Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Information

Note 16. Segment Information

Operating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker of an enterprise. The Company has two reportable segments, CEB and SHL Talent Measurement. The CEB segment, which includes the Company’s historical business operations prior to the acquisition of SHL, provides comprehensive data analysis, research, and advisory services that align to executive leadership roles and key recurring decisions. CEB’s products and services focus on several key corporate functions across a wide range of industries. The CEB segment also includes the operations of PDRI, a service provider of customized personnel assessment tools and services primarily to various agencies of the US government and also to commercial enterprises, and recently-acquired KnowledgeAdvisors and Talent Neuron.

The SHL Talent Measurement segment, which includes the operations of SHL (other than PDRI), provides cloud-based solutions for talent assessment, talent mobility, and decision support as well as professional services that support those solutions, enabling client access to data, analytics and insights for assessing and managing employees and applicants. SHL Talent Measurement provides assessments that assist customers in determining potential candidates for employment and career planning, consulting services that are customizations to the assessments, and training services related to use of assessments.

The Company evaluates the performance of its operating segments based on segment Adjusted revenue, segment Adjusted EBITDA, and segment Adjusted EBITDA margin. The Company defines segment Adjusted revenue as segment revenue before the impact of the reduction of SHL and KnowledgeAdvisors revenue recognized in the post-acquisition period to reflect the adjustment of deferred revenue at the acquisition date to fair value (the “deferred revenue fair value adjustment”). The Company defines segment Adjusted EBITDA as segment net income/(loss) before loss from discontinued operations, net of provision for income taxes; interest expense, net; depreciation and amortization; provision for income taxes; the impact of the deferred revenue fair value adjustment; acquisition related costs; impairment loss; debt extinguishment costs; share-based compensation; costs associated with exit activities; restructuring costs; and gain on acquisition. Segment Adjusted EBITDA margin refers to segment Adjusted EBITDA as a percentage of segment Adjusted revenue.

Management uses these non-GAAP financial measures to evaluate and compare segment operating performance. These segment non-GAAP measures may be considered in addition to results prepared in accordance with GAAP, but they should not be considered a substitute for, or superior to, GAAP results.

Information for the Company’s reportable segments was as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenue
CEB segment	$	179,100		$	158,709		$	515,189		$	463,666
SHL Talent Measurement segment		49,908			43,026			153,683			132,951
Total revenue	$	229,008		$	201,735		$	668,872		$	596,617
Adjusted revenue
CEB segment	$	180,128		$	158,709		$	518,064		$	463,666
SHL Talent Measurement segment		50,583			44,393			155,745			141,777
Total Adjusted revenue	$	230,711		$	203,102		$	673,809		$	605,443
Operating profit
CEB segment	$	39,750		$	10,357		$	52,966		$	67,683
SHL Talent Measurement segment		(1,701	)		(4,612	)		(5,669	)		(10,721	)
Total operating profit	$	38,049		$	5,745		$	47,297		$	56,962
Adjusted EBITDA
CEB segment	$	56,343		$	45,014		$	136,328		$	124,879
SHL Talent Measurement segment		10,165			5,125			25,251			23,483
Total Adjusted EBITDA	$	66,508		$	50,139		$	161,579		$	148,362
Adjusted EBITDA margin
CEB segment		31.3	%		28.4	%		26.3	%		26.9	%
SHL Talent Measurement segment		20.1	%		11.5	%		16.2	%		16.6	%
Total Adjusted EBITDA margin		28.8	%		24.7	%		24.0	%		24.5	%
Depreciation and amortization
CEB segment	$	7,917		$	6,964		$	25,052		$	21,256
SHL Talent Measurement segment		8,738			8,323			26,534			23,520
Total depreciation and amortization	$	16,655		$	15,287		$	51,586		$	44,776

The table below reconciles revenue to Adjusted revenue (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Revenue	$	229,008	$	201,735	$	668,872	$	596,617
Impact of deferred revenue fair value adjustment		1,703		1,367		4,937		8,826
Adjusted revenue	$	230,711	$	203,102	$	673,809	$	605,443

The table below reconciles net income to Adjusted EBITDA (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net income (loss)	$	21,382		$	(5,383	)	$	22,617		$	19,393
Provision for income taxes		18,040			(2,612	)		21,239			12,485
Interest expense, net		4,477			4,901			13,632			17,424
Depreciation and amortization		16,655			15,287			51,586			44,776
Impact of the deferred revenue fair value adjustment		1,703			1,367			4,937			8,826
Acquisition related costs		407			4,022			2,852			7,044
Impairment loss		—			22,600			39,700			22,600
Debt extinguishment costs		—			6,691			—			6,691
Gain on cost method investment		—			—			(6,585	)		—
Share-based compensation		3,844			3,266			11,601			9,123
Total Adjusted EBITDA	$	66,508		$	50,139		$	161,579		$	148,362
Total Adjusted EBITDA margin		28.8	%		24.7	%		24.0	%		24.5	%