Paul Maleh – Chairman and Chief Executive Officer Chad Holmes – Chief Financial Officer.

Tim McHugh – William Blair Marc Riddick – Sidoti David Cohen – Midwood Capital.

Good day, everyone, and welcome to the Charles River Associates Third Quarter Fiscal 2018 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 Web site at crai.com.

With us today are CRA's President and Chief Executive Officer, Paul Maleh; and Chief Financial Officer, Chad Holmes. At this time, I would like to turn the call over to Mr. Holmes for opening remarks. Please go ahead, sir..

Thank you, Brenda.

I would like to remind everyone that the statements today during this conference call, including those raising guidance on revenue and non-GAAP EBITDA margin for fiscal 2018, and any other statements concerning the future business, operating results or financial condition of CRA, including those using the terms expect, outlook, estimate, looking ahead, 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.

Additional information regarding these factors is included in today's release and in CRA's periodic reports, including our 10-Q filed this morning 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 on this call and certain measures presented on a constant-currency basis.

Everyone is encouraged to refer to today's release for a reconciliation 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. Let me now turn it over to Paul for his report.

Paul?.

Thanks, Chad, and good morning everyone. Broad-based contributions from my colleagues have led to strong results during the past several years. The third quarter proved to be no different. For the eight consecutive quarter, CRA delivered double-digit year-over-year revenue growth.

Revenue during the quarter grew by 14% on an entirely organic basis, and non-GAAP net income and non-GAAP EBITDA grew by 61% and 18% respectively, compared to the third quarter of last year. During the quarter, we achieved companywide utilization of 76% even while welcoming nearly 100 new colleagues.

Strong performance within legal and regulatory and management consulting was led by double-digit revenue growth year-over-year in the Antitrust & Competition Economics, Finance, Forensic Services, Labor & Employment, and Life Sciences Practices. These practices represent approximately 80% of CRA's third quarter revenue.

Further highlighting the strength of our portfolio, North American and International operations grew by 13% and 15% respectively. Looking more closely at our practices, colleagues in Antitrust & Competition Economics provided expert testimony and Antitrust Analyses on a groundbreaking case representing an independent door manufacturer.

This case was the first successful jury trial in the past 40 years involving the challenge of a consummated merger, work on this case was led by Sierra a senior consultant Carla Shapiro, Vice president [indiscernible], Marissa Beck and Julian Moniz [indiscernible]. In another project CRAs Senior Consultant Fiona Scott Moore was retained by the U.S.

Federal Trade Commission to provide testimony in its case opposing Autobox acquisition of its rival freedom.

Both companies make microprocessor controlled prosthetic knees, Professor Scott Moore and supported by Vice President Jeffrey Principi, Stephanie Ritchie and Susan yey prepared a series of reports that discussed the relevant antitrust markets and the likely anti-competitive effects of the acquisition.

During the third quarter, we also announced that CRA economists and affiliated experts and trust in competition economics practice, contributed to the first edition of the publication of antitrust economics for lawyers.

In addition, [indiscernible] Vice President in the practice was a co-author of a paper that won the Best theoretical paper award for 2018 from the International Journal of Industrial Organization. Within the finance practice, consultants continue to support universities and related parties involved in litigation over their employee retirement plans.

Our experts have been engaged to opine on the response of universities to IRS regulations that were implemented in 2009 related to the 4 or 3b retirement plans. Our forensic services practice once again posted the largest percentage revenue gain of any practice in the third quarter.

The practice was retained to support a criminal investigation into allegations of financial fraud and misrepresentation, delivering digital forensic solutions to identify assets, forensic accounting solutions to determine the sources and uses of funds and the overall impact of the misconduct.

In addition the practice provided Cyber Incident Response and e-discovery solutions to a major university that experienced a cyber attack. Our consultants determined the nature and extent of the breach while providing support for communications to regulators and law enforcements.

In the labor and employment practice employees increasingly engaged our consultants and affiliated senior consultants to assist in high profile litigation matters, across sectors including education, transportation, IT and professional services.

Finally within the life sciences practice they were engaged in a multi country market assessment to underpin a startup, clients go to market strategy for a new breakthrough product. The practice also helped in a national pharmaceutical company plan, the European launch of a unique oncology drug.

In addition the practice assisted with designing a next generation platform for patient monitoring business of a large international medical device manufacturer. New monitors with use artificial intelligence to sense complex trends and patient data and to predict critical conditions.

CRA is well-positioned to build on the strong momentum we achieved through the first three quarters of the year.

As a result on a constant currency basis relative to fiscal 2017 we are narrowing and raising our 2018 revenue guidance to the range of $404 million to $410 million from $398 million to $406 million and we expect to be in the upper half of our previously announced non-GAAP EBITDA margin guidance range of 8.8% to 9.8%.

To summarize year-to-date non-GAAP revenue on a constant currency basis is $305.6 million, reflecting a $3.3 million reduction to two currency tailwinds.

Similarly year-to-date non-GAAP EBITDA is $29.3 million reflecting a $100,000 reduction due to currency tailwinds or 9.6% of non-GAAP revenue on a constant currency basis and now 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 underprepared CFO remarks. Before we get to your questions, let me provide a few additional metrics related to our performance in the third quarter of fiscal 2018.

