CEB (CEB) Thomas L. Monahan, III on Q4 2015 Results - Earnings Call Transcript

| About: CEB Inc. (CEB)

CEB, Inc. (NYSE:CEB)

Q4 2015 Earnings Call

February 04, 2016 9:00 am ET

Executives

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Richard S. Lindahl - Chief Financial Officer

Analysts

Michael Reid - Cantor Fitzgerald

Paul L. Ginocchio - Deutsche Bank Securities, Inc.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Tim J. McHugh - William Blair & Co. LLC

David E. Ridley-Lane - Bank of America Merrill Lynch

Gary Bisbee - RBC Capital Markets LLC

Manav Patnaik - Barclays Capital, Inc.

Operator

Good morning and welcome to CEB's fourth quarter 2015 conference call. Today's call is being recorded and will be available for replay beginning today and through February 13, by dialing 719-457-0820. The replay passcode is 7136894. The replay will also be available beginning later today and through February 13 at the company's website.

To the extent, any non-GAAP financial measures discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing 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 company's website at cebglobal.com and following the Investors link to the Q4 2015 Earnings Conference Call. 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 CEB's expected quarterly and annual financial performance for fiscal 2015 or 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 forecast, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements.

You're 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 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, future events or otherwise.

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

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Thanks, Scott. Thanks, everyone, for calling and/or logging in. We appreciate the opportunity to bring you up to speed in the continued growth, impact and profitability of our business. I'll kick off the call with some summary comments about our performance in the fourth quarter and some thoughts on the year ahead. Rich will then provide more detailed discussion of our financial results, and outlook for the year. I'll then close with a look at our strategic priorities before we take your questions.

I'll begin my remarks on slide three. Overall, we turned in mixed performance in 2015, but entered 2016 well positioned to create impact for our shareholders and deliver on the CEB formula for shareholder value.

Let me start my remarks with a look back at 2015 and how this has shaped our go-forward plan. Obviously, capital markets volatility continued and intensified in Q4 and into early Q1, reflecting general concerns about world economic growth and key developing markets. And as in prior quarters, several corporate sectors, particularly in the energy and industrial goods sector, continue to face real challenges. Even as the economy gyrated a bit more in Q4, our performance in the quarter reflected the same themes that we had discussed for several quarters.

Let me call out six summary points from our 2015 performance. First, we generally saw solid renewal performance in most sectors and markets, and strong new product launches. However, the front-end of our new and cross-sell pipeline entering Q4 simply weren't deep enough to grow bookings at our target rate for the year. Also, we saw some of the same caution that we discussed previously dampened down our new sales and premium services growth in, particularly, challenged sectors.

While we did confront caution in corporate budgets, it's worth noting two things. It's largely concentrated in the most challenged sectors, oil and gas, commodities, heavy industry and packaged goods, which together make up about 15% of our business. And even in the most extreme sectors, the world looks nothing like 2008 or even what the current equity markets would suggest.

Second, from a geographic perspective, the story remains largely the same from throughout the year, as North America's staffing shortfall caused that business to be a drag on 2015 growth for the full year. As the year progressed, we did see modest incremental headwinds in Asia-Pac, but I have confidence that we have an enormous near-term opportunity there, and we certainly have a tremendous team in place to take advantage of it.

Third, the CEB Talent Assessment segment, formerly known as the SHL Talent Measurement segment, generated continued growth in 2015, but was held back in North America by some of the same pipeline issues and corporate caution.

In a minute I'll discuss how we're evolving, how we sell in North America and operate more like our One CEB markets, and I'm looking forward to strong cross-selling as our new team structure takes hold.

I'm also very pleased by our continued success in converting this business to a pure-form recurring revenue subscription business. For the first time we're reporting a contract value number for the business that gives you some sense of the overall book-to-revenue.

Fourth, we sustained focus on strong margin performance, expanding margins by more than 100 basis points. We also paved the way for continued improvement as the business scales. Although given last year's big jump, this year's gains will be more modest. The CEB Talent Assessment segment margin reached to low-20%s in 2015, with continued expansion in the plan for this year. Equally important, we significantly reduced our effective tax rate, ensuring that more of every dollar of profit flows through to shareholders.

Fifth, we maintained focus on great cash generation and careful deployment of capital to shareholders in growth objectives. Across the year, we were able to take advantage of capital market volatility to accelerate our enhanced capital return strategy and returned $110 million to shareholders via dividend and buyback across the year.

That said, for technical reasons, we were unable to take full advantage of the December slide in the stock. As a result, you can see that our 2016 capital return plan contemplates a more aggressive posture to take advantage of the buyback opportunity currently available to us, and frankly, to make up for the missed opportunity from late in the year.

Even as we returned capital to shareholders, we still have the capacity to add great new businesses to the CEB platform. After closing the CEO Forum Group and Sunstone acquisitions earlier in the year, we closed the Wanted Technologies acquisition as a bolt-on to our fast-growing workforce planning product area.

Sixth and the most important, after some challenges in the first part of the year, we added great new CEB talent and are working hard to make them productive. We enter 2016 with a great engaged CEB team on the field. I look forward to seeing our collective impact grow across the coming year.

The net result of all these factors is a mixed record of 2015 performance. To the bad, our target revenue growth rate for 2016 is below our long-term range. To the good, this challenging economic and budgeting environment gives us ample opportunities to target and create immediate value for our clients. Importantly, we are in a great position to take advantage of this opportunity, as we enter 2016 with a much stronger CEB team than we entered 2015 with.

Most importantly, the core elements of the CEB value creation formula remain in place, double-digit returns powered by strong adjusted EPS growth and sustained return of capital to shareholders. We remain committed to delivering on this value to our investors.

Before I hand the call off to Rich, let me share a few thoughts about the markets and executives we serve and how we plan to grow in 2016 and beyond. We now support nearly 10,000 of the world's largest companies, and have as broad an aperture as any firm can have. And while we are not macroeconomic forecasters, we likely have some unique insight into how macroeconomic factors shape corporate thinking.

On average, the global economy continues to grind out slow growth, but this average growth rate obscures some continuing challenges that are shaping corporate perspectives. As mentioned, commodities, energy, and sectors with substantial exposure to China are facing real challenges. For the rest of the economy, capital markets volatility, more expensive capital, and the fears of knock-on effects from developing markets are driving a cautious outlook that you see reflected in company comments this earnings season.

These conditions produced a set of challenges that repeatedly land on executive desks across our network. First and most obviously, companies are concerned about growth and optimizing their cost structure. Second, companies large and small are worried about their ability to act quickly in the face of economic complexity. Factors ranging from complex risk management processes to more collaborative work environments are making it difficult for large companies to move quickly. Finally, we see executives across the enterprise worried about having the right talent in the right places to manage changes in customers, technology, and operations.

We believe that this environment offers huge opportunities for us, as we have unique resources and talented people who can help these executives act with confidence against precisely these challenges. But it also demands that we operate sharply to realize the full value of this opportunity. We need to carefully balance support for clients-facing challenges with allocation of resources to the most promising growth opportunities.

While we made solid progress on many near-term priorities in Q4, our sales force shortfall carrying over from early in the year overshadowed progress in other areas, and we're running hard in Q1 and Q2 to make up lost ground. Now that we have a great team on the field, the most important element of our work is to bring our great solutions together and link them to those problems sitting on member desks. In doing this, we'll apply lessons from those markets where we consolidated our CEB commercial operations under a single leader.

We learned that there is much more that we as a leadership team can do to make life easier for our teams in the field. Three areas in particular stand out.

