Corporate Executive Board Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.29.13 | About: CEB Inc. (CEB)

Corporate Executive Board (NYSE:CEB)

Q3 2013 Earnings Call

October 29, 2013 9:00 am ET

Executives

Richard S. Lindahl - Chief Financial Officer and Principal Accounting Officer

Thomas L. Monahan - Chairman and Chief Executive Officer

Analysts

Timothy McHugh - William Blair & Company L.L.C., Research Division

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Gary E. Bisbee - RBC Capital Markets, LLC, Research Division

Operator

Good morning, and welcome to the CEB Third Quarter 2013 Conference Call. Today's call is being recorded and will be available for replay beginning today and through November 9 by dialing (719) 457-0820. The replay passcode is 8269577. The replay will also be available beginning later today through November 9 at the company's website. To extent -- to the extent any non-GAAP financial measures are discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to the GAAP by going to the company's website and following the Investors link to yesterday's news release.

You will also find a PDF of supporting materials that the company will use in its prepared remarks this morning by going to the Investors page and following the link to the first quarter 2013 earnings conference call. Please review the second page of these materials, which include important information about any forward-looking information included in the presentation.

This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the CEB expected quarterly and annual financial performance for fiscal 2013 and beyond.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs and 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 by the Corporate Executive Board's filings with the Securities and Exchange Commission and its fourth 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, further events or otherwise.

At this time, for opening remarks, I would like to turn the conference over to the company's Chief Financial Officer, Mr. Richard Lindahl. Please go ahead, sir.

Richard S. Lindahl

Thank you very much, and good morning, everyone. I'm Rich Lindahl, Chief Financial Officer of CEB. Thank you for calling or logging in to our third quarter 2013 earnings report.

On today's call, I will review our third quarter financial results, discuss our 2013 guidance and share some early thoughts on 2014. Tom Monahan, our Chief Executive Officer, will then take over to share additional insight on our operations in the quarter and review progress against our 2013 priorities. Then, we will take your questions.

Please turn to Slide 3 of our presentation, where we lay out the key takeaways from today's report. First, as evidenced by constant currency adjusted revenue growth rates, the bookings momentum in most parts of our business is solid, and our strategic thesis remains very much intact.

Second, revenue and margin through the third quarter were negatively impacted by persistent headwinds in our U.S. federal government business, as well as exchange rates. These factors also drive updates to our full year outlook.

Third, we remain confident in the future potential of our PDRI asset, but have recognized a goodwill impairment loss in light of the environment for the U.S. federal government.

Fourth, the PDRI impairment creates noise in our tax rate because the goodwill is not deductible for tax purposes, although this factor will be normalized for the full year on a non-GAAP basis.

And finally, our recent credit facility refinancing and the impact of discrete tax items, primarily the U.K. tax rate change enacted in the quarter, provide support to full year non-GAAP EPS.

Let's turn to Slide 4 for a summary recap of our results. Revenue was $201.7 million in the third quarter of 2013, an increase of 22.4% on a year-over-year basis. Adjusted EBITDA margin was 24.7% in the third quarter compared to 29.1% in the third quarter of 2012. Diluted loss per share was $0.16, and non-GAAP diluted earnings per share increased 10.3% to $0.86 for the third quarter of 2013.

Results this quarter include 2 noncash items that merit further explanation. First, we recorded a $22.6 million goodwill impairment loss on PDRI. As we indicated in our last 10-Q filing, we have been monitoring how U.S. federal government budgeting challenges might impact potential operating results for PDRI over the next several years. Upon completion of the federal fiscal year that ended on September 30, we updated our PDRI forecasts, determined that an impairment indicator existed and conducted the prescribed valuation analysis. This is a thorough process that is based on estimates of future financial performance and an appropriate discount rate, which, among other things, reflects a higher interest rate environment.

While we remain confident in the potential of our PDRI business, the resulting valuation did not exceed the reporting unit's carrying value, and we have written it down accordingly.

You'll also note when we file our 10-Q, that we've performed an impairment analysis on the SHL Talent Measurement Solutions reporting unit. The resulting valuation exceeded the carrying value of the segment, albeit by a modest amount, and we therefore determined that the carrying value of the reporting unit was not impaired at September 30.

As we have previously discussed and as you've seen in our constant currency adjusted revenue growth rates, we continue to gather momentum in the SHL Talent Measurement Solutions business and are pursuing an investment plan for the segment, which we expect to drive improved annual revenue growth in the years ahead.

While we remain committed to that strategy, it likely also leads to a near-term margin profile that, while improving, stays below the historical margin profile for this business. This performance expectation is consistent with our previous discussions. However, in a higher interest rate environment, it does increase the risk of a potential noncash impairment loss in the future for accounting purposes, even as the segment's fundamentals and operations continue to strengthen.

Second, we had a $6.7 million noncash debt extinguishment charge. As previously disclosed, we amended our credit facility on August 2 to, among other things, lower our interest costs and increase the size of our revolver.

Based on the required analysis, this amount was determined to be related to debt extinguishment and, therefore, recognized in the current period instead of being amortized to interest expense over the remaining 5-year life of the credit facility.

Now, let's turn to Slide 5, and I'll review our key operating metrics. CEB segment Contract Value at September 30, 2013, was $575.9 million, up 10.2% versus the prior year and reflecting continued solid bookings growth over the past year.

For the SHL Talent Measurement Solutions segment, adjusted revenue was $44.4 million in the third quarter, an increase of 7.9%, compared to pro forma segment adjusted revenue in the third quarter of 2012. Exchange rates had a larger impact during the quarter. As on a constant-currency basis, SHL Talent Measurement Solutions adjusted revenue growth was 10.8%.

CEB segment Wallet retention rate was 98% at September 30, 2013, down slightly compared to 99% in the prior year. SHL Talent Measurement Solutions segment Wallet retention rate was 97% at September 30, 2013, also in the normal range and continuing to reflect the strong recurring revenue in that part of our business.

Total CEB segment member institutions grew 6.6% to 6,336 in the third quarter, and we continue to add institutions in both our middle market and large corporate memberships.

Finally, CEB segment Contract Value per member institution was $90,900 at September 30, a 3.5% increase over the third quarter of 2012.

