CRA International,Inc. (CRAI)

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CRA International, Inc. (CRAI)

Q4 2008 Earnings Call

January 15, 2009 9:00 am ET


Jim Burrows – President & CEO

Paul Maleh – COO

Wayne Mackie – EVP & CFO


James Janesky - Stifel Nicolaus

Andrew Fones - UBS

Timothy McHugh - William Blair

Unspecified Analyst – Deutsche Bank



Good day and welcome everyone to CRA International's fourth quarter and year-end 2008 conference call. (Operator Instructions)

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

Wayne Mackey

Statements made during this conference call concerning the future business, operating results, estimated cost savings and financial condition of the company and statements using the terms anticipates, believes, expects, should or similar expressions are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These statements are based upon management's current expectations and are subject to a number of factors and uncertainties. Information contained in these forward-looking statements is inherently uncertain, and actual performance and results may differ materially due to many important factors.

Such factors that could cause actual results to differ materially from any forward-looking statements made by the company are included in the company’s filings with the Securities and Exchange Commission and in today’s news release which is posted on the company’s website.

The company cannot guarantee any future results, levels of activity, performance, or achievement. The company undertakes no obligation to update any of its forward-looking statements after the date of this call.

Let me remind everyone that CRA’s fiscal year typically operates on 13-four week cycles producing unequal quarters in terms of length. Q1, Q2, and Q4 are typically 12 weeks in length with Q3 being a 16-week quarter.

However the fourth quarter we just completed was a 13-week quarter and fiscal 2008 consists of 53 weeks. Fifty-three week years happen about every six years.

Jim Burrows

Thanks Wayne and thank you everyone for joining us today. I also want to welcome Paul Maleh to our call today. As we announced in October we promoted Paul to the President and Chief Operating Officer and tasked with creating greater efficiency within our organization and delivering more innovation to our clients.

Paul will be speaking to you about his priorities later on the call.

First as a result of the charges we took in the quarter I encourage everyone to refer to today’s news release for full reconciliation of GAAP revenue, net income, and earnings per share to non-GAAP revenue, net income and earnings per share.

We have a number of factors that effected our results for the quarter including various restructuring initiatives, purchase of convertible bonds, and the consolidation of the results of our NeuCo subsidiary for which CRA became the majority owner again in the fourth quarter.

As outlined in today’s news release total revenue for the fourth quarter of 2008, 13-week period ended November 29, 2008 was $85.6 million, a decline of $13.1 million from the fourth quarter of 2007.

For a clear comparison of how we performed in Q4 there are four factors to take into consideration. First revenues dropped by approximately $5 million as the result of the divestments during 2008 of lines of business and geographies.

Second the strengthening of the US dollar in Q4 lowered our foreign currency denominated revenue. Using last year’s exchange rates our foreign currency denominated revenue this quarter would have been approximately $3 million higher.

Third the year-over-year decline in client reimbursables which are essentially pass through expenses that carry little to no margins was approximately $2.7 million.

Fourth results for the fourth quarter included an additional week of revenue compared to the same period of fiscal 2007.

Our business in the fourth quarter was effected by the global economic slowdown, the clients for some of our larger litigation cases requested us to slowdown the pace of [inaudible] some of our business consulting clients delay the contracting and new consulting projects.

The silver lining is that the vast majority of the litigation cases having been settled and most of the consulting projects have just been delayed. So we anticipate that there will be a catch up in the future and the revenue generation rate from these clients and projects.

Utilization in the quarter was 69% down sequentially from Q3’s rate of 71%. For the year utilization was 71% which remained below historical levels. In Q4 we determined that our earlier cost cutting measures in Q2 were insufficient and we needed to take more aggressive action.

In the face of slowing economy we made a decision to sharpen our focus on our core businesses and shed additional under performing practices. In Q4 we reduced our consultant headcount by more then 80 heads, exited several smaller practices, and closed select offices and reduced the size of some of the others.

None of the actions we took in Q4 and earlier in the year effected our revenue generating capacity in our core practices. We estimate that these Q4 actions will lower our cost structure by approximately $11.5 million on an annual basis going forward.

In combination with the savings from the divestitures and restructuring actions we took in the first and second quarters we have now reduced our overall cost structure on an annualized basis going forward by a total of approximately $22.2 million.

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