CEB (CEB) Thomas L. Monahan, III on Q2 2016 Results - Earnings Call Transcript

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CEB, Inc. (NYSE:CEB) Q2 2016 Earnings Call July 27, 2016 9:00 AM ET

Executives

Unidentified Participant

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

Richard S. Lindahl - Chief Financial Officer

Analysts

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

Joseph Foresi - Cantor Fitzgerald Securities

Gary Bisbee - RBC Capital Markets LLC

Timothy J. McHugh - William Blair & Co. LLC

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

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

Ryan Leonard - Barclays Capital, Inc.

Operator

Ladies and gentlemen, please stand-by. We are ready to begin.

Unidentified Participant

Good morning and welcome to CEB Second Quarter 2016 Conference Call. Today's call is being recorded and will be available for replay beginning today and through August 5 by dialing 719-457-0820. The replay pass code is 2183447. The replay will also be available beginning later today and through August 5 at the company's website.

To the extent any non-GAAP financial measures discussed in today's call, you'll 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'll 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 Q2 2016 CEB 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 contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, including statements among others, regarding CEB's expected quarterly and annual financial performance for fiscal 2016 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 second 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

Good morning. Thanks everybody for calling and/or logging in. We appreciate the opportunity to bring you up to speed on the continued impact, growth and profitability of the business. I'll kick the call off with some comments about our performance in the second quarter and some thoughts on the year ahead. Rich will then provide a more detailed discussion of our financial results and outlook for the remainder of 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. Both in the economy and in the society, 2016 is turning out to be a tumultuous year. From the perspective of CEB in the 10,000 companies we support, the event with the most obvious direct impact was the leave verdict in the Brexit referendum. But our member companies are also on edge, as they and their employees witnessed near daily scenes of terrorist activity, civil violence and general unrest. Added to this government transitions and election cycles in three of our major markets indicates a lot for executive teams to think about and for our teams to navigate.

Amidst this churn, I am proud not only of our team's ability to stay focused, but to innovate and find new ways to create immediate value. I'll talk more about how we create value in environments like this later in the call, but the focus was evident in performance throughout much of our business in the quarter. Against this volatile backdrop, our teams delivered solid revenue performance and strong profit outcomes, lifted the rate of bookings growth, got off to a fast start on Evanta integration and set us up for continued progress through the year and into 2017.

At the same time, some remaining pockets of weakness in North America large corporate and an adverse move in the British pound put the top end of our prior revenue guidance a little out of reach. Overall, I'm encouraged by our momentum and believe that we are well set up for a solid back half of 2016.

Let me comment on a few areas before I hand the call to Rich. One of our highest priorities is restoring growth at our largest North American members. As the size of our relationships and range of our solutions has grown, we see opportunities to better engage and support our members and drive even broader adoption of our subscription work.

In Q1, I commented on our efforts to evolve our go-to-market approach for the segment. As we discussed, our goals were two-fold – continuing to deepen and standardize service to our members in all areas; and in particular, integrating our commercial teams much closer to the client and our large and growing product sets in talent management and sales and service.

After a very well managed transition in Q1, we saw some early returns in Q2 and are very excited about the potential we see building for growth this year and into the next. In those markets that have been operating this model the longest, notably some key markets in Europe and Asia-Pac, we saw strong growth in the large corporate segment.

In the United States, you remember that our early-year momentum was dampened a bit by continued pockets of weakness in the large corporate segment, most notably some companies that have been under particular economic stress. The good news is that performance in these sectors stabilized in the quarter, but they have not yet returned to historical performance levels. As a result, a lot of retention rate remains below our historical average coming in at 88% this quarter. As we sustain and accelerate our bookings growth in future quarters, we should see this number return to historical norms.

At the same time, we are staying focused on continuing to build a great CEB team globally. Our efforts at recruiting the best talent and ensuring that we're delivering high-caliber career experiences are paying off, as we have sustained our earlier staffing strength through Q2. I feel very good about the changes we made to staffing, structure and career pathing and I am encouraged by steady progress in productivity.

In several areas of the business, these teams are returning to target productivity. We still have some work to do in others, particularly in supporting our largest accounts where our newest team members need to climb complex learning curves. We are making good progress and would expect to see the whole team at target productivity standards across the back half of the year. And, of course, we focused on getting out of the gates fast on the Evanta acquisition.

You'll remember that we closed this transaction on April 29, so we are less than 90 days in. And the quality of both the business and the team are already evident in our Q2 results. The Evanta team really showed its stuff, as they managed to avoid the distraction of the acquisition and stayed very focused on great outcomes during one of their busiest times. We've already integrated the CEB Events team into the platform and have created unified businesses across subscription information and professional development.

We've also broken the land speed record with respect to targeting revenue synergy. Through quick and effective efforts to drive content and marketing collaboration, we're already seeing powerful evidence that this combination will drive great results for this business and generate lead flow with a broader set of CEB businesses.

I'm really excited by the work of the CEB team and grateful to the work of the Evanta leadership team, led by Bob Dethlefs, Kirk Lohmolder, Katy Happel, Stuart Cohen and Tim Rahschulte and the rest of the Evanta team for leaning in so effectively in the early days of this acquisition.

Finally, we sustained our emphasis on margin performance and returning capital to shareholders. We continue to be on track to deliver strong margin performance of the year. We have also now bought back nearly $54 million of stock and have distributed about $27 million in dividend so far this year.

After the Evanta transaction, we had said that we'd prioritize returning to our target leverage range across the next several quarters and that remains our near-term priority. Given the margin structure and cash production of the business, we should obviously be in a position to resume both more aggressive distribution of capital and more strategic activity, as we return to our target leverage range.

