

Cash Flows from Operating Activities

CEB membership subscriptions, which are principally annually renewable agreements, generally are payable by members at the beginning of the contract term. SHL Talent Measurement services are generally invoiced as services are delivered. Historically, the combination of revenue growth, profitable operations, and advance

 

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payments of membership subscriptions has resulted in net cash flows provided by operating activities. Net cash flows provided by operating activities were $124.1 million and $114.5 million in the three months ended March 31, 2015 and 2014, respectively. The increase in cash flows from operations was primarily due to increased sales bookings year over year which has resulted in higher cash collections. These increases have been partially offset by the timing of expense payments.

We made income tax payments of $20.2 million and $8.7 million in the three months ended March 31, 2015 and 2014, respectively and expect to continue making tax payments in future periods.

Cash Flows from Investing Activities

Our cash management, acquisition, and capital expenditure strategies affect cash flows from investing activities. Net cash flows used in investing activities were $6.5 million and $70.0 million in the three months ended March 31, 2015 and 2014, respectively. In the three months ended March 31, 2015, we used $6.1 million for capital expenditures, primarily related to the implementation of a new Content Management System and a major upgrade to the SHL Talent Measurement client-facing platform. In the three months ended March 31, 2014, we utilized $59.0 million for acquisitions of businesses, primarily related to Metrics That Matter™, which included a payment of $52.7 million, less cash acquired of $1.8 million.

We estimate that capital expenditures to support our infrastructure will be approximately $32 to $34 million in 2015.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $23.7 million and $13.1 million in the three months ended March 31, 2015 and 2014, respectively. In the three months ended March 31, 2015 and 2014, we repaid amounts outstanding on our credit facilities of $2.7 million, respectively. Further, we increased our dividend rate from $0.2625 per share in 2014 to $0.375 per share in 2015. This resulted in a $3.7 million increase in dividend payments in the three months ended March 31, 2015. We also used $6.1 million in the three months ended March 31, 2015 to repurchase shares of our common stock pursuant to a stock repurchase program that was approved by the Board of Directors in February 2015.

Commitments and Contingencies

We continue to evaluate potential tax exposure relating to sales and use, payroll, income and property tax laws, and regulations for various states in which we sell or support our goods and services. Accruals for potential contingencies are recorded when it is probable that a liability has been incurred, and the liability can be reasonably estimated. As additional information becomes available, changes in the estimates of the liability are reported in the period that those changes occur. We had a liability of $4.5 million at March 31, 2015 and December 31, 2014, respectively, relating to certain sales and use tax regulations for states in which we sell or support our goods and services. In April 2015, we paid approximately $3.7 million under a voluntary sales tax disclosure agreement.

Contractual Obligations

There have been no material changes to the contractual obligations table as disclosed in our 2014 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

At March 31, 2015 and December 31, 2014, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually narrow or limited purposes.

Forward-looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and assumptions. 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. In addition, all statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenues, margins, expenses, provision for income taxes, earnings, cash flows, share repurchases, acquisition synergies, foreign currency exchange rates or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning expected development, performance or market share relating to products or services; any statements regarding future economic conditions or performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; any statements regarding the impact of our acquisitions and any related debt financing on our future business, financial results or financial condition, including our liquidity and capital resources; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. 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 US 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 changing member needs and demands; our potential failure to develop and sell, or expand sales markets for our SHL Talent Measurement tools and services; our potential inability to attract and retain a significant number of highly skilled employees or successfully manage succession planning issues; fluctuations in operating results; our potential inability to protect our intellectual property rights; our potential inability to adequately maintain and protect our information technology infrastructure and our member and client data; potential confusion about our rebranding, including our integration of the SHL Talent Measurement brand; our potential exposure to loss of revenues 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 utilize our deferred tax assets; changes in estimates, assumptions or revenue recognition policies used to prepare our consolidated financial statements, including those related to testing for potential goodwill impairment; our potential inability to make, integrate and maintain acquisitions and investments; the amount and timing of the benefits expected from acquisitions and investments; the risk that we will be required to recognize additional impairments to the carrying value of the significant goodwill and amortizable intangible asset amounts included in our balance sheet as a result of our acquisitions, which would require us to record charges that would reduce our reported results; our potential inability to effectively manage the risks associated with the indebtedness we incurred and the senior secured credit facilities we entered into in connection with our acquisition of SHL or any additional indebtedness we may incur in the future; our potential inability to effectively manage the risks associated with our international operations, including the risk of foreign currency exchange fluctuations; and 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, the US economy and possible volatility of our stock price. In Part I, “Item 1A. Risk Factors” of our 2014 Annual Report on Form 10-K, as filed with the SEC on February 27, 2015, we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete statement of all potential risks or uncertainties. All forward-looking statements contained in this Quarterly Report on Form 10-Q are qualified by these cautionary statements and are made only as of the date this Quarterly Report on Form 10-Q is filed. We assume no obligation and do not intend to update these forward-looking statements, whether as a result of new information, future events or otherwise.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in its 2014 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of March 31, 2015, our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting that occurred in the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company is subject to litigation related to normal business operations. The Company vigorously defends itself in litigation. The Company is not currently a party to, and the Company’s property is not subject to, any legal proceedings likely to materially affect our financial results.

