Good day, everyone, and welcome to the Charles River Associates Third Quarter Fiscal 2019 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'd like to turn the call over to Mr. Holmes for his opening remarks. Please go ahead, sir.

Thank you, Michelle. 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 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 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 for the year ended December 29, 2018, filed 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 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. Let me now turn it over to Paul for his report. Paul?

Thanks, Chad, and good morning, everyone. Thank you for joining us today. Broad-based contributions from my colleagues have led to strong results during the past several years. The third-quarter proved to be no exception. Demonstrating the consistency and strength of our business, CRA once again grew revenue year-over-year as we have in each of the past 14 quarters. During the third quarter, we welcomed roughly 115 new colleagues, increased headcount by 8% and maintained a companywide utilization of 76%, and as a result, grew revenue by more than 11%. CRA also continues to grow profits at a faster rate than revenue, with non-GAAP EBITDA, net income and earnings per diluted share increasing by 26%, 42% and 51%, respectively. Since the first quarter of fiscal 2016 and similar to our experience in Q3, we have seen aggregate profits growth of more than twice the rate of aggregate revenue growth. Strong performance was led by double-digit revenue growth year-over-year in the antitrust and competition economics, auctions and competitive bidding, forensic services, intellectual property and life sciences practices. Geographically, we continue to see strong demand for our services, resulting in revenue growth of roughly 13% in our North American operations and 6% internationally. Within our antitrust and competition economics practice, a consultant served as testifying expert in a case involving the Vancouver airport authority. This testimony helped the court ultimately rule that the Vancouver airport authority is allowed to limit the number of in-flight caterers to operate at the Vancouver International Airport. In addition, the competition team in Europe supported the proposed joint venture between Anschutz Entertainment Group and Onex Corporation. The U.K. competition authority used analysis conducted by CRA's team to determine the extent to which the parties compete to host entertainment events at their major venues. The U.K. competition authority has…

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 third quarter of fiscal 2019. In terms of headcount, we ended the quarter with 741 consulting staff, which consisted of 121 officers, 412 other senior staff and 208 junior staff. This is a net increase of 8.2% year over year. Non-GAAP selling, general and administrative expenses as a percentage of revenue, excluding the 2.6% attributable to commissions to nonemployee experts, was 16.8% for the third quarter of fiscal 2019 compared with 18.7% a year ago. The effective tax rate for the third quarter on a non-GAAP basis was 18.2% compared with 22.7% on a non-GAAP basis for the third quarter of 2018. The decrease in our effective tax rate was driven primarily by the release of certain tax reserves. On a non-GAAP basis, our fiscal 2019 year-to-date effective tax rate is 23.5% compared with 22.9% for fiscal 2018 year-to-date. We estimate that our full-year effective non-GAAP tax rate will be approximately 25%. Factors that may affect this estimate include our revenue apportionment by state and our stock price during the fourth quarter as it relates to our accounting for stock-based compensation. Last quarter, we introduced a non-GAAP metric, adjusted net cash provided by operating activities. This metric begins with net cash provided by operating activities from our statement of cash flows and adds back net forgivable loan issuances, which are predominantly used for talent acquisition and talent maintenance. Adjusted net cash provided by operating activities represents a discretionary pool of capital, used to fund the items, such as talent acquisitions, office expansions and redistributions to…

Thanks, Chad. Based on the requests we have received over the past year from investors, we will be hosting our first investor day on Tuesday, November 26 at St. Regis Hotel in New York City to discuss our business, strategy and industry trends. We will have a number of practice leaders joining us for the event to highlight and provide more details on our practices, including antitrust and competition economics, energy, forensic services and life sciences. We look forward to seeing many of you at this upcoming event. Michelle, we would like now to open up for questions.

[Operator Instructions] Our first question comes from the line of Andrew Nicholas with William Blair. Please proceed with your question.

Hi. Good morning. I guess, first, I just wanted to ask you about your staffing pyramid a bit. It looks like the percentage of junior consultants has ticked up over the past couple of years as a percentage of the total headcount. So I'm just wondering, one, how you feel about where your staffing pyramid sits as we are here today? Two, what you expect, if you'd expect that to continue over the next couple of years? And then three, if you expect that to be a key driver of margin expansion going forward.