Please turn to Slide 6, and I'll review key segment highlights for the quarter. CEB segment revenue was $158.7 million in the third quarter, a 10% increase compared to $144.2 million in the third quarter of 2012, which included only 2 months of revenue from PDRI. Excluding PDRI from the CEB segment in both years, organic growth was 9.7% in the quarter. The SHL Talent Measurement Solutions segment contributed $43 million of revenue in the third quarter, net of a $1.4 million reduction to reflect the deferred revenue fair value adjustment. We now estimate that the deferred revenue fair value adjustment will reduce full year 2013 revenue by approximately $10 million.

Moving on to consolidated operating expenses. Cost of services in the third quarter increased by $12.2 million versus the third quarter of 2012. Acquired businesses represented about 68% of this increase, with the additional balance coming from increased delivery resources and product development. Member relations and marketing expense increased by $13.5 million in the third quarter versus the prior year period. Acquisitions were the biggest factor here as well and also represented about 68% of the change. The remaining portion mainly reflects increased headcount and sales commission growth.

General and administrative costs in the third quarter were up $2.1 million compared to the prior year, mostly driven by acquisitions. Acquisition-related costs of $4 million in the third quarter were driven by planned integration expenses, including various marketing costs to promote the CEB SHL Talent Measurement Solutions brand.

Interest income and other was a net expense of $2.1 million in the third quarter of 2013 as compared to income of $1.6 million in the third quarter of 2012. This expense in the quarter was primarily due to a $2.6 million net foreign currency loss, partially offset by other items. Interest expense in the third quarter was $5 million and benefited from reduced interest costs resulting from our previously disclosed credit facility amendment. I'll say a little bit more about this in just a minute.

Total company adjusted EBITDA margin in the third quarter was 24.7% versus 29.1% in the third quarter of 2012. Adjusted EBITDA margin in the quarter was 28.4% for the CEB segment. As expected, CEB segment margins improved sequentially, although they were lower than last year due to both foreign currency losses and a reduction in PDRI margin. Adjusted EBITDA margin in the SHL Talent Measurement Solutions segment was 11.5%, which included a foreign currency loss of $1.6 million or 3.6% of SHL Talent Measurement Solutions segment adjusted revenue. SHL Talent Measurement Solutions segment margins reflected typical seasonal revenue patterns in the quarter, as well as the impact of higher run rate expenses from our investments in segment sales and product delivery capacity.

Depreciation and amortization in the third quarter was $15.3 million, an increase of $4 million compared to the third quarter of 2012. Most of this change is from higher amortization of intangible assets resulting from the SHL acquisition.

We recorded a tax benefit of $2.6 million or 32.7% of pre-tax income in the third quarter. There were several factors influencing the rate this quarter. First, as discussed on our last call, we recognized a onetime reduction to tax expense from revaluing our net deferred tax liabilities in the United Kingdom, given the legislative enactment to reduce the U.K. tax rate. However, that benefit was offset by the treatment of the PDRI goodwill impairment loss, which, while recognized as an expense for book purposes, is not deductible for tax purposes and, therefore, increases our effective tax rate for the year.

While this impact will be normalized out for the purpose of calculating adjusted net income, the impact is spread across both the third and fourth quarters. Please refer to footnote 2 on Page 12 of our earnings press release for more information.

Please turn now to Slide 7 for select balance sheet and cash flow highlights. We remain in a healthy financial position with $77.8 million of cash at September 30. Accounts receivable was $183.9 million, which includes $59.2 million for SHL Talent Measurement Solutions and PDRI. The current portion of deferred revenue was $350.3 million at September 30, including $60 million from SHL Talent Measurement Solutions and PDRI. As compared to the prior year, CEB segment deferred revenue, excluding PDRI, increased by 10.2% to $290.3 million, a positive leading indicator for CEB segment revenue.

We ended the quarter with $518.4 million of total debt on the balance sheet, and we continue to target a ratio of net-debt-to-adjusted-EBITDA of approximately 2x by the end of the year. We also maintain access to additional liquidity via the $193 million of undrawn availability under our revolver.

For the quarter, we spent $8.7 million on capital expenditures, largely on application platform enhancements, system infrastructure, office build-out costs and integration items. We made 2 cost method investments totaling $3.9 million in the quarter. We continue to return cash to shareholders by paying out $7.6 million of dividends. We did not repurchase any stock during the quarter and maintained $47.2 million of availability under the share repurchase program approved by the board earlier this year. Management will determine the amount and timing of purchases, and the authorization will run through December 31, 2014.

Let me now share a quick update on our financing arrangements. As previously announced, in August, we completed an amendment to our senior secured credit facility that reduces the cost of that variable rate debt. In the last several weeks, we also entered into several floating to fixed rate swaps that allow us to lock in a portion of our debt costs in the current interest rate environment. The net result of both actions is that we lowered our current cost of debt approximately 95 basis points, while also mitigating our exposure to higher future interest rates by converting about 50% of the facility to fixed rate debt.

Accordingly, based on current LIBOR rates, our interest expense for the fourth quarter would be about $4.9 million or $1.3 million lower than in the second quarter, which is the last full period before we amended the facility.

Now let's move on to our 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.

Please turn to Slide 8 to review our updated 2013 outlook. As discussed earlier, we are making solid progress across most of our business, and the year has shaped up largely as we expected. However, given the current environment for U.S. government buyers, we are adjusting our revenue range and tightening our margin guidance accordingly. These changes are offset by lower interest expense from our amended credit facility and tax benefits from certain discrete items this year, both of which provide support to full year non-GAAP earnings. We now expect adjusted revenue of $817 million to $827 million, and that the reduction in revenue from the deferred revenue fair value adjustment will be approximately $10 million this year. So the GAAP revenue outlook is $807 million to $817 million. We now expect adjusted EBITDA margin between 25% and 25.5%, depending largely on where we land in the revenue range.

In the CEB segment, we expect fourth quarter margin to be a bit lower sequentially on seasonally higher expenses. In the SHL Talent Measurement Solutions segment, we expect fourth quarter margin to improve sequentially, assuming stable exchange rates.

