Q3 2024 CRA International Inc Earnings Call
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Speaker Change: Good day everyone and welcome to Charles River Associates, a third quarter, 2024 Conference School.
Please note that today's call is being recorded. The company's earnings release and prepared remarks from CRAs Chief Financial Officer are posted on the Investor Relations section of CRAs website at CRAI.com.
with us today are CR-E'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.
Thank you Rob, and good morning everyone.
Please note that the statements made during this conference call, including guidance on future revenue and non-gap even a 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 materialy 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 in in series periodic reports, including our most recently filed annual report on Form 10K and quarterly reports on Form 10Q filed at the SEC.
C.R.A.A. undertakes no obligation to update any forward-looking statements after the date of this call.
Speaker Change: Additionally, we will refer to some non-gap financial measures in certain measures presented on a constant currency basis on this call.
Everyone has encouraged to refer to today's release in related CFO remarks for reconciliation of these non-gap financial measures to their gap 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.
Cere continued its run of strong performance into the third quarter of fiscal 2024.
Revenue increased by 13.7% year over year to $167 million. A record Q3 performance that followed a record breaking Q1 and Q2.
In fact, the first three quarters of fiscal 2024 represent the three highest revenue quarters in CRA's history.
During this period of strong growth, we have continued to manage the business effectively.
Quarterly utilization improved on a year over your basis to 76% as consultant headcount decreased slightly compared to the third quarter of 2023.
We are especially pleased with this level of consultant productivity as the third quarter is a period of significant seasonal transitions with large inflows and outflows within our junior consultant ranks.
The increase in consulting utilization resulted in part from the continued replenishing of our sales pipeline.
Our overall project lead flow increased in the third quarter by 8% year over year, with conversion rates remaining strong and consistent with historical norms.
This performance outpaced mixed trends in the broader legal market as total case violence declined by 10% year over year while total court judgments increased by 3%.
In light of these marking conditions, we are especially pleased with the strong growth in our legal and regulatory services, which increased revenue nearly 20% year over year.
Our strong utilization and overall execution drove your or your growth in profitability as non-gap net income earnings per diluted share and EBITDA each increased by more than 50%.
Speaker Change: 4 outpacing our revenue growth rate.
Speaker Change: This performance represents the highest third quarter profitability, as measured by net income, earnings per share, and EBITDA. And similar to revenue, the first three quarters of fiscal 2024, represent the three highest profitability quarters in the company's history.
Our performance was broad-based with seven practices growing revenue year over year.
Speaker Change: 5 practices and a trust in competition economics.
Energy, Financial Economics, Intellectual Property, and Risk Investigations and Analytics, each grew by more than 10% year over year. I would now like to spend a few minutes highlighting some of the projects delivered during the third quarter.
Our NHS and competition economics practice continued its strong performance as a grew revenue by nearly 30% year over year. In fact,
Speaker Change: The first three quarters of fiscal 2024 represent the three highest revenue quarters in the practice history.
Performance in the third quarter was fueled by continued demand for antitrust and merger-related services worldwide M&A activity totaled 2.3.
Trillion dollars during the first nine months of 2024, and increase a 16% compared to year ago levels. The third quarter of 2024 increase 14% compared to the second quarter of the year.
Against this backdrop, Siri worked on transactions across a range of industries and geographies.
For example, CRA experts supported parties pursuing strategic transactions across the healthcare, luxury goods, high-tech and transportation industries.
and John. They're working involved defining the relevant product and geographic markets.
Assessing the changing characteristics and participants in these markets and evaluating regulators theories of competitive harm. The practices work in jurisdictions around the world involve the combination of our expertise and economic theory with the teams in parical expertise.
The combination, this combination allows our team to process and analyze data and ways that support our clients throughout their interactions with regulators.
Cere's Anitrust and Competition Economics Practice also assist clients in the context of anitrust inquiries. For example, members of Cere's European team advise Microsoft.
as a hired certain employees of and entered into associated arrangements with. Infliction, a developer of AI Foundation models and conversational AI tools.
alongside a jurisdictional question of whether this constituted a merger, the competition and market authority in the UK, investigated whether the hiring would result.
in a lesson of competition and the development of either foundational models or consumer chatbot. Ultimately, the CMA dismissed both concerns and cleared Microsoft hiring of the employees from inflection.
