CRA International Inc. Q1 2023 Earnings Call
<unk> expertise in employment matters also led to multiple client retentions on actions brought by individuals' class or collectives.
And the equal employment opportunity Commission.
The practice also held to retreat during the first quarter that brought together leaders to commemorate the one year anniversary of the acquisition of Welch consulting the gathering focused on expanding efforts to leverage the teams more than 500 years of combined labor and employment consulting experience.
For the company as a whole we continue to replenish our sales pipeline project lead flow increased in the first quarter by more than 10% year over year. After adjusting for the Welsh consulting projects acquired one year ago. The projects on the strong this builds on the.
<unk> lead flow generated during the fourth quarter of 2022 together the past six months represents the strongest period of lead flow activity in Cra's history, while we're pleased with the record lead flow over the past two quarters, our new project originations remained roughly flat.
Year over year after adjusting for the Welch consulting transition projects during the first quarter, we observed a delay in the conversion of leads into new projects based on an examination of lead composition and discussions with our leading revenue generators, we see no.
Evidence relative to our history over the past several years that we are losing projects more frequently to competitors. Instead. It appears that clients are delaying their decision to begin work on their projects.
Turning to guidance based on our first quarter performance, we are reaffirming our financial guidance for full year fiscal 2023 as a reminder, our previous our previously stated guidance is provided on a constant currency basis relative to fiscal 2022 and <unk>.
Cause for expected revenue in the range of $615 million to $640 million and non-GAAP EBITDA margin in the range of 10, 8% to 11, 5% overall I'm grateful to my colleagues for their hard work during the first quarter as we helped our clients address their most.
Important challenges with that I will turn the call over to Chad and then Dan for a few additional comments Chad.
Thanks, Paul Hello, everyone.
I want to update you on our capital deployment during the quarter.
We concluded the quarter with $35 $5 million of cash and $100 million of borrowings under our revolving credit facility, resulting in a net debt position of $64 $5 million. The borrowings were primarily to fund bonus payments, which is consistent with our practice in <unk>.
Prior years.
In addition to the normal bonus cycle. The first quarter of 2023 also saw cash outlays of $16 $8 million for forgivable loans in connection with talent investments we.
We spent $600000 on capital expenditures for fiscal 2023, we expect to spend $5 billion to $6 million on capital expenditures.
We also returned a total of $23 $3 million to our shareholders. During the first quarter, consisting of $2 $7 million of dividend payments and $26 million for share repurchases of approximately 181000 shares.
We have approximately $22 $3 million available under our share repurchase program.
With that 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 under prepared CFO remarks.
Before we get to questions. Let me provide a few additional metrics related to our performance in the first quarter of fiscal 2023 in terms of consultant head count. We ended the quarter at 972, which consisted of 158 officers 535, other senior staff and 279 Junior staff. This represents a <unk> <unk>.
<unk>, 7% increase compared with the 878 consultant head count reported at the end of Q1 fiscal 2022.
non-GAAP selling general and administrative expenses, excluding the two 3% attributable to commissions to non employee experts was 16, 2% of revenue for the first quarter of fiscal 2023, compared with 14, 4% a year ago.
This quarter's ratio was primarily impacted by an increase in travel and entertainment expenses the.
The effective tax rate for the first quarter of fiscal 2023 on a non-GAAP basis was 29% compared with 26, 5% on a non-GAAP basis for the first quarter of fiscal 2020 to the higher rate in the first quarter of 2023 was largely attributable to a lower benefit arising from the accounting for stock base.
Compensation and an increase in the UK statutory rate from 19% to 25% for the full year fiscal 2023, we expect our non-GAAP effective tax rate to be in the range of 28% to 30%.
Turning to the balance sheet DSO at the end of the first quarter was 112 days compared with 114 days at the end of the fourth quarter of fiscal 2022.
<unk> in the first quarter consisted of 70 days of billed and 42 days of Unbilled. We concluded the first quarter of fiscal 2023 with $35 5 million in cash and cash equivalents and a further $94 3 million of available capacity on our line of credit for total liquidity of 100.
$29 $8 million.
That concludes our prepared remarks, we will now open the call for questions. Rob. Please go ahead.
Thank you at this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Andrew Nicholas with William Blair. Please proceed with your question.