For 2013, we expect approximately $10 million of acquisition-related costs. Depreciation and amortization in 2013 is expected to be between $61 million and $62 million, and capital expenditures are expected to be approximately $29 million to $31 million.

Let me comment for just a moment about our tax rate. We expect an ongoing normalized effective tax rate in the range of 37% to 39%. Due to several factors, including most significantly, the book versus tax deductibility of the PDRI impairment loss, the tax rate for 2013 is currently estimated at approximately 47%, excluding foreign currency gains or losses or other discrete items that are not currently recognizable under U.S. GAAP. Over time, it is important to remember that the biggest determinant of our effective tax rate will be the distribution of taxable income across domestic and foreign jurisdictions.

As just discussed, our earnings this year will now benefit from lower interest expense due to our amended credit facility. So incorporating all of these factors, we are tightening our outlook for 2013 non-GAAP diluted earnings per share into a range of $3 to $3.15.

I'll now comment very briefly on our early thoughts about 2014. While our expectations for next year will be strongly influenced by the outcome of the important fourth quarter selling season, based on our current trajectory, we believe we will construct an operating plan that targets organic growth near the midpoint of our long-term 8% to 13% revenue guidance range and delivers at least 25 basis points of margin expansion. Our views will obviously be influenced by how we end the year, but we see encouraging signs that recent bookings and sales trends will set us up well as we head into next year.

That's it for the financial summary. I'll now turn the call over to Tom, who will share more color on our operations and growth strategy.

Thomas L. Monahan

Thanks, Rich, and welcome to everyone who's joined for today's call. We appreciate the opportunity to update you on our performance and are excited to share plans to continue growing the business.

We achieved solid results within an operating environment that remains mixed and, at times, noisy, with U.S. political dysfunction continuing to generate uncertainty in the broader U.S. and global economy.

From sequestration to the shutdown to the ongoing debt conversation, U.S. political debate is simply making it difficult for companies worldwide to confidently act on longer-term planning assumptions. Our own index of business confidence was flat in the quarter, with executives globally anticipating higher interest rates and taking a generally restrained look on hiring and investment.

Despite such turbulence, companies remain focused on driving performance, with a particular emphasis on capturing productivity gains. We are confident that our resources are particularly valuable to companies in this environment, where optimizing returns from talent, driving innovation and managing risk are high corporate priorities.

Let me continue my remarks on Slide 9 with an update on our performance in our key end markets. In particular, I want to provide additional color on our U.S. government business, which had a shortfall in our planned revenue. We've obviously been tracking this all year and have talked about it on previous calls. We have 2 offerings within the government sector. Our PDRI business offers integrated talent management solutions for government clients, and our CEB government practice, which delivers best practices and decision support.

While we did not expect this market to repeat its strong 2012 performance, we did plan on modest growth, roughly in line with the overall corporate average. Even as we encountered early year noise via the sequester, we elected to keep strong teams in place with a goal of recapturing opportunities during the vital Q3 contracting season. We made some headway, but clearly not enough. Rather than hitting our target growth rate, this business is likely to shrink in the double-digit range, which represents about $10 million of planned revenue.

We've begun to rotate some people in solutions within the PDRI business to focus on private sector opportunities and expect to see the first benefit of these moves in 2014. Over the long term, the U.S. federal government remains an important end market for our solutions, but we need to balance this commitment with the ability to get after near-term opportunities elsewhere.

Performance in our geographic end markets remains consistent with prior quarters. The CEB segment in North America, our largest market and a bellwether for overall performance, continues to generate solid double-digit growth. We're pleased with healthy progress to-date in both the large enterprise and middle-market sectors, and we see significant opportunity to create new relationships and deepen them across time.

Outside of the U.S., we are encouraged by performance in Europe and the Asia Pacific region. Our European business sustained momentum and grew in the quarter, although our growth rate there remains below the firm average. We expect that economic conditions will remain challenging, but our team and offerings are positioned to make a strong close to 2013 and carry momentum into 2014.

Asia Pac is generating solid growth in line with the firm average. This region is strategically important to building our global presence, and we'll continue to push for strong growth in 2014. Our rebranded SHL Talent Measurement Solutions business also achieved solid growth in the quarter. With double-digit constant currency adjusted revenue growth, the business continued momentum that we built in the first half of the year and is performing consistent with our 2013 expectations. However, we know our best work is still ahead as we continue to invest at a rate that allows us to seize the opportunity in the business and tap the significant chance to help companies drive performance from talent. 95% of companies are planning to increase spend on talent analytics in the next 2 years, and we are very well positioned to help them manage talent with more rigor and analytic depth. We're also pleased with our progress in this market, but not yet fully satisfied that we are close to tapping the full potential of this opportunity. Our progress to-date reflects stability and solid operational progress in the business more than it reflects full return from our investment profile, so we still have lots of work to do.

Looking across all our markets, I'm pleased that the majority of our businesses were able to deliver solid double-digit organic growth in the third quarter. While these results weren't enough to offset the near-term revenue headwinds in the government sector, we have momentum in our core business as we enter the final quarter of the year. CEB's insights and tools are vital to driving corporate performance. And as executives plan for the coming year, we see our resources aligning well to the increasingly urgent and difficult decisions that companies face.

As we close our year and plan for a strong 2014, we are working on 3 priorities to build the business. Let me share an update on each. Please turn to Slide 10 for an update on our first priority, delivering surplus business value.

We create tangible business value by targeting the drivers of corporate performance. Everything we do helps our members and clients grow revenue, reduce cost, reduce risk and, ultimately, transform their organization. We're pleased that our progress in the third quarter reflects continued success in generating business value for our members and clients. Wallet retention in both the CEB segment and SHL Talent Measurement Solutions segment continue to track within historical ranges, and CEB segment Contract Value per member grew by 3.5%.

Since Q3 2012, we have also added more than 350 great new companies to our membership roster.

Another important area of focus is architecting platforms and service strategies that drive strong usage of our offerings. We know that usage correlates with renewals and cross-sells, and we've been particularly pleased with our strong usage of our online platforms and tools year-to-date. We've seen a sharp rise in our core online metrics and believe this is predictive of future commercial value.

