The Corporate Executive Board Co. Q1 2008 Earnings Call Transcript

| About: CEB Inc. (CEB)

Corporate Executive Board Company (EXBD) Q1 FY8 Earnings call April 24, 2008 9:00 AM ET

Executives

Thomas L. Monahan, III - CEO

Timothy R. Yost - CFO

Analysts

Mark Bacurin - Robert W. Baird

Scott Schneeberger - Oppenheimer & Co

Gary Bisbee - Lehman Brothers

Brandt Sakakeeny - Deutsche Bank

Brandon Dobell - William Blair & Company

Operator

Good morning and welcome to the Corporate Executive Board's First Quarter 2008 Conference Call. Today's call is being recorded and will be available for replay beginning today and through May 2nd by dialing 719-457-0820. The confirmation code for the replay is 6226486. The replay will also be available beginning later today and through May 2nd at the company's website, which is executiveboard.com, and at www.earnings.com. 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 homepage of the company's website for yesterday's news release.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the Corporate Executive Board's expected quarterly and annual financial performance for fiscal 2008. 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... discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by important factors among others set forth in the Corporate Executive Board's filings with the Securities and Exchange Commission, and in its first quarter news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise. At this time, for opening remarks, I'd like to turn the conference over to the company's Chairman and Chief Executive Officer, Mr. Tom Monahan. Please go ahead, sir.

Thomas L. Monahan, III - Chief Executive Officer

Thanks, Scott. Good morning. Thank you all very much for calling in or logging in. I'm Tom Monahan, Chairman and CEO, and with me here is Tim Yost, our Chief Financial Officer. Let me give you the roadmap for how we'll divide our time this morning. First, I will provide a brief overview of our first quarter performance, a summary of the financials and a progress report on key operating priorities. Tim will then take us through a more detailed review of Q1 financials, discussing our operating and talent management metrics and outline our guidance for the remainder of 2008. Finally I'll give you some more details on our newest product launches enclosed with the review of our key elements of our $5 billion growth opportunity. Then we will move to Q&A.

Financials highlights. For the first quarter of 2008, revenues were $138 million, up 10.8% over last year. Net income was $15.9 million, in line with guidance. EPS was $0.45 per share, slightly above guidance. And contract value grew 8.8%, reflecting a solid start to the year offset by an overhang from our weaker than expected Q4 and some changes to the seasonality of our contract value growth. Our performance represents good progress against our key priorities for increasing new sales. We are encouraged by early progress against some of our key operating priorities, but recognized that the sustained focus will be essential both to ensure success in the difficult environment and to set the company up for longer term growth.

Key priorities for 2008: In our last call, I outlined four operating priorities for 2008. Before I turn the call over to Tim for a more derailed review of the financials, let me update you on our progress against each of these priorities. Our first priority is restoring momentum through our North American sales operations. This begins with fielding a great team and here we have made considerable progress.

We ended the quarter with 333 sales teams, up about 30% from this time last year. We are also seeing returns from our efforts to better enable and engage our new sales executives through new training management and compensation structures. In the quarter, our attrition rate of new sales executives was running about half the rate that it had been at this time last year. Having a solid prepared team representing EXBD and CXO offices substantially built the front end of the sales pipeline in the quarter, and allowed us to improve new sales performance from Q1 last year.

While we still have much distance to travel on this priority, I'm very proud of what our sales leadership and talent management teams have accomplished and look forward to continued success on this front.

We have also pushed hard on brand building initiatives that support our efforts to secure executive time and attention. Across the last few months, you may have seen our cover store in the Harvard Business review or news about our first ever Global Member Conference. These events and other more targeted efforts both bolster our selling strategies by creating more dialog about our services in the executive suite and positioning us as an important resource and powerful network.

Our second priority is creating a great cross-sell platform by aligning sales and service strategies around the needs of our best members. In 2007, for the first time, we saw a segment of our largest customers choosing to maintain rather than grow their relationship with us. Reigniting growth of these members is a key priority for us, as our installed base of members is our most valuable corporate asset.

Our growth over the past several years has created a new challenge for us. We now manage a much larger group of members with high spend levels, both within the major corporate functions and at the corporate level. My leadership team and I have spent time with these members getting a feedback on how best to grow with them. Their feedback to us has been very clear. First, they value us and see ample opportunity to expand how we support them. When we do a great job getting the right ideas and resources in front of the right executive or professional, our products deliver huge leverage on high dollar problems and creates substantial ROI.

