UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

For the quarterly period ended March 31, 2016

or

Commission File Number: 001-34849

 

CEB Inc.

(Exact name of registrant as specified in its charter)

 

 

 

(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  o

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  o

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):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    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 32,205,904 shares of common stock, par value $0.01 per share, outstanding at April 29, 2016.

 

 

 

 

 

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CEB Inc.

INDEX TO FORM 10-Q

 

 

 

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CEB Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

See accompanying notes to condensed consolidated financial statements.

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CEB Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

See accompanying notes to condensed consolidated financial statements.

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CEB Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

See accompanying notes to condensed consolidated financial statements.

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CEB Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

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CEB Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Nature of Business and Basis of Presentation

CEB Inc. (“CEB” or “Company”) is a best practice insight and technology company. In partnership with leading organizations around the globe, CEB develops innovative solutions to drive corporate performance. CEB’s mission is to unlock the potential of organizations and leaders by advancing the science and practice of management.

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 (“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 2015 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 consolidated financial position, results of operations, and cash flows at the dates and in the periods presented have been included. The consolidated balance sheet at December 31, 2015 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, 2016 may not be indicative of the results that may be expected in the year ended December 31, 2016 or any other period within 2016.

 

 

Note 2. Recent Accounting Pronouncements

Recently adopted

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU requires management to evaluate each cloud computing arrangement in order to determine whether it includes a software license that must be accounted for separately from hosted services. ASU 2015-05 also eliminates the existing requirement for customers to account for software licenses they acquire by analogizing to the guidance on leases. If the arrangement involves a software license, the Company evaluates whether the costs meet the criteria for capitalization as internal-use software. If the arrangement does not involve a software license, the Company accounts for the arrangement as a service contract and expenses the costs as incurred. The Company adopted this accounting standard prospectively on January 1, 2016. The Company expects to incur significant costs in connection with its business transformation initiative beginning in 2016 involving the implementation of various new cloud computing arrangements for its key sales and business processes. These arrangements will be primarily accounted for as service contracts, and therefore, the implementation costs will be expensed as incurred. The Company recognized $3.3 million of expense related to this initiative in the three months ended March 31, 2016, which was separately presented as business transformation costs in the Condensed Consolidated Statements of Operations. These costs include software license fees, third-party vendor costs related to the implementation and development of the systems, and costs related to employees that are solely dedicated to the initiative.

Not yet adopted

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). This ASU requires excess tax benefits and tax deficiencies to be recorded in the income statement when awards are settled. This ASU also addresses simplifications related to statement of cash flows classification, accounting for forfeitures, and minimum statutory tax withholding requirements. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires entities to recognize assets and liabilities for most leases on their balance sheets. It also requires additional qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, and

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recognition of revenue as the entity satisfies the performance obligations. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which provided 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 and assessing its impact on the Company’s consolidated financial statements and related disclosures.

 

 

Note 3. Acquisitions and Other Investments

From time to time, the Company evaluates potential acquisitions that either strategically fit with or expand the Company’s existing product offerings. For certain completed acquisitions, the Company is still evaluating the fair value of assets acquired and liabilities assumed; therefore, the final allocation of the purchase price has not been completed. The allocation of the purchase price will be finalized upon the receipt of final valuations for the underlying assets and liabilities and the necessary management reviews thereof.

On April 29, 2016, the Company completed the acquisition of 100% of the outstanding capital stock of CXO Acquisition Co. and Sports Leadership Acquisition Co. (collectively referred to as “Evanta”) for cash consideration of $275.0 million, subject to a customary working capital adjustment. A portion of the purchase price was deposited in an escrow account to secure the indemnification obligations of the seller. The Company amended its senior secured credit agreement to allow for additional term loan and revolving credit borrowings in order to fund the acquisition (including transaction costs). Due to the timing of the acquisition, the initial purchase price allocation has not yet been completed.

Other Investments

The Company held a total of nine investments in private entities with an aggregate carrying amount of $24.4 million and $23.3 million at March 31, 2016 and December 31, 2015, respectively, for which the cost method was used. 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 the 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 practical to estimate.

The Company also has an equity ownership in one private entity for which the equity method is used. The aggregate carrying amount was $5.7 million and $6.1 million at March 31, 2016 and December 31, 2015, respectively.

 

Note 4. Fair Value Measurements

Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. There is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This 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:

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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):

 

 

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 is 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 is based on 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.

Available-for-sale securities primarily represent the Company’s investments in promissory notes of private entities. The Company utilized various unobservable inputs, including the estimate of the fair value of the stock of the underlying company, interest rate trends, and probability of future conversions, to determine the fair value.