First, as our product set has broadened and our support for clients continues to get deeper and deeper into their daily work, our ability to efficiently contract for and manage complex relationships simply hasn't kept pace. Right now the burden of solving this falls too heavily on our team in the field. To fix this, we are setting in motion overhaul of our internal IT systems and business processes to ensure that we're making lives simple for our sales force and for our customers. We're calling this Program Atlas, and Rich will share some more detail in a minute.

We've seen our peer companies do this when they have arrived at a similar level of size and complexity. You can safely assume we are tapping them for advice and lessons learned and we look forward to arming our teams to have even more impact by being responsive to our clients in the years to come.

Second, we are focusing ever more intensely on the power of a single brand that links all of our resources. As an important part of this, we're narrowing the focus and use of the SHL brand. This change is in keeping with our overall master brand strategy and is aligned with an ongoing investment to ensure that CEB is perceived as a talent management powerhouse worldwide.

As a result, SHL Talent Measurement products and services will now be referred to as CEB Talent Assessment. This will have implications for the amortization of the SHL trade name intangible asset, which Rich will discuss. Our customers are frankly ahead of us on this one. We look forward to catching up with them.

Finally, inspired by the success we've seen in our One CEB markets, we are continuing to integrate our sales activities closer to the customer in North America, investing more heavily in customer support across the board. I'll discuss this in more detail below, but it should set us up for enhanced cross-sell and deeper presence in our strongest buying centers.

Given the strength of our team, the scale of the opportunity in front of us, and clarity about our near-term areas of focus, we see huge potential for profitability and growth in the quarters and years ahead. We've demonstrated the ability of CEB to consistently focus on and deliver the levers of shareholder value creation, and I look forward to doing this in 2016 and beyond.

Let me turn the call over to Rich for a more detailed look back at 2015 and forward into 2016.

Richard S. Lindahl - Chief Financial Officer

Thanks, Tom, and good morning, everyone. Please turn to slide four for a summary recap of our financials.

Revenue was $242.9 million in the fourth quarter of 2015, an increase of 1.2% on a year-over-year basis. Adjusted EBITDA margin was 27.4% compared to 29.3% in the fourth quarter of 2014. Diluted earnings per share was $0.55 compared to $0.84 in the fourth quarter of 2014. And non-GAAP diluted earnings per share was $1.10 versus $1.11 in the comparable prior-year quarter.

Now let's turn to slide five and I'll review our key operating metrics for the quarter. Please note that in connection with the next leg of our corporate branding strategy, we have renamed the former SHL Talent Measurement segment to be CEB Talent Assessment.

CEB segment contract value at December 31 was $708.3 million, which is up 3.6% year over year. On a constant currency basis, contract value growth was 4.9%. Constant currency CEB segment wallet retention rate was 93% versus 99% a year ago. And CEB Talent Assessment segment wallet retention rate was 98% versus 103% last year.

In our press release, you will note that we introduced CEB Talent Assessment segment contract value, which was $109.8 million at December 31, 2015. This metric represents the aggregate annualized revenue attributed to all subscription agreements for online product access plus the aggregate annual revenue attributed to all advanced purchases of online testing units. Accordingly, it does not include the value of professional services, in-arrears usage, or other items that comprise total revenue in that segment. We will report this metric on a go-forward basis, which will enable investors to track the growth in the most highly recurring portion of CEB Talent Assessment revenue.

Total CEB segment member institutions grew 4% to 7,340 in the fourth quarter, reflecting continued growth in the CEB segment middle market and large corporate memberships. CEB segment contract value per member institution on a constant currency basis was $95,400 at December 31. CEB segment contract value per institution on a constant currency basis was $135,900 for large corporate members and $30,900 in middle market. I would note that there is some noise in these metrics due to the inclusion of recent acquisitions. Excluding the impact of CEO Forum and Wanted Technologies, CEB segment institutions grew by 0.4%, and CEB segment constant currency contract value per large corporate member was $147,600.

Please turn to slide six, and I'll review key segment highlights for the quarter. Total company adjusted revenue was $244.8 million in the quarter, an increase of 1.5% compared to the prior year. On a constant currency basis, total company adjusted revenue grew by 4.5%. CEB segment adjusted revenue was $193.6 million in the fourth quarter, an increase of 3.5% versus the fourth quarter of 2014. And on a constant currency basis, CEB segment adjusted revenue growth was 5.1%.

As compared to the prior year, CEB Talent Assessment segment adjusted revenue declined 5.3% to $51.2 million in the fourth quarter. But on a constant currency basis, CEB Talent Assessment segment adjusted revenue growth was 2.6%.

Consolidated operating expenses increased $8.5 million on a year-over-year basis, reflecting the impact of increased head count, acquisitions, and other expense timing items. As compared to the fourth quarter of 2014, cost of services increased $4.1 million. Member relations and marketing increased $2 million, and general and administrative costs increased $2.5 million.

In the CEB segment, adjusted EBITDA margin in the quarter was 28.7%. This outcome was influenced by the run rate impact of the significant hiring activity we discussed in the third quarter. In this segment, the favorable foreign currency impact on expenses substantially offset the related revenue headwinds and provided a net 30 basis point boost to adjusted EBITDA margin.

Accordingly, on a constant currency basis, CEB segment adjusted EBITDA margin would have been 28.4% in the fourth quarter of 2015 versus 32.1% in the fourth quarter of 2014. Adjusted EBITDA margin for the CEB Talent Assessment segment was 22.8%, reflecting continued scaling of that part of our business.

The impact of foreign exchange rates on operating profit reduced adjusted EBITDA margin by approximately 140 basis points in this segment. And so on a constant currency basis, CEB Talent Assessment segment adjusted EBITDA margin would have been approximately 24.2% in the fourth quarter of 2015 versus 19.6% in the fourth quarter of 2014.

Depreciation and amortization in the fourth quarter was $24.7 million, an increase of $8 million compared to the fourth quarter of 2014. Effective October 1st, 2015, as a result of our decision to narrow and focus the use of the SHL brand, we reduced the accounting useful life of the SHL trade name. This action increased intangible amortization by $8 million in the fourth quarter, and amortization of this intangible asset will now be completed by December 31st, 2016.

During the fourth quarter, we incurred $2.5 million of acquisition-related costs and took a restructuring charge of $5.1 million.

As Tom mentioned, we made some changes in our market structure, initiated other actions to streamline operations and rebalanced the management mix in certain areas. Note that due to the timing of some of these moves, we anticipate another $1 million to $2 million will be incurred in the first quarter.

Interest income and other was $252,000 in the fourth quarter of 2015 compared to income of $6.2 million in the fourth quarter of 2014, driven primarily by a swing from a net foreign currency gain to a net foreign currency loss.

As a remainder, we removed the impact of net non-operating foreign currency gains and losses from our non-GAAP financial measures. Interest expense in the fourth quarter of 2015 was $5.7 million compared to $4.5 million in the fourth quarter of 2014. The provision for income taxes was $3.2 million in the fourth quarter and the effective tax rate was 14.9% versus 40.5% in the fourth quarter of 2014. Activity in the fourth quarter brought our 2015 adjusted effective tax rate to 33.9%, which is nearly 400 basis points lower than the rate in 2014.

Please turn to slide seven for balance sheet and cash flow highlights. At December 31, we had $113.3 million of cash, accounts receivable was $285 million and the current portion of deferred revenue was $449.7 million. As compared to December 31st, 2014, deferred revenue decreased 0.7%. But, on a constant currency basis, the deferred revenue growth rate was 1.4%.

We ended the quarter with $561.4 million of debt on the balance sheet net of related issuance costs and our ratio of net debt to trailing 12-month adjusted EBITDA was approximately 1.8 times. Additionally, we had access to approximately $169 million of undrawn availability under our revolver as of December 31st.