In terms of headcount, we ended the third quarter with 685 consulting staff which consisted of 125 officers, 367 other senior staff and 193 junior staff. This is a net increase of 46 consultants or 7.2% growth compared with the end of the third quarter of fiscal 2017.

Sequentially, we experienced a net increase of 57 compared with the end of the second quarter of 2018. Non-GAAP selling, general and administrative expenses as a percentage of revenue excluding the 2.7% attributable commissions to non-employee experts was 18.7% for the third quarter of fiscal 2018 compared with 20.2% a year ago.

The effective tax rate for the third quarter on a non-GAAP basis was 22.7% compared with 42.3% on a non-GAAP basis for the third quarter of 2017. The decrease in our effective tax rate was primarily driven by the lower U.S. statutory rate coupled with an increased benefit related to the impact on accounting for stock-based compensation.

On a non-GAAP basis our fiscal 2018 year-to-date effective tax rate is 22.9% compared with 39.0% for fiscal 2017 year-to--date. Turning to the balance sheet DSO at the end of the third quarter was a 112 days compared with 107 days at the end of the second quarter of fiscal 2018.

DSO in the third quarter consisted of 74 days of build and 38 days of unbilled compared with 74 days of build and 33 days of unbilled in the second quarter of fiscal 2018. We concluded the third quarter of fiscal 2018 with a $11.9 million of cash and cash equivalents with a significant portion residing internationally.

Since the end of the third quarter, we paid down the outstanding balance on our line of credit of $5 million. Finally earlier today, we announced that our Board of Directors declared an 18% increase in our quarterly cash dividend from $0.17 to $0.20 for a common share.

This dividend will be payable on December 21, 2018 to shareholders of record as of November 27, 2018. This demonstrates our confidence in our long-term outlook and our commitment to returning capital to shareholders. That concludes my prepared remarks. Brenda, we would now like to open up the call for questions..

[Operator Instructions] Our first question comes from the line of Tim McHugh with William Blair..

Hi, thanks.

I guess first, maybe just ask about the Americon [ph] piece, I think the areas you highlighted is double-digit growth, NOI scientist was in there, but I guess just update us how I guess the broader Americon or management consulting side of the business is doing, it felt like more of the string sounded on the legal and regulatory business..

Management consulting side of the business was up. Life Sciences makes up the predominant portion of that line of the business other areas contributing there are the energy practice auctions and competitive bidding practice and American management consulting fees. So American didn't post double digit revenue growth in the quarter in question.

But overall we were quite happy with the overall management consulting portfolio..

Okay and the headcount growth was it in any one particular practice area as we look forward here?.

Sure, we're really pleased with the way this growth has been Tim over the last number of years now, is it's been balanced and the way you get that balance contribution is you're finding all the practices really grow from the grass roots organically.

So the headcount growth continues that story is that, it's pretty well distributed across the different lines of business and across the practices with nice balance across our junior hires and our senior staff hires. So we're hoping that contributes to some further success in the quarters ahead..

okay, maybe just more broadly, I guess we are at least in the last month or two, a more volatile kind of world here and a rising interest rate environment.

So can you talk at all about, I guess, if there's any change in the near-term pipeline, but I guess more broadly, how you think about sensitivity or how the business will perform as we look forward to next year [indiscernible] just sort of volatility continues?.

Yes, we are all watching closely. Clearly, most of the time, uncertainty is good for any kind of professional services organizations as clients seek advice to make better business decisions.

Here, we are looking at whether the rising interest rates are going to affect the M&A marketplace which has been relatively robust in the past 12 to 18 months, so we are observing that. What I can say definitively outside of our observations is that the lead flow in new project originations coming into the firm.

I have not seen any kind of dip whatsoever in fact we are continuing to see building strength as the year progresses, so although the future is uncertain today theory has not seen any change in its demand environment..

Okay. Thank you.

Thank you, Tim..

Our next question comes from the line of Marc Riddick with Sidoti..

Hi, good morning.

I wanted to touch on one of the things that kind of jumped out at me a little bit with the increased headcount is you normally during the third quarter, you kind of think of the college hires that would take place seasonally and that certainly seemed to be part of it, but there was a pretty decent jump in senior staff as well during the quarter and I was wondering if you could address that a little bit as to maybe some of the recruiting activity there on the senior side.

I mean, it certainly seems as though the demand would necessitate that.

But I was wondering if you could touch on maybe if there's sort of a bump up and recruiting efforts or just folks are willing to come over because of the activity that -- activities that you are engaged in?.

Yes, our success has always been driven, of course, by our people and the quality of our back office support service as we provide to clients we've been fortunate to see significant revenue growth across a number of our practices and as you start seeing that revenue growth, the demand on having skilled project managers to execute on these projects and to deliver the quality our clients expect of CRA has never been hired.

So we took that as really a charge to be very aggressive in both the College of a recruiting for senior staff and also on the secondary market. But the move there was really tried to bring in, the next generation of skill project managers and eventually our new VPs..

Okay.

