Exhibit 99.1
Contact: | Timothy R. Yost Chief Financial Officer (202) 777-5455 heroldl@executiveboard.com | 2000 Pennsylvania Avenue, N.W. Suite 6000 Washington, D.C. 20006 www.executiveboard.com |
THE CORPORATE EXECUTIVE BOARD REPORTS
THIRD QUARTER PRO FORMA EARNINGS OF $0.29 PER DILUTED SHARE
QUALIFIES FOR WASHINGTON, D.C. TAX BENEFITS
WASHINGTON, D.C. (October 22, 2003)— The Corporate Executive Board Company (CEB) (Nasdaq: EXBD) today announced financial results for the third quarter ended September 30, 2003. Revenues for the third quarter increased 30.2% to $53,758,000 from $41,275,000 for the third quarter of 2002. The Office of Tax and Revenue of the District of Columbia recently accepted CEB’s certification that it is a Qualified High Technology Company (QHTC). This acceptance has the effect of reducing the Company's statutory income tax rate as well as providing other tax benefits which are discussed below. As a result of a non-cash income tax charge arising from CEB’s new QHTC status, net income for the third quarter decreased 29.7% to $5,513,000 from $7,837,000. Earnings per diluted share were $0.14 for the latest quarter, down 33.3% from $0.21 for the comparable period in 2002. Pro forma net income for the third quarter increased 44.3% to $11,307,000 from $7,837,000. Pro forma earnings per diluted share for the latest quarter were $0.29, up 38.1% from $0.21 for the comparable period in 2002. The pro forma disclosures above exclude the non-cash income tax charge of $8,192,000 recorded within the provision for income taxes for the effects of CEB’s, QHTC qualification, partially offset by an adjustment to reflect a change in CEB’s effective income tax rate. A reconciliation of CEB’s reported and pro forma results is set forth in the notes to the Financial Highlights section below.
In October 2003, CEB received notification from the Office of Tax and Revenue of the District of Columbia that its certification as a QHTC under the New E-Conomy Transformation Act of 2000 (the Act) had been accepted. As a QHTC, the Company’s Washington, D.C. statutory income tax rate will be 0.0% through 2005 and 6.0% thereafter, versus 9.975% prior to this qualification. Under the Act, CEB is also eligible for certain Washington, D.C. income tax credits and other benefits. Accordingly, CEB expects its annual effective income tax rate will be approximately 31.25% for 2003 and between 34.0% and 35.0% for 2004. As a result, the Company recorded a non-cash income tax charge of $8,192,000 within the provision for income taxes for the effects of these benefits. This non-cash charge consists of a reduction in the Company’s deferred tax assets and liabilities to reflect a lower Washington, D.C. income tax rate, partially offset by the recognition of certain Washington, D.C. income tax credits. The Washington, D.C. tax benefits available to the Company as a QHTC are discussed more fully in CEB’s filings with the Securities and Exchange Commission, including its 2002 annual report on
Form 10-K, as amended, and quarterly reports on Form 10-Q for the quarters ended March 31 and June 30, 2003.
Jay McGonigle, Chairman and CEO of The Corporate Executive Board commented, “We are very pleased to announce another strong quarter. All of our key growth metrics were on track, with the average cross-sell ratio climbing to 2.80 memberships per institution, price increases running in-line with expectations, and continued strength in our new customer growth. In the third quarter, we were delighted to welcome some of the world’s largest companies to our membership; including Albertson’s, Inc., CNF Transportation, EADS N.V., Louisiana-Pacific Corp., Southwest Gas, Sumitomo Chemical Company Ltd., UnitedAuto Group Inc., and Volkswagen AG. You can see the impact of these metrics reflected in our 27.2% contract value growth in the quarter. Contract value growth, in combination with strength across our key growth metrics, enables us to reiterate comfort with our full year target of a minimum of 25% revenue growth and modest operating margin expansion within our 25-30% target range. And of course, we are delighted to have been qualified by the Office of Tax and Revenue of the District of Columbia as a Qualified High Technology Company.