Pulling back up to the quarter as a whole the net result of all these factors, there are some puts and takes to our overall outlook for 2016. But in short, I'm pleased with our progress against our core priorities for the first half, and we still have some clear areas for acceleration and improvement.

I'll now hand the call over to Rich for more detail on our financial performance and outlook for the remainder of the year.

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 $242.6 million in the second quarter of 2016, an increase of 4.6% on a year-over-year basis. Second quarter revenue is net of a deferred revenue fair value adjustment of $8.5 million, and so adjusted revenue in the quarter increased 7.9% to $251.1 million. Adjusted EBITDA margin was 25.7% compared to 25.9% in the second quarter of 2015. Diluted earnings per share was $0.24 compared to $0.69 in the second quarter of 2015 and non-GAAP diluted earnings per share at $0.97 was unchanged from the prior year.

Now let's turn to slide five and I'll review our key operating metrics for the quarter. CEB segment Contract Value at June 30 was $659.6 million, which is down 1.2% year-over-year. On a constant currency basis, Contract Value declined 40 basis points. Constant currency CEB segment wallet retention rate was 88%, versus 94% a year ago, and remained below the historical range due to the cumulative impact of slower bookings.

CEB Talent Assessment segment wallet retention rate was 97%, versus 102% last year. CEB Talent Assessment segment Contract Value was $105.8 million at June 30. 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 included in revenue for that segment. Total CEB segment member institutions grew 3.3% to 7,211 in the second quarter. CEB segment Contract Value per member institution on a constant currency basis was $91,000 at June 30. CEB segment Contract Value per institution on a constant currency basis was $129,700 for large corporate members and $30,900 in middle market.

Please turn to slide six, and I'll review key segment highlights for the quarter. Total company adjusted revenue was $251.1 million in the quarter, an increase of 7.9% compared to the prior year. On a constant currency basis, total company adjusted revenue grew by 8.9%.

CEB segment adjusted revenue was $200.7 million in the second quarter, an increase of 10.4% versus the second quarter of 2015. And on a constant currency basis, CEB segment adjusted revenue growth was 10.8%. CEB segment adjusted revenue in the quarter includes $19.4 million from Evanta.

As compared to the prior year, CEB Talent Assessment segment adjusted revenue declined 0.9% to $50.4 million in the second quarter. On a constant currency basis, CEB Talent Assessment segment adjusted revenue grew by 2%.

Consolidated operating expenses increased $15.4 million on a year-over-year basis, reflecting the acquisition of Evanta as well as higher sales head count. As compared to the second quarter of 2015, cost of services increased $8.8 million, member relations and marketing expense increased $4.9 million, and general and administrative costs increased $1.7 million.

In the CEB segment, adjusted EBITDA margin in the quarter was 26.9%. On a constant currency basis, CEB segment adjusted EBITDA margin was 26.4% in the second quarter, versus 27.4% in the second quarter of 2015. Adjusted EBITDA margin for the CEB Talent Assessment segment was 20.7%. On a constant currency basis, CEB Talent Assessment segment adjusted EBITDA margin was 20.3% in the second quarter, versus 20.8% in the second quarter of 2015.

Depreciation and amortization in the second quarter was $26.3 million, an increase of $9.4 million compared to the second quarter of 2015. This change reflected about $1.5 million from the addition of Evanta, but was primarily due to $7.6 million of increased intangible amortization of the SHL trade name, as discussed at the beginning of the year. And as a reminder, the amortization of this intangible asset will be completed by December 31, 2016, in connection with the branding efforts across the year.

During the second quarter, we incurred $6.3 million to support continued work on Program Atlas, which we are reporting as business transformation costs. We also had $3.7 million of acquisition-related costs and restructuring costs of $189,000.

As previously disclosed, in order to fund the Evanta acquisition, we amended, extended and increased the size of our secured credit facility. In connection with that transaction, we recognized $1.7 million of debt modification costs.

Interest income and other was $5.1 million in the second quarter of 2016 compared to net expense of $5.4 million in the second quarter of 2015, driven primarily by a swing from a loss to a gain in foreign currency translation. Interest expense in the second quarter of 2016 was $7.3 million compared to $4.8 million in the second quarter of 2015, reflecting the issuance of senior notes in June 2015 as well as the increased debt incurred to finance the Evanta acquisition.

The provision for income taxes was $2.9 million in the second quarter and the effective tax rate was 27.6%. After removing the effects of discrete items and non-GAAP adjustments using statutory rates, our adjusted effective tax rate was 35.2% in the quarter.

Please turn to slide seven for balance sheet and other highlights. At June 30, we had $139.7 million of cash, accounts receivable was $213.5 million, and the current portion of deferred revenue was $442.4 million. As compared to June 30, 2015, deferred revenue increased 0.2%. But on a constant currency basis, the deferred revenue growth rate was 1.8%.

We ended the quarter with $878 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 three times. Additionally, we had access to approximately $98 million of undrawn availability under our revolver.

Cash flows from operations for the first six months of 2016 were $83.7 million, down 1.8% compared to the prior year, driven by slower bookings growth, spending on Program Atlas and transaction costs associated with the Evanta acquisition, mostly offset by a decrease in cash taxes paid year-to-date.

We spent $11.2 million on capital expenditures in the first half of the year. The acquisition of Evanta, net of cash acquired, was $267.9 million, and we also used $4.3 million of cash for other investments. In the second quarter, we paid $13.3 million in dividends and purchased 81,000 shares of our stock for $5.2 million.

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

With half of the year behind us, we are updating our guidance to narrow the range of possible outcomes. We are also incorporating foreign currency exchange rates as of July 1, 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 $1.33 to the British pound, $1.11 to the euro and $0.75 to the Australian dollar. Overall, these rates reflect a stronger U.S. dollar, especially against the British pound and therefore also reduce our full-year revenue expectations by about $3 million.