Second, they are pushing us to do a far better job of working with them to make sure they can get the maximum benefit out of the full range of products and services they use, particularly in those areas where we work with several executives in the same functional area such as a large corporate HR department. To do this, we are integrating our sales efforts with our servicing efforts so that we provide a coherence and comprehensive set of solutions that more completely meet their needs.

In the quarter, we reorganized our service and product teams under strong general mangers, and tightly aligned our sales organization to this structure. This should allow us to better leverage institutional knowledge gained in the product and service groups to create more organic opportunities for contact and cross-sell. We have also made additional investments in our strategic accounts organization to supplement our efforts at our largest members.

Having a critical mass of large customers sets a different in time [ph] challenge for us, and as such these integration efforts are very real change to how we have traditionally gone to market. I expect we will be working hard on putting in place new processes and roles for the next several quarters. Early member feedback has been very positive, but as you can see from large corporate cross-sell, we still have real work to do here.

Our third priority is to increase renewal rates by engaging member executives from day one of their membership with us. We know that frequent and timely usage of our products generates great renewal outcomes, particularly in a tough economy, where members need timely help on especially urgent issues. We rebuilt the processes and technologies used to welcome members with the goal of engaging them quickly, and creating a sustainable pattern of healthy usage.

We're also reengineering key product formats and interfaces to support the different ways in which our members now work. I'm happy with our early efforts here, but recognize that the returns from higher service levels will take several quarters to fully materialize.

And our fourth priority is accelerating growth from newer markets and from products that target additional executive workflows and budgets in member companies. Here we continue to see strong momentum. Europe and other key international markets continue to be areas of great opportunity for us, and we are making the investments necessary to support continued growth. We remain pleased with the growth and performance of our new middle market platform. In the quarter, you saw us launch our fourth product, the corporate legal exchange, into this demand market.

Our IT Toolbox division enjoyed very solid growth in the quarter, meeting the needs of the user community tasks with doing more with less and an advertiser base that needs demonstrable ROI on their marketing spend. The team is also gearing up for a couple of more toolbox launches later this year.

Finally, we continue to target new budget areas that allow us to deepen our support to executives that we already serve. Our Q1 launch of the HR Leadership Academy is off to a very strong start, allowing us not only to meet a pressing need for the executives we serve, but to engage in new generation of future executives and EXBD subscribers. We are confident that we are focused on the right management priorities to achieve these objectives and we are encouraged by the early signs of success. But we realize that we have much work to do to achieve our shared objectives of member impact and sustained profitable growth.

Let me turn it over to Tim for a more detailed review of the financials.

Timothy R. Yost - Chief Financial Officer

Thanks, Tom. I will organize today's financial and operating review around six categories. First, the income statement, then I'll move to the balance sheet, cash flow, an update on our share repurchase program, our guidance and outlook for the balance of 2008, and finally I'll close with our Q1 talent management metrics.

Starting with the income statement, first quarter revenues increased 10.8% to $138 million from $124.5 million for the first quarter of last year. This revenue growth is primarily driven by our year-end contract value growth, but has also impacted positively by some of the improvements in our core North American large company business, as Tom indicated in his earlier remarks.

Net income was $15.9 million, diluted earnings per share for the first quarter was $0.45 per versus $0.50 for the first quarter of 2007. The gross profit margin increased to 67.4% in the first quarter compared to 64.1% in the first quarter of 2007. This reflects a shift in the timing of expenses relative to 2007 and lower share-based compensation expense as a percentage of revenue. For the full year, we expect gross profit margin will be roughly flat with last years' level at approximately 66%.

Member relations and marketing expenses, consistent with our expectations, increased as a percent of revenues to 30.4% in the first quarter of 2008 versus 27.5% in the first quarter of 2007. This has been a result of two factors. First, lower share-based compensation expenses as a percent of revenue. This was offset by the additional investments we put in place to accelerate new sales growth in our large company North American market. With this additional investment as a percent of revenue, we expect marketing member services to be between 28.7% and 29.2% of revenue for the full year. This represents about 50 to 100 basis points of additional expenses on this line item for 2008.

First quarter general and administrative expenses were up as a percent of revenues to 14.3% from 13.7% in the first quarter of 2007. This increase was primarily the result of expenses related to our move to Virginia in the first quarter. For the full year, as a percentage of revenue, we still expect to see about 50 to 100 basis points of improvement in this line item, so G&A expenses should come in around 12.5% to 13% of revenues for the year.

The operating margin for Q1 of 2007 was 18.7% versus 20.5% for the first quarter of 2007. The change is a result of the shift in expenses and timing just discussed as well as additional expenses related to our move in the first quarter. Included in the first quarter was approximately $6 million in expenses related to the move and overlapping leases that will not continue as run rate items beyond the end of the first quarter.

