CRA International,Inc.

Good day everyone and welcome to Charles River Associates' second quarter 2025 conference call. Please note that today's call is being recorded. The company's earnings release and prepared CFO remarks 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 Malley and Chief Corporate Development Officer and Interim Chief Financial Officer Chad Holmes. At this time I'd like to turn it over to Mr. Holmes for opening remarks. Chad, please go ahead.

Thank you, Rob, and good morning to 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, Chad, and good morning, everyone. Thank you for joining us today. CRA's long-term performance is indicative of the company's overall quality and demonstrates its ability to capitalize on growth opportunities in the market. We extended our run of strong performance into the second quarter of fiscal 2025. Building on seven consecutive years of record annual revenue and a best-ever first quarter start to fiscal 2025, revenue in the second quarter increased by 9% -over-year to $186.9 million. Our performance was broad-based, with seven of 11 practices growing -over-year. Our antitrust and competition economics, energy, intellectual property, and labor and employment practices each posted double-digit revenue growth. Additionally, our North American and international operations contributed to the quarter's revenue Increasing .4% and 7.0%, respectively. CRA continues to grow revenue and grow it profitably, improving profit margins and profit dollars over the past five years. The first half of fiscal 2025 builds on this trend, surpassing the record-setting first half of fiscal 2024 for non-GAAP net income, EPS, and EBITDA by 6%, 8%, and 8%, respectively. During the second quarter, we welcomed more than 15 new consultants, while improving consultant utilization on a -over-year basis to 76%. We are especially pleased with the level of consultant productivity, as the second and third quarters are typically periods of meaningful seasonal transitions, highlighted by inflows and outflows within our junior consultant ranks. The increase in utilization was supported by the continued replenishing of our sales pipeline. In the first six months of 2025, project lead flow increased by 2% -over-year, adjusting for the transition projects relating to the IP team that joined CRA in the second quarter of 2024, project lead flow through the first half of 2025 increased by 5% -over-year. Revenue in the second quarter from CRA's legal and regulatory services increased by nearly 11%. This growth was supported by activity in the broader legal market, as total case filings and total court judgments increased 17% and 6%, respectively, compared to the second quarter of 2024. Capitalizing on ongoing merger-related activity and continued demand for antitrust services, our antitrust and competition economics practice established a new high for quarterly revenue. The practice continues to support clients on high-profile mergers, as worldwide M&A activity reached nearly $2 trillion during the first half of 2025, an increase of 33% compared to year-ago levels and the strongest opening period for dealmaking since 2022. During the second quarter, for example, CRA's competition practice provided critical economic analysis and expert testimony across multiple antitrust jurisdictions to support Hewlett-Packard Enterprises and Juniper Networks in securing regulatory approval for their $14 billion merger, including clearing U.S. federal and global antitrust hurdles. Members of our competition practice also provided economic analysis and testimony in a Delaware court that supported a successful $406 million jury verdict for a major pharmaceutical client. Relying in part on the CRA analysis, the court found that the defendant's bundling of drugs had unlawfully foreclosed competition, resulting in punitive damages. In Q2, CRA's intellectual property practice advised on multiple high-stakes litigation and valuation matters, covering a broad range of industries and legal forms. For example, CRA's intellectual property and life sciences teams collaborated on a patent infringement case involving a new lifesaving transcatheter aortic valve technology where hundreds of millions in damages are at stake. In Q3, CRA's IP expert quantified the patient life years saved due to this innovation and then valued these saved life years to determine a range of reasonable royalty rates. Concurrently, CRA's life sciences team provided support by interpreting medical studies related to the patented technology's benefit. In another IP matter, a CRA expert provided testimony regarding investments in a U.S. domestic industry and public interest in an international trade investigation involving the manufacture of cochlear implants. The case resolved favorably for CRA's clients immediately prior to trial. CRA's labor and employment practice continues to be valued partner for clients in early stage assessments and mediation assistance in both discrimination and wage and hour litigation matters. For example, during the second quarter, a CRA expert opined in a class action lawsuit against a customer service support software company alleging underpayment of female employees in violation of the California Equal Pay Act. The CRA project team analyzed human resources and payroll data and submitted a rebuttal report demonstrating the flaws in the opposing expert's work. Within our management consulting services, revenue increased roughly 5% year over year led by the continued strong performance of our energy practice. During the quarter, CRA's energy practice continued to experience strong demand across a wide range of service areas. The team is actively supporting utilities, developers, and investors as they navigate a rapidly evolving energy landscape shaped by policy shifts and accelerating load growth. Approximately half of the practice's work remains focused on utilities where we are helping clients reassess strategy and capital investment plans. Much of this activity is being driven by changes in federal renewable incentives and a surge in data center related electricity demand, both of which are prompting utilities to pivot and pursue new regulatory filings to realign their long term plans. As power availability becomes a gaining factor for data center development in key markets, the team is increasingly helping clients shape integrated approaches to infrastructure planning, contracting, and energy sourcing. During the second quarter, the energy practice advised an electric utility on how to structure its response to anticipated large load requests. It also led a buy side due diligence for a client evaluating the acquisition of a data center asset and supported multiple developers on siting strategy and utility engagement. Our life sciences practice continued to adeptly navigate challenging industry dynamics, posting a slight decline in the second quarter but expanding year over year for the first half of fiscal 2025. In the second quarter, the practice continued to support clients' strategic initiatives across a range of strategy, policy, and expert witness projects. For example, the practice continues to work in the immune oncology space, helping clients to assess opportunities and develop launch strategies for new products and combination therapies. Overall, I'm grateful to all of my colleagues for their hard work during the second quarter as we helped our clients address their most important challenges. Combined with the first quarter, the start of fiscal 2025 represents the best first half of revenue in the company's history. Year to date, on a constant currency basis relative to fiscal 2024, CRA generated total revenue of $367.6 million and non-GAAP EBITDA of $47.7 million resulting in a margin of 13%. Given our strong first half results and a healthy pipeline, we are increasing our revenue guidance and raising the lower end of our profit guidance. For full year of fiscal 2025, on a constant currency basis relative to fiscal 2024, we expect revenue in the range of $730 million to $745 million and non-GAAP EBITDA margin in the range of 12.3 to 13.0%. This new guidance compares with prior revenue range of $715 million to $735 million and non-GAAP EBITDA margin in the range of 12.0 to 13.0%. As the remainder of fiscal year, as the remainder of our fiscal year ends on January 3rd, 2026, resulting in a 14th week in the fourth quarter of fiscal 2025. While we are pleased with CRA's strong start to fiscal 2025, we remain mindful that uncertain global macroeconomic, business, and political conditions can affect our business and our client needs. With that, I'll turn the call over to Chad for a few additional comments. Chad?