Developing unique insights into the drivers of corporate performance remains the foundation for creating and delivering business value. These insights ultimately power the advice, assessments, tools and technology that we use with members and clients. We've had another strong year on this front in each of our domains.

I want to call your attention to one of our recent finance research initiatives. The depth of our executive relationships, our offerings within corporate finance, gives us a unique view on pressing corporate issues. One area of focus is using enterprise risk management programs to improve strategic decision-making. Our team conducted research to understand the key drivers of strategic decision-making quality. We then analyzed the specific enterprise risk management activities that could have the greatest overall impact on decision quality and corporate performance. The result of our work is prescriptive guidance to our member ERM executives about where and how to engage executive peers. You see several of these activities, and how much they influence decision quality, listed on the right-hand side of the slide. The challenge for our member executives is to ensure that ERM processes are deeply embedded with ongoing corporate efforts and, therefore, ensure that enterprise risk management, in a very efficient and lean way, creates great business outcomes. We are thrilled to have the insights and arm them with the tools to accomplish this.

We've just begun our research planning process for 2014 and are leveraging more than 16,000 executive relationships around the world to identify the most pressing issues facing the world's leading companies. Our teams will soon begin an exciting new slate of research project for the coming year, which will provide a great foundation for both immediate member action and robust new tools and solutions.

Please turn to Slide 11 for an update on our second priority, leading the analytic transformation of talent management. I'm pleased with our efforts to help senior executives manage talent with increasing rigor and analytic depth. As we've discussed, it's a significant opportunity, and we've been successful in building offerings that provide an integrated solution for companies. In addition to our SHL Talent Measurement Solutions, we also bring powerful workforce surveys and analytics and learning and development opportunities to this market.

We made real progress on 2 fronts this quarter that will further increase the strength and impact of our talent management position. First, we reached a major milestone in our effort to transition the SHL brand firmly into the CEB brand family under the SHL Talent Measurement Solutions banner. This included refreshing our digital and physical presences, solutions platforms and our member and client communications to reflect that we are 1 CEB brand. We are sharing the updated brand messages with markets through a focused campaign that includes targeted advertising, thought leadership in major media outlets and client events. With the rebranding, we take a major step forward in telling a clear, consistent and powerful story about CEB and how we create value.

Second, with our teams around the world now increasingly linked, we're seeing real benefit from the powerful combination of our best practices and assessment resources and data. Let me share a few exciting examples.

First, we're packaging PDRI and SHL Talent Measurement resources into enhancements for our entire Leadership Council platform, the core CEB subscription business. These include a package of resources that help executives increase manager effectiveness, enhance talent acquisition and development efforts and engage and retain top talent. These enhancements both deliver immediate value to members across the platforms and around the world and also provide an upgrade path to our largest suite of talent solutions across time. Second, as we shared on our Annual Investor Day, we now have 3 functional talent assessment products in the market. These offers blend our deep knowledge of business processes and outcomes with our talent assessment and prediction capability. We are excited that market interest in these offerings has been so strong.

Third, we are finding an array of uses for talent data in our research initiative. One exciting example comes from recent work in our financial services practice. Our members were wrestling with the question of the right profile for bank branch talent, a huge source of cost and potentially performance improvement for them. We were uniquely able to leverage staff competency data from nearly 300 banks and customer experience data from thousands of financial services customers to identify the critical skills and capabilities that branch staff must possess to drive revenue and operating results. Simply put, no other company in the world could have pulled together assets of this quality and reach.

As you can imagine, such a broad array of synergy opportunities gives us a lot to work on, but also demands discipline and prioritization. As you can see from the opportunities we are pursuing, several of them will flow through the CEB segment P&L. So as these become significant, we'll try to call them out, so you have a complete sense of the synergy benefits. As we plan for 2014, we're excited to continue efforts on these synergies and find even more ways to leverage powerful combinations of our assets.

Please turn to Slide 12 for an update on our third priority, achieving brand recognition that matches our global impact. Building a strong CEB brand continues to be an area of intense focus for our teams. We know that a strong brand is vital to making an impact on members and clients and achieving our financial goals. With our rebranding of SHL Talent Measurement Solutions, we have reached an important milestone in our efforts. And during Q3, we have enjoyed seeing the CEB brand in the public market and public discourse in a number of ways. First and most importantly, we just published The Effortless Experience, written by our own Matt Dixon, Nick Toman and Rick Delisi. The book is based on insights developed in our customer contact Leadership Council, which serves heads of customer care at the world's largest companies. The central insight is that customer loyalty is actually driven by how well a company solves day-to-day problems, not on how spectacular its service might be. As we've seen with the success coming out of our Challenger Sale book publication, publishing in the mass market creates a much broader frontier for our brand and more opportunity to introduce our solutions to new customers.

Second, we continue to extend our thought leadership to the public domain through highlight contributions to tier 1 media publications. For the past quarter, our research and insights have been featured in The Wall Street Journal, Forbes and the Harvard Business Review. The Times U.K. also featured our insights as part of a special issue focusing on talent.

And third, we hosted several larger scale and higher profile member and client events in the quarter. As I've discussed on previous calls, these events are different from our traditional intimate executive gatherings. While we've hosted more than 500 executive retreats so far this year, we host only a handful of these large events every year. They serve as an opportunity to gather senior stakeholders across a variety of key domains or markets to examine pressing issues and create public dialogue. For example, we gathered heads of sales and marketing in Las Vegas to explore the next generation of commercial talent. We convened IT executives in London and in Chicago to discuss how to transform IT engagement with the business in an era of technology consumerization.

And finally, we hosted events in South Africa and Stockholm as part of our global link series that engages clients with our SHL Talent Measurement Solutions. We continue to raise -- I'm sorry, we continue our work of raising the visibility of the CEB brand in 2014. We are investing to build a clear compelling story about CEB in all of our markets and to ensure that we translate brand strength into commercial outcomes.

Let me close my remarks on Slide 13 with color on how our forward plans are shaping up. While government headwinds may have created some challenges for near-term revenue, we continue to see solid bookings in sales momentum. We'll be looking to sustain and even accelerate the momentum with our eye toward 2014. In addition, there are several other steps we take at this time of year to lay the foundation for continued growth. First, ensuring we have a great team in place. I'm pleased with our progress to-date in both attracting new talent to the firm and in developing our current talent to take on the next generation of market opportunities as the business grows and expands.

