Good day, everyone, and welcome to Charles River Associates Second Quarter 2024 Conference Call. Please note that today's conference 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 @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.

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. Information contained in these forward-looking statements is based on management's current expectations and is inherently uncertain. 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. 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 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. CRA continued its run of strong performance into the second quarter of fiscal 2024. Revenue increased by 5.9% year-over-year to $171.4 million. When combined with the first quarter, this represents the highest first half revenue in the company's history. During this period of growth, we have continued to manage the business effectively. Consultant head count remained relatively flat compared to the second quarter of 2023, producing quarterly utilization of 74%. This solid utilization supported year-over-year growth in profitability as non-GAAP net income, earnings per diluted share and EBITDA increased by 26.4%, 28.9% and 18.5%, respectively. Broad-based contributions drove this strong quarterly performance with five practices growing year-over-year: Antitrust & Competition Economics, Financial Economics, Intellectual Property, Labor & Employment and Life Sciences. Both lines of business contributed to the quarter's revenue growth as legal and regulatory increased 7.2% year-over-year and management consulting expanded to 0.9% relative to the second quarter of fiscal 2023. For the company as a whole, we continue to replenish our sales pipeline. Our project lead flow increased in the second quarter by 11% year-over-year. CRA conversion rates remain strong and consistent with historical norms as new project originations grew by 18% relative to the second quarter of 2023. Even excluding projects that transition to CRA as part of the recent expansion of our Intellectual Property practice, new project originations still grew by 10% year-over-year. This performance outpaced the broader legal market, which saw total case filings increase by 7% year-over-year and total core judgments increased by 3%. I would now like to spend a few minutes highlighting some of the projects delivered during the second quarter. Our Antitrust & Competition Economics practice has been actively involved in a variety of high-profile litigation and regulatory matters.…

Thanks, Paul. Hello, everyone. I want to update you on our capital deployment during the quarter. We concluded the quarter with $24.6 million of cash and $87 million of borrowings under our revolving credit facility, resulting in a net debt of $62.4 million. The borrowings were primarily to fund bonus payments during the first two quarters, which is consistent with our practice in prior years. In addition to the normal bonus cycle, the second quarter of 2024 also saw net cash outlays for talent investments of $18.6 million and capital expenditures of $2.3 million. We've also returned a total of $27.0 million to our shareholders during the second quarter, consisting of $2.9 million of dividend payments and $24.1 million for share repurchases of approximately 140,000 shares. 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. 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 second quarter of fiscal 2024. In terms of consultant headcount, we ended the quarter at 968, consisting of 157 officers, 531 other senior staff and 280 junior staff. This represents a 0.3% decrease compared with the 971 consultant head count reported at the end of Q2 fiscal 2023. Non-GAAP selling, general and administrative expenses, excluding the 2.2% attributable to commissions to nonemployee experts, was 16.4%, of revenue for the second quarter of fiscal 2024 compared with 16.1% a year ago; this quarter's ratio was primarily impacted by an increase in travel and entertainment expenses and higher labor costs. The effective tax rate for the second quarter of fiscal 2024 on a non-GAAP basis was 29.4% compared with 29.8% on a non-GAAP basis for the second quarter of fiscal 2023. Turning to the balance sheet, DSO at the end of the second quarter was 110 days compared with 115 days at the end of the second quarter of fiscal 2023. DSO in the second quarter consisted of 70 days of billed and 40 days of unbilled. We concluded the second quarter of fiscal 2024 with $24.6 million in cash and cash equivalents a further $158.5 million of available capacity on our line of credit, for a total liquidity of $183.1 million. That concludes our prepared remarks. We will now open the call for questions. Rob, please go ahead.

[Operator Instructions] Our first question comes from Marc Riddick with Sidoti & Company. Please proceed with your question, Marc.

Good morning. So I wanted to start with your comments around reconfiguring the team and sort of how that dovetails into the increase of the full year guide, if we could spend some time there. With the pullback in the number, the quarter ended head count though utilization was up, can you sort of talk, maybe walk us through kind of how you see that flowing for the remainder of the year as far as with the guidance that was provided? Can you talk about maybe sort of how that plays into where you see head count going and what your thoughts are around utilization for the remainder of the year? And then I have a follow-up after that.