Other income net decreased from $5.9 million during Q1 of 2007 to $700,000 for the first quarter of 2008. Other income in Q1 2008 includes a $900,000 reduction for the decrease in the value of participant accounts in our deferred compensation plan. There is a corresponding offset to salaries expense, so there was no net impact to the P&L for changes in participant account values.

Contract values increased 8.8% to $535.9 million at March 31st 2008 from $492.5 million at March 31st 2007. We define contract value as the aggregate annualized revenue attributed to all agreements in place at a given time without regard to the remaining duration of any such agreement. For the small number of contracts of more than 12 months duration, we include only 12 months in contract value.

The contract value growth was driven by the following factors: growth from cross-sell. In our middle market practice, which now has four membership programs, the average cross-sell grew to 1.49 from 1.44 in Q4 of 2007. At this early point in the year, our total cross-sell growth is tracking below our expectations for 4 to 8 percentage points of growth for the year, as the average cross-sell ratio in our large company market decreased to 3.84 from 4.03 in the fourth quarter.

Growth from new plans continues to be strong in both the large and middle market portions of our membership and it's tracking towards the high-end of our annual expectations for 2 to 4 percentage points of contract value growth to come from this source. New products are off to a good start at this early point in the year and are tracking in line with our expectations for 3 to 5 percentage points of contract value growth to come from this source.

Pricing is in line with our expectations and we continue to realize 3 to 5 percentage points of same-store price increases across our product portfolio. The contract value growth rate was also slightly impacted by a shift in the timing of our renewal pool relative to 2007. With more of the renewal pool up for renewal earlier in the year than prior years, we see less net impact from new sales in the overall contract value growth rate in the quarter. This effect will normalize across the balance of the year.

Turning to the balance sheet and cash flow, membership fees receivable declined to 26.8% to $118.1 million at March 31st, 2008 from $161.3 million at December 31st 2007. This decline is a bit less than the pattern we've historically seen in the first quarter, because of the improvement in the standalone quarterly growth rate relative to Q4 of 2007. Collections remained strong and DSOs, which we calculate using average receivables, were 91 days for the first quarter of 2007, up a few days from last year, but in line with our guidance of 60 to 100 days for Q1.

Deferred revenues increased 3.7% to $338.6 million at March 31st 2008 from $323.4 million at December 31st 2007. These amounts include approximately $3.1 million of long-term deferred revenue from the other long-term liabilities section of the balance sheet.

Cash flow from operations was essentially flat from last year's strong Q1 performance at $83.9 million. For the full year, driven by our negative working capital and growth, we still expect cash flow from operations to run about 1.5 to 1.7 times net income.

Capital expenditures were $24.7 million in the first quarter, principally consisting of expenses related to the build out of our new office facility, and computer hardware and software purchases. For the full year, we expect capital expenditures of approximately $40 million, approximately $30 million related to the final build out of our new office facility and approximately $10 million to support our growth.

Repurchase update: In the first quarter, we repurchased approximately 940,000 shares for $37.6 million. At quarter-end, we had $26.6 million in remaining repurchase authorization.

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

For the balance of 2008, we remain comfortable with our guidance for revenue growth of 5% to 10%, or $561 million to $586 million, with a quarterly distribution approximately as follows: Q2, $134 million to $141 million; Q3, $139 million to $152 million; Q4, $150 million to $165 million, for a total of $561 million to $586 million. We expect this revenue to be driven by contract value growth for the full year of 10% to 15%. The contract value growth rate by quarter will look slightly different than prior years, as we work off the overhand from our weaker than expected Q4.

We'd expect to see the contract value growth rate in Q2 and Q3 stabilize at a level just below our Q1 rate, and then achieve our 10% to 15% target in Q4, as our higher activity levels are converted into sales. We expect an EBITDA margin for the full year of approximately 24%.

As outlined in the press release, we are maintaining our annual EPS guidance of $2.06 to $2.22. We expect a shift in how EPS will be distributed across the year. This shift and expense timing is from budget revisions made in Q1 to better align our resources against our four key priorities for the year. We expect a quarterly distribution on EPS to be approximately as follows: Q2, $0.41 to $0.47; Q3, $0.53 to $0.63; and Q4, $0.64 to $0.72 for a total of $2.06 to $2.22 for the full year.

For 2008, the company expects other income of approximately $4 million, an effective income tax rate of approximately 40%, and diluted weighted shares outstanding of approximately 34.25 million to 34.75 million. The earnings per diluted share, interest income and weighted shares outstanding guidance includes only share repurchases made as of March 31st, 2008.