We currently expect our full-year 2016 adjusted revenue to be between $970 million and $995 million and that the reduction in revenue from the deferred revenue fair value adjustment will be approximately $13 million this year, of which $11 million relates to Evanta.

As a reminder, our last guidance update was provided before the Evanta transaction had closed and thus explicitly excluded any purchasing accounting impacts. Now that we have completed the preliminary Evanta purchasing accounting analysis, our GAAP revenue outlook is between $957 million and $982 million. As compared to 2015, these outcomes imply full-year constant currency revenue growth of between 4% and 7%.

We continue to expect full-year 2016 adjusted EBITDA margin to be at least 26.25% or slightly better than in 2015. Depreciation and amortization in 2016 is expected to be between $104 million and $106 million, with approximately $30 million of this amount resulting from the change to the amortization of the SHL trade name, discussed just a few moments ago.

Capital expenditures are anticipated to be between $32 million and $34 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 in a range of 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 and any tax law changes. Incorporating all of these factors, for 2016, we now expect non-GAAP diluted earnings per share to be in the range of $3.95 to $4.15.

In addition to our full-year outlook, we are also providing an estimate of third quarter activity. Our current forecast anticipates revenue of at least $230 million, adjusted EBITDA margin of at least 24.5% and non-GAAP diluted earnings per share of at least $0.85.

To put this third quarter view in context, I would note that the second quarter benefited from the strong seasonality in CEB Events. Revenue in that part of our business is recognized when events occur. And the vast majority of them happen in the second and the fourth quarters.

In fact, as it stands today, more than 90% of the CEB Events' revenue is recognized in those quarters. You'll also recall that based on historical activity and usage patterns, the third quarter tends to be a sequentially lighter revenue quarter in the CEB Talent Assessment segment.

So the combination of these two seasonal factors will cause revenue to decline sequentially in the third quarter. Although some costs will also go down, the impact of sequentially lower revenue will also drive meaningful declines in both adjusted EBITDA margin and non-GAAP earnings per share.

Finally, I'll comment on capital allocation. We remain confident in the liquidity and cash flow profile of our business, which gives us the financial flexibility to pursue attractive capital allocation opportunities such as Evanta, while also returning meaningful cash to shareholders via our dividend and opportunistic buyback strategies.

Given that we have meaningfully increased our debt for the Evanta transaction, in the near term, we're likely to place increased emphasis and priority on deleveraging. Management will continue to use its best judgment to determine the amount and timing of buybacks going forward.

That concludes the financial summary. I'll 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 updates on our strategic and operating priorities for 2016.

As we've shared on our last several calls, the five priorities you see listed on the slide are key to realizing the vast opportunity we see for impacting growth in the business. You see them on page nine – must-have insights and analytics, highly valued relationships, brand and market leadership, compelling careers, and agility and operational excellence.

I'm pleased by our progress in the first half of the year in these areas, particularly as teams remained focused on driving impact for members in a very tumultuous global environment. Let me share a couple of highlights in each of these areas.

I'll start with must-have insights and analytics. We maintained the world's richest network of insight with more than 56 billion data points on corporate performance and talent management and hundreds of thousands of corporate best practices that help executives drive performance in their organizations. We're constantly adding to this vast asset; and through the first half of this year, we further strengthened our data sets and completed an exciting new slate of research projects.

We now bring a unique set of resources to support the recurring work of key corporate leaders. But our model is also highly flexible and allows us to respond quickly and comprehensively to near-term challenges and new things facing corporate leaders around the world. We have the ability to create huge value during times of uncertainty.

Our support for members and clients around the world following the Brexit referendum is a great example. You can see a snapshot on page 10. Our teams prepared a comprehensive set of resources and got them into executive hands within hours of the final vote tally.

Importantly, unlike other available Brexit advice, these resources focused very specifically on the real work of corporate leadership teams. While the world had no shortage of advice for politicians and central bankers, there is very little practical advice for executive teams. Our work keyed on real world issues such as sizing Brexit-related risks and communicating them to shareholders and boards; implementing new data privacy protocols for trans-border data storage; accessing workforce planning tools for key job categories that might be disrupted by the leave verdict; and dozens more similarly practical questions, a few of which you see on the page.

Not surprisingly, demand for the support has been very high. More than 4,000 leaders joined for our Brexit webinar in the days following the vote and our teams have been engaged in daily dialog with individual member companies. As one member said, very impressed with the speed at which CEB executed something so well done, in quote. I'll admit I am too and appreciative of our teams for mobilizing so quickly. Those who want to learn more, you can obviously check out at public portals our newly re-lunched CEB app for more functional coverage.

On page 11, you can see detail about our other priorities. Our second priority is cultivating highly valued relationships. As a reminder, our end goal here is to create surplus value for CXOs by dynamically connecting our data, IP and solutions with the challenges on their desks. I shared highlights in my opening remarks about our biggest work stream here, evolving our go-to-market approach in North America.

While work continues there, we're also focused globally on identifying processes and tools that support sustained high impact service. We saw both bookings and activity levels accelerate in our key functional areas in Q2 and are looking forward to even more success, as the year unfolds. We're also launching major new servicing support teams in Q3 that will radically simplify the work of supporting members and deepen usage of our resources.

Our third priority is achieving brand and market leadership. The goal here is to focus on product development and brand presence on areas of distinct CEB advantage. We're working on multiple fronts to achieve this and I'm pleased with our efforts through mid-year. Obviously, the Evanta acquisition adds a great new platform to engage these executives in the IT, security, HR and finance domains. As I commented in my opening, the integration is off to a great start. Not surprisingly, we are already working on opportunities to extend the CEB Events model deeper into CEB's key domains.

