Corporate Executive Board Management Discusses Q1 2014 Results - Earnings Call Transcript

Apr.30.14 | About: CEB Inc. (CEB)

Corporate Executive Board (NYSE:CEB)

Q1 2014 Earnings Call

April 30, 2014 9:00 am ET

Executives

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

Thomas L. Monahan - Chairman and Chief Executive Officer

Analysts

Paul Ginocchio - Deutsche Bank AG, Research Division

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

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

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

Manav Patnaik - Barclays Capital, Research Division

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

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Unknown Executive

Good morning, and welcome to CEB's First Quarter 2014 Conference Call. Today's call is being recorded and will be available for replay beginning today and through May 8 by dialing (719) 457-0820. The replay passcode is 9633012. The replay will also be available beginning later today and through May 8 at the company's website.

To the extent any non-GAAP financial measure is 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 company's website and following the Investors link to yesterday's news release.

You will also find a PDF of the 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 2014 Earnings Conference Call. To review -- please review the second page of these materials, which includes 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's expected quarterly and annual financial performance for fiscal 2014 or beyond. To 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, our forecasts, estimates, targets, plans, beliefs, 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 CEB'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 Chief Financial Officer, Mr. Richard Lindahl. Please go ahead, sir.

Richard S. Lindahl

Okay. Thanks, Scott, and good morning, everyone. I am Rich Lindahl, Chief Financial Officer of CEB. Thank you for calling or logging into our first quarter 2014 earnings report. On today's call, I'll review our first quarter financial results and discuss our updated 2014 guidance. Then Tom Monahan, our Chief Executive Officer, will take over to share additional insight on our operations in the quarter and an update on our 2014 priorities.

And then we'll take your questions. Please turn to Slide 3 of our presentation, where we lay out the key takeaways from today's report. First, we're off to a solid start in 2014. Our first quarter growth metrics and financial results are consistent with our operating plan as well as amplified seasonal patterns that we'd previously discussed. We are updating our revenue outlook to incorporate KnowledgeAdvisors, we are on track to achieve our previously discussed guidance and, finally, we're maintaining our focus on 4 key priorities for 2014.

Now let's turn to Slide 4 for a summary recap of our results. Revenue was $209.4 million in the first quarter of 2014, an increase of 10.1% on a year-over-year basis. Adjusted EBITDA margin was 19.4% in the first quarter compared to 24.2% in the first quarter of 2013. First quarter 2014 diluted earnings per share was $0.22 and non-GAAP diluted earnings per share was $0.54 versus first quarter 2013 results of $0.33 and $0.67, respectively.

Let me provide some quick context to these summary numbers before moving into a more detailed discussion of the quarter. As we discussed on our February call, the movement of some customer delivery and usage activity into the fourth quarter of last year, increased the magnitude of the sequential revenue decline we typically see in the first quarter.

In addition, the earnings impact of our normal seasonal expense pattern was amplified by 2 factors. First, changes in foreign exchange rates resulted in about a $0.06 headwind in the quarter. And second, the inclusion of Talent Neuron and KnowledgeAdvisors reduced diluted EPS by a further $0.04. So that's a total of $0.10 right there.

As we'll elaborate through the rest of our discussion this morning, our operating plan contemplates these factors and other timing shifts that are likely to resolve throughout the year, and we remain on track to achieve our previously discussed guidance.

Now let's turn to Slide 5. And I'll review our key operating metrics for the quarter. CEB segment Contract Value at March 31, 2014, was $620.8 million, up 13.1% versus March 31, 2013. CEB segment Contract Value includes $17.1 million from Talent Neuron and KnowledgeAdvisors. And thus, organic CEB Contract Value growth was 10% on a year-over-year basis.

For the SHL Talent Measurement segment, adjusted revenue was $49.7 million in the first quarter, an increase of 6.6% compared to the prior year. On a constant currency basis, SHL Talent Measurement adjusted revenue growth was 6.9%. This result for SHL Talent Measurement is consistent with our plan and provides a healthy start to the year for that part of our business even though, as previously noted, revenue growth was partially mitigated by a shift of some customer delivery milestones into the first quarter 2013 from the first quarter 2014.

CEB segment Wallet retention rate was 99% at March 31, 2014, compared to 100% in the prior year. SHL Talent Measurement segment Wallet retention rate was 103% at March 31, 2014 versus 96% in the prior year. Wallet retention in both segments remains in the normal range and reflects both underlying account growth dynamics as well as variations due to foreign exchange, acquisitions and service delivery. Total CEB segment member institutions grew 10.6% to 6,559 in the first quarter, reflecting the addition of KnowledgeAdvisors as well as continued growth in other CEB segment, middle market and large corporate memberships. You will notice in footnote 2 on Page 5 of our earnings press release, that CEB segment member institutions now only include those companies with a minimum of $10,000 in annual spend. While the legacy CEB segment had very, very few institutions below that level, KnowledgeAdvisors derives a small portion of its revenue from customers that pay modest amounts. Including all of those institutions which, in total, now represent less than 1/4 of 1% of CEB segment revenue would skew the data and make the average CEB per institution metric less meaningful. Using this updated definition, CEB segment Contract Value per member institution was $94,500 at March 31, which is a 2.2% year-over-year increase, reflecting both continued healthy overall growth in the business and a slightly higher mix of middle market members.

To illustrate this effect, CEB segment Contract Value per institution at March 31 was $144,800 for large enterprise members and $28,800 in middle market, representing annual increases of 3.2% and 6.4%, respectively.

Please turn to Slide 6, and I'll review key segment highlights for the quarter. CEB segment revenue was $160.7 million in the first quarter, which is an increase of 8.5% from $148.1 million in the first quarter of 2013. CEB segment revenue includes $1.4 million of inorganic revenue from Talent Neuron and KnowledgeAdvisors, which is net of a $0.3 million deferred revenue fair value adjustment.

SHL Talent Measurement segment revenue increased by 15.6% to $48.7 million in the first quarter of 2014 as compared to the first quarter 2013. SHL Talent Measurement segment revenue includes $1 million reduction to reflect the deferred revenue fair value adjustment. These revenue outcomes are consistent with our operating plan for the quarter and reflect typical seasonal patterns that were amplified by the shift of some customer delivery milestones into the fourth quarter of 2013 from the first quarter of 2014.

