The Corporate Executive Board Q1 2009 Earnings Call Transcript

The Corporate Executive Board (EXBD)

Q1 2009 Earnings Call Transcript

May 5, 2009 9:00 am ET

Executives

Tom Monahan – Chairman and CEO

Joyce Liu – Interim CFO

Analysts

Vance Edelson – Morgan Stanley

Scott Schneeberger – Oppenheimer

David Ridley-Lane – Bank of America Securities

Gary Bisbee – Barclays Capital

Daniel Leben – Robert W. Baird

Randy Reis [ph] – Hoover Investment Management

Brandon Dobell – William Blair

Presentation

Operator

Good morning and welcome to the Corporate Executive Board’s first quarter 2009 conference call. Today's call is being recorded and will be available for replay beginning today and through May 13 by dialing 719-457-0820. The confirmation code for the replay is 3684032. The replay will also be available beginning later today and through May 13th at the company's website, which is executiveboard.com and at www.earnings.com.

To the extent that any non-GAAP financial measures discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the home page of the company’s website for yesterday’s news release.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others, regarding the Corporate Executive Board’s expected quarterly and annual financial performance for fiscal 2009. For this purpose any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements without limiting the foregoing discussion of forecasts, estimates, targets, plans, believes expectations and the like are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by important factors among others set forth in the Corporate Executive Board’s filings with the Securities and Exchange Commission, and in its first quarter news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

At this time for opening remarks, I’d like to turn the conference over to the company’s Chairman and Chief Executive Officer, Mr. Tom Monahan. Please go ahead sir.

Tom Monahan

Good morning everyone. Thank you all for calling in or logging into our Q1 earnings call. Let me lay out a roadmap for our time together this morning. First,

I’ll review the quarter and then Joyce Liu, our interim CFO will give you details on the financials. I will then return to talk a little more about our business environment, what we are seeing and hearing from members, and how we are working with them to help them right now to address their most immediate high-stakes decisions. Then we will break and take your questions.

As we expected, the quarter was challenging, even a little more challenging than we had anticipated and this is reflected in the first-quarter results.

Revenue for the quarter was $117.4 million. Net income for the quarter was $13.1 million. EBITDA for the quarter was $27.2 million or 23.1%.

Earnings per share was $0.38 a share and contract value was $431.1 million, a 19.6% decline reflecting the impact of fourth-quarter sales, the continuing winding down of some programs that we began past quarter, and a lower level of bookings in the first quarter.

We had anticipated a difficult first quarter and much of what we expected came to pass. There was almost no industry that we serve in any geography that was not facing real economic hardship.

By and large, we came in where we thought we would. The major exception was in our sales and renewals to the financial services sector, where we encounter real difficulty in the face of continued upheaval. The result is that contract value is down somewhat more than expected.

We were able to get out ahead of the sales declines, working quickly and aggressively at the end of 2008 and across Q1 to rationalize our product set and reduce our workforce. These steps enabled us to ensure that we kept our cost basis in line with revenues. The changes we made were not merely cost-cutting moves. They were part of a strategic realignment of our operations. So these cost reductions are expected to provide real operating leverage as we return to growth.

We are now very focused on protecting our financial strength, taking specific steps to maintain our profitability in this challenging market and position the company well for growth as economies and budgets in our target markets stabilize and recover.

To preserve capital and operating flexibility, we are reducing the dividend to a more conservative level, but one that still ensures we return cash to shareholders. We are also moving forward quickly with our planned realignment of sales and service resources in the North American market. As you know, last year we organized the company around five key decision centers where we have real competitive advantage and where our best growth opportunities lie. This allows us to focus on our best prospects, while at the same time streamlining and (inaudible) their operations.

We have also made three key hires that will help take us further, faster. You already know that Rich Lindahl will be joining us as CFO. He brings an outstanding record of achievement in large as well as entrepreneurial companies, and deep capital markets experience. He has also been a buyer and user of our products, and has always brought powerful insights into how best we can create member impact. We are excited to have him onboard.

Let me take this time to thank Joyce for stepping up and into this role. She has done a great job helping us navigate this challenging period, and I look forward to her continued partnership.

Andrew Huddart has joined us to lead a newly configured human capital business unit. The human resources group is in many ways our flagship division, containing our first and largest franchise with a history of consistent growth, and is where we see continued room for significant further expansion. To fully capitalize on our assets and opportunities here, Andrew will bring us together under one human division capital umbrella, our HR research programs to human resource analytics capabilities recently supplemented by our Genesee acquisition, and the leadership academies we have introduced to help companies develop their next generation of leadership. He will also have responsibility growing all of CEB’s business in Asia.

Andrew, former President of Moody's KMV brings 20 plus years of experience in developing and marketing compelling business information and analytic products. His proven track record of developing innovative products and strategies that leverage great intellectual capital, compelling technology, and has demonstrability to build a global business will be invaluable to us as we work to develop the next level of products and services to meet the needs of our members.

The other key hire is Steven Meyer, who joins us as General Manager and Chief Commercial Officer. He joins us from Dell, where he was part of the team that transformed the services division into a global operation that consistently delivered growth and profitability to the company. With this customer-led, customer-driven service orientation and experience in integrating and leveraging sales and marketing, he will provide strong leadership and direction to the teams we have on the ground in Europe and North America.

Steve is also someone who has used and brought our products, and has also brought great insight to how we think about serving and supporting members.

As I have said, our focus for this year is on building enduring relationships with the professionals in the critical decision centers at our large members. Especially during this unsettled times, I believe that we need to spend more time with our members, making sure they are taking advantage of our expertise in getting the results they need.

