Q4 2019 Earnings Call
Good day, everyone welcome to Charles River Associates fourth quarter fiscal year 2019 conference call.
Today's call is being recorded.
Today's release in prepared remarks from series Chief Financial Officer are posted on the Investor Relations section of serious website at <unk> Dot com.
With us today, our series, President and Chief Executive Officer, Parmele, Chief Financial Officer, Chad Holmes.
At this time I would like to turn the call over to Mr. homes for opening remarks. Please go ahead Sir.
Thank you Rob.
I'd like to remind everyone that the statements made during this conference call, including guidance on future revenue and non-GAAP EBITDA margin for fiscal Twentytwenty and any other statements concerning the future business operating results financial condition of sea ray, including those using the terms expect outlook or similar terms.
Our forward looking statements as defined in section 21 of the exchanges.
Information contained in these forward looking statements is based on management's current expectations and is inherently uncertain and actual performance and results may differ materially from those expressed or implied in these statements due to many important factors additional information regarding these factors is included in today's release N series periodically.
<unk>, including our 10-K with the FCC.
Sea Ray undertakes no obligation to update any forward looking statements. After the date of this call.
Additionally, we will refer to non-GAAP financial measures on this call and certain measures presented on a constant currency basis, everyone is encouraged to refer to today's release related CFO remarks for reconciliations of these non-GAAP financial match measures to their gap comparable measures and descriptions of the calculation of EBITDA.
Okay and measures presented on a constant currency basis, let me now turn it over to pull for his report Paul.
Thanks, Chad and good morning, everyone. Thank you for joining us today.
With each year and with each decision sea ray sets out to maximize long term value per share such a goal requires an optimal distribution to capital that is directed between investments that drives value, creating growth and a return of capital to our shareholders.
During the past five years, we've increased our consulting headcount by more than 70%, while maintaining an average utilization of 75%. This is translated into revenue growth of 50% over the past five years. During this timeframe our assets have become more productive.
As demonstrated by the average revenue per vice president increasing by more than 25%.
This has contributed to non-GAAP EBITDA net income and he P.S. growth of 43.
77% and 113% respectively over the five year period. In addition to reinvesting in our business. We have also returned substantial capital to our shareholders. Since fiscal 2015, we have repurchased $97 million over our common stock at an average price.
Approximately $35 per share and reduced our shares outstanding by 15%.
Dividend payments provided additional $18 million to our shareholders for total redistribution of $115 million over the past five years equating to a shareholder yield of approximately seven and a half a percent.
Following a record setting 2018 sea Ray delivered an encore in fiscal 2019, with 8.1% year over year revenue growth and 13.4% head count growth while at the same time recording utilization of 75% for the full year I'm, especially.
Please and the way we continue to position the firm for future success.
During fiscal 2019, we made several telling investments to augment our teams and antitrust and competition economics finance forensic services and our new risk investigations and analytics practice. These efforts continued in the fourth quarter as we welcomed a group of a group.
Tire of approximately 25 consultants and our antitrust and competition economics practice next month, we look forward to consolidating this with our colleagues from our Oakland and Pleasanton offices into new office space in downtown Oakland. This new consolidate office will house approximately 75 colleagues.
And three sea Ray practices.
Turning to a few highlights of the quarter.
Within our and our trust competition economics practice, our colleagues in Europe advice over in a recent high profile case, the Supreme Court Oh, the state of New York, an older regulation that would have required for all your vehicle basis, such as food brand lift to limit the time drivers on their platform spend crew.
<unk> without a passenger in the vehicle to 31% of total driving time in lower Manhattan. The court ruled and Hoover's favor that the cruising cap was without sound basis, a in reason and impose without regard to the facts within our finance practiced theory continue.
I used to work on matters stemming from the government's heightened activity investigating it prosecuting institutions and individuals for spoofing and related manipulative activity in financial markets.
In addition series worked and continues to work on largest securities litigation matters in the U.S. and other countries.