Moving on to consolidated operating expenses. Cost of services in the first quarter increased by $7.2 million versus the first quarter of 2013. Approximately 16% of this growth is due to acquired companies, with the balance coming from increased headcount as well as delivery resources and other variable costs associated with the larger customer base. Member relations and marketing expense increased by $11.7 million in the first quarter versus the prior year. Talent Neuron and KnowledgeAdvisors represent about 9% of this change. The remaining growth reflects the continued run rate impacts of the 2013 capacity investments in the SHL Talent Measurement segment as well as lower headcount vacancy due to improved employee retention and forward hiring efforts that Tom will say a little bit -- a little more about in just a few minutes. General and administrative costs in the first quarter were up $2.4 million compared to the prior year, and about 15% of this increase is from acquired companies.

Acquisition-related costs of $1.3 million in the first quarter were driven primarily by transaction costs related to the Talent Neuron and KnowledgeAdvisors acquisitions. Interest income and other was a net expense of $0.5 million in the first quarter of 2014 as compared to income of $1.6 million in the first quarter 2013.

This year-over-year decrease was primarily due to a swing from a gain to a loss in foreign currency remeasurement expense as well as smaller gains on deferred compensation plan assets. Interest expense in the first quarter of 2014 was $4.9 million compared to $6.4 million in the first quarter of 2013, reflecting the benefit of our August 2013 credit facility amendment.

Total company adjusted EBITDA margin in the first quarter was 19.4% versus 24.2% in the first quarter of 2013, with the year-over-year change driven primarily by acquisitions, foreign exchange and amplified seasonality. I'll share a little more detail on these outcomes at the segment level. In the CEB segment, adjusted EBITDA margin in the quarter was 21.9%, reflecting the impacts of forward hiring, reduced vacancy and lower margins at PDRI, Talent Neuron and KnowledgeAdvisors. In addition, foreign exchange rate differences drove about a 60 basis point headwind on year-over-year margin improvement.

Adjusted EBITDA margin in the SHL Talent Measurement segment was 11.5%, which included a foreign currency remeasurement loss in the quarter of $0.5 million or 1% of SHL Talent Measurement segment adjusted revenue. In addition, FX rates negatively impacted margin by about 170 basis points in the SHL Talent Measurement segment.

Depreciation and amortization in the first quarter was $16.5 million, an increase of $1.8 million compared to the first quarter of 2013 driven by higher capital expenditures over the past year as well as increased amortization from acquisition intangibles.

The effective tax rate was 41.3% in the quarter, which is higher than the full year 39% rate we discussed on our last call. We continue to target a 39% rate for the full year of 2014 and are pursuing specific plans to achieve that objective. Our tax provision in the quarter was higher due to a number of factors, including recent legislative actions, the impact of acquisition transaction costs and certain approvals that we expect to reverse before the end of the year. Accordingly, we believe it is more likely than not that the full year rate will be lower than in the first quarter but, for accounting purposes, we are not yet able to incorporate these future benefits into our current tax provision. Of course, the tax provision is also subject to a number of other uncertainties, including the impact of foreign currency gains or losses, discrete items that are not currently recognizable under U.S. GAAP and the global allocation of income across tax jurisdictions.

Please turn to Slide 7 for select balance sheet and cash flow highlights. We remain in a healthy financial position with $151.6 million of cash at March 31. Accounts receivable was $194.6 million at March 31. The current portion of the deferred revenue was $454.5 million. As compared to the prior year, CEB segment deferred revenue, excluding PDRI and KnowledgeAdvisors, increased by 9.8% to $376.9 million, a positive leading indicator for CEB segment revenue. We ended the quarter with $513.3 million of total debt on the balance sheet, and our ratio of net debt to trailing 12 months' adjusted EBITDA was approximately 1.8x.

We also maintain access to additional liquidity via the $193 million of undrawn availability under our revolver. During the first quarter, cash flows from operations were $114.5 million consistent with typical seasonal patterns. We spent $11 million on capital expenditures as we made progress against several key technology initiatives, including the deployment of new data centers, implementation of a new content management system and a major upgrade to the SHL Talent Measurement client-facing platform. As previously disclosed, we also invested $59 million during the quarter to acquire Talent Neuron and KnowledgeAdvisors.

We continue to focus primarily on dividends for cash distribution given the attractive margin and cash flow characteristics of our business, and we paid $8.8 million in dividends during the first quarter. We did not repurchase any stock during the first quarter and, as of March 31, we had approximately $47.2 million of availability under the share repurchase program approved by the board last year. Management will determine the amount and timing of purchases, and the authorization will run through December 31, 2014.

Please turn to Slide 8 and we'll move on to our updated 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. Based on first quarter results and current leading indicators, and while contemplating various risks and opportunities, we remain on track with our original 2014 outlook before accounting for the impact of the KnowledgeAdvisors acquisition. We expect KnowledgeAdvisors to increase 2014 adjusted revenue between $15 million to $20 million. Based on purchase accounting, we expect the impact of the deferred revenue fair value adjustment on KnowledgeAdvisors revenue to be approximately $3 million this year. As we take initial steps to integrate and scale up this asset, we expect KnowledgeAdvisors to have low single-digit adjusted EBITDA margin and roughly breakeven non-GAAP diluted earnings per share.

As a result, we now expect CEB's full year 2014 adjusted revenue to be between $910 million to $935 million and that the reduction in revenue from the deferred revenue fair value adjustment will be approximately $6 million this year. So the GAAP revenue outlook is now $904 million to $929 million.

Our current visibility now leads us to expect CEB segment top line to grow in the low double digits, as healthy growth in the legacy CEB business is complemented by the addition of Talent Neuron and KnowledgeAdvisors and offset, to some degree, by continued headwinds in government markets.

We are also pleased with the current trends at SHL Talent Measurement, which we expect will support stronger full year growth in 2014 and 2013 on a constant currency basis. However, it's also important to remember that the year-over-year growth comparisons to 2014 get tougher, especially in the back half of the year. We now expect adjusted EBITDA margin of between 24.5% and 25%, reflecting the impact of the KnowledgeAdvisors business will have on consolidated margin. We are reporting KnowledgeAdvisors in the CEB segment and, thus, we now expect that full year 2014 CEB segment adjusted EBITDA margin will be slightly lower compared to 2013.

For the SHL Talent Measurement segment, on a constant currency basis, we continue to plan for further margin improvement as that part of our business grows into the investments we made in 2013. And as we discussed on our last call, current foreign exchange rates are sufficiently different from their averages across 2013 to place a roughly 80 basis point headwind on full year 2014 total company margin improvement. So while our margin guidance has incorporated this FX headwind, you can see that on a constant currency basis, we expect the business to generate meaningful margin expansion this year.

