Good day, everyone, and welcome to Charles River Associates Second Quarter 2023 Conference Call. Please note that today's call 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 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. Mahoney for opening remarks.

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 the 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.

Thanks, Dan, and good morning, everyone. Thank you for joining us today. For the past several quarters, we have discussed our sales pipeline and in particular, the growth in our project lead flow as a good indicator of the overall health of CRA's business. I'm pleased to report that we extended this trend in the second quarter as project lead flow increased by 15% year-over-year. This marks the third consecutive quarter of double-digit growth in project lead flow and together represents the strongest period of lead flow activity in CRA's history. More importantly, we translated this flow of client opportunities into revenue-producing assignments during the second quarter as new project originations grew by 5% year-over-year. This growth reflects a sequential improvement in our conversion rate relative to the first quarter but is still below our historical norms. The expansion of our sales pipeline supported our strong performance in the second quarter. Revenue increased by 8.6% year-over-year to $162 million, which represents the highest quarterly revenue in the company's history. Broad-based contributions across our portfolio drove this performance. Seven of 11 practices grew year-over-year. Four practices—Energy, Finance, Financial Economics, and Forensic Services—led the way, with each generating double-digit revenue growth. Additionally, three of our larger practices—Antitrust & Competition Economics, Labor & Employment, and Life Sciences—each expanded year-over-year and contributed to our overall growth. Geographically, our North American and international operations both grew in the second quarter, led by our international operations, which increased revenue by 18.6% year-over-year. During the period of strong growth, we continued to manage the business effectively. Consultant headcount remained relatively flat compared to the first quarter of 2023, contributing to a 200 basis point sequential increase in quarterly utilization. The improvement in utilization helped drive year-over-year growth and profitability as non-GAAP EBITDA reached $18.8 million or 11.6% of revenue in the second quarter. I would now like to spend a few minutes highlighting the market for our services and some of the projects delivered to our clients during the second quarter. CRA's Finance practice was active in a wide variety of complex litigation matters during the second quarter, including the high-profile merger litigations requiring the analysis of merger efficiency, disputes arising from contested trading activity, including alleged spoofing in various financial markets; and lastly, litigation about customs and practices in municipal finance. Additionally, the practice was active in numerous international matters, including international arbitrations and securities fraud matters with assets or disputes in North America, South America, and Europe. In a high-profile victory for our clients, Senior Consultant to CRA, Conrad Ciccotello, testified at a jury trial on behalf of the defendant, Yale University, in an ERISA class action related to the management of Yale's 403(b) retirement plan. Professor Ciccotello provided testimony as an expert in retirement and financial planning, investment performance and monitoring of retirement plans. During the second quarter, mortgage lending experts in CRA's Financial Economics practice group continued to provide testimony in support of a mortgage servicer in a litigation matter alleging discrimination in the maintenance and marketing of foreclosed homes. The practice also continued its work analyzing potential discriminatory redlining. In response to regulatory investigations, the practice assisted several banks and mortgage companies by providing statistical analysis of the client's geographic lending patterns in relation to other lenders in the market. In some instances, the CRA team assisted the client in resolving the matter with a regulatory agency. CRA's Forensic Services practice continues to experience strong demand from both boards and C-suite clients seeking assistance with investigations into alleged fraud, cybercrime, trade secret theft, and other misconduct. As governments announce new export controls and sanction requirements, the Forensic Services practice is increasingly being called upon to help enhance the efficacy of existing compliance programs and to assist with investigations into potential noncompliance. For example, the practice was retained to assist a global manufacturer of sophisticated machine tools to enhance its compliance with U.S. requirements and export licenses related to controlled hardware and software. In addition, the Forensic Services practice continues to help investigate and respond to hundreds of cyber incident response matters per year. Many of these are ransomware attacks, which have surged dramatically in the first half of 2023. In some cases, data theft occurred while in other cases, clients suffered disruptions that caused significant operational and financial implications. For example, we assisted a multinational insurance brokerage respond to and recover from a massive ransomware incident in which large quantities of third-party customer data were stolen, triggering privacy laws across multiple states and countries. Additionally, the Forensic Services practice has partnered with other CRA practices. For example, we were retained by a multistate healthcare provider to help assess and respond to scrutiny by the Federal Trade Commission into alleged improper market practices and pricing, and key members of CRA's Life Sciences practice contributed important econometric skills and insights into the engagement. In the second quarter, CRA's Energy practice continued to serve clients across the industry in management consulting and expert testimony engagements. For example, within its advisory offering, CRA assisted a major U.S. utility in formulating a decarbonization strategy, a U.K. utility in integrating a new gas transmission subsidiary, and a major industry participant to formulate its nuclear power strategy. Within the courtroom, the practice provided expert witnesses in a dispute involving the prudence of investments related to synthetic fuels. Turning to the market for our Antitrust & Competition Economics practice. Worldwide M&A activity, as measured by aggregate transaction value, rebounded from a decade low in the first quarter of 2023, increasing 33% on a sequential basis, making the second quarter the strongest quarter for worldwide deal-making in the past 12 months. Capitalizing on this increase in merger-related activity and continued demand for Antitrust services, the Competition practice established yet another new high for quarterly revenue in the second quarter. The practice's sales pipeline followed a similar trajectory to the M&A market, generating a 33% increase in merger-related lead flow in the second quarter relative to the first quarter of 2023. Despite the sequential increase, our merger-related lead flow was relatively flat year-over-year. Finally, I would like to highlight a valued colleague in the Competition practice, Liz Bailey. During the quarter, she provided expert testimony and economic analysis on behalf of Microsoft and Activision Blizzard in an evidentiary hearing on a motion for plenary injunction filed by the Federal Trade Commission. Dr. Bailey was the only expert witness to present live direct examination testimony during the hearing. Her testimony was cited by the judge numerous times during closing arguments and in the court's written opinions that denied the FTC's motion for a plenary injunction ruling in favor of our clients, Microsoft and Activision Blizzard. Turning now to guidance. Through the first two quarters of fiscal 2023, on a constant currency basis relative to fiscal 2022, CRA generated total revenue of $318 million and non-GAAP EBITDA of $36.6 million, achieving a margin of 11.5%. These results incorporate a constant currency adjustment, which contributed $3.2 million to revenue and $1.1 million to EBITDA. Reflecting the continued strength and quality of our business, we are raising the lower end of our revenue guidance and increasing our profit guidance. For full year fiscal 2023, on a constant currency basis relative to fiscal 2022, we expect revenue in the range of $625 million to $640 million and non-GAAP EBITDA margin in the range of 11.0% to 11.7%. This updated guidance assumes continued strong performance during the second half of the year. It also takes into account the market's current expectations of foreign exchange rates for the U.S. dollars, which on a constant currency basis may shave approximately $4 million from our reported revenue and approximately $1 million from our reported EBITDA during the second half of fiscal 2023. 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. With that, I'll turn the call over to Chad and then to Dan for a few additional comments.