Cash flows from operations for the full year of 2015 were $148.3 million, a decrease of 18.6% compared to 2014 primarily driven by the timing of cash tax payments versus the prior year, the full year impact of slower bookings growth and other timing items.

During 2015, we spent $22.8 million on capital expenditures and we also used $61.9 million of cash on business acquisitions and cost method investments.

We continue to execute on our enhanced cash distribution strategy throughout the year. In 2015, we paid $50 million in dividends and allocated $60 million to repurchase 816,000 shares of our stock. This activity is consistent with the approach we outlined, which seeks to both offset ongoing share dilution and respond opportunistically during periods of stock market volatility.

Given the quality of our business models, we have ample liquidity to return capital to shareholders and also remain strategically active as great opportunities arise.

Please turn to slide eight, and we'll move on to our outlook. Following comments are intended to fall under the Safe Harbor provisions outlined at the beginning of the call and reflect assumptions which are subject to change.

I'll start by noting that our 2016 outlook incorporates foreign currency exchange rates as of January 1st, consistent with our normal practice of linking our guidance to the FX rates in place at the beginning of a quarter.

In particular, the following guidance assumes an average exchange rate of $1.48 to the British pound, $1.09 to the euro, and $0.73 to the Australian dollar. As compared to the average rates during 2015, these FX rates dampened 2016 topline growth by about 100 basis points.

We currently expect our full-year 2016 adjusted revenue to be between $947 million and $977 million. And as a reduction in revenue from the deferred revenue fair value adjustment, will be approximately $2 million, so the GAAP revenue outlook is between $945 million and $975 million. As compared to 2015, these outcomes implied full year constant currency growth of 3% to 6%. We expect full year 2016 adjusted EBITDA margin to be at least 26% or effectively flat to slightly better than 2015.

We entered the year fully staffed and focused on building pipelines and executing other initiatives to drive better bookings growth as the year progresses. Accordingly, the cost comparison will be more challenging, especially in the early part of this year, and margin expansion will be mostly correlated to revenue growth in 2016.

Depreciation and amortization in 2016 is expected to be between $99 million and $101 million, with approximately $30 million of this amount resulting from the change to the SHL trade name useful life that I just discussed.

Capital expenditures are anticipated to be between $33 million and $35 million, which is in line with our target range of 3% to 4% of revenue. We currently expect the full year 2016 adjusted effective tax rate to be approximately 32% to 34%. Of course, the adjusted effective tax rate is subject to a number of uncertainties, including the global allocation of income across tax jurisdictions, tax law changes and other discrete items. Incorporating all of these factors, for 2016, we expect non-GAAP diluted earnings per share to range from $3.80 to $4.10.

In his opening remarks, Tom referenced a very important new initiative we have launched, called Program Atlas, which will be our platform to support business growth and drive business process simplification and standardization. This multi-year effort will transform our operations and give us greater agility as our business grows in size and complexity. Once implemented, Atlas will help our market-facing teams respond faster to customer needs, while also driving greater flexibility and efficiency through our cost structure. At its core, the program scope includes integration of our cloud-based CRM and ERP systems to enable a single global platform for contracting, order management, billing and other financial processes.

Under new accounting rules in effect as of January 1, 2016, the vast majority of cost related to the development and implementation of cloud-based computing systems now have to be recognized in current period expense as they are incurred, instead of being capitalized and depreciated over time.

Before this year, when other companies have undertaken these projects, they have recognized most of the related costs through capital expenditures and depreciation. Accordingly, to facilitate a more apples-to-apples comparison of our ongoing business operations, beginning this year we will report Program Atlas operating expense separately on our income statement, and exclude those costs from our non-GAAP measures.

In addition to our full year outlook, we are also providing an estimate of first quarter activity. Our current forecast anticipates revenue of at least $227 million, adjusted EBITDA margin of at least 23%, and non-GAAP diluted earnings per share of at least $0.75. These estimates reflect the typical seasonal patterns you've seen previously in our business, with additional cost growth due to the hiring flow-through. We would expect sequential improvements in all of these elements as the year progresses.

Finally, I'll comment on capital allocation. Our balance sheet remains very strong, and we ended 2015 with a net leverage ratio that's within our target range. As a result, even as we retain the flexibility to make strategic investments in our future growth, we also are able to further enhance shareholder value with capital returns. We continue to emphasize the dividend as it highlights the earnings and cash flow characteristics of our economic model. Our first quarter dividend of $0.4125 per share represents a 10% increase compared to 2015, which is just ahead of the adjusted net income growth implied by our 2016 outlook.

Finally, as you saw in the press release, our board also approved a new $150 million share repurchase authorization through December 31st, 2017. When combined with the $40 million remaining on our previous authorization, we now have a total of $190 million available to buy back stock. At a minimum, we plan to continue with a programmatic approach to share buybacks that would target at least $100 million of purchases this year.

Beyond that this larger total buyback authorization also gives us the flexibility, if appropriate, to move more opportunistically in response to market conditions throughout the year. Management will continue to use its best judgment to determine the amount and timing of these purchases going forward.

That concludes the financial summary. I'll now turn the call back over to Tom to review our strategic priorities.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Thanks, Rich. I'll pick up my remarks on slide nine with a look at our priorities for 2016.

As I shared in my opening, we're well positioned for success. The company is designed to solve the most enduring problems facing corporate leaders: what is worth doing, how should I do it, and who do I need to do it well. And we believe that the current global environment amplifies the opportunity ahead of us, as we have unique resources and talented people ready to help companies navigate a suddenly more complex set of strategic and operational issues.

We enter 2016 well-positioned to make an impact on our members and clients and are focused on five priorities to realize the full value of the opportunity before us. You can see these priorities summarized on the slide: First, delivering must-have insights and analytics; second, cultivating highly valued relationships; third, achieving brand and market leadership; fourth, building compelling careers; fifth, agility and operational excellence.

Let me briefly share detail on all of these and add a bit more color on a couple. I'll start with must-have insights and analytics. We never lose sight of the revolutionary idea at the center of our businesses. By tapping the collective experience and workflows of thousands of companies, we build valuable data assets and generate insights that transform performance; and then, build tools and resources that enable managers to take action. Ultimately, our model enables corporate leaders to do all of this in a fraction of the cost of other sources of support, which yields huge ROI.

In a world where clients are facing volatility in very varied opportunities across markets, this model has the potential to create significant value. We can help them allocate and reallocate budgets as conditions change, optimize operations to get the most impact from every dollar and most importantly get the right teams in place and help them thrive. And we can do this in a way that doesn't force them to trade up speed of decision for quality of decision, or as we like to say, help them to be fast and right.

Our second priority is cultivating highly valued relationships. We're privileged to serve an unmatched array of the world's great companies; CXO leaders at nearly 10,000 organizations, including nearly 90% of the Fortune 500. We create tremendous value for these individuals when we connect our data, IP and solutions with the very real and very pressing problems on their desks.

Let me spend a moment on this one. As I alluded to before, our business across the whole enterprise, but particularly in the talent management and sales management areas has gotten considerably more complex across the desk.

On one hand, this means that we are supporting more people, more frequently and in more ways than we ever have. And the potential to keep growing an impact in revenue is vast. On the other hand, making it little too hard for our clients and our teams to link the solutions and grow our impact. Fixing this begins with the branding work we've discussed, and can be supported by the systems and business process work now underway. But as important as our technology and tools are, our business has always required great people to diagnose member problems and bring our solutions to life.

We took an important first step in 2015 to help our people drive impact and growth by consolidating our sales, service, and advisory teams under single leaders in a number of non-North American markets. We'll continue this work in earnest in 2016 through a several-pronged effort.

First, we are investing globally in the tools, people and processes needed to keep building customer royalty. We are scaling up account management, clients support and advisory resources and arming them with new tools to drive impact. And in our largest buying centers, most notably HR and sales management, we are organizing teams ever closer to the customer to ensure agile response to member needs and ramped-up cross-selling.