As discussed last quarter, here are a few data points on how FX affects our results. Our largest currency exposures are the British pound, euro and Australian dollar. Our 2014 guidance was developed based on where these FX rates ended in 2013 or approximately $1.65 for the British pound, $1.38 for the euro and $0.89 for the Australian dollar. While we will continue to hedge a portion of our CEB U.K. cost exposure, we suggest you consider the following rules of thumb if you monitor changes in these rates.

For every 1% increase in U.S. dollars per British pound, our full year adjusted EBITDA will be reduced by approximately $700,000. Conversely, for every 1% increase in U.S. dollars per euro or U.S. dollars per Aussie dollar, full year adjusted EBITDA will rise by approximately $300,000 and $400,000, respectively.

Depreciation and amortization in 2014 is now expected to be between $70 million and $72 million. This anticipated increase over 2013 is driven by amortization of newly acquired intangibles, higher capital expenditures and the completion of several multiyear projects. Capital expenditures in 2014 are anticipated to be approximately $31 million to $35 million, which is consistent with the 3% to 4% of revenue range that we expect to see going forward.

For the full year, we now expect acquisition related costs of approximately $3 million on transaction expenses and other integration costs related to Talent Neuron and KnowledgeAdvisors. Although for the reasons discussed a few minutes ago, the tax provision for the first quarter was 41.3%, for 2014, we continue to target a full year effective tax rate of approximately 39%. As always, a key determinant of the consolidated effective tax rate is the allocation of pretax income across jurisdictions. Due to the amortization of SHL acquisition-related intangibles in foreign jurisdictions, we have foreign pretax losses, which are benefited at lower rates than our U.S. pretax income, resulting in a higher overall effective tax rate. And again, the actual rate will be influenced by many factors, including foreign currency remeasurement gains or losses and discrete items that are not currently recognizable under U.S. GAAP.

Incorporating all of these factors, our outlook for 2014 non-GAAP diluted earnings per share remains in the range of $3.15 to $3.40. This guidance reflects solid revenue growth, improving constant currency adjusted EBITDA margin, modest contribution from KnowledgeAdvisors and lower interest costs, all somewhat offset by expected increases in depreciation expense and the impact of foreign exchange.

Net-net, with only one quarter behind us, we're likely tracking more towards the midpoint of our guidance ranges. Finally, we continue to expect strong cash generation in 2014, and that the ratio of cash flows from operations to adjusted net income will remain at a healthy multiple consistent with historical patterns.

While we don't provide quarterly guidance, I'll share a few thoughts on what to expect as we progress through the rest of the year. Regarding revenue, in the CEB segment, we expect continued sequential quarterly revenue increases throughout the rest of this year driven by both seasonality and the impact of our acquisitions. In the SHL Talent Measurement segment, we expect a similar pattern as last year, which saw sequential growth in the second quarter followed by a seasonal sequential decline in the third quarter and then back to sequential growth in the fourth quarter.

On the expense side, in both segments, we expect seasonal cost elements will drive expenses higher in the second and fourth quarters. All of these factors are again likely to drive margins lower in the first half of the year before they improve in the second half.

So just to summarize what you should see in the remaining quarters. We expect year-over-year growth in revenues, and especially earnings, to be more back-end loaded this year than last year.

We also expect sequential growth in revenues and earnings through the remaining quarters of the year. However, in the second quarter, you should see the typical sequential bump in operating expenses that will mean slower margin and EPS improvement in the second quarter than in the third quarter and fourth quarter.

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 has joined for today's call. We appreciate the opportunity to update you on the CEB story and how 2014 is taking shape. I'll use my remarks to provide additional insight into our solid start to the year and update you on our priorities for delivering growth and impact.

I'll open my remarks on Slide 9, with more color about our performance to date. As we talked about in the Q4 call, and as Rich just mentioned, there are obviously some timing and FX issues that distort our normal quarterly earnings progression, but we're confident that these will normalize across the year, and that we will be in position to achieve our original earnings targets. This confidence brings, in no small part, from a solid start to the year on the revenue and sales front, as evidenced by key leading indicators such as Contract Value, deferred revenue and Wallet retention.

Let me share some headlines about performance in the quarter. We once again delivered healthy organic growth in all of our markets while also making important investments that deepen value for our members. In particular, I'm pleased with the growth and development of strong teams across all of CEB globally.

I'll start first with the CEB segment. The overall story is that we continue to see healthy growth across the whole segment with perhaps less regional variance that we've been seeing over the past couple of years.

Our oldest and largest market, the CEB segment North America, got off to a solid start in both large enterprise and middle market. We're obviously pleased to see this bellwether for overall, firm performance consistently produce healthy results. We continue to see vast opportunity within large enterprise and middle market to create new relationships and deepen them across time. Our success in the market was consistent across industry sectors, with the lone exception of the U.S. government, where our CEB government and PDRI teams have more limited growth prospects in the near term.

Outside of North America, the trends that we saw unfolding in late 2013 continued into early 2014. In general, we saw global growth rates continue to converge around the corporate average. Europe continues to show signs of recovery and, as a result, Europe, Middle East and Africa have now grown at a healthy rate several quarters in a row.

They are currently on a trajectory that could pull them even with North America for the full year. Asia Pac, on the other hand, has cooled just slightly in recent quarters as members there confront slightly lower growth prospects. It's obviously too early in the year to know how the final distribution of regional revenue growth will play out. But at this point in the year, led by continued strength in North America, we are pleased with the broad-based growth we are seeing in the business.

Our SHL Talent Measurement segment also engineered a strong start to 2014 on both the sales and revenue fronts. All regions contributed growth and generated selling momentum to offset some of the customer pull-forwards we saw last quarter.

As with the CEB segment, we saw more consistently positive news from the U.K. and Europe and still healthy, but muted growth, in Asia Pacific. At a macro level, we believe our best work is still ahead, as we work to tap the significant market opportunity and generate returns on our investments in this business.

In summary, our Q1 performance sets us up well to hit our financial goals for 2014. There is obviously much work ahead to sustain our revenue momentum, accelerate returns on our operating and capital investments and advance our strategic position. However, a strong start gives us confidence for the year ahead.

In addition to progress in our in-year financial plan, we've also made substantial headwind on key multi-year strategic objectives, setting a solid foundation for further progress in 2014 and beyond.

Please turn to Slide 10 for a refresher on our priorities for 2014. We have 4 key areas of focus: first, continuing to reinvent the development and delivery of management insight; second, leading the analytic transformation of talent management; third, expanding the frontier of our brand and impact; and fourth, laying the foundation for future growth.