Andrew, I think our delivery of pyramid has been improving with, and defined as more junior staff assisting us to deliver services for the past number of years. We're constantly seeking what the optimal balance is for our clients, and that differs depending on the line of business or the exact services we're providing. For example, our management consulting services tend to be more highly levered with respect to staffing than our legal regulatory businesses. So some of the shifts that you're observing has to do with growth of different parts of our organization. It's not a hard strategy or goal to continue to increase the staffing leverage, but we always look for opportunities to more optimally deliver these services to clients.

And then maybe just taking a step back, obviously, it was a strong quarter across the board. Just curious if, and you highlighted a bunch of good examples of demand and strength, but if there are any other things you could say about which specific practices maybe are running better than you had expected?

I don't think any of them are running better than we expected. We've been seeing this kind of performance and well-balanced contributions for really several years. It hasn't been just a few quarters now. Any time you have a quarter in which you have your two largest practices being the antitrust and competition practice and the life sciences practice both growing by double digit is always welcomed. In addition to that, we have a number of practices that we would say have been drivers of, sort of, entrepreneurial growth continues to contribute. So, we have a lot of the parts of the engine clicking for us. And next quarter, may be the same practices, but you have, what we have observed is we constantly are getting contributions from the entire portfolio for that. So, I'm really happy with the mix of services. And I don't necessarily see any one practice significantly outpacing the other in the quarters to come.

And then maybe just last one for me, I was hoping you could speak to consultant retention, how that's trending? And then maybe with respect to the broader labor market, if you could touch on the competitiveness of recruiting and anything unique to note there?

Sure. Similarly, the way we work hard to earn our clients' dollars for consulting services, we work equally as hard to win our colleagues' preferences here. We have enjoyed what I would consider to be below market rates of attrition for the past number of years, but you can never take that for granted, right? Our colleagues are really the best and brightest, and we need to earn that privilege each and every quarter. So, we're happy with the way things stand. The attrition rates are low but the other benefit to having a welcoming and, environment is, we've also seen a lot of inbounds both from the university level and also, what I would, call more lateral hires in the last number of quarters. So, we're enjoying that. And all of these factors are contributing to our growth and to the success.

Our next question comes from the line of Kevin Steinke with Barrington Research. Please proceed with your question.

Just following up on that last question. Can you just also touch on what the recruiting pipeline for talent looks like for senior consultant talent?

Kevin. We're pretty happy with the way the pipeline looks like. I haven't seen any aberration, positive or negative in this quarter, and that's not to be down on what the prospects are. But we've been seeing a full pipeline now for the last number of quarters. And I'm pretty pleased in terms of the execution of converting these opportunities into new colleagues. So, we're seeing it on -- across both sides of the company, both legal and regulatory and management consulting. And we're going to continue to pursue opportunities that make us a stronger organization. Any addition is in the pursuit of revenue growth. It's really in the pursuit to make that portfolio stronger.

And I want to circle back to an announcement -- press release you had earlier in the quarter, where you announced the establishment of a risk, investigations and analytics practice. And you've talked over time about sticking pretty closely to what you know and kind of expanding within your existing areas of expertise. So maybe if you could just touch on what that new practice brings to the table and how it's related to the types of -- the type of work you're already doing.

No, we're really excited to welcome some new leaders into the organization. They've been tasked to help us expand our legal regulatory services in the areas of risk, investigations and analytics there. This undertaking is not really new for CRA, both in terms of a growth initiative. You've seen us do that now over the last number of years from the life sciences practice to bringing on leaders in a nascent forensic services practice to expanding organically our Energy practice. So we're constantly trying to, sort of, plant seeds of growth, while still maintaining productivity and high profit levels. Specifically, on this practice, one of the things we're trying to do is, CRA since its inception more than 50 years ago, has always offered analytics services, right? Providing insights and information, but it has always been, sort of, as a tool used across our practices. I would like to try to more formalize that, similar to the way our life sciences practice has done with their analytics offering, but more formalize that analytics across our entire platform. Secondly, on the investigation is the forensic services has done also some investigations, but this adds a level of depth that introduces a different set of opportunities for this firm. It's in the early stages, but I'm really happy with the progress that this leadership group is making. So, I wouldn't necessarily say it is a new offering. But again, trying to go into the adjacencies of the existing portfolio.