Finally, talent metrics. CEB total headcount reached 2,420 in the quarter, down marginally from 2,439 at year-end and up from 2,290 at this time last year. This lower than historical headcount growth reflects a very focused investment strategy to make sure that we are aligning our spending increases to adequately resource our key priorities.

Our career staff retention rates remains very high near 80% and is tracking in line with our plan for the year. And as Tom said, we saw a significant improvement in the retention rates on our newer sales people, which if we are able to hold on to those gains will pay dividends for years to come.

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

Thomas L. Monahan, III - Chief Executive Officer

Thanks, Tim. Now I would like to take a moment to give you some further details on a key element our plan, new program launches. The HR Leadership Academy launched earlier in Q1 continues its very strong start. As you will remember, this is our entrée into the executive development space. At the request of our members, we've developed a program that allows Chief Human Resources Officers to designate leaders from their generalist community to participate in a 12-month program that blends classroom training, project-based activities, an online resource portal, an ongoing peer support and interaction. As you will recall, we launched this product in response to consistent request from our members for a cost-effective way to bring up the skills of their generalist community.

The business is off to a very strong start. We are particularly excited that it lets us tap a new member budget area and engage in new generation of future subscribers and users of our HR subscription programs. We are excited about this model, building out the creditability of content as well as the equity we have with our members, we have been able to expand into a new format with a very scalable model that we extend to other functional areas as soon as we have the key elements refined.

Today I am also delighted to announce the launch of the Corporate Leadership... Corporate Legal Exchange, CLEx as we call it internally, is our 50th program and the fourth product we have launched in the opportunity-rich middle market domain. To no one's surprise, the program addresses the needs of senior legal officers at the mid-sized company. These are senior executives responsible for a range of issues including legal affairs, compliance, board activities, and FX. But they often have very small, if any, staff to support them, unlike their colleagues at larger companies, and they try very hard to limit their use of extensive external counsel. In short, the EXBD services are an ideal solution for their situation.

The program's early success benefited from both the strength of our large corporate legal product and an intense focus on helping these members succeed with limited staff. As a result, the program features not only many ways for members to network with each other, both on and offline, but innovative tools to help members access the best research quickly. Particularly popular has been an online policy generator, which allows corporate counsel to point and click to build critical policies for their companies such as FCPA or insider trading. Early member feedback has been very promising. One member remarked that the resources on the website are terrific. I think of CLEx as a giant repository to get important question answered.

As always, the program benefited from the advise and guidance of the terrific group of early charter members, including Boston Market, RCM Corporation, ValueVision Media, and TiVo, Inc.

Let me wrap up. Our overall strategic goal continues to be penetrating our $5 billion immediately addressable opportunity as fast as we can. That opportunity requires us to do three things very well. First, we have to continue our success of adding new companies to the EXBD network. We are off to a very strong start here. Second, you will need to add between 15 and 20 new products to address the needs of these members. Our track record in developing and rolling out new products has been consistently strong and we are in target for this year's plans. And third, we must be able to cross-sell our full array of products into that expanded customer base.

We have traditionally been very successful at cross-selling into existing members. Now that our base is a critical mass of large members, we are developing the service and relationship management processes to ensure that we continue to grow with our largest customers. Doing these things to EXBD's standard and pace is always challenging, but the difficult economy facing our member companies requires that we be especially effective at creating outstanding relevant insights and resources, and personally engaging executives to enable them to act.

The four priorities I outlined are the ones that will enable us to add new members, bring on the highest value new products and cross-sell those products into our members. For 2008 in the foreseeable future, these priorities will continue to guide every step we take as a company. We will restore momentum to our North American sales operations. We are aligning sales and service strategies around the needs of our best members. We have put in place the technology and processes to engage member executives from day one of their membership with us and we are accelerating growth from newer markets and from products that target additional executive work flows and budgets in member companies.

I am confident that focus on these priorities will enable us to achieve the objectives that we have set for this year and beyond and while I'm encouraged by our early progress, I recognize that we have much real work ahead of us. I look forward to keeping you up-to-date on each of these initiatives as we continue to grow CV in the years ahead.

Thanks for calling in or logging in. We are happy to take questions now.

Question And Answer

Operator

[Operator Instructions]. We will set our first question from Mark Bacurin with Robert W. Baird.

Mark Bacurin - Robert W. Baird

Good morning guys.

Thomas L. Monahan, III - Chief Executive Officer

Good morning Mark.