Another key lever for extending the reach of our resources and brand is working with great partners to link our work tightly to the key workflows and to advance the market's understanding of the drivers of corporate performance. We continue to focus on engaging our existing network of partners in new ways. You may have seen an example of this in the quarter when we announced a major new partnership with Workday, in which we became the exclusive partner for assessments on their recruiting platform.

In our Talent Assessment business, we now have more than 600 live integrations with more than 90 HCM vendors. We have also begun to broaden our partnership strategy to other areas of business with some early promising signs of success.

Our fourth priority is building compelling careers. I commented in my opening that we maintained our early-year staffing strength and our near-term focus is on driving these newer teams to historical levels of productivity. Longer term, we remain focused on positioning CEB as an employer of choice with top talent. A key part of this is being known as a diverse organization that fosters dynamic and inclusive workplaces. This is both a focus for leaders throughout the business, but also a platform for the company publicly.

In the quarter, we were pleased to be one of the 25 initial signatories of the Equal Pay Pledge, joining a blue chip set of companies in declaring our commitment to gender equity in the workplace and leading pay practices. We are proud to make this commitment as a visible signal of the importance of equity and inclusion to our organization.

Our fifth priority is agility and operational excellence. As a reminder, our goal here is to make sure that our processes and structures allow us to respond quickly to opportunities and risks, as the needs of our members evolve. Our Brexit response is a great example of the agility in our model. But we are also working on several fronts to improve the flexibility and impact of our approach, including upgrading our talent management technology platform and improving how we install our resources into the workflows of first-time users. These remain top priorities for our leadership team, and we're working to drive progress on each in the second half.

So to summarize my remarks on slide 13 (sic) [12] (26:42), against the volatile backdrop in the world, our teams delivered solid revenue performance and strong profit outcomes and lifted the rate bookings growth. We are set up for continued progress throughout the year and into 2017.

We'll now take your questions.

Question-and-Answer Session

Operator

And we'll go first to Shlomo Rosenbaum with Stifel.

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

Hi, good morning. Thank you very much for taking my questions. Hey, Tom, could you just talk about what the bookings growth was, organic bookings growth year-over-year? And what it will take to really accelerate your bookings growth in a way that's meaningful and that will drive the kind of revenue growth that we used to see from the company.

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

Hey, Shlomo. After a couple of quarters of essentially flat bookings growth with downward pressure in a couple of spots, we just saw bookings growth improve by several hundred basis points, putting it comfortably in the low-single-digit range. This represents good progress. Our non-U.S. operations continued to grow at healthy rate and many parts of our North American business actually accelerated from prior quarters, which is a good sign. As I said, though, we're not all the way back to target ranges in terms of bookings growth, and most of that's going to come from getting the rest of North America online.

Again we saw a steady progress in the quarter not only in the actual bookings but in the upstream indicators, teams settling in et cetera after some change in Q1, but that's the last part of the dashboard that needs to come online for us to feel very confident. We're pleased with the momentum. We're pleased with the strength of the team, and we feel we're very well set up for a stronger second half and even stronger 2017.

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

Do you feel that the challenges in front of you that you have to address are primarily operational or are you really – is it really – the volatility macro-wise is a significant headwind for your guys being able to generate better bookings?

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

There's a lot of noise in the world right now. There's some good and bad news right now, which is obviously a lot new things are landing on executive desks. We actually see an opportunity to create value when that happens. And there's enough budget stability for us to make progress. So I'd say most of the work we have to do is on our desk and for us to drive. There are going to be, always in our business, pockets where it's harder to grow than others, but as we showed in the quarter, even against a very volatile backdrop, if we stay focused on what we need to go do, we can drive good outcomes. I'd expect to see that improve throughout the year.

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

In Project Atlas, are you happy with how that's coming about? I guess we're about six months into it or somewhere around there. Is this taking up more management time than you expected or how are you managing that, because I see putting a big program in there at the same time that you're working on accelerating revenue growth, just it sounds as probably a managerial challenge?

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

I don't want to use an Olympics analogy, but they're very different swim lanes. The team that's running the Atlas Program is doing a great job, actually keeping work off of field leaders' desks. So each group can kind of focus on what they're about trying to do. Over the even medium term, the reverse ends up being true, which is not having the Atlas capabilities slows us down a little bit because as the business has broadened, as relationships have gotten deeper, as we're building larger, more multi-year commitments to our members, what we're seeing is some of the stuff people – field leaders have to go through to get those things booked and in place. It takes them a lot of time and takes them out of the marketplace. So Atlas over the long term will fix that and make our teams more efficient in the field. So I think over time Atlas is a tailwind for growth rather than a headwind for it. And in the near term, the team's done a great job keeping it off field leaders' desks.

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

Okay. Great. Thank you.

Operator

Our next question comes from Joseph Foresi with Cantor Fitzgerald.

Joseph Foresi - Cantor Fitzgerald Securities

Hi. I was wondering if you could talk a little bit about the ramp in 4Q. Given sort of the shifting macro headwinds, obviously we understand the seasonality associated with 3Q, but we're still expecting kind of a reasonable ramp in 4Q. So I was wondering, can you talk about what gives you confidence in that sort of pick-up in that quarter?

Richard S. Lindahl - Chief Financial Officer

Yeah. Hey, Joe, it's Rich. Well, as I mentioned, the seasonality in Evanta is certainly going to be a major contributor to the pick-up in the fourth quarter as well as normal seasonality that we see in the Talent Assessment segment and even in the rest of the business as well. So based on what we're seeing right now in terms of kind of activity levels and our bookings forecast, we feel pretty good about being able to put up sequentially better revenue in the fourth quarter than we'll see in the third quarter.