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, I will provide a few additional metrics related to our performance in the second quarter of fiscal 2025. In terms of consultant headcount, we ended the quarter at 937, consisting of 159 officers, 557 other senior staff, and 221 junior staff. This represents a .2% -over-year decrease compared with the 968 consultant headcount reported at the end of Q2 fiscal 2024. Adjusting for the effects of portfolio optimization actions completed over the past year, our current consultant headcount is flat -over-year. Over the next couple of months, we look forward to welcoming the remainder of our 2025 analyst class, which in total will consist of more than 100 recent college graduates as we continue to feed those practices that are able to capitalize on growth opportunities. Non-GAAP selling general and administrative expenses, excluding the .4% attributable to commissions to non-employee experts, was .3% of revenue for the second quarter of fiscal 2025 compared with .4% a year ago. The effective tax rate for the second quarter of fiscal 2025 on a non-GAAP basis was .0% compared with .4% on a non-GAAP basis for the second quarter of fiscal 2024. Turning to the balance sheet, DSO stood at 110 days at the end of the second quarter, consistent with the 110 days at the end of the second quarter of fiscal 2024. DSO in the second quarter consisted of 73 days of billed and 37 days of unbilled. With respect to our capital and capital deployment during the quarter, we concluded the quarter with $19.4 million of cash and $120 million of borrowings under our revolving credit facility, resulting in a net debt of $100.6 million. The borrowings were used to manage working capital needs during the first two quarters, including the funding of annual bonus payments as we have done in prior years. In addition to the normal bonus cycle, the second quarter of 2025 saw cash outlays of $13.5 million for talent investments and $1.2 million for capital expenditures. During the second quarter, we returned $46.6 million of capital to our shareholders, consisting of $3.4 million of dividend payments and $43.2 million for repurchases of approximately 231,000 shares. We currently have $14.9 million available under our share repurchase program. We concluded the second quarter of fiscal 2025 with total liquidity of $145.9 million, consisting of $19.4 million of cash and cash equivalents, and a further $126.5 million of availability on our line of credit. That concludes my prepared remarks. Before we open the call for questions, Paul has a few final comments.

Paul? Thanks, Chad. Before we start the Q&A, I want to take a moment to welcome the newest members of CRA's executive leadership team. As we announced last week by press release and effective August 4th, Eric Nierenberg has been promoted to executive vice president, chief financial officer, and treasurer. Brian Langen has been promoted to executive vice president and chief strategy and business transformation officer. Stanie David has been promoted to principal accounting officer in addition to her current roles as CRA's chief accounting officer and controller. These leadership transitions reflect the breadth and depth of CRA's management talent and signal our commitment to long-term strategic priorities. I also want to thank Chad for his help and leadership as interim CFO. He will continue to serve as CRA's executive vice president and chief corporate development officer. Chad and I look forward to working with our newly promoted colleagues as we continue executing our strategic plan to maximize CRA's long-term value and with that we will open the call up for questions. Operator, please go ahead.

Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. One moment please while we poll for questions. Our first question comes from Mark Riddick with Sudodi and Company. Please proceed with your question.

Thank you. Good morning.

Good morning Mark.

So I was wondering if you could talk a little bit about maybe some of the drivers around the guidance or raise and it's certainly encouraging but I was sort of curious as to maybe how you feel about the levels of visibility at this time of year relative to maybe what they've been historically and if there were any particular things that sort of underpin that a bit.

Sure. You know we begin with just again a strong first half of fiscal 2025 and that's a continuation of a really strong fiscal 2024. So we've had great continuity across our portfolio in delivering profitable revenue growth. So we begin with that. We're also quite excited about the level of leaf flow activity coming into the firm through the first half of fiscal 2025. With respect to as our visibility change standing here today I would say no but what we can foresee is any kind of disruption associated with the geopolitical environment in the months and quarters ahead. But with everything that we see before us we remain bullish about CRA's future.

Great and I was very curious as to whether you're seeing much in the way of any particular shift in M&A regulatory needs with the current administration whether that's changed much over the last few months or whether clients are engaged in a different form. And the other part of this I guess maybe being maybe the size of some of the deals that you've seen. Are you getting the sense that some of the deals that you're working on have been larger or are they sort of taking longer to sort of go through the process or are they kind of similar to what they've been historically?

Yeah I mean I guess you got to start with highlighting that our antitrust and competition economics practice again posted its best quarter ever. So their demand profile remains really strong both here in North America and internationally. I think it's difficult to answer your question just because of the small sample set we have to compare to. There's clearly been a lot of discussions about what's going on in the U.S. regulatory bodies and what's going on abroad. But to say we have seen a noticeable shift just in these first seven months of fiscal 2025, I don't think I can say that. Deal levels in terms of size, no real change in the aggregate size of the deals of the complexity but we're getting called on all these large prominent matters and so we're pretty excited with that. And until we see any kind of sizable shift we're going to continue business as usual.

Okay great and then have you seen much or maybe you can give us an update as to how you're feeling about the pricing environment or if you've seen much of the change through the year beginning actually of additional pushback in science and areas that don't change?

Sure so I can start with the rate increases that we put in for fiscal 2025 appear to have gone through. We appear to be realizing these improvements in rates on our new projects in fiscal 2025. So we're quite pleased with that. I think clients continue as they always have to demand value. So you may increase rates but commensurate with those increase in rates you also have to think about how you are providing more efficient services to our clients and you're doing that in the most cost-effective manner possible. So we've always been asked about efficiency and value delivery and I think just the continued growth and success of the firm says that we're doing a pretty good job on meeting those expectations.

Great and then last one for me that sort of sort of cherishes to be share a purchase activity if there was any particular timing we should be thinking about that like was that sort of throughout the quarter or or late in the quarter and sort of how that registers to kind of where share account ended at the end of the quarter?

Uh sure you know we have historically been very bullish on buying back CRA shares that bullishness hasn't changed in fiscal 2025. We began the year quite optimistic about our outlook across the portfolio of services and we have a plan in terms of what we expect to deliver on that outlook. And Q1 was a relatively small open window for share repurchases so the majority of our share repurchase activity took place in Q2 and from really the launch of the open window until roughly about two weeks remaining into the quarter and we put a pretty good dent in those share repurchases. The levels that we bought at and the prices that we purchased we think still pose great value and I think the updated guidance says that our outlook continues to align with our expectation.

Great thank you very much.

Thank you Mark.

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

Hey thanks and good morning.

Good morning Kevin.

Want to start out by talking about the energy practice. You spent quite a bit of time in your prepared remarks talking about the demand drivers there. So you know I assume you're adding head out there but you know any plans or thoughts of scaling that practice even more given the van drivers you know perhaps even through acquisitive or you know inorganic efforts?

Sure. What the energy practice has been doing over the last couple of years has really been remarkable. A lot of credit goes to the leadership group within our energy practice. They're doing it with a lot of grassroots effort looking to supplement the skill sets they have through senior hires looking through the promotion of internal candidates. So all of this has been through the hard work of Jim McMahon and the broader leadership group in the practice. With respect to larger inorganic opportunities we continue to look but we are not going to take on any kind of larger acquisition unless it fits nicely with the long-term strategic goals of the practice. We're not chasing revenue and we're not chasing profits there. We want to chase strategic fit and thus far we haven't found the perfect match but we continue to look. I would love to be able to invest even more dollars in the practice but they're doing a pretty remarkable job with the investments that they've enjoyed to date.