The fair value of the Company’s Senior Secured Credit Facilities and Notes are 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 Term A-2 Loans and Revolving Commitments approximates their fair value as the terms and interest rate approximate market rates. The carrying value of the Notes approximates their fair value based on a review of recent market trading activity.

Changes to the fair values classified within Level 3 were as follows (in thousands):

 

 

 

Note 5. Accounts Receivable, net

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

 

 

 

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Note 6. Goodwill

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

 

 

 

Note 7. Other Liabilities

Other liabilities consisted of the following (in thousands):

 

 

 

Note 8. Debt

Debt consisted of the following (in thousands):

 

 

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Future minimum payments of debt outstanding at March 31, 2016 was as follows for the years ended December 31 (in thousands):

 

 

Refinancing of the Senior Secured Credit Facilities

On April 29, 2016, in connection with the closing of the Evanta acquisition, the Company, together with certain of its subsidiaries acting as guarantors, entered into Amendment No. 5 (“Amendment No. 5”) to the Company’s senior secured credit agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). Amendment No. 5 (i) increased the size of the Company’s existing term A-2 facility (“Term A-2 Facility”) by $150.0 million (such increase, the “Additional Term A Loans”) and (ii) increased its revolving credit facility by $100.0 million for a total amount of $350.0 million (“Revolving Credit Facility” and, together with the Term A-2 Facility, the “Senior Secured Credit Facilities”). Amendment No. 5 also refinanced all term loans outstanding under the Senior Secured Credit Facilities (“Term A-2 Term Loans”) and Additional Term A Loans into a single tranche (the existing Term A-2 Term Loans plus the Additional Term A Loans, together as refinanced, “Term A-3 Loans”) and extended the maturity date of the Senior Secured Credit Facilities from June 9, 2020 to June 9, 2021. The principal amount of the Term A-3 Loans amortizes in quarterly installments equal to (i) for the first two years commencing on June 30, 2016, 2% of the original principal amount of the Term A-3 Loans and (ii) for the next three years thereafter, 4% of the original principal amount of the Term A-3 Loans with the balance payable at maturity.

In April 2016, the $150.0 million of Additional Term A Loans and an additional $170.0 million under the Revolving Credit Facility were drawn by the Company to fund the Evanta acquisition and related transaction costs, and other working capital needs.

Borrowings under the Senior Secured Credit Facilities bear interest at rates based on the ratio of the Company’s and its subsidiaries’ consolidated indebtedness to the Company’s and its subsidiaries’ consolidated EBITDA (as defined in the Credit Agreement) for applicable periods specified in the Senior Secured Credit Facilities. The interest rate per annum applicable to the loans under the Senior Secured Credit Facilities will be based on a fluctuating rate of interest equal to the sum of an applicable margin and, at the Company’s election from time to time, of either (1) a base rate determined by reference to the highest of (a) the rate as publicly announced from time to time by Bank of America as its “prime rate”, (b) the federal funds effective rate plus 0.50%, and (c) the one-month LIBOR plus 1.00%, or (2) a Eurocurrency rate determined by reference to LIBOR with a term, as selected by the Company, of one, two, three, or six months (or twelve months if consented to by all the lenders under the applicable loan). At April 29, 2016, the Term A-3 Loans have an applicable margin equal to 1.75% in the case of LIBOR loans. Borrowings under the Senior Secured Credit Facilities will be subject to a “zero percent” floor in the case of LIBOR loans.

The Senior Secured Credit Facilities are secured by certain collateral, subject to certain exceptions and thresholds, including (a) a perfected first priority security interests in substantially all tangible and intangible personal property and fee-owned real property of the Company and each of the Company’s wholly-owned material domestic subsidiaries, including the newly acquired Evanta entities and their subsidiaries and (b) a perfected first priority pledge of (i) the equity interests of each direct domestic restricted subsidiary of the Company and each of the Company’s wholly-owned material subsidiaries, including the newly acquired Evanta entities and their subsidiaries and (ii) 65% of the stock of each material first-tier foreign restricted subsidiary of the Company. On April 29, 2016, the Company and the newly acquired Evanta entities and their subsidiaries entered into the applicable security documents, and certain collateral was pledged thereunder.

 

 

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 exchange.

The Company has entered into forward currency contracts to sell Australian dollars (“AUD”) and Euros (“EUR”) and buy British pound sterling (“GBP”), which will settle at various times through December 31, 2016. These contracts have been designated as cash flow hedges of anticipated revenue to be recognized in the local currency and are expected to have no or an immaterial amount of ineffectiveness. The contracts provide a natural offset to GBP costs. The notional amount of outstanding forward currency contracts at

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March 31, 2016 was AUD 8.0 million and EUR 5.7 million. In May 2016, the Company entered into additional forward currency contracts to sell AUD 7.5 million and EUR 5.7 million.