Mark Bacurin - Robert W. Baird

A couple of questions, just on the expense timing, it sounds like it's a budgeted thing. Just wondering if you could give us some more color, it looks like member marketing expenses were up quite a bit in Q1, but then stock option expenses down. So, just wondering what the pluses and minuses are there as we proceed through the year?

Timothy R. Yost - Chief Financial Officer

Sure. Mark, from a timing perspective, most of the higher EPS relative to the original guidance is related to timing factors and as we laid out the expenses for the balance of the year with a revised EPS, I think you can get an idea of the general shape of the expenses more specifically at line items. As I said, we're still comfortable that will be roughly flat from a gross margin perspective for the full year. That marketing member services for the full year will be up about 50 to 100 basis points relative to 2007 levels reflecting our additional investments there and that will get some leverage on the G&A line of about 50 to 100 basis points offsetting that. So it will net out to a roughly flat operating or a EBITDA margin for the year of about 24%.

Mark Bacurin - Robert W. Baird

And, Tom, I guess, Tim, I guess, drilling down to specific stock option expense line, is that on a line item basis, do you expect that to be down year-over-year because looks like it's down quite a bit from Q1 to Q1?

Timothy R. Yost - Chief Financial Officer

On a line item basis, we do expect it to be down. As indicated in the press release; we expect about $4.5 million of share-based compensation expenses for each of the remaining three quarters.

Mark Bacurin - Robert W. Baird

Okay.

Timothy R. Yost - Chief Financial Officer

There was a bit of a true-up in the first quarter in our share-based compensation expense, but going forward rate is about $4.5 million per quarter.

Mark Bacurin - Robert W. Baird

Great. And then if I could shift over, you mentioned IT Toolbox seeing good growth and sounds like there is a couple of more product offerings coming out of that group. Can you... I think you guys are still toying with the revenue model there. I know it's ad-driven now, but there is some other opportunities you are looking at. Can you gives us any more color on what... kind of how the evolving revenue model looking there?

Thomas L. Monahan, III - Chief Executive Officer

Sure Mark. It's Tom. Yes, I think right now, we are very happy with the performance of IT Toolbox and we see the obvious opportunity to extend the platform to other functional domains that we serve. Our current plans are not to tinker with the revenue model, but as you'd guess, we like subscription-based revenue models, and the team is looking very hard at how we can supplement the great revenue model they have with one that gives us additional subscription income. But the new ones, at least at launch, will look a lot like the current model we've got.

Mark Bacurin - Robert W. Baird

Okay. So, pretty much all the revenue from IT Toolbox at this point still is coming through ad-driven revenue?

Thomas L. Monahan, III - Chief Executive Officer

All of it is, yes.

Mark Bacurin - Robert W. Baird

Okay, great. And then just finally on the cross-sale, particularly at the large customer account level. Any sense there? I mean, presumably it's still largely a function of just where we are in the economic cycle, but have you gotten any color as the sales teams have gone out, and you're not seeing the kind of uptick that you historically have? Is it primarily budget-constrained type comments coming back from those customers in terms of their unwillingness to step up the spend?

Thomas L. Monahan, III - Chief Executive Officer

Mark, I think the leadership team has gotten very, is... has always been very personally involved with our largest customers to understand what it will take to grow them. We took that up to an even more intense level in Q1. We heard two things from them when we've got very close, and asked them how best we can grow. First, we don't hear any sort of overall budget constraints. I mean, there are budget issues on a line by line basis at some companies, but overall our largest customers value what we do and see lots of ways in which we can help them be successful. When we do our job and get the right, best ideas and resources in front of the right people, our products create incredible ROI, especially at the price point where we operate, and underneath the umbrella of other categories of professional services spend. But those largest members do push us to do a far better job of working with them to make sure they can get the maximum benefit out of the full range of products and services that they use, and that's particularly true in areas where we work with several executives in the same functional area.

So, the feedback has led us directly to make sure that the sales product and service strategies are much more tightly integrated around the needs of our key buyer. It's a how we operate question, not a what we provide them question. As I said, we made early progress in the quarter, but this a very different way for us to go to market, so I still see some real work ahead of us. Obviously, with relationships at 4,700 companies and 90% institutional renewal rate, we have a strong foundation for driving cross-sell and we are very focused on taking that opportunity and turning it into outcomes.

Mark Bacurin - Robert W. Baird

That's great. Thank you.

Operator

And we will take our next question from Scott Schneeberger with Oppenheimer.

Scott Schneeberger - Oppenheimer & Co

Thanks, good morning. I guess I'll start off, some talk about seasonality of renewals. Could you guys take us just a little bit deeper on that? I am not sure I fully picked up on what's occurring there. Thanks.