This may mean that our costs in supporting members will appear large relative to contract value for several quarters. This is an investment we are fully prepared to make as we believe it will pay off down the road. And we will continue to work to gain new relationships with professionals in new parts of current member companies and with new companies. I'm encouraged that we continue to be able to add new names to the membership list, despite the fact that the economy has made companies very conservative about starting new spending relationships.

This quarter 250 new companies initiated their first membership relationship with us, including some household names such as the Bank of England, Corporation for Public Broadcasting, and Godiva Chocolatier Inc. We are cautiously hopeful about the rest of the year. Year-over-year comparisons of Q1 to Q4 bookings improved slightly in North America relative to 2008. But we also recognize that we are driving major changes throughout our organization both to ensure continued profitability in this environment and to ensure that we are very well positioned for growth in the years to come.

As a result, as you'll hear from Joyce's guidance, we are taking a very conservative approach to the remainder of the year, and intend to manage our costs and cash very tightly. At the same time, our ability to generate cash gives us some advantages in this market, and we will make use of that strength if and when we see an opportunity to build value in our target markets.

I will now turn the call over to Joyce, who will give you the detailed financials, and I will be back to comment on our business environment and next steps we are taking to help our members succeed right now. Joyce.

Joyce Liu

Thank you Tom. I will organize today's financial and operating reviews around three categories, first, the income statement and I will move to the balance sheet and cash flow, and close with revised high-level revenue and earnings guidance for 2009.

Starting with the income statement, first quarter revenues decreased 14.9% to $117.4 million from $138 million for the first quarter last year.

Gross profit margin increased to 67.4% compared to 66.6% in the first quarter of 2008. This improvement primarily captures the results from our restructuring initiatives finalized during the fourth quarter of ’08, driven by our decision to consolidate and sunset a group of programs and products, and more aggressive cost management across all categories in light of the difficult economy.

Member relations and marketing expenses decreased as a percentage of revenue to 29.6% in the first quarter of 2008, compared to 30.7% in the first quarter of 2008. This was driven by resource redeployment and rationalization decisions as a result of consolidating underperforming products and programs.

As bookings volume softened as evidenced by our first quarter contract value performance and prolonged sales cycles, we do anticipate MMS expense as a percentage of revenues to be higher than 2008 levels on a full-year basis.

General and administrative expenses were down as a percentage of revenue to 13.4% from 14.5% in the first quarter of 2008. We have been managing G&A spend very aggressively since the second half of 2008, and expect to do so on an ongoing basis.

Depreciation and amortization expense as a percentage of revenues increased to 5.1% from 4% in the first quarter of 2008. The increase was primarily due to additional amortization of leasehold improvements for our Arlington Virginia headquarters as 2008 reflects a half-year convention.

The $944,000 of restructuring cost is primarily consists of severance and related termination benefits resulting from our 2008 plan of workforce reductions.

Other incomes decreased by $600,000 primarily as a result of lower interest income on a year-over-year basis.

First quarter EBITDA was $27.2 million or 23.1% of revenues. Adjusted EBITDA, which excludes restructuring costs, was $28.1 million for the quarter or 23.9% of revenue, compared to 20.8% in the first quarter of 2008.

First quarter diluted earnings per share was $0.38 against diluted earnings per share of $0.42 in the first quarter of 2008, a 9.5% decline year-over-year.

Contract value decreased by 20% to $431.1 million at March 31, 2009, from $535.9 million a year ago. Compared to contract value at December 31, 2008, of $487.1 million the reduction was approximately $56 million or 11.5%. We define contract value as the aggregate annualized revenue attributable to all agreements in effect at a given time without regard to the remaining duration of such agreement.

For the small number of contracts of more than 12 months duration, we include only 12 months in contract value. The contract value decline from December 31, 2008 was driven by several factors, some of which we fully anticipated and factored in our beginning of the year plan. Some we did not. Let me provide some additional details.

First, contracts had expired by March 31, 2009 from programs and products that were targeted for sunsetting on consolidation accounted for over $12 million of this change. This piece we fully planned for. Second, we continue to see the challenge of the economy impacting our business disproportionately from financial services and auto industry, which accounted for about half of the contract value loss.

We had initially planned for some of this impact but our experience had turned out to be even worse. Sales to new customers, who brought their first CEB membership this quarter was disappointing, but on pace with what we expected for the quarter. However, we were not able to generate enough new sales to offset the reduced level of spend from the rest of the portfolio of members.

Turning to the balance sheet and cash flow, membership fees receivable declined 40% to $76.6 million at March 31, 2009 from $127 million at December 31, 2008, reflecting both successful collections and weak bookings volume during the quarter.

Collections improved slightly from historical seasonality, and DSOs, which we calculate using average receivables were 78 days for the first quarter of 2009, comparing to 89 days for the same time last year.

We are pleased that invoicing and collection patterns over the past six months have been fairly consistent with historical experience.

Deferred revenues decreased 2.1% to $257.1 million at March 31, 2009, from $264.3 million at December 31, 2008, again as bookings during the first quarter lagged expiring contracts.

Cash flows from operations were $43.6 million for the quarter versus $83.9 million in the first quarter of 2008, a reduction of $40.3 million. This reduction is primarily driven by softer bookings volumes across the last two quarters, payouts under severance agreements accrued in the fourth quarter of 2008 and higher cash tax payments.

Capital expenditures were $1.5 million for the quarter, while we did not make any share purchases during the quarter, we distributed 44% per share dividend back to the shareholders totaling $15 million.