Hi, good morning, Thanks for taking my questions I want to start on the talent environment.
Really strong hiring growth again year over year.
If you could just spend some time talking about retention at the firm how easy it is to get talent right now.
And your success on the recruiting front that'd be helpful.
Sure Good morning, Andrew.
Consulting head count as we stated increased 10, 7% year over year.
With that we had 33.
Net new additions in Q1.
With approximately 75% of those additions arriving in our competition and our forensic practices two of our top performing units.
I'm excited that top talent continues to make CRA, a destination of choice and we feel pretty good that this expanded and talent to collection of CRA colleagues will continue to provide sort of ample opportunities for value creating growth in the quarters ahead with respect to attrition it's a law.
Little too early to call.
Mainly because historically, we only experienced about 15%.
Of our total annual attrition in Q1.
Thus, we're going to see how the year continues to unfold.
And adjust our hiring plans accordingly.
Does that get to yes sure Andrew.
That's helpful. Thank you and then I was hoping you could speak to the life Sciences business, both in the quarter and just overall thoughts on the health of that end market right now and then relatedly any early signs or takeaways from bio strategies and holding that.
And to the firm thank you.
Sure management consulting.
Led by life Sciences, and the energy practice has been a source of growth for CRA over the past five years.
Unfortunately more recently the group's performance has been more of a saw tooth pattern.
I remain confident in both practices the ability to drive growth for CRH going forward, we just have to sort of.
I'm fine with quarter to quarter volatility I would just like to see more of an upward ascension.
All of that curve, but we haven't lost any revenue generators there.
They continue to work hard to drive that demand. So I think it really is just a matter of time lead flow into life Sciences. In Q1 was slightly less than what I would say was expected.
At the time, but.
I think again with one quarter in the bank, we're going to wait to see how the year unfolds.
Very helpful. Thank you.
Thank you Andrew.
Our next question is from Kevin Steinke with Barrington Research. Please proceed with your question.
Hey, good morning, everyone.
Yes.
Wanted to start off by asking about the.
Lead flow within the antitrust and competition competition economics practice that you referenced.
I think you said lead flow up.
20% for the practice, despite an 18% decline in M&A related lead flow so new.
Touch on whats.
Driving that strength and lead flow despite.
Some some current headwinds from the M&A market.
Sure Good morning, Kevin.
<unk>.
I've said it many times I'm very fortunate to work with such a talented group of colleagues within our antitrust and competition economics practice I do think they are the premier provider of services worldwide.
And the continued strength that it almost appears quarter after quarter, we're talking about record levels of performance.
The lead flow is coming in we received.
Even though M&A lead flow is down year over year, we're still getting the calls we're just not getting those leads converting into revenue generating projects at this time.
And I think that has more to do with the general uncertainty in the broader market than anything to do with CRA or the competitors for those revenue opportunities. So antitrust is still at the forefront.
Regulatory bodies here in the states and abroad.
And I don't see that changing in the next few years. So I think we are well positioned we are well positioned to capitalize on those opportunities.
Okay, Great and you did reference.
Although project lead flow for the firm as a whole was up 10% year over year in the first quarter. The new project originations were flat.
Just touched on the.
Delay in conversions.
But due to some macro.
Economic uncertainty is that.
Those are those delays fairly broad based across the firm or is it you know.
Fine.
A few practices.
Trying to get a sense as to how broad base those delays are that youre seeing.
Yes.
Anytime I see lead flow going up as strongly as it did for the firm and then seeing new projects remained flat.
The first concern is always my losing market share.
And my losing more than my historical norm.
Two competitors.
And our closer examination.
There's no first the decline in conversion of leads to new revenue generating projects was pretty.
Evenly experienced across our portfolio of services, so I can't point to one practice versus another.
Who had an unusual experience during Q1 second we went to our top revenue generators individuals', who normally convert in the 80% 90% of leads into revenue generating projects to inquire what they are experiencing because they too experienced.
<unk> a reduction in those conversion rates and what we're hearing is clients, calling asking for us to clear conflicts, but not yet pulling the trigger on the litigation related matter or on just delaying the announcement of their merger until they have more.
Ah.
Ideal market scenarios there so.
I'm hopeful that these leads are still revenue opportunities for the firm.
Think that is forthcoming the challenge that we have is I don't know when.