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

And Joe, I'd comment on one more thing, which is the Evanta business does have strong forward visibility into their 4Q numbers, so a lot of what's in Q4 for our Events business is in many cases booked already. So it's not a – we don't have to go make that happen magically on October 10 or anything.

Joseph Foresi - Cantor Fitzgerald Securities

Well, good. I'm glad you're avoiding the magic, but I was wondering if you could talk a little bit about – we saw the membership just sort of slightly tick up and the Contract Value was actually, I think, down per member, but it sounded like from a confidence perspective, you feel like maybe the business has stabilized. Can you help reconcile those two, particularly from a new business standpoint?

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

Sure. The Contract Value number is a four-quarter look back and incorporates now a couple quarters of weaker bookings growth. So, what we saw in Q2 standalone was steady progress on lifting the bookings growth number up, but averaged out by some weaker quarters in the rearview mirror now. So our job is to consolidate, sustain and accelerate the bookings growth that we saw in Q2. And I'll lift it from here, but I think we've made good progress both in making that happen and in setting ourselves up for growth in subsequent quarters.

Joseph Foresi - Cantor Fitzgerald Securities

Got it. Okay. And the last one for me, just from a Contract Value perspective, it sounds like this might be, I guess, theoretically the bottom, assuming that there's no kind of major changes in the economic outlook from Brexit or something like that. Is that a fair assessment of how you view the business at this point, now that you've re-staffed and started to see some improvement in sort of the forward-looking outlook or how would you characterize the Contract Value trajectory at this point?

Richard S. Lindahl - Chief Financial Officer

Yeah. I think just Contract Value, as Tom was just saying, is certainly a four-quarter look back on bookings activity. So clearly, the bookings activity is moving in the right direction. That's going to be a positive influence on Contract Value. We certainly would expect it certainly more likely than not that we'll see some improvement in Contract Value, but it depends a little bit on how the old stuff rolls off and the new stuff rolls in in terms of the specifics of that. So I think you should see better overall deferred revenue growth, bookings activity, and then ultimately that will be followed by Contract Value growth and revenue growth.

Joseph Foresi - Cantor Fitzgerald Securities

Thank you.

Operator

We'll go next to Gary Bisbee with RBC Capital Markets.

Gary Bisbee - RBC Capital Markets LLC

Hey, good morning, guys.

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

Hi.

Gary Bisbee - RBC Capital Markets LLC

Couple of things. First off, I just wanted to clarify the $19.4 million of revenue from Evanta. Was that GAAP revenue or is that adjusted revenue?

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

That's adjusted revenue. There was an $8 million fair value adjustment on deferred revenue, so the GAAP revenue number is $11.4 million in the quarter from Evanta.

Gary Bisbee - RBC Capital Markets LLC

Okay. All right. That's what I figured. I just wanted to confirm. So, good to hear some positive indications on the bookings. I guess can you help us to understand or describe what the phasing of productivity in bookings looked like in the first, say, four quarters or five quarters after you implemented these changes last year in a couple of the European countries. And what I'm really getting at is, I think last quarter you said the period of max disruption was actually fairly short and then it's back to business as usual. But assuming we're at that point, how quickly did they ramp, so what I think you said today was several of those had good growth or strong growth, several of those markets that are a year plus into the changes?

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

I mean I think what we saw was steady progression. There's – as with any of these things, there is a distribution of team performance. Some teams figure out new ways of working quickly and get out way ahead, and some teams take a little more time to sort of get into a rhythm. So we saw some really promising positive indicators in pockets of the business in North America in Q2, and we saw some places that still need some energy and focus. And I think that that's been very consistent every time we've – anytime we've tweaked and evolved our channel structure, as the business has grown. So I think we're seeing what we saw, which is some teams raising ahead and having huge impact, and some teams working a little harder to catch up and expect to see that normalize over the next several quarters.

Gary Bisbee - RBC Capital Markets LLC

Would it be reasonable based on your experience with the countries last year to expect that it gets incrementally better each of the next couple of quarters or was there some variability in that based on – I don't know what number of different factors?

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

We'd expect to see productivity lift over the next several quarters and the rate at which that happens is dependent on how well we run it and how targeted we are on our support and how fast some of these new capabilities come online, et cetera. So it's our goal certainly to keep pushing and see productivity lift, and we're seeing that in some places and see work to do in others, but I'm pleased with what I'm seeing. I'm pleased with the leadership and the energy they're putting into this. And I'm certainly pleased with the impact we can have on members when we get it right.

Gary Bisbee - RBC Capital Markets LLC

Okay. And then just there wasn't a lot of color in the press release or in your prepared remarks about the different trends at the two business segments. So can you step back and maybe provide a little color on, if not bookings, just trending where you're doing well, where you're not in the Talent Assessment versus the core CEB segment? And should the trajectory going forward be expected to be different between the two? Is this mostly just the core CEB or is there a similar trajectory improvement that you think happens that offset (37:57)? Thanks.

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

Yeah. I think at an oversimplified level – the funny thing is, at an incredibly detailed level and an oversimplified level, the answer is almost exactly the same, which is North America large corporate is the focus in both corporate segments right now. That's the part. Outside North America, we're seeing solid growth. In middle market, we're seeing solid growth. And it's the large corporate North America piece of both businesses that we're very focused on right now that's making good progress, but not at the rate of the other pockets of the business. And a lot of that is – some of the disruption we put in, and a lot of that is getting just bigger relationships, we're learning to manage more effectively. So again I'm pleased with what I saw as early indicators in both businesses, but it's the same area of focus for both. So I assume we're all heads down on that.

