Good day, everyone, and welcome to Charles River Associates' Fourth Quarter and Fiscal Year 2018 Conference Call. Today's call is being recorded. Today's release and prepared remarks from CRA's Chief Financial Officer are posted on the Investor Relations section of CRA's website at crai.com. With us today are CRA's President and Chief Executive Officer, Paul Maleh; and Chief Financial Officer, Chad Holmes. At this time, I would like to turn the call over to Mr. Holmes for opening remarks. Please go ahead, sir.

Thank you, Brenda. I would like to remind everyone that the statements made during this conference call including guidance on future revenue and non-GAAP EBITDA margin for fiscal 2019, and any other statements concerning the future business, operating results or financial condition of CRA, including those using 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, and actual performance and results may differ materially from those expressed or implied in these statements due to many important factors. Additional information regarding these factors is included in today's release and in CRA's periodic reports, including our 10-K filed this morning with the SEC. CRA undertakes no obligation to update any forward-looking statements after the date of this call. Additionally, we will refer to some non-GAAP financial measures on this call and certain measures presented on a constant currency basis. Everyone is encouraged to refer to today's release for reconciliation 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. Let me now turn it over to Paul for his report. Paul?

Thanks, Chad, and good morning, everyone. CRA ended fiscal 2018 with continued strong performance across our entire portfolio, delivering the best full year results in the company's history. During the fourth quarter of fiscal 2018, we experienced broad-based demand across our portfolio of services, delivering double-digit year-over-year revenue growth for the ninth consecutive quarter. This growth reflects our continued investment in our consulting headcount, which has grown by 27% since the end of fiscal 2016 to 687, combined with an increase of utilization from 74% to 76% over the same period. What is even more impressive is the rate of profit growth over that period. For example, fiscal 2017 revenue grew by more than 14% compared with fiscal 2016, while non-GAAP EBITDA and non-GAAP net income increased by 22% and 42%, respectively. Building on this strong performance, fiscal 2018 grew by 13% year-over-year, while non-GAAP EBITDA and net income increased 24% and 45%, respectively. Looking more closely at the fourth quarter, our performance was driven by double-digit revenue growth in our Energy, Finance, Forensic Services, and Life Sciences practices with solid contributions from our Antitrust &Competition Economics practice. We also experienced strength across geographies with North American operations growing 9% and European operations growing 26% year-over-year. Within legal and regulatory, the Antitrust & Competition Economics practice enjoyed another strong quarter, while continuing to support ongoing merger-related engagements. For example, the practice advise on the merger of CVS and Aetna. CRA consultants prepared extensive economic analysis that addressed competitive concerns raised by the U.S. Department of Justice and departments of Insurance in a number of U.S. states. The DOJ ultimately concluded that the merger did not raise any other horizontal or vertical competitive concerns subject to Aetna's divestiture of Medicare Part D prescription drug plan business for individuals. The Finance practice…

Thanks, Paul. 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 your questions, let me provide a few additional metrics related to our performance in the fourth quarter and fiscal 2018. In terms of headcount, we ended the year with 687 consulting staff, which consisted of 124 officers, 375 other senior staff and 188 junior staff. This is a net increase of 56 consultants or 8.9% growth compared with the 631 total headcount that we reported at the end of fiscal 2017. Non-GAAP selling, general and administrative expenses as a percentage of revenue, excluding the 2.6% attributable to commissions to nonemployee experts, was 17.4% for the fourth quarter of fiscal 2018 compared with 19.1% a year ago. The effective tax rate for the fourth quarter on a non-GAAP basis was 19.2% compared with 9.5% on a non-GAAP basis for the fourth quarter of 2017. The higher rate in the fourth quarter of 2018 was primarily attributable to a smaller excess tax benefit related to the accounting for stock-based comp, offset by the lower statutory rates in the U.S. For the full year 2018, our non-GAAP effective tax rate was 21.8% compared with 30.9% for fiscal 2017. The lower rate during 2018 was largely driven by the new statutory rate in the U.S. Turning to the balance sheet, we concluded fiscal 2018 with $38 million in cash and cash equivalents. DSO at the end of the fourth quarter was 104 days compared with 112 days at the end of the third quarter of fiscal 2018. DSO in the fourth quarter consisted of 74 days of billed and 30 days of unbilled compared with 74 days of billed and 38 days of unbilled…

[Operator Instructions] Our first question is from the line of Tim McHugh with William Blair.