Sure. Let me start with, I don't take the actions that we had to do during the second quarter lightly. It's been 12 years since I had to oversee such kind of actions, and I really hope that I would never see that during my tenure. We set out about a year ago, and I was talking to all of our shareholders and said, "I see some excess capacity." I thought normal paths of attrition would self-correct it as we move through the year. And what we saw is we had some correction to it, but we still had these pockets of excess capacity that existed across a number of practices. And we wanted to try to rightsize that. As we've repeated over and over, our goal is to operate in the mid-70s utilization. Clearly, there's some calendar cyclicality with the holidays. As we bring on new people, that utilization will move. But the long-term target is to be operating in the mid-70s utilization. The guidance that we have provided incorporates the actions and the associated savings that we have with those actions. The one thing to say is that, there's a lot of moving parts that go into coming up with the guidance. We are not staying put. We are still hiring people. We're still growing revenue. We are still looking for ways to expand or increase the depth of our services. So it is not as simple as looking at the labor savings associated with the action and just playing it forward over the next couple of quarters. So we feel good about where we stand. The guidance is coming off of record profitability over those six months. And the good news is that combined with the strength of the portfolio and the actions, I think we're going to be able to continue that momentum ahead.

I appreciate the commentary. And then you did mention as far as new project originations being a very strong -- quite strongly, lead flow looks very good. Can you talk a little bit about what you're seeing conversion-wise through the quarter and maybe sort of how you see that playing out in the near term?

Sure. I know we're supposed to be talking about the second quarter of fiscal 2024, but I'm going to take us back through 2023. 2023 was a good year except for the conversion of those leads that we were bringing into CRA into revenue-generating projects. We saw a lot of volatility on that conversion rate. We are very pleased with the level of leads during 2023. What we've been enjoying in Q4 of 2023, Q1 of fiscal '24 and Q2 of fiscal '24 are conversion rates that look like what we've enjoyed historically at CRA. So we are in that low 60s percent conversion rate and that is nothing new for this portfolio of services. So we're pretty pleased. I see no indication of a shift or that volatility that we experienced during Q3 reemerging. So a lot of credit goes to my colleagues across the practices.

Okay. Great. And then just maybe one more. You've talked in the past about sort of what you're seeing as far as the regulatory landscape and increased scrutiny of transactions and the like. So maybe if you can maybe just sort of provide an update because certainly, it certainly seems to be continuing to play out? Maybe you can sort of give us maybe an update on your views on that?

Yes. We see no shift right now, both here in the States and in Europe. We see regulatory oversight to still be relatively strong. And we're all trying to read the tea leaves of what a continued administration or a new administration may mean here. But right now, no indication of a slowdown in terms of the regulatory pressures companies are facing.

Our next question comes from Andrew Nicholas with William Blair. Please proceed with your question.

Hi. Good morning. Thanks for taking my questions. I wanted to touch first on the margin guide, which I think at the midpoint would represent, if it's not the strongest margin here ever, I mean, it certainly is in the numbers that I have. So I understand there's some portfolio optimization actions and restructuring that you enacted. But could you maybe unpack what's making this year such a profitable one? Utilization is certainly strong, but I wouldn't say outside of your normal range of expectation. And then relatedly, is this a decent jumping off point for future years? Or is there anything going on in '24 that is onetime in nature?

Sure. We're quite proud of our revenue growth and our ability to grow revenue at such a profitable rate. That has been our history now for more than a decade. We're able to grow the top line, we're able to grow it profitably and have also enjoyed substantive margin expansion since 2019. If you compare, whether you want to look at EBITDA or EBITDA plus the forgivable loan amortization, we've improved margins by 250 basis points over these last 4 years. And we are always looking for the right opportunities to reinvest in the business, but there is nothing in 2024 that I would consider onetime in nature in terms of giving us a boost to profitability. This is really a continuation of the strong performance by this portfolio for many years and we're going to do our best to just grow wisely, right? I think that is one of the key ingredients of creating value for my colleagues here at CRA and our shareholders.

Very helpful. And then I wanted to ask on -- I know you've talked about this publicly in the past. But just kind of with what's kind of gone on politically over the past month, a lot of movement in terms of election expectations. Could you speak to your latest thoughts on what potential administration changes might mean for the business and maybe what you're baking in for the back half of the year in terms of any related pauses or delays in decision-making surrounding that event?

Sure. It's definitely been sort of must watch TV. There's always kind of preconceived notions about an administration led by the Republican party or administration led by the Democratic Party based on past administrations. But the last time the Republican administration was in office didn't necessarily follow what I would call historical norms with it. So to say that, gee, if there's a change in administration, would that be a dramatic change in regulation, and the question is -- the answer is, I don't know. I don't know whether they're going to follow closer to the actions taken during the last Republican administration or are we going to see a continuation if the Democrats maintain office and control. The other thing to keep in mind is that we also don't see any real signs of easing of regulatory pressures in Europe. And we do operate in a global marketplace. So I'm personally curious to see if there is a relaxation of regulatory scrutiny here in the States, how much deviation are we going to see from what we have observed in Europe. So I haven't noticed that. Also to keep in mind is that if there is a change, it doesn't happen overnight. There's a lot of things that need to play through the system and a lot of changes that need to happen. So I, like you, am just watching closely.