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. The forward currency contracts are recognized in the 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 transactions occur and the unrealized gain/loss is reclassified from accumulated OCI to current earnings.

In July 2015, the Company terminated its interest rate swap arrangements for $2.3 million. The amount in accumulated OCI related to the interest rate swaps will be reclassified to interest expense through August 2018, the period through which the previously hedged interest payments are probable of occurring.

The fair value of derivative instruments in the Company’s Condensed Consolidated Balance Sheets was as follows (in thousands):

 

 

The pre-tax derivative instrument gains and losses recognized in OCI were as follows (in thousands):

 

 

The pre-tax effect of derivative instruments in the Company’s Condensed Consolidated Statements of Operations was as follows (in thousands):

 

 

 

Note 10. Stockholders’ Equity and Share-Based Compensation

Share-Based Compensation

The Company has restricted stock units (“RSUs”), stock appreciation rights (“SARs”), and performance share awards (“PSAs”) outstanding that were granted to employees and directors. 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 four years.

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The Company recognized share-based compensation costs of $4.2 million and $4.4 million in the three months ended March 31, 2016 and 2015, 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. The total income tax benefit for share-based compensation arrangements was $1.7 million and $1.8 million in the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016, $42.8 million of total estimated unrecognized share-based compensation cost is expected to be recognized over a weighted-average period of approximately 3 years.

In the three months ended March 31, 2016, the Company granted 395,209 RSUs and 37,887 PSAs with a weighted-average grant date fair value of $59.81 and $59.05, respectively. Additionally, 176,166 RSUs vested in the three months ended March 31, 2016 with a weighted-average grant date fair value of $57.24.

Share Repurchases

In February 2016, the Company’s Board of Directors approved a new $150 million stock repurchase program, which is authorized through December 31, 2017. 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 Company repurchased 0.8 million shares of its common stock at a total cost of $47.3 million, pursuant to publicly announced plans in the three months ended March 31, 2016, of which $2.5 million was settled in cash shortly after quarter end. The remaining repurchase activity in the first quarter of 2016 was related to common stock surrendered by employees to satisfy federal and state tax withholding obligations.

Dividends

The Company funds its dividend payments with cash on hand and cash generated from operations. In February 2016, the Board of Directors declared a first quarter 2016 cash dividend of $0.4125 per share. The dividend was paid on March 31, 2016 to stockholders of record at the close of business on March 15, 2016.

In May 2016, the Board of Directors declared a second quarter 2016 cash dividend of $0.4125 per share. The dividend is payable on June 30, 2016 to stockholders of record at the close of business on June 15, 2016.

 

 

Note 11. Restructuring Costs

In the fourth quarter of 2015, the Company committed to a workforce reduction plan (“2015 Plan”) as it identified areas for change in the market structure, initiated other actions to streamline operations, and rebalanced the management mix in certain areas. Total pre-tax restructuring charges related to the 2015 Plan are estimated to be approximately $6.5 million, consisting primarily of severance and related termination benefits. Of this amount, $5.1 million and $0.9 million was recognized in the fourth quarter of 2015 and first quarter of 2016, respectively as Restructuring costs in the Condensed Consolidated Statements of Operations. Substantially all of the cash will be paid in 2016.

 

 

Note 12. Income Taxes

The Company computes the provision for income taxes by applying the estimated annual effective tax rate to income from operations and adjusting the provision for discrete tax items. US income taxes are not provided for certain undistributed earnings of foreign subsidiaries as such earnings are deemed to be permanently reinvested locally.

The provision for income taxes was $4.5 million and $12.2 million and the effective tax rate was 49.8% and 38.9% in the three months ended March 31, 2016 and 2015, respectively.

In the three months ended March 31, 2016, the Company recognized discrete tax expense of $1.2 million primarily related to a change in the Company’s tax planning strategies and an increase in reserves for uncertain tax positions. The effective tax rate for the three months ended March 31, 2016 differed from the federal statutory rate of 35% primarily due to these discrete items and state income taxes, partially offset by the benefits of financing transactions in the UK. The Company’s effective tax rate for the three months ended March 31, 2015 differed from the federal statutory rate due to state taxes, including the tax impact of state tax law changes in 2015, partially offset by the benefits of nontaxable foreign currency translation gains and the effect of financing transactions in the UK.

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The Company made income tax payments of $8.3 million and $20.2 million in the three months ended March 31, 2016 and 2015, respectively. The Company had net prepaid income taxes of $8.4 million at March 31, 2016 included in Prepaid expenses and other current assets.

 

 

Note 13. Earnings per Share

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

 

 

 

Note 14. 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 its financial results.