Second, scoping our research initiatives. As I mentioned earlier in my remarks, we're constantly in the process of shaping high-impact, high-value research based on input from the more than 16,000 executives we serve. I'm confident the work we have underway will produce our most powerful economic insights to-date and the broadest array of member ROI imaginable.

Third, continuing to enhance the technologies and platforms that connect our insights to members and their workflows. We're working on a number of significant upgrades to the content management system, supporting our online member experience, and the online platform, supporting our SHL Talent Measurement offerings. These are major new platform upgrades that add exciting new capabilities for our clients and members that we've been investing in across 2014. I expect we'll continue to invest in -- I'm sorry, that we've been investing in across 2013, excuse me. I'd expect that we'll continue to invest into 2014, even as we start to see the first real returns from these efforts.

And fourth, shaping our financial profile. Rich shared some detail on our forward guidance, and we'll continue to work on building an investment plan that helps meet our financial commitments and growth aspirations. Our aim is to balance strong financial returns with investments in the business that position CEB to tap the significant opportunity before us. As of today, we are targeting an organic revenue growth profile comfortably within our traditional 8% to 13% target range, while expanding margins by at least 25 basis points and sustaining important investments in the business.

In summary, we've made solid progress to-date, and I'm looking forward to what is next. Let me close with a note about my colleagues. I, along with Rich and our leadership team, have the pleasure of working with some of the world's most talented and driven professionals. I'm proud of their efforts and energized by our collective accomplishments. Together, we are determined to set our members and clients, as well as CEB, up for continued success. We'll now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Tim McHugh with William Blair.

Timothy McHugh - William Blair & Company L.L.C., Research Division

First, I was going to ask about your commentary on 2014. I guess the -- at least 25 basis points of margin improvement for next year, I know you don't have your full plan done. But can you talk about, I guess, the leverage of the investments you've described for this year? I thought 25 basis points is essentially your long-term kind of margin outlook that you had -- you've talked about in the past. Shouldn't we expect a bigger lift next year as you leverage those? Or are you expecting that next year is not the year where we get leverage from those investments?

Richard S. Lindahl

Hey, Tim. It's Rich. We certainly would expect some benefit from those investments in 2014, and we think that will be a positive overall on margin for next year. We're continuing to plan the business in accordance with our strategy to grow revenues at those kind of rates. And so we anticipate there'll be other investments that we'll continue to make as we always do. We're obviously going to give you more specific guidance when we get to February and have our full year plan in place. But that's kind of the zone that we're thinking about at this point.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And can you -- at least 25 basis points, does that mean 25? Or does that mean you're not committing to anything, I guess, other than that?

Thomas L. Monahan

Tim, I guess the framing thought is it's early in the budgeting cycle. So I think we're not giving '14 guidance today, we're just trying to give you a sense of how the year is shaping up. And I think from our vantage point, comfortably within our traditional organic growth range and seeing opportunities for margin expansion with 25 basis points as the floor is where we start. And then we sharpen our pencils and get to work on putting together the plan, which we'll share with you as we've got a much clearer sense entering 2014. But I think the theme there is early.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And as we -- on the government side of the business in your commentary there, did the market -- did you see your bookings trends get worse during the third quarter, which I know is a seasonally important quarter for the government? Or is it just that you got past the big bookings period for the government, and that's why now you're changing your guidance for that sector?

Thomas L. Monahan

It's more of the latter. As we talked about, we've been watching this sector all year. And earlier in the year, we were trying to figure out whether it was a timing issue, where stuff that had normally happened in Q1 and Q2 was going to happen in Q3. So we left a strong team in place, didn't point the PDRI team at commercial opportunity, et cetera, to make sure we were there to capture opportunities as they came out during the vital Q3 bookings season. So it's more of the latter of -- we were working hard through Q3, but we weren't able to reverse decisions that had been made earlier in the year and we thought we might be able to. And now we have started the process of getting the PDRI team into the commercial sector, et cetera. So that -- we've begun to refocus some activity away from the federal sector, even though it's very important to us. We think it won't be a huge source of near-term opportunity.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And then lastly, just on SHL. Can you talk about the -- how that really measured up relative to your expectations? I know you had said you -- before, you had hoped it would be double digits this quarter. I guess how much of the growth is an easy comparison? You had talked before that the year-ago period was not a particularly good one from an execution standpoint. But there's also a seasonal trend. So -- and can you help us read between those different factors, and what kind of the underlying performance was? And how that measured up relative to what you expected?

Thomas L. Monahan

Yes. At a very macro level, the year is shaping up in the SHL business pretty much as we said it would earlier in this year. We knew the growth would be a little more muted in the first half, tracking to be in that 8% to 13% range by the second half, and that's right where we find ourselves. So we continue, both in terms of revenue and in terms of sales, to see good positive momentum in that business. So I think, at this point, our progress likely reflects more just great execution by the team in place than huge impact of our investments, if you just think of how long it takes a new sales person to get ramped up. We're carrying the expense from some of those new salespeople, but they're not yet having the impact of a seasoned mature sales team. So at this point, it's just great execution by the team in place on the ground, but we're very comfortable that it's tracking where we wanted to see it be when we laid out the plan at the beginning of this year.

Operator

And we'll take our next question from Joseph Foresi with Janney Capital Markets.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

My first question here was I was wondering if you could break out for us kind of numerically on the revenue side what the impact was from currency and U.S. government work in your revision on the guidance front.

Richard S. Lindahl

Sure, Joe. This is Rich. The -- if you look at the change in the midpoint of our guidance from where it was before to where it is now, it's about a $13 million reduction. And that breaks down into about $10 million from the U.S. federal government business and roughly $3 million in impacts from FX through the third quarter.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. And then you gave sort of a rough idea of what we're thinking about for 2014 as far as targets. What are you -- what's your general early sense, and I know it's very early stage on the planning side, of what the federal government could do next year as far as what is taking place traditionally? And then if we could just get an update on what percentage of revenue you're expecting that to be.