If you turn to slide 11, I'll show an update on our first priority, continuing to reinvent the development and delivery of management insight. We never lose sight of the revolutionary idea at the center of our businesses. By capping the collective experience and workflows of thousands of companies, we can create insights, data and tools that enable leaders in their teams to transform performance and to do so at a fraction of the cost of other sources of support. This unique model for developing management insight remains the foundation for creating and delivering business value. These insights ultimately power the advice, assessments, tools and technology we use with members and clients. We're now off to another great year in each of our primary markets and we're excited to share our newest work with members.

We also shared our latest edition of Executive Guidance. We use this quarterly series to highlight cross-functional perspectives and practices on core topic areas, such as management of talent and risk, as well as organizational transformation. This publication not only showcases our work for our entire member network, but for the broader corporate world, which helps increase our brand awareness. As usual, this quarter's guidance sprang from a stream of research originally conducted for one of our leadership council memberships. As many of you know, we have a large and growing membership for heads of customer care at large companies. These are the executives responsible for all facets of the customer experience from web and online service to in-person and call center support. Increasingly, we've been able to marry our depth in consumer research with our ability to understand the cost and quality drivers of the service experiences.

Across several years, we've developed some powerful insight into the consumers who really value in-service experiences. And surprisingly, it's not where the companies actually spend money. You can see a quick snapshot to the right of the slide. Our research found that efforts to remove steps and smooth service interactions for customers, what we call, creating an effortless experience, simultaneously reduces cost and increases customer loyalty. It really is a win-win on both the cost and revenue front.

While these findings are incredibly powerful for the customer care executives themselves, you can also imagine how valuable they are for CFO looking to optimize performance in one of their important cost centers, or an HR chief looking to stem attrition in the call centers by making a better hiring decisions.

As a result, these high-impact research efforts create not only immediate value from the members we support, but open doors and power new offers across the executive suite. We're also making good progress on several fronts to personalize the member experience through technology and tools. We've been working for several quarters on a new architecture, supporting all of our member websites. With our build largely complete, we'll soon begin to migrate sites to the new system and introduce a new suite of tools, that will offer more personal delivery of our content, better support of our variety of mobile devices and more direct links to critical work force.

We know that usage drives impact, renewal and cross-selling opportunities, hence it will be a powerful resource for increasing member usage of our great resources.

Please turn to Slide 12 for an update on our second priority, leading the analytic transformation of talent management. On average, large companies spend just short of 25% of their revenue on payroll and see vast differences in productivity and performance across people and teams, yet they often manage this vital resource through, at best, intuition and local manager preference and habit. This is why we see such opportunity to apply intelligence to the key talent management workflows, by adding tools and solutions to make it easier and more cost effective to manage this essential asset with rigor and analytic depth.

The returns are particularly high for applying these tools to the types of professionals managed by our clients in the HR, IT, sales and marketing, finance and legal areas. Given the ever-increasing complexity in knowledge content required of these roles, getting people decisions right carries an enormous payoff. We've obviously been working hard to grow our existing lines of business and continually develop new tools to manage key activities and decisions across the Talent Management life cycle.

We've been particularly successful in developing new solutions like combining our assets and capabilities into new ways. These product development synergies are a key part of our product strategy. We are pleased with our progress thus far. As an example, in 2013, we introduced a series of functional talent assessments that leveraged our Leadership Council research and our SHL Talent Management predictive data.

As noted earlier, our SHL Talent Measurement business continues to show strength as we attack our growth plan. We also continue to innovate in this business area bringing together the complete resources of the company to create powerful new solutions. As an example, one of the biggest issues that our member companies worry about is the identification and management of high-potential employees, rising leaders with the trajectory and ambition to drive business outcomes for years to come.

On balance, a high-potential employee yields twice the productivity annually than non-HIPO. It's no surprise that an average company spends millions of dollars to target, engage and develop these individuals. The problem is that they often -- in fact, more than half the time -- misidentify their highest potential future leaders and, in the process, empty their own succession pipelines while filling those of their competitors.

Leveraging years of our work in the membership programs, our talent measurement team is introducing a robust new suite of analytic tools to identify, engage and measure the performance of HIPOs. Early customer feedback has been very strong and we're excited for the potential of this product suite.

On our last call, we also shared news of our acquisition of Talent Neuron. CEB Talent Neuron is still an early-stage business, but off to a great start as part of the broader company. We've also already welcomed several new blue-chip clients to the platform, including Lockheed Martin, Microsoft and Symantec.

We remain very excited about the potential of this offering and we'll demo the product at our investor day in June.

One other headline in the quarter was our acquisition of KnowledgeAdvisors. The acquisition further extended our strategy of bringing rigor and analytic depth to talent management.

Let me tell you a little bit more about our new colleagues and their impact on some really important corporate activities. This product helped heads of HR and heads of learning and development optimize one of the biggest corporate spending category, training and development.

Global companies spend tens of billions of dollars a year on courses and development experiences with their people. While they know that the overall returns from learning and development investments are positive, they have very little data about which experiences and which classes yield the highest benefit. As a result, they are hard-pressed to find and cut low value activity or invest more in the highest return areas.

You see a detailed schematic of the KA platform to the right of the page. At the bottom of the page, KA's metric [indiscernible] platform helps companies collect data about training and learning experiences through user surveys and links to HR and learning management systems.

Moving to the top of the page, KA then uses powerful analytics and science to measure the real business impact from various training activities and talent management programs. Also really, to a combination of rich comparative performance data, powerful analytics and tools and sound advice helps companies to target and optimize investments and talent. A set of blue-chip clients, including Boeing, ExxonMobil, and Allstate already benefit from this powerful solution and we look forward to supporting even faster growth in the coming years.

With the addition of KnowledgeAdvisors, we have a massive and growing data stream, rich analytic tools and a great team to help our members get after one of their largest opportunity areas. Let me give you a quick view in how to think about the economics of the business.

The business is tracking toward an annualized run rate in the area of $20 million in 2014, and you see 10 months of that reflected in our revised 2014 guidance. The business was roughly breakeven in 2013. We see it ramping to modest profit in 2014 and scaling toward traditional CEB economics as it grows across the following 2 years.

As you'd expect, the business is largely subscription-based with tremendously engaged customers who renew at very high rates. We think that plugging these great resources into CEB's strong content and marketing machines help sustain and accelerate growth for years to come.

KnowledgeAdvisors is growing at a healthy rate and our integration efforts are moving at a swift pace. We announced the acquisition to KA clients at the KnowledgeAdvisors' Annual Analytics Symposium and actually included CEB speakers on the agenda.

The acquisition has been warmly received by their user community. In fact, one member from a large utility remarked, "We see powerful synergies coming to fruition for us. For example the pairing of CEB insights, the KnowledgeAdvisors analytic capabilities and learning benchmarks will be a powerful package for organizations like ours looking to make high impact leadership development decisions in a data-driven manner."