At the end of first quarter 2009, we had $22.4 million with the remaining share repurchase authorization.

At March 31, 2009, our cash, cash equivalent, and marketable securities balance totaled $103.3 million.

Before moving onto the outlook section, I want to quickly touch on the 10-K/A we filed on April 23 to restate our 2008 financial statements. As part of the restatement, we increased 2008 rent expense by $5.7 million as a result of a lease accounting adjustment and increase the impairment loss related to intangible assets by $4.2 million. Both items did not impact cash flows.

Outlook

The following comments are intended to fall under the safe harbor provisions outlined at the beginning of the call, and are based on preliminary assumptions, which are subject to change over time.

First quarter results highlight the challenging operating environment we are in. We expect to continue experiencing extended sales cycles and budget rationalization decisions in our member organizations across all major business sectors throughout the year as they cope with the recession.

While we worked feverishly to execute on the strategic initiatives we set out to do at the beginning of the year, we anticipate benefits in the form of increased bookings from these initiatives to be realized later in the year, potentially creating a lag effect in recognized revenue for the year. As you know, our subscription business, strong bookings in the second half of 2009 benefits more of 2010 revenue than it does to 2009 revenue. As a result, we are revising our full-year revenue guidance to $410 million to $450 million.

Our guidance for annual diluted earnings per share before restructuring charge in 2009 is $0.90 to $1.40. As Tom and I discussed throughout the quarter, we will continue to bring intense discipline to the management of the business during this difficult time, drive the best informed balance between protecting the most valuable assets of the business so that we are well positioned to grow in the long run and maintaining profitability in the short run.

We project for full year CapEx spend to not exceed $10 million. For 2009, we expect depreciation and amortization expense of $23.5 million to $24.5 million. We expect adjusted EBITDA margin to be between 18.5% and 23%.

The above guidance represents our best estimate at this point. We will keep you updated on our progress and revised forecast as the year unfolds.

This concludes the financial summary. I will now turn the call over to Tom.

Tom Monahan

Thank you Joyce. The difficulties our members and we are facing have underscored that the key to our growth and success in tough times as well as good ones is a critical combinations of relevance, results and relationships. And we can deliver what is relevant for our members today and deliver it when they need it, in a way that they can most easily use it can unquestionably contribute to their ability to get results, and get them fast.

And when we do they stay with us, they renew with us and they grow with us. It is also equally true that the strength and depth of our relationships with the individual business decision maker directly determines our ability to deliver these results. When they know us well, they use us, and they stay with us even when budgets get tight.

Obviously, we are not immune to the effects of the economy. Tight times significantly affect the budgets where we operate, and when companies are eliminating or consolidating positions, we will actually reduce the number of relationships we can expect to have within any given company.

But what we see very clearly is that when a business is facing economic pressure, as all of our member companies are now, the determining factor and whether they stay with us, and at what level they stay with us is the strength of the relationship.

Let me give you an example. I can’t name the company but the company is one of the most at risk in its industry, and you would expect that all CEB memberships will be cancelled or at least cut back. But we have a long-standing relationship with the CFO going back to previous positions in his career, and this person believes that we are absolutely essential to his success and the company's performance.

The result is that we have held our own at this company despite unprecedented economic pressure. This story repeats itself again and again, and validates our strategy of focusing our expertise where we are able to deliver the most value to ensure that we forge broad and deep relationships among the professionals throughout the functional operations of each member company.

So, we're focused on delivering outstanding member impact through this tough economic period by forging content and insight led relationships that produce results for members.

Let me share with you some of the issues that we see on our members minds, and some of the things we are doing to be highly relevant and support them right now. Three things in particular are showing up in a lot of our conversations as members tap our resources to drive their business.

First, as the vast majority of our member companies cut deeper and deeper into their cost basis, particularly in their corporate headquarters functions. We are developing tools to help them understand how best to keep taking out cost without assuming too much risk. We see this particularly in our finance and IT areas, where successive rounds of cost-cutting self have put critical compliance, risk, and security capabilities in jeopardy.

And one example from finance, members have been actively utilizing our data and best practices to resize, centralize, and where it makes sense outsource key elements of their accounting capabilities. One Fortune 500 company estimates that leveraging our resources saved them about $500,000 on the design phase of the project alone.

Second, as the economy continues to (inaudible) members are relying on our insights, tools and resources to make more accurate forecasts and adapt their cost positions accordingly.

Here we have aggregated not only various external sources of market insight, but members own forecasts into datasets that people can use to pressure test their plans for the year. We have also married this data to best practices and tools that allow people to pinpoint opportunities to shift finance and human resources in light of changing conditions.

The CFO and board of a European consumer products giant estimate that these tools save them millions of euros in the 2009 plan alone. Finally, we continue to help members manage their talent assets in this complicated environment.

The second order effects of downsizing efforts are often damaging. Our data projects nearly 10% productivity loss at most companies due to a low level of engagement among surviving employees. This combined with sudden, meaningful skill gaps could put company performance at risk for years.

We have built a series of analytical tools pinpointing these problems and resources – and married them to resources and best practices for helping member companies address, diagnose, and solve these problems.

To wrap up, we will continue to focus for the coming quarter and the year ahead on five key things. First, as I've said, we are putting our energy and resources on building enduring relationships with the professionals in the critical decision centers of our large members. The ultimate measure of our success here is, of course, contract value and revenue growth. We also pay very careful attention to three other metrics. First, member touch points. We have established systematic member and prospect contact procedures that analysis shows contributes to engagement, utilization, and ultimately sales renewal [ph].