And Chad, if I can ask about the SG&A expenses, they've been essentially flat year-over-year for the past couple of quarters here. What's enabling you to hold the line on expenses, and should we expect similar levels to be maintained going forward?

Sure. No, we keep a very close eye on our SG&A expenses, the overhead outlays that we make quarter to quarter. This quarter, we were able to keep it fairly flat on a dollar basis, the percent of revenue dropped. And I think the biggest story there was, the spending by our practices was a bit lower than historical. People are busy. They're focused on delivering client service. And as a result, they weren't spending as much on travel or business development activities. But as we indicated, our lead flow and trends in new project originations are quite healthy, so we're quite happy with the overall activity, but the spending this quarter was down just a bit from where we've been historically as a percent of revenue.

Okay. Got it. And obviously, it was a really nice quarter in terms of profitability and non-GAAP EBITDA margin expansion. I mean, what kind of gives you the confidence to now say that the full year is going to be in the upper half of the range you've provided. Obviously, you have three quarters of results here. But what's been going right on that front?

Yes. I mean, I think the first part that you touched upon is we do have three quarters of very strong performance. So that gives us a great foundation to make statements that were going to be in the upper half. We've also increased the revenue guidance from what was previously provided. So that offers us another opportunity to leverage our cost basis, just a bit more. So it all goes hand-in-hand with one another. I think we're diligent on managing our costs. And we also are cautiously optimistic about the revenue growth ahead.

Sure, makes sense. And I guess I have to ask, just in terms of, you didn't mention in your prepared comments about any economic uncertainty and if you're seeing any impact on your business it certainly doesn't sound like it or look like it, but whether it's in Europe or elsewhere it just maybe the tone of business and what you're seeing in the demand environment related to economic conditions?

No, we're trying to follow as closely as everyone, all the happenings in our global economy. But what I can say is from what we observe as a firm, we're not seeing a slowdown in terms of active projects. We're not seeing a slowdown in terms of inflow of new business opportunities, and we're not seeing a slowdown in terms of new project originations. So those are really the levers that we're observing. To date, what the overall economy will do in terms of GDP growth might impact us, but to date, there's been no discernible change in the demand environment.

Okay. That's helpful. Thanks for taking the questions and congratulations on the nice results.

Thank you, Kevin.

Our next question comes from the line of Marc Riddick with Sidoti. Please proceed with your question.

Hey, good morning German. Money marks. I wanted to touch on some of the practice areas that you've talked about as far as future growth drivers and opportunities in the wins and maybe if you could spend some time talking about some of the growth progress that you're seeing and some of the other areas that are not necessarily your largest at the moment but some of the growth areas that you may be most excited about and have maybe invested in a little bit more so as of late? And then I have a quick follow-up on that.

Sure. I mean, look, lesson learned through my whole career at CRA is always embrace the true intellectual property of the organization and the entrepreneurship. Many of the practices we're calling out today is just a few years ago was just made up of a couple of individuals, forensic services is a perfect example. Life sciences more than tripling its consulting size in the past three years are all examples that just are lessons that don't overlook smaller practices. Because you don't know necessarily market shifts in demand or drivers of those unique businesses. So that's why we do embrace all aspects of the portfolio, those that are growing rapidly now and those that are maybe just building on their intellectual property base. So I say it earnestly that I do like all aspects of our portfolio.

Okay, that's great. And then you touched on it a little bit, but I just wanted to -- if there was numbers that you could share as far as the growth of North America versus Europe? I mean, certainly, the tone of what's going on over there is one thing. I was, sort of, wondering what that contribution was like during the quarter and what that breakout might be?

Yes, we're thrilled with the growth of our international operations. If you add the currency headwinds that we face to the European growth rate, it will be even more impressive. And I never really tried to harp on this, but the comparable base for Europe is also getting harder and harder, but yet they're delivering growth quarter after quarter on that. So the same aspects in terms of that I highlighted, in terms of activity in current projects, lead flow and new project originations exists for North American operations, as well as they do in an international operations. So we're having great contributions across both lines of business internationally. And right now, we don't foresee that changing.

Thank you. At this time, we have reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Maleh for any closing remarks.

Again, thanks to everyone for joining us today. We appreciate your time and interest in CRA. We look forward to seeing you at our upcoming investor day in November and providing an update on our progress on our fourth quarter call early next year. With that that concludes today's call. Thank you, everyone.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.