We'll keep you updated, but we're very excited to have the KnowledgeAdvisors team at CEB. And in a thinly-veiled plug for the investor day, we'll also demo that platform during that day.

Please turn to Slide 13 for an update in our third priority, expanding the frontier of our brand and impact. We continue to focus our efforts here on closing 2 gaps: first, raising the global visibility and awareness of the CEB brand; second, penetrating and growing key global markets. We had a busy quarter on both fronts, with some exciting headlines. We continue to extend our thought leadership to the public domain through highlight contributions in the tier 1 media publications. Over the past quarter, our research and insights have been featured prominently in the Wall Street Journal, Forbes and the Harvard Business Review. We have also hosted several large member and client events. These included our very successful debut of LINK Middle East in Dubai, that gathered HR leaders from around the regions. And very recently, our best-attended-ever Financial Services Technology Summit in Boston. You can see a photo of the event and the frighteningly large hashtag sign to the right.

Finally, we were also honored for the third consecutive year as the best talent management consulting provider in Greater China. We received the honor at the Annual Human Resources Awards in Greater China, whose judging panel includes human capital management, Kedge Business School and Forbes.

Please turn to Slide 14 for an update in our fourth priority, laying the foundation for future growth. One of our perennial goals is to continue building a world-class CEB team. I'm very pleased with our performance on this front so far this year. With strong recruiting and talent management strategies in place, including a healthy dose of our own insights, we've seen vacancy rates for key roles at the low-end of historical ranges and retention of our higher performers at the high-end of historical range. This fuller staffing profile enables us to get after more of our plan for delivering value to members. In the shorter term, we'll be avoid the added expense of hiring beyond plan contractors or temps to help with these efforts, which puts us in a strong position to hit our profit goals even with great staffing outcomes.

We also welcomed 2 new members of our senior management team, Rob Chen joined as our Chief Marketing Officer and Bill Okun joined the firm as our Chief Commercial Officer. Rob joined us from First Data Corporation, after high impact runs at Visa and Siebel; and Bill joined us from Relationship Science LLC, where he served as president after a long run at Capital IQ and S&P. We're obviously excited to have such great and experienced talents join the firm. They will both continue to build on existing strengths and strategies as we continue to expand the frontier for CEB's growth.

In addition to hiring and developing great people, we also spend a fair amount of time thinking about our corporate culture. Our data shows that appropriately reinforcing and transmitting culture is a very real driver of corporate performance.

One unique aspect of CEB culture is our spirit of generosity. We quantify the concept of generosity in our values and apply it in our interactions with our members, our communities and each other. We took a unique step this year and challenged ourselves to reach a new level of impact in our communities. You see those on the right-hand side of the page. We set 3 goals for our global impact: engaging a thousand leaders in the social sector, delivering $2 million in value to the social sector and providing 30,000 volunteer hours to the social sector.

The aim of these efforts is to combine our expertise and resources to solve real talent management and organizational performance needs in the social sector. We see 2 very real business returns from our focus on these goals. First, it's an opportunity to enhance the CEB brand as we build new relationships and deliver impact beyond our member network. Second, it's a great way to engage and develop our top performers as they apply and develop their skills in new ways, while helping the community. Let me stop there and summarize my remarks on slide 15.

Our Q1 performance sets us up well to hit our financial goals for 2014. We have much work ahead, but we enter the year with momentum, opportunity and a skilled team to capitalize on both. We'll now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll now take our first question from Paul Ginocchio with Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

Tom, I was just expecting maybe a little bit more growth from SHL with the recent sales hires in the U.S. and the better macro environment in Europe, how -- I know you gave some comments you'll grow faster this year than next, but how do you expect to do that? Maybe some just color on how you expected to ramp through the year, trends in Europe with the better hiring and how that new -- these new U.S. sales hires are ramping?

Thomas L. Monahan

Paul, obviously, we think the Talent Measurement business, there's huge runway in front of it, and we're pleased with the consistent global growth that we're now generating. Yes, coming into the year, we did face that unusual challenges. Some revenues pulled forward into 2013 as customers accelerated delivery of some key milestones. This had an optical double whammy in that we lost revenue from 2014 that actually faced this deeper comp. It's important to remember that in this business, as in the CEB business, it's a relatively slower seasonal quarter, which makes it harder to grow faster off and even in relatively easier comp. You see the strong Wallet retention metrics, which we're doing a great job with the customers we have. It's not a quarter where we add a ton of new business. I'm actually pleased with the work that the team did to both grow through that revenue headwind and build strong sales pipeline. You can see from our healthy deferred revenue growth, we got out of the gates fast in 2014. For the full year, we still expect a higher growth rate than last year, and we'll keep expanding margins off the investments we made. And I'm very pleased with the performance of the new sales hires. You'll recall, it takes probably 2 years for a new sales person to get, what we call, sort of sales force average productivity. And most of these folks are still in the role for less than a year. So given where they are, they're at a high level of proficiency already, and we'll expect to see them continue to mature across the year. So all in all, we're pleased with the way this business is tracking and there some optics in the first quarter. Do you want to talk about what the growth rate would be, if you...

Richard S. Lindahl

Yes. I think, if you -- Paul, this is Rich. If you would -- as we mentioned, we had about $5 million of revenue pull-forward into fourth quarter from first quarter. Some of that was in the CEB segment, some of that was in the SHL segment. If you took the SHL portion and applied that to growth in the first quarter, you would have had a rate that was closer to 11% than the roughly 7% that we are reporting.

Paul Ginocchio - Deutsche Bank AG, Research Division

Great. And Tom, just what are your salespeople in Europe, in U.K., saying about sort of receptivity just as European employment returns to growth, is that helping a little bit?

Thomas L. Monahan

Yes. As I said on the call, we're seeing the growth rates converge across the regions. And that's -- I wouldn't say it's easy, but I think our European team, in particular, is poised to generate strong growth throughout the year. We've seen that now for a couple of quarters. And as I said, they're in a position where we could, by the end of the year, see growth rates normalize between North America and Europe.

Operator

Our next question is from Tim McHugh with William Blair Investments.

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

On KnowledgeAdvisors, one, I guess, what type of growth rate do you think you could achieve for that business over the next couple of years? And are the things you can do with the cost structure to take cost out or is it more that you hope just to grow the business and scale the costs and, therefore, it's a matter of time, I guess, before you can get better profitability out of that business.