Item 1A. Risk Factors.

In addition to the other information contained in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2014 Annual Report on Form 10-K. There were no material changes during the quarter ended March 31, 2015 to the information included in “Item 1A. Risk Factors” in our 2014 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

 

     Total
Number of
Shares Purchased

(1)
     Average
Price
Paid Per
Share
     Total Number
of Shares

Purchased as
Part of a
Publicly
Announced
Plan
     Approximate $
Value of Shares
That May Yet Be
Purchased
Under the Plans (2)
 

January 1, 2015 to January 31, 2015

     524       $ 69.53         —         $ —     

February 1, 2015 to February 28, 2015

     56,854       $ 78.76         32,806       $ 97,415,000   

March 1, 2015 to March 31, 2015

     110,407       $ 79.13         51,669       $ 93,354,000   
  

 

 

       

 

 

    

Total

  167,785    $ 78.97      84,475   
  

 

 

       

 

 

    

 

(1) Includes shares of common stock surrendered by employees to the Company to satisfy minimum statutory employee tax withholding obligations.
(2) In February 2015, our Board of Directors approved a new $100 million stock repurchase program, which is authorized through December 31, 2016. Repurchases may be made through open market purchases or privately negotiated transactions. The timing of repurchases and the exact number of shares of common stock to be repurchased will be determined by our management, in its discretion, and will depend upon market conditions and other factors. The program will be funded using our cash on hand and cash generated from operations.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

 

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Item 6. Exhibits.

 

(a) Exhibits:

 

Exhibit
No.

  

Description

    3.1    Second Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, declared effective by the Securities and Exchange Commission on February 22, 1999 (Registration No. 333-5983).)
    3.2    Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2009.)
  31.1*    Certification of the Chief Executive Officer pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934, as amended
  31.2*    Certification of the Chief Financial Officer pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934, as amended
  32.1*    Certifications pursuant to 18 U.S.C. Section 1350
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

THE CORPORATE EXECUTIVE BOARD COMPANY

(Registrant)

Date: May 4, 2015 By:

/s/ Richard S. Lindahl

Richard S. Lindahl

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

 

25


Table of Contents

Exhibit Index

 

Exhibit
No.

  

Description

    3.1    Second Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, declared effective by the Securities and Exchange Commission on February 22, 1999 (Registration No. 333-5983).)
    3.2    Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2009.)
  31.1*    Certification of the Chief Executive Officer pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934, as amended
  31.2*    Certification of the Chief Financial Officer pursuant to Rule 13a — 14(a) of the Securities Exchange Act of 1934, as amended
  32.1*    Certifications pursuant to 18 U.S.C. Section 1350
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith

 

26

Exhibit 31.1

CERTIFICATION

I, Thomas L. Monahan III, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of The Corporate Executive Board Company;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2015

 

/s/ Thomas L. Monahan III

Thomas L. Monahan III

Chairman of the Board of Directors and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Richard S. Lindahl, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of The Corporate Executive Board Company;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 4, 2015

/s/ Richard S. Lindahl

Richard S. Lindahl

Chief Financial Officer

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in his/her capacity as an officer of The Corporate Executive Board Company (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

 

    The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

    The information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Thomas L. Monahan III

Thomas L. Monahan III

Chairman of the Board of Directors and Chief Executive Officer

May 4, 2015

 

/s/ Richard S. Lindahl

Richard S. Lindahl

Chief Financial Officer

May 4, 2015



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