Every company wants to be the best, or at least they all say they do. Corporate Executive Board
Instead of working on specific projects for specific clients, Corporate Executive Board has created membership programs that allow companies to target specific areas of improvement (like the aforementioned human resources, marketing, etc.). Corporate Executive Board, which is one of Tom Gardner's most successful Motley Fool Stock Advisor recommendations, charges an annual subscription for this service and takes payment up-front, while deferring revenue recognition over the length of the subscription. This might ring a bell with Fools familiar with workplace Internet spoiler Websense
While the business model may be a bit unorthodox, the results speak for themselves. Revenues and earnings per share were up 31% in the fourth quarter, and the company generated about $110 million in free cash flow (not surprisingly, that amount is up about 33% from last year as well).
Strong cash flow has led the company to up its dividend by 33% (to $0.10 per share) and expand its share repurchase program to $130 million. Fools should note, though, that that level of share repurchase will help cover options and other dilution, but won't significantly reduce the number of shares outstanding.
While subscription price increases of about 1.2% were below its own targets, the 91% renewal rate, the net addition of 225 subscribers, and the increasing success of Corporate Executive Board's cross-sell efforts (3.46 subscriptions per member at year-end, versus 2.99 at the beginning) all help to more than soften the blow. What's more, while pricing may be more stable than the company would like, the average contract value climbed from about $227,000 to almost $295,000 at year-end.
Looking ahead, the company is targeting 25% revenue growth for 2005. This year, there will also be a CEO transition to Thomas Monahan, as current CEO James McGonigle remains as executive chairman.
Valuation remains robust, with an enterprise value-to-free cash flow ratio of 22 (and EV-to-structural free cash flow of almost 47) and a trailing price-to-earnings ratio of almost 45. All the same, the company has a compelling record of revenue, earnings, and cash flow growth, and high-quality growth rarely sells cheaply. While this Fool will be standing on the sidelines, risk-tolerant growth investors who are comfortable with high valuations should take a long look at this stellar grower.
Since Tom Gardner recommended Corporate Executive Board in the August 2002 issue of Motley Fool Stock Advisor , the company's shares are up 127.75% versus the Standard & Poor's 500's 29.44% gain over the same time. Subscribe today without risk for six months to learn more.
Fool contributor Stephen Simpson, a chartered financial analyst, has no ownership interest in any stocks mentioned, though he can't help remembering that he coulda, woulda, shoulda bought Corporate Executive Board shares in early January 2003 for 30 bucks apiece.
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