We are monitoring these contacts closely to be sure. We're doing this to make sure we are making the right sales calls at the right times, seeing enough of our members face-to-face and engaging them on their most important issues.

Second, we are looking at volume of member usage. Do we see sustained increases in users and usage of the product features and assets, thick [ph] web traffic, meeting in webinar attendance; face-to-face visits et cetera that indicate our members are applying our insights to their business.

And third, we are tracking member value. We relentlessly survey our members about their experiences, and the impact of what we do on their business performance. Together, these three types of indicators give us a pretty clear sense of whether we are doing the things that we need to do to generate contract value growth and higher profitability down the road.

Second, we will maintain and protect our strong financial position. We are managing our cost structure to give us the maxim ability to respond to rapidly changing conditions. You have seen us make aggressive moves in the first quarter to ensure continued profitability, and I would expect to remain very vigilant on the cost front throughout this economy.

Third, we are pursuing strategies that better leverage our existing intellectual property into new products and offerings. Look for us to continue to put new versions of our products in the market place to target newer geographies or important new markets such as deeper penetration into Asia or global government markets.

Fourth, we will prudently pursue opportunities to meet new leads within the five key decision centers, where we have established strengths, and we continue to own the greatest proportion of budgets for business and advisory services. In fifth, finally, we will continue to be aggressive about talent. Just as our members need to mitigate their productivity impact of their restructuring and cost containment moves, so must we. We are following our own best practice guidance in these matters, making sure that even as we take costs out, we will provide a rewarding and exciting career for smart driven professionals. And we will take advantage of the economic environment to selectively add people with demonstrated skills where we need them.

There is no doubt this is shaping up to be a tough year. We are very focused now on protecting our financial strength and maintaining our profitability in forging strong and deep professional relationships based on expertise and results. By keeping this focus, we believe that we will be very well-positioned for growth as our members businesses stabilize and recover.

We are ready for your questions now.

Question-and-Answer Session

Operator

Thank you (Operator instructions). Our first question will come from Vance Edelson with Morgan Stanley.

Vance Edelson – Morgan Stanley

Hi, thanks a lot. Good morning. You mentioned the three indicators that you monitor to make sure you're doing the right thing in creating value. If you think back to past cycles and past recoveries, what is normally the first indication that it is really paying off? Do you start to see an increase in new customers first or does the cross-sell ratio start to rise, does pricing power improve? How has that played out in the past or put another way what are you looking for in the coming months that would make you most optimistic that recovery is at hand?

Tom Monahan

We watch – I think it is interesting to watch all four categories of metrics, and the one that matters the most ultimately is contract value, which in our business lends itself to enhance profitability. What we've seen in the past is that the key leading indicators, which are continuing at pretty robust levels, we are continuing to maintain very active sales pipelines. We are continuing to engage our members very directly and we are continuing to see good usage patterns and good feedback. Those start to convert more quickly into economic outcomes. So in a difficult environment, things that take four conversations to book a piece of business either a renewal or a new sale start taking three and then they start taking two, and what we end up getting is leverage on the marketing and member services line as the productivity of the people in the field we've been building these great relationships manifest itself in faster and quicker to move through the system contract value. So you tend to see a little bit of, for lack of a better term, velocity as the economy recovers, and things that were requiring multiple steps and multiple efforts in multiple layers of approval and review. That starts to strip away and commercial activity becomes easier to move through the system.

Vance Edelson – Morgan Stanley

Okay, great, and in terms of the long-term dividend philosophy, is it your expectation that you will at some point bring it back up to the prior level. Is that kind of the ultimate goal and a related question on the buybacks, what is the reasonable timeframe to be repurchasing shares again?

Tom Monahan

You know, even in this environment, our business generates more cash than we need to grow. As you know, we're not building fab plants or anything. So, we remain very focused on the best way to get excess cash back to shareholders. In this environment, we took a conservative view that a smaller dividend allowed us to maintain maximum operating and strategic flexibility. I would expect our focus on returning cash to shareholders to remain a focus as the economy turns and we realize real economic leverage, and structural decisions we made in the past year. Our board recognizes that in the business that generates more cash than we need to grow. They need to pay attention to this every quarter and it is something that we always revisit and think about. So, we will keep you posted as we make decisions on that front. I think right now we have, it is just that we have repurchase authority of just north of $22 million. Our posture in the most recent quarter has been one of conservatism with respect to the balance sheet and the capital structure, and beyond that I think I will just say that the board is very focused on how best we return excess cash to shareholders in the most tax efficient means possible.

Vance Edelson – Morgan Stanley

Okay, great and just a related follow-up on other uses of cash. You mentioned if and when you see opportunity to build value in target markets, you’ll do that. Could you give us some idea what that would involve, is it more hires, is it acquisitions, is it investing in new programs or all of the above?

Tom Monahan

Sure. You know, it's all of the above. You saw us make – I think in the first quarter our focus was very much on adding some real world-class talent to the top of the organization, as we made some moves that we think position us very, very well. As the year unfolds and we see needs develop, I wouldn't be surprised to see us put some new products into the market and you've seen us now and then do smaller scale tuck in acquisitions when the speed to a high impact business is accelerated by someone who's already put in place, say an asset or customer list that we can go monetize. I don’t think – we've always said we produce most of the data that shows that large-scale acquisitions more often not describe values. So, along that front if we do anything it is as you've seen historically it tended to be quite small, and very focused on one of our five target areas. But I think all of the above, our focus is as we move through the year though early in the year, we did place a high premium on talent.

Vance Edelson – Morgan Stanley

Okay, that's great and thanks a lot.

