Q1 2024 CRA International Inc Earnings Call
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unknown: BF-WATCH TV 2021
unknown: Good day, everyone, and welcome to Charles River Associates' first quarter 2024 conference call. Please note that today's call is 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 www.crai.com. With us today are CRA's President and Chief Executive Officer, Paul Maleh, 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 opening remarks. Dan, please go ahead.
Speaker Change: Good day, everyone and welcome to Charles River Associates first quarter 'twenty 'twenty four conference call.
unknown: Please note that today's call is being recorded.
unknown: 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 sea or AI Dotcom wave.
Daniel K. Mahoney: With us today are Cra's, President and Chief Executive Officer.
unknown: Paul Omalley, 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 opening remarks, Dan. Please go ahead.
Daniel K. Mahoney: 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. The information contained in these four forward-looking statements is based on management's current expectations and is inherently uncertain.
Daniel K. Mahoney: Thank you, Rob and good morning, everyone.
Daniel K. Mahoney: 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.
Daniel K. Mahoney: Information contained in these forward looking statements is based on management's current expectations and is inherently uncertain.
Daniel K. Mahoney: 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 conditions. 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.
Daniel K. Mahoney: 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 conditions.
Daniel K. Mahoney: Additional information regarding these factors is included in today's release and in Cra's periodic reports.
Daniel K. Mahoney: 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. Additionally.
Daniel K. Mahoney: Additionally, we will refer to some non-GAAP financial measures and certain measures presented on a constant currency basis during 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.
Daniel K. Mahoney: Additionally, 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 present.
Daniel K. Mahoney: On a constant currency basis.
Daniel K. Mahoney: Now I'll turn it over to Paul for his report Paul.
Paul A. Maleh: Thanks, Dan. And good morning, everyone. Thank you for joining us today. Building on the momentum we gained at the end of last year, CRA delivered a strong performance in the first quarter of fiscal 2024 and delivered record financial results. During the first quarter, revenue increased by 12.4% to $171.8 million, which represents the highest quarterly revenue in the company's history. Profits grew at an even faster rate, with non-gap net income, earnings per diluted share, and EBITDA increasing year over year by 48%, 52%, and 34%, respectively.
Speaker Change: Thanks, Dan and good morning, everyone. Thank you for joining us today.
Paul A. Maleh: Building on the momentum we gained at the end of last year CRE carried strong performance into the first quarter of fiscal 'twenty 'twenty four and delivered record financial results. During the first quarter revenue increased by 12, 4% to $171.8 million, which.
Paul A. Maleh: Presents the highest quarterly revenue in the company's history.
Paul A. Maleh: Profits grew at an even faster rate with non-GAAP net income earnings per diluted share and EBITDA, increasing year over year by 48%, 52% and 34% respectively. Each profit metric also set a new quarterly record for CRA.
Paul A. Maleh: Each profit metric also set a new quarterly record for CRA. Broad-based contributions drove this strong base and this strong performance. With 8 of 11 practices growing year over year, CRA's legal and regulatory services led the way with a 16% increase in revenue relative to the first quarter of fiscal 2023. For the company as a whole, we continue to replenish our sales pipeline. Our project lead flow increased in the third quarter by 3% year-over-year.
Paul A. Maleh: Broad based contributions drove this strong base.
Paul A. Maleh: <unk> drove this strong performance with eight of 11 practices growing year over year, Cra's legal and regulatory services led the way with a 16% increase in revenue relative to the first quarter of fiscal 2023 for.
Paul A. Maleh: For the company as a whole we continue to replenish our sales pipeline our project lead flow increase in the third quarter by 3% year over year. This growth is in line with the broader legal market, which saw total case filings and total court judgments each increased 2% year over year.
Paul A. Maleh: This growth is in line with the broader legal market, which saw total case filings and total court judgments each increase 2% year-over-year. CRA's conversion rates remain strong and consistent with historical norms, with new project originations growing by more than 10% relative to the first quarter of 2023. During the first quarter, six practices posted double-digit revenue growth, and I believe in competition economics, energy, financial economics, forensic services, labor and employment, and risk investigations and analytics. I would now like to spend a few minutes highlighting some of the projects delivered by these practices during the first quarter.
Paul A. Maleh: CRA as conversion rates remained strong and consistent with historical norms with new project originations growing by more than 10% relative to the first quarter of 'twenty to 'twenty three.
Paul A. Maleh: During the first quarter fixed practices posted double digit revenue growth and I Trust and competition Economics energy financial economics, forensic services labor unemployment and risk investigations and analytics I would now like to spend a few minutes highlighting some of the projects delivered.
Paul A. Maleh: By these practices during the first quarter.
Paul A. Maleh: Capitalizing on continued demand for antitrust services and ongoing merger-related activity, our antitrust and competition economics practice established a new high for quarterly revenue. During the quarter, the practice continued to support clients on high-profile mergers. For example, CRA experts were retained by Cisco to provide economic analyses across worldwide jurisdictions in support of its $28 billion acquisition of Splunk, a leader in cybersecurity. With CRA's assistance, Cisco received unconditional clearance from the European Commission, while the U.S. Department of Justice Antitrust Division declined to issue a second request.
Paul A. Maleh: Capitalizing on continued demand for antitrust services and ongoing merger related activity, our antitrust and competition economics practice establish a new high for quarterly revenue during the quarter. The practice continued to support clients on high profile mergers for example, CRA experts were.
Paul A. Maleh: Retained by Cisco to provide economic analyses across worldwide jurisdictions in support of its $28 billion acquisition of Splunk, a leader in cyber security with Cra's assistance Cisco received unconditional clearance from the European Commission, while the U S Department of Justice.
Paul A. Maleh: And I Trust Division declined to issue a second request.
