The Corporate Executive Board Company (CEB) (NASDAQ:EXBD) today announced financial results for the second quarter and six months ended June 30, 2006. Revenues for the second quarter increased 27.8% to $111.7 million from $87.4 million for the second quarter of 2005. Net income and earnings per diluted share for the second quarter were $17.8 million and $0.43, respectively.
For the first six months of 2006, revenues were $216.7 million, a 28.3% increase from $169.0 million for the first half of 2005. Net income and earnings per diluted share for the first six months of 2006 were $34.9 million and $0.85, respectively.
Effective January 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R) (FAS No. 123(R)), which provides the accounting rules for share-based compensation. To present results on a comparable basis to the prior year, the Company is providing adjusted financial results, including net income and earnings per diluted share that exclude the effects of share-based compensation.
Excluding the effects of share-based compensation related to FAS No. 123(R), adjusted net income for the second quarter of 2006 increased 27.9% to $21.8 million from $17.0 million for the second quarter of 2005. Adjusted earnings per diluted share for the second quarter of 2006 increased 29.3% to $0.53 from $0.41 in 2005.
Excluding the effects of share-based compensation related to FAS No. 123(R), adjusted net income for the first six months of 2006 increased 25.6% to $42.9 million from $34.2 million for the first half of 2005. Adjusted earnings per diluted share for the first six months of 2006 increased 23.8% to $1.04 from $0.84 in 2005. A reconciliation of CEB's reported and adjusted results is set forth in the notes to the Financial Highlights section below.
Tom Monahan, Chief Executive Officer of the Corporate Executive Board, commented, "We are very happy with our second-quarter performance and strong results for the first half of 2006. Our key growth metrics are on track with three new programs off to a great start and growth from cross-sell and new clients running above the high end of their original target ranges. The cross-sell ratio climbed to 3.83 membership programs per institution, up from 3.65 at this time last year, and new companies and institutions including Compagnie Financiere Richemont S.A., Embraer- Empresa Brasileira de Aeronautica SA, Legg Mason, Inc., Loews Corporation, Lucasfilm Ltd., Otto GmbH & Co KG and Simmons Bedding Company joined their first CEB program in the quarter. You can see the total impact of our growth metrics in our 28.7% contract value growth for the quarter."
"Today I am also delighted to announce our 40th membership program: The Enterprise Architecture Executive Council. This program serves senior executives responsible for managing the information technology architecture at large companies. Our inaugural research agenda is focused on best practices in driving adoption of enterprise priorities, aligning business strategy with IT innovation and enabling business and IT partners to realize the cost benefits of portfolio management. As with all our new programs, the program has benefited enormously from the advice and guidance of our charter members, including senior executives from Ameriquest Mortgage Company, Lincoln Financial Group, Chevron Phillips Chemical Company LLC, Electronic Arts Inc. and Target Corporation. This is the 40th program, and the third of our planned five to six new program launches for 2006."
The Company also announced that it has entered into a new employment agreement with James J. McGonigle, Executive Chairman of the Board of Directors. Under the new agreement, Mr. McGonigle will continue to serve in his current position as Executive Chairman until December 31, 2006, at which point Mr. McGonigle shall become Non-Executive Chairman for a period of time to be determined by the Board of Directors. Subsequent to December 31, 2006, Mr. McGonigle also will be employed with the Company on a part-time basis through April 1, 2009. The Company also entered into a new employment agreement with Mr. Monahan covering his employment as Chief Executive Officer of the Company. The employment agreements for Mr. McGonigle and Mr. Monahan will be filed with the Securities and Exchange Commission on or about July 25, 2006.
Share Repurchase
During the six months ended June 30, 2006, the Company repurchased approximately 598,000 shares of its common stock at a total cost of approximately $58.4 million. Repurchases will continue to be made in open market and privately negotiated transactions subject to market conditions. No minimum number of shares has been fixed. The Company is funding its share repurchases with cash on hand and cash generated from operations.
Outlook for 2006
The following statements summarize the Company's guidance for 2006.