First, I want to ask a little bit about Europe, I guess, they are international more probably for you, but I think, that's mostly Europe. One, can you talk about the strength you're seeing there, I guess, we've seen others also do fairly well in Europe, lately it seems like so. Is the market growing, is the market expanding in new ways or do you feel like you and others, I guess, maybe just you are taking share in that market? And then following up on that, as you look forward there's choppier economic trends in Europe, how do you think about that if at all impacting kind of the outlook as we go into '19?

The performance in Europe is not a Q4 phenomenon. We've actually been experiencing nice growth in Europe over the past couple of years, that is driven by a number of practices. I guess, you have to start with our Antitrust & Competition Economics practice in Europe has been incredibly busy in 2018 and even going way back in 2017. We have significantly expanded our Life Sciences presence, and they continue to gain traction there. So we're seeing nice penetration into the marketplace. And then other practices like Marakon Europe and our Energy practice are also seeing success. So it is not one particular segment or line of business, but we're seeing that success across the board. I can't -- it's harder for me to speak whether we're taking share or whether the market is expanding on that basis. But I do find it impressive the strength across all these services. With respect to the outlook, I guess, we're all trying to read the tea leaves as exactly how the broader global economic market is going to fare and specifically how Brexit may impact demand for our services. Our services are necessarily limited even though to the U.K., even though London is our largest office in Europe, we're providing services to companies across the European Union and other countries. But all I can say is, to date, we have not seen any signs of slowdown for demand in those services.

When we -- other question I had was just thinking about, I guess, the pyramid that you use, I guess, relative to senior versus junior consultants, I guess, just looking at this quarter and looking back even I go back three years, so late kind of 2015, the number of officers hasn't really grown that much and yet you've grown your headcount significantly. So obviously the pyramid is why then quite a bit over the last three years? Is that because of the nature of where the growth has come from, I guess, bit less from traditional antitrust and more from kind of Life Sciences and management consulting or are you managing the business differently? And again, how should we think about going forward from here what the plan is with regard to that?

Sure, I guess, the answer is yes. The improvement in our staffing leverage is really across the board. So we'll start with the legal regulatory side of the equation. Typically, our services in legal regulatory tend to be less levered, meaning smaller number of non-VPs to VPs. But there's been a conscious effort by our leaders throughout the company to try to provide as efficient a delivery mechanism for our clients over the past few years. It doesn't happen quickly, but we made progress in the last 3, 4 years in that side. The other big driver of the changes that you're seeing is that practices like Life Sciences, practices like Forensic tend to be a more highly levered -- have a more highly levered staffing model. So clearly, the rapid growth of our Life Sciences practices is contributing to that improvement in leverage. And the other thing we're seeing is the average revenue per VP has been going up now. I don't know exactly the number of years, you guys can probably do the math quicker than I can right now, but our productivity has been increasing. And as productivity per VP increases, we're able to more efficiently deliver those services.

Can I just -- separate from the mix shift dynamic, where are you at relative to, I guess, what we would think the steady state or the optimal level of that pyramid or productivity as we think about that VP kind of number?

Sure. I think there is still room for growth there. I don't have a hard number to provide you. I think right now, our Life Sciences practice and our Forensic practice is growing rapidly. So we are oftentimes hiring ahead of demand there in order to meet the growing needs for our services. So as those assets become more integrated into the company as revenue ramps, you're going to see staffing leverage continue to improve on that front. Within legal regulatory, again, change happens just a little bit more slowly than on the other side. So I still think we have upside there. And I think, you're seeing it across a number of different profit margins both on the gross margin basis and also on the total operating margin basis. We're seeing that leverage lead to higher profits.

And then one last one the tax rate, do you have any sense of what you would think about for 2019 as a baseline?

What I'd say there is much like last year, we're currently estimating for fiscal 2019 on a full year non-GAAP basis, an effective tax rate in the range of 28% to 30% before taking into account discrete items like the impact from stock-based comp.

[Operator Instructions] Our next question comes from the line of Marc Riddick with Sidoti.

I was wondering if you could share a little bit as to any thoughts or maybe some of the things that you've seen or any impacts from the shutdown either specific to the company or commentary around maybe if you've seen much of anything from clients that we should be thinking about at all.

Sure, that's always hard to measure because there was a very short window of time. You have that and January, in general, tends to be a slower month in the calendar year as people come back from the holidays and cases ramp up. So the combination of the shutdown and January being traditionally slower month, is sometimes hard to disentangle there. We're seeing activity is solid in December. We're pleased with how the year is starting off. But so far I have -- we've been unable to disentangle those two impacts.

And then I was also wondering if you could sort of talk a little bit about the sort of how utilization floated. Usually you think about utilization being down a little bit in the fourth quarter with the holidays and all, but certainly that ended up being a strong number. So I just wanted to get your thoughts and sort of how that flowed through the quarter and then maybe any thoughts of the expectations going forward there?