Forensic service practice continues to experience strong demand from companies that need our help responding to allegations of fraud misconduct and noncompliance, but the team recently investigated a ransomware event at an international health care company that impacted operations in multiple countries. So.
They determine the source of the intrusion provided information associated with the crime syndicate assisted the client with remediation efforts and provided a security mapped to the company's board. In addition to practice performed a similar investigation at a global media company that also experienced a ransomware.
It affecting its global operations.
Label employment practice continues to assist clients facing nationwide discrimination litigation and state and federal wage and hour issues across a variety of sectors, including professional services information technology and transportation as clients start their annual compensation review and incentive.
Processes. The practice is regularly engaged to assist with privileged proactive audits to ensure decisions are consistent with an unbiased process I'm grateful to all of my colleagues for their hard work throughout the year as we help our clients address their most challenging their most important challenges right.
Capping fiscal year 2019 revenue on a constant currency basis was $455.3 million consisting of 451.4 million of reported results and a 3.9 million dollar adjustment for currency headwinds relative to fiscal 2018.
For full year, non-GAAP, EBITDA, and non-GAAP EBITDA margin were $44.1 million and 9.8% respectively on a constant currency basis, non-GAAP EBITDA decreased by <unk> point $1 billion to 44 million or 9.7% or.
Revenue, if we add back the foreign currency loss of $1.3 million non-GAAP EBITDA margin would've been 10% on a constant currency basis.
Our fiscal 2019 financial performance demonstrates our continued success in the marketplace, new business opportunities and project originations grew significantly over fiscal 2018 and improved during the calendar year 2019, we'd look to build on our trend a broad based profitable.
Growth in the years ahead for full year fiscal 2020 on a constant currency basis relative to fiscal 2019, we expect revenue in the range of $495 million to $510 million and non-GAAP EBITDA margin in the range of 9.2 to 10 point.
2%.
While we are pleased with series strong performance in 2019, we of course remain mindful that the short term challenges arising from uncertainties around global economic and political conditions kind of.
Excuse me can affect our business and now I'll turn the call over to chat for a few additional columnists Chad.
Thanks, Paul as a reminder, more expansive commentary on our financial results is available on the Investor Relations section of our web site under prepared CFO remarks, before we get your questions. Let me provide a few additional metrics related to our performance in the fourth quarter fiscal 29 team.
In terms of headcount we ended the year was 779 consulting staff, which consisted of 128 officers 434, other senior staff and 217 Junior staff. This is a net increase a 13.4% year over year compared with the 687.
Total head count were reported at the end of fiscal 18.
Non-GAAP selling general and administrative expenses as a percentage of revenue excluding the 2.7% attributable to commissions to Nonemployee experts was 18.0% for the fourth quarter fiscal 2019, compared with 17.5% a year ago.
Also worth noting is that profits were negatively impacted by approximately $920000 a foreign currency losses in the fourth quarter, which resulted from net losses on foreign denominated transactions in the revaluation of working capital balances. These losses arose mainly from fluctuations in the euro and pound exchange rates, which were affair.
Got it by the ongoing political uncertainty surrounding Brexit for the year FX losses negatively impacted profits by a total of $1.3 million.
The effective tax rate for the fourth quarter on a non-GAAP basis was 22.8% compared with 19.2% on a non-GAAP basis for the fourth quarter 2018 for the full year 2019, or non-GAAP effective tax rate was 23.3% compared to 21.8%.
For fiscal 2018, the increase in our effective tax rate both for the fourth quarter and full year was driven primarily by our jurisdictional mix of earnings.
Turning to the balance sheet, we concluded fiscal 2019 with $25.6 million of cash and cash equivalents and no outstanding borrowings Dsos at the ended the fourth quarter was 105 days compared with 108 days at the end of the third quarter fiscal 2019.
Yes, so in the fourth quarter consisted of 77 days, a build and 28 days of Unbilled.
In the fourth quarter, we paid a quarterly cash dividend of 23 cents per common share up 15% from the third quarter.