Paul A. Maleh: Elsewhere, CRA advised INEOS in its acquisition of certain assets of total energy. The CRA team conducted extensive economic analysis to assess the vertical effects of the transaction, focusing on the overlap between the target's upstream activities and the production of ethylene and INEOS's downstream polyvinyl chloride business. Consistent with the results of CRA's analysis, the European Commission concluded that the merged entity, CRA's antitrust and competition economics practice also continued to support clients in legal disputes.
Paul A. Maleh: Elsewhere, CRA advice, any us and its acquisition of certain assets of total energies there.
Paul A. Maleh: The CRA team conducted extensive economic analysis to us to assess the vertical effects of the transaction focusing on the overlap between the targets upstream activities and the production of ethylene and any OS is downstream polyvinyl chloride business consistent with results of <unk>.
Paul A. Maleh: Arrays analysis, the European Commission concluded the merged entity would have neither the ability nor the incentive to pursue any foreclosure strategy.
Paul A. Maleh: Theorize antitrust and competition economics practice also continued to support clients in legal disputes during the first quarter CRA consultants prepared and delivered expert reports and testimony and antitrust class actions international disputes and other matters, arriving from competition claims the matters.
Paul A. Maleh: During the first quarter, CRA consultants prepared and delivered expert reports and testimony and handled antitrust class actions, international disputes, and other matters arising from competition claims. The matters span various industries, including technology, healthcare, retail, and commercial goods, among others. In addition to client projects, CRA's competition team was recently recognized for its outstanding performance in support of the high-profile acquisition of Activision by Microsoft. At the 2024 Global Competition Review Awards in April, CRA was part of the winning team in the categories of Overall Matter of the Year, Matter of the Year in the United States, and Matter of the Year in Europe.
Paul A. Maleh: Span various industries, including technology healthcare retail and commercial goods amongst others. In addition to client projects Cra's competition team was recently recognized for its outstanding performance in support of the high profile acquisition of Activision by Microsoft.
Paul A. Maleh: At the 'twenty 'twenty four global competition Review Awards in April CRE was part of the winning team in the categories of overall matter of the year matter of the year in the United States and matter of the year in Europe. Additionally, Broadcom acquisition of Vmware.
Paul A. Maleh: Additionally, Broadcom's acquisition of VMware, a transaction for which CRA advised VMware globally, was named Matter of the Year in Asia Pacific. Last but not least, for an article that she co-authored on the topic of private equity investment and its effect on competition, Isabel Teku, a principal in the practice, won in the category of Best Business Article, General Economics, at the 2024 Antitrust Writing Awards hosted by Concurrent, an independent legal publisher dedicated to antitrust law and competition economics.
Paul A. Maleh: A transaction for which CRA advise Vmware globally was named matter of the year and Asia Pacific.
Paul A. Maleh: Last but not least for an article that she co authored on the topic of private equity investment and its effect on competition Isabel Tech who a principal in the practice one in the category of best business Article General Economics at the 'twenty 'twenty four antitrust writing awards hosted by car.
Paul A. Maleh: Currencies.
Speaker Change: An independent legal publisher dedicated antitrust slower law and competition economics, congratulation to Isabelle and the entire antitrust and competition economics practice for these well earned accolades.
Paul A. Maleh: Congratulations to Isabel and the entire antitrust and competition economics practice for these well-earned accolades. Turning to the energy sector, in the first quarter, CRA's energy practice had continued success with utilities, large energy consumers, and government agencies. The utility work concluded, developing integrated resource plans for companies like NIPSCO, the Northern Indiana Public Service Company, and Alliant Energy as they continue their journey of transitioning away from fossil fuels. The practice has also been asked by multiple utility clients to evaluate reliability risks to avoid the types of rolling blackouts experienced during severe winter storms. The challenge of keeping the lights on is common in an industry that is facing significant load growth while at the same time retiring fossil plants and placing greater reliance on renewables.
Paul A. Maleh: Turning to the energy sector in the first quarter Cra's energy practice had continued success with utilities large energy consumers and government agencies. The utility work included.
Paul A. Maleh: Developing integrated resource plans for companies like NIPSCO, the Northern Indiana Public service company and Alliant energy as they continue their journey of transitioning away from fossil fuels. The practice also has been asked by multiple utility clients to evaluate reliability risks to avoid the types of <unk>.
Paul A. Maleh: Rolling blackouts experienced during severe winter storms the challenge of keeping the lights on as commented in an industry that is facing significant load growth while at the same time retiring fossil plants.
Paul A. Maleh: And placing greater reliance on renewables.
Paul A. Maleh: Reacting to these industry changes and challenges, the energy practice has been supporting several large companies that develop, own, and operate data centers around the world. As clients see rapidly growing demand for data processing services, they have turned to CRA for assistance with market modeling, energy procurement, rate design, and utility negotiations. During the first quarter, experts in CRA's financial economics practice continued to assist multiple banks and their counsel in responding to regulatory inquiries on overdraft, non-sufficient funds, and related fees charged on deposit account activity. Implementing these consumer remediations requires extensive analysis and reconstruction of account-level daily transaction history and a detailed understanding of the policies embedded in the bank's core processing system.
Paul A. Maleh: Reacting to these industry changes challenges the energy practice has been supporting several large companies that develop own and operate data centers around the world.
Paul A. Maleh: As clients see rapidly growing demand for data processing services. They have turned to CRA for assistance with market modeling energy procurement rate design and utility negotiation.
Paul A. Maleh: During the first quarter experts in Cra's financial economics practice continued to assist multiple banks and their counsel and responding to regulatory inquiries on overdraft and non sufficient funds and related fees charged on deposit account activity implementing these consumer.
Paul A. Maleh: Remediation requires extensive analysis and reconstruction of account leveled our daily transaction history, and a detailed understanding of the policies embedded in the bank's core processing systems.
