CRA International,Inc.

Good day, everyone, and welcome to Charles River Associates' first quarter 2020 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, 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. Holmes for opening remarks. Please go ahead, sir.

Thank you, Rob, and good morning to everyone joining on the line. I hope everyone is doing well, staying safe and healthy during these unusual times. Paul and I are joined today by Dan Mahoney, CRA's recently appointed Chief Financial Officer. We are pleased to have Dan on board and would like to take this opportunity to offer a brief introduction. Dan joined us last month from Bright Sphere Investment Group, where he was SVP and head of finance. We welcome Dan to our call this morning and look forward to his participation in the quarters ahead. I would like to remind everyone that the statements made during this conference call, including 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, and actual performance and results may differ materially from those expressed or implied in these statements due to many important factors, including the extent and duration of the impact of the COVID-19 pandemic on our financial condition and results of operations. Additional information regarding these factors is included in today's release and in CRA's periodic reports, including our most recently filed annual reports 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. Before I turn the call over to Paul, I would like to mention that we are conducting today's earnings call remotely. and our speakers are all joining from different locations. While we hope the call is executed seamlessly, we ask everyone for their patience should we run into any technical difficulties or challenges in connectivity. We thank you in advance for your understanding. Let me now turn it over to Paul for his report.

Paul? Thanks, Chad, and good morning, everyone. Thank you for joining us today. CRA's financial results for our first quarter of 2020 demonstrate the continued strength of our portfolio. With that said, our world has changed dramatically over the past two months. I want to take this opportunity to address how this new environment has affected CRA. Our first priority is the health and well-being of our people and providing them with a foundation of stability and safety during this unprecedented time. Beginning on March 16th, we asked our colleagues to work from home wherever possible. Within a matter of days, 100% of our colleagues were working from home with access to networks and infrastructure that possessed the same power, capacity, and security as they had available at their desk within our offices. We have continued to provide effective services to our clients and comply with stay-at-home orders and other local mandates. Thank you to CRA's corporate resources for a job exceptionally well done. We are committed to supporting the needs of our personal and professional communities. As we help our clients address critical business challenges, I'm grateful to all of my colleagues for their hard work throughout these difficult times. We had a great company prior to the work-from-home order, and we have a great company today. The people that drove our performance in the first quarter are the same people who will drive the business forward in the future. Returning to the first quarter, we reported the highest quarterly revenue in the company's history and year-over-year headcount growth of 16.3% across our practices and geographies. Our Q1 performance was driven by more than 35% year-over-year growth and new project originations. These new projects contributed to the strong Q1 results and also provide us with a solid foundation for the months ahead. From the beginning of March through last Friday, a period that has been impacted by the COVID-19 pandemic, new project originations have slowed but are still up 4% relative to the same period of 2019. This data only provides us with a snapshot of activity over the preceding eight weeks, which may or may not be indicative of our future performance. Another metric we are monitoring as we assess the impact of COVID-19 on our business is weekly labor billings. This productivity metric represents the dollar value of time incurred by our consultants on client projects. To move from labor billings to net revenue, A number of adjustments are made to account for items such as reimbursable expenses, non-employee consultant billings, fixed-price projects, and write-offs. In the first quarter of 2020, labor billings were up 12% year-over-year relative to the first quarter of 2019. For the month of March through last Friday, weekly labor billings are up 8%. relative to the same period of 2019. Again, this represents only eight weeks of data, so it's not an assurance of our growth going forward. The trend in new project originations and weekly labor billings seem to have been negatively impacted by the decline in M&A activity and delays in the US court system. Global merger and acquisition activity fell sharply in the first quarter of 2020, both in terms of the number of deals and reported transaction value. In the litigation market, during March 2020 and the first two weeks of April, case filings were not significantly impacted year over year. This suggests that litigants were moving forward with planned litigation. However, case activity is down. For example, court judgments in March of 2020 were down more than 40% relative to 2019. This suggests that while litigants are moving forward with filings, courtrooms have been impacted in their ability to handle normal litigation loads. Shifting gears, I would like to spend a few minutes on two of CRA's larger practices that performed well during the first quarter and continue to see strong demand for their services. First, I want to highlight our forensic services practice. Despite the ongoing health crisis, this practice has not missed a beat. They continue to help companies on matters involving forensic accounting, anti-money laundering, cybersecurity, e-discovery, and information security. Drawn upon our forensic accounting capabilities, the practice's recent engagements include an investigation into allegations of embezzlement, of $100 million by a former chief financial officer and an investigation into a $245 million alleged securities fraud scheme. Leveraging our money laundering capabilities, the practice is performing an independent review of the AML compliance program at a nationwide retailer that serves as an agent for a money services business. Drawing upon our cyber incident response and e-discovery competencies, The practice continues to investigate numerous business email compromises, fraud by corporate executives, and ransomware events affecting client operations in multiple countries. In the area of information security, the practice is serving as an independent monitor for a multibillion-dollar nonprofit health system. which has suffered a series of data breaches and then entered into a corrective action plan with the U.S. Department of Health and Human Services. The practice was also recently honored in the National Law Journal's Best of 2020 for being one of the top three forensic accounting providers in the country and by Global Investigation Review as one of the top 10 forensic practices for handling sophisticated cross-border Government Driven and Internal Investigations. Congratulations to our forensic practice. Life Sciences is the second practice I would like to highlight today. It also performed well during the first quarter and continues to see strong demand for its services across a range of strategy, analytics, and litigation assignments. During the first quarter, strategy work in the practice was led by global product development and a launch project in oncology and diabetes. Analytics work was led by a large client project regarding the development and use of a data warehouse to integrate patient, payer, physician data. This information coupled with advanced analytics and user-friendly data visualization is an integral part of the process to drive the client to a more patient-centric approach. Litigation work was led by projects involving opioids, intellectual property, and an assessment of commercially reasonable efforts associated with the development of an oncology product. As our first quarter results demonstrate, our portfolio of services is highly valued by our clients. On a constant currency basis, we grew revenue by 19.5% to $126.5 million and achieve non-GAAP EBITDA margin of 10.3%. Although we are pleased with our performance in the first quarter, as I stated previously, we saw our rate of growth in both new project originations and labor billing slow over the past eight weeks. Given the challenges and uncertainties that accompany the COVID-19 pandemic, at this time CRA cannot forecast with reasonable accuracy the full duration, magnitude and pace Thanks, Paul.