Q2 2020 CRA International Inc Earnings Call
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Good day, everyone and welcome to Charles River Associates second quarter 2020 conference call.
This call is being recorded.
Today's release it prepared remarks from serious Chief Financial Officer, I posted on the Investor Relations section of the series website at <unk> Dot com.
With us today are serious president and Chief Executive Officer, Paul Mally, Chief Financial Officer, Dan Mahoney, and Chief Corporate Development Officer, Chad Holmes.
At this time I would like to turn the call over to Mr. Mahoney for opening remarks. Please go ahead.
Thank you Rob.
Everyone joining on the line I hope everyone is doing well staying safe and healthy during these unusual times.
I would like to remind everyone that the statements made during this conference call, including statements concerning the future business operating results for financial condition of sea Ray, including those statements using the terms expect outlook or similar terms are forward looking statements as defined in section 21 of the Exchange Act.
Information contained in these forward looking statements is based on management's current expectations and is inherently uncertain.
Actual performance and results may differ materially from those expressed or implied in these statements due to many important factors, including the extent and duration of the impact of the covert 19 pandemic on our financial condition results of operations.
Additional information regarding these factors is included in today's release and then theories periodic reports, including our most recently filed annual report on form 10-K in quarterly reports on form 10-Q filed at the FCC.
Seery undertakes no obligation to update any forward looking statements. After the date of this call.
Additionally, we will refer to some non-GAAP financial measures in certain measures presented on a constant currency basis on this call.
Everyone is encouraged to refer to todays release and related CFO remarks for reconciliations of these non-GAAP financial measures to their gap comparable measures and descriptions of the calculation of EBITDA and measures presented on a constant currency basis.
Let me now turn it over to Paul for his report Paul.
Thanks, Dan Good morning, everyone. Thank you for joining us today, continuing to build on a record fiscal 2019 theory reported its highest second quarter revenue in our company's history with balance contributions across our portfolio of services, we saw growth across both our legal and regulatory.
Great and management consulting services as well as in our North American and the international operations. Our results were led by double digit revenue growth year over year and each of our finance forensic services and life Sciences practices.
And continued strong contributions from our labor unemployment and risk investigations and analytics practices, even with the success. We continue to face the effects of the ongoing global health crisis I want to take this opportunity to update you on how series adapting to this new environment.
Our first priority is the health and wellbeing of our people as we continue to address our clients. Most important business challenges. We are focused on providing our colleagues with the foundation of stability and safety. During this unprecedented time, although our offices remain open and capable of hosting our colleagues we have.
Ask everyone to work from home whenever possible, we will return to the office when it is appropriate to do so as our office experience fosters collaboration Mentorship and collegiality, we're planning a phased deliberate returned to our offices across our geographies the timing of which depends on local condition.
Yes.
Turning to the second quarter, New project originations were down 4% year over year, we remain up 15% for the first half of 2020 relative to the first half of 2019, providing us with providing us with a solid foundation for the months ahead.
Trended New project originations continues to be impacted by the decline in M&A activity and delays in the U.S. Court system global mergers and acquisition activity in dollar terms is down approximately 50% through the second quarter compared to last year with transactional volume for the second quarter of 2022.
Turning to its lowest point since 2004, the decline was deeper in the Americas with deal activity measured in dollar terms decreasing nearly 70% in the first half of 2020 compared to the same period last year. This represented the lowest M&A activity in the Americas since 1998.
In the litigation market during the second quarter total case filings were down approximately 20% year over year. However, a subset of matters more closely align with CRH services with CRH service offerings Saar case filings declined by roughly 10% as the rate of change Barry.
Moving on the type of litigation for example, antitrust case filings in the second quarter increased approximately 10% year over year, while intellectual property filings declined approximately 25%.
Within the court room case activities remain down for example, total core judgments during the second quarter were down approximately 25% relative to the second quarter of 2019. This suggests that courtrooms continue to be impacted and their ability to handle normal litigation case loads.
Against this backdrop I want to congratulate my colleagues for delivering such strong performance. In spite of these market headwinds shifting gears I'd like to spend a few minutes on the practices that performed well during the.
