Cra International, Inc. (CRAI) June 2026 Conference Transcript

Good morning and welcome to the Noble Capital Markets Virtual Equity Conference. I'm Joe Gomes, Managing Director and Senior Analyst at Noble Capital. Today, I have the pleasure of introducing CRA International, also known as Charles River Associates. Following the presentation, we will have some time for Q&A. With us today from the company is Paul Mallett, President and Chief Executive Officer, and Brian Langan, Chief Strategy and Business Transformation Officer.

The floor is yours, Paul. uh thanks joe and uh thank you to thank you to nobles for having us today uh good morning everyone so we're going to go through a bit of a speed dating uh kind of session here uh in during which i hope to provide you with an overview of charles river associates uh peak enough interest that you may want to kick the tires after this presentation is done so let Let me just get right into this presentation. It's really been an honor to be part of this organization for the past 37 years. One of the things that I have valued during my tenure is the consistency of the vision. 60 years ago, back in 1965, we had founders from MIT and Harvard set forth to bring forward the then-developing expertise of academia, especially in the areas of quantitative methods and economics, to the business world. That vision still resonates today, and it still guides the services that we provide. Our goal is to provide cutting-edge quantitative tools and microeconomic analysis to our clients' most important challenges. We apply our services across two main lines of business, that of legal regulatory, which makes up about 80% of our revenue, and the remainder in management consulting, which makes up the 20% of our We are a multinational firm. We have over 20 offices across nine countries, so we provide a global footprint for our clients in addressing their challenges. Our success really starts and ends with the quality of my colleagues and the firm's ability to provide them a home in which they can flourish. As this chart shows that my colleagues are a group of very highly credentialed individuals. About 40% of my senior colleagues have PhDs. on that over 70% have advanced degrees with it. The tenure is somewhat misleading because you have 45% of the senior staff have been with CRA at least 45%, almost 20% more than 10. The reason I'm going to say it's a bit misleading is it's not because we've had turnover, and I'll get to that with the box in the upper right-hand corner, it's the fact that we've been growing nearly 10% a year for an extended window of time. So we've been able to retain our key professionals and also supplement and add depth to the services we provided with a cadre of new colleagues on it. This chart on the upper right-hand corner. So in Q1 of every year, I present to our board an overview of our top revenue generators at CRA. We look at the top 30 revenue generators in any given year. If I look at the union of those top 30 generators over a five-year window of time, it's probably about 60 professionals. What this chart says, we have experienced less than 5% voluntary turnover amongst these 60, okay? That's not 5% per annum. That's 5% in total. So when you look at the people who are most desired in our industry can go anywhere they want. We've lost less than three people in the past five years. For me, That says it all about CRA and the quality of the atmosphere for our colleagues to provide services to our clients on it. We talked about how 80% of the services come from legal regulatory arena and 20% from management consulting. The management consulting practices are made up of three units here, that being our life sciences, energy, and Maricon practices. All the other practices fall within our legal regulatory arena. Our antitrust and competition practice is the largest of our practices and makes up approximately 40 to 45 percent of the firm's total revenue. If I look at our top three practices, that being antitrust and competition economics, forensic services, and life sciences, we're scratching on 75% of the firm's total revenue. So I'm trying to give you an overview of Charles River. For those who may not know a lot about the firm, the one thing I would be surprised is that you don't know our clients. We work for the largest, most prominent clients across the globe. Here is just in the past two years, we have worked for 88 of the Fortune 100 companies. If I showed you this chart last year, I showed you this chart five years ago, it's going to be around 87, 90 of the Fortune 100 companies. The reason this is important is we are not an annuity-based company. We provide our services on a project-by-project basis. The fact that these prominent clients continue to come back to CRA for their most important challenges speaks to the quality and the value they derive from the CRA services. If 88 out of 100 isn't gaudy enough for you, if you go to the top 100 law firms in North America, we've worked for 98 of the top 100 law firms across the two years, across these past two years. Now, the law firms on the legal regulatory side act as the intermediary. They retain CRA on behalf of the ultimate clients you just saw on the previous slide. Okay. The quality of these clients, the stickiness of these relationships, ends up translating into really, if I do say so myself, impressive financial results. Here you have the revenue growth of CRA, the profit growth, and the amount of capital we return back to our shareholders. The one thing I hope that you take away is the consistency of CRA's results. Whether you want to look at last quarter, last year, last five years, last 10 years, the rates of growth of our revenue, the rates of growth of our profits, and the amount of capital we have distributed back to our shareholders has been pretty consistent. We've been growing top line, roughly 8% or 9% a year. We've been able to grow profits at a faster rate than 8% or 9% a year, implying that our margins have been expanding. And we've been returning substantive capital back to our shareholders. We return, our aim is to return roughly half of our adjusted cash flows from ops back to our shareholders in the form of stock repurchases, which make up roughly 75% of the total distributions and the cash dividends. It's the quality of the services that we provide and, again, the value derived from our clients that allows CRA to excel across a myriad of macro and microeconomic conditions. We don't try to diversify our portfolio. That's for all of you to worry about on the diversification, but we