Thomas L. Monahan

Sure, sure. Joe, what we've seen is traditionally the federal sector has been about 5% of revenue. And it won't be markedly different next year. I just think we won't have -- this year, we came into the year thinking we could grow our federal presence at, call it, 10-ish percent, right around the corporate growth rate. That assumption looks optimistic in retrospect. The business is more likely to shrink this year by double digits then grow by double digits. I don't think we see the federal sector changing. Our plans don't contemplate the federal sector changing materially in the near term. And I think that's driving some of our marginal resource allocation decisions. So an easy example is the PDRI team has -- a portion of them are rotating over to spend some time developing out opportunities that we see in the commercial sector. So this year, we're planning for a more difficult federal sector -- I'm sorry, in 2014, we're planning for a more difficult federal sector and making some resource allocations to capture that growth elsewhere.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Got it. So just to be clear, are we talking flat or potentially declining again next year?

Thomas L. Monahan

Yes. I think your guess is as good as mine, but we are definitely allocating resources away assuming that, at the very best, it's flat.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Got it. Okay. And then lastly, on the SHL side. Margins came in -- what should we think about -- have we bottomed from a margin perspective in that business from an investment schedule standpoint? And do -- what should we think about the trajectory of those margins compared to the consolidated business heading into next year?

Richard S. Lindahl

Yes. I think, Joe, putting aside, obviously, the impact of FX, which can swing margins positive or negative in the quarter, I would think that third quarter, in all likelihood, represented a bottom in margins, so we certainly expect better margins in the fourth quarter. And I would -- at this stage of the planning cycle, we would expect some improvement in 2014 as we start to get some initial contribution from the investments that we've made in that segment during the course of the year.

Operator

And will take our next question from Paul Ginocchio with Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

Sort of a follow-up on the SHL question in the third quarter. Do you expect SHL to do double-digit constant currency growth again in the fourth quarter?

Richard S. Lindahl

I'd say that's our baseline expectation at this point, yes.

Paul Ginocchio - Deutsche Bank AG, Research Division

Okay. So the easy comp a year ago didn't really help you that much. But again, it's not going to hinder you as we go forward?

Richard S. Lindahl

I mean, I think, we're -- again, as we've said, the plans -- the results at SHL are playing out largely as we had expected when we laid out plans at the beginning of the year for you.

Paul Ginocchio - Deutsche Bank AG, Research Division

Right. And then back to the increased sales force in North America, when would you start to expect to see the benefit of that or at least have it neutral on the margin?

Richard S. Lindahl

Yes. I mean, as we've talked about, we've been investing throughout the year. The biggest increases have been in the second and third quarters in terms of additional headcount. It typically takes 6 to 9 months before you start seeing initial impact from folks in those roles. So it really is probably 2014 before you start seeing additional contribution from those investments.

Operator

We'll take our next question from Shlomo Rosenbaum with Stifel Nicolaus.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

I just wanted to ask you a little bit more about the SHL growth rate. And you talked a lot about the investments you made this year are not going to -- in the sales force are not going to have the impact this year. Really, it's going to impact next year. Tom, is there any way -- or is there opportunity for you to accelerate the hiring in this quarter to get more of those top sales guys that you like to get into the firm and kind of forget about the margin in the fourth quarter to set yourself up for continued success or even stronger success in 2014 and beyond?

Thomas L. Monahan

Yes. One of the great things about our business, Shlomo, is we have great forward visibility around revenue, and the plan for the year always contemplates pulling forward sales hiring in both the CEB segment and the SHL segment. So we know what we can afford to do, and that we build the year out around staffing up our sales teams. I think you heard me say I was -- one of the foundational things we try to do at this time of year is get great people into the organization. So when the gun sounds on 2014, we're ready to go. I think we're making good progress on that. And so we feel what we laid out in terms of guidance contemplates both continued solid performance in the business, but contemplates continuing that hiring ramp that sets us up well in both businesses. It's not an SHL phenomenon. It's actually a CEB business. We are always trying to build out the sales team, so we get off to a fast start in the year.

Paul Ginocchio - Deutsche Bank AG, Research Division

You at all kind of holding back in the hiring to make sure you hit your guidance numbers, or is it kind of you're hiring the best people as they come in anyway?

Thomas L. Monahan

I've seen Rich Lindahl think very seriously about lots of great investments and always evaluate them on a DCF basis. I don't think I've ever seen Rich say don't hire a great salesperson who wants to come to work for CEB. So the good news is our margin expectations leave us plenty of room to go get great people. So I don't think we need -- we don't need to worry about running into that wall. The challenge is, as it always is, finding enough CEB-caliber talent, not finding P&L room to bring them in.

Paul Ginocchio - Deutsche Bank AG, Research Division

Okay, great. And then the CEB growth looks pretty good. Are you getting it more from cross-selling memberships? Or are you making more progress in terms of moving existing members to higher versions of the memberships, the gold, platinum, diamond type thing? How is that working?

Thomas L. Monahan

I'd say kind of all the above. The real news in the sector was just the government putting a real headwind on that end market in the, let's say, North America large corporate, where we continue to see -- which is kind of our bellwether sector, continue to see good progress on all those fronts and also good progress on upstream indicators like usage of online tools and platforms that paves the way for us to have both good price increase conversations and up-sell conversations and cross-sell conversations. So I'd say it's all the above in the core business.

Paul Ginocchio - Deutsche Bank AG, Research Division

And are you -- where do we stand with middle market? Can you give us a qualitative sense as to what percentage of revenue is middle market right now?

Richard S. Lindahl

Yes, it's in the low teens at this point in time, and it's going well. It continues to put up solid returns quarter-over-quarter, and we're pleased with the continued progress in that part of our business, so [indiscernible].

Paul Ginocchio - Deutsche Bank AG, Research Division

And it's growing faster than corporate average?

Richard S. Lindahl

It's a little above the corporate average, yes.

Thomas L. Monahan

Yes. It's growing a little bit as a percentage of overall revenue, but not that much because large corporate is growing as well. So that -- I think that's the way we'd like to see it unfold.