 

 

 

Note 15. Changes in Accumulated Other Comprehensive Income (Loss)

Accumulated elements of other comprehensive income (loss) (“AOCI”) 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, 2016 were as follows (in thousands):

 

 

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 16. 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 CEB Talent Assessment. The Company’s segment profit measure is Adjusted EBITDA.

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

 

 

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

 

 

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

 

 

 

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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 best practice insight and technology company. In partnership with leading organizations around the globe, we develop innovative 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 operate through two reporting segments: CEB and CEB Talent Assessment.

The CEB segment provides comprehensive data analysis, research, and advisory services that align to executive leadership roles and key recurring decisions and enable members to focus efforts to address emerging and recurring business challenges efficiently and effectively. This includes our membership programs for senior executives and their teams to drive corporate performance by identifying and building on the proven best practices of the world’s best companies. Our member network is integral to our business. Close relationships with our members provide us with the business insights, solutions, and analytics that we use to support executives and professionals during their careers. Personnel Decision Research Institution, Inc. (“PDRI”), a subsidiary in the CEB segment, provides customized personnel assessment tools and services to various agencies of the US government and also to commercial enterprises.

Our CEB Talent Assessment segment includes cloud based talent assessment solutions, development, strategy, analytics, decision support, and professional services that support those solutions, enabling client access to data, analytics, and insights for assessing and managing employees and applicants. CEB Talent Assessment assists clients with determining potential candidates for employment and developing existing employees and also provides consulting services that help maximize the utility of assessment data. The tools and services provided by CEB Talent Assessment use science and data to develop talent strategies for clients that are linked to business results.

CEB Segment

The CEB segment helps senior executives and their teams drive corporate performance by equipping them with the actionable insights, analytic tools, and advisory support they need to address recurring business challenges and improve results. 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.

CEB Talent Assessment Segment

The CEB Talent Assessment segment focuses primarily on the Human Resources function and markets its services to other corporate functions. Our assessment and development solutions help companies manage human capital investments. These offerings include cognitive ability assessments, skills and/or knowledge assessments, personality questionnaires, and job/role simulations and are generally implemented as pre-hire or post-hire applications. Our proprietary workshops and technical training provide an executive education curriculum supported by e-learning resources for members seeking to enhance skill development for their staff. These tools and services use science and data to develop talent strategies for clients that are linked to business results. Assessment services are

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available online through metered and subscription arrangements. Consulting services are generally provided to customize assessment services and face to face assessments and are 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 effective tax rate, 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”). A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in the accompanying tables. “Adjusted EBITDA margin” refers to Adjusted EBITDA as a percentage of Adjusted revenue.

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.

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

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We are a global company that reports financial information in USD. Foreign currency exchange rate fluctuations affect the amounts reported from translating 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. 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 financial information on a constant currency basis, 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).

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

 

 

Constant Currency Adjusted Revenue

 

 

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Adjusted EBITDA

 

 

Constant Currency Adjusted EBITDA

 

 

Adjusted Net Income

 

 

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Non-GAAP Diluted Earnings per Share

 

 

Adjusted Effective Tax Rate

 

 

Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, fair value measures, and related disclosures of assets and liabilities. In our 2015 Annual Report on Form 10-K, we discussed our material accounting 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):

 

 

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

Our operating costs and expenses consist of:

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Other (Expense) Income, Net

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

 

 

The increase of $1.4 million in interest expense in the three months ended March 31, 2016 compared to the same period of 2015 is primarily related to the 2015 debt refinancing, which included the issuance of Notes to repay a portion of the term loans then outstanding under our Senior Secured Credit Facilities. The Notes have a higher interest rate than the term loans, which was partially offset by lower interest costs associated with the amended credit facility. In April 2016, the Company borrowed an additional $150 million of term loans and $170 million in revolving commitments to fund the Evanta acquisition and related transaction costs, and other working capital needs. See the Liquidity and Capital Resources discussion for further information about the refinancing of the Senior Secured Credit Facilities.

The net non-operating foreign currency gain (loss) was primarily due to the remeasurement of US cash balances held by subsidiaries with a functional currency other than the US dollar, certain intercompany notes, and the balance sheets of non-US subsidiaries whose functional currency is the US dollar. In October 2015, we implemented a revised corporate structure to geographically align our intellectual property with our US and global commercial operations, which resulted in a significant change for certain non-US subsidiaries that previously had a US functional currency because they were dependent on the parent company for financing. As a result, the functional currency of substantially all of our wholly owned subsidiaries is now the applicable local currency.