Finally, we'll be investing heavily to support our teams' efforts to build out a front-end to the pipeline. Expect to see continued big step-ups in our summits and events business, and tactical marketing activities to drive lead flow. I can't wait to see the influence our teams will have, as you make it ever easier for them to broaden impact.

Our third priority is achieving brand and market leadership. Building a brand that matches our impact is critical to our business. Doing so, not only creates direct demand for our offerings, but it also supports corporate leaders as they bring our solutions into executive suites and board rooms. We obviously can't be all things for all people, so our work in 2016 is focused on ensuring that CEB has an unmatched reputation in the vital few areas where we are targeting market leadership.

Our next priority is building compelling careers. Simply put, talent is CEB's greatest assets. Investments in our people are investments in meaningful outcomes for our members. We talked a lot about the difference having a great team on the field makes on our performance. As I said in my opening, I'm very excited about the team we have in place globally entering 2016. In big round numbers, we've grown overall commercial capacity of little more than 10% year-on-year. This is obviously in comparison with a shortfall from this time last year, but puts us in a materially better place to drive impact to the clients and open new doors.

I've been consistently impressed with the caliber of people we've added and our shared commitment to making them successful at CEB, and early signs have been positive. Our job across this will be to support them as they mobilize and service to our members and clients and to help them see and feel the benefits of building a long-term career at CEB.

More broadly, we're very focused on ensuring that CEB remains an employer of the choice for people with all our critical skills, analysis, advice and education, sales marketing and relationship management, and technology and data management.

Our final priority is agility and operational excellence. For those who follow our public thought leadership, you'll know that we have measured a steady increase in the time that it takes for our clients to do even the most basic corporate activities, from hiring to performance management. It's widespread and important enough that we've been talking about this in a variety of public forums, including a piece in this week's Fortune that I authored.

We know that we not only need to provide the insights and tools for our members to move faster, but that we ourselves need to lead from the front of the organization here. Accordingly, we are making sure that our processes and structures allow us to respond quickly to opportunities and risks as markets evolve, so that we can continue to deliver CEB-caliber returns for years to come.

So to summarize my remarks on slide 10, we believe that the current environment offers huge opportunity for us, as we have unique resources and talented people ready to help companies navigate a suddenly more complex set of strategic and operational issues.

We enter 2016 well-positioned to make an impact on our members and clients. Importantly, we also have a strong formula in place for creating shareholder value, solid double-digit returns, powered by strong adjusted EPS growth and sustained return of capital to shareholders.

We'll now take your questions.

Question-and-Answer Session

Operator

We'll take our first question from Joseph Foresi from Cantor Fitzgerald.

Michael Reid - Cantor Fitzgerald

Hi, guys. This is Mike Reid on for Joe. Thanks for taking the question. I think you talked about it a little bit. But as far as the continued ramp of the junior sales support, how has that been going, and do you think we'll see maybe any uptick in contract value related to that soon?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I've been really impressed with the caliber of the new people we had added. We talked about most of them got here in Q3 last year, and so their ability to impact sales pipelines as we entered Q4 was going to be pretty limited. They've worked very, very hard to come down the learning curves they need to. So we're feeling really good about the progress they've been making. As I mentioned, total commercial head count is up more than 10% year on year, which a great way to kick off the year.

Early in the year, if you think about Q1, Q1 is probably our heaviest renewal quarter by an order of magnitude, so new sales tend to be a much smaller part of the festivities in Q1. I expect in Q2 and beyond, you'll see these people really contributing on the front end of the selling pipeline.

Overall I'm pleased with their progress. Obviously, we would have loved to have them before Q3 last year, but we feel materially better entering 2016 than we did 2015 from a staffing and footprint perspective.

Michael Reid - Cantor Fitzgerald

Okay, good. Thanks for the update. So Q2 probably will see a little more. Did you mention – I didn't see it in the guidance – anything on if you think the FX impacts where it will be any lower this year, or do you not give an estimation of that?

Richard S. Lindahl - Chief Financial Officer

I think what you see is in the difference between what I highlighted as constant currency revenue growth of 3% to 6% versus what's implied by our guidance. So, it's about 100 basis point headwind as we sit here today.

Michael Reid - Cantor Fitzgerald

Okay, all right. Great. Thanks, guys.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Thanks, Mike.

Operator

And our next question comes from Paul Ginocchio from Deutsche Bank.

Paul L. Ginocchio - Deutsche Bank Securities, Inc.

Thanks for taking my question. Hey, Tom. First question, just can you just remind us of the key milestones and the steps that need to take place to get back to the low end of your medium-term growth target of 8% to 13%? Then I have a follow-up on that and a couple for Rich. Thanks.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

If you follow the chain, it starts with having the right number of people in place to generate contract value growth. Then it flows through to, are they engaging the right – driving the right amount of activities at the front end of the sales pipeline. Then you'll see it flow through to bookings, then contract value, and then revenue growth.

So as we said at the end of Q3, we had checked the first box on that list. And now we're working pretty furiously to check the second box, which is really making sure the front end of sales pipelines are set up for success. At this point in the year, so much of our energy is about wrapping up our big – our renewal quarter and building the pipeline that sustains us through the first half of the year.

So we're feeling good about where we are. We're feeling great about the people we've got. We're feeling great about their early productivity, but we're not yet at a point where I'd say we have declared victory and are moving on, but we are seeing the leading indicators we need to see to know that we're moving in the right direction.

Paul L. Ginocchio - Deutsche Bank Securities, Inc.

So you think you can be there by the fourth quarter, or is it even beyond that?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Given that we're several quarters away from that, I'd say we're a little more focused on just putting in place the pipelines to drive first half performance. So obviously, we hope over the long term we're going to be back in our target range from a bookings and contract value perspective, and the sooner the better. But right now we're very focused on first half of 2016.

Paul L. Ginocchio - Deutsche Bank Securities, Inc.

And last one for you, Tom. Let's say whenever it takes to get there, two quarters to three quarters, do you think that the current global economic environment is conducive to 8% or 13% growth, or even if you had your full complement of everything you needed, is this not the right environment, do you think, to get to8% to 13%?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

It's funny. As I said in my remarks, Paul, the strange thing about this economy is it's like a series of microclimates. We are definitely seeing clients, some of the industries are going to be no surprise as oil and gas, E&P, heavy industry with big exposure to the developed world that are really struggling, and we're spending a lot of time with them helping think through some pretty existential questions about how they – it's funny, it's not as bad even in those industries, not nearly as bad as 2008. So the risks we see are not as severe then, but there's a series of microclimates where there are companies that are struggling, and there are whole lot of places where people are chugging along in this business as usual.

So our job is to make sure that we're not abandoning clients who really need our help right now, even if they're not particularly attractive from a growth perspective, but at the same time, we're allocating lots of resources to the most attractive opportunities. So all in all, as that all nets out, given the opportunity in front of us, we see huge potential for growing the business. We've just got to be super-smart about how we allocate resources across those microclimates.

Paul L. Ginocchio - Deutsche Bank Securities, Inc.

Okay, and then just a couple of housekeeping ones, Rich. What percentage growth are you going to get from Wanted? And then second, are you baking in any share buybacks in your EPS forecast?

Richard S. Lindahl - Chief Financial Officer

I think when you look at the acquisitions we did last year, a couple thoughts. First is that we certainly, in these instances in particular, they're all things that integrate very quickly from a product and customer perspective and sales channel perspective with the rest of our business. And so it becomes a little harder to break them out than if they were truly standalone businesses. What I would say is that if you look at what the run rates of revenue were in those businesses before we acquired them, they were approaching $20 million annual rate. And so that just gives you a benchmark in terms of where they were before we acquired them.