Paul Ginocchio - Deutsche Bank AG, Research Division

Then, lastly, for me, just Europe, you said that you sustained the momentum over there. Does that mean that you're starting to make more improvement in starting to close the gap towards the corporate growth rates or is it, hey, we can't -- we're happy with what we've got right now and the fact that you're actually growing there vis-a-vis what the environment is, is satisfying.

Thomas L. Monahan

I'd never say -- and I don't think the team there would say they are yet satisfied because it is -- but the good news is we've now seen several quarters where consistently the team is able to get out and grow the business. And they're not yet at the corporate growth rate, but economies seem more stable, executives are more performance- versus crisis-oriented. We can get in there and have high-impact conversations. Yes, I think they'd love to -- we'd all love to see that be a near-term contributor to overall corporate growth. But there's still some chop in some of those markets, but it's good to see that team -- first of all, they're executing incredibly well. And secondly, they're contributing to growth. In the near term, we don't anticipate they'd catch all the way up with the double-digit corporate growth rate. But certainly, given our penetration in that market, over the long term, it should be a great source of growth for the company.

Operator

And we'll take our next question from Tobey Sommer with SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Question, what was SHL's organic growth percentage in the quarter? And what is your expectation, and what would you be -- consider a success in terms of reaccelerating that growth? What kind of level would that be?

Richard S. Lindahl

Well, if you look at the growth at SHL in the quarter of adjusted revenue as compared to the pro forma adjusted revenue numbers that we have provided previously, that was 7.9% on a nominal basis. But if you adjust for the impact of currencies, it was 10.8% on a constant currency basis. In terms of -- in the future, as we've said, we expect that it will be -- it should be able to grow inside our 8% to 13% range and contribute to overall corporate growth rates. And there's nothing at this point that changes our view on that going forward.

Thomas L. Monahan

Yes, it's now solidly in that range and as we look at sales pipelines, et cetera, going forward. And obviously, every one of our businesses wants to be in that range, and every one of our businesses wants to try to get to the high end of that range. And as we plan the business, we look for the best marginal investment opportunity that gets us as a company there. And we think that range is a good -- that the reason we picked that range is it nicely balances solid consistent organic growth and good economic leverage. That range allows us to both create the necessary investments, but also deliver good margin expansion across time.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And Rich, where currencies stand at this point in the fourth quarter, is there -- would you expect there to be kind of a known currency drag at this point in the fourth quarter?

Richard S. Lindahl

I think on balance, currencies haven't moved a ton since September 30, but it's -- there's 2 more months left to go in the quarter. So it's very difficult to say where we'll end the year.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Right, right. Okay. And then I was wondering if you could give us a little bit of color about 2014 in terms of where you've allocated your investments in what emerging products and services you have. Do you have an expectation for what domains may have slightly outsized growth within the targeted range in '14?

Thomas L. Monahan

Sure. Tobey, I think the good news is that there's actually very little news at the domain level. All 5 core domains are chugging along nicely in the marketplace. The theme of talent shows up all over the place though. So I think you're -- that, obviously, is going to lift HR. But as we said, we've got talent measurement products now launched into IT, sales and finance, so 4 of our 5 domains are participating in the talent storyline. And that's driven by member interest, not by -- we're not the boys with the hammer who think everything is a nail. We brought those assets out to those markets because those executives are deeply concerned about talent issues. And we now have new tools to help them solve them. So I think the domain growth will be pretty balanced. The thematic growth will skew toward talent.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

That's helpful. And my last question has to do with the brand transition. How much money did you invest in doing that? Is it behind you, and is there any kind of benefit to results in 2014? In other words, is that a contributor to margin expansion next year?

Richard S. Lindahl

Yes. I mean, it represents a meaningful portion of the acquisition-related costs for 2013, probably less than 50% certainly of the total and a good chunk of what you saw in the third quarter was on the brand-related costs.

Thomas L. Monahan

And we -- so I think, obviously, we don't expect integration-related costs post-12/31 this year. So that those will all have flown through. Over time you've seen us gingerly step up our investments in branding to drive lead flow, and we've been pleased with the returns from that. So that, that will continue to be a theme, but well within the margin expansion that we contemplate.

Operator

And we'll take our next question from David Ridley-Lane with Merrill Lynch.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Sure. Just quickly on the U.K. tax benefit. That's completely happening in the third quarter, correct?

Richard S. Lindahl

Yes, that was a discrete event in the third quarter.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And that wasn't -- and there was no adjustment made for that in the company defined adjusted EPS?

Richard S. Lindahl

No.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And then the implied full year tax rate that implies -- to get to 47 for the full year, that implies a number greater than 50% for the fourth quarter. Is that the right way to think about it?

Richard S. Lindahl

Yes, it is. There will be a lift in the fourth quarter. Part of that is because the -- as I referenced in my remarks, and you'll see more detail on the last page of the press release, the way that the book versus tax treatment is coming through is some of it occurred in the third quarter and some of it is going to occur in the fourth quarter, which will have an impact on the fourth quarter rate, whereas we don't have that U.K. rate change benefit that you saw in the third quarter helping to reduce the impact.

David Ridley-Lane - BofA Merrill Lynch, Research Division

And again, just to be clear, you're not going to make an adjustment for the company defined adjusted EPS?

Richard S. Lindahl

No. So the -- well, we're adjusting out the impact of the goodwill impairment. So on a non-GAAP basis, there's neither the goodwill impairment nor any tax impact associated with it in the non-GAAP EPS.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Got it, okay. And then how are you tracking on the run rate for the SHL cost savings? I think the goal was $5 million by year end.

Richard S. Lindahl

Yes, we're still on track with that.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And then would you expect any deferred revenue adjustment to linger on in 2014, or are we done with this as we end fourth quarter?

Richard S. Lindahl

Yes. I mean, I think it's certainly going to diminish, but we're -- as we -- originally, you'll recall, we had about a $34 million total amount of the deferred revenue fair value adjustment. We have so far recognized about $26 million of that through the quarters since the acquisition, so that leaves about $8 million left. That's going to continue to come through, through the end of 2014 at a quarterly rate that will, in all likelihood, kind of continue to slowly diminish from where it was in the third quarter.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And then would integration and related expenses be finished in the fourth quarter, or will there be some of that in 2014 as well?

