Exhibit 99.1
Contact: | Timothy R. Yost | 2000 Pennsylvania Avenue, N.W. | ||
Chief Financial Officer | Suite 6000 | |||
(202) 777-5455 | Washington, D.C. 20006 | |||
heroldl@executiveboard.com | www.executiveboard.com |
THE CORPORATE EXECUTIVE BOARD REPORTS THIRD QUARTER REVENUE GROWTH OF 34.7% AND PRO FORMA EPS OF $0.38
WASHINGTON, D.C. (October 25, 2004)— The Corporate Executive Board Company (CEB) (NASDAQ/NM: EXBD) today announced financial results for the third quarter and nine months ended September 30, 2004. Revenues for the third quarter increased 34.7% to $72.4 million from $53.8 million for the third quarter of 2003. Net income increased 116.8% to $12.0 million from $5.5 million. Earnings per diluted share for the third quarter increased 114.3% to $0.30 from $0.14 for the third quarter of 2003.
For the first nine months of 2004, revenues were $203.6 million, a 34.5% increase from $151.4 million for the first nine months of 2003. Net income grew 57.1% to $36.7 million from $23.3 million. Earnings per diluted share for the first nine months of 2004 increased 50.8% to $0.92 from $0.61 for the same prior-year period.
In August 2004, the Company entered into a new lease agreement for office facilities in Rosslyn, Virginia beginning in 2008. Under the terms of the new lease, several of CEB’s prior leases have been assumed by the new lessor. With these lease transactions, the Company recorded total expenses of $6.1 million within the three months ended September 30, 2004, $5.2 million of which represents a one time non-cash charge related to the assumption of CEB’s existing leases by the new lessor. To present results on a comparable basis the Company is providing pro forma income and earnings per diluted share that exclude this non-cash charge.
In addition, in October 2003, CEB reduced its statutory state income tax rate to 0.0% from 9.975% to reflect the tax benefits associated with the Company’s Qualified High Technology Company (QHTC) status. CEB is also providing pro forma income and earnings per diluted share that adjusts the 2003 tax rate to reflect the QHTC certification as if the change had been made at the beginning of 2003.
With these two changes, pro forma net income for the third quarter of 2004 increased 36.5% to $15.4 million from an adjusted $11.3 million in 2003. Pro forma net income for the first nine months of 2004 increased 27.3% to $40.1 million from an adjusted $31.5 million in 2003. Pro forma earnings per diluted share for the third quarter of 2004 increased 31.0% to $0.38 from an adjusted $0.29. Pro forma earnings per diluted share for the first nine months of 2004 increased 23.2% to $1.01 from an adjusted $0.82 in 2003. A reconciliation of CEB’s reported and pro forma results is set forth in the notes to the Financial Highlights section below.
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Jay McGonigle, Chairman and CEO of the Corporate Executive Board commented, “We are obviously very happy with our third quarter performance. With our cross-sell ratio climbing to 3.24 from 2.80 this time last year, new clients running at the high end of their target range, continued modest price increases and a strong suite of new program launches, we are well positioned going into the close of 2004. You can see the total impact of these key growth metrics reflected in our 30% contract value growth for the quarter – the best leading indicator for our business.”
“Today, I am also delighted to announce our 30th membership program: the Customer Contact Council (CCC). Designed to serve contact center heads and their senior staff, the CCC will help these executives design and manage their complex organizations, develop and deploy new processes and technologies, drive productivity gains, and manage a high-turnover workforce. As with all our new programs, CCC’s inaugural research agenda and service mix reflect the guidance of a stellar group of charter advisors; including senior executives from Cinergy Corp., Cisco Systems, Inc., ExxonMobil Corporation, Marriott International, Inc., The Procter & Gamble Company and Prudential Financial Inc. The program is already off to a strong start, and receiving very positive feedback from our early members.”
Outlook for 2004
The following statements summarize the Company’s guidance for 2004.
The Company is increasing its target revenue guidance for the fourth-quarter to $75 million. For the full year, the Company expects continued modest expansion in the operating margin within its target annual range of 25 — 30%. As in the past, the operating margin may fluctuate on a quarterly basis.
For 2004, the Company expects other income of approximately $10.0 million, an effective income tax rate of approximately 33.25% and diluted weighted shares outstanding of approximately 39.8 million to 40.0 million.
The Company is also raising its guidance on pro forma earnings per diluted share for Q4 and the full year 2004 to $0.41 and $1.42, respectively.
Forward-Looking Statements
The Outlook section of 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, 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
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ability to use our existing deferred tax assets, whether the Washington, D.C. Office of Tax and Revenue withdraws our QHTC status and possible volatility of our stock price. These 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 2003 annual report on Form 10-K. The forward-looking statements in this press release are made as of October 25, 2004 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 2,100 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.