During the second quarter first I want to highlight our finance practice Sea Ray continues to work on matters arising from the government's investigation of institutions and individuals for OLED spoofing and related manipulative activity in financial markets. In addition theories finance practice continues to work on secure.
Ladies litigations merger related litigations and international arbitration.
Forensic services practice continues to experience strong demand from companies that need help responding to alleged.
The gains of fraud, cybercrime misconduct and noncompliance during the second quarter on behalf of one of the nations largest energy companies. The practice deployed extensive digital forensics and investigative capabilities to investigate allegations that a key employee has been transmitting large quantities of critical input.
Structure security and trade secret data to a foreign entity. The practice also continues to conduct.
Hundreds of fiber incident response matters each quarter across a broad range of industries and geographies during the second quarter, the risk investigations and analytics team investigated allegations of a complex procurement fraud involving suppliers of a global technology company operating.
In multiple international jurisdictions, including an investigative review of processes related to supplier Onboarding bedding and management. We also assisted a global hospitality client with its internal investigation into possible office of foreign asset control violations in multiple use.
Thanks from countries.
Theories labor unemployment practice continues to be retained in a variety of class a collective actions associated with gender and race ethnicity discrimination allegations as well as alleged wage and hour violations during the second quarter. The practice partnered with serious competition practice on the income.
The thing number of matters involving unlawful anti competitive employment agreements. The practice is also witnessed an uptick and the number of companies undertaking proactive reviews of employment decisions, including compensation determinations as they pertain to various employee populations.
Life Sciences practice remains quite busy.
For a pharmaceutical company, we're using our analytics capabilities and claims data to help launch by new rare disease product to help the company and physicians to identify possible patients afflicted with this rare disease during the quarter. The practice was also involved in a major arbitration assessed.
Liability with respect to the exercise of commercially reasonable efforts regarding the development of a cancer therapeutic finally, our policies sector continues a mix of pro Bono and paid work regarding responses to the Corona virus pandemic.
And I would like to thank my colleagues again I'd like to thank my colleagues for delivering such strong performance in the second quarter.
Although we are not reinstating guidance I want to provide some additional information to help with your assessment of outperformance going forward first I want to point you to our actual performance through the first six months of fiscal 2020, combining the revenue and profit growth of the second quarter with our strong.
In Q1 performance on a constant currency basis, we have increased revenues by 15.7% to $250.3 million and non-GAAP EBIT up by 24.2% to $25.1 million achieving a margin of 10% next we look.
To our weekly labor Billings as a reminder, this productivity metric represents the dollar value of time incurred by our consultants on client projects to move from labor billings to net revenue a number of adjustments are made to account for items, such as Reimbursable expenses Nonemployee consultant billings.
Fixed price projects and write offs, we enjoyed relative consistency of labor billings week to week during the second quarter extending the timeframe. During the first four weeks of Q3, we have seen average weekly labor billings remain roughly consistent with the average observe.
For Q2.
Of course going forward labor billings will fluctuate with demand as well as vacation and holiday schedule.
Finally, we turn to our cost structure looking ahead to Q3, we expect our cost of services and SGN a excluding the commissions paid to nonemployee experts on a dollar basis to be similar to the amounts experienced in the second quarter of 2020, although.
We're pleased with our performance through the second quarter, we recognize the challenges and uncertainty that accompany the ongoing cobot 19 pandemic. We're proud of the company that we have built and we remain confident that the people who have driven our success in recent years, we'll continue to drive outperformance in the month and years ahead.
And now I'll turn the call over to chat and then Dan for a few additional comments Chad.
Thanks, Paul I want to provide a few comments about our capital deployment during the quarter.
For the trailing 12 months ending Q2 Twentytwenty series adjusted net cash provided by operating activities was $78.8 million or 46% higher than a year ago, driven primarily by the growth in our business and reduced overhead spending in Q2 as a reminder.
Sure. This metric begins with net cash provided by operating activities from our statement of cash flows and adds back net forgivable loan issuances, which are predominantly used for talent acquisition and talent maintenance.
Adjusted net cash provided by operating activities represents a discretionary pool of capital used to fund items, such as talent acquisition office expansions debt repayment and re distributions to shareholders.