Paul A. Maleh: Elsewhere, the practice prepared a range of fair lending analyses for a large national bank covering credit card, auto, mortgage, and small business lending, and advised the bank on the development of its internal fair lending compliance monitoring procedure. CRA's forensic services practice continued to experience strong demand from clients who seek help preparing for, responding to, and emerging from allegations of fraud and misconduct. For example, as two technology companies sought to resolve multi-year, After trade secret litigation, our digital forensic experts were retained to search the defendant's computer systems in order to identify and purge any remaining files that had originated from the plaintiff's business.
Paul A. Maleh: Elsewhere, the practice prepared arrange a fair lending analyses for a large national bank covering credit card auto mortgage and small business lending and advise the bank on the development of its internal fair lending compliance monitoring procedures.
Paul A. Maleh: Cra's forensic services practice continued to experience strong demand from clients, who seek help preparing for responding to an emerging from allegations of fraud and misconduct for.
Paul A. Maleh: For example, as two technology companies sought to resolve multi year.
Paul A. Maleh: The trade secret litigation, our digital forensic experts were retained to search to the defendants computer systems in order to identify and purge any remaining files that had originated from the plaintiffs business.
Paul A. Maleh: Our forensic practice also continues to help companies respond to a broad range of cyber incidents. For example, we were retained by a national law firm to investigate suspicious activity involving its network. We determined that certain systems had indeed been accessed by a threat actor over a three-week period, and that certain files had been filtered.
Paul A. Maleh: Forensic practice also continues to help companies respond to a broad range of cyber incidents. For example, we were retained by a national law firm to investigate suspicious activity involving its network, we determined that certain systems had indeed been.
Paul A. Maleh: We undertook a thorough review of these files to identify what specific information was present and to whom it relates. Ultimately, we helped the law firm notify affected parties in a timely and compliant manner. CRA's labor and employment practice continues to assist clients in navigating critical employment issues. During the first quarter merit review cycle, multiple clients, including businesses in the healthcare, telecommunications, information technology, pharmaceuticals, and legal sectors, engage CRA experts to assist in the proactive assessment of compensation and promotion decisions.
Paul A. Maleh: Access by a threat actor over a three week period and that certain files had been.
Paul A. Maleh: Phil traded.
Paul A. Maleh: We undertook a thorough review of these files to identify what specific information was present and to whom it relates ultimately we helped the law firm notify affected parties in a timely and compliant manner, while assisting the client bolster its information security.
Paul A. Maleh: <unk> and reduce the risk of future cyber incidents.
Paul A. Maleh: Theories labor and employment practice continues to assist clients in navigating critical employment issues. During the first quarter Merit review cycle multiple clients, including businesses in the health care Telecommunications information technology Pharmaceuticals and legal.
Paul A. Maleh: Sectors engaged CRA experts to assist in the proactive assessment of compensation and promotion decisions. In addition, during the first quarter our CRA team.
Paul A. Maleh: In addition, during the first quarter, a CRA team a team of CRA consultants assisted a building supply manufacturer examine the exposure associated with a miscalculation of the regular rate of pay for non-exempt employees as it considers a possible ownership change. Also during the first quarter, the risk investigations and analytics practice executed several large multidisciplinary investigative and expert assignments. The team was retained to investigate inconsistencies for a U.S.-based software company with respect to revenue and receivables reporting for certain divisions of its business.
Paul A. Maleh: A team of CRA consultants assisted our building supply manufacturer examine the.
Paul A. Maleh: Exposure associated with the miscalculation of the regular rate of pay for Nonexempt employees as it considers a possible ownership change.
Paul A. Maleh: Also during the first quarter, the risk investigations and analytics practice executed several large multi disciplinary investigative and expert assignments. The team was retained to investigate and consistency for U S. Based software company with respect to revenue and receivables reporting for search.
Paul A. Maleh: And divisions of its business a team of forensic accountants investigative staff and data analysts conducted employee interviews performed investigative research into certain individuals and entities collected relevant documents and analyzed relevant accounting and financial data to assess whether the <unk>.
Paul A. Maleh: A team of forensic accountants, investigative staff, and data analysts conducted employee interviews, performed investigative research into certain individuals and entities, collected relevant documents, and analyzed relevant accounting and financial data to assess whether the revenue and related receivable transactions were recorded in accordance with relevant revenue recognition guidance. The team reported its results to the Board of Directors, external auditors, and regulators. Additionally, during the quarter, members of the practice, including a former federal prosecutor, and Risk and Financial Compliance Specialists provided expert support to a banking institution and its external counsel related to accusations that the bank failed to perform adequate due diligence and transaction monitoring for corporate accounts used in a fraud.
Paul A. Maleh: Revenue and related receivable transactions were recorded in accordance with relevant revenue recognition guidance. The team reported our results for the board of directors external auditors and regulators. Additionally, during the quarter members of the practice, including a former federal prosecutor.
Paul A. Maleh: Risk and financial compliance specialists provided expert support to a banking institution and its external counsel related to accusations that the bank failed to perform adequate due diligence and transaction and transaction monitoring for corporate accounts use and a fraud overall I am great.
Paul A. Maleh: Overall, I'm grateful to all of my colleagues for their hard work during the first quarter as we helped our clients address their most important challenges. We are encouraged by the strong start to the year, but are mindful of macroeconomic uncertainties that can affect our business. We are trending towards the top half of our revenue and profit ranges but will wait for another quarter of performance before providing any updated thoughts on our full year guidance. As such, we are reaffirming our full year guidance. Financial Guidance. With that, I'll turn the call over to Chad and then Dan for a few additional comments. Chad?
Paul A. Maleh: Full to all of my colleagues for their hard work during the first quarter as we helped our clients address their most important challenges. We are encouraged by the strong start to the year, but are mindful of macroeconomic uncertainties that can affect our business. We are trending towards the top half of our revenue and profit.