Thomas L. Monahan, III - Chief Executive Officer

Sure, Scott. What's happening, you know that for the past several years, we've tried to reduce the seasonality of the... of our typical Q4 renewals, which historically has averaged a bit over 40%. The way we've have done that is primarily through the shifting of renewal pools and as a result, we now have much larger concentration of renewals in the first quarter. But the way the new sales come in across the year is largely the same as the typical historical pattern. So the net result is that the contract value growth rate in the earlier parts of the year is a little bit impacted by the shifting in that renewal pool. With more of that renewal pool up for renewal earlier in the year, you see less net impact from those new sales activities. As I said, the pattern normalizes across the year as those new sales come in, but because of that change it does a create a little bit of shift in contract value growth rate as that shift is happening. Does that make sense?

Scott Schneeberger - Oppenheimer & Co

I think so. Just, I guess, could you address then contract value and how that may trend? I know you don't provide guidance, but how might that trend? Obviously your revenue guidance shows lower year-over-year comps in the second and third quarter relative the first quarter. I am just wondering would we see contract value then slide down in the second and third quarter as well. I guess which would we see first as far as where we might see a turn?

Timothy R. Yost - Chief Financial Officer

Sure. The quick answer to that, obviously you are going to see the turn in contract value first before you see it in revenue and I did lay out a little bit of a contract value kind of ramp in my prepared remarks. And as we work off that weaker than expected Q4 of 2007, I would expect that growth rate for contract value on a quarter-by-quarter basis to look a little different than prior years. We would expect the contract value growth in Q2 and Q3 to stabilize at a level by just below our Q1 level, and then as we move into Q4, achieve our 10% to 15% contract value growth for the year as the higher activity levels that we've been pursuing all year are converted into sales opportunities in the fourth quarter.

Scott Schneeberger - Oppenheimer & Co

Okay, thanks, that's helpful. Shifting gears a little bit, you guys have just spoken about utilization of getting the... having the customer get better utilization rate off the bat with new programs. Is that an issue more with new customers or is that an issue you're seeing also with your large established customers? Can you just compare and contrast there? Thanks

Thomas L. Monahan, III - Chief Executive Officer

Yes, I think there are always returns to getting members to use the product more often and deeper into their organization. So improving it everywhere is a priority, but particularly for first year subscribers, we find that our ability to work with them, to quickly get them using the product, and getting their teams using the product has great impact on what has been the traditional weakness in the renewal pool, which is first year subscribers to the program. So there is always returns from improving utilization, but particular returns and a particular focus on our part of on getting first year subscribers to use the product at a level of depth and frequency that supports higher renewal rates.

Scott Schneeberger - Oppenheimer & Co

Okay, thanks. And could you just address a little bit about of the renewal mix in the first quarter?

Timothy R. Yost - Chief Financial Officer

Renewal mix?

Scott Schneeberger - Oppenheimer & Co

Yes, just what type of percent renewal we are seeing?

Timothy R. Yost - Chief Financial Officer

I think at this point in time we are tracking in line with our renewal performance across the earlier part of last year.

Scott Schneeberger - Oppenheimer & Co

Okay.

Timothy R. Yost - Chief Financial Officer

... levels above Q4.

Scott Schneeberger - Oppenheimer & Co

Okay, thanks. That is helpful. That's all for me. Thank you.

Operator

We will take our next question from Gary Bisbee with Lehman Brothers.

Gary Bisbee - Lehman Brothers

Hi, guys, good morning. I guess a couple of things. Number one, I think you hinted a couple of times that you have had progress, obviously the lower sales turnover is real positive, but progress in the early part of the process, i.e. may be setting up sales meeting. Did I hear that right? And then is it too early to have a sense as to how the close rate is going and I guess just trying to gauge your confidence in driving these meetings that your setting up from the better sales performance, closing them given the weak economy? Thanks.

Timothy R. Yost - Chief Financial Officer

Sure, Gary. As Tom alluded to in his prepared remarks, we did see an improvement, both in the upfront activities in the North America sales process as well as the outcome. So we did see more positive growth rates from that large company North America market in Q1 of 2008 than we saw last year.

Gary Bisbee - Lehman Brothers

Okay, all right. And in terms of... I know you don't tell us what the subscription sold growth, you don't give us a number for that on a quarterly basis, but can you give us any sense over the last few... it sounds like it got a little better in Q1 than it's been. Can you give us any sense as to what that trend of year-over-year growth has looked like, or how it's changed over the last few quarters? And may be I'll be a little more specific like did it get a lot worse as you moved through '07, and now it's sort of rebounding, because the comps [indiscernible] in your performance have gotten better, or just trying to -- ?