Gary Bisbee - RBC Capital Markets LLC

And then just one last one. I don't think we've got an update in a while in the CEB segment on the contribution of just the core legacy subscription best practice research versus all the ancillary stuff that you've built in in the last few years. Is one or the other really the key to doing this? Have the trends there been different or is it – because I'm just trying to understand how you drive more sales? Is it selling more subscriptions, is it more the ancillaries or is it easy to tease that apart and help us understand it? Thanks.

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

I think in big simple terms, both are really important, right, getting – if you think of getting deeper. We see it as securing great new functional relationships and getting deeper and deeper and deeper with those executives across time. So really growing over the long term is both about growing great subscription businesses and finding ways to layer in new tools and resources to help them perform.

We've obviously seen great strength in areas like workforce planning that began as a research topic in one of our core domain areas and became a powerful new business via some internal development in the couple of small acquisitions we did. So we've seen a very strong growth there, et cetera, but on balance, we tend not to differentiate the two because they're all about providing recurring support to executives for recurring decisions on workflows, and I think internally our ability to say this was a subscription information product and this is a new subscription is not that great. But the focus is probably more from an end market perspective on spending time on making sure we are set up to grow large corporate North America because that's where we see obviously a huge potential in the business.

Gary Bisbee - RBC Capital Markets LLC

Okay. Thank you very much.

Operator

Our next question comes from Tim McHugh with William Blair.

Timothy J. McHugh - William Blair & Co. LLC

Hey guys, thanks. Can you just update us on SHL, the UK, I guess, and Continental Europe portion? I know you kind of just had it continue to perform well, but I think there is some – I've had questions at least on the sensitivity to the hiring environment there, which at least in the UK is probably a little softer today than it was before. So how much of that piece of the business for SHL is tagged to kind of pre-employment versus kind of post-employment type of testing, and I guess how have you seen the demand, I guess, particularly late in the quarter and in July, I guess, after Brexit kind of be impacted by hiring activity in the UK?

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

Hey, Tim. It's funny. A lot of the data that you see flying around about hiring in the UK is actually our own data because it comes from our workforce planning businesses. So offline we can get, anyone wants to take a look at some of that more detail there. Yeah, you did see unsurprisingly not so much from the talent assessment data, but just from – if you think of what we do in terms of aggregating, job postings, et cetera, you did see that pause a little bit in the immediate aftermath of Brexit, as people shuffled things around.

That business is about – is going to – the UK, Europe portion of that business is about half of that business. It'd be over – I just took big round numbers, and of that there is a healthy dose of true pre-hire, which is people applying for jobs. There's a healthy dose of what I'd call graduate programs, which are – we really in those markets do a lot to help big companies access the university hiring market, which tends not to be that volatile market.

There's a set of universities that go to every year for their graduate training programs. That's a really important ongoing part of their business. And then there's a healthy dose of post-hire. So who should get what job, who gets promoted, who are the new leaders we have our eye on. So it's not that – the TA business is not wildly sensitive to kind of week-to-week progression in job postings, et cetera. Obviously over the long term, if the economy – if the economies do grind through a difficult period, it's our job to stay ahead of that and make sure those resources are helping people line up the right talent to succeed. But I'd say at this point, those businesses are not hypersensitive to kind of a few bad weeks of job postings. And I'll send you the data, but what we saw was a big pause for about a week and then settling in at kind of more historical level in terms of new job postings, et cetera, in those markets. And again, I think there will be some caution around the edges in some job categories, but our data at this point says it's not going to be – the people are not shutting down the hiring engine either.

Timothy J. McHugh - William Blair & Co. LLC

Okay. Thanks. And Evanta for this year, I guess, can you update us now that you have done the purchase accounting? I guess, what – you gave us the impact from the write-off of deferred revenue, but is it still $40 million? I can't recall exactly what you said last quarter, but what's the full-year kind of contribution you're expecting for 2016 at this point from Evanta?

Richard S. Lindahl - Chief Financial Officer

Yeah. We would expect on an adjusted revenue basis at least $40 million of revenue. That's based on certainly second quarter performance, plus what we're looking at for fourth quarter. That's still the right expectation, but that's adjusted revenue.

Timothy J. McHugh - William Blair & Co. LLC

And how should we think about that? You gave us a comment about 90% of the revenue is in the second quarter and fourth quarter. How much do their costs flex with that? In other words, I guess trying to understand the impact on margins this quarter as well as how we think about it for 3Q versus 4Q?

Richard S. Lindahl - Chief Financial Officer

There is some flex, but there's obviously also a fixed cost base that stays constant through the year. So you're going to see very little revenue from Evanta in the third quarter. And effectively that's going to drive a negative EBITDA contribution of the Evanta piece in the third quarter before rebounding in the fourth quarter with a solid contribution to both revenue and EBITDA.

Timothy J. McHugh - William Blair & Co. LLC

Okay. Thanks.

Operator

We'll go next to Tobey Sommer with SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Thanks. Start out with just a numerical kind of housekeeping question on the – could you refresh us on the target leverage and what that means for kind of how long you'll be accumulating cash for paying down debt?

Richard S. Lindahl - Chief Financial Officer

Yes. So we typically target one to two times net debt to adjusted EBITDA as a leverage ratio that we think over the long term makes sense in terms of balancing financial flexibility with the opportunity to pursue strategic opportunities and also return cash to shareholders. We're about a turn over the high end of that range, and it will take several quarters before we get that down back towards the lower end of the range – the higher end of that range again.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Okay. I'm curious with Evanta with the long lead time sales, because you mentioned the fourth quarter kind of as maybe not fully cooked, but largely cooked. How are sales tracking for Events in 2017 since Brexit to the extent that people do book them so far ahead? Thanks.

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

Yeah. I think the business doesn't have that level of visibility yet, but what we've seen when we looked at this business is obviously the events like Brexit do give executives a lot of reason to go talk to each other to figure out how you handle this, how you are thinking about this, what you are guys seeing, et cetera. So, the ability to convene, engage, let them vet what they're working on ends up being a pretty high value.