But I do think the revenue opportunities are stolen cra's grass.
Okay.
Yes at this point.
It Hasnt affected your outlook for the year you reiterated the guidance so.
You still feel pretty good about the way.
The year is shaping up I guess.
Yeah more is always better.
And I believe the firm is well positioned to deliver.
Higher.
Revenue, but these just market uncertainties, sometimes get in the way I don't think the overall value proposition that we see in our portfolio has changed from when you issued the guidance.
And I remain.
Hopeful of even stronger times ahead.
Okay great.
Just wanted to ask about.
Consultant utilization, 70%.
Down a little bit from your typical kind of mid seventies rate.
Somewhat related just to the strength of the hiring and you're getting people ramped up or any.
Any color on that particular metric in the quarter.
Yes, I mean, I will start by saying that.
The mid Seventy's utilization point is our target for the portfolio as currently constituted we have delivered mid seventy's utilization.
Quite frankly, I think as far back as a decade.
That's on an annual basis of course, you will get some volatility quarter to quarter.
<unk>.
You know the mid 70% still remains our long term target.
And we're going to do our best to sort of match that head count with what we see as the revenue opportunities.
Our ability to hire top talent.
<unk> to be getting stronger and I will take that because getting the best and brightest is never easy.
And if it leads to short term depression or utilization I'm going to take that.
Kevin because I know for the quarters ahead, thats whats going to be driving our revenue and since the resources are in place driving profitable revenue growth.
Okay, well, thank you for taking the questions I will turn it over.
Thank you Kevin.
Our next question is from Marc Riddick with Sidoti <unk> Company. Please proceed with your question.
Hey, good morning.
Morning, Mark.
So I was wondering if you could touch a little bit on something that you may have mentioned that but I was sort of when I get my arms around a little bit you were talking about.
Some of the data around filings and judgments.
If I heard it correctly I think you said filings were down sorry up 5% year over year judgments down 5% year over year was that right.
Correct.
Okay. So I just wanted to touch a little bit on maybe some of the causes that you might be seeing in that gap and maybe you.
Kind of what that means for CRH going forward.
Okay.
Yeah.
I'm hesitant.
Because I just don't want to repeat myself with some of the views that we have.
Sure.
The leads are there are our aggregate lead flow is still growing at a faster rate than what we're observing in terms of new opportunities. So I'm happy about that.
I always want to look for over longer periods of time with respect to court judgments.
And not read too far into a down quarter on that.
I don't know, whether thats tying to more of a delay strategy of our clients in courts with respect to filings or pushing litigations forward.
That remains to be seen but I always like to see aggregate market expanding I always like to see CRA is growth outpacing that aggregate market level.
Okay and then.
Shifting over to the.
One of the things that was mentioned in the.
A press release I believe was the.
International performance, which was up fairly nicely once you could touch a little bit on that.
Yeah, a lot of credit goes to our antitrust and competition colleagues in Europe .
We're seeing expansion by our leaders in that marketplace.
And that's with the currency headwind so the eight 8% growth of our international operations.
So I think our colleagues in competition.
Our driving ahead, we're also getting nice contributions from our colleagues in the life Sciences area.
Okay excellent and then I think we've touched on this in the past, but maybe you can sort of give us a quick update on the.
General pricing environment, It seems as though just from the outside looking in that.
Rates are not.
Being pressured and necessarily buy.
Economic conditions, but.
Some color on that too thanks.
Sure.
Every quarter, we have a little more insight as to the stickiness of our rate increase.
With Q1 right now in the bank, what I can say.
Things are going pretty much as expected.
New cases are being.
Put forth with our new rate sheets.
That have higher fiscal 'twenty three rates.
They are being accepted by clients our.
Levels of write offs.
Our unchanged, which means the level of acceptance of those rates.
Remains pretty consistent with what we have experienced historically, so I'm pretty pleased with what we have to date, hopefully Q2 and beyond continues.
Continuous form.
Excellent. Thank you very much thank.
Thank you.
We have reached the end of the question and answer session I would now 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 continued interest in CRA, we will be participating in meetings with investors in the coming months and we look forward to updating you on our progress on our second quarter call that concludes today's call. Thank you Rob.
You're very welcome this concludes our call today.
Connect your lines at this time and we thank you for your participation.