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THE CORPORATE EXECUTIVE BOARD COMPANY
(in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Financial Highlights | ||||||||||||||||
Revenues | $ | 72,424 | $ | 53,758 | $ | 203,061 | $ | 151,380 | ||||||||
Net income | $ | 11,954 | $ | 5,513 | $ | 36,667 | $ | 23,336 | ||||||||
Basic earnings per share | $ | 0.31 | $ | 0.15 | $ | 0.96 | $ | 0.63 | ||||||||
Diluted earnings per share | $ | 0.30 | $ | 0.14 | $ | 0.92 | $ | 0.61 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 38,990 | 37,308 | 38,131 | 37,298 | ||||||||||||
Diluted | 40,379 | 38,762 | 39,674 | 38,403 | ||||||||||||
Pro forma operating income(1) | $ | 20,630 | $ | 14,522 | $ | 53,006 | $ | 40,279 | ||||||||
Pro forma net income(1) | $ | 15,432 | $ | 11,307 | $ | 40,145 | $ | 31,528 | ||||||||
Pro forma diluted earnings per share(1) | $ | 0.38 | $ | 0.29 | $ | 1.01 | $ | 0.82 |
(1) Reconciliation of GAAP to pro forma operating income, net income and pro forma diluted earnings per share:
Operating income, as reported | $ | 15,420 | $ | 14,522 | $ | 47,796 | $ | 40,279 | ||||||||
Non-cash lease restructuring costs | 5,210 | — | 5,210 | — | ||||||||||||
Pro forma operating income | $ | 20,630 | $ | 14,522 | $ | 53,006 | $ | 40,279 | ||||||||
Net income, as reported | $ | 11,954 | $ | 5,513 | $ | 36,667 | $ | 23,336 | ||||||||
Non-cash lease restructuring costs, net of tax | 3,478 | — | 3,478 | — | ||||||||||||
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 | $ | 15,432 | $ | 11,307 | $ | 40,145 | $ | 31,528 | ||||||||
Diluted earnings per share, as reported | $ | 0.30 | $ | 0.14 | $ | 0.92 | $ | 0.61 | ||||||||
Non-cash lease restructuring costs, net of tax | 0.08 | — | 0.09 | — | ||||||||||||
Non-cash charge to value deferred tax assets, net, at new statutory Washington, DC 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 | $ | 0.38 | $ | 0.29 | $ | 1.01 | $ | 0.82 | ||||||||
The Company believes its calculation of pro forma net income and pro forma diluted earnings per share provides additional information about CEB’s ongoing operating performance and provides additional information to compare to prior periods. 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 accounting principles generally accepted in the United States and are thus susceptible to varying calculations, they may not be comparable as presented to other similarly titled measures of other companies. The change in tax status for a new statutory Washington, D.C. income tax rate and other 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 2003 annual report on Form 10-K.
THE CORPORATE EXECUTIVE BOARD COMPANY
Operating Statistic and Financial Highlights
(in thousands, except per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
Selected Growth | September 30, | Selected Growth | September 30, | |||||||||||||||||||||
Rates | 2004 | 2003 | Rates | 2004 | 2003 | |||||||||||||||||||
Operating Statistic | ||||||||||||||||||||||||
Contract value(1) (at period end) | 30.2 | % | $ | 270,497 | $ | 207,762 | ||||||||||||||||||
Financial Highlights | ||||||||||||||||||||||||
Revenues | 34.7 | % | $ | 72,424 | $ | 53,758 | 34.5 | % | $ | 203,601 | $ | 151,380 | ||||||||||||
Cost of services | 21,852 | 18,225 | 65,484 | 51,380 | ||||||||||||||||||||
Gross profit | 50,572 | 35,533 | 138,117 | 100,000 | ||||||||||||||||||||
Member relations and marketing | 18,657 | 14,375 | 55,101 | 39,727 | ||||||||||||||||||||
General and administrative | 9,320 | 5,293 | 24,297 | 15,789 | ||||||||||||||||||||
Depreciation | 1,965 | 1,343 | 5,305 | 4,092 | ||||||||||||||||||||
Non-cash lease restructuring costs | 5,210 | — | 5,210 | — | ||||||||||||||||||||
Stock option and related expenses | — | — | 408 | 113 | ||||||||||||||||||||
Income from operations | 15,420 | 14,522 | 47,796 | 40,279 | ||||||||||||||||||||
Other income, net | 2,627 | 1,925 | 7,136 | 5,580 | ||||||||||||||||||||
Income before provision for income taxes | 18,047 | 16,447 | 54,932 | 45,859 | ||||||||||||||||||||
Provision for income taxes | 6,093 | 10,934 | 18,265 | 22,523 | ||||||||||||||||||||
Net income | 116.8 | % | $ | 11,954 | $ | 5,513 | 57.1 | % | $ | 36,667 | $ | 23,336 | ||||||||||||
Basic earnings per share | $ | 0.31 | $ | 0.15 | $ | 0.96 | $ | 0.63 | ||||||||||||||||