C.A.A. is energy practice continues to benefit from the hiring of senior resources early in the year, and the additional services that it can now offer C.A.A.A. clients.
and the third quarter, the practice supported several regional transmission organizations to comply with fur quarters on transmission planning.
The practice also helped multiple utility clients, including subsidiaries of NYSORS.
Liberty and a Lyon energy to develop their integrated resource plans, which describes how the utilities resource mix will need to evolve to meet the demand of poor electricity and the need to retire coal and gas power plants.
These plans, which can take up to a year to develop, have been more complicated recently by the rapid increase in data centers, electric vehicles, and manufacturing loads across the country.
The practice is also working directly with a number of data center clients to help better understand energy markets and utilities.
The team is helping with topics such as supply planning, rate design and fighting.
Speaker Change: Finally, the practice also remained active in the third quarter with the investment community. Projects included multiple large due diligence assignments that address electrical transmission portfolios and a distributed energy platform.
During the third quarter, Sir Ace Financial Economics Practice.
Provided Model Validation and Fair Lending Testing Services to multiple FinTech Lending platforms and their bank lending partners.
Sarah provided independent reviews of the statistical soundness of the client's proprietary machine learning models, which are used to assess consumer credit, an unsacurid installment loan and credit card underwriting. And evaluated models for potential risk of discrimination.
Experts from the practice also continue to assist clients.
and Evolved in Litigation, for example, Series providing expert testimony to a large bank and a class action mortgage discrimination matter focused on the underwriting of mortgage loans dating back to 2018. In another matter, Series assisting clients.
with economic analysis in a false claims matter relating to mortgage underwriting and loan performance.
Speaker Change: the Strong Venture Testifying Experts within series intellectual property practice.
Work on several, no worthy litigation engagements during the third quarter. For example...
A CRA expert testified on behalf of a leading researcher in the University.
Regarding economic damages arising from the infringement of the University's patent covering collaborative robotics.
The expert presented a reasonable loyalty theory based on a comparable transaction with Professor Liz Start-ups and performed a detail analysis of the value of royalty and equity components of those agreements.
The jury reached a verdict in favor of the university and awarded significant monetary damages. And another jury trial, Cere, was retained by one of the top consumer electronic companies to provide economic damage testimony in a patent infringement matter involving...
Charging Technology. And light of series economic analysis and expert testimony that you're awarded damages that were $100 million less than what the plaintiff requested.
The third quarter mark, the first full quarter.
with contributions from the IP team added in May and led by Chris Baquo and Julia Roe. Integration efforts have continued according to plan.
Cross-staffing of client projects and joint marketing efforts are well underway, and we achieved an important milestone with the opening of our Houston office in the August. This new location provides a crucial footprint to serve the highly active patent litigation market in Texas.
Turn the third quarter series, risk investigations and analytics practice.
was retained on a number of multidisciplinary investigations and disputes across the globe.
and the United States, the team was retained to help defend a global financial institution charged with fraud, collusion, and the failure to detect red flags in a $100 million Ponzi scheme.
The team provided expert testimony on the soundness of the banks, anti-money laundering policies and procedures in the context of applicable regulations and industry practices at a time in question.
Speaker Change: in Brazil. See where he was retained by a professional sports league to that professional potential business partners for future events in the country.
and Europe series retained to quantify and analyze the flow of funds across various jurisdictions related to sanction products.
Speaker Change: Compared to a strong third quarter of 2023, Sir Ace Life Science is practiced to climb modestly year over year.
During the quarter, the team continued its work on client opportunity assessments, launch pricing on going expert, witnessing engagements, and global policy work assessing the cost of rare diseases.
Turning now to guidance through the first three quarters of fiscal 2024 on a constant currency basis.
Relative to Fiscal 2023, Cerae generated total revenue of $509.4 million and a non-gap EBITDA of $65.6 million, achieving a margin of 12.9%.
Speaker Change: Reflecting the continued strength and quality of our business, we are reaffirming our revenue and profit guidance.
For a full year fiscal 2024, an a constant currency basis relative to fiscal 2023.
