Q3 2022 CRA International Inc Earnings Call
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Good day, everyone and welcome to Charles River Associates third quarter, 2022 conference call.
Please note that today's call's being recorded.
The company's earnings release and prepared remarks from Cra's Chief Financial Officer are posted on the Investor Relations section of Cra's website at C. R. A I.
Dot com.
With us today are Cra's, Cra's, President and Chief Executive Officer, Paul O'malley, Chief Financial Officer, Dan Mahoney, and Chief Corporate Development Officer, Chad Holmes.
At this time I'd like to turn the call over to Mr. Mahoney for his opening remarks, Dan. Please go ahead.
Thank you, Rob and good morning, everyone.
Please note that the statements made during this conference call, including guidance on future revenue and non-GAAP EBITDA margin and any other statements concerning the future business operating results or financial condition of CRA, 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 level of demand for our services as a result of changes in general and industry specific economic.
Actions. Additionally.
Additional information regarding these factors is included in today's release.
And in Cra's periodic reports, including our most recently filed annual report on Form 10-K, and quarterly reports on Form 10-Q filed with the SEC CRA undertakes no obligation to update any forward looking statements. After the date of this call.
<unk>, we will refer to some non-GAAP financial measures and certain measures presented on a constant currency basis. On this call everyone is encouraged to refer to today's release and related CFO remarks for reconciliations of these non-GAAP financial measures to their GAAP comparable measures and descriptions of the calculation of EBITDA and measures presented on a constant.
Currency basis, I will now turn it over to Paul for his report Paul.
Thanks, Dan and good morning, everyone. Thank you for joining us today.
CRA drove continued momentum in the business and demand for its services as quarterly revenue increased to $148 $4 million, representing eight 8% year over year growth. The strong performance was achieved despite currency headwinds associated with the U S dollar that shape for.
$2 million or three 1% year over year growth for my reported revenue on a constant currency basis, we expanded.
Third quarter revenue in our North American operations by more than 10% year over year revenue from our international operations was flat on a reported basis, but grew by 16% when adjusted for currency headwinds.
Performance was broad based with seven of our 11 practices expanding expanding revenue year over year and five of those practices and I Trust and competition economics auctions and competitive bidding energy finance and labor and employment delivering double digit revenue growth.
We welcomed 105, new consulting colleagues during the quarter, while maintaining strong company wide utilization of 74%. We continue to effectively manage the business mitigating cost pressures and converting cra's top line performance into strong profitability.
<unk> for the third quarter CRE increased non-GAAP EBITDA net income and earnings per diluted share year over year by 21.3% eight 7% and 13, 9% respectively. I will now highlight some of the services we provided during the <unk>.
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Merger activity slowed considerably in the third quarter as worldwide M&A levels declined by 59% compared to year ago levels. The third quarter of 2020 to Mark the first quarter to fall below one trillion dollars since the second quarter of 2020.
Hence this challenging backdrop, our antitrust and competition economics practice continued its strong performance. Despite the decline in worldwide M&A activity, our antitrust and competition economics practice saw the same level of lead flow of merger related opportunities in the <unk>.
Third quarter of 2022 relative to a year ago. The practice continued to support private parties and regulators on a variety of new and continuing M&A related engagements in North America, and Europe , the engagements span a broad range of industries, including technology transport.
Taishan telecommunications and health care and require our experts to assess the characteristics of product and geographic markets. Among other considerations. For example, during the third quarter, our CRA team advised Oh C. P. Repartition, a subsidiary of Mckesson Europe .
And Phoenix group regarding their merger, which was reviewed by the French competition authority and the European Commission. The deal involved overlaps in the wholesale and retail distribution of pharmaceutical goods in several European countries.
The regulators considered both local local markets and a national market taking into account the buying power of the pharmaceutical purchasing groups CRA played a pivotal role in showing the role of P. P Gs and the increasing competitive constraints from players evolving.
Outside the defined markets convincing the French competition authority to accept the proposed behavioral remedies that followed the unconditional clearance by the European Commission.
Turning to the broader legal market cra's revenue from legal and regulatory offerings. During the third quarter grew 14% year over year. This expansion exceeded market are mixed market trends as total case filings during the third quarter increased 7% year over year.