Operator

Thank you. (Operator instructions) We will now move on to Scott Schneeberger with Oppenheimer.

Scott Schneeberger – Oppenheimer

Thanks, good morning. Could you please update us on where you stand on number of membership programs as well as number of sales teams?

Tom Monahan

Scott, let me take on the number of membership programs now. Let Joyce update on sales teams. The – as we said, we ended the year with 52 research programs and we mentioned at that point that we were putting 10 of those programs into a review, which is going to result in consolidation or sunset of that entire group. We're not all the way through that process, you know, but I do think it is safe to say that we are going to come in the low 40s by the time we're done. We think the vast majority of programs we are taking a hard look at are ones that are going to be consolidated back into one of the others, but as we get through that process, we will update you as to what the final number is. We still got a few – well, obviously there are ways for us to reposition a product that generates contract value growth over time and becomes economically attractive, we'll do so but I think it is safe to say most of those programs will not be supported in the marketplace. We've stopped selling and renewing all ten of them and are exploring whether there are other ways we can be successful there. Joyce, you want to update on sales.

Joyce Liu

Sure, Scott, you know, as we transition into the more integrated account management structure, you’ve heard Tom and I talking about historically we've been reporting the number of sales teams primarily responsible for selling new memberships, and did not spend enough time or disclose the number of teams that is responsible for renewing and servicing the memberships, and as we start to consolidate these two teams oftentimes into one in select North America regions, it no longer makes sense to talk only about one side of the house. Starting, as we are largely complete in our transition process into the marketplaces, we will be in a position to talk about consolidated number of sales service teams starting the second quarter.

Tom Monahan

And Scott, I guess you can see from both our guidance and our Q1 performance, we're planning to maintain overinvestment at that line-item in the P&L, both during the transition and beyond because we're thinking in this environment overinvesting in people, who are at the coalface [ph] face-to-face with members and prospects, creating opportunities as budgets shift is very important. So we're very happy with the both the number, quality, capability, and energy level of the people we have out in the marketplace right now.

Scott Schneeberger – Oppenheimer

Thanks, could you refresh us just on the mix of fixed versus variable compensation for the sales?

Tom Monahan

Yes. I mean, as you know, historically we've always employed as many of the classic best practices we can from our own sales products that we put in the marketplace, which means that we have – we compensate people very fairly on a base level basis and then we put in place very attractive incentives for them to move up and really excel at the upper end of their plans, or highest performing salespeople can make a multiple of 2 to 3 times their salary in incentives, and obviously a few people do that every year and most people are aiming for that every year, but that's at the highest end. But I think across the broad portion you’d see the base variable mix is to keep in place very, very attractive – very attractive bonus opportunities as they generate real business and impact in the marketplace.

Scott Schneeberger – Oppenheimer

And thanks, just a couple more if I could. You had mentioned a pursuit of products offerings in Asia as well as global government markets. Could you take us a little deeper there please?

Tom Monahan

Sure. I mean, Asia has been – as we mentioned last year Asia was a source of strength for us but our focus in Asia to this point has been very much located on the Australia-New Zealand market with small forays to China with our human resources practice area. With Andrew Huddart coming onboard and a great team in place now in Sydney that we can build off of, we see opportunities not only to get deeper into the markets we’re already in, but get to other markets in the right order and made the right smaller investments across time to be successful and we will keep you up-to-date as these efforts unfold, but we've got a great team over there and we've got a great leader who knows those markets incredibly well, who I think can do – and together those teams can do great things.

Governments in market we have been in for a while as you can imagine, the CIO of a federal agency or the CFO of a big State Government have a set up problems on their desk that look just like their counterparts at large companies. And we are continuing in this environment as those entities face real challenges, to hear demand from them about what else we can do and how else we can be successful. So we – you will see us both – a lot of the focus right now will be in North America, but we do see opportunities more broadly globally as other government entities tried to adopt best practices and best ideas and strong benchmarks in their management practices. So a very natural transition off our US base there.

Scott Schneeberger – Oppenheimer

Thanks, and final question. You'd mentioned the last time, last call, about a $10 million spend on technology. I apologize if I missed it this time. Could you give us an update on your thoughts there?

Tom Monahan

Sure. The $10 million spent on technology was primarily intended to help us accomplish two objectives. One of the – the first objective was we needed to put in place a new customer relationship management system to support our people in the field. We saw a variety of ways in which an investment there could improve their efficiency, allow them to be more successful, and deliver much more reliably the member results that we are looking for. So that was the first thing. The second is the technology platform also enables us to better personalize the product experience for individual members. So it connects underneath, if you will, to our web portals so that someone can see, someone can see content that is specifically relevant to them not only in their role, as let’s say, general auditor but specifically as an auditor of an energy company, let's say.

So the second goal there is beyond customizing – beyond enabling our sales force in our service being much more productive and share knowledge much more quickly. It is also intended to help us customize the member experience through our web portals, et cetera. The bulk of the expense is the CRM system, which is the platform for a lot of that activity and we are running toward a go live date in Q2 and it's looking very good.

Scott Schneeberger – Oppenheimer

Okay, thanks Tom. Thanks Joyce.

Operator

Thank you. We’ll now move on to David Ridley-Lane with Bank of America Securities.

David Ridley-Lane – Bank of America Securities

Yes. The roughly $1 million in restructuring cost in the first quarter, is that additional headcount over and above what was announced back in February?

Joyce Liu

No, it is not David. It is part of the 2008 plan, but for accounting purposes some of that expense can only be recognized in 2009.