Consistent with prior quarters, our capital expenditures have been directed primarily towards office Buildouts and expansions that were launched prior to the pandemic during the second quarter fiscal Twentytwenty, we spent approximately $5.6 million on property and equipment with investments focused on our office build outs in Oakland, New York and turn.
Wantto.
For the remainder of fiscal Twentytwenty, we expect to spend approximately $3.5 million on total capital expenditures.
As Dan will describe in greater detail during the quarter, we repaid $11 million of our borrowings under our revolving line of credit.
Also during the second quarter fiscal Twentytwenty, we may dividend payments totaling $1.8 million. Finally, we announced earlier today that our board of directors declared a quarterly cash dividend of 23 cents per common share payable on September 14th Twentytwenty to shareholders of record as of August 2000.
Fifth Twentytwenty and now I'll turn the call over to Dan for a few final comments Dan.
Thanks, Chad as a reminder, more expansive commentary on our financial results is available on the Investor Relations section of our website in your prepared CFO remarks, before we get to questions. Let me provide a few additional metrics related to our performance in the second quarter fiscal 2020.
In terms of consultant headcount, we ended the quarter at 802, which consisted of 136 officers 450 other senior staff in 216 Junior staff. This is a net increase of three compared with the 799 consultant headcount reported at the end of the first quarter fiscal 2020.
Non-GAAP selling general and administrative expenses as a percentage of revenue excluding the 2.4% attributable to commissions to Nonemployee experts was 15% for the second quarter fiscal 2020, compared with 18.6% a year ago. This quarter's ratio was positively impacted by the strong.
Revenue for Q2 in effective management of our overhead. Additionally, travel and entertainment expenses were significantly lower year over year, primarily due to travel restrictions in various jurisdictions.
We will continue to monitor our discretionary expenses to properly manage risk interactively mitigate the financial impacts from covert 19.
The effective tax rate for the second quarter on a non-GAAP basis was 24.8% compared with 29.6% on a non-GAAP basis for the second quarter of 22019.
The lower rate in the second quarter of 2020 was attributable to strong continued strong profit generation larger benefit arising from the accounting for stock based compensation and lower meals and entertainment in the current quarter relative to last year.
Turning to the balance sheet DSL at the end of the second quarter was 107 days compared to 103 days at the end of the first quarter fiscal 2020.
DSO in the second quarter consisted of 70 days of built in 30 days of Unbilled.
Related the our pace of collections has been consistent both before and after the world transitioned to a remote work environment.
The company's liquidity remains strong totaling approximately $80 million when taking into account are available capacity on our revolving line of credit and our cash balance.
Looking more closely at the components during the second quarter, we paid down $11 million on our revolving line of credit to bring the outstanding balance down from $70 million at the end of fiscal Q1, 2000 $20 million to $59 million at the end of Q2.
We concluded the second quarter of fiscal 2020 with $18.8 million in cash and cash equivalents, but the majority residing internationally.
That concludes our prepared remarks.
I would now like to open the call up two questions.
Thank you.
Well not be conducting a question and answer session. If you wanted to ask your question. Please press star one on your telephone keypad and a confirmation total indicate your line is the question Q.
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Once again this start one to ask a question and we'll pause a moment when we pull for questions.
Thank you.
Our first question is from the line of Kevin Stinky with Barrington Research. Please proceed with your question.
Hey, good morning, everyone and grid.
These results Merriman.
Okay.
Well.
Good.
Weekly labor buildings.
You had said relative consistency week to week.
Throughout the second quarter and that that continued.
Into the.
A few weeks as of the third quarter.
When you say relative consistency do you mean on an absolute dollar basis or a year over year rate of change basis, because I know you had talked about in the March 1st through April 24 period.
The weekly labor buildings were up billings were up 8% year over year. So should we think about it more as a growth rate or absolute level I guess.
Sure Good morning, Kevin.
Thanks for the nice comments about the quarter.
So we compared the first four weeks of Q3, two the weekly average for Q2.
So when we talk about relative consistency, we are talking about dollar level weekly dollar levels achieved during those force first four weeks of Q3 to the weekly dollar levels that were achieved throughout Q2.
Okay. Thanks that clarifies it for me.
And you highlighted a number of your practices that did well during the quarter.
Can you maybe a review for us.
Why those particular practices are are doing well in this environment.