Great. That's helpful. And then maybe if I could ask one last question on the Antitrust business. You highlighted some wins in your prepared remarks, and I apologize if I missed it. But could you speak maybe more specifically to the performance between M&A and non-M&A-related Antitrust in the quarter? Is there any kind of major divergence in terms of the growth rates there or even sentiment as you look ahead over the next couple of quarters and into next year?

Well, M&A activity in the market as a whole has shown signs of life during the first half of 2024. We're clearly seeing some of that, these new mergers coming into CRA. But if you start breaking down the first half of 2024, you go from a relatively strong quarter in Q1 to a weakening in Q2. What the next couple of quarters holds, we'll wait and see. I'm sure everyone is waiting to see what happens with rates, whether we're going to get a cut or two in the coming months there. So the practice is enjoying some of the merger work. It's probably still more heavily weighted on the Antitrust litigation side of the house, but we definitely have seen signs of activity with mergers.

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

Thanks. So just in relation to the increase in revenue guidance, can you talk through perhaps any particular practices that have trended better than expected thus far in the year that's enabling that guidance increase? You talked about continued growth in Antitrust & Competition Economics and Life Sciences through this quarter. But again, is it just kind of a broad-based contribution that's driving that guidance increase?

Kevin, I think to answer your question, I sort of have to begin and maybe you could do the round of applause for Antitrust & Competition Economics practice. Their performance has been exemplary. They're going from record quarter to a record quarter on that. They're able to grow organically. They're able to recruit. And once those recruits are inside their practice, they enjoy the benefits of the best brand and offering in the world. So I am amazed, but I'm never going to discount what the future may hold. They have a great business model. And I don't know, if you do antitrust work, why you would want to work anywhere other than CRA? So hats off to that practice for just the extraordinary performance on it. The other part I'm going to point to is we had both lines of business growing, yes, at different rates, but both are growing year-over-year. We had five practices, a number of those practices growing double digits for it. And so the portfolio is working. It's not always the same set of practices. We saw Life Sciences had a really nice quarter. We saw Forensic Services, which normally drives a good part of our growth, have a relatively flat quarter with it. So that doesn't give me pause. It doesn't give me any apprehension because we've seen, time and time again, the different parts of the portfolio come through, and at the end of the year, all contribute to the expansion of CRA's book of business on it. So we're pretty pleased with what's happening across the lines, what's happening across geographies. And the assumption for us in the second half is more of the same. I'm not looking for a particular shift and who is going to help drive the performance over the next six months.

Okay. Great. That's helpful. And could you just speak to the -- I guess, call it a group hire in the Intellectual Property practice that happened I think shortly after your first quarter conference call that was announced. Maybe just how that came about and the opportunity you saw there to build out that practice? And then maybe just tie that into the outlook for adding additional senior talent, what the pipeline looks like there going forward?

Sure, we were thrilled to make that group hire and expand our IP practice. For me, it has a lot of similarities to what we enjoyed a couple of years ago when we helped significantly expand our Labor & Employment practice. So Chris Bakewell and Julia Rowe are CRA alum. They both worked at CRA more than a decade ago and have done wonderful things when away from CRA. And we began talking several months ago. They liked what they heard about the CRA portfolio. They knew a lot of the senior people within the Intellectual Property practice. So the discussions really were quite easy on that. They knew us, we knew them. We loved how it expand our services and our geographic footprint and we were able to come to an agreement relatively fast. So as I've said numerous times, I really like our portfolio of services. I think there's a lot of green space across all of the services we have across both geographies. So there is no apprehension to invest our dollars, our time to any of the practices that exist.

Okay. Great. And then just in terms of the -- as you look at the campus hiring, can you talk about plans there? It sounds like, like you said, you're continuing to look for people even post this reconfiguration of the consulting team. Are you seeing more demand for that, more that junior level higher across the market? Or is that kind of still relatively soft when you think about kind of consultants and tech, what have you, hiring going on there?

Yes. I think a successful talent strategy involves both lateral pursuits as in addition to university level hires. So I'm just going to address the university level hires with your question. I still think this is largely an employer market. I see overall demand for the top talent to be maybe a little softer than what we have seen in years past. But even with that said, we're working really hard to try to convey how attractive CRA is to new recruits. We hold a number of recruiting seminars during the summer months. We are already planning an active fall recruiting and expect to see a nice expansion of that university level recruiting as we head into '25. So even though it may be a little softer market from the employee side of the house, you still have to work hard to be able to attract top talent into your organization.

Okay. Great. Congratulations on the strong results and outlook.

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 we look forward to updating you on our progress on our third quarter call. That concludes today's call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.