CRA International,Inc. (CRAI)

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CRA International (CRAI)

F1Q08 Earnings Call Transcript

March 20, 2008 9:00 am ET


Jim Burrows - President and Chief Executive Officer

Wayne Mackey - Executive Vice President and Chief Financial Officer


Tim McQue - William Blair and Company

Randy Hugan

Jim Janesky - Stifel Nicolaus

Andrew Fones - UBS Securities

Matt Magherty - Sentinel Management



Good day and welcome everyone to CRA International’s F1Q08 conference call. Today’s call is being recorded you may listen to the web cast on CRA’s website located at In addition, today’s news release is posted on the site for those of you who did not receive it by email. With us today are CRA’s President and Chief Executive Officer, Mr. Jim Burrows, speaking from CRA’s European Middle East regional headquarters in London and Executive Vice president and Chief Financial Officer, Mr. Wayne Mackey, in CRA’s corporate headquarters in Boston.

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

Thank you Charlotte. Statements made during this conference call concerning the future business, operating results and financial condition of the company and statements using the terms anticipate, 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 is 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. Factors that could cause actual results to differ materially from any forward looking statements made by the company include, among others, the company’s restructuring costs and attributable annual cost savings, changes in the company’s effective tax rate, shares dilutions from the company’s operating and stock options, dependence on key personnel, attracting and retaining qualified consultants, dependence on outside experts, utilization rates, practice related to its recent acquisitions including integration of personnel, clients, offices and unanticipated expenses and liabilities, risks associated with acquisitions it may make in the future, risks inherent in international operations, performance of new co, changes in accounting standards, rules and regulations, changes in the law of its practicing area, management of new offices, potential loss of clients, dependence on growth of the company’s business consulting practice, the unpredictable nature of litigation related projects, the ability of the company to integrate successfully new consultants into its practice, intense competition, risks inherent in litigation and professional liability. Further information on these and other potential factors that could affect the company’s financial results is included in the company’s filings with the SEC. The company cannot guarantee any financial results, levels of activity, performance or achievement. The company undertakes no obligation to update any of its forward looking statements after the day of this call. Jim…

Jim Burrows

Thanks Wayne and thank you everyone for joining us today.

Let me start today’s call by saying we were very disappointed with our first quarter results. As we outlined in today’s news release, consolidated revenue and net income both came in well below our expectations, likely as a consequence of underperformance in certain of our over seas businesses.

In Q01 international business was only 22% of our revenues, down from 26% and 27% in recent quarters. Aggregate North American net revenues for each of our 3 consulting platforms were in line with plans. There are 5 take away points that I would like to highlight today.

First, Q01 results were impacted adversely by our international performance restructuring costs and our higher affected tax rate. Second, Q01 margins were distorted by higher reimbursable. Third, strong actions have been taken to reduce costs and generate annual savings of approximately $9.4 million. Fourth, investigating less strategic and unprofitable operations in Australia and New Zealand. Fifth, demand for services in the North American and our European litigation operations remain strong and the prospects of recovery for the international chemicals and petroleum practice are very good.

By far the most significant factor in the disappointing results in Q01 was a substantial decline in the revenues of our chemical and petroleum practice, particularly in the Middle East. Revenues of several large, long running Middle East projects declined more rapidly than expected, as phase down contracts were not received during the quarter. Revenues from the CNP practice in the Middle East and Europe were about $4 million below planned and declined about $3 million from F4Q07 to F1Q08. We’ve been building a staff in the middle east during the the second half of 2007 and into the first quarter of this year, so the impact of profitability of the revenue climate was magnified by an increase in our costs in the European and middle eastern component of the CNP practice.

Our international operations were also adversely affected by certain other cost increases. These included a charge per earnings of approximately $600,000 for the cost of reducing head count in our forensic investigations and forensic computing units in London and in the Australian transfer price practice. We continue to incur higher rent expense in London resulting from our consolidation of space and the temporary repairing of extra space in our former location.

Finally our Q1 tax rate was unusually high, at 51% as a result of the international losses which could not be offset against US policy. Q1 is generally back end loaded for us because of the holiday period falls in the middle of the quarter. Similarly we see a substantial pick up in revenue and utilization during the last third of Q1 as we move out of the holiday season and into the new calendar year. That late quarter rebound did not materialize this year, especially overseas.

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