For the full year dividend payments equaled $6.8 million in total we returned $24.9 million to our shareholders through a combination of share repurchases and quarterly dividends demonstrating our confidence in our long term outlook and our commitment to returning capital to our shareholders.
Further supporting this view as announced earlier today serious board of directors authorized an expansion to our existing share repurchase program of an additional $20 million in value of shares of common stock, bringing the total amount available under our share repurchase program $23.5 billion.
Finally, we announced earlier today that our board of directors declared a quarterly cash dividend of 23 cents per common share payable on March 20th 2022 shareholders of record as of March 10 2020.
That concludes my prepared remarks before we turn the call over to questions. Paul has a few final comments Paul. Thanks, Chad. In addition to this morning's earnings and dividend announcement Sea Ray communicated a few organizational and governance changes intended to build on the successes that we have enjoyed over.
For the past several years and to continue the momentum in the quarters and years ahead.
First we are dividing the responsibilities of the CFO and Chief Corporate development officer into two executive officer positions reporting directly to me Chad has led our corporate and our corporate development efforts since 2009 and will transition to this new role full time as executive Vice President and Chief.
Corporate development officer, once we identify a new CFO.
We've also announced.
That current board chairman role Moriarty plans to retire at our annual meeting scheduled for July.
Card member Bill Concannon will become independent lead director and I will assume the chairman role, we will forever be grateful to ROE for his thoughtful and dedicated leadership over the past 34 years.
And with that I would like to turn the call over to Robert or Who's gonna be fielding questions questions.
Thank you.
This time will be conducting the question answer session.
If you like to ask a question. Please press star one from your telephone keypad and a confirmation telling will indicate your line is and the question Q.
The press Star too if you like to remove your question from the Q.
Assistance through using speaker equipment, maybe necessary to pick up your handset before pressing the star he's.
One moment, please hold the poll for questions.
Thank you.
Our first question is from the line of Andrew Nicolas with William Blair. Please proceed with your question.
Hi, Good morning, and this is actually Trevor only on for Andrew Thanks for taking my call.
Hi, Good morning first of all.
Morning, first just wanted to kind of ask on the revenue guidance, which seems to imply accelerating growth in 2020.
And at the same time, you kind of talked about you know uncertainties and global economic and political conditions. So just I guess what gives you the conference that you'll be able to achieve accelerating growth in 2020, despite the uncertainty as you see right now.
I mean, you always have to be mindful of the uncertainties, we're seeing across the globe, but with that said I have not observed any kind of slow down and series business activities. Both in terms of our ability to higher talented colleagues.
Second to buy the business opportunities are coming through the door and lastly, our ability to convert those.
Into revenue generating projects.
We've seen this consistency not just in 2019, but quite frankly for the past several years, so with that we remain confident in the guidance that was communicated today.
Okay, Great and then given I guess, what seems like pretty broad based growth you've seen I guess over the past few years as you said, where do you specifically would you see revenue growth accelerating in 2020 would it be kind of similar you know almost every practice across the firm accelerating or would that be concentrated in any.
Certain pockets.
We've enjoyed the broad based growth and by definition that means I have different practices contributing a different points in time. This team effort has led to the consistency of our results and really the upward trajectory over our overall performance a in 20.
The 20, I really I'm expecting contributions from all my practices of course at different levels of that but some of it to be expected in some of it will be pleasant surprises as we'd go along so if you're a member of our service portfolio. The expectation is you're going to be assisting us in.
Creating value for our shareholders in 2020 and beyond.
Great and then if I could maybe just ask one more maybe particularly given the announcements today regarding the.
The chief corporate development role and congrats Chad by the way on that.
Could you just talk about your thoughts currently on the the acquisition environment should we read this announcement as sort of an increasing focus there.
I think what went away the way to read the announcement and quite frankly the way. It was intended is we're quite proud of the success that we've enjoyed over the last several years, but we also acknowledge that staying Pat is not a recipe for future success.