David Ridley-Lane – Bank of America Securities

Okay, and I guess just following along on that line of thought, given that first-quarter results were a bit little bit below expectations, would there be a sense that further headcount reductions would be necessary?

Tom Monahan

(inaudible) you know, we certainly will be very aggressive on cost but we don't currently plan to do any more layouts that are driven strictly by economic outcomes. You know, you saw us get out in front of it very aggressively in Q1, knowing that we are in for a difficult year. It is safe to say that we are going through a very major change in how we engage and support our customer base. The goal of this change is to ensure that we put our best people in a position to create tremendous member impact and ultimately tremendous more impact, and I believe in the last majority of places we've got the right people in the right place. But as we go through this process I'd also be very surprised to have some small additional adjustments we need to make to our sales service product teams, not for economic reasons but to ensure that we are delivering the highest possible level of impact and to ensure that we keep putting resources in the right places in the right markets and into the right content streams. So we feel we got out ahead of the economic issues, but we still see opportunities to keep fine-tuning, how our people are positioned in the marketplace.

David Ridley-Lane – Bank of America Securities

Sure, and just one last one. Can you walk us through your thinking and setting the dividend rate that you did you know, given your share balance and everything, what made $0.10 the right quarterly dividend level relative to, you know, the old $0.44?

Tom Monahan

As we’ve said, the great thing about the business is we generate more cash than we need to grow. So our board is very focused on getting that cash back to shareholders even in an environment like this, in as efficient and tax efficient means as possible. We made the decision in this operating environment to adopt a highly conservative posture that allows us maximum and operating strategic flexibility, and at the same time ensures that we are still getting cash back to shareholders on a regular basis, and having gone through all the analysis to look at what that there is no doubt, we came up with $0.10 of share as the right level for this environment.

You know, as I’ve said before this is in our business where we're not deploying capital to build major factories or anything. This is something the board takes very careful look at at all times and (inaudible) making sure that the excess cash we generate makes its way back to shareholders in as efficient means as possible, increase value for the business in the right ways. I'd expect we're going to continue stay very focused on that goal throughout this environment and as the economy improves.

David Ridley-Lane – Bank of America Securities

Thank you very much.

Operator

Thank you. We'll move on to Gary Bisbee with Barclays Capital.

Gary Bisbee – Barclays Capital

Yes, good afternoon. Good morning. You know, I guess a couple of questions. What – can you give us some sense of what level of economic recovery or economic outlook you baked into your forecast there? I mean, I guess, just a little more like you commented about the potential for a little more momentum in the back half, but that would be more of a 2010 phenomenon in terms of your earnings. Is that baked into this guidance. I guess I'm trying to understand where they are coming from?

Joyce Liu

Certainly. I think there are really two, kind of two parts to your question. One is the bookings trend itself and then the other is how bookings get translated into revenue. On the bookings front, we did see some signs of stabilization in certain market segments in the first quarter versus the fourth quarter of ’08, which leaves us to be cautiously hopeful for more robust bookings in the second half of the year, but then on the revenue front, you know, that lag effect between bookings picking up versus working off deferred revenue balances from 2008 could have that gap that's created, and so on the high end of the guidance, we do expect revenue to be fairly evenly distributed, and then EPS continues to improve over the course of the next few quarters whereas on the lower end of the guidance revenue and EPS will be lower in the fourth quarter. I'm not sure that answers your question.

Gary Bisbee – Barclays Capital

Okay, and then even at the high end of the earnings guidance it would be at a, you know, pretty meaningfully lowered number in terms of the EPS than you had in Q1. Or is that just the revenue notching down and then being, you know, seem fairly evenly distributed you said, or is there something going on. I know in the past, you had timings and when you published stuff and had conferences. Was there any other you know, timing stuff or cost that got pushed out this quarter?

Joyce Liu

I think the timing was, in terms of expenses should be following similar patterns as historicals. So I think the driving force behind EPS distribution is primarily on the revenue projections front, and you also hear Tom talking about you know, very committed to overinvest in the member facing and market facing capabilities. And as a result of that you're likely to see expense in revenue ratios slightly out of balance in the near term, which again is reflected in this guidance.

Gary Bisbee – Barclays Capital

Okay, and then you know, I guess what data do you have from customers who have dropped individual programs. I'm not talking about the customer expansion rate that you give every year, the program retention rate, and can you get any sense of what percent of them is because the executive left, and for the ones or the executive did not leave, but decided it was at least temporarily more of a discretionary spend. You know, what confidence do you have or what are you doing to try to get that business back when the economy improves. Are people just going to decide on, I can live without it.

Tom Monahan

Our history here is very promising, both with companies or individuals and particularly at the individuals at a department level, our history of re-establishing relationships that have been discontinued is actually quite good. We find that dropped members either because they were churn in department disappeared for a while or because the head of HR decided that they are going to keep three rather than four programs and told the benefits executive they couldn't have a program for now. We find that far in a way these are our most attractive and receptive prospects for new sales by an order of magnitude.

You know, they know the product, they’ve seen the impact, and they have a real good sense of how they use them and be successful. So these are priced potential new prospects. We aren’t taking anything for granted right now. It is our job to have compelling reasons for someone to buy or renew our product every day. So we need to be in front of them regularly with new messages, reminding them what they are missing, and always reminding them that things are just sitting under the desk right now are things that our data insights and best practices can help them be successful about. So we have not only overinvesting our sales and service organization, but put in place a series of focused marketing plans that enable us to maintain constant contact and capture the first available budget opportunity as the year unfolds. We are paying a lot of attention to this. We are not sitting on our historical record of success here.