Timothy R. Yost - Chief Financial Officer

You could look at the contract value of ramp across 2007 and say that the performance declined across the year. The comparisons relative to Q1 last year are still higher than we're performing at in Q4, 2007, and I think our comments are that we're seeing improvements off of even those rates.

Gary Bisbee - Lehman Brothers

Okay. And the one number I missed, I think you gave us an absolute dollar number in terms of the amount of costs, whether it was paying the two leases in the quarter, the cost that won't recur, what was that?

Timothy R. Yost - Chief Financial Officer

$6 million?

Gary Bisbee - Lehman Brothers

$6 million in the quarter that is not going to be there going forward.

Timothy R. Yost - Chief Financial Officer

That is not going to be there in the run rate going forward. So $4.5 million of that is related to the overlap of leases, and $1.5 million of that is just a move related expenses.

Gary Bisbee - Lehman Brothers

Okay. And then just one last question which is, I understand you talked about the timings of costing being different, and I think you made a comment that it was related to the priorities for the year. Just curious to me how if you're spending on trying to implement these four priorities, how spending was a lot lower in Q1, but is expected to be a lot higher in Q4 than your prior guidance. It would seem to me that it would... rationally it would seem like it should have been the other way, like you're spending more early in the year, but you hope to get returns on that later in the year. Was there also movement in your meetings, movements on your printing stuff or some of the things that we've heard of in the past?

Timothy R. Yost - Chief Financial Officer

Sure, there is some shift related to the other, the other expenses, as you have historically seen that as we've gotten deeper into the budgets and making sure that we're aligning the deliverables and the meetings up at the right time with the member renewable decisions, there are always shifts like that they take place. In addition in Q4, we are were only looking to see productivity less and improvements from the investments we've made across the year, but we were also looking to make sure that we are setting ourselves up well so that as we enter 2009, we have got a lot of those investments already in place.

Gary Bisbee - Lehman Brothers

Okay, thanks a lot.

Operator

We'll take our next question from Ben Mackovik with Rivana Capital [ph] Capital.

Unidentified Analyst

Thanks, my question was already asked.

Operator

Then we will take our next question from Brandt Sakakeeny with Deutsche Bank.

Brandt Sakakeeny - Deutsche Bank

Thanks, hi Tom and Tim. I think question for Tom. Tom, could you just give us some specific tangible examples, may be in the finance and HR area, as to how you are better coordinating the programs and the clients within those programs?

Thomas L. Monahan, III - Chief Executive Officer

Sure. I mean, if you look at a place like finance and HR, as I talked about in the quarter, we realigned the service and product teams underneath a single general manager, and tightly aligned the sales organizations to them so that a real tangible way to think about it is if we have been out visiting a member to do, let's say, an onsite presentation of research and someone asks, say, another functional head asks a question that presenter or researcher has a much clear pathway to come back and say, hey I was visiting the CFO today and the treasure asked me a question, I think we are very well positioned to answer. So making sure that we are taking advantage of our installed base of service relationships to create opportunities to drive that front end of the sales pipeline is a very high priority for us, and getting this people tightly aligned with one another, even the process of getting them colocated here in Waterview and our different offices around the world is creating some early progress there. Like I said, this is different than we have been organized and operated in the past, but we are seeing early progress.

Brandt Sakakeeny - Deutsche Bank

Got it. Okay. So it doesn't sound like there's a huge incremental cost to this, rather it's just sort of... just sounds like better communication among the different divisions.

Timothy R. Yost - Chief Financial Officer

Most of the costs were already in place, Brandt. We just weren't organized in a way to optimize the productivity from that cost investment, yes.

Thomas L. Monahan, III - Chief Executive Officer

Wecertainly are tweaking incentives plans here and there to make sure the right behaviors happen, but at a total cost level, you shouldn't see it show up.

Brandt Sakakeeny - Deutsche Bank

Okay, great. And then given, I guess, the [indiscernible] on the CV growth and the large company cross-sell. It sounds like we could read into that that the growth initiatives that are being successful are sort of new product launches and the European expansion less large company client growth rates. Would we expect to see that large client cross-sell turn positive in the second and third quarter?

Timothy R. Yost - Chief Financial Officer

Most likely given the ramp around contract value, it would kind of stabilize, Q2 probably show a little bit of an uptick as we enter Q3 and then show the typical seasonality that we see a larger increase in Q4.