We would like to bolster our senior leadership team to provide us the bandwidth to both do what we have to internally with respect to our for natural administration.
Requirements, but also provide the bandwidth to take advantage of the hiring opportunities we're seeing in the marketplace.
Okay, great. Thank you very much very helps sure.
Thank you as a reminder, ask a question today you May press star one from your telephone keypad.
Our next question comes from the line of Kevin Steinke with Barrington Research. Please proceed with your question.
Morning.
Good morning.
Hey.
Maybe I.
It's a it's been in the news a lot lately in terms of all the scrutiny on the Big Tech companies from an anti trust perspective.
Do you see that playing a significant role.
And your outlook for 2020 and beyond a I know you're generally involved in and you know the largest matters out there. So just wondering if you see there is a specific growth driver as you move over into 2020 and beyond.
Yeah sure without divulging any of the specifics about engagements a as we mentioned in the past a the increase regulatory scrutiny that we're seeing both here in the states and abroad is clearly a driver our demand a were seeing active matters as a result of this active.
Today.
And we expect to be a significant player in future matters going forward.
Okay, Great and maybe just a touch on the utilization rate in the quarter.
Just a bit below your typical kind of mid Seventys I'd say, it's just kind of reflective of the it accelerated hiring in anticipation of the a strong growth you see going forward.
Yeah, I think your answers about as good as though that I'm going to be providing you a growth takes investments sometimes that investment takes a form of an acquisition that you bring on individuals at one time and sometimes it's a little more grass root on the hiring if we want to grow in that 10% to 13% range.
As implied by our guidance, we need to have the colleagues here and capable of delivering those services. So you always are gonna have a little bit of a lag.
Between bringing on the staff and then it's just how quickly can you get those assets ramped up.
We're quite happy with the level of utilization in Q4, given the fact that headcount grew more than 13%.
Year over year in that quarter. So we're not changing our overall expectations of productivity and you know as long as we have the upward trajectory for the business that 72% utilization doesn't cause us any concern.
Okay, Great and then can you just touch on on the margin guidance for 2020, a you know implies kind of up but up or down in terms of you know where you came in versus 29 to you and I know a C areas all already operating as a pretty lean organization, but.
Just maybe a any comments on you know margin trends and and.
<unk> expenses are investments is Ah you move into 2020.
Sure we've been able for or now an extended period of time as as demonstrated by some of the statistics I gave earlier in my comments, we've been able to grow profits at a faster rate than revenue now for an extended period of time. Our goal is to continue to try to provide a that expansion.
The guidance range of 9.2% to 10.2% I think covers that range were always looking to become more efficient both in the way we deliver our selling general administrative services, but also the way we deliver services to our clients.
So.
We're not retreating from our desire or to be creating value, creating growth by driving the topline and bottom line or on our income statement.
Okay and I.
I believe in your prepared comments you you talked about average revenue per VP being up what 25% I think that was over a multiyear period, but.
What does the opportunity if any that you see for that metric going forward is there's still room to expand revenue per V. P is you move forward.
Sure that expansion of revenue <unk> revenue per VP has a couple of factors that I guess are important to highlight of the first is we're always looking.
For important affiliations with various experts either in academia or an industry.
And that is helping raise that revenue per consultant or revenue per VP figure.
Secondly, the quality about portfolio has been steadily improving if you look at the VP count over that extended window of time for the past five years. It has remained relatively flat, but yet sea ray has enjoyed nearly 10% per annum growth rate.
Those are all things that go into the comment of the quality of this portfolio is improving.
On that so we still believe there's upside potential on that so.
I don't know who's going to enjoy I don't know, whether you're going to enjoy the same level of growth in the next five years as we've seen previously, but I think there's still room to get better.
Sure sure Yeah makes sense okay.
And I suppose you know obligatory question given the news headlines in terms of the Corona virus I mean have you seen.
Any impact at all in terms of your your People's ability to travel or you know a any impact on your clients a business that business activity today, you know keeping in mind. It obviously, a it's a fluid situation, but just any comments around that or your thoughts on.