While total court judgments were down 9% year over year.
Cra's antitrust and competition economics practice continued to support clients in the context of legal disputes. In addition to their merger related work for example in a high profile class action litigation series retained to analyze class certification issues on behalf of a joint defense group that.
Some of the nations largest transportation companies truck drive truck driver plaintiff's alleged nationwide no poaching conspiracy among long distance trucking companies that would reduce drivers information about job opportunities restrict labor mobility and suppress wages.
Plaintiffs thought more than $100 million and antitrust damages. The CRA teams analysis showed that the foundation of plaintiffs and their experts class White theory of harm was false.
Court denied class certification, but allowed named plaintiffs to pursue their claims individually the matter settled favorably for serious clients, while a ruling on summary judgment motions was pending.
Our finance practice was active during the third quarter, providing expert services in all of its areas of focus including merger litigation in Delaware, Chancery Court, and which are experts analyze issues related to material adverse effect events.
The fairness of deal prices and industry conditions matters arising from allegations of spoofing and manipulations of financial markets.
Securities fraud, Litigations instances of an instance, insurance I'm, sorry, and investment litigation, including matters for insurance companies related to cost of insurance and the California lapsed law and international arbitration, and which are experts provide testimony on <unk>.
<unk> and damages issues and venues around the world within our labor and employment practice CRA continues to be engaged by clients to assist in all aspects of litigation, including the initial phase of data collection as well as later phases of expert testimony and post agreement monitoring.
A cough as clients approach annual compensation adjustments cycles, Cra's labor and employment practice is regularly retained to examine pay equity issues that can be complicated by reorganization actions taken by companies adjusting to changing markets. For example, a CRA team is currently.
Assisting our national health care provider to examine pay equity post reorganization identified potential areas of concern and provide guidance and the implementation of appropriate pay adjustments.
The practice continues to benefit from the new colleagues, who joined CRA as part of the acquisition of Welch consulting our integration has continued according to plan and we're benefiting from greater scale. For example, the practices leveraging the expanded network of ph D labor economists to identify.
And recruit new Phd candidates at the upcoming Allied Social Science Association's annual meeting and job market.
Within our management consulting offering the energy practice assisted clients in numerous ways with the ongoing transformation of the energy industry and the T. Carbonization of the energy sector. We continue that work and utility resource planning, helping multiple utilities make strategic decisions regarding.
Investment decisions and customers impacts. We also continued to assist the investment community and advise the large infrastructure fund and it's a valuation of a nuclear power technology company, and a large infrastructure investor and its operations of energy and water assets.
Finally, we continued our work with the legal community supporting disputes related to power generation gas pipelines in the international project development.
During the third quarter, Cra's auctions and competitive bidding practice launch its inaugural series of global dairy trade pulse auctions CRA enhanced its trading platform <unk>.
Silicate auctions on a weekly and potentially daily basis. Additionally, CRA is working with Duke Energy's, North and South Carolina franchise utilities to identify solar energy projects for the development in the region.
Solar procurement solar procurement is a critical element of the company's carbon plant as mentioned in prior calls our life Sciences practice has been gaining momentum after adjusting its revenue per currency headwinds in the third quarter the practices back on a growth trajectory during the quarter the Pratt.
This continued its work in rare diseases and oncology, helping one of our clients to identify pediatric patients suffering from an ultra rare genetic disease and building the patient journey for potential use second line product in the fight against lung cancer. In addition, the <unk>.
Practice continues to support the design implementation and testing of a major business intelligence platform at a longtime client as part of its investment in digital business transformation efforts as always I'm grateful to all my colleagues for their hard work in helping our clients address their most important.
Challenges.
Moreover, as our third quarter results demonstrate a portfolio of services remains highly valued by our clients. We are well positioned to maintain the momentum in the business as we continue to replenish our sales pipeline in the third quarter project lead flow grew by roughly 6%.
Year over year, notably we saw an acceleration of project lead flow.
During the quarter, culminating in a surge of 30% greater lead flow. This September relative to last September reflecting the continued strength and quality of our business. We are raising our revenue and profit guidance for full year fiscal 2022 on a constant currency basis.