Thanks, Paul. Hello, everyone. I want to update you on our capital deployment during the quarter. We concluded the quarter with $14.3 million of cash and $80 million of borrowings under our revolving credit facility, resulting in a net debt of $65.7 million. The borrowings were primarily to fund bonus payments during the first two quarters, which is consistent with our practice in prior years. Since the end of the second quarter, we have repaid $13 million of our borrowings. Consistent with our experience in prior years, we aim to finish the year with zero outstanding borrowings. In addition to the normal bonus cycle, the second quarter of 2023 also saw cash outlays for talent investments of $800,000, net of forgivable loan repayments. We spent $700,000 on capital expenditures, bringing our year-to-date total to $1.3 million. We also returned $5.5 million to our shareholders during the second quarter, consisting of $2.5 million of dividend payments and $3 million to repurchase approximately 31,000 shares. As of quarter end, we had approximately $19.3 million available under our share repurchase program. With that, I'll turn the call over to Dan for a few final comments.

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 2023. In terms of consultant headcount, we ended the quarter at 971, consisting of 156 officers, 522 other senior staff, and 293 junior staff. This represents a 12.5% increase compared with the 863 consultant headcount reported at the end of Q2 fiscal 2022. By the end of the year, through typical hiring efforts and normal attrition patterns, we expect consultant headcount to increase by a percentage in the mid- to high single digits year-over-year. Non-GAAP selling, general and administrative expenses, excluding the 2.3% attributable to commissions to nonemployee experts, was 16.1% of revenue for the second quarter of fiscal 2023 compared with 15.3% a year ago. This quarter's ratio was primarily impacted by an increase in travel and entertainment expenses and rent expense. The effective tax rate for the second quarter of fiscal 2023 on a non-GAAP basis was 29.8% compared to 29.3% on a non-GAAP basis for the second quarter of fiscal 2022. Turning to the balance sheet. DSO at the end of the second quarter was 115 days compared with 112 days at the end of the first quarter of fiscal 2023. DSO in the second quarter consisted of 74 days of billed and 41 days of unbilled. We concluded the second quarter of fiscal 2023 with $14.3 million in cash and cash equivalents and a further $115.6 million of available capacity on our line of credit for total liquidity of $129.9 million. That concludes our prepared remarks. We will now open the call for questions.

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

Good morning, everyone.

Good morning, Kevin.

I wanted to start off by asking about your comments around new project originations. The sequential improvement you saw there, but maybe still a little bit below historical norms. Just any thoughts on what drove that improvement in the origination trends and then also what might be keeping it a bit below historic norms?

Sure. We began talking about our lead flow at the end of Q4 reporting of our earnings in March and continued that discussion during Q1. During that time, we noted that we saw a significant increase in lead flow coming into the firm. We also noticed that the conversion of that lead flow into revenue-generating projects was down considerably relative to our historic norms. As we analyzed those lead flows, we felt confident that we weren't losing the opportunities in any kind of disproportionate way to competitors, but more so that the cases were just being kicked down the road a bit or mergers were not being announced. So we thought they were going to come eventually or convert into revenue-generating projects. The uncertainty was when. So I don't know exactly what contributed to any kind of resolution of this uncertainty as the market as a whole, but we did start seeing an improvement in that conversion rate. We're still probably down about 10%, 15% on that conversion rate relative to our historical norms.

Okay, thank you. And certainly, continued impressive growth in project lead flow. I think you said three consecutive quarters of double-digit growth there. You talked a lot on the call here about the areas of strength you're seeing across the firm. Should we just assume lead flow growth is being driven by those areas you highlighted? Or are there any specific practices or pockets of strength that you really wanted to illuminate?

No, just like the revenue growth, the growth in the lead flow has been pretty broad-based, and that's what has us cautiously bullish about the prospects of CRA. We always try to focus on inputs that we can influence into our business model, and we think we can influence the amount of lead flows coming into the organization, and it's very rewarding to see that sharper surge in a relatively turbulent marketplace over these past nine months. We just have to get those leads converted into revenue-generating projects, and we'll start seeing more of the output benefits when that happens.

Okay. Thank you. I also wanted to ask about the increased - the low end of the revenue guidance range as well as the increase in the non-GAAP EBITDA margin guidance range. Is that just based on what you've seen here in the first half and certainly, I guess, the outlook for the second half? Anything in particular that you would call out that might have outperformed your initial expectations on either the revenue or the margin front?

I think to date, the performance has been pretty much in line with the expectations, particularly given what market variables we're observing. We still think there's opportunities for upside as we see conversion rates return to historical norms, but that's a bit uncertain as to when. So when looking out into the second half of the year, we are not projecting any kind of significant increase in lead flows or conversion rate to produce those results. It's more a continuation of the strong performance we enjoyed during the first half.

Okay. Thank you. Lastly, I just wanted to ask about the overall market for talent and talent recruitment as you see it. Any noticeable trends in terms of loosening or tightening? Or is it pretty much as it has been in terms of your ability to attract and hire talent?

I think the ability to identify, attract and hire talent has been pretty consistent with what we've seen in prior quarters. What is not consistent with what we've seen in prior quarters is sort of the lower voluntary attrition rates we typically observe during Q2, Q3, and into the second half of the year. That is running closer to more historic lows for—and thus yielding a bit higher headcount than we otherwise would have anticipated. So we're happy to have our colleagues here. We're doing our best to make the most productive use of all this talent we have, but I think it will take care of itself, as Dan noted, in terms of our expectations of headcount growth by the end of the year.

Okay. Thanks for the insight and congratulations on the solid results. I'll turn it over.

Thank you, Kevin.

Our next question is from Marc Riddick with Sidoti & Company. Please proceed with your question.

Good morning.

Good morning, Marc.

So I wanted to start with the - first of all, thanks for all the detail and the color that you're seeing here. So why don't you talk a little bit about the utilization pick up. Certainly, it's up from first quarter. I was wanting to talk a little bit about the pace of that. Did that just improve sequentially through the quarter? Was there any lumpiness there? It seems as though there's certainly, there's drivers for that, but I wanted to get your thoughts on the improved utilization.

We definitely saw an improvement in overall demand for our services during the quarter, and it was pretty steady throughout the quarter. Utilization is, of course, influenced by that improvement in demand, but it's also influenced by the growth of headcount as we welcomed a lot of new colleagues during the second quarter. So one, the demand has sort of upward pressure on utilization, but all the new colleagues coming aboard, particularly as we get them integrated and staffed on projects, has a downward pressure on the utilization. But again, over the second half heading into '24, I think that should take care of itself to get our utilization back to more historical patterns.

Great. I was wondering if you could—and I know you gave a lot of details as to what you're seeing, but I was curious as to what you're thinking about or seeing with the court filings and judgments and those pacings and how that plays into your thoughts for the remainder of the year?

We saw roughly mid-single-digit growth year-over-year on the number of new cases and the number of court judgments being produced during the quarter. So a modest expansion, which I'm sure is helping some of that new lead flow that we're observing.

Then I wanted to shift gears and—certainly, there's a lot of benefits as far as the top line growth that you've already shared. I was wondering if you could talk a little bit about some of the opportunities that you're seeing with some of the upside internationally and some of the driving forces there?

Sure. I always hesitate to try to give answers about opportunities and upside just because of the continued strength of the performance, if I do say so myself. We've been delivering strong performance quarter after quarter, record levels of performance for a number of our practices. So I don't know whether anything is a surprise or upside pop, but just more excellent execution by my colleagues throughout the service portfolio. We still believe the overall regulatory environment, both here in North America and in Europe, is very supportive of continued growth in our litigation side of the house. There's a lot of discussion about clean energy and new generating capacity, which our Energy practice has been at the middle of—advising clients how best to structure their portfolios. So we're just seeing growth throughout and the opportunities throughout the portfolio. I don't foresee any kind of pop, but we do expect to continue the excellent performance that we've been able to share with our investors now for the last several quarters.

It's great. Appreciate it. Thank you very much.

Thank you, Marc.

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

Hi. Good morning. Appreciate you taking my question. I just wanted to ask—big picture on Antitrust? I think we've seen some new proposals on guidelines here in the U.S., some changes internationally as well. I'm just wondering how all these kind of moving parts impact the outlook for your business over a multiyear period, whether it's on the M&A side or the non-M&A Antitrust side? Just would be interested in your thoughts there.

Sure. There's been, as you're alluding to, a change in terms of the overall guidelines of what the commissions will be looking at for mergers or antitrust enforcement here. How exactly that will play out and what will be the company response to those guidelines, whether it will increase or decrease mergers is quite frankly, is still to be seen. But I still take the position that complexity is good for professional services firms like CRA, and all the uncertainty at exactly what these new standards mean in analysis, what they mean in terms of the probability of getting deals through, should bode well for our industry as a whole and for CRA in particular.

That's helpful. Thank you.

Okay. Thank you, Andrew.

We've reached the end of the question-and-answer session. I would now like to turn the call back over to Paul Maleh for closing comments.

Thanks, 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 days and months, and we look forward to updating you on our progress on our third quarter call. With that, 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.