Provision for Income Taxes

We compute the provision for income taxes by applying the estimated annual effective tax rate to income from operations and adjusting the provision for discrete tax items. We recorded a provision for income taxes of $4.5 million and $12.2 million and the effective tax rate was 49.8% and 38.9% in the three months ended March 31, 2016 and 2015, respectively. With minor exceptions, income taxes are not provided for our foreign subsidiaries’ undistributed earnings, as such earnings are deemed to be permanently reinvested locally.

We recognized discrete tax expense of $1.2 million in the three months ended March 31, 2016 primarily related to a change in our tax planning strategies and changes in reserves for uncertain tax positions on state tax positions and foreign net operating losses. Our effective tax rate for the three months ended March 31, 2016 differed from the federal statutory rate of 35% primarily due to these discrete items and state income taxes, which were partially offset by the benefits of financing transactions in the UK. Our effective tax rate for the three months ended March 31, 2015 differed from the federal statutory rate of 35% due to state taxes, including the tax impact of state tax law changes in 2015, partially offset by the benefits of nontaxable foreign currency translation gains and the effect of financing transactions in the UK.

We made income tax payments of $8.3 million and $20.2 million in the three months ended March 31, 2016 and 2015. We had net prepaid income taxes of $8.4 million at March 31, 2016 included in Prepaid expenses and other current assets.

The Adjusted effective tax rate was 31.6% and 41.3% in the three months ended March 31, 2016 and 2015, respectively. The decrease in the Adjusted effective tax rate relates to government provided incentives and tax planning strategies effected in 2015. The Adjusted effective tax rate excludes the impact of certain discrete items noted above. We believe this is a meaningful measure to facilitate the comparison of the annual effective rate over time. We expect the Adjusted effective tax rate to be between 32% and 34% for the year ended December 31, 2016. However, the tax provision is subject to a number of uncertainties including the global allocation of income across tax jurisdictions, tax law changes, and other discrete items.

 

 

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Segment Results

CEB Segment Operating Data

 

 

CEB Segment Results of Operations

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

 

 

CEB Segment Revenue

The following table outlines CEB segment Revenue (in thousands):

 

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Revenue increased $5.1 million, or 2.9%, in the three months ended March 31, 2016 from the three months ended March 31, 2015. The increase was supported by revenue from recently acquired companies and was partially offset by lower sales bookings in North America and in certain sectors, such as energy, as well as unfavorable foreign currency effects.

Adjusted revenue increased $5.8 million, or 3.4%, in the three months ended March 31, 2016 from the three months ended March 31, 2015. The impact of the deferred revenue fair value adjustment was $0.8 million and $0.1 million in the three months ended March 31, 2016 and 2015, respectively.

Revenue was impacted by fluctuations in foreign currencies against the USD, primarily the British pound sterling (“GBP”), Euro and Australian dollar (“AUD”). Constant currency Adjusted revenue increased $7.2 million, or 4.2%, in the three months ended March 31, 2016 from the three months ended March 31, 2015.

CEB Segment Costs and Expenses

Costs and expenses were $154.6 million in the three months ended March 31, 2016, an increase of $12.6 million from $142.0 million in the three months ended March 31, 2015. 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 GBP, Euro, and Australian dollar all contributed to year-over-year variances in costs and expenses. We discuss the major components of costs and expenses on an aggregate basis below:

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Cost of Services

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

 

 

Cost of services increased 3.5%, or $2.1 million to $62.6 million in the three months ended March 31, 2016 from $60.5 million in the three months ended March 31, 2015. The increase in compensation and related costs was primarily due to an increase in headcount, including the impact of acquisitions completed in 2015 and salary increases. In addition, costs associated with the delivery of member meetings and teleconferences increased $0.5 million.

Member Relations and Marketing

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

 

 

Member relations and marketing increased 8.7%, or $4.5 million, to $55.5 million in the three months ended March 31, 2016 from $51.0 million in the three months ended March 31, 2015. The $4.0 million increase in compensation and related costs was primarily due to costs associated with an increase in sales headcount.

General and Administrative

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

 

 

General and administrative decreased 4.3%, or $0.9 million, to $20.4 million in the three months ended March 31, 2016 from $21.3 million in the three months ended March 31, 2015. The $0.6 million decrease in variable compensation was primarily due to a decrease in the total expected payout of annual bonuses.

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Depreciation and Amortization

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

 

 

Depreciation and amortization increased 21.4%, or $1.9 million, to $10.7 million in the three months ended March 31, 2016 from $8.8 million in the three months ended March 31, 2015. The $2.0 million increase in amortization is primarily due to the acceleration of amortization expense of an asset acquired in 2014 and acquisitions made in 2015.

Acquisition Related Costs

Acquisition related costs were $1.5 million in the three months ended March 31, 2016. These costs primarily relate to the Evanta acquisition, which was completed subsequent to the end of the first quarter of 2016.