Paul L. Ginocchio - Deutsche Bank Securities, Inc.

And are you baking in buybacks into the $3.80 to $4.10?

Richard S. Lindahl - Chief Financial Officer

Not explicitly, but I think that certainly we anticipate that there's going to be some lift from share count activity in the guidance.

Paul L. Ginocchio - Deutsche Bank Securities, Inc.

Thank you.

Operator

And our next question comes from Shlomo Rosenbaum from Stifel.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Hi, good morning. Thank you for taking my questions. Hey, Tom, I just want to compare the outlook from last quarter to the outlook from this quarter for 2016. So last quarter we're talking about hitting the low end of the guidance range, and now it looks like 1% to 5% growth on revenue. Clearly the bookings didn't come in as expected. When you break it down, I guess this is a follow-up to a question that was asked beforehand. Is it really just the market environment is tougher and it's just not conducive to producing the kind of bookings that you need? Or is it something just done in execution-wise that's taking you longer to recalibrate with the new talent?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I think it's a little of both actually. I mean, I think there are definitely pockets, as I just said, microclimates where it's real hard to grow right now, and they're 15%-ish of our business, and those are clients in real need. So, we're going to spend time with them, helping them be successful without a tremendous amount of optimism about their ability to generate near-term growth. But, there is enough healthy spots in the economy we see opportunity near-term and long-term, so. But, there are some localized places where we're going to have to be very smart about our commitment of resources.

As we said at the end of Q3, the Q4 is seasonally very weighted. If you think of the difference between Q1 and Q4, Q4 is very seasonally weighted toward new and cross-sells, and therefore highly dependent on the pipeline we exit Q3 with. And we said on the Q3 call, we were where we needed to be in terms of the pipeline at the frontend of that quarter. The scenario that got us to the bottom end of the revenue growth range imply that we could convert our way out of that challenge, and I think some of the economic headwinds kept us from doing that. So, there's a little of both there.

Overall I'm very pleased with the progress of the folks coming into the business. I'm really happy that just in big raw numbers year on year, we're in the place we need to be from a staffing standpoint, and the place we need to be from a tenure standpoint, and we're very focused on driving great activities across this first half of the year to set up a strong first-half, but also set up a great back half for the year. There's a little of both. There are definitely some pockets of industry that are going to be hard to grow and we have to be smart about allocating resources to the places that can.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

And then, Rich, can you talk about, if you hit the midpoint of the guidance range, does your free cash flow go up or does your free cash flow go down with the numbers that you gave? And can you also talk a little bit about the moving parts that impacted the free cash flow year over year? So fourth quarter of 2015 versus fourth quarter of 2014, you mentioned something about taxes and timing differences. And if you can, talk about that a little bit more.

Richard S. Lindahl - Chief Financial Officer

Sure, Shlomo. Just as a reminder – I guess if you think about free cash flow as being cash flow from operations minus capital expenditures, the way – in our business where we have certainly a working capital benefit that comes about from the high percentage of subscriptions in the business, so when you start with EBITDA growth, you get a lift from bookings growth that influences the magnitude of that working capital benefit. There are always various puts and takes on other working capital items that'll come to play in any given year. But, if we assume a normal trend relative to the bookings growth that's implied in the guidance, we probably see that ratio of operating cash flow to adjusted net income being a little bit lighter than our historical range.

And with capital expenditures that are guided a little bit stronger, I think that all nets out to being probably roughly flat on a free cash flow basis year over year, with the swing factors being the pace at which we can drive better bookings growth as the year goes on.

In terms of what were some of the drivers of cash flow growth in 2015, certainly the bookings growth in and of itself was a factor. The fact that the bookings growth was slower in the second half of the year than the first half of the year certainly had an impact on that working capital element. We did have some cash tax timing factors and then just some other puts and takes relative to various payable and other types of items, nothing of a magnitude that I would call out specifically for you.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Okay. And then, Tom, if you could, just comment...

Thomas L. Monahan, III - Chairman & Chief Executive Officer

It turns out all those (45:52) that we hired actually expected to get paid, so.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

It's funny how that happens.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Yes.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Tom, can you talk a little bit about the changes that you're making in terms of the go-to-market strategy, because I remember in 2008 and 2009 there was also change in market strategy in terms of a focus on cross-sell sell vis-à-vis a focus on Greenfield clients and it seems like you're going through another evolutionary period in terms of complexity of clients. And is it just kind of coincidental that this stuff kind of happens when the capital markets and the selling environment is choppy or does it kind of a highlight to you that there needs to be a change or how should we think about that?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I think if the last time was revolution, this time's decidedly evolution. We started talking about the fact that last year in markets like Australia, New Zealand we were seeing real benefits from having all the different piece parts of the CEB organization reporting up to a single leader who could facilitate and in some cases drive cross-sell, because they were looking across to the team's selling opportunity. We went down that path in North America middle of last year where all the elements of, let's say, CEB selling, SHL selling, et cetera, came up to a single leader, just going one step further to say, we're going to get ever tighter alignment in territories, single leaders ever closer to the customer, the lessons from international were the – if there is a single leader looking across the finite set of opportunities, they're going to see chances to leverage a workforce analytics, win into a broader set of opportunities or leverage a CEB Talent Assessment win into a broader set of opportunities and we're just putting people in place to do that.

It's particularly acute in HR and sales management work. We have such a breadth of things we do for the clients that having some of these students, both the client and the breadth of opportunity can really align the team resources where we can make stuff happen.

So, we're very excited about this, all credit to the teams outside the U.S. that have really pioneered this and made great stuff happen, and all credit to our teams in North America that have been rapidly making the switch and are already off and running.

But I'd characterize this one as a lot more evolutionary than revolutionary. In that, it's just a further continuation of what we did back then, which is where in a finite number of buying centers and we're getting ever deeper into those buying centers with an ever richer set of products.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

And then, I'm sorry, I would, just if I can, squeeze one more in. Where would you say your guidance for the year stands in terms of the spectrum of a conservative versus aggressive, going into this year versus what we had going into, say, last year, because, we had a number of revisions last year? Going in with the choppy environment, are you tempering stuff vis-à-vis your normal metrics or is this just kind of this – you use the same set of, kind of, projecting tools regardless of the environment.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

One constant in CEB's business model has been visibility, right? You look and say, we open the doors on January 1 with a pretty clear picture of stuff already sitting on the balance sheet and in contract value, and as we move through Q1, it's a big renewal quarter, we gained substantial additional visibility. So, while there are macro factors that can swing us to the bottom-end or high-end of the guidance range, as the year unfolds in pretty extreme circumstances can swing us outside the range.

Our business model gives us an unusual amount of visibility into full year revenue production to the good and bad, like, there's part of me that says we have more than 10% growth in staff, seasoning of staff has gone up substantially year-on-year. I'm feeling very good about the team in the field. But, even if we're very optimistic about what they can accomplish, it's hard to imagine blowing through the high end of that range because of that visibility factor. But, we have a lot of visibility in this business model and that gives us the ability to be pretty clear about what we think is going to happen in the year. We, obviously, incorporate momentum, macro factors, et cetera, into that, but the real headline is visibility.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

All right, thank you.

Operator

And our next question is from Tobey Sommer from SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Thanks, a couple of follow-up questions to some things that have been asked. Rich, I don't think I quite understood the comment you made about share repurchase being in the guidance. Do you incorporate an assumption for a lower share count in the guidance or is that – would that be additive to the bottom-line?

Richard S. Lindahl - Chief Financial Officer

There is some assumption in there that is not the full complement of what we're targeting for the year, let's put it that way. I think we incorporated some but not all of what the target is.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

And how much did you say you're targeting for repurchase in 2016?