Thomas L. Monahan

Sure. Tim, the KnowledgeAdvisors business was already growing at a higher rate than the core CEB organic growth rates, so it's already a solid grower. There are definitely some administrative leverage points, think of them more as money they won't have to spend by being part of our platform that become cost synergies over time. And it, like all of other businesses, is a fixed cost business, so as we grow it, it should grow comfortably in the CEB style margin. So we'd expect to see healthy growth and margin expansion over the next several years. And we'd expect the growth rate to be a net add to the CEB overall growth rate, though it is a small portion of it. So growing the big thing is also really important to us.

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

Okay. And then just 2 numbers questions, I guess. Rich, can you help us -- the client growth, if we excluded KnowledgeAdvisors, I'm not sure, if you gave the client impact of KnowledgeAdvisors. And then, can you talk about the Wallet retention for SHL? I'm never quite sure of what to make of that metric sometimes, but it picked up a fair amount this quarter. So what does that imply to us?

Richard S. Lindahl

So the client growth, if you excluded KnowledgeAdvisors, would have been about 100, 150 basis points lighter than what we reported. So that definitely helped a little bit in the quarter. And I'm sorry, what was your second question?

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

The Wallet retention for SHL. What's the revenue -- you talked about revenue growth, but it was up quite a bit year-over-year, at least. What factors were underlying that, I guess? What does that tell us about the activity there?

Richard S. Lindahl

I mean, it's certainly a reflection of the cumulative improvement in the growth trajectory that you've seen in SHL over the last year. You'll recall that growth, certainly coming out of the second half of 2012 and into the early part of 2013, was significantly less than what we've been seeing over the last several quarters here. And so, that's really just that cumulative impact you're seeing.

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

Okay. And then lastly, just one, I guess, very detailed -- in this -- in terms of the adjusted earnings that we've been calculating. We've been using, I think, it's like a 28%, 29% tax rate to adjust the deferred revenue. Do we still do that with the KnowledgeAdvisors part or the deferred revenue associated with that business, given it's U.S.-based?

Thomas L. Monahan

That's going to be a slightly higher tax rate for that adjustment. It'll be more like in the 40% area.

Operator

Our next question is from Joseph Foresi with Janney Montgomery Scott.

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

I was wondering if we could get just a little bit more detail on the KnowledgeAdvisors margin profile and timeframe? I think they're in below company average. Maybe you can give us some idea, like what the margin profile is now, what your targets are for the end of this year and heading into next year. I know you're going to realize some cost synergies and those are going to expand. But I just want to see sort of how you're thinking about the trajectory for that.

Richard S. Lindahl

Sure. I mean in the first quarter, it was negative margin just based on kind of getting started. There's some seasonality in the revenue profile there. And we expect that to ramp up as we go through the rest of the year. And so, for the full year, we expect margins to be slightly positive, somewhere in the single digits on a margin basis. As we move forward into next year, as Tom said, we expect to be able to have that business benefit from being part of a larger platform. And as revenue continues to grow further, we'd expect margin improvement into next year and beyond. I hesitate to give you a specific margin target for next year at this stage but, obviously, we'll keep you posted as we set targets for next year.

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

Okay. And then SHL, I mean, now that we've got the, I believe, the U.S. sales force built out, what's a good margin profile for that over the long term? I mean, will we get a return to sort of the peak margins that we saw before? Or what should we think about for the margin profile for that over the long term?

Richard S. Lindahl

Yes, we certainly -- that remains our objective and our target and our expectation that, over time, we're going to get back into that range again. Clearly, that's not implied in our guidance for this year. But I think, you'll see improvement for the full year this year versus last year, and we would expect further improvement again next year.

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

Got it, okay. And last one from me, on the Contract Value site. There was an uptick, even if you exclude some of the acquisition activity. Are we to take that that's because you're seeing an incremental pickup in Europe? I mean how should we think about that Contract Value uptick? And how should we think about the trajectory for that through the year?

Thomas L. Monahan

Yes, I think, we feel pretty good with the start we get off to around the world. I think the story is probably -- certainly, the fact that Europe is now part of the overall corporate story and no longer a drag, but I wouldn't miss the fact that North America, as a whole, is off to a solid start and out of the gates fast. So we've got lots of work ahead, but I'm pleased with how fast we got out off the gates. And I think the story is as much one of breadth as any specific region.

Operator

Our next question is from Tobey Sommer with SunTrust.

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

I wanted to get your perspective of -- in the fourth quarter, you had some -- an uptick in client activity as they were getting ready for some planning activities for this year. What does it felt like through the first 4 months of 2014? Do you feel like customers are lengthening their planning horizons and, therefore, the kind of things they're engaged in reflect that?

Thomas L. Monahan

Tobey, I'd say the biggest shift we've seen is the story is no longer different across regions. I don't think anyone is predicting booming revenue growth anywhere, but I'd say, consistently, people are now planning for a modest, but healthy growth, and that's true even in Europe. And therefore, they're making -- they need help making business decisions. No one is -- if you look at the data, what we see is lot of people playing for very modest revenue growth. And CFOs, in particular, are desperate to cling to some of the cost gains they've made through the downturn. So they're looking for a lot of help for us about how do I eke out some revenue growth, but not let the cost equation follow too quickly. So a lot of the questions are about optimization of resources, you can imagine that place pretty well into the stories we're architecting for them and with them. So we're pleased with the pretty consistent global message. I think it's positive, but it's an environment that rewards precision, which is the type of environment we like a lot.

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

How are you prioritizing and allocating your investment dollars this year? And what change might you foresee to that ranking as we look into 2015?

Thomas L. Monahan

I think, job one, in any given year, is always make sure we have a great team in the field to go out and be toe-to-toe with customers, impacting their business and opening up new opportunities. And I don't think that's changed much. We're certainly very pleased with the hiring and retention success we've enjoyed. We've got a great team out in the field, both seasoned people continuing to grow and mature and new people coming onboard and joining the CEB team. So that's, in any given year, job one. And then, job two, is continuing to invest to make the products and services ever more relevant that has a component of new product introduction and product evolution, and you've heard us talk about some of our larger technology investments to make sure that we're getting ever more tightly tied to member workflows. I don't think the order of those has changed at all, and I'm pleased actually with the progress we're making so far this year on both fronts.

Operator

Our next question is from the Manav Patnaik with Barclays.

Manav Patnaik - Barclays Capital, Research Division

I was just wondering, you obviously made to need -- well, it sounds like need little acquisitions. Are there any glaring gaps, I guess, in your solution that you see where we should be thinking about M&A focus for you guys?