Business Transformation Costs

Business transformation costs were $3.3 million in the three months ended March 31, 2016 related to the development and implementation of cloud-based computing systems that will consolidate and standardize our sales force automation and financial systems. Costs primarily include third-party consulting fees, software licenses, and costs related to employees who are solely dedicated to the project.

 

 

CEB Talent Assessment Segment Operating Data

 

 

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CEB Talent Assessment Segment Results of Operations

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

 

 

CEB Talent Assessment Segment Revenue

The following table outlines CEB Talent Assessment Segment Revenue (in thousands):

 

 

Revenue decreased $3.5 million, or 7.2%, to $45.2 million in the three months ended March 31, 2016 from $48.7 million in the three months ended March 31, 2015. The decrease was primarily due to lower sales bookings and fluctuations in foreign currencies.

Adjusted revenue decreased $3.9 million, or 7.8%, to $45.2 million in the three months ended March 31, 2016 from $49.1 million in the three months ended March 31, 2015. The impact of the deferred revenue fair value adjustment was $0.4 million in the three months ended March 31, 2015. Constant currency Adjusted revenue decreased $1.4 million, or 2.9%, to $47.7 million in the three months ended March 31, 2016 from $49.1 million in the three months ended March 31, 2015.

The CEB Talent Assessment segment includes international operations that subject us to risks related to currency exchange fluctuations. The functional currencies of the subsidiaries in the CEB Talent Assessment segment are the respective local currencies of the subsidiaries. The subsidiaries contract and invoice in local currencies, thus revenue is impacted by the fluctuations in foreign currency rates, specifically, the exchange rate of GBP, AUD, and Euro against the USD.

CEB Talent Assessment Segment Costs and Expenses

Costs and expenses were $52.5 million in the three months ended March 31, 2016, an increase of $2.8 million from $49.7 million in the three months ended March 31, 2015. The primary expenses recorded by the CEB Talent Assessment 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, Euro, and other currencies. CEB Talent Assessment segment costs and expenses are denominated primarily in GBP; therefore, with revenues being denominated in local currencies as discussed above, operating profit is impacted by the fluctuations in currencies against GBP. We discuss the major components of costs and expenses on an aggregate basis below:

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Cost of Services

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

 

 

Cost of services decreased 5.7%, or $1.1 million, to $17.1 million in the three months ended March 31, 2016 from $18.2 million in the three months ended March 31, 2015. The decrease in compensation and related costs was primarily due to benefits from foreign currency fluctuations.

Member Relations and Marketing

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

 

 

Member relations and marketing decreased 17.0%, or $2.5 million, to $12.5 million in the three months ended March 31, 2016 from $15.0 million in the three months ended March 31, 2015. The $0.8 million decrease in compensation and related costs was primarily due to benefits from foreign currency fluctuations. The $0.8 million decrease in variable compensation was primarily due to lower sales bookings.

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General and Administrative

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

 

 

General and administrative increased 2.6%, or $0.2 million, to $7.7 million in the three months ended March 31, 2016 from $7.5 million in the three months ended March 31, 2015. The $0.4 million decrease in compensation and related costs was primarily due to benefits from foreign currency fluctuations.

Depreciation and Amortization

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

 

 

Depreciation and amortization increased 85.9%, or $6.9 million, to $14.9 million in the three months ended March 31, 2016 from $8.0 million in the three months ended March 31, 2015. The increase in amortization expense was primarily related to the acceleration of amortization expense related to the change in the estimated useful life of the SHL trade name, which is being amortized through December 31, 2016. The change in estimated useful life resulted in an increase in amortization of $7.6 million in the three months ended March 31, 2016 and was partially offset by the benefits from foreign currency fluctuations.

CEB Talent Assessment Goodwill

We evaluated the CEB Talent Assessment reporting unit’s operating results against revenue growth rates, discount rates, residual growth rates, foreign currency rates, and other key inputs and assumptions that could affect the fair value and have not identified any impairment indicators. However, we continue to believe the fair value of the reporting unit exceeds its carrying value by less than 10%. The carrying value of the reporting unit was $517.9 million at March 31, 2016, including $319.9 million of goodwill and $166.0 million of amortizable intangible assets.

This reporting unit remains at risk for future impairment if the projected operating results are not met or other inputs into the fair value measurements change. For example, if all assumptions were held constant, a one percentage point increase in the discount rate would result in a $23 million decrease in the estimated fair value of the reporting unit. A 5% decrease in the selected market multiples would result in a $13 million decrease in the estimated fair value of the reporting unit.

We will perform our annual goodwill impairment test as of October 1 and continue to evaluate for impairment indicators on a quarterly basis.