continue to try to add depth to the services to allow us to persevere, whether we are going through an upcycle economically or downcycle or experiencing some specific microeconomic shocks. The financial results are the same, which are exemplary. The investment thesis for CRA is really quite simple. Our objective is to maximize CRA's long-term value per share. We will always invest in the company through a value lens. We're looking to maximize long-term value per share. I'm not looking to maximize any kind of short-term trends or revenue opportunities. I want to create value for my colleagues, the firm, and thus in return to our shareholders. We do so by sticking to being leading experts in our respective fields on that. We have a strong history of converting our profits into strong cash flows. And oh yeah, by the way, we've done this with no debt. But all of our growth has been 100% funded by cash from operations on that. There's a part of this slide that makes me really excited, and there's a part of this slide that, quite frankly, has been quite frustrating over the past three, four months. In that, for those who haven't noticed, our stock price has been hammered by this kind of AI overhang. And I think unjustifiably hammered by that because I believe strongly that AI serves as both a demand amplifier and a productivity enhancer for firms like CRA. And the reason I believe that is AI increases the value of domain expertise. It does not increase it. AI does not replace expert reasoning. It doesn't replace the defensibility or credibility of the opinions being put forth in courts of law or regulatory settings. CRA's concentration of advanced degree professionals, PhDs, is a strategic advantage. The other thing I wanted to highlight is our staffing leverage ratios are about five non-vice president, which is our top title at CRA, to every one vice president. So we are not highly levered from a staffing perspective on that, which means the services we are providing are rather unique, they're not commoditized, and they're not easily replaced by the tools that are being put forth. The other thing I wanted to highlight is AI raises the barriers of entry in expert advisory. It doesn't lower those barriers of entry because as we're able to introduce efficiencies to the services that we are providing to our clients, we are more rapidly able to go to higher value-added services. This ends up eliminating any kind of cost advantage or low-cost providers to our services, because now we get to compete on value. And I think CRA is well-positioned to compete on value, as can be seen from the repeat clients that we're having year after year and the consistency of our financial results. The other thing I wanted to highlight, and this is something you may want to come back to, kick the tires a bit more. We have a very large non-cash item flowing through our income statement, which depresses the reported EBITDA and, quite frankly, all of our GAAP profitability measures, whether it's EBITDA, pre-tax income, EPS. It will be depressed by these non-cash charges. A few years ago, we used to provide a financial metric called adjusted EBITDA, which takes EBITDA and added the non-cash amortization of forgivable loans, which is the primary vehicle we use for investments in talent, whether investments in inorganic talent pursuits or talent retention. If you look at the two last line items here being EBITDA and the non-cash amortization of forgivable loans, the SEC says I can show you both lines. I cannot add them up for you. But if you add those metrics up, what you see is profitability has been going up over the past five years. And the peak profitability that we enjoyed in 24 and also in 2025 continues into 2026. And our expectation is that we could continue to build on this strong financial position. Another way to look at it is if I look at our EBITDA and I look at our adjusted net cash from operations, you see that we convert roughly 112% of EBITDA into net cash flows from operations. We've done it in 25. We did it the past three years, five. And if you go the past 10 years, guess what? You're going to see the same story play out. So these non-cash charges are not smoke and mirrors. They are truly non-cash charges, and unless you account for them, you are going to double count the impact of the investments we're making for talent. I will quickly go through this. Another way to look at this is by looking at our uses of capital. I already told you that we fund everything from internal cash flows from operations. We have no debt. So everything at the end of the day has to foot. The three main buckets of capital outlays are talent, redistribution to our shareholders, and CapEx. I will quickly run you through that for the next minute or so. So talent, the majority of our talent investments are for inorganic pursuits of revenue. We also have some talent outlays that are less than 2% of revenue that are used to maintain our talent or retain the talent. If I look at all talent outlays, it equals a little south of $230 million, and that has generated incremental revenue of roughly $240 million over the past five years. Now, that includes the inorganic talent investments plus the talent retention. The other thing to take from that is that it also counts the talent outlays we made in 24-25 for individuals who may not be fully ramped up. So the multiple of revenue to talent investments will continue to be advantageous for CRA. CapEx, we're not a capital intensive firm. Our non-real estate capital expenditures are modest and will average less than $5 million a year. That has been our experience, and I expect that to be our experience in the next three to five years. The distributions to our shareholders. Let me begin by caveating it in that if I could use 100% of my capital from operations for talent, I'm going to take that. That will always be a priority for CRA. But through our value lens, we capitalize on the talent investment opportunities that are available to us, and the capital left over, we give the money back to our shareholders. In the past five years, about $185 million have been used for share repurchases, 75% or so of total capital, and $55 million for dividends. We have reduced our share count in the last five years by about 15%. If I look at the last dozen years or so, we've reduced our share count by almost 35%. All this culminating in an average shareholder yield that is a little south of 6%. So, Joe, with that, I'm going to stop and see if anyone has any questions or any areas that I could try to dig into a little bit more.