Brandt Sakakeeny - Deutsche Bank

Okay, great. And on the sales force side, did you give the sales force headcount?

Timothy R. Yost - Chief Financial Officer

333 teams.

Brandt Sakakeeny - Deutsche Bank

Okay, thank you. And stock option, did do you say about $4.5 million per quarter going forward?

Timothy R. Yost - Chief Financial Officer

Yes.

Brandt Sakakeeny - Deutsche Bank

Okay great. Thank you.

Operator

We will take our next question from Brandon Dobell with William Blair.

Brandon Dobell - William Blair & Company

Thanks. Maybe one for Tom, digging in a bit more as you are talking about working more closely with clients, I want to make sure I understand what you are talking about from either I think kind of a servicing perspective or implementation perspective, should we take your comments to mean you are going to... the roles the people that you put on the clients are changing to the point that there is a little bit of more of a consultative feel to what they are doing where they spend more time on client sites or is it really just you've got different assets aligned against different people of those customers and not really a consultative arrangement?

Thomas L. Monahan, III - Chief Executive Officer

Yes, I mean, we always think that we have been in consultative conversations with our members. So that piece hasn't changed. You have seen us to put a much larger portion of our sales and service organization closer to our member base by opening up Chicago, San Francisco, Sydney, putting more people in London et cetera. The explicit goal of that is to make sure that those people are closer to the members and prospects, prospective members that they are working with and therefore onsite more often. We do believe there are significant returns in addition to getting into new talent markets. So, yes, that's absolutely part of it.

People... I think what's new from a process perspective is the level of coordination that both co-location and better alignment is intended to achieve. So it's not that people weren't being consultative when they were with members that we weren't converting those necessarily into more opportunities to talk to them about growth.

Brandon Dobell - William Blair & Company

Okay. And as follow on then, of the 333 team number you have mentioned, any sense of how that would split out between people over, in your kind of core market versus the new office built in the last year or so?

Timothy R. Yost - Chief Financial Officer

On a year-over-year basis, certainly from a percentage growth perspective, it is the higher growth in sales force for the faster growing parts of the market.

Brandon Dobell - William Blair & Company

Yes.

Timothy R. Yost - Chief Financial Officer

Middle market and European sales. The North-American piece has a very pretty substantial growth piece as well.

Thomas L. Monahan, III - Chief Executive Officer

And, Brandon, just to make sure I got your question, are you asking the markets we serve or are you asking offices?

Brandon Dobell - William Blair & Company

Offices. Actually it was intended for both, but I guess office as well, too.

Thomas L. Monahan, III - Chief Executive Officer

All right I'll answer to the other half of them, which is obviously we didn't have Chicago and San Francisco at this time last year. So, initially a lot of that growth is happening closer to the member company and that's good news all around. We luckily had some great leaders in those market who are willingly able to step up and into leadership positions, and assume leadership roles as we built it up. We've gotten those people some terrific talent underneath them to get closer to the member organizations. So, yes, a lot of that growth is happening outside of Washington

Brandon Dobell - William Blair & Company

Okay. Should we assume that the rest of the year we should think of more offices opened or are you satisfied with the footprints you have?

Thomas L. Monahan, III - Chief Executive Officer

I think our bias historically has been a run a smaller number of offices to scale. We see real benefits from culture, we see real benefits from collaboration. So, I don't think you are going to see us rolling out dozens more offices between now and the end of the year. Here and there along the way we may see a market that's underserved, but right now we're pretty comfortable with the line up we've got.

Brandon Dobell - William Blair & Company

Okay. A quick housekeeping one for you, Tim. I may have missed. Did you talk about the IT Toolbox revenue contribution in the quarter?

Timothy R. Yost - Chief Financial Officer

We didn't exclusively break out the exact dollar amount. I did say it's tracking in line with our expectation and we said at the time of the acquisition it was $7 million to $8 million for total '07 revenue growing about 40%. So it gives a pretty good indication of where they are.

Brandon Dobell - William Blair & Company

Okay, perfect. Great, thanks guys.

Operator

Thank you. And we have no further questions. I would like to turn the conference back over to Mr. Monahan for closing remarks.

Thomas L. Monahan, III - Chief Executive Officer

Thank you all for calling in or logging in this morning. Tim and I will out on the road in Q2. Tim will be at the Merrill Lynch conference in May and Tim and I will be together at the Blair conference in Chicago in June. We look forward to using these and other opportunities to keep you up-to-date on the major priorities that CEB is pursuing as we drive further 2008 outcomes. Thanks so much.

Operator

Thank you. This will conclude our conference call today. We appreciate your participation. You may disconnect at this time.

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