 

 

Liquidity and Capital Resources

At March 31, 2016, we had $246.3 million of Term A-2 Loans outstanding with an annual interest rate of 1.93% and borrowings of $65.0 million under the Revolving Credit Facility with a weighted average annual interest rate of 1.94 %. We were in compliance with all of the covenants under the Credit Agreement at March 31, 2016.

On April 29, 2016, in connection with the closing of the Evanta acquisition, the Company, together with certain of its subsidiaries acting as guarantors, entered into Amendment No. 5 (“Amendment No. 5”) to the Company’s senior secured credit agreement (as

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amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). Amendment No. 5 (i) increased the size of the Company’s existing term A-2 facility (“Term A-2 Facility”) by $150.0 million (such increase, the “Additional Term A Loans”) and (ii) increased its revolving credit facility by $100.0 million for a total available amount of $350.0 million (“Revolving Credit Facility” and, together with the Term A-2 Facility, the “Senior Secured Credit Facilities”). Amendment No. 5 also refinanced all term loans outstanding under the Senior Secured Credit Facilities (“Term A-2 Term Loans”) and Additional Term A Loans into a single tranche (the existing Term A-2 Term Loans plus the Additional Term A Loans, together as refinanced, “Term A-3 Loans”) and extended the maturity date of the Senior Secured Credit Facilities from June 9, 2020 to June 9, 2021. The principal amount of the Term A-3 Loans amortizes in quarterly installments equal to (i) for the first two years commencing on June 30, 2016, 2% of the original principal amount of the Term A-3 Loans and (ii) for the next three years thereafter, 4% of the original principal amount of the Term A-3 Loans with the balance payable at maturity.

In April 2016, the $150.0 million of Additional Term A Loans and $170.0 million under the Revolving Credit Facility were drawn by the Company to fund the Evanta acquisition and related transaction costs, and other working capital needs.

Borrowings under the Senior Secured Credit Facilities bear interest at rates based on the ratio of the Company’s and its subsidiaries’ consolidated indebtedness to the Company’s and its subsidiaries’ consolidated EBITDA (as defined in the Credit Agreement) for applicable periods specified in the Senior Secured Credit Facilities. The interest rate per annum applicable to the loans under the Senior Secured Credit Facilities will be based on a fluctuating rate of interest equal to the sum of an applicable margin and, at the Company’s election from time to time, of either (1) a base rate determined by reference to the highest of (a) the rate as publicly announced from time to time by Bank of America as its “prime rate”, (b) the federal funds effective rate plus 0.50% and (c) the one-month LIBOR plus 1.00%, or (2) a Eurocurrency rate determined by reference to LIBOR with a term, as selected by the Company, of one, two, three, or six months (or twelve months if consented to by all the lenders under the applicable loan). At April 29, 2016, the Term A-3 Loans have an applicable margin equal to 1.75% in the case of LIBOR loans. Borrowings under the Senior Secured Credit Facilities will be subject to a “zero percent” floor in the case of LIBOR loans.

The Senior Secured Credit Facilities are secured by certain collateral, subject to certain exceptions and thresholds, including (a) a perfected first priority security interests in substantially all tangible and intangible personal property and fee-owned real property of the Company and each of the Company’s wholly-owned material domestic subsidiaries, including the newly acquired Evanta entities and their subsidiaries and (b) a perfected first priority pledge of (i) the equity interests of each direct domestic restricted subsidiary of the Company and each of the Company’s wholly-owned material subsidiaries, including the newly acquired Evanta entities and their subsidiaries and (ii) 65% of the stock of each material first-tier foreign restricted subsidiary of the Company. On April 29, 2016, the Company and the newly acquired Evanta entities and their subsidiaries entered into the applicable security documents, and certain collateral was pledged thereunder.

We had cash and cash equivalents of $160.1 million and $113.3 million at March 31, 2016 and December 31, 2015, respectively. Cash held by our foreign subsidiaries was $136.9 million at March 31, 2016. 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.

We believe that existing cash and cash equivalents, operating cash flows, and availability under the Revolving Credit Facility 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 investments in operations to expand market presence and enhance technology. After the April 29, 2016 refinancing, available borrowings under the Revolving Credit Facility were $103.8 million after reduction of $235.0 million of outstanding borrowings and $11.2 million of outstanding letters of credit. We expect to place increased emphasis and priority on deleveraging in the near term. The anticipated cash needs of our business could change significantly if we pursue and make investments in, or acquisitions of, complementary businesses, such as the recently completed Evanta acquisition, 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.

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Cash Flows

 

 

Our primary uses of cash have been to fund acquisitions, debt service requirements, capital expenditures, share repurchases, and dividend payments.