And is it reasonable, given the commentary you had earlier around lead flow and what you are seeing demand wise? Is it reasonable to expect that we could see another maybe not to the magnitude that we saw during the third quarter, but is it reasonable to say that it would, we should see an increase during the fourth quarter as well on the senior side?.

The majority of the inflow of hires just because of the university calendar comes during Q3 headcount additions that you will see during Q4, Q1 and even some into Q2 tend to be on the secondary market side of things.

So because of that I wouldn't expect to see the same kind of headcount inflow in during Q4 and Q1 we will try to elaborate more on that during our Q4 call as we provide guidance and outlook into 2019..

Okay. Great.

And then, I know you had mentioned during the -- I think it was the last earnings call, if not the one before that, but I wonder if you could touch a little bit on sort of how you are feeling about the utilization level as we are getting towards the end of the year, which has been running very strong throughout the year and how we should be thinking about I mean, there is obviously the seasonality of utilization usually coming down a little bit during the fourth quarter, but I wanted to get your sense of sort of how you are thinking about that, given how active everything seems to be across multiple practices..

Sure, as we've stated numerous times to investors in our shareholder letter, our sort of long-term goal of utilization is low to mid-70s. That's what we try to calibrate our capacity at CRA is to deliver those kind of productivity levels which will then I believe yield attractive growth rates of both revenue and profits.

Now, with that said, you will have fluctuations around that target and -- at running around 76% year-to-date is a little higher than say the target but still within the range of comfort there, I think it again it is indicative you don't produce utilization points of that level by only having one practice or one line of business contributing.

So I'm going to stick with our long-term target of low to mid 70s as our steady state levels you are going forward..

Okay, great. And I was wondering if you could give some thoughts as to certainly it's encouraging to see again the increase in the dividend. I was wondering if you could touch a little bit on the opportunity for share repurchase going forward.

And, maybe how you are thinking about that at the moment?.

Yes, I think, we take great pride on being strong stewards of this firm's capital. I think, we have done a very effective job trying to balance the amount of dollar reinvestment into the business for a profitable growth and returning substantive capital to shareholders.

Clearly, what has happened over the last six, seven weeks has been a surprise, it hasn't been driven by any information, any guidance that we have provided, so we are disappointed in that. We see as I hope all investors see an undervalued stock and an attractive buying opportunities.

So we will continue to try to balance our capital distribution across those repurchases and on the reinvestment in the business, I wish I can say they have both the same level of fungibility and flexibility. But sometimes reinvestment in the business happens at one point in time.

And if you defer that reinvestment, it won't be there for you in three, six months, nine months later. So we are trying to weigh all of those demands on that capital. But there's no way I can argue about the attractiveness of the stock price, particularly given the 25% slide over these last six, seven weeks..

Okay, great. Thank you very much for the color..

Thank you..

Thank you. [Operator Instructions] Our next question comes from the line of David Cohen with Midwood Capital..

Yes, I was going to ask about the buybacks, so the company buyback any stock in the third quarter?.

There is no buybacks during the third quarter David..

And so, I know that slide was relatively recent but can you just give more color on the sort of choices you made have to deploy capital elsewhere versus buy back stock in the corner when the average of the stock was still in a fairly attractive price?.

It's still in a fairly attractive price. There was no 10b-5 program in place during the third quarter, so the other variable that you have to introduce into the investment or redistribution of capital decision was the blackout period.

So for the majority of this quarter or for all of a big chunk of the time between the end of the quarter now we have been precluded from buying back equity, so that clearly was a factor entering into our decisions. The other part is we really do try to plan our buying decisions on a longer-term basis and not on shorter term windows.

So clearly, it's something we are looking at now, David but there's just a lot of other variables that we are trying to balance here to maintain their financial strength..

And I mean, given the pretty solid financials anything has there been consideration given to a soft tender, what you've done in the past?.

Yes, no, no. Yes. No, we've done in the past and my hesitation is trying to think of the right words here to use for you.

So clearly, there's a consideration of that I am not a believer of financial engineering and using debt as a means of buying back equity all of our investments and redistribution [technical difficulty] holders have been internally funded as our 10-Q shows. And as communicated, we ended the quarter with no debt.

So that is a foundation of the firm that if I'll take on debt into the future, it is to build the asset strength of the company, and not really as a vehicle for share purchases..

Okay. Well, I hope you guys continue to make progress in educating the market about sort of strength and the value in this company..

Yes. Same here, you know, any help that our shareholders can give who are listening to that, I don't think it takes a lot of in-depth analysis to determine the attractive value of this.

So we are going to do our best on the communication, and we are also going to do our best to continue to deliver these excellent results, but I appreciate the shout out there, David..

All right, thanks..

Okay. Thank you. At this time, we have reached the end of the Q&A session. I would like to turn the conference back to Mr. Maleh for closing remarks..

Again, thanks everyone for joining us today. We really do appreciate your time and interest in CRA. We are very excited about what is happening at the firm and the news we are able to report today. We will be meeting with investors in the coming months, and we look forward to updating you on our progress on the fourth quarter call next year.

With that, this concludes today's call. Thank you..

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation..