After a nasty start to 2008 sent shares tumbling, Corporate Executive Board (Nasdaq: EXBD) shareholders received a much-needed boost Thursday when pleasing results sent shares up 13%.
Nonetheless, it wasn't exactly a fairy-tale quarter for the best-practices research and management services company. First-quarter net income came in at $15.9 million, an 18% drop from last year. Accounting for an aggressive share buyback, earnings fell only 10%, to $0.45 per diluted share from $0.50. Revenue rose 10.8% to $138 million, up from $125 million in the same period last year.
Contract values increased by 8.8% during the quarter, reflecting new clients and increased sales to existing customers. CEB recently launched a membership program designed to assist legal executives in medium-sized companies.
Taking advantage of its juicy cash-flow model and crumbling share price, CEB continued its share repurchases, buying back around 940,000 shares for $37.6 million during the quarter. Management hasn't been bashful about scooping up shares in recent years, repurchasing more than $500 million worth of stock since 2005. Has it been a wise use of cash? That's tough to say; shares have been hammered since peaking at more than $100 two years ago.
What lies ahead? CEB expects contract value growth of 10% to 15% for the year, revenue growth of 5% to 10%, and net income of $2.06 to $2.22 per diluted share. Any significant downturn in the economy likely would have a pressing impact on CEB's prospects, as clients anticipating hardships hunker down and cut costs. Rivals Resources Connection (Nasdaq: RECN), Advisory Board (Nasdaq: ABCO), and FTI Consulting (NYSE: FCN) could face a similar slowdown in outsourced consulting if the economy begins to soften and nonessential business services get axed.
Regardless, CEB Chairman and CEO Tom Monahan remains moderately chipper. "I'm encouraged by our progress across the first quarter. Contract value growth got off to a solid start, offset by continued overhang from a weaker than expected Q4 2007 and a shift in the seasonality of our renewals," Monahan said. "We have confidence that we are on the right set of priorities to drive 2008 outcomes and longer-term growth, but we realize that we need very sharp execution given the selling environment that we confront."
With shares down about 27% year to date, a decent amount of pessimism has already been priced into CEB's stock. Those patient enough to wait out the economic storm could be in for a pleasant surprise once CEB gets back on track.
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