Cash Flows from Operating Activities

Our operating assets and liabilities consist primarily of billed and unbilled accounts receivable, accounts payable, accrued expenses, accrued incentive compensation, and deferred revenue. The timing of billings and collections of receivables as well as payments for compensation arrangements affect the changes in these balances. CEB segment membership subscriptions, which principally are annually renewable agreements, generally are payable by members at the beginning of the contract term. CEB Talent Assessment segment services are generally invoiced as services are delivered. Historically, the combination of revenue growth, profitable operations, and advance payments of membership subscriptions has resulted in net cash flows provided by operating activities.

Net cash flows provided by operating activities decreased $2.7 million in the three months ended March 31, 2016 from the same period in 2015. The decrease in cash flows from operations was primarily due to lower sales bookings growth on a year-over-year basis, which resulted in lower cash collections and was mostly offset by lower income tax and interest payments in the current period.

Total income tax payments were $8.3 million and $20.2 million in the three months ended March 31, 2016 and 2015, respectively.

We made interest payments of $1.6 million and $3.7 million in the three months ended March 31, 2016 and 2015, respectively. Our interest payments will increase due to the additional borrowings in April 2016 to fund the Evanta acquisition.

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 increased $0.2 million in the three months ended March 31, 2016 from the same period in 2015.

In the three months ended March 31, 2016, we used $4.2 million for capital expenditures primarily due to computer and network equipment to support infrastructure and the implementation of new products and enhancements to client-facing platforms. We also made an additional $2.5 million investment in two private entities.

We estimate that capital expenditures to support our infrastructure will be approximately $33 million to $35 million in 2016.

Cash Flows from Financing Activities

Net cash flows used in financing activities increased $43.2 million in the three months ended March 31, 2016 from the same period in 2015. In the three months ended March 31, 2016, we borrowed $35.0 million under the Revolving Commitments and repaid amounts outstanding on our credit facilities of $41.3 million. Further, we used $44.8 million in the three months ended March 31, 2016 to repurchase shares of our common stock pursuant to our stock repurchase programs that were approved by the Board of Directors in February 2015 and 2016, an increase of $38.7 million from the three months ended March 31, 2015. We increased our quarterly dividend rate from $0.375 per share in 2015 to $0.4125 per share in 2016 resulting in additional dividend payments of $0.8 million.

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Contractual Obligations

There were no material changes at March 31, 2016 to the contractual obligations table disclosed in our 2015 Annual Report on Form 10-K. In April 2016, we borrowed $320 million to fund the Evanta acquisition and related transaction costs, and working capital needs.

Off-Balance Sheet Arrangements

At March 31, 2016 and December 31, 2015, 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 revenue, 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; 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 (“SEC”), 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:

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In addition, forward-looking statements may be affected by risks and uncertainties associated with the acquisition of the Evanta business, including that the businesses of CEB and Evanta may not be combined successfully, or the combination may take longer or cost more to accomplish than expected; we may not achieve anticipated operating and cost synergies through combining the businesses of CEB and Evanta, or those synergies may be realized less quickly than we anticipate; Evanta may not achieve the results projected in its current 2016 full year forecast; potential operating costs, customer loss, and business disruption (including employee loss or turnover) following the acquisition may be greater than expected and could negatively affect the financial results and performance of Evanta; Evanta may not perform at the level we are expecting, and as a result the anticipated positive impact of the acquisition on the operations and future financial results of CEB may not be achieved or may be lower than expected and our leverage, which was increased in connection with the acquisition, could materially and adversely affect our financial condition or operating flexibility and prevent us from fulfilling our obligations under the Senior Secured Credit Facilities.

In Part I, “Item 1A. Risk Factors” of our 2015 Annual Report on Form 10-K, as filed with the SEC on February 26, 2016, 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.

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 2015 Annual Report on Form 10-K.

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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 (“Exchange Act”)). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of March 31, 2016, 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, 2016 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 and is not currently a party to, and the Company’s property is not subject to, any legal proceedings likely to materially affect its 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 2015 Annual Report on Form 10-K. There were no material changes during the quarter ended March 31, 2016 to the information included in “Item 1A. Risk Factors” in our 2015 Annual Report on Form 10-K.

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

Issuer Purchases of Equity Securities

 

 

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

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Item 5. Other Information.

On May 5, 2016, the Board of Directors declared a second quarter 2016 cash dividend of $0.4125 per share. The dividend is payable on June 30, 2016 to stockholders of record at the close of business on June 15, 2016. The Company funds its dividend payments with cash on hand and cash generated from operations.

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Item 6. Exhibits.

 

 

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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.

 

 

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Exhibit Index

 

 

 

 

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