Richard S. Lindahl - Chief Financial Officer

We're targeting a minimum of $100 million in 2016.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Okay.

Richard S. Lindahl - Chief Financial Officer

Thank you.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

And obviously, we have the authorization to go beyond that if conditions suggest that's a good idea.

Richard S. Lindahl - Chief Financial Officer

Right.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

A question for you about the CEB Talent Assessment that you have with the contract value that you're now disclosing. How much of the segment revenue is associated with the contract value, because I know you're, kind of, migrating towards a more recurring revenue stream there and I just want to know how to judge that.

Richard S. Lindahl - Chief Financial Officer

Yeah, I mean, I think it's a fairly representative if you take the contract value as a percentage of what the full year revenue was, I think that's fairly representative of the relative proportion of what you see in any given year. As I said, it excluded professional services and then some of the more, kind of, pay-as-you-go or what we call in arrears usage type revenue, which can be a little bit more variable. But I think from a 30,000-foot level, that's a reasonable approximation.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

We feel this is a good milestone actually, because when we took over the business I would guess probably 20%-ish of the revenue would have been what we would consider a contract value-ish, if you just look at it in those terms. So, the steady migration we've been able to engineer in this business from to a classic recurring revenue subscription type business is something that team has worked very hard on, and we're very pleased with the milestone that we can put out there and say, okay, now we can give you all visibility into the development of that business on a very consistent way. So, we're pleased to be able to do that.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Thanks. A question on the Atlas Project; how many years will this project take to fully implement? And I'm curious about what kind of peers are you tapping to get their experiences and make sure to leverage those?

Richard S. Lindahl - Chief Financial Officer

I think this is going to be a multi-year effort. We're in the, kind of, early stages of requirements, definition and design right now, but assume it's going to be two-year to three-year initiative to get fully implemented. And we're going to move as fast as we can to get there. I think it's a variety of companies that have done this in the past. I think probably the biggest example would be IHS with their project Vanguard, is one that happened several years ago.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Okay. And then I wanted to ask a question, Rich, what constant currency organic growth is embedded in the guidance? Is just taking 2 percentage points off of either end of the range, is that about the right approximation?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I'd say roughly. Though I would say, to Rich's point, the things we bought last year, I don't want to say disappeared, they're fantastic assets, but got consolidated very quickly. And I think if you ask that question of any CEB-er, they'd say actually these are single product platforms. But, yeah, I think the constant currency organic revenue growth's going to be in the low-single digit range.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Okay, thank you very much.

Operator

And our next question is from Timothy McHugh from William Blair.

Tim J. McHugh - William Blair & Co. LLC

Hi. Yes, thanks. Just I guess one – I know it doesn't swing the numbers significantly given, I guess, the impact that renewals and sales at the start of the year have. But, I'm sure you had embedded an assumption of some kind, so what were you thinking when you set guidance in terms of bookings for 2016? I mean, what's the target for to get to, I guess, for the full year or by year-round even?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Yeah, I mean, in big simple terms, our, kind of, it's funny, we – Rich and our sales leadership team have an infinite number of sophisticated models about what can happen. But, in big simple terms, if we're listing head count by double-digits and assuming there's going to be some economic headwind, you can assume that our targeting bookings growth within our 8% to 13% range, but depending on how weak those sectors turn out to be probably at the lower end of that range. When we talk about staffing growth, that generally tends to lead through the bookings growth across the full year.

And as we said, it's harder to kick that into gear early in the year just because of the normal customer buying patterns of Q1, being renewals heavy and Q4 being the more cross-selling, new selling heavy portion of the year. But, there's all kinds of adjustments we make to that, but a 10% lift in commercial head count does give us confidence that we should be even in a weaker economic environment powering through to the high-single-digits growth on a full year basis.

Tim J. McHugh - William Blair & Co. LLC

Right. I guess since you're talking about that 10% or greater than 10% growth, what did you enter 2015 with in terms of the kind of commercial head count growth? And I guess, when you lost the junior salespeople, I guess, where were you at, kind of, at the low point in terms of year-over-year head count earlier and in kind of 2Q or 3Q?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I'm trying to do the numbers live, but I'm not sure I can, but you can assume that it was closer to mid-to-lower single digit on just a raw body-to-body head count at the trough. Is that...

Richard S. Lindahl - Chief Financial Officer

I think that's right. And then, as we had talked about, last year we saw some of the attrition really starting to pick up in the beginning in the first quarter and that was the thing that, kind of, caught us a little bit by surprise. And so, having entered the year with what we would have hoped would have been sufficient for the year, then we had some attrition and then that put us in the spot that we were in. This year we're feeling good not only about how we entered the year, but also what the attrition trends look like early in the year.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

And just raw caliber of people we brought in. But, I think that's roughly – if you pick the trough rather than kind of the 12/31 number, I think it's safe to say mid-to-low single digits in terms of year-on-year head count growth in those areas.

Tim J. McHugh - William Blair & Co. LLC

Okay. And I guess just more broadly, I think there's obviously, given the stock price, you can tell there is a broader concern that there are more than just sales turnover issues happening with the growth, I guess. I know you're pointing to some macro sensitivity too here. I guess, but, is there anything – how confident are you now that it's been nine months since we've seen the sales issue pop up? It's really simply a turnover issue and just a timing issue of backfilling that pipeline versus something more structural or I guess permanent or at least a longer term that you have to fight through in terms of market penetration or some other factor?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

As we look downstream in the pipelines, a lot of those metrics have remained very stable. So, we've got a fair bit of confidence that filling the front-end of the pipeline is job one. If we look at conversion rates at the back end of the pipeline, which are pretty good indicators of is there something else happening. We're feeling highly confident. There is macro stuff out there. It does appear to be contained and localized and nowhere near as severe as we've seen in past years. So that's going to be a factor and it's our job to make sure that we take advantage of the great new people we've got by getting them productive and getting them allocated the highest return active.

Looking throughout the pipeline, we're not spooked by any sort of sudden new weird behavior that we haven't seen before. It's getting enough activities in at the front end of the pipeline and making sure those activities are targeted on areas in the economy that are likely to yield a return.

Tim J. McHugh - William Blair & Co. LLC

Okay, and then just a clarification. Rich, I got a little turned around when you're talking about free cash flow, and I think you were netting out some things, but then you threw the term flat in there. I guess were you saying free cash flow would be flat this year? I was unclear what you were saying in terms of that.

Richard S. Lindahl - Chief Financial Officer

I think first of all, it depends a lot on where the bookings growth lands because that's going to be a big driver of the working capital benefit, but I would say flat to possibly better depending on bookings growth. And again, if you go back to the EBITDA growth implied by the combination of the revenue guidance and the margin guidance, there's going to be some EBITDA growth, but relatively lower. And then CapEx is a little bit higher this year based on the guidance. So that nets out to basically flat free cash flow year over year, with some opportunity for it to be stronger depending on where bookings growth is.

Tim J. McHugh - William Blair & Co. LLC

Okay, thanks.

Operator

And our next question comes from David Ridley-Lane from Merrill Lynch.

David E. Ridley-Lane - Bank of America Merrill Lynch

Sure. So I wanted to ask about the constant currency CEB segment wallet retention rate; any themes that you'd call out among program types? You said a couple times on the call already that by sector oil and gas and so forth are weak, but any other themes that you would call out on that retention trend?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

So the big themes I think are the ones I talked about, which is North America, which is where the staffing stuff hit us, is the weak sister in the equation there. So that's probably the largest theme by a lot. The wallet retention has two component parts. It has renewal and it has cross-sell flowing into that. And so I'd say the dampening effect on wallet retention was disproportionately cross-sell and add-ons of premium services, as we simply didn't have enough pipeline to generate the necessary growth there. So I'd say in order: geography, North America, and staffing, one; and then a little bit of sector around the edges would be two, the two themes we're calling out.