Paul A. Maleh: <unk>, but we'll wait for another quarter of performance before providing any updated thoughts on our full year guidance as such we are we are reaffirming our full year financial guidance with that I'll turn the call over to Chad and then Dan for a few additional comments Chad.
Chad Holmes: Thanks, Paul. Hello, everyone.
Chad: Thanks, Paul Hello, everyone I want to update you on our capital deployment during the quarter, we concluded the quarter with $37 $1 million of cash and $70 million of borrowings under our revolving credit facility, resulting in net debt of $32 9 million.
Chad Holmes: I want to update you on our capital deployment during the quarter. We concluded the quarter with $37.1 million of cash and $70 million of borrowings under our revolving credit facility, resulting in net debt of $32.9 million. The borrowings during the first quarter were primarily to fund bonus payments, which is consistent with our practice in prior years. Bonuses will be paid largely by the end of the second quarter. In addition to the normal bonus cycle, the first quarter of 2024 also saw cash outlays for talent investments of $5.3 million and $700,000 in capital expenditure.
Chad Holmes: Yeah.
Chad Holmes: The borrowings during the first quarter were primarily to fund bonus payments, which is consistent with our practice in prior years bonuses will be paid largely by the end of the second quarter.
Chad Holmes: In addition to the normal bonus cycle. The first quarters of 2024 also saw cash outlays for talent investments of $5 $3 million and $700000 on capital expenditures, we returned a total of $12 $3 million to our shareholders.
Chad Holmes: We returned a total of $12.3 million to our shareholders during the first quarter, consisting of $3.1 million in dividend payments and $9.2 million for share repurchases of approximately 66,000 shares at an average price of $140 per share. We currently have $37.2 million available under our share repurchase program.
Chad Holmes: During the first quarter, consisting of $3 $1 million of dividend payments and $9 $2 million for share repurchases of approximately 66000 shares at an average price of $140 per share. We currently have $37 $2 million.
Chad Holmes: Under our share repurchase program.
Daniel K. Mahoney: With that, I'll turn the call over to Dan for a few final comments. Okay, Dan?
Chad Holmes: With that I'll turn the call over to Dan for a few final comments and 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 2024.
Daniel K. Mahoney: Thanks, Chad. As a reminder, more expansive commentary on our financial results is available in 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 2024. In terms of consultant headcount, we ended the quarter at 997, consisting of 158 officers, 544 other senior staff, and 295 junior staff. This represents a 2.6% increase compared with the 972 consultant headcount reported at the end of Q1 fiscal 2023.
Daniel K. Mahoney: Non-GAAP selling general and administrative expenses, excluding the 2.1% attributable to commissions to non-employee experts, were 15.6% of revenue for the first quarter of fiscal 2024, compared with 16.2% a year ago. This quarter's ratio was positively impacted by the growth in revenue and lower than expected non-reimbursed practice expenses. The effective tax rate for the first quarter of fiscal 2024 on a non-gap basis was 28 percent compared with 29 percent on a non-gap basis for the first quarter of fiscal 2023.
Daniel K. Mahoney: In terms of consultant head count we ended the quarter at 997, consisting of 158 officers 544, other senior staff and 295 Junior staff.
Daniel K. Mahoney: Represents a two 6% increase compared with the 972 consultant head count reported at the end of Q1 fiscal 2023.
Daniel K. Mahoney: non-GAAP selling general and administrative expenses, excluding the two 1% attributable to commissions to non employee experts was 15, 6% of revenue for the first quarter of fiscal 2024, compared with 16, 2% a year ago. This quarters ratio was positively impacted by the growth in revenue.
Daniel K. Mahoney: And lower than expected non reimbursed practice expenses.
Daniel K. Mahoney: The effective tax rate for the first quarter of fiscal 2024 on a non-GAAP basis was 28% compared with 29% on a non-GAAP basis for the first quarter of fiscal 2023, the lower rate in the first quarter of 2024 was largely attributable to higher profitability and evaluation allowance in the prior year that was sub sea.
Daniel K. Mahoney: The lower rate in the first quarter of 2024 was largely attributable to higher profitability and an evaluation allowance in the prior year that was subsequently released. Turning to the balance sheet, DSO at the end of the first quarter was 106 days compared with 105 days at the end of the fourth quarter of fiscal 2023. DSO in the first quarter consisted of 69 days of billed and 37 days of unbilled.
Daniel K. Mahoney: Currently released.
Daniel K. Mahoney: Turning to the balance sheet DSO at the end of the first quarter was 106 days compared with 105 days at the end of the fourth quarter of fiscal 2023 DSO in the first quarter consisted of 69 days of billed and 37 days of Unbilled. We concluded the first quarter of fiscal 2024 with 30.
Daniel K. Mahoney: We concluded the first quarter of fiscal 2024 with $37.1 million in cash and cash equivalents and a further $175.5 million of available capacity on our line of credit for total liquidity of $212.6 million. That concludes our prepared remarks. We will now open the call to questions. Rob, please go ahead. Thank you.
Rob: $7 1 million in cash and cash equivalents and a further $175 5 million of available capacity on our line of credit for total liquidity of $212 6 million.
Daniel K. Mahoney: That concludes our prepared remarks, we will now open the call for questions. Rob. Please go ahead.
unknown: 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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question category. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. One moment, please, while we poll per question. Our first question comes from Andrew Nicholas with William Blair. Please proceed with your question.
Rob: 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.
unknown: Confirmation tone will indicate your line is in the question queue.
unknown: Press Star two if you'd like to remove your question from the queue.
unknown: For participants using speaker equipment, it may be necessary to pick up your handset before pressing this darkies one moment, please while we poll for questions.
unknown: Our first question comes from Andrew Nicholas with William Blair. Please proceed with your question.