Diluted earnings per share | 114.3 | % | $ | 0.30 | $ | 0.14 | 50.8 | % | $ | 0.92 | $ | 0.61 | ||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||
Basic | 38,990 | 37,308 | 38,131 | 37,298 | ||||||||||||||||||||
Diluted | 40,379 | 38,762 | 39,674 | 38,403 | ||||||||||||||||||||
Pro forma income from operations | 42.1 | % | $ | 20,630 | $ | 14,522 | 31.6 | % | $ | 53,006 | $ | 40,279 | ||||||||||||
Pro forma net income | 36.5 | % | $ | 15,432 | $ | 11,307 | 27.3 | % | $ | 40,145 | $ | 31,528 | ||||||||||||
Pro forma diluted earnings per share | 31.0 | % | $ | 0.38 | $ | 0.29 | 23.2 | % | $ | 1.01 | $ | 0.82 | ||||||||||||
Percentages of Revenues | ||||||||||||||||||||||||
Gross profit | 69.8 | % | 66.1 | % | 67.8 | % | 66.1 | % | ||||||||||||||||
Member relations and marketing | 25.8 | % | 26.7 | % | 27.1 | % | 26.2 | % | ||||||||||||||||
General and administrative | 12.9 | % | 9.8 | % | 11.9 | % | 10.4 | % | ||||||||||||||||
Pro forma income from operations | 28.5 | % | 27.0 | % | 26.0 | % | 26.6 | % |
(1) | We define “Contract value” as of the quarter-end as the aggregate annualized revenue attributed to all agreements in effect on such date, without regard to the remaining duration of any such agreement. |
THE CORPORATE EXECUTIVE BOARD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Sept. 30, 2004 | Dec. 31, 2003 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 52,495 | $ | 118,568 | ||||
Marketable securities | 46,204 | 11,859 | ||||||
Membership fees receivable, net | 44,063 | 63,160 | ||||||
Deferred income taxes, net | 35,556 | 30,972 | ||||||
Deferred incentive compensation | 5,361 | 7,332 | ||||||
Prepaid expenses and other current assets | 7,790 | 5,933 | ||||||
Total current assets | 191,469 | 237,824 | ||||||
Deferred income taxes, net | — | 6,701 | ||||||
Marketable securities | 286,871 | 163,492 | ||||||
Property and equipment, net | 16,769 | 15,465 | ||||||
Total assets | $ | 495,109 | $ | 423,482 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 16,065 | $ | 12,480 | ||||
Accrued incentive compensation | 10,795 | 11,072 | ||||||
Deferred revenues | 141,907 | 154,844 | ||||||
Total current liabilities | 168,767 | 178,396 | ||||||
Other liabilities | 8,727 | 3,093 | ||||||
Total liabilities | 177,494 | 181,489 | ||||||
Stockholders’ equity | 317,615 | 241,993 | ||||||
Total liabilities and stockholders’ equity | $ | 495,109 | $ | 423,482 | ||||
THE CORPORATE EXECUTIVE BOARD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2004 | 2003 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 36,667 | $ | 23,336 | ||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
Depreciation | 5,305 | 4,092 | ||||||
Deferred income taxes | 17,472 | 21,777 | ||||||
Non-cash lease restructuring costs | 5,210 | — | ||||||
Amortization of marketable securities premiums, net | 2,071 | 1,550 | ||||||
Changes in operating assets and liabilities: | ||||||||
Membership fees receivable, net | 19,097 | 21,605 | ||||||
Deferred incentive compensation | 1,971 | 215 | ||||||
Prepaid expenses and other current assets | (1,857 | ) | (2,481 | ) | ||||
Accounts payable and accrued liabilities | 3,356 | (669 | ) | |||||
Accrued incentive compensation | (277 | ) | (2,385 | ) | ||||
Deferred revenues | (12,937 | ) | (15,155 | ) | ||||
Other liabilities | 549 | 94 | ||||||
Net cash flows provided by operating activities | 76,627 | 51,979 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment, net | (6,609 | ) | (4,634 | ) | ||||
Maturity and sale (purchase) of marketable securities, net | (160,796 | ) | (49,166 | ) | ||||
Net cash flows used in investing activities | (167,405 | ) | (53,800 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from the exercise of common stock options | 55,322 | 8,031 | ||||||
Proceeds from the issuance of common stock under the employee stock purchase plan | 662 | 540 | ||||||
Purchase of treasury shares | (22,736 | ) | (19,204 | ) | ||||
Payment of dividends | (8,647 | ) | — | |||||
Reimbursement of common stock offering costs | 225 | 175 | ||||||
Payment of common stock offering costs | (121 | ) | (159 | ) | ||||
Net cash flows provided by (used in) financing activities | 24,705 | (10,617 | ) | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (66,073 | ) | (12,438 | ) | ||||
Cash and cash equivalents, beginning of period | 118,568 | 71,346 | ||||||
Cash and cash equivalents, end of period | $ | 52,495 | $ | 58,908 | ||||