You know, we highlighted a handful of practices I could have gone through our entire portfolio.
Practices, we had seen growth not contraction growth across both litigation lines of services across management consulting services and across our geographies.
And although I was pleased with the performance, it's hard to say that I am surprised by the performance. These my colleagues and these services have been delivering.
Exceptional performance over the past five years over 2019 over the first half of 2020.
I think we're doing an exceptional job growing revenue growing profits at a faster rate.
And I think we would compare favorably to the market as a whole.
You know who are competing in this space. So we.
We highlighted some firms that are achieving double digit revenue growth amidst all the craziness around us.
But as you've noticed from quarter to quarter Kevin.
That makes the firm's that's changed.
You know from the quarter, so hats off to finance life Sciences.
Forensic services labor and our investigation analytics practice.
But I could have just as easily have talked about other parts of my portfolio.
Okay, great and.
Just wanted to ask about your largest practice antitrust and competition economics, obviously, you highlighted the weak M&A trends, but antitrust filings actually.
Up year over year.
Yeah, So should we think about.
So whatever accent you want to comment.
That practice being down overall.
Year over year in the most recent quarter in the most recent weeks.
And they've been able to take share or what kind of water trends are you seeing in their practice.
Sure you know our antitrust and competition economics practice is probably.
The victim of such lofty standards that they've set over the past number of years. So when I say, they're down there still one of the most highly utilized practices within CR Ray they're still one of the most profitable practices within our portfolio.
They clearly have been negatively impacted.
By the M&A deal flow.
But we're starting to see building strength and that practice from an occasional merger.
That is being announced and also increased of activity antitrust work. So that is some positive color I can give to our largest practice at sea ray.
As I've said numerous times.
If I had any practice to be worried about I'm really glad it's our competition practice because that says my portfolio will be just fine going forward.
Okay, Good and I know I noticed you had a couple of recent announcements on.
Adding getting some VP level consultants in your risk in investigation risk investigations and analytics practice.
Maybe talk about it and that's your newest practice, but the trends you're seeing there, what's giving you confidence in adding to their practice in this environment and kind of the outlook for the newer practice.
Sure you've seen some additions within our new practice the risk investigation practice, if seemed in some new additions in our antitrust competition practice. So we're still being active in the marketplace I think being an exceptional financial performer.
Also goes hand in hand, with being an attractive destination of top talent and we're seeing that across that portfolio.
When we make investments in our service portfolio, we do it with the long game in mind.
I you know a fan of my colleagues not just on the new risk investigation practice, but across my portfolio.
So I think there is value to be had from continuing to invest in those services and we saw some of that value start to reap the benefits as some of that value.
During Q2 as they as some projects.
Came back to life and they also have secured some new assignments there.
Okay, Great and lastly for me you know third quarter is typically.
When we see a ramp up in the consultant headcount as you.
Do.
More on campus hiring during that period.
What are your plans or what are your thoughts about hiring.
As you move into the third quarter here and should we kind of expect to see that typical sequential ramp.
Sure I think in the third quarter I believe both in our release and the comments that Dan provided.
That you should see very little sequential growth from Q2 Q3 in the head count.
I believe only a small handful of individuals in terms of the net increase.
There right now.
We have some hires that will be joining us in Q4 in Q1 the university hires.
As part of our normal rotation. So I would say there are more delivery capacity.
In our pyramid, but we're still looking to add what I would call revenue generating capacity.
Senior resources are always difficult to come by.
And we're going to take advantage of the market for that talent comment to Crj.
Okay. Thanks, that's all I had today, thank you Kevin take care.
As a reminder, you mean press star one to ask a question at this time.
Thank you at this time I'll turn the floor back to management for final remarks.
Great again, thanks, everyone for joining us in today's call I'm very proud of the performance of this from continues to deliver.
To its shareholders, we are not contracting on a revenue basis. In fact, we're growing revenue were growing profits.
And all the credit goes to my colleagues throughout the organization.
We appreciate your time and interest in CR rate will be participating in virtual meetings with investors in the coming months and we look forward to updating you on our progress on our third quarter call be safe everyone with that this concludes todays call.
Thank you everyone.
You may now disconnect your lines at this time, thank you for your participation.
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