Great, Paul. Insightful presentation. Let's go to some questions. First, how would you characterize CRA's current competitive landscape, both for clients and talent?

Sure. So 2025 clearly saw some disruptions in the economic consulting segment of our industry. You had a spinoff within FTI, a new firm has formed, which has created some turbulence. What I said at the end of Q4 of 2025 is that the disruption will be in some revenue generators moving from one firm to another. CRA was not immune to this loss, but what I said at the time is that by the end of the day, I think CRA will be a net adder of revenue talent, and that is exactly what has turned out to be the case. We lost some talent to the disruption, but net-net, we have added almost 20 new vice presidents during 2025, and that momentum continues into 2026.

Great. And then, what factors have contributed to the recent strength observed in the international operations, especially given the near-constant geopolitical unrest across the globe?

That's a good question, because every quarter I look at the numbers being delivered by my international colleagues, which is causing me to dig a little deeper. It's really an exemplary group of colleagues, both in our competition practice that have become the go-to providers in antitrust and competition services, and I think CRA is the leading global provider. So very few of these large antitrust matters are geographically specific. They tend to span multiple geographies, and Syria has capitalized on the strength across these geographies. Our life sciences practice also has seen really healthy growth. I think for the past 12, 24 months, European operations have grown almost 20% per annum. So I don't, I'm not sitting here saying I expect that momentum to continue, but they're definitely taking advantage of their opportunities.

Okay, let's go back to the AI for a second. You spent a lot of time on that. Maybe you could talk a little bit more about where you're seeing it increasing the net revenue streams for the company. Do you see any part of the company where there might be a loss of business in the transition to AI?

Technology has a way of commoditizing certain services. AI is, I think, revolutionary on many instances, but it is not revolutionary in terms of commoditizing lower-level services. E-discovery that was put forth almost 20 years ago changed the way the legal profession digests information. We used to make quite a bit of money, you know, going through paper documents and collating and extracting information from those documents. We do not make any money on that anymore. And does that mean Sierra has shrunk? No, it doesn't. It has allowed us to go to higher value added services. So the hours built, the revenue realized did not go down. but our ability to provide our clients higher services increase. AI is going to follow, I believe, the same kind of path for CRA. Will it commoditize some lower-level services? Yes, but quite frankly, we didn't have a lot of commodity-based services that we were extracting revenue on. That's why I highlighted the staffing leverage on that. It has enabled us to digest information more rapidly. It has enabled us to perform initial analysis more rapidly and thus getting to the more critical path decisions that our clients value. So, so far, I have seen it be wonderful efficiency tool. but we also have seen decision-making that our clients are facing have become even more complex in the AI world. And I think that is one of the feeders for the growth that we're seeing in overall legal filings and the inbound of legal opportunities at CRA.

Okay.

Are you planning any changes to the capital allocation strategy for the back half of 2026 any specific strategies with respect to mna uh no we have uh ample capital really quite frankly to do anything we want i don't need to change my capital allocation aim of returning uh capital back to our shareholders in order to capitalize on M&A or talent opportunities. Most of the opportunities we have seen have been in individual, small groups, small acquisition. We haven't seen anything sizable that fits and enhances CRA services. So I expect more of the same in the coming months and quarters from what we've been experiencing in the last couple of years.

Okay. Okay. And how do you think about the recent volatility in CRA share price? And what are the key fundamentals you would point investors to as they evaluate the business today? How should investors reconcile recent share price performance with the underlying demand trends and fundamentals you are seeing across the business?

Yeah. I still believe cash is king in that. And I think CRA has demonstrated an ability to grow the top line, grow profits, and convert those profits into cash flows that we can make effective use on. That has not changed at CRA. I have not experienced any increase of write-offs at CRA, right? Because if there's so-called commoditization of services, you would expect clients pushing back more on the revenue that we are realizing. We haven't experienced that to date. Utilization remains very strong, so you haven't seen a dip because of lower-level services are being dropped on that. The other point with respect to the prospects is the lead flow, right? Quite frankly, in the last six to nine months, I've seen lead flow as strong as I've ever seen during my tenure as CEO. So I'm looking for reasons or explanations to justify the price movement. I don't see them. and thus what we need to do at CRA is continue to deliver those results and the price will take care of itself. It's a little hard to look at every day right now because the fundamentals of the firm have not changed. If anything, I think they have been strengthened.

Great. Well, Paul and Brian, we've come to the end of our allotted time. We covered a lot of ground today and got significant insight into what CRA International does, its markets and opportunities. We appreciate you taking the time to participate in our conference, and we wish you and the company the best in the future. Thanks again.

Thank you, Joe, and thank you for everyone for listening. I appreciate it.