Any potential impact.
Sure today I can't say that we have observed a shift in the business activity as a result of the Corona virus on that our main concern right now is as to the safety of our colleagues.
Who travel abroad regularly outside of their home office. So our monitoring is much more related to ensuring the safety of our colleagues a ensuring they get home.
You know without event.
Okay.
And then that's helpful and then lastly, maybe shed what.
What do you expect for for a tax rate and 2020, how should we think about that.
Sure.
2020, a we're estimating a full year effective non-GAAP tax rate it to be in the range of 27% to 30% a that range or could be affected by a few factors, most notably jurisdictional mix of earnings discrete.
Adams, such as stock based comp a and of course, our stock price during the year as it relates to our accounting for for a stock based compensation. All all of these things can introduce volatility to our effective tax rate quarter to quarter, but for the year, 27% to 30% would be the range.
Okay, great maybe if I'll throw one last one in their share given your transition to a.
The new role I'm just.
<unk> I see you hired a won a large search firms to assist in your search, but maybe do you have a kind of a timeline as to how quickly you'd like to find a new CFO and you know any characteristics of Ah the person you'd be looking for.
Sure how about if I take that one Kevin or where are actively you know searching for a new CFO and new member to our senior corporate team on that there's no defined timeline on it.
We feel quite comfortable or for Chad continue in the role of both CFO and Chief Corporate development officer until such time, when we do identify in individual you know all of you will be the first to know.
At which time a that new CFO will report to me the C. A CEO a and also chads role as Chief Corporate Development Officer will also be reporting to the seals office.
Okay. Thanks for taking the questions in a congratulations on the nice results today. Thank you. Thank you.
Our next question comes in the line of Marc Riddick, What's the Dougherty. Please proceed with your question.
Hi, good morning.
Good morning, Mark.
So a lot about what I was going to it.
Talk about was already covered I didn't want to just just a couple of small items a wanted to see if there was a follow up on where you were with the with Capex I mean, I know, we were finishing up with increased spending on Boston facilities. I was wondering if he could discuss where you're looking for capex for 22.
He and then if we're continuing to look to return to I guess more normal levels there.
Sure so consistent with prior quarters, our Capex outlays have been directed primarily towards office build outs and expansions to support the growth in our head count and our real estate investments have focused on efficient space planning and in doing so weve been able to maintain a relatively flat real.
The state cost per employee over the last handful of years.
In fiscal 19, we spend a a around $17 million on property and equipment. These investments focused primarily on our office build outs in Boston in Cambridge, Our Buildouts in Oakland in New York began in earnest in in Q4 or with the majority of those outlays shifting into 20 Twond.
<unk>.
We had originally thought they might start to materialize in 2019.
So for the full year in 2020, we expect to spend around $18 million on Capex as we wrap up our construction of our new office in Oakland and we complete some office expansions in both New York and Toronto.
Okay, Great. That's that's very helpful. Thank you and then I was wondering if you can sort of touch on a little bit as far as maybe some some trends around a international activity, particularly Europe to sort of maybe she would that marketplaces why not just from a mom no business activity, but also maybe the potential for.
For acquisition targets there. Thanks.
Sure we've been really pleased with the performance of our European office, they have grown or organically there borough grown from.
Bringing on lateral resources.
In the marketplace, but the consistency of that growth has been quite impressive.
We have a number of practices represented a or that represent our European operations and I know each of those practices are actively looking.
For ways to improve.
Their operations abroad.
Okay, great. Thank you very much.
Thank you Mark.
Thank you.
We have reached end of the queuing recession I'll now turn the call back to pull mainly for closing remarks.
Again, thanks, everyone for joining us today, we appreciate your time and interest NCR Ray will be meeting with investors in the coming months and we look forward to updating you on our progress on our first quarter call with that this concludes todays call. Thank you everyone.
Thank you [noise] today's call I've you may now disconnect your lines at this time, having a wonderful day.