Andrew Owen Nicholas: Hi, good morning. Thanks for taking my questions.
Andrew Owen Nicholas: Hi, good morning, Thanks for taking my questions.
Andrew Owen Nicholas: Really strong quarter.
Andrew Owen Nicholas: But I wanted to talk a little bit about guidance and kind of the decision to maintain it you alluded to it a little bit Paul in your prepared remarks, but it would seem like maintaining it after such a strong quarter implies some kind of decelerate as we move through the year, how much of that is conservatism versus.
Andrew Owen Nicholas: Really strong quarter, but I wanted to talk a little bit about guidance and the kind of decision to maintain it. You alluded to it a little bit, Paul, in your prepared remarks, but it would seem like maintaining it after such a strong quarter implies some kind of decline as we move through the year. How much of that is conservatism versus something that you're seeing in the market versus maybe some concerns about an impact from the upcoming election? Or any other kind of thoughts on the cadence of growth as the year progresses?
Andrew Owen Nicholas: Is that something that youre seeing in the market versus maybe some.
Andrew Owen Nicholas: Concerns about an impact from the upcoming election, any any other kind of thoughts on the cadence of growth as the year progresses would be helpful.
Paul A. Maleh: Sure. Good morning, Andrew.
Paul: Sure Good morning, Andrew.
Speaker Change: There's a number of factors that went into our decision.
Paul A. Maleh: There are a number of factors that went into our decision to maintain guidance at this stage. One was the performance that we observed during fiscal 2023, which was a bit of a sawtooth pattern. You know, and we felt that that sawtooth pattern wasn't really related to any of CRA's attributes but more related to the broader market as a whole. We are excited that we have had two strong quarters that have been consistent with our expectations, being Q4 fiscal 2023 and Q1 fiscal 2024.
Paul A. Maleh: To maintain guidance at this stage one was the performance that we observed during fiscal 2023, which was a bit of a sawtooth pattern.
Paul A. Maleh: And we felt that that saw tooth pattern wasn't really related to any of CRA attributes, but more related to the broader market as a whole.
Paul A. Maleh: We are excited that we have had two strong quarters that have been consistent with our expectations being Q4 of fiscal 2023 in Q1 of.
Paul A. Maleh: But those same kinds of broader market uncertainties are prevalent in the market today; the same ones that we were experiencing in 2023 are still prevalent in You know, the first half year of fiscal 2024. There is nothing that we have experienced internally at CRA. We haven't seen any kind of slide in demand, any kind of softening of our practices as we went through q1. It's more just the broader uncertainty that we observe in the marketplace.
Paul A. Maleh: Fiscal 2024, but those same kind of broader market.
Andrew Owen Nicholas: Make sense to you. Thank you.
Paul A. Maleh: Uncertainties are.
Andrew Owen Nicholas: Prevalent.
Andrew Owen Nicholas: In the market today, the same ones that we were experiencing in 2023 are still prevalent in.
Andrew Owen Nicholas: The first half year of fiscal 2024.
Andrew Owen Nicholas: There is nothing that we have experienced internal to CRA, we haven't seen any kind of slide in demand any kind of softening.
Andrew Owen Nicholas: Of our practices as we went through Q1, it's more just the broader uncertainty.
Andrew Owen Nicholas: That we observe in the marketplace.
Andrew Owen Nicholas: I want to also ask about antitrust and maybe M&A-related antitrust specifically. I mean, it sounds like things are going well in terms of large projects. But is there a sense within your organization that things are getting better on that side? It sounds like that's the case. And non-M&A M&A remains really strong from what we can tell. But any kind of color on what you're seeing on the ground on the M&A side would be great.
Speaker Change: Makes sense. Thank you.
Andrew Owen Nicholas: I wanted to also ask about antitrust and maybe M&A related antitrust, specifically I mean.
Andrew Owen Nicholas: It sounds like things are going well in terms of large projects, but is there a sense within your organization that things are getting better on that side. It sounds like that's the case.
Andrew Owen Nicholas: Non M&A remains really strong from what we can tell but any kind of color on what youre seeing on the ground on the M&A side would be great.
Paul A. Maleh: The antitrust and competition economics practice had another excellent quarter. The majority of the growth during the quarter was driven by continued expansion of non-merger antitrust-related services that we were providing. We are retained on a number of large, high-profile merger matters, but the number of those matters hasn't seen any kind of discernible change than what we were experiencing throughout 2023. There are all guesses as to when that surge is coming in the broader market, but right now, it is still antitrust services that are driving a good portion of the practice.
Andrew Owen Nicholas: The antitrust and competition economics practice had another excellent quarter.
Paul A. Maleh: The majority of the growth during the quarter was driven by continued expansion of non merger antitrust related services that we were providing we are retained on a number of large high profile merger matters.
Paul A. Maleh: But the number of those matters, we haven't seen any kind of discernible change.
Paul A. Maleh: Then what we were experiencing throughout 2023.
Paul A. Maleh: There's all guesses as to when that surge is coming in the broader market, but right now it is still antitrust services.
Paul A. Maleh: That is driving a good portion of the practice.
Paul A. Maleh: All right, great. Thank you very much. Thank you, Andrew.
Speaker Change: Alright, great. Thank you very much.
Speaker Change: Thank you Andrew.
Marc Frye Riddick: Our next question is from Marc Riddick with Sidoti and Company. Please proceed with your question.
Paul A. Maleh: Our next question is from Marc Riddick with Sidoti <unk> Company. Please proceed with your question.
Marc Frye Riddick: Yeah.
Marc Frye Riddick: Hey, good morning.
Marc Frye Riddick: Good morning, Marc.
Marc Frye Riddick: Good morning, Mark.