David E. Ridley-Lane - Bank of America Merrill Lynch

Got it. And then, Rich, what's a rough amount of planned spending for sales in financial systems upgrades?

Richard S. Lindahl - Chief Financial Officer

Like I said, we're still in the requirements phase of the project, so our estimates are well informed but they're still preliminary at this time. But having said that, we'd anticipate that over the next two to three years the program will drive somewhere in that $30 million to $35 million of incremental operating expense that's going to come through that line. And as a reminder, because of the new accounting rules, that normally would have gone disproportionately to capital expenditures, but it's going to come through operating expense. So we're going to run as fast as we can to get it done as fast as possible so we can get closer to realizing the benefits, but I'd say at most, you would expect half of that total to flow through 2016.

David E. Ridley-Lane - Bank of America Merrill Lynch

Got it. And then this may have changed, but I guess about a year ago or so, you gave some rules of thumb about the EBITDA impact based on exchange rates. And so you were using those and getting a modest benefit to adjusted EBITDA from FX, primarily because your costs are disproportionately in British pounds. Are those rules of thumb still relatively applicable?

Richard S. Lindahl - Chief Financial Officer

They're not broadly different. The thing is obviously the mix and the relative correlation of the currencies to each other has changed a little bit. But I think overall, we're still looking at about 20% give or take of our revenue is in the three main currencies, the pound, the euro, and the Australian dollar. And that correlates to about – or that represents roughly 5% or so of our total EBITDA because of the offset on the pound. So to the extent you get a stronger U.S. dollar versus pound relative to how the U.S. dollar is performing against those other currencies, then that certainly helps on margin. And to the extent it goes the other way, then that hurts.

David E. Ridley-Lane - Bank of America Merrill Lynch

Got it. And then you've talked a lot about first quarter renewals and some talk about visibility. I'm just wondering what percentage of full-year renewals have already been completed in January, and if you've seen any recent trend in the renewal rate from fourth quarter levels. Thanks.

Richard S. Lindahl - Chief Financial Officer

I think, roughly, roughly, you've got about 30% of the full year's bookings happening in the first quarter. Most of that is renewals in the first quarter, and certainly a fair amount of it concentrates in January. So I think we've got pretty good visibility on that part of the renewal pool, and that visibility is carrying forward to our guidance that we put out there.

David E. Ridley-Lane - Bank of America Merrill Lynch

All right, thank you very much.

Operator

Our next question is from Gary Bisbee from RBC Capital Markets.

Gary Bisbee - RBC Capital Markets LLC

Hey, guys. Good morning. First question, so in talking about the new buyback authorization, you said it allows for flexibility to be opportunistic if market conditions make sense, so let me lay this out for you. So your stock is down 40% in six months. You're at a valuation that has rarely been this low since the recession. You expressed confidence that the hires you've done should allow for upper-single-digit bookings growth by the end of the year. So I don't see how this isn't an opportunity to take advantage of market conditions and be opportunistic. I think your investors would like to see you take on a turn of leverage, which would allow you to buy back 12% to 15% of the equity and take advantage of this, and I think $100 million doesn't cut it. Just one guy's view, but I guess I want your perspective on that and your perspective on why this might not be an excellent time to be opportunistic.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Hey, Gary. It's Tom. Overall, we're making a substantial step up, even if you assume all we do is execute on the $100 million Rich laid out. So we're feeling – obviously, the business generates a ton of cash. Obviously, we think it's a buying opportunity and obviously we were frustrated, we locked out technically in the back half of Q4 when the stock went down. So I think between the dividend, the overall increase in buyback authorization, and the plan step up in programmatic approaches, we're making a substantial commitment.

And as I said, beyond that we've got capacity and authorization to go do more, so I don't think we'd disagree with you at all. At the baseline, we just wanted to lay out a very clear sense of what the de minimis approach is going to be in 2016 and let you know we're getting after it. But I don't think there's any part of our confidence in the business or where we think the equity is trading right now relative to that that you laid out that I'd disagree with.

Gary Bisbee - RBC Capital Markets LLC

Okay, great. And then about a year ago, if I recall, you changed sales leadership to an internal person who has had a great track record with the company but never had been directly in sales or managed sales. Given these issues in the last year, and I'm not trying to pin blame on one person, but would you consider – and certainly it would seem to make sense to me that new sales leadership from outside the company with a documented track record of success could really benefit your business given how broad and large you think the market opportunity is. So I guess is there an opportunity to upgrade or add to senior management and how you're thinking about that? Thanks.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

A couple of thoughts; we asked Kurt Reisenberg to step back over from leading a huge chunk of our product organization to lead our commercial organization actually in August. So Kurt is still counting days into the job, not yet even months into the job, and Chris gotten his arms around this very fast and Kurt had prior to running product had built in one of our key accounts and strategic accounts organization. So, he had a lot of experience in the CEB commercial system, and his finger prints were on some of the highest performing parts of it.

So, we've got a lot of confidence with the sales leadership team. We have in place both Kurt in North America and Anthony Parslow internationally. And underneath them you'd find them being very active about bring in external high-performing sales talent. So, I don't think either one of them has shied away from bringing great talent into the organization. So again, we see an opportunity there too to nicely mix allowing our highest performing leaders to rise in that organization and seed them with some great external talent. And I think we've got a great plan in place.

But, having just made that – having just pulled Kurt over, we feel very good about the level of leadership we've got on top in North America right now, and we feel very confident about the leadership team he's assembled around him.

Gary Bisbee - RBC Capital Markets LLC

Okay, great. Sorry, I was off on the timing there, but I appreciate you clarifying. And then, just two other, I guess, easier ones for you. I noticed your outlook commentary really didn't distinguish much between the segments. Is there a little more granular data you can give us and how you're thinking about the two businesses within 2016?

Richard S. Lindahl - Chief Financial Officer

I think all I would say is, from a revenue perspective, certainly, we are – there is a not a tremendous differentiation in terms of what the target growth rates are in those businesses. I think from a margin perspective, we do see continued margin expansion this year from SHL, and probably – it's probably a little harder to get additional margin expansion on the CEB segment side, just especially given kind of a lot of the hiring, not all of it, but a lot of the hiring flowed through on to that side of the business this year. So, that's about as far as I can go at this stage.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I think to some degree, one of the reasons for that is, as we talked about, as you move North America into closer and closer alignment, it's going to be harder and harder to distinguish we're going to visit a Head of HR, what do we talk to them about, right. Is it, which of the products we can sell them, so that, it's not surprising to see those businesses coming to closer alignment.

Richard S. Lindahl - Chief Financial Officer

And you caught me saying SHL when I meant to say CEB Talent Assessment segment.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

That shriek you heard in the background was Rob Chen, our CMO.

Gary Bisbee - RBC Capital Markets LLC

You're going to have a hard time getting us to switch. Externally for clients it makes sense. I think it's always going to be SHL to me. But, anyway, so that just leads to one last one from me, which is, you have acknowledged that a lot of the hiring was in CEB and that's where a lot of the staffing shortfall was. SHL revenue growth, I would argue continues to disappoint. I guess, any updated thoughts on that success you've had in selling into North American market where I know that business was underpenetrated, and what's really going – how much, I guess, is the transition to more subscription-type sales impacting those reported growth numbers relative to what you're seeing the underlying business do? Thank you.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I think it certainly affects the reported revenue numbers, and that's why we're giving you a contract value number, so you can mark our progress there. And I don't want to understate the value of the teams that worked hard to convert that business to that platform. That said, the SHL business story is A Tale of Two Cities; we have not delivered what we hoped to in North America, the rest of the world is chugging along at a good clip.