Gary Bisbee – Barclays Capital

Okay, and then just one cleanup financial one, the stock comp expense in aggregate was up quite a bit from the early commensurate with the trend over the last year. Very good run rate number to use or could it go up even more, given the three new senior executives that you’ve recently hired?

Joyce Liu

On a net-net basis, I think what you’re seeing in the first quarter should be pretty good starting point from a trend perspective.

Gary Bisbee – Barclays Capital

Meaning that the rest of the year would be similar give or take a little bit?

Joyce Liu

Yes. That’s right.

Gary Bisbee – Barclays Capital

Thank you.

Operator

Thank you. We’ll now move on to Daniel Leben with Robert W. Baird.

Daniel Leben – Robert W. Baird

Great. Thanks. Could you just tell me, try to reconcile, you know the comments you made about contract value decline being fairly close to in line with expectations with the exception of some financial services and auto clients, combined that with the fact that revenue guidance in the midpoint is down about 6.5%. Just trying to get a sense of what changed in the revenue guidance. Is it expectations for new bookings through the rest of the year or what were the swing factors there?

Joyce Liu

So as Tom indicated in his remarks, it was weaker than expected performance in the FS sector during the first quarter. Our overall Q1 has finished below our original expectation and given the timing of you know, Q1 in relation to the whole year, it puts immediate pressure on the full year recognizable revenue. And the current state of the economy and the budgetary environment also made us more cautious about outlook for the rest of the year. So with the combination of these two factors, that's pretty much what is driving our revenue projection revision, Q4 through Q4 – Q2 through Q4, and like I said earlier a stronger second half bookings will benefit more of 2010’s revenue than it does to 2009.

Daniel Leben – Robert W. Baird

All right, and then could you just give us a sense of how you’re thinking internally about what contract value you could look like the next couple quarters. You know, as the year-over-year decline, have we reached kind of the peak decline here as we are rolling off the sunset programs as well as you know, customers going away on some of these verticals, or is this the number that you are still thinking, hey, this could go down a little bit further as you finalize the sunsetting and those industries are still challenged.

Joyce Liu

Right. The sunset consolidated programs account for slightly under 10% of year-end 2008 contract value. So with $12 million leaving us at the end of the first quarter there's more to come out throughout the year and those are planned. All in all, I think we’re cautiously hopeful for in the near term for decelerated CEB decline in Q2 and probably stabilize in Q3, and a strong finish in the fourth quarter against – on the sequential basis.

Daniel Leben – Robert W. Baird

Okay, and then just finally on the cost side, could you talk a little bit about areas where you think you can get some cost savings. Obviously you mentioned it won't be from a headcount standpoint, but just some areas where you feel like there is some cost leverage you can pull?

Tom Monahan

Sure. You know, if you look at – we will be watching cost all year. As you can see from the Q1 result, we took – we got after this early and we took an early aggressive action to set ourselves up for what we thought would be a difficult year and it turned out to be, and we did that so that we could operate effectively throughout the rest of the year. Now, going forward we see certainly small opportunities to manage cost on an additional basis.

As revenue trends dictate, we’ll take a very close look at those cost that are supposed to vary with revenue. Not all cost in our business are fixed, and we will look at anything such as meetings expenses or extra deliverable or anything that ought to vary with the revenue picture and make sure that it does. I will also continue to focus on our G&A levels. We’ve said that we want to be overinvested at the coalface in the marketplace and we want to always be investing and creating great content and great product, but anything that doesn't fall on those two categories, we're going to take a careful look at as the year unfolds.

Daniel Leben – Robert W. Baird

Great, thanks.

Operator

Thank you. We will now hear from Randy Reis [ph] with Hoover Investment Management.

Randy Reis – Hoover Investment Management

Hi. I'm just wondering if you took out the change in subscription values associated with the programs that are likely to be eliminated or consolidated. How would the rest of the – what would the behavior of the rest of the subscription value, contract value look like?

Joyce Liu

Sure. We talked earlier about looking at year-end ‘08 change versus year-end ‘08 of about $56 million taking aside the consolidated programs of about $12 million. About half of that $56 million is coming out of the financial services and auto sectors. There you see total membership consumptions step down significantly in several different areas within the subcategories within that sector. Then the rest of the portfolio, it is behaving more like new sales to new customers, slightly sluggish but it is still a meaningful addition to the overall contract value but then they are not significant enough to offset the net trade downs from the rest of the portfolio. Net-net it was a relatively small piece.

Randy Reis – Hoover Investment Management

I get the impression that something about the level of decline, I guess, in contract value may have surprised you in Q1 compared with where we were on the last conference call. Is that true or is this just flowing through changes that you had already seen?

Tom Monahan

Randy, I think it is safe to say we planned for most of this. We certainly plan for the products we are no longer selling, and we did anticipate a difficult start to the year. The trend we saw in Q4 was one we expected to continue, which is customers renewing their total relationship, but trading down some products in the process. The one surprise was and we hadn’t expected the financial services sector would recover.

The two surprises, I guess, one to the negative and one slightly positive, where the slightly negative one was FS proved to be in even a little bit more turmoil than we thought it would be, largely from the standpoint of departments being collapsed into each other, lot of executive churn et cetera. So there are places where we just couldn't even find the right person to engage around the selling or renewing event, and that was even a little bit outside our model, and then as Joyce said new sales selling to new companies buying that first membership wasn't of the churn spectacular, but it was nice to see a robust list of new companies joining that first membership even in this environment, meaning that our ability to convince them as they cut other professional services and other sources of support, they should actually incorporate us into their plan we think was a good new story, but the one negative surprise was the degree of turmoil when we picked up the phone or went out to see our financial services members, a lot of churn and a lot of restructuring inside those companies right now.