Richard S. Lindahl

No, I think the 2013 is the -- will be the last year for recognizing integration-related expenses for SHL.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And thank you very much for breaking out the federal impact on revenue, would you imagine there's a similar impact in terms of the $10 million on Contract Value as well or what would be the impact on Contract Value?

Richard S. Lindahl

Yes. I mean, I think, the current Contract Value obviously reflects the lower revenue profile. A portion of that $10 million is from PDRI, which is not in Contract Value. So the Contract Value impact is less than that. It's probably less than 50%.

Operator

And we'll take our last question today from Gary Bisbee with RBC Capital Markets.

Gary E. Bisbee - RBC Capital Markets, LLC, Research Division

A couple of questions. I guess, the first one, just following up on the government revenue issue. Is -- have you seen this in bookings to-date such that the actual revenue that you recognize will have a bigger impact in the next couple of quarters than the last couple of quarters? Or has it been bookings weakness all year such that it's already in revenues to-date in the last quarter or 2?

Thomas L. Monahan

Hey, Gary. It's Tom. Yes. I think we've seen some bookings weakness all year, and we're counting on being able to take advantage of the open contracting window in Q3 to recapture some of it. So that, plus the fact that PDRI isn't a bookings business, it's a revenue business, means that the $10 million is scattered through -- not scattered through the year, but spread through the year and largely reflected in how we see the rest of the year unfolding.

Gary E. Bisbee - RBC Capital Markets, LLC, Research Division

Okay. So it's not like we're going to see a meaningfully worse revenue impact in the next 2 quarters than we saw in the third quarter then?

Richard S. Lindahl

As it relates to government, no.

Thomas L. Monahan

No.

Gary E. Bisbee - RBC Capital Markets, LLC, Research Division

Okay. All right. As it relates to something else? You paused for a while.

Thomas L. Monahan

No, we're just trying to make sure we understood the question. No, that's -- no, we're just -- but it's a bookings story that's been unfolding and a revenue story because of PDRI that's been unfolding 1 year -- all year. And it'll be consistent in Q4, and the revised guidance contemplates that.

Gary E. Bisbee - RBC Capital Markets, LLC, Research Division

Okay, fair enough. And then just thinking about the core CEB segment as -- and maybe x PDRI, as we think about the investments you've made in 2013 and what's baked into the early commentary on '14, how do we think about the level of investment? Is it sort of stable within the core business, or are there areas that you're going to be investing more next year? I guess I'm thinking -- just trying to think through the margins. I understand there's a lot up in the air in SHL segment based on how the sales come in from all the investments you've made. But what about the core CEB segment?

Thomas L. Monahan

I'd say, obviously, that we look at the core CEB segment, and there's 2 basic categories of investment: One is things that are just variable in the business model, so staffing up to make sure we have enough great sales and service people to both expand and handle the expansion of the book of business. So doing that every year is always part of it, and there's other things that come into play like advisory or faculty capacity that grows with revenue across time. So that's common course and speed. And then on the -- across the rest of the business, there's always some fixed-cost investments you're making to step out and beef up a product area or add a new technology feature to all the platforms, et cetera. So there's some of that every year. I think the net effect of all that is a world in which we're going to be in a position to deliver good growth next year and expand margins.

Gary E. Bisbee - RBC Capital Markets, LLC, Research Division

Okay. And just the -- when you talk about -- I realize PDRI is small, but when you talk about refocusing that on commercial opportunities, how different is the business from the SHL business? And is it different enough that when you do so, it's not trying to sell a reasonably similar service into the same people from 2 different angles?

Thomas L. Monahan

Yes. No. I think, historically, PDRI has had a lot of strength in the area of performance management, which is distinct enough from the other conversations we're bringing out to the marketplace in SHL, and those teams already work very well together. So it's not a -- this isn't a new phenomenon. PDRI has, historically, had a good following in the commercial sector. The last few years, they focused very much on a government build-out. So in many respects, we're just restoring some of that opportunity to the PDRI business and they'll work closely with their colleagues. They already are working closely with their colleagues in the CEB segment and the SHL segment to make sure that performance management suite gets in front of people. And we all -- as I said on the call, we also -- every year, we do feature set upgrades that drive price increases in the core CEB subscription business. And this year, it's a packaged up set of tools from PDRI and SHL, which is -- so the team has also been working to get that built now and early returns from beta-tests there have been very positive. So we're not asking the PDRI team to go do tricks they haven't done before.

Gary E. Bisbee - RBC Capital Markets, LLC, Research Division

Okay, great. And then just a last one for me. As we think to all the cash flow you'll generate next year, any updated thoughts on how much further you'd like to reduce your leverage versus growing the dividend or share repurchases, which I know you've always been somewhat resistant to doing that in more scale? Just updated thoughts, given where we are now.

Richard S. Lindahl

Yes. I'd say, at a high level, the strategy remains very consistent with what it has been, which is stay in a strong financial position. I think when we think about leverage, we're more focused on net leverage as the key driver there and the ratio of net-debt-to-adjusted-EBITDA, which is tracking to the 2x range. And we should be heading into that 1 to 2x target area in 2014. As far as the dividend is concerned, as you know, we like the dividend in terms of how it highlights our earnings and cash flow characteristics of the model, and we would expect to continue to increase the dividend in line with earnings and cash flow over time.

Operator

And that does conclude today's question-and-answer session. Mr. Monahan, I'll turn the call back over to you for any closing remarks.

Thomas L. Monahan

Perfect. Thank you. Let me just quickly summarize our earlier remarks. Our performance in the third quarter was characterized by solid and consistent growth across the majority of our businesses. Progress was slowed a bit by headwinds in the government sector, which we talked about. And while we don't expect these to change in the near term, our strength in other areas of the business gives us great confidence as we close 2013 and set up for a strong 2014. Thanks to everybody for calling and/or logging into today's event. Rich and I will see many of you on our travels over the next few months. We'll be at the JPMorgan and SunTrust events in November and at the Barclays event in December. We look forward to seeing you on the road and keeping you up-to-date on the CEB story.

Operator

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.

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