Paul A. Maleh: So I wanted to start by giving a strong start to the year. I was wondering if you could sort of bring us up to speed on what we're thinking about as far as adding talent and potential headcount additions for the year. As far as the, I think, finishing the year just below 1,000. So I was sort of curious as to how those thoughts have evolved during the course of the strong start to the year or if that's changed from what you were thinking earlier.
Marc Frye Riddick: So I wanted to start with.
Paul A. Maleh: The the.
Paul A. Maleh: The strong start to the year I was wondering if you could sort of bring us up to speed on.
Paul A. Maleh: What we're thinking about as far as adding talent and a potential head count additions for the year.
Paul A. Maleh: As far as the I think finishing.
Paul A. Maleh: Finishing the year just below a thousand.
Paul A. Maleh: So I'm sort of curious as to sort of how those thoughts have evolved during the course of.
Paul A. Maleh: The strong start to the year or if that's changed from what you were thinking earlier.
Paul A. Maleh: Sure, strong start of the year or the strong ending to fiscal 23 and the strong start to the year. Herb definitely helped, in our outlook, but I don't want to lose sight that we ended fiscal 2023 with an overall company utilization of 70%, uh... which was significantly lower uh... than our targeted range of mid-seventies uh... so we are cautiously uh... adding headcount to areas that can support the additional capacity so that targeting won't necessarily translate into overall headcount growth in the firm uh... as we're trying to raise the utilization closer to our historical norms uh... but by no means am i starving uh... the practices that are demonstrating strong performance right now
Speaker Change: Sure the strong start of the year or the strong ending to fiscal 'twenty, three and the strong start to the year.
Paul A. Maleh: Definitely help.
Paul A. Maleh: In our outlook, but I don't want to lose sight that we ended fiscal 2023 with an overall company utilization of 70%.
Paul A. Maleh: Which was significantly lower.
Paul A. Maleh: Than our targeted range of mid seventies.
Paul A. Maleh: So we are cautiously.
Paul A. Maleh: Adding head count to areas that can support the additional capacity so that targeting won't necessarily translate into overall head count growth in the firm.
Paul A. Maleh: As we're trying to raise the utilization closer to our historical norms.
Paul A. Maleh: But by no means am I starving.
Paul A. Maleh: The practices that are demonstrating strong performance right now.
Paul A. Maleh: Excellent And then you mentioned as far as the conversion rates are more consistent with the norms that you've seen versus, you know, where you were at the middle or late last year. Can you sort of talk about maybe how that pacing kind of evolved through the first quarter, and sort of, you know, whether it's a monthly cadence thing or whatever, or was it sort of consistent through the quarter?
Speaker Change: Excellent and then you.
Paul A. Maleh: You mentioned as far as the.
Paul A. Maleh: Conversion rates are more consistent with the norms.
Paul A. Maleh: That you've seen versus where you were at the <unk>.
Paul A. Maleh: Middle or late last year sort of can you sort of talk about maybe sort of how that pacing kind of evolved.
Paul A. Maleh: Through the first quarter and sort of you know, whether it's a monthly cadence thing or whatever it was it sort of consistent through the quarter.
Paul A. Maleh: Sure. You know, when we were looking back, I know I'm supposed to be talking about Q1 of Fiscal 24, but the experiences that we had during 2023 definitely influenced the way we look at our information. In Fiscal 2023, the lead flow that was coming in was basically in line with our expectations. Okay, so we're very happy with the success our consultants were having in the marketplace, getting calls on these opportunities. What we were disappointed in was the conversion of those leads to revenue-generating projects.
Paul A. Maleh: Sure.
Paul A. Maleh: When we were looking back I know I'm supposed to be talking about Q1 of fiscal 'twenty four.
Paul A. Maleh: But the experiences that we had during 2023.
Paul A. Maleh: Definitely influence the way we look at our information.
Paul A. Maleh: In fiscal 2023, the lead flow that was coming in was basically in line with our expectations. Okay. So we're very happy.
Paul A. Maleh: With the success, our consultants were having in the marketplace.
Paul A. Maleh: Getting calls on these opportunities while we were disappointed in was the conversion of those leads to revenue generating projects.
Paul A. Maleh: As I said, during fiscal 2023, I did not believe that our failure to convert was indicative of us losing market share, and I've had now about six months of data from Q4 all the way through Q1, where my conversion, my lead flow is still roughly about what we would expect, but the conversion rate over the six months has been, one, consistent with historical norms, and two, pretty consistent intra-quarter. So I'm not seeing huge swings of performance month to month during that period of time. So that's good news, and we just hope that those trends continue as we move through fiscal 24.
Paul A. Maleh: As I said during fiscal 2023 I.
Paul A. Maleh: I did not believe that our failure to convert was indicative of us losing market share.
Paul A. Maleh: And I've had now about six months.
Paul A. Maleh: Data from Q4, all the way through Q1, where my conversion my lead flow is still roughly about what we would expect but the conversion rates and over the six months has been one.
Paul A. Maleh: Consistent with historical norms in two <unk>.
Paul A. Maleh: Pretty consistent intra quarter, so I'm not seeing huge swings of performance month to month during that period of time.
Paul A. Maleh: So that's good news and we just hope.
Paul A. Maleh: That those trends continue as we move through fiscal 'twenty four.
Paul A. Maleh: And then, certainly, you've mentioned as far as eight of the 11 practices showing growth, and I was wondering if you'd talk a little bit about the demand drivers that you're seeing now, sort of how that plays into your views on visibility, maybe relative to company norms. Historically, are the trends that you're seeing, the things that are driving demand, providing an average level of visibility, maybe a little bit more, a little less? How should we think about that?
Speaker Change: Great and then certainly.
Paul A. Maleh: As I mentioned as far as eight of the 11 practices showing showing growth and I was wondering if you could talk a little bit about the.