“Today, we are also very happy to announce the launch of our fourth new membership program in 2003: the Applications Executive Council (AEC). This new program will serve senior IT executives who lead the design, development and deployment of technology solutions across the world’s largest enterprises. Applications development typically represents 30-40% of a company’s IT budget, which in turn is the single largest capex item for many large companies. It is our privilege to serve the leaders of such a critical function, which is also very much a function in transition — as traditional development work gives way to packaged solutions, mixed sourcing models and tighter alignment with business unit management. As always, the AEC’s design and inaugural research agenda reflects the guidance of a stellar group of charter advisors; including senior executives from: Bank One Corporation, Eli Lilly, ExxonMobil, IBM, Nordstrom, Schlumberger Limited and Seagate.
Share Repurchase
During the nine months ended September 30, 2003, the Company repurchased 542,752 shares of its common stock at a total cost of approximately $19,204,000. 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. At September 30, 2003, the Company had approximately $260,083,000 in cash and marketable securities and no debt.
Outlook for 2003
The following statements summarize the Company’s guidance for 2003.
The Company reiterated comfort with its target for annual growth in revenues of a minimum of 25% and continued modest expansion in the operating margin within its target annual range of 25% — 30%. As in the past, the operating margin may fluctuate on a quarterly basis. The
Company expects quarterly revenues of approximately $55.2 million for the fourth quarter of 2003.
For 2003, the Company expects other income of approximately $7.6 million, an effective income tax rate of approximately 31.25% and diluted weighted shares outstanding of approximately 38.4 million to 38.7 million. The Company is raising fourth quarter earnings per diluted share guidance to $0.31 from $0.28 reflecting a lower effective income tax rate.
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 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, changes to our effective income tax rate, our dependence on renewals of our membership-based services, our inability to know in advance if new products will be successful, difficulties we may experience in anticipating market trends, our need to attract and retain a significant number of highly skilled employees, restrictions on selling our products and services to the health care industry, continued consolidation in the financial institutions industry, which may limit our business with such companies, fluctuations in operating results, our potential inability to protect our intellectual property rights, our potential exposure to litigation related to our content, our potential exposure to loss of revenue resulting from our unconditional service guarantee, various factors that could affect our estimated income tax rate or our ability to use our existing deferred tax assets, whether the Washington, D.C. Office of Tax and Revenue withdrawals our QHTC status and possible volatility of our stock price. These 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 Securities and Exchange Commission, including, but not limited to, its 2002 annual report on Form 10-K, as amended, and quarterly reports on Form 10-Q for the quarters ended March 31 and June 30, 2003. The forward-looking statements in this press release are made as of October 22, 2003, 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 1,900 of the world’s largest and most prestigious corporations, including over 70% 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 225,000 corporate best practices.
THE CORPORATE EXECUTIVE BOARD COMPANY
Financial Highlights
(in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||||||||
Revenues | $ | 53,758 | $ | 41,275 | $ | 151,380 | $ | 117,845 | ||||||||||||||||||||||||||
Net income | $ | 5,513 | $ | 7,837 | $ | 23,336 | $ | 21,357 | ||||||||||||||||||||||||||