The Company is increasing its target for annual revenue growth to a minimum of 27% accompanied by continued modest expansion in the adjusted operating margin, excluding share-based compensation under FAS No. 123(R), within the target annual range of 25 - 30%. As in the past, the operating margin may fluctuate on a quarterly basis. The Company expects a quarterly revenue distribution of approximately $118.0 million for the third quarter and $125.5 million for the fourth quarter of 2006.
For 2006, the Company expects other income of approximately $25.25 to $25.75 million, an effective income tax rate of approximately 38.5% and diluted weighted shares outstanding of approximately 41.0 - 41.5 million.
The Company is raising its guidance on GAAP annual diluted earnings per share for 2006 to $1.91. For the balance of 2006, the Company expects GAAP earnings per diluted share of $0.50 for the third quarter and $0.56 for the fourth quarter.
The Company is also raising its guidance on adjusted annual diluted earnings per share for 2006, excluding share-based compensation under FAS No. 123(R), of $2.30. For the balance of 2006, the Company expects adjusted earnings per diluted share of $0.60 for the third quarter and $0.66 for the fourth quarter, reflecting a net effect for share-based compensation of $0.10 for each quarter.
The earnings per diluted share, interest income and weighted shares outstanding guidance includes only share repurchases made as of June 30, 2006.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth below and in CEB's filings with the U.S. Securities and Exchange Commission, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those indicated by forward-looking statements include, among others, our dependence on renewals of our membership-based services, difficulties we may experience in anticipating market trends, our need to attract and retain a significant number of highly skilled employees, fluctuations in operating results, our potential inability to protect our intellectual property rights, our potential exposure to loss of revenue resulting from our unconditional service guarantee, various factors that could affect our estimated income tax rate or our ability to use our existing deferred tax assets, changes in estimates or assumptions under FAS No. 123(R), whether the Washington, D.C. Office of Tax and Revenue withdraws our QHTC status and possible volatility of our stock price. These and other factors are discussed more fully in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of CEB's filings with the U.S. Securities and Exchange Commission, including, but not limited to, its 2005 Annual Report on Form 10-K. The forward-looking statements in this press release are made as of July 25, 2006 and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
The Corporate Executive Board Company is a leading provider of best practices research and analysis focusing on corporate strategy, operations and general management issues. CEB provides its integrated set of services currently to more than 2,800 of the world's largest and most prestigious corporations, including over 80% of the Fortune 500. These services are provided primarily on an annual subscription basis and include best practices research studies, executive education seminars, customized research briefs and Web-based access to a library of over 275,000 corporate best practices.
THE CORPORATE EXECUTIVE BOARD COMPANY
Financial Highlights
(in thousands, except per share data)
(Unaudited)
Three Months Ended
Selected June 30,
Growth ------------------------
Rates 2006 2005
----------- ----------- -----------
Financial Highlights
(GAAP, as reported):
Revenues 27.8% $ 111,662 $ 87,351
Net income 4.2% $ 17,763 $ 17,046
Basic earnings per share 2.3% $ 0.44 $ 0.43
Diluted earnings per share 4.9% $ 0.43 $ 0.41
Weighted average shares outstanding:
Basic 40,394 39,926
Diluted 41,233 41,194
Financial Highlights (Adjusted amounts
to exclude effects of share-based
compensation under FAS No. 123(R)):(1)
Adjusted cost of services $ 35,817 $ 30,088
Adjusted member relations and
marketing $ 30,499 $ 23,478
Adjusted general and administrative $ 13,602 $ 9,385
Adjusted income from operations 30.4% $ 29,319 $ 22,479
Adjusted net income 27.9% $ 21,800 $ 17,046
Adjusted diluted earnings per share 29.3% $ 0.53 $ 0.41