Paul A. Maleh: The demand drivers that you're seeing now is sort of how that plays into your.
Paul A. Maleh: Your your views on visibility maybe relative to company norms.
Paul A. Maleh: Storage <unk>.
Paul A. Maleh: Are the trends that you're saying that the things that are driving demand provides.
Paul A. Maleh: Providing the <unk>.
Paul A. Maleh: Average level of visibility, maybe a little bit more or less how should we think about that.
Paul A. Maleh: Yeah, that's a difficult question for me, right? And it goes into a bit of why I want another quarter of data before I provide any kind of update on my thoughts on annual guidance. What I'm observing inside of CRA is consistent with our expectations. I haven't seen any kind of deterioration of the demand drivers across our practices.
Speaker Change: Yes, that's a little difficult question for me right and it goes into a bit of why I won another quarter of data before I provide any kind of update on my thoughts on annual guidance.
Paul A. Maleh: What I'm observing inside of CRA is consistent with our expectations are I haven't seen any kind of deterioration of the demand drivers are.
Paul A. Maleh: Across our practices.
Paul A. Maleh: You know, there's always a bit of, you know, tightening of the belt, maybe, and some of the pharmaceutical companies, but that's really it in terms of things that are directly impacting CRA. But what we just can't lose sight of is everything else in the broader marketplace, from the geopolitical risks to the macroeconomic risks that are happening here in the States. And not a lot of uncertainty has been resolved, uh... so shit in the broader market can, of course, impact CRA. I'm not seeing that impact to date. But we are just closely observing those drivers.
Paul A. Maleh: There's always a bit of.
Paul A. Maleh: Tightening of the belt, maybe in some of the pharmaceutical companies.
Paul A. Maleh: That's really it in terms of things that are directly impacting CRA.
Paul A. Maleh: Well, we just cant lose sight of is everything else in the broader marketplace from the geopolitical risks to the macroeconomic risks that are happening here in the states.
Paul A. Maleh: And not a lot of uncertainty has been resolved.
Paul A. Maleh: So shifts and.
Paul A. Maleh: In the broader market can of course impact CRA I'm, not seeing that impact to date.
Paul A. Maleh: But we're just closely observing.
Paul A. Maleh: Those drivers.
Paul A. Maleh: And the last one for me, I just wanted maybe an update as to potential acquisition pipeline, maybe what you're seeing as far as what may or may not be available out there, and how that's changed maybe during the course of the year, if you're seeing a little better opportunities than maybe you were three or six months ago, and how you feel about the valuations that are out there as well. Thank you. Sure.
Speaker Change: Great and then the last one for me.
Speaker Change: Just wanted to get maybe an update as to.
Paul A. Maleh: Potential acquisition pipeline, maybe what you're seeing as far as the what what may or may not be available out there and how that's changed maybe during the course of the year, if you're seeing a little better opportunities than maybe you were three or six months ago or and how you're feeling about the valuations that are out there as well. Thank you sure.
Paul A. Maleh: I'm going to let Chad Holmes address that question because I think he can give a little more color than I can.
Speaker Change: And then I'll let.
Chad Holmes: Chad Holmes.
Chad Holmes: Address that question I think he could give a little more color than I can.
Chad Holmes: Hey, good morning, Marc. This is Chad. Good morning, Chad.
Paul A. Maleh: Hey, Good morning, Mark This is Chad good morning, John.
Chad Holmes: And hey, the answer to the question echoes some of our past calls. The flow of opportunities that we are seeing continues to be very, very healthy, built on a backdrop of our strong performance. That has been observed and recognized by some of our competitors and their practitioners who are thinking about making changes. CRA is seen as a very attractive destination for those top talent providers in our areas of expertise. So we continue to see a consistent flow of high-quality individuals.
Chad Holmes: Hey.
Chad Holmes: The answer to the question echoes some of our past calls.
Chad Holmes: The flow of opportunities that we're seeing continues to be very very healthy built on a backdrop of our strong performance that has been.
Chad Holmes: Observed and recognized by some of our competitors and their practitioners who are thinking about making changes CRA is seen as a very attractive destination for those top talent providers in our areas of expertise. So we continue to see a consistent flow of high quality individuals.
Chad Holmes: It's not terribly different from what it was six or 12 months ago. We have been able to announce some hires in the Talent Acquisition Department, but that has not depleted the pipeline. It continues to be replenished, and we are evaluating them. We're not lowering our standards. We're keeping them quite high, and we are pleased with what we are seeing. And hopefully, in the months ahead, we'll have more to announce.
Chad Holmes: It's in some ways not terribly different from what it was six or 12 months ago. We.
Chad Holmes: We have been able to announce some hires.
Chad Holmes: In the talent acquisition Department.
Chad Holmes: But that is not depleted the pipeline it continues to be replenished and we are evaluating them.
Chad Holmes: Not dipping our standards, we're keeping them quite high.
Chad Holmes: And we are pleased with what we're seeing and hopefully in the in the months ahead, we will have more to announce.
Marc Frye Riddick: I appreciate it. Thank you very much.
Speaker Change: I appreciate it thank you very much.
Speaker Change: Thank you Mark.
Kevin Mark Steinke: Our next question comes from Kevin Steinke with Barrington Research. Please proceed with your question.
Marc Frye Riddick: Our next question comes from Kevin Spanky with Barrington Research. Please proceed with your question.
Kevin Mark Steinke: Thanks. I wanted to ask about the higher than normal retention of the consultant base that you've discussed in the recent past. Is that continuing to be the case where you're seeing less turnover than historically? And if so, how does that factor into your hiring plans as you move throughout 2024?
Kevin Mark Steinke: Thanks.
Kevin Mark Steinke: I wanted to ask about.
Kevin Mark Steinke: The higher than normal retention.