Thomas L. Monahan

I think, originally after we did the SHL acquisition, we indicated that we had more than enough in our hands integrating the acquisition and beginning to get after synergies. I think, importantly that work still continues. You heard me talk about getting the HIPO in sites we had in Leadership Councils blended into our product for Talent Measurement customers. So at the same time, you -- to Richard's point, when you adjust for the revenue moving to Q4, that business is off to a very healthy start this year. So we're starting to keep our eyes open for new product development more broadly. That's going to have a flavor of organic product development and it's going to have -- here and there, we'll find someone's built an interesting tool solutions that confronts a member need. I don't think there's a specific gap that we feel exposure on. We certainly believe that there are lots and lots of parts of the talent management life cycle that are made -- where decisions are made with intuition or gut instinct that we think we can bring some science and rigor to. The bulk of that will be developing the great assets we have. But here and there, we may spot something that meets a critical member need and go ahead and transact it. We happen to do it twice this quarter, but I think more of the news in the ensuing years will be about combining the great assets we have in new ways.

Manav Patnaik - Barclays Capital, Research Division

Okay. And I apologize if I missed this earlier, but on the SHL side. I mean, I guess the -- I think it was 6.9% constant currency came in below your sort of, I guess, 8% to 13% standard long-term guidance. So just wondering anymore color around that and if we should still expect that range for the rest of the year.

Thomas L. Monahan

Probably 3 thoughts. One is, we think of that 8% to 13% as an annualized number. And certainly, in this business, there is seasonal effects. So Q1 is going to be a slow -- slower quarter in that business. Two, as Rich said, if you just add back the customer slippage that we saw into Q -- the pull-forwards into Q4, the business grew revenue at a probably an 11 percentage rate. And then third, you saw a healthy deferred revenue growth in that business, which implies that the sales team got out and did a great job building the sales pipeline first and then converting that into bookings. And so, across the year, I think this business is on the track we expect it to and will be in that zone that we'd like to see it in.

Manav Patnaik - Barclays Capital, Research Division

Okay. And just one last. All the M&A contribution this quarter was in the CEB line, is that correct?

Thomas L. Monahan

That's correct.

Operator

Our next question is from Gary Bisbee with RBC.

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

So I had been under the impression that the $5 million pull-forward revenue was largely CEB. Can you give us a split? What was the -- how much was SHL? How much was CEB, please?

Richard S. Lindahl

So roughly, 60-40 CEB to SHL.

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

Okay. And how should we think about the margin impact that, that had? Was -- is there a cost, a large cost, associated with that? Or should we think of it more like that revenue recognition change a couple of years ago where some revenue shifted, costs were unchanged, and so there was a dramatic plus and minus depending on the quarter impact from margin.

Richard S. Lindahl

Since a lot of that was based on completing deliveries of some key milestones, the cost would have already been incurred by the time we recognized the revenues. So there wasn't a cost slip into first quarter on a relative basis.

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

So then, is it right to say that, if we were trying to think about a normalized trend over the last couple of quarters, that the fourth quarter margins -- I mean, just doing the back of the envelope math, it seems like maybe they were overstated, that's probably a wrong term, but benefited by about 200 basis points? And this quarter was hurt by about 200 basis points. Am I in the right zip code with the math I'm doing there?

Richard S. Lindahl

I mean, certainly, that the revenue swing would have benefited margin last quarter and bit of a headwind on margin this quarter.

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

And sorry to keep at this, but with the core CEB segment, this is the weakest margin in many years, going back to the recession really. And I understand M&A dilution that you referenced, the $0.04 of earnings, was part of that. It looks like that's roughly $2.5 million. It's still, even if you add that back, would have been lower than it's been in a while. What other factors were impacting the CEB segment margin?

Richard S. Lindahl

Yes. I mean, I think, obviously, there's the revenue impact that we talked about. There's also the impact of foreign exchange. I talked about how in the CEB segment, that was about a 60 basis point headwind on margins in the quarter based on where -- how rates have moved over the course of the year. And then the other was, we talked last quarter about how we have been doing a fair amount of forward hiring in the CEB segment, and then Tom and I both referenced how we've had good retention in the first quarter. And so, that sets us up well to achieve our targets for the rest of year, but it certainly had an impact on cost coming into the first quarter.

Thomas L. Monahan

Think about that as the average start day in the quarter of a new CEB hire, moving from sometime in February or March to January, and picking up a little more cost. We'd take that 100x.

Richard S. Lindahl

Yes.

Thomas L. Monahan

100 because you get them into the training systems, they're in sooner, you got more stuff happening. But on -- and it normalizes out over the quarters and some other expenses we would have incurred no longer show up. But that did put a little bit of a headwind into margin in the quarter for a very healthy reason.

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

Okay. And is that -- or is that pretty well spread across the types of employees or is it -- is that -- was it more towards sales or member relations, customer service type or...

Richard S. Lindahl

Yes. It would have been disproportionately in the member relations and marketing line is where you would have seen that.

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

Okay. And then the last one from me. Do you have a sense at this point, how much the KnowledgeAdvisors adds to amortization? Is that the primary reason that the D&A expense within the guidance for the full year went up? Or is there something else going on there?

Richard S. Lindahl

Yes, that is the primary reason for the lift in the D&A guidance, yes.

Operator

Our next question is from Shlomo Rosenbaum with Stifel.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

Just had a few -- just the KnowledgeAdvisor growth. How fast was it growing before you bought it? And where do you think the free cash flow potential of the business could go? In other words, just getting back to where the margins of that business, can that margins of that business approach CEB margins? And is there some operational synergies in terms of products that you can develop together with them, so on and so forth?

Thomas L. Monahan

Sure. KA was growing at a rate that would be accretive to the overall CEB growth rate. So -- they were a private company, so they had not outrun cash. And as a result there are probably some growth left on the table by having -- brought access to a broader market, which is obviously what we bring. Over time, we expect this business wrenched pretty neatly into CEB's style of margins. I wouldn't expect, obviously not this year, probably it doesn't get all the way there next year either. Part of that is we want to maintain an up-selling capacity that is the CEB front engine, or its marketing leads, great conversations. There's -- we have enough hands in place to capture that and turn it into revenues. So we'll get some administrative scaling out of bringing the businesses together. We probably will keep good, effective selling and servicing capacity in that business as it continues to ramp. But I think, it can be certainly accretive to CEB revenue growth rate across the next couple of years. But also we'll see some margin expansion. So we're very excited about it. As to joint product development, I was -- that member quote was funny[ph], members were ahead of us on this one -- and they've already said, well, what if you combine this and that, you're going to expect there is a team looking hard at ways in which we can take -- do 2 things really. One is, just there is great data in the business that's immediately valuable to our existing installed base of subscribers. And we saw that play out very effectively with SHL where suddenly we had whole new categories of data about effectiveness of different constituencies. You can imagine KnowledgeAdvisors really training intensive communities like sales, or IT, et cetera. They're going to be really interested at looking at aggregate data around what works and what doesn't. So we'll take that play first and then second play will be finding ways to make sure that we blend and link the products in new and powerful ways. So we're excited about this asset.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

And just on some math. PDRI, is it fair to assume, it was a little bit less than 1% headwind on top line growth. That's kind of where I'm trying to parse it but I don't know how much more or less it could be. I'm talking about on the CEB business, in particular.