Adjusted Percentages of Revenues:(1)
Adjusted cost of services 32.1% 34.4%
Adjusted member relations and marketing 27.3% 26.9%
Adjusted general and administrative 12.2% 10.7%
Adjusted income from operations 26.3% 25.7%
Six Months Ended
Selected June 30,
Growth --------------------------
Rates 2006 2005
----------- ------------- -----------
Financial Highlights
(GAAP, as reported):
Revenues 28.3% $ 216,731 $ 168,959
Net income 2.0% $ 34,882 $ 34,188
Basic earnings per share 0.0% $ 0.87 $ 0.87
Diluted earnings per share 1.2% $ 0.85 $ 0.84
Weighted average shares outstanding:
Basic 40,026 39,475
Diluted 41,241 40,886
Financial Highlights (Adjusted amounts
to exclude effects of share-based
compensation under FAS No. 123(R)):(1)
Adjusted cost of services $ 70,191 $ 56,482
Adjusted member relations and
marketing $ 57,842 $ 45,091
Adjusted general and
administrative $ 26,687 $ 18,779
Adjusted income from operations 27.3% $ 57,589 $ 45,237
Adjusted net income 25.6% $ 42,938 $ 34,188
Adjusted diluted earnings per
share 23.8% $ 1.04 $ 0.84
Adjusted Percentages of Revenues:(1)
Adjusted cost of services 32.4% 33.4%
Adjusted member relations and marketing 26.7% 26.7%
Adjusted general and administrative 12.3% 11.1%
Adjusted income from operations 26.6% 26.8%
--------------------------------------------------------------------
(1) The following tables reconcile GAAP to adjusted financial
statement amounts for the three and six months ended June 30, 2006
and 2005, respectively, considering the share-based compensation
recognized by the Company in accordance with FAS No. 123(R):
Three Months Ended
June 30, 2006
------------------------------------
GAAP, as Share-based
Financial statement descriptions: reported compensation Adjusted
-------------------------------- ----------- ------------ ----------
Cost of services $ 39,059 $ (3,242) $ 35,817
Member relations and marketing $ 31,925 $ (1,426) $ 30,499
General and administrative $ 15,498 $ (1,896) $ 13,602
Income from operations $ 22,755 $ 6,564 $ 29,319
Net income $ 17,763 $ 4,037 $ 21,800
Diluted earnings per share $ 0.43 $ 0.10 $ 0.53
Three Months Ended
June 30, 2005
------------------------------------
GAAP, as Share-based
Financial statement descriptions: reported compensation Adjusted
-------------------------------- ----------- ------------ ----------
Cost of services $ 30,088 -- $ 30,088
Member relations and marketing $ 23,478 -- $ 23,478
General and administrative $ 9,385 -- $ 9,385
Income from operations $ 22,479 -- $ 22,479
Net income $ 17,046 -- $ 17,046
Diluted earnings per share $ 0.41 -- $ 0.41
Six Months Ended
June 30, 2006
------------------------------------
GAAP, as Share-based
Financial statement descriptions: reported compensation Adjusted
-------------------------------- ----------- ------------ ----------
Cost of services $ 76,519 $ (6,328) $ 70,191
Member relations and marketing $ 60,775 $ (2,933) $ 57,842
General and administrative $ 30,525 $ (3,838) $ 26,687
Income from operations $ 44,490 $ 13,099 $ 57,589
Net income $ 34,882 $ 8,056 $ 42,938
Diluted earnings per share $ 0.85 $ 0.19 $ 1.04
Six Months Ended
June 30, 2005
------------------------------------
GAAP, as Share-based
Financial statement descriptions: reported compensation Adjusted
-------------------------------- ----------- ------------ ----------
Cost of services $ 56,482 -- $ 56,482
Member relations and marketing $ 45,091 -- $ 45,091
General and administrative $ 18,779 -- $ 18,779
Income from operations $ 45,237 -- $ 45,237
Net income $ 34,188 -- $ 34,188
Diluted earnings per share $ 0.84 -- $ 0.84
To supplement the Company's consolidated financial statements
presented in accordance with GAAP, CEB uses non-GAAP measures of
certain components of financial performance. These non-GAAP measures
include non-GAAP net income, certain expenses (including cost of
services, member relations and marketing and general and
administrative) and non-GAAP earnings per diluted share. CEB uses
these measures of operating income, gross profit, net income and
earnings per share for the three and six months ended June 30, 2006,
which exclude FAS No. 123(R) share-based compensation to better
understand and compare results in the current period to those in prior
periods that did not include FAS No. 123(R) share-based compensation.
