Corporate Executive Board EXBD reported third-quarter results that were in line with our expectations, and we are maintaining our fair value estimate. Revenue dropped to $107 million from $142 million a year earlier, representing a 25% decline. However, this is along the expected lines as the company battles the economic downturn, with its efforts compounded by internal reorganization initiatives. Contract value, one of the key metrics of future revenue growth, continued its downward trend as customers defer purchase decisions. Contract value at the end of the third quarter totaled $387 million, down 28% from $538 million a year ago. However, the pace of decline has come down on a sequential basis: Contract value came down 3.6% sequentially, which was less than the 6.9% decline in the second quarter and 11.5% in the first quarter. Given the late-cycle nature of Corporate Executive Board's business, we expect this decline to continue for a few more quarters before picking up.On a positive note, average subscriptions per member, or cross-sell ratio--another key growth metric--increased, albeit marginally, to 2.80 from 2.78 in the second quarter. The increase in the cross-sell ratio was due to higher middle-market cross sales, which have been holding up well even during the downturn, mainly because of the lower price point of programs offered to these customers. The cross-sell ratio to large customers remained stable at 3.23, a marked change from its recent downward trend. Management said it was able to recapture another 5% of the relationships that were lost since the onset of the economic slowdown and also that its relationships with two thirds of its largest 200 customers grew since the end of the first quarter. As the economy gradually rebounds, we don't anticipate any sudden trend reversal in the next two quarters. However, we do expect the company to see more traction from its clients during the first half of 2010. The operating margin fell during the quarter to 20.5%, down 450 basis points from the same period last year. This decline in profitability was due to reduced operating leverage and some one-time restructuring charges that the company incurred as a part of its efforts to rationalize its workforce. Excluding the restructuring charges, which totaled $2.3 million during the quarter, the operating margin came in at 22.7%. We are lowering our fair value uncertainty rating to medium from high. The change was driven by two main factors. First, as the economic conditions improved, Corporate Executive Board is seeing more traction from its customers, which is evident from the sequential improvement in its key growth metrics. Second, the company initiated several restructuring programs to fine-tune its operating model by optimizing its product offerings and realigning its workforce. This should help limit any wide swing in profitability in the long run.
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Analyst Notes
08-04-09 | 3:22PM Corporate Executive Board Reports 2Q
05-05-09 | 1:40PM Corporate Executive Board Reports 1Q Results
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