And you'll remember this business is not get on a plane and fly to some fancy location for six days. It's usually in your hometown where you're getting together with your direct peers. And so the economic sensitivity, because there's no cost to participants, tends to be pretty low. And for someone trying to reach those participants, it's very efficient. So we tend not, historically as we've spent time getting to know this business, it doesn't seem to be a tremendous amount of economic sensitivity and there tends to be a lot of executive interest in gathering and engaging to compare notes at times like this.

So we'll have better visibility into 2017 as the year unfolds. We're planning certainly for a very full event schedule for next year, and you'd guess one of the issues, one of the new things CEB business planning has to deal with is now that we have events figuring out what new ones we launch, what new places we target and where we put our pennies there, and we'll keep you up-to-date, as our view on 2017 unfolds there.

Richard S. Lindahl - Chief Financial Officer

Yeah. The only thing I'd add to that, Tobey, is that while Tom is absolutely on point, we don't have specific visibility into those events. We have had a very high kind of repeat business and sponsors on a year-over-year basis, which has certainly been core to helping the company grow its revenue base in the way it has. So we've basically seen sponsors repurchase at a kind of 90% rate each year. So, that gives a lot of confidence that there's a good base going into 2017, even though we don't specifically have contracts booked for those events at this point.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Thank you. That's helpful. Is there something intrinsic to the market that causes the events to be weighted in the quarters that had historically been weighted or would it be a goal of yours to increase the frequency of events in what had historically been off quarters for the business?

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

There does seem to be executive behavior that we've historically seen. If you think of, CEB's always had smaller meetings as a part of our core bundle for a lot of our products and we've had our own Events business, and those have always had the same seasonality, that Q3 just intersects with lots of vacation for lots of people, and so your ability to gather a quorum on August 15 versus October 15 is a lot lower. So we've seen that historically in our businesses. You'll know that some of our larger events have historically been in Q4 and Q2. And I think that's just – those are the best times to convene executives. And this is one where we'd probably not fight City Hall, to say. If that's when people want to get together, that's when we'll host these events. And over time I'm sure there's ways to augment the business in off quarters, but I think you'll always see that seasonality.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Okay. And my last question, Tom, is kind of a broad one. When you look at the array of products and services that you offer from the core membership to newer services, how do you get comfortable that these services are different and more relevant than prior to the last recession, when it turned out some of them maybe needed to be pared back during a recession? Thanks.

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

Our view in the last recession was, in baseball terms, if tie goes to the runner, during the last recession when we sunset programs, our view was tie goes to being aggressive in terms of sunsetting. So we were doubling down and tripling down on only our strongest products. We monitor product health in more ways to Sunday than you could possibly imagine. You've got obviously the most basic renewal data. Our people – the vast majority of our products have high renewal and/or repurchase characteristics. That's the first and most important marker of health. But upstream from that, we're looking at usage, we're looking at customer feedback, we're looking at all sorts of different ways to kind of gauge the health of a product both in terms of its impact on existing subscribers and its market opportunity going forward. So our view was average up the product portfolio in the last downturn so that good Lord willing we'll never hit one of that scale again, but we'd proceed into with a foundationally stronger product set.

You'll also recall that coming out of that, we invested heavily in more coverage, more depth, more engagement so that – one of the challenges with our product set is these are very information-rich products. They have tons and tons and tons of resources in them. It's hard to navigate sometimes the depth and richness of stuff we've got in in any one of our products and we found that over time, adding advisory capacity, adding account manager capacity, you saw us step-up that level of investment in the last downturn largely to make usage more broad and sticky. And so we've been very focused on that. I've got a high degree of confidence the products that we've got now is doing what it was intended to do, which is represent a presence in our strongest domain areas.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Thank you very much. If I could sneak one more in, in terms of your sales and distribution channel, what's the year-over-year kind of change in head count in that part of the business right now, and where do you anticipate it being by year-end? Thanks.

Richard S. Lindahl - Chief Financial Officer

Yeah. We came into the year about 10% up versus the prior year. We're not quite at the anniversary of the major hiring cycle. So it's still in that zone versus the prior year.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

And around year-end, where do you think you might be?

Richard S. Lindahl - Chief Financial Officer

It probably is not quite that high, but we're still keeping a very strong profile in terms of the sales and marketing head count as far as the retention we had and the productivity levels that we're seeing from the – that we're expecting to see from the team as we go through the end of the year and into next year.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Down to mid-single digits might be a fair approximation by the end of the year?

Richard S. Lindahl - Chief Financial Officer

That's probably reasonable.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Okay. Thank you very much.

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

Yeah. Varies a little bit just based on start dates. In a perfect world, if Rich could wave his wand, he'd have all salespeople start the day of new sales training early in Q1, but you have to get great people in when you get them, so to some degree, our recruiting team gets great people and whether they start by December 15 or January 30 is just the magic of when we can get them to start. We work backwards from a great field force being ready to go when we do Q1 kickoffs, but sometimes that bleeds into Q4 expense, sometimes it falls back into Q1. I think at this point, sooner is always better for us, but you have to deal with the realities of people and when they can start.

Tobey Sommer - SunTrust Robinson Humphrey, Inc.

Thank you.

Operator

We'll take our next question from David Ridley-Lane with Bank of America.

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

Thanks. Good morning. Last quarter you provided a split on CEB segment wallet retention, saying most industries were 90% or better, but some of those challenged sectors were in the low 80%s. And I'm wondering did the challenged sectors stabilize or how did that trend in the second quarter?