Kevin Mark Steinke: The consultant base that you.
Kevin Mark Steinke: <unk> discussed in the recent past.
Kevin Mark Steinke: Is that.
Kevin Mark Steinke: Continuing to be the case.
Kevin Mark Steinke: What are you seeing less.
Kevin Mark Steinke: Turnover than historically and if so how does that factor into your hiring plans.
Kevin Mark Steinke: As you move throughout 2024.
Paul A. Maleh: Sure. Good morning, Kevin.
Speaker Change: Sure Good morning, Kevin.
Kevin Mark Steinke: There's a couple of aspects.
Speaker Change: Two how I want to answer that.
Paul A. Maleh: First.
Paul A. Maleh: That.
Paul A. Maleh: There are a couple of aspects to how I want to answer that. First, attrition rates are approaching what I would consider more normal levels at CRA, but still below. So we're still, you know, keeping more staff relative to normal attrition rates that we've experienced in the past, where we are taking a bit more of a conservative approach in the labor market in terms of not hiring too far ahead of the anticipated needs right now, namely because we're still having success in the latter university hiring market and in the secondary market for talent. We haven't experienced any squeeze where we are fearful of being left without
Paul A. Maleh: Attrition rates.
Paul A. Maleh: Are approaching what I would consider more.
Paul A. Maleh: Normal levels at CRA, but still below.
Paul A. Maleh: So we're still you know.
Paul A. Maleh: Keeping more staff.
Paul A. Maleh: Relative to normal attrition rates that we've experienced in the past.
Paul A. Maleh: Where we are taking a bit more of a conservative approach.
Paul A. Maleh: On the labor market in terms of not hiring too far ahead of the anticipated needs right now, namely because.
Paul A. Maleh: We're still having success in the latter university hiring market and in the secondary market for talent, we haven't experienced any squeeze where we are fearful of being left without.
Paul A. Maleh: You know, top-level talent to deliver our service.
Paul A. Maleh: Top level talent to deliver our services.
Paul A. Maleh: Okay, that's that's helpful. And, you know, circling back on the rebound and conversion rate you've seen here. And, obviously, you said a lot of the uncertainties that existed before are still out there in terms of the, you know, macroeconomic picture, but, I mean, any sense as to what you're hearing or seeing from your client base that there's just, obviously it's indicated in the numbers, but there's more of an acceptance or comfort level with the current environment, and that's leading to more clients moving forward kind of despite it? Despite the macro environment, they've just become more comfortable with operating in this type of environment.
Speaker Change: Okay. That's helpful.
Paul A. Maleh: And certainly back on the.
Paul A. Maleh: The rebound in conversion rate you've seen here.
Paul A. Maleh: And obviously you said a lot of the uncertainties that existed before are still out there in terms of the <unk>.
Paul A. Maleh: Macroeconomic picture, but.
Paul A. Maleh: Any sense as to.
Paul A. Maleh: What's you're hearing or seeing from your client base that there's just.
Paul A. Maleh: As indicated in the numbers, but there is more of an acceptance or comfort level with the current environment.
Paul A. Maleh: That's leading to more more.
Paul A. Maleh: Clients moving forward kind of despite.
Paul A. Maleh: Despite the macro environment, they've just become more comfortable with operating in this.
Paul A. Maleh: Type of environment.
Paul A. Maleh: I can't point to any kind of particular evidence that I can share that allows me to say clients have shifted their outlook and willingness to begin matters. And that's what's been so frustrating over the last 15 months or so, because there are a lot of things that are going exactly as planned. And when we are getting lower conversion rates, it's a bit of a surprise. So we're doing our best to try to make good economic decisions in an environment of what I still consider to be increased uncertainty, which just speaks even more to what my colleagues have delivered over the past six months here. It's really exceptional and, so far, so good.
Paul A. Maleh: I can't point to any kind of particular evidence that I can share that.
Paul A. Maleh: That allows me to say clients have shifted.
Paul A. Maleh: Our outlook and willingness to begin matters.
Paul A. Maleh: And that's what's been so frustrating over the last 15 months or so.
Paul A. Maleh: Is that Theres a lot of things that are going exactly as planned.
Paul A. Maleh: And when we are getting lower conversion rates, it's a bit of a surprise.
Paul A. Maleh: So where we're doing our best.
Paul A. Maleh: To try to make.
Paul A. Maleh: Good economic decisions.
Paul A. Maleh: In an environment of what I still consider to be increased uncertainty.
Paul A. Maleh: Which just speaks even more to what my colleagues have delivered.
Paul A. Maleh: Over the past six months here, it's really exceptional.
Paul A. Maleh: And so far so good.
Kevin Mark Steinke: Okay, thanks. That makes sense. And, you know, congratulations on the very strong first quarter results here. I will turn it over to you.
Speaker Change: Okay. Thanks that makes sense.
Speaker Change: Congratulations on the very strong first quarter results here I will turn it back over.
Kevin Mark Steinke: Great. Thank you, Kevin.
Speaker Change: Great. Thank you Kevin.
Paul A. Maleh: We have reached the end of the question and answer session. I will now turn the conference back over to Mr. Maleh for any closing or additional remarks.
Paul A. Maleh: We have reached the end of the question and answer session. I will now turn the conference back over to Mr. Mali for any closing or additional remarks.
Paul A. Maleh: Again, thanks to everyone for joining us today. We appreciate your time and interest in CRA. We'll be participating in meetings with investors in the coming months and look forward to updating you on our progress on our second quarter call. With that, that concludes today's call. Thank you.
Maleh: Again, thanks to everyone for joining us today, we appreciate your time and interest in CRA, we will be participating in meetings with investors in the coming months and look forward to updating you on our progress on our second quarter call.
Maleh: With that that concludes today's call. Thank you.
unknown: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Paul A. Maleh: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.