Relative to fiscal 2021, we expect revenue in the range of 600 million to $608 million and non-GAAP EBITDA margin in the range of 12, 5% to 13%. This new guidance compares with a prior revenue range of 585 million to six.
Hundred and $5 million in our prior non-GAAP EBITDA margin range of 11, 3% to 12.0% with that I'll turn the call over to Chad and then Dan for additional comments Chad.
Thanks, Paul Hello, everyone I want to update you on our capital deployment initiatives during the quarter.
CRA continues to generate strong cash flows for the trailing 12 months through the third quarter of fiscal 2022 cra's adjusted net cash flows from operations were $57 $3 million as Dan will describe in greater detail, we concluded the quarter with $24 $1 million of cash and cash equivalent.
And $45 million of borrowings under our revolving credit facility, resulting in a net debt position of $29 million. These figures reflects $25 million of payments during the quarter to reduce borrowings under our revolving credit facility.
Third quarter of 'twenty 'twenty. Two also saw cash outlays for talent investments of $3 $3 million, we spent $900000 on capital expenditures, bringing the year to date total to $3 million.
We returned $7.2 million of capital to our shareholders during the third quarter, consisting of $2 $2 million of dividend payments and $5 million for share repurchases of approximately 52000 shares we have approximately $22 $9 million.
Available under our share repurchase program.
Finally, demonstrating confidence in our long term outlook and reflecting our commitment to return capital to shareholders earlier today, we announced a 16% increase in our quarterly cash dividend from 31 cents to 36 cents per common share. This dividend will be payable on December 9th 2022.
Two to shareholders of record as of November 29th 2022.
Our objective remains to maximize our long term value per share and Cra's portfolio continues to perform at a high level, we are driving profitable growth while at the same time, returning significant dollars back to our shareholders.
With that I will 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 under prepared CFO remarks, before we get to questions. Let me provide a few additional metrics related to our performance in the third quarter of fiscal 2022.
In terms of had consultant head count we ended the quarter at 911, which consisted of 146 officers 481, other senior staff and 284 Junior staff. This represents a three 3% increase compared with the 882 consulting head count reported at the end of Q3 fiscal 2021.
By the end of the year, we expect consultant head count to be up 7% to 8% year over year.
non-GAAP selling general and administrative expenses, excluding the three 2% attributable to commissions to non employee experts was 15, 8% of revenue for the third quarter of fiscal 2022.
Compared with 14, 8% a year ago. This quarter's percentage was primarily impacted by an increase in travel and entertainment expenses.
Our effective tax rate for the third quarter of fiscal 2022 on a non-GAAP basis was 25, 3% compared with 14, 8% on a non-GAAP basis for the third quarter of fiscal 2021.
The higher rate in the third quarter of 2022 was largely attributable to a lower benefit arising from the accounting for stock based compensation.
Turning to the balance sheet DSO at the end of the third quarter was 123 days compared with 117 days at the end of the second quarter of fiscal 2022.
DSO in the third quarter consisted of 77 days of billed and 46 days of Unbilled.
DSO typically follows a seasonal pattern with increases in the second and third fiscal quarters and a reduction in the fourth fiscal quarter.
The fourth quarter DSO reduction has averaged 10% in each of the last two fiscal years and based on the quality of our receivables and strength of our cash collections quarter to date, we expect a similar reduction in the fourth quarter of fiscal 2022.
We concluded the third quarter of fiscal 2022, with $24 $1 million in cash and cash equivalents and a further $156 million of available capacity on our line of credit for total liquidity of $174 $7 million.
That concludes our prepared remarks, we'll now open the call for questions. Rob. Please go ahead.
Yeah.
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One moment, please while we poll for questions.
Yeah.
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Our first question comes from Marc Riddick with Sidoti and company. Please proceed with your question.
Hey, good morning.
Morning, Mark.
So I wanted to start on your commentary as far as the lead flow in the ramp up that you're seeing there can you talk a little bit about maybe sort of where that's where that's coming from and.
And sort of a ramp up in demand.
On the macroeconomic picture, maybe you can sort of.