Although these non-GAAP financial measures adjust expense and other
items to exclude the accounting treatment of share-based compensation,
they should not be viewed as a pro-forma presentation reflecting the
elimination of the underlying share-based compensation programs, as
those programs are an important element of CEB's compensation
structure and generally accepted accounting principles indicate that
all forms of share-based payments should be valued and included as
appropriate in results of operations. CEB discloses this information
to the public to enable investors who wish to more easily assess the
Company's performance on the same basis applied by management and to
ease comparison on both a GAAP and non-GAAP basis among other
companies that separately identify share-based compensation expenses.
Although these non-GAAP measures present financial results on the same
basis as prior year's results, they do not reflect the effects of the
Company's share-based compensation programs and therefore may not be
useful in comparing CEB's results with companies with different
compensation structures. CEB's reference to these measures should be
considered in addition to results that are prepared under current
accounting standards but should not be considered a substitute for
results that are presented as consistent with GAAP. FAS No. 123(R) did
not have a significant effect on the diluted share numbers for the
three and six months ended June 30, 2006.
For the six months ended June 30, 2006 and 2005, the Company also
recognized $1.9 million and $0.5 million, respectively, reflecting
additional employer taxes as a result of the taxable income that our
employees recognized upon the exercise of non-qualified common stock
options in March 2006 and 2005, respectively. The Company has recorded
such expenses in the same expense line item as other compensation paid
to the relevant categories of employees as follows: Cost of services,
$0.8 million and $0.3 million, Marketing and member services, $0.3
million and $0.1 million, and General and administrative, $0.8 million
and $0.1 for 2006 and 2005, respectively. The additional employer
taxes incurred by the Company are reflected within both the GAAP
amounts as reported and the adjusted financial results presented
within this press release.
THE CORPORATE EXECUTIVE BOARD COMPANY
Operating Statistic and Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended
Selected June 30,
Growth ----------------------
Rates 2006 2005
-------- -------- --------
Operating Statistic
Contract Value (1) (at period end) 28.7% $426,698 $331,587
Financial Highlights
Revenues 27.8% $111,662 $ 87,351
Cost of services 39,059 30,088
-------- --------
Gross profit 72,603 57,263
Member relations and marketing 31,925 23,478
General and administrative 15,498 9,385
Depreciation and amortization 2,425 1,921
-------- --------
Income from operations 1.2% 22,755 22,479
Other income, net 6,128 3,154
-------- --------
Income before provision for
income taxes 28,883 25,633
Provision for income taxes 11,120 8,587
-------- --------
Net income 4.2% $ 17,763 $ 17,046
======== ========
Basic earnings per share 2.3% $ 0.44 $ 0.43
Diluted earnings per share 4.9% $ 0.43 $ 0.41
Weighted average shares outstanding
Basic 40,394 39,926
Diluted 41,233 41,194
Adjusted income from operations 30.4% $ 29,319 $ 22,479
Adjusted net income 27.9% $ 21,800 $ 17,046
Adjusted diluted earnings per share 29.3% $ 0.53 $ 0.41
Percentages of Revenues
Gross profit 65.0% 65.6%
Member relations and marketing 28.6% 26.9%
General and administrative 13.9% 10.7%
Income from operations 20.4% 25.7%
Six Months Ended
Selected June 30,
Growth ----------------------
Rates 2006 2005
-------- -------- --------
Operating Statistic
Contract Value (1) (at period end)
Financial Highlights
Revenues 28.3% $216,731 $168,959
Cost of services 76,519 56,482
-------- --------
Gross profit 140,212 112,477
Member relations and marketing 60,775 45,091
General and administrative 30,525 18,779
Depreciation and amortization 4,422 3,370
-------- --------
Income from operations (1.7%) 44,490 45,237
Other income, net 12,228 6,173
-------- --------
Income before provision for
income taxes 56,718 51,410
Provision for income taxes 21,836 17,222
-------- --------
Net income 2.0% $ 34,882 $ 34,188
======== ========
Basic earnings per share 0.0% $ 0.87 $ 0.87
Diluted earnings per share 1.2% $ 0.85 $ 0.84
Weighted average shares outstanding
Basic 40,026 39,475
Diluted 41,241 40,886
Adjusted income from operations 27.3% $ 57,589 $ 45,237
Adjusted net income 25.6% $ 42,938 $ 34,188
Adjusted diluted earnings per share 23.8% $ 1.04 $ 0.84
Percentages of Revenues
Gross profit 64.7% 66.6%
Member relations and marketing 28.0% 26.7%
General and administrative 14.1% 11.1%
Income from operations 20.5% 26.8%
---------------------------------------------------------------------
(1) We define "Contract Value" as of the quarter-end as the aggregate
annualized revenue attributed to all agreements in effect on such
date, without regard to the remaining duration of any such
agreement.
THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2006 Dec. 31, 2005
------------- -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 225,626 $ 424,276
Marketable securities 107,490 2,264
Membership fees receivable, net 76,826 120,242
Deferred income taxes, net 36,646 11,880
Deferred incentive compensation 11,029 11,489
Prepaid expenses and other current
assets 12,045 7,671
------------- -------------
Total current assets 469,662 577,822
Deferred income taxes, net 3,740 2,958
Marketable securities 205,380 118,096
Goodwill and other intangibles 8,153 8,445
Other non-current assets 7,480 1,273
Property and equipment, net 22,714 18,401
------------- -------------
Total assets $ 717,129 $ 726,995
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued
liabilities $ 31,029 $ 43,667
Accrued incentive compensation 19,123 27,045
Deferred revenues 254,334 261,300
------------- -------------
Total current liabilities 304,486 332,012
Other liabilities 14,205 9,569
------------- -------------
Total liabilities 318,691 341,581
Total stockholders' equity 398,438 385,414
------------- -------------
Total liabilities and stockholders'
equity $ 717,129 $ 726,995
============= =============
THE CORPORATE EXECUTIVE BOARD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2006 2005
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,882 $ 34,188
Adjustments to reconcile net income to
net cash flows provided by
operating activities:
Depreciation and amortization 4,424 3,370
Deferred income taxes 21,960 17,222
Share-based compensation 13,099 --
Excess tax benefits from share-based
compensation arrangements(1) (18,180) --
Amortization of marketable securities
premiums, net (932) 1,240
Changes in operating assets and
liabilities:
Membership fees receivable, net 43,416 40,442
Deferred incentive compensation 460 960
Prepaid expenses and other current
assets (4,791) (873)
Other non-current assets (6,206) --
Accounts payable and accrued
liabilities (12,969) 3,004
Accrued incentive compensation (7,980) (976)
Deferred revenues (6,966) (11,859)
Other liabilities 4,631 756
--------- --------
Net cash flows provided by
operating activities 64,848 87,474
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (8,116) (3,024)
(Purchases) sales and maturities of
marketable securities, net (194,787) 78,608
--------- --------
Net cash flows (used in) provided
by investing activities (202,903) 75,584
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of common
stock options 2,630 44,905
Proceeds from the issuance of common
stock under the employee stock
purchase plan 912 655
Excess tax benefits from share-based
compensation arrangements(1) 18,180 --
Purchase of treasury shares (58,363) (27,534)
Payment of dividends (23,954) (7,862)
Reimbursement of common stock offering
costs 70 35
Payment of common stock offering costs (70) (2)
--------- --------
Net cash flows (used in) provided by
financing activities (60,595) 10,197
--------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (198,650) 173,255
Cash and cash equivalents, beginning
of period 424,276 113,996
--------- --------
Cash and cash equivalents, end of period $ 225,626 $287,251
========= ========
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(1) In accordance with FAS No. 123(R), excess tax benefits related to
share-based compensation are now classified as a cash flow from
financing activities rather than as a cash flow from operating
activities. The net effect of this change for the six months
ended June 30, 2006 is to move $18.1 million of excess tax
benefits from an operating cash flow to a cash flow from
financing activities, leaving total cash flows unchanged.