Sure. A lot of my colleagues gave up their holidays to deliver a utilization of 76% in a quarter that is very holiday heavy and vacation heavy. I have people both in Europe and here in the states giving up the holiday time with their families to deliver those kind of results. So you don't record a revenue figure of around $108 million, $109 million without people going above and beyond. So we're really pleased with that. But with that said, if you look at our utilization in '18 and even over the last 5 years, it's been pretty tight. As we talked about, we try to manage our utilization to the mid-70s range. So you're going to have fluctuations around that point estimate. But truthfully, I really wish it didn't happen in Q4 time periods.

That's very helpful and that was kind of where I was going with that. Also I was curious about some thoughts as to CapEx and how we should think about it for 2019? And what those components of it might look like for as to sort of how we might be able to sort of break up the maintenance versus the rest, if you will, or if any tax spend or that type of thing?

Yes, I'll give sort of a general answer to that and I'll let Chad try to contribute with some more specifics there. Our regular level of CapEx or the maintenance CapEx hasn't really changed significantly in 2018 relative to prior years. Really, the main input of CapEx has been our expansion of our real estate. Growth is fantastic, but we need to find homes for all of our new colleagues. So we are constantly expanding across our geographies and that requires some capital to get it up and running. Chad, do you have any details you want to add there?

In 2018, we spent about $15 million on CapEx and as Paul alluded, this was probably directed towards build-outs and expansions to support the growth in our consulting headcount and in '18 that was primarily in Chicago and London. Looking forward, we expect to make similar investments in real estate to support our growth with Boston receiving the focus in fiscal '19. So in terms of estimating the magnitude of our CapEx outlays, I would say they're going to be consistent with our experience over the past couple of years. If you're looking for a more specific estimate for '19, I probably look at 2015 as a proxy for anticipated outlays, that's when we last touched the Boston office.

And then, I guess, the last piece for me and I appreciated the sort of the detailed commentary of the -- on the opening remarks around some of the activity that you had and some of the things you guys have been working on. I was sort of wondering if you had any thoughts as to the flow of M&A and activity that you're seeing globally and sort of the or other economic opportunities that you're fairly positive on or things to look out for?

Sure. Our general strategy and this goes back to as we exited this past recession number of years ago, was to make our asset stronger. I want to continue to add depth in the services that we provide to our clients and that strength, we believe is going to assist us in times of good economic conditions like we've had now over the last number of years. But even more important that's going to assist us during times of more economic volatility. If you're the provider of choice of services, you're still going to be the clients first to provider there. And we believe that a number of our services are in that realm there. So for example, our competition practice, if you go back a dozen years has performed exceptionally well, irrespective of the overall economic conditions and of the rate of market volatility because they are a go-to provider of those services. So we love it when we see M&A activity go up, but I'm pretty confident in my colleagues in faring well during times of more volatility.

And then one more for me I thought I'd end there, but there is one more. I did want to sort of get your updated thoughts on what the acquisition pipeline looks like for you? And also thoughts on kind of where you're seeing valuation and if there is maybe if Europe is presenting an opportunity, given the uncertainty, so just to want to get a bit of an update there as well?

Sure. So here's my opportunity to make a pitch for all potential recruits that are listening. We're working hard, but we're having a lot of fun. We are growing. We're able to offer that growth across both lines of businesses across all our geographies. And because of that, I think, people are taking notice, clients are taking notice, potential new recruits, including companies are taking notice. So our pipeline of opportunities is quite full right now. But with that, you have to maintain your diligence because growth for growth sake is not where we're growing. We want to provide value with the use of our capital. So I think, we've done a good job being good stewards of our shareholders capital, and we will continue to do that going forward. But any opportunity I have to reinvest back in this business for value-creating growth, we're going to take it. We are not capital constraint. We produce great cash flows. I have an untapped line of credit. So we want to look for those value opportunities. So nothing imminent to disclose, but I'm pretty happy with where we stand right now.

And at this time, we reached the end of the Q&A session. I would now like to turn the conference back over to Mr. Maleh for any closing or additional remarks.

Great. And again, I want to thank everyone for joining us on today's call and I also just want to put a thank you to all my colleagues, on both the corporate and consulting side of the house. It was a great year, a lot of hard work, and it's great to see that hard work turning to such positive results. We appreciate your time and interest in CRA. We'll be meeting with many investors in the coming months, and we look forward to updating you on our progress on our first quarter call. With that, that concludes today's call. Thank you, again, everybody.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.