Basic earnings per share | $ | 0.15 | $ | 0.21 | $ | 0.63 | $ | 0.58 | ||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.14 | $ | 0.21 | $ | 0.61 | $ | 0.57 | ||||||||||||||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||||
Basic | 37,308 | 37,123 | 37,298 | 36,572 | ||||||||||||||||||||||||||||||
Diluted | 38,762 | 37,734 | 38,403 | 37,607 | ||||||||||||||||||||||||||||||
Pro forma: | ||||||||||||||||||||||||||||||||||
Pro forma net income (1) | $ | 11,307 | $ | 7,837 | $ | 31,528 | $ | 21,357 | ||||||||||||||||||||||||||
Pro forma diluted earnings per share (1) | $ | 0.29 | $ | 0.21 | $ | 0.82 | $ | 0.57 | ||||||||||||||||||||||||||
(1) Reconciliation of GAAP to pro forma net income and pro forma diluted earnings per share: | ||||||||||||||||||||||||||||||||||
Net income, as reported | $ | 5,513 | $ | 7,837 | $ | 23,336 | $ | 21,357 | ||||||||||||||||||||||||||
Non-cash charge to value deferred tax assets, net, at new statutory Washington, D.C. rate of 0.0%, net of tax credits | 8,192 | — | 8,192 | — | ||||||||||||||||||||||||||||||
True up for change in effective tax rate from 39.4% to 31.25% for the six months ending June 30, 2003 | (2,398 | ) | — | — | — | |||||||||||||||||||||||||||||
Pro forma net income | $ | 11,307 | $ | 7,837 | $ | 31,528 | $ | 21,357 | ||||||||||||||||||||||||||
Diluted earnings per share, as reported | $ | 0.14 | $ | 0.21 | $ | 0.61 | $ | 0.57 | ||||||||||||||||||||||||||
Non-cash charge to value deferred tax assets, net, at new statutory Washington, D.C. rate of 0.0%, net of tax credits | 0.21 | — | 0.21 | — | ||||||||||||||||||||||||||||||
True up for change in effective tax rate from 39.4% to 31.25% for the six months ending June 30, 2003 | (0.06 | ) | — | — | — | |||||||||||||||||||||||||||||
Pro forma diluted earnings per share | $ | 0.29 | $ | 0.21 | $ | 0.82 | $ | 0.57 | ||||||||||||||||||||||||||
The Company believes its calculation of pro forma net income and pro forma diluted earnings per share, which exclude a nonrecurring non-cash charge, provides additional information about CEB’s ongoing operating performance and provides additional information to compare to prior periods because the pro forma information excludes items not related to CEB’s core business operations. Pro forma financial results should not be considered as measures of financial performance under accounting principles generally accepted in the United States, and the items excluded from them are significant components in understanding and assessing financial performance. Because pro forma financial results are not measurements determined in accordance with generally accepted accounting principles and are thus susceptible to varying calculations, they may not be comparable as presented to other similarly titled measures of other companies.
THE CORPORATE EXECUTIVE BOARD COMPANY
Operating Statistics and Financial Highlights
(in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
Selected | September 30, | Selected | September 30, | |||||||||||||||||||||||
Growth | Growth | |||||||||||||||||||||||||
Rates | 2003 | 2002 | Rates | 2003 | 2002 | |||||||||||||||||||||
Operating Statistic | ||||||||||||||||||||||||||
Contract value (1) (at period end) | 27.2 | % | $ | 207,762 | $ | 163,399 | ||||||||||||||||||||
Financial Highlights | ||||||||||||||||||||||||||
Revenues | 30.2 | % | $ | 53,758 | $ | 41,275 | 28.5 | % | $ | 151,380 | $ | 117,845 | ||||||||||||||
Cost of services | 18,225 | 14,126 | 51,380 | 40,659 | ||||||||||||||||||||||
Gross profit | 35,533 | 27,149 | 100,000 | 77,186 | ||||||||||||||||||||||
Member relations and marketing | 14,375 | 10,248 | 39,727 | 29,222 | ||||||||||||||||||||||
General and administrative | 5,293 | 4,388 | 15,789 | 13,215 | ||||||||||||||||||||||
Depreciation | 1,343 | 1,399 | 4,092 | 3,988 | ||||||||||||||||||||||
Stock option and related expenses | — | — | 113 | 668 | ||||||||||||||||||||||
Income from operations | 30.7 | % | 14,522 | 11,114 | 33.8 | % | 40,279 | 30,093 | ||||||||||||||||||
Other income, net | 1,925 | 1,734 | 5,580 | 4,563 | ||||||||||||||||||||||
Income before provision for income taxes | 16,447 | 12,848 | 45,859 | 34,656 | ||||||||||||||||||||||
Provision for income taxes | 10,934 | 5,011 | 22,523 | 13,299 | ||||||||||||||||||||||
Net income | (29.7 | )% | $ | 5,513 | $ | 7,837 | 9.3 | % | $ | 23,336 | $ | 21,357 | ||||||||||||||