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

Absolutely. What we saw was stabilization, I wouldn't yet say roaring back. So both in terms of behavior and posture, those sectors have kind of gotten to a new normal and are starting to work through their businesses in more natural ways that from our vantage point that means they're open for business. And we've been in front of them to start re-growing those relationships back to historical marks. That won't all happen in one quarter. I'd love if it could, but we're definitely having a different pattern on conversations with the sectors than we were even just a quarter ago.

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

And does your 2016 guidance contemplate wallet retention staying around these levels or does it bake in some improvement particularly in the fourth quarter, which I believe is still your biggest renewal period?

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

Q1's actually our biggest renewal period.

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

Okay.

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

So what I said in my remarks was that the wallet retention is a four-quarter look-back number because – based on Contract Value. So as we sustain and accelerate the bookings growth we saw in Q2, we should over time see that wallet retention rate come back into target ranges. But we'll – obviously it starts with sustaining and then accelerating the bookings growth number and then that will flow through into wallet retention.

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

Got it. And then can you just remind us what percentage of your revenue and also the costs are denominated in UK pounds? My sense was that the depreciation in the British pound might actually be advantageous net-net to your EBITDA in the second half.

Richard S. Lindahl - Chief Financial Officer

Yeah. I think it – all things being equal, it probably helps a little. We're still looking at – roughly, roughly 20% of our revenue is split among the pound, the euro and the Australian dollar, but about 5% of the EBITDA, so you've got – again that offset by having more cost than revenue in the British pound. So you could see some – a little bit of tailwind to earnings from the – if the current exchange rate holds where it is, but not a huge one.

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

Okay. Thank you very much.

Operator

Our next question comes from Manav Patnaik with Barclays.

Ryan Leonard - Barclays Capital, Inc.

Hi, this is Ryan, filling in for Manav. Just on the bookings acceleration or stabilization in the second quarter, is that all organic or are some of those other acquisitions that you've done helping that number?

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

Yeah. Most of the stuff we've done is real small and we integrated really quickly into our sales team's bags. So, from our vantage point, it certainly helps to have great new products in the marketplace, whether they are acquired in or newly launched, but from our sales team and marketing and commercial team's perspective, it all kind of feels organic and it's what they're actually selling.

Ryan Leonard - Barclays Capital, Inc.

And so just a little more color on what's going on there. Is that existing clients are turning back on subscriptions that may be because of the stretched sales team, they didn't renew or are they actively kind of picking up new products and feeling incrementally more positive about putting that type of investment in their business?

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

I think what we're seeing – outside the U.S., it's kind of all the above, right? There we saw good solid progression. Inside North America, what we're seeing is the benefits of having added capacity over the last year starting to come through in terms of the business. The benefits tend to accrue to those parts of the business where, I must say, the business system is more standard, but if you think about adding a new person into middle market or a large enterprise, new sales group, they've to learn a smaller product set, they are not inheriting a complex relationship, et cetera. So they're probably coming down the productivity curve a little faster than folks who are being put in a more complex, existing larger corporate relationship. So I think what we are seeing is, just those feet starting to pedal a little faster in those parts of the business, and that's having good impact.

Ryan Leonard - Barclays Capital, Inc.

Okay. Thanks. And I guess you mentioned the sales force kind of ramping in the second half in terms of productivity as part of your outlook. I guess if you look at someone like Gartner, they talked about an 18-month to 24-month ramp for their salespeople. I guess is there any risk that the productivity doesn't occur as fast as you would like and that obviously impacts bookings? And I guess just another kind of question on outlook, your comments on Brexit, is it fair to say that your UK, kind of Europe assumption post-Brexit is more status quo versus any decline?

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

Brexit is a bit of a double-edged sword for us. I mean, to the downside, it actually, we're going to watch that economy closely. To the upside, it creates a lot of problems that people need help with. It's an ill wind that doesn't blow to somebody some good. But if you're suddenly having to rethink where you hire, how you hire, who you hire because of labor mobility, if you suddenly have to think there, gosh, where are my data centers and data, and how do I manage data in a world where there might not be universal data protection conventions that extend to some of my key markets, those are really – we're assuming there will be some economic chop here and there, but we're also seeing there will be a whole raft of problems we can help people with, so net-net we think there's a great opportunity.

Yeah, as on the sales productivity front, we had agreed for someone to get to what I'd call average productivity, often comes about in their second year or third year. So, that 18-month to 24-month number doesn't sound foreign in any way, but there's progress the whole way. It isn't binary. It isn't sort of I'm a caterpillar – I'm a caterpillar, I go into a cocoon and then I miraculously pop out in month 24 and start producing magic. What we see is steady progress on a curve, so some people get ahead, some people are behind. But on that curve, we see steady progress and when we think about the product that we lift in this year and into next, it's more lots of people making steady progress than any magic cliff we'll go across.

Ryan Leonard - Barclays Capital, Inc.

Great. Thanks. I'll just sneak one more, so the Evanta contribution in 2016 will be $32 million on a GAAP basis, is that correct?

Richard S. Lindahl - Chief Financial Officer

What we said is at least $40 million of adjusted revenue and we've said there is an $11 million fair value adjustment to deferred revenue, so.

Ryan Leonard - Barclays Capital, Inc.

Perfect. Thank you.

Richard S. Lindahl - Chief Financial Officer

$40 million would be the least.

Operator

This concludes today's question-and-answer session. I'd like to turn the call back to Tom Monahan for any additional or closing remarks.

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

Thanks, everyone, for calling in and/or logging in today. As always, we appreciate the opportunity to highlight the continued impact, growth and profitability of the business. Rich and I look forward to seeing you, many of you, in our travels over the next few months at BMO and Deutsche Bank events and beyond. And we'll keep you up-to-date on the CEB story.

Operator

This does conclude today's conference. We thank you for your participation. You may now disconnect.

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