Okay yeah makes sense. Great. So just curious about the the management appointment you talked about specifically the creation of that chief strategy and business transformation officer role. Yeah what's the need you see there for that position and maybe what you hope to accomplish through that appointment?

Sure. I'm really excited on the press release that we issued last week about these promotions. That press release follows a pretty comprehensive search that CRA conducted reviewing internal candidates reviewing external candidates and the promotion of Eric, Brian and Sandy. We feel provides the highest value add for our colleagues, our clients and the shareholders alike. Across all of these promotions what we're trying to do is we're trying to raise the value of our the services that corporate is providing to our consulting colleagues. So with that I'm asking Eric, I'm asking Brian to shift more of their focus to higher value strategic initiatives that the practices have underway and having corporate you know see in what areas we can help either funding or expedite these initiatives. So it's just more the continued evolution of CRA's growth and prosperity that we're just shifting a lot of the corporate focus to higher value added strategic initiatives. I've been working with Brian Langan for about 20 years and to no surprise many of the services that we're asking Brian to do going forward he has already been doing for the last several years and serving as the operations director of the competition practice unit that makes up roughly 45 percent of the entity is no small feat in of itself. So really excited about all three promotions and the value they can provide to CRA.

Okay great and on the hiring front the new people you're bringing in from the from college campuses as you mentioned bringing in over 100 recent college graduates you know in the coming months would you characterize that as a fairly typical class or you know a little larger or smaller and just kind of wondering how that relates to your you know obviously overall demand trends of the business and your view and your need to continue staffing up.

Sure we enjoyed a really successful on-campus recruiting season that began in the in the fall of 2024 and we are welcoming those individuals now in the summer of 2025. So I think it was pretty typical of what we normally do. We've been receiving a lot of questions about headcount just because in aggregate headcount seems to be relatively flat. That doesn't mean that we are not hiring and investing for growth as we do with our portfolio we always are planting seeds of growth trying to invest in areas that we see are gaining traction and then also trying to redeploy investments that are maybe struggling to gain traction. So there's many practices that are growing heads and there's some that aren't enjoying as much success currently in the market that we are slower in increasing their headcount. So net net you're seeing a flat you know headcount but as the utilization is picked up and as you see with really healthy revenue growth it does not mean that CRA has gone into any kind of profit maximization mode. Our goal is still to maximize long-term value per share and the practices that are able to benefit from headcount expansion are getting it and a great example are these four practices or five practices that we highlighted that grew double digit. All of them are expanding on their heads.

All right yeah thanks for the commentary. I will turn it back over.

Thank you Kevin.

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

Hi good morning. Appreciate you taking the question. A lot of my my questions have been asked and answered so I'll just maybe leave it to one multi-parter on the antitrust business. I guess first curious if you're seeing any kind of major divergence in terms of growth or performance between the M&A related and -M&A related work within antitrust and then second if you could provide an update on talent retention and kind of recruiting conditions in that business specifically. Thanks Paul.

Sure I think what I would start with is many of the merger matters that the antitrust competition economics practice being retained on many of the antitrust matters that it's being retained on are very long-lived projects. So the incremental addition of projects in a given year is sometimes not indicative of the maybe the larger trend or the performance of the firm but our matters that existed prior to Q2 continue to generate benefits for the firm and keeping large portions of the practice busy. The practice is also taking in both new merger matters and new antitrust enforcement matters. So to date we haven't seen any kind of dramatic shift in the mix or you know the activity of that business unit. With respect to headcount additions it's been or subtractions it's been relatively stable. You know as we've talked about numerous times not just because of the recent activity in our marketplace but if you strive to be a first-rate organization and provide high value added services guess what your people are always going to be recruited by your competitors in the marketplace and Q1 and Q2 are is no different. So our individuals are always have opportunities and alternatives and it's then our job as a corporation to make sure the environment is exciting and rewarding enough for them to elect to stay here. It's not because we are paying more money. Money is clearly an important component to being competitive in the marketplace but this is a state of the world that we've grown quite accustomed to it. I still do like losing any colleagues to a competitor but it is not something that we've had to deal with on any large scale basis in the past and during Q1 and Q2. Thank you. Great thank you Andrew.

We have reached the end of the question and answer session. At this point I'd like to turn call back over to Paul Malley for closing comments.

Thank you Rob and 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 hot on our third quarter call. With that that concludes today's call. Thank you.

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