We expect revenue in the range of 670 to 685 million. And non-gap, EBITDA margin in the range of 12.2.
to 13.0%. Overall, I'm grateful to all my colleagues for their hard work during the third quarter, as we help their clients address their most important challenges. With that, I'll turn the call over to Chad and then to Dan for additional comments. Chad?
Chad: Thanks Paul, hello everyone. I want to update you on our capital deployment during the quarter.
We concluded the quarter with $24.5 million of cash and $60 million of borrowings under our revolving credit facility, resulting in net debt of $35.5 million.
These figures reflect $27 million of net payments made during the quarter to reduce borrowings under or revolving credit facility.
The third quarter of 2024 also saw net cash outlays for talent investments of $14.3 million and capital expenditures of $3 million.
As a reminder, our capital expenditures are used to fund investments in our IT infrastructure and in our offices to support our consulting teams.
Consistent with prior commentary for the full year of fiscal 2024, we expect to spend 16 to $17 million on total capital expenditures.
We also delivered $2.9 million of dividends to our shareholders during the third quarter.
Demonstrating our confidence in the quality of the business and reflecting our commitment to return capital to shareholders. Earlier today, we announced a 17% increase in our quarterly cash dividend from 42 cents to 49 cents per common share.
This dividend will be payable on December 13, 2024 to shareholders of record as of November 26, 2024.
Chad: Year to date, we have returned $42.2 million to our shareholders, consisting of $8.9 million of dividend payments and 33.3 million for share repurchases.
We currently have $13.1 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. Has a reminder, more expansive commentary on our financial results is available in the investor-relation 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 2024.
Chad: In terms of consultant headcount, we ended the quarter at 978 consisting of 156 officers, 560 other senior staff and 262 junior staff.
This represents a 3.6% decrease compared with the 1114 consultant headcount reported at the end of Q3 Fiscal 2023.
Non-Gap selling general in administrative expenses, excluding the 2.4% attributable to commissions, the non-employed experts, was 16.2% of revenue for the third quarter of fiscal 2024 compared to the 16.5% a year ago.
The effective tax rate for the third quarter of fiscal 2024 on a non-gap basis was 28.5%. Compared with 18.0% on a non-gap basis for the third quarter of fiscal 2023.
As a reminder, the prior year tax rate was positively impacted by the release of a reserve in a foreign jurisdiction.
Turning to the balance sheet, DSO at the end of the third quarter was 122 days compared with 110 days at the end of the second quarter of fiscal 2024.
DSO in the third quarter consisted of 78 days of build and 44 days of unbuild.
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 ranged between 7% and 10% in each of the past three fiscal years.
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 2024.
We concluded the third quarter of fiscal 2024 with 24.5 million in cash and cash equivalents and a further 135.9 million of available capacity on our line of credit for total liquidity of 160.4 million dollars.
and I conclude our prepare 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 like that, ask a question. Please press star one on your telephone keypad.
A confirmation tell when to get your line is in the question cube.
You may press star 2 if you'd like to remove your question from the queue.
For a participants use a speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
Speaker Change: Hi, first question comes from Andrew Nicholas with William Blair. Please proceed with your question.
Hi, good morning. Thank you for taking my questions.
Good morning, Chris, what are you doing today?
and Mark. I'm talent and head count. Just wanted to get enough data and how you're thinking about that trajectory.
going forward, session my day.
I'm really good at utilization for order. Do you feel like you have enough people for the demand that you're seeing? And within that, and I think Paul, you alluded to it briefly in the influence of not both of Junior Town, but looks like you used to see in Junior Head Town, take up.
Speaker Change: Season only in the third quarter didn't see that discord or anything to call out there or kind of where you sit in terms of the staffing ratio.
Speaker Change: Sure.
I think in order to address the headcount...
You're over your head count changing the third quarter. I have to talk about the head count action taken during Q2, which impacted roughly about 80.
Consultants. If you take that into account, there is actually an expansion of head year over year in the third quarter. The reason I raise that is what we're trying to do is direct.
Speaker Change: the consultant resources to areas that are busier, that have a higher probability of growth in the weeks and months ahead.
and so we are seeing growth in the areas that are driving the business. You see it in the utilization increase to 76%. The other thing I will note...
Speaker Change: Uh...