Randy Reis – Hoover Investment Management

Has your view changed at all on when you believe the dust will settle enough for people to start considering and with more vigor the areas that you can help them with.

Tom Monahan

You know we have – I think we came to the year expecting a pretty down economic environment. I don't think we have seen anything that has changed our mind dramatically about the environment one way or the other. We know we're going to have to deliver outstanding immediate ROI. We planned the year to make some substantial changes to how we faced up against the market in the cost structure. In the early part of the year, I saw that we are in a great position in Q2, Q3, and Q4 to be there supporting members incredibly well and capturing budgets as they appear. But we do anticipate there will be, and recently we have seen the environment that changes our outlook on the economic environment we confront.

Randy Reis – Hoover Investment Management

Very good thank you very much.

Operator

And for our last question, we hear from Brandon Dobell with William Blair.

Brandon Dobell – William Blair

Thanks. Tom, I was wondering if you could separate the behavior in the financial services clients from the rest of the large corporate markets other from renewal or cross-sell perspective. I guess I'm just trying to get a feel for what the cross-sell would have looked like in large corporate without financial services, and then kind of related to that what does all the activity going on right now do for you or to you in terms of how you think about the right price points, the right pricing strategy as you work through this year?

Tom Monahan

Hi, Brandon, as we said financial services was the place where we saw more challenge than we anticipated. On balance the other sectors certainly didn't perform at a level consistent with historical standards. We can and expect to do better in a more normalized environment. But they perform more or less according to plan probably on balance, little more positively on FS, a little more negatively than we would have expected. I think in FS this trend was a little bit less people making not only deliberate budget choices, but also just a lot of turmoil. The department ceasing to exist, M&A plans et cetera.

There was a lot of trying to get the right person on the phone or into the room with us to have a conversation so we can even support them. So I think that is how the two sectors were different. Even in other industries, which were all challenged there was a stability to operations that they may have been cutting costs, but we at least knew who to talk to, we knew what they were focused on.

And pricing, we continue to say, if you look at pricing last year, we were even able to maintain a small same-store price increase on the existing product portfolio. And I think as we work our way through this, what we see is – we continue to maintain a real focus on pricing integrity. You know our theory here that this is a membership business, and getting way out of lack on different pricing structures for different members creates a lot of turmoil over the long term.

In equities, we are seeing one is, more people are making themselves – availing themselves of discount plans that exist. So in the strategic accounts sector the plan that we had in place for several years now that wasn’t that uncommon a few years ago, people would say, gee, I know I qualify for a discount, but I don't really feel like going through the hassle of taking on my part of that burden. We are seeing slightly more people say, gee, I want to make sure I'm taking account of any discount that is available to me.

And then, secondly there are certainly some places where we're trying to experiment with different products in packaging configurations that allow people to earn their way back into potions of the products that are little quicker than they might if we stay totally structured the way we always have. But I think on balance our pricing philosophy hasn't changed much.

Brandon Dobell – William Blair

Okay.

Joyce Liu

And Brandon, just to add-on to Tom's comment on your question with regard to cross-selling FS, without FS, I am providing to you some back of the envelope maths as to converting the loss to contract value, because in most cases these companies have been maintaining relationships with us, but just at a reduced level of consumption. So the cross-sell – the denominator pretty much doesn't change and change the numerator will get you a ballpark as to what cross-sell could look like.

Brandon Dobell – William Blair

Okay, going back to your price and pricing strategy for a second, there is a program consolidation, should we think about that activity as changing with the average program value. It looks like i.e. are you consolidating programs that had lower price points on average or different pricing structures, or higher price point structures, or it should not make a difference?

Tom Monahan

I think in the giant scheme of things it won't make an enormous difference. What you will see his there will be two netting out effects as we work through that. A good example, we talked about the sales of the different programs we had serving the sales environment, that were being consolidated back into one.

There are opportunities obviously as we consolidate those content streams into a larger content stream to charge a little bit more for them. Certainly in the normal environment that is more attractive than in this environment. But there are also opportunities to sell it at the multiple divisions within the same company, which might be one of those pricing structures that I talked about before. So the netting out the effect of that will almost be a complete wash. But that is what I would expect from a pricing standpoint is that in some cases, we will be able to price up a little bit due to richer content streams, and in some cases will be changing some of those consolidated product structures to enable us to have more divisional opportunity, which might be at a little bit of a lower price point.

Brandon Dobell – William Blair

And then follow on from me, I think you talked about some signs of stabilization in certain markets, are those geographic markets, are those would be vertical markets or types of companies (inaudible).

Tom Monahan

Geography is probably the big thing there. North America felt stronger to us than at least on a new sales and on a new sales basis and renewals basis than Asia-Pac and Europe, and some of that is just the fact that of repricing dollars on a global basis, and that creates a great clarity for us, but at the same time it means that our product is more expensive when the dollar is very, very strong. So I think that did affect particularly some of the new sales and renewals and the margins in our non-US markets.

Brandon Dobell – William Blair

Okay, great. Thanks a lot.

Operator

There are no further questions at this time. I will turn it back over to Mr. Monahan for any additional or closing comments.

Tom Monahan

All right. Thank you all very much for calling into or logging in. We look forward to keeping you up-to-date on the EXBD story as the year unfolds. I think in the quarter, we will be at the William Blair Conference in June, and we're certainly available to talk to other folks as the quarter unfolds.

Operator

Thank you ladies and gentlemen. That does conclude today's conference call. We thank you for your participation.

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