Basic earnings per share | $ | 0.15 | $ | 0.21 | $ | 0.63 | $ | 0.58 | ||||||||||||||||||
Diluted earnings per share | (33.3 | )% | $ | 0.14 | $ | 0.21 | 7.0 | % | $ | 0.61 | $ | 0.57 | ||||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||||
Basic | 37,308 | 37,123 | 37,298 | 36,572 | ||||||||||||||||||||||
Diluted | 38,762 | 37,734 | 38,403 | 37,607 | ||||||||||||||||||||||
Pro forma net income | 44.3 | % | $ | 11,307 | $ | 7,837 | 47.6 | % | $ | 31,528 | $ | 21,357 | ||||||||||||||
Pro forma diluted earnings per share | 38.1 | % | $ | 0.29 | $ | 0.21 | 43.9 | % | $ | 0.82 | $ | 0.57 | ||||||||||||||
Percentages of Revenues | ||||||||||||||||||||||||||
Gross profit | 66.1 | % | 65.8 | % | 66.1 | % | 65.5 | % | ||||||||||||||||||
Member relations and marketing | 26.7 | % | 24.8 | % | 26.2 | % | 24.8 | % | ||||||||||||||||||
General and administrative | 9.8 | % | 10.6 | % | 10.4 | % | 11.2 | % |
(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 BALANCE SHEETS
(in thousands)
Sept. 30, | Dec. 31, | |||||||||
2003 | 2002 | |||||||||
(Unaudited) | ||||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 58,908 | $ | 71,346 | ||||||
Marketable securities | 21,585 | 17,030 | ||||||||
Membership fees receivable, net | 28,751 | 50,356 | ||||||||
Deferred income taxes, net | 24,568 | 28,806 | ||||||||
Deferred incentive compensation | 4,759 | 4,974 | ||||||||
Prepaid expenses and other current assets | 6,149 | 3,668 | ||||||||
Total current assets | 144,720 | 176,180 | ||||||||
Deferred income taxes, net | 18,957 | 30,920 | ||||||||
Marketable securities | 179,590 | 137,565 | ||||||||
Property and equipment, net | 15,458 | 14,916 | ||||||||
Total assets | $ | 358,725 | $ | 359,581 | ||||||
Liabilities and stockholders’ equity | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued liabilities | $ | 11,896 | $ | 12,549 | ||||||
Accrued incentive compensation | 7,275 | 9,660 | ||||||||
Deferred revenues | 106,260 | 121,415 | ||||||||
Total current liabilities | 125,431 | 143,624 | ||||||||
Other liabilities | 2,694 | 2,600 | ||||||||
Total liabilities | 128,125 | 146,224 | ||||||||
Stockholders’ equity | 230,600 | 213,357 | ||||||||
Total liabilities and stockholders’ equity | $ | 358,725 | $ | 359,581 | ||||||
THE CORPORATE EXECUTIVE BOARD COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 23,336 | $ | 21,357 | ||||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||
Depreciation | 4,092 | 3,988 | ||||||||||
Deferred income taxes | 21,777 | 13,299 | ||||||||||
Amortization of marketable securities premiums, net | 1,550 | 1,072 | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||
Membership fees receivable, net | 21,605 | 15,575 | ||||||||||
Deferred incentive compensation | 215 | 665 | ||||||||||
Prepaid expenses and other current assets | (2,481 | ) | (1,281 | ) | ||||||||
Accounts payable and accrued liabilities | (669 | ) | (222 | ) | ||||||||
Accrued incentive compensation | (2,385 | ) | 717 | |||||||||
Deferred revenues | (15,155 | ) | (11,682 | ) | ||||||||
Other liabilities | 94 | 846 | ||||||||||
Net cash flows provided by operating activities | 51,979 | 44,334 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchase of property and equipment, net | (4,634 | ) | (2,483 | ) | ||||||||
Maturity (purchase) of marketable securities, net | (49,166 | ) | (69,176 | ) | ||||||||
Net cash flows used in investing activities | (53,800 | ) | (71,659 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from the exercise of common stock options | 8,031 | 12,409 | ||||||||||
Proceeds from the issuance of common stock under the employee stock purchase plan | 540 | 485 | ||||||||||
Purchase of treasury shares | (19,204 | ) | — | |||||||||
Reimbursement of common stock offering costs | 175 | 300 | ||||||||||
Payment of common stock offering costs | (159 | ) | (172 | ) | ||||||||
Net cash flows provided by (used in) financing activities | (10,617 | ) | 13,022 | |||||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (12,438 | ) | (14,303 | ) | ||||||||
Cash and cash equivalents, beginning of period | 71,346 | 48,271 | ||||||||||
Cash and cash equivalents, end of period | $ | 58,908 | $ | 33,968 | ||||||||