Speaker Change: that legal and regulatory area of our portfolio has been growing at a faster rate.
and the manager in consulting area. The manager in consulting area tends to run.
Speaker Change: and a slightly lower utilization than the legal regulatory. And thus we still have growth opportunities with the head count that exists.
Speaker Change: because we could run legal and regulatory at a higher clip.
were active in the market, there's no reluctance to hire, but we're just trying to be prudent with the additions of that and the timing of those additions. But we see no restrictions on the expansion of heads in, you know, the quarters ahead.
and maybe since you brought it up for all asked about management consulting, you know.
Hearing from familiar Peter is seeing some headlines from probably the hell of company that does feel like some of them more.
Speaker Change: Good strategy focus work has been under pressure year to day. Can you talk a little bit about kind of demand dynamics there? Whether or not there's been any sort of stabilization or further deterioration or the last couple.
Holmes, and in that part of your business.
Speaker Change: Sure.
I would say let me talk about the two areas in our light sciences practice and then our energy practice which are very different stories for both.
I would say life sciences has been in a stabilization phase for several quarters. What we're seeing is more of a thought tooth pattern.
and their performance quarter to quarter.
and really what we're waiting for is the opportunity.
to start executing on some of the growth opportunities that are resident in that practice. I don't have a shrinking practice, I have a practice that is sort of going along that all to quarter to quarter.
That comforts me. I would sure like us to get to the point where we are capitalizing on the growth opportunities that are resident.
in Life Sciences. With respect to energy, it's been a wonderful period of time. We're seeing opportunities where you are hiring aggressively to bring the right kind of expertise to our portfolio and we're being rewarded in the marketplace with strong demand.
for those services. So by no means am I seeing a contraction or even described as a stabilization in the energy practice. I'm actually seeing very strong growth in the current quarter and very opportunists. Very...
You know, optimistic for the quarters ahead for that practice.
Speaker Change: Great, thank you very much.
Speaker Change: Thank you Andrew.
Our next question comes some Mark Riddick with Sidotian Company. Please proceed with your question.
Speaker Change: Morning.
Morning Mark.
So I was wondering, thanks for all the details as far as what we're seeing, especially on the top of line. I was wondering if you could talk a little bit about the cadence through the quarter, whether that was sort of consistent through the quarter, or just something that picked up, how shall we think about how the quarter went, maybe a monthly basis or so.
Speaker Change: Yeah, I have to admit I'm a little bit scarred given what I experienced in Q3, a fiscal 2023, where we started with a strong July and then so on deterioration. This quarter we started with strength.
and that strength continued through the month of August and through the month of September.
So I didn't see any kind of volatility in the performance.
Strength, let to more strength, and we produced really attractive results in a quarter that is definitely impacted by high fringe rates, high vacation rates amongst our consulting colleagues.
Speaker Change: Okay, great. And then I wanted to shift to Anna Tras for a moment and I appreciate the commentary that you had there. I was wondering if you could.
It's Speak To.
and maybe what it is that we're seeing generally is just a matter of the things that you guys are working on, or larger in scale, is it about being more complicated, these things taking longer combination of all the above, what is it that we're seeing now versus maybe the last few years?
Speaker Change: You know, I wish I can say it's because of the strategic decisions of the CEO, but quite frankly, my colleagues in the Anna Trust and Competition Economic Practice are damn good.
Speaker Change: the true genuinely amazement.
Quarter after quarter with the performance because you're talking about the largest practice at CRA who is able not just to grow with large dollar increments, but still at their scale able to grow significantly on a percentage basis.
and they're doing it across the M&A Marketplace and the Antotrust.
their projects are larger, are longer lived, but I would be remiss and not stating that they're also replenishing the pipeline.
Constantly, that is driving that growth. It is not.
Speaker Change: Mealy from the expansion of older projects or those older projects continuing. Yes, we benefit from that, but it's just, again, similar to the company as a whole.
It's just strength building on strength. What they're doing is exceptional and I don't want to just brush over it as O.G. the group 30% in one quarter. That is really remarkable performance.
Speaker Change: I mean, very much so. Maybe we could touch a little bit on, you made commentary around lead flow. Maybe we could touch a little bit on me to what you're seeing as far as a conversion and where that is, we're all to historical norms.