North America, the opportunity in front of us is not getting realized fast enough. And that is I'd like to say – I think it's very fair to say it's on me. I was likely a little conservative in terms of making sure we're bringing together the selling opportunities fast enough, fearful that that would disrupt momentum. Instead, we actually didn't take enough advantage of our huge installed footprint. So, a lot of what we're doing in North America is make sure we're setting that business up for the growth it can enjoy by bringing the selling organizations much closer together in front of the customer and facilitating much more effective cross-sell.

We did it in a number of markets outside the U.S. Last year, we saw great returns. And it's time for us to move to that platform in North America. It's just a logical evolution, but it's one that should power growth in that segment across time.

So, it is certainly the optics of the transition to a subscription business are part of it, but part of it is we have not gotten after the North America opportunity fast enough due to some structural decisions that we as a leadership team made and now we're moving past.

Gary Bisbee - RBC Capital Markets LLC

Great. Thank you. I appreciate the color, guys.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Sure.

Operator

Our next question comes from Manav Patnaik from Barclays.

Manav Patnaik - Barclays Capital, Inc.

Yeah, thanks for taking my question. So, firstly I would broadly echo Gary's comments around the capital allocation, just I think we all would have expected it to be a little bit quicker, but I think my question is a little bit more tailored from – hopefully you were not having that, but clearly everyone in the market is trying to price in recession scenarios. And my question is more I think last recession obviously we saw the CEB contract value take a notable hit. I'm just curious with the current transitions and rehirings going on today versus last time, like, what's different with the product, what's different with the strategy, like, what should we be expect, should we hit some sort of pressures like we did last time, like will the business hold up stronger, what the strategy different from last time, just trying to get a better feel for how you guys are planning for those kind of situations?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I'd start by saying even in the sort of least favorable microclimates out there right now, the business ours and no else's doesn't feel much like 2008-2009. If we are going to have micro-recessions or whatever, it doesn't bear any resemblance to what we're seeing a few years ago. So, that's the first observation.

And in traditional garden-variety recession, CEB's held up quite well, so under the extreme stress of 2008 – 2009, we did take a step back, but in a more localized recession, ranging from Europe in the recent past, going all the way back to the first half of last decade, more localized recessions have been a pretty favorable environment for us. And we've obviously taken steps post the crisis of 2008 and 2009 to strengthen the business, everything from skinning down the product set to get deeper into customer workflows to linking more and more of what we do to their everyday work.

So we're feeling well-equipped for a wide variety of economic scenarios. Obviously, in a recession, if we do end up in one and it's broad, et cetera, it is harder for us to grow. That's where it tends to go in a garden-variety of recession, not a global financial crisis. It is harder for us to get some of the step-up and create budget for a thing they've never bought before. But, we tend to see tremendous stability around customer relationship with some renewals and the ability to augment them with cross-sells and premium services. So, I feel good about where the business is positioned, it begins and ends with having the right team on the field, which we've got. And I think we've done a lot of good work to make sure we're well suit up for a wide variety of economic circumstances.

And on a 2016 basis, again, visibility is our friend, we wake up on Jan 1 with a pretty clear picture of what the business looks like. And as Rich said, Q1's a big renewal quarter that overweights toward January, so we wake up on Feb 1 with an even clear picture of what the year looks like. So, we're feeling, with the staffing we have in place and the opportunity to support members, we're feeling good about the positioning in the business.

Manav Patnaik - Barclays Capital, Inc.

Okay, that's helpful. And then, I guess, just – and I apologize if I missed this. But, just looking at your wallet retention and your client retention rate they've been sequentially coming down. I know you've called out oil and gas, I guess, in the past, like, is there anything more than that like, I mean, are you starting to see businesses just cancel or go out of business completely like, just any color there?

Thomas L. Monahan, III - Chairman & Chief Executive Officer

It's interesting. The short answer is, the real story line there is the staffing shortfall because we simply didn't have enough account coverage in place to drive the front end of the pipeline. Even with existing customers, you still need to generate the activities to grow that business. So, the number one theme in wallet retention is the staffing gap that led to the sales pipeline gap we talked about.

Beyond that, even in the sort of ugly microclimates it's a different tone, oil and gas, industrial products, et cetera, there is no one – people are definitely struggling to find budget dollars, but no one has their hair on fire or has an existential crisis. They're just working with us to say, okay, here is what I got to get done over the next 12 months, how can you guys help me. So, we'd say, we are definitely seeing microclimates that are harder to grow, but we don't feel the level of direst that you would have seen in the global financial crisis. It feels much more like, even in just those sectors kind of the economic challenges we saw in Europe a couple of years ago, people being very planful about that next dollar, but running their business as usual.

Manav Patnaik - Barclays Capital, Inc.

Okay, fair enough. Thanks, guys.

Operator

And our next question comes from Timothy McHugh from William Blair.

Tim J. McHugh - William Blair & Co. LLC

Hi. I know it's going on for a while, but just a quick follow-up. You mentioned that renewals obviously are heaviest in January and you have insight into that at this point. So, I guess just given – and you said that was factored into your guidance. But, even qualitatively, have you seen the sales force issues? Did that impact the renewal rate? And I guess as you saw renewals just directionally, did it, I guess, did it help or hurt, how you look at 2016 given we have the call, I guess, in May, so I'll ask now rather than wait for a few months with everyone guessing.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

I'm not sure I know what the question was there. But, yeah, we're not – the new hires in the step-up tend to be disproportionately impactful on the front end of the selling pipeline and think of that as new sales and cross-sells. Q1 tends to be mostly about working with someone who has been using your project to get their product to get them locked in for the next year. So, their level of impact around the edges some of the account management support teams probably did drive incremental usage and value in Q4, but you tend not to see their impact as much on that. I think you will see, over time, a number of those people are going into driving great outcomes for existing customers, as well as growing new market. So, I think you'll see a balance across the year in terms of their renewal impact through 2016 and into 2017 and new sales growth.

I don't know if that answers your question, but that Q1 renewable tends that to be as sensitive to staffing growth, because it's again it's renewables as opposed to either cross-sales, new sales, premium upgrades, whatever. That said, staffing growth should really help us create great impact for our members and continue to grab great outcomes for them that we can build upon.

Tim J. McHugh - William Blair & Co. LLC

Okay. It helps a little, but I guess I probably didn't order it well. Just even relative to the macro, I guess, you said you've seen renewals, the bulk of the renewal activity is in January, and so you've seen that at this point, I guess for 2016. How did that perform, and I guess even directionally, was it better, worse than you expected? I'm just trying to get a sense of that, given the environment.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

In big round directions, it's winning historical ranges. The sectors that are challenged obviously didn't perform as well as the vast majority of the companies that are doing fine in building their business. So, I think it's a continuation of – from a macro perspective, continuation of what we saw in the back half of last year. The overwhelming majority of sectors are very healthy and proceeding with business as usual, a few have challenges and we're working with them to, kind of, make sure we're doing everything we can to support them. But, I don't think there's a lot of news – certainly there's no news in the Q1 renewals to-date that isn't incorporated in the guidance.

Tim J. McHugh - William Blair & Co. LLC

Okay, thanks.

Operator

That does conclude today's question-and-answer session. At this time, I would like to turn things back over to Mr. Monahan for any additional or closing remarks.

Thomas L. Monahan, III - Chairman & Chief Executive Officer

Thank you all for calling and/or logging in today. We appreciate the opportunity to highlight the continued impact, growth and profitability of the business. Rich and I'll be out and about, and look forward to seeing many of you in our travels over the next month and more importantly keeping you up-to-date on the CEB story across the year. Thanks, everyone.

Operator

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

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