Richard S. Lindahl

I mean, you'll note that we haven't broken that out specifically. It's at the point now it's part of the segment and we're managing it like all the other pieces of the segment. I will say that the quarterly revenue was very much in line this quarter with where it was last quarter. And so, on a year-over-year basis, if you go back and look at what we disclosed last year on PDRI revenue, you would have seen that, that would have been a revenue decline year-over-year. So obviously, that was a bit of headwind deal, yes.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then, clearly the quarter -- the numbers in this quarter came out lower than what kind of the street numbers we're looking for. And I just want you to comment a little bit on -- you guys have an internal expectations, you don't give quarterly guidance, can you talk about where the numbers came out, vis-à-vis what you were thinking yourselves going into the quarter? And then, do you feel incrementally better about your ability to achieve the core business, excluding acquisitions? Kind of the guidance that you put out last quarter, do you feel the same, do you feel worse, how do you feel vis-à-vis last quarter?

Thomas L. Monahan

I'd say at the top line, setting aside 2 factors that we wouldn't have incorporated into our previous guidance. One would have been FX, it would give some sense of how that was likely to trend, and the acquisition costs. I think beyond that, we feel very good about the start of the year. As always, the start of the year is really important to us from a bookings perspective, a staffing perspective and a momentum perspective and we're -- on those fronts, we feel great. If those things are going well, usually the margin start to take care of itself over the course of the year. So setting aside, a few things we had and obviously contemplated in setting the guidance that we laid out for you, we're feeling very good about the start of the year.

Operator

Our next question is from David Ridley-Lane with Bank of America Merrill Lynch.

David Ridley-Lane - BofA Merrill Lynch, Research Division

What's been the typical network effect that CEB brings to some of the smaller acquisitions that you've done in the past? I'm thinking about -- if you take Warrillow and TowerGroup, a kind of culture, et cetera, and you look at, how much cross-selling there was in those acquisitions, say 12 months or 24 months out there? What's been your typical success in the cross-selling into the base?

Thomas L. Monahan

I think, historically, we've been pleased with the progression. I think the -- we've learned over time that the immediate impact, as you saw with SHL, is one of -- there is some transition period, et cetera. So even though we're excited about how fast we're going to allocate so both Talent Neuron and KnowledgeAdvisors, there is still going to be some -- learning each other's businesses, learning the right plug-in points. But over time, as we lift some of the great contents and great messaging out of those businesses and communicate it properly to our customer base, you see a good, healthy ability to continue to reach new markets and introduce these assets into a much broader customer base. So overall, we've been pleased. Obviously, every time we do it, there is lessons from last one. And you can safely assume we're incorporating those into these next 2.

David Ridley-Lane - BofA Merrill Lynch, Research Division

And then I haven't seen -- and maybe you've been making internal investments, but I haven't seen M&A investments on the IT or the CIO space for a while. I'm wondering, if that sort of a conscious decision or is it just that the HR space has more attractive M&A targets?

Thomas L. Monahan

I think there's really 2 things going on there, Dave. One is, our IT business, as we've talked actually last several quarters has been a real area of help for us. A lot of the work we've done, the future of Corporate IT and the changing nature and rules of the Corporate IT organization has been incredibly well received, and that's been -- powered greater growth in the business. Second, it would be no -- the talent theme, partly because of the changing nature of Corporate IT, has been a really important message to CIOs and their teams. One of the first things we did with the SHL business was build an IT functional talent assessment product. Our IT Leadership Academy is a great example. So when we talk about talent, we're not -- explicitly about HR, we're looking at the special talent within the primary markets we serve. And IT has been a real hotbed of growth for those products as well as CIOs and their teams are looking at a pretty big recomposition of the types of talent they need to execute. So when you say talent, it means actually talent broadly, not just HR. Obviously, HR is a critical primary market for us, but it's not the only one for the talent assets. And IT, given the scale, the size of your average Corporate IT department, tends to be a very healthy consumer of some of these assets, we talked about Talent Neuron, probably as often being purchased by the CIO as by the Head of HR. So if you're looking from an M&A standpoint, you could almost call that an IT asset, because CIOs are the ones thinking about where do I put my next development center? Where do I do quality assurance, et cetera? Where should I off-shore, where should I on-shore? Where is the next hotbed for key analytics talents? And that's what Talent Neuron does very, very well.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. Got it, that's helpful. And then a quick one for Rich, did I get this right, FX impact $0.06 in the quarter and you still expecting $0.08 for the full year?

Richard S. Lindahl

Well, it was $0.06 in the quarter, that includes both the -- that includes the margin impacts from year-over-year costs as well as the other income remeasurement loss. When we talk about our 80 basis point impact on the full year, recognize that the big change in FX rates occurred pretty much at around the third quarter. So you're seeing more of the impact earlier in the year than -- assuming rates stay where they are right now, than you would see later in the year.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Got it. So it's -- I did get that right, it's just the timing of the FX notes.

Richard S. Lindahl

Exactly.

Operator

That's all the time we have for questions. I'd like to turn the call back over to Mr. Monahan for any additional or closing remarks.

Thomas L. Monahan

Thank you again for calling and/or logging in to today's event. Let me just close the call by quickly summarizing my early remarks. Our Q1 performance has put us on a good path to stay to our financial goals for 2014. There's obviously much work ahead to sustain our revenue momentum and celebrate returns on our operating and capital investments and advance our strategic position. But I'm confident that our strong start sets us up for the year end. Rich and I look forward to seeing many you in our travels over the next few months. We will be at the BofA and JPMorgan events in May as well as the Blair event in June. We will also hold our Annual Investor Day on June 18 in our Arlington, Virginia offices. Those of you who've attended in prior years know that we use this event to share even more detail about our strategy and operations, including demonstrations of our latest offerings and exposure to our management team. It's shaping up to be in an engaging day. And you can contact June Connor if you're interested in attending. Thank you again for calling in. We look forward to keeping you updated on the CEB story.

Operator

That concludes today's call. Thank you for your participation.

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Corporate Executive Board Co. (CEB): Q1 EPS of $0.54 misses by $0.14. Revenue of $209.44M (+10.1% Y/Y) misses by $1.19M.