Speaker Change: Sure.
Last year we had very few three, a fiscal 23, we had good leaf flow where we felt short is on the conversion of that leaf flow to new generating projects.
This year we were able to still grow leaf flow by 8%. But the big change is we return to our historical norms of converting roughly.
Two-thirds of our leads into revenue-generating projects.
Speaker Change: So we're pretty pleased.
Speaker Change: with that, the return to historical norms of roughly two-thirds.
We've seen that now for about 12 months running.
Speaker Change: It started in Q4, fiscal 23, and continued in Q1.
Speaker Change: and Q2 and Q3.
Speaker Change: So we're pretty pleased with that. It gives us a gave us the confidence.
to increase guidance at the during the Q2 fiscal 24 call and we've seen nothing.
to make us regret that increase where we affirm guidance. We love the trend that we're on, both on the profitability and on the revenue.
And last one for me, I'm assuming is there anything that we should be thinking about for fourth quarter relative to any seasonality blip or I would imagine there would be sort of the normal holiday seasonality mean, they can then to account with the maintaining and guidance and the like, but are there any particular blip that we should be aware of or anything out of the ordinary.
Speaker Change: Sure, I sure hope not
because again we've enjoyed consistency month to month, quarter to quarter.
Speaker Change: and I see no indication sitting here today that that is going to change in the coming weeks.
People are going to take vacation spend time with their family as they should, but I feel good about where our service portfolio stands today.
Thanks for taking too much.
Mark: Thank you Mark.
Our next question comes from Kevin Stank with Barronton Research. Please proceed with your question.
Hi, good morning and congratulations on the continued strong results.
Speaker Change: Thank you Kevin.
Great, so I wanted to start out by asking about just trends in a trisha and I know that you had seen lower than normal trisha and at the junior consultant ranks.
which kind of contributed to that account action you referenced in this.
I'm wondering if you've seen kind of a more normalization there in a trussion rate, or at least a change from maybe where it was, you know, a couple of few quarters ago.
Sure, this is always a funny topic for me to address because I embrace having a lower
But challenge is you're trying to plan for the future, you're trying to plan for your hiring goals, for the quarter and year ahead, and having an outlier in those projections just makes it a bit more challenging.
Speaker Change: with it, but our voluntary attrition rates.
are still trending on the low side for the company as a whole. We are planning accordingly, and I think we've done a pretty good job with that management as you can see through the utilization rates.
But I haven't seen anything start to turn in terms of an elevation.
Speaker Change: of those voluntary attrition rates to date. Perhaps if the labor market begins to tighten, we will start seeing a more normalization, but it's nice to see that CRA still a decimation of choice.
Speaker Change: for Top Consulting Talent.
Okay, got it, thanks, that's helpful.
Speaker Change: You know, I know you cover this pretty extensively in other settings, particularly your most recent investor day.
Review and refresh for investors thoughts on
Speaker Change: The regulatory environment and potential impact on demand trends for your business in a weight of potential administration change.
Speaker Change: I know there have been some more stringent guidelines put in in place with regard to M&A and what have you so just maybe if you could review all that it would be helpful.
Speaker Change: Sure.
Speaker Change: So there are definitely positives, demand drivers and offsets of those demand drivers associated with each.
Potential Administration here. I think we have the firm has operated successfully under both these administrations. So I think we're going to, we are well positioned.
to adjust. As consulting firms have to do constantly, you have to adjust to the needs of your clients.
and I think the strength of the overall service portfolio was going to allow us to do that. I feel...
Speaker Change: You know.
on the Serely Elper Paird, but...
I'm just not informed enough to sit here and tell you M&A will go up and I trust we'll go down or vice versa Who knows?
Who knows, but it will be that kind of mix of demand impacts and I think we'll do just fine in the quarters I've had a head irrespective of who's elected president.
Speaker Change: Okay sounds great. Well again congratulations, turn it back over.
Thank you, Kevin, and thank you to everyone for participating.
You know, we appreciate your time and interest in CRA, we're going to be participating in meetings with investors in the coming weeks and months.
Speaker Change: and we look forward to updating you on our progress on our fourth quarter call early next year. With that, that concludes today's call. Thanks again to everyone for joining us today.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.
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