Put the two together just started giving us a little bit of a broader view of what you're seeing there.
Sure I'll give it a shot.
First I'll begin with who we're seeing the lead flow originated from and they're just like our performance, it's been pretty pretty broad based.
Seeing contributions from our legal regulatory practices and I'm seeing substantive contributions from our management consulting practices. So I've seen no imbalance in terms of those contributions relative to their revenue performance.
Secondly, when we were sitting in July August .
Wasn't necessarily as encouraging because we were basically flat year over year, when I looked at lead flow.
Once post labor day, we started seeing an increase in the inbound and the inbound opportunities.
And that led to a very strong month.
Month of September and a pretty strong quarter, given the overall market conditions.
That's that's very encouraging actually.
I wanted to shift gears, a little bit you mentioned the commentary as far as the you pullback in global M&A, which would which we've talked about and that's really kind of been going on an accelerated I guess throughout the year. So wanted to talk a little bit about your you use.
Usage of consultants and I know when things will kind of ramping up.
Some consultants will kind of shifted over to that area.
Seeing much of a.
Back and forth as far as Hum.
Where some consultants are being put to.
Put to use there and how that might relate to the M&A outflow.
Sure.
And competition economics practice.
Well oiled.
Right.
Regularly use.
Okay.
And also regularly used consultants.
Skill set.
We continue to see that.
Type of resource.
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Which is.
Nice way to contribute.
Stable performance you see CRA.
Sure.
So again forced on the competition practice more often than not.
Sure.
Originating practice has enough work.
Right.
They're busy.
Busy.
Sometimes one practice.
We tried to do our best to provide them.
Of course.
Great and then I wanted to the.
The margin performance.
<unk> been really good I was wondering if you're seeing much Oh, certainly you can't really tell about the SG&A as a percentage of revenue, but I will surely curious as to whether or not you're beginning to see a little bit more.
Client climb.
Clients requiring in person.
<unk> face to face activity.
And maybe as a piggyback off of that maybe what youre seeing as far as your own.
You know sort of return to a physical office kind of behavior, maybe relative to expectations or would it be where you thought things would be.
So I'll start with the first question that you asked in terms of clients demanding more in person opportunities.
Whenever CRA has an opportunity to meet with our clients to.
To hear about their needs and to share our insights we jumped at that opportunity, but the mix of whether that opportunity takes place virtually or in person has been relatively steady.
Throughout the 2022 year there's.
There is always a bit more conferences as we go into the fall. So some of the increase travel and some that are related to our attending conferences, where we oftentimes have.
Speaking in coordinating responsibilities.
The other part you mentioned about our return to the office, we actually gathered our vice presidents for the first time in three years in September .
A company wide meeting it was the largest.
Attendee list of Bp's, we've ever had.
At CRA and there was great energy.
Zoom has been a fantastic vehicle.
For us to use and connecting with people, but really nothing.
As a substitute for in person <unk>.
Engagements. So we're really happy coming out of that September meeting that of course contributes a little bit.
The increase in SG&A levels, but as we've talked about in the past.
On a steady state basis.
I think I'm aiming to have our SG&A levels right around 15, 5% or so.
Okay and then the last one for me at least for now.
So I wonder if you talk a little bit about certainly are very U S U S.
But I was wondering if you can talk a little bit about what youre seeing with the with.
With activity in the U K and maybe how that performance has been relative to your expectations.
Yeah, the reason I restated our.
The European growth of our <unk>.
Units there is because they are selling more hours.
Whether how those hours converts into revenue because of exchange rate pressure has really nothing to do with success. They are having in the marketplace.
Although the reported results are more heavily influenced by North American operations anytime I see a region comprising 2025% of our company.
Spending by 16% on a constant currency basis gives me a lot of optimism.
For the quarters and years ahead.
Thank you very much thank you mark.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
There are no further questions at this time at this point I'd like to turn the call back over to Paul O'malley for closing comments.
Again, thanks to everyone for joining us today, we appreciate your time and interest in CRA, we will be participating in virtual meetings with investors in the coming months and we look forward to updating you on our progress on our year end call. This concludes today's call b well everyone. Thanks.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Okay.
Okay.
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