Sidoti & Company Fall 2017 Conference

Transcription

1 Sidoti & Company Fall 2017 Conference September 28, 2017 This presentation is subject to and should be read in conjunction with the disclaimers and other statements contained on the last page of this presentation under the heading Safe harbor disclaimer.

2 A leading global consulting firm For over 50 years, Charles River Associates (CRA) has been a premier consulting firm. In 1965, our founders envisioned a company that would bring the developing technology of academia, especially in the then-burgeoning area of quantitative methods in economics, to the real world. This vision continues to resonate strongly today as we apply universityquality quantitative tools and microeconomic analysis to practical problems. Positioning Economic Litigation and Management Consulting Boutique with Leading Positions in Antitrust & Competition Economics, Valuation, Financial Markets, and Corporate Strategy Two Lines of Business Legal, Regulatory, and Financial Consulting Cutting Edge Approaches to High Stakes Cases Management Consulting Sector Specialized Boutique Sources of Distinctiveness Leading Experts Client-Tailored Model Superior Analytics Industry Insight Senior-Led Organization/ Culture Team-Based Entrepreneurial Efficient Infrastructure 2

3 Representative clients Corporate Law Firms In the past two years, we have worked with 98 of the top 100 law firms and 81 of the Fortune 100 3

4 Is CRA a good value? TEV Multiple CRA Range of Sector Peers Revenue (LTM) 0.9x 1.0x 5.5x EBITDA (LTM) 10.6x 7.2x 24.0x Adjusted EBITDA (LTM) 5.6x N/A Notes: TEV = Total Enterprise Value = Market capitalization plus net debt Adjusted EBITDA = EBITDA plus share-based compensation, amortization of forgivable loans and other (income) expense, net, less GNU results Data source: Capital IQ as of September 22, 2017; multiples are based on last twelve months (LTM) operating metrics Peer set comprised of Exponent, Inc.; FTI Consulting, Inc.; Huron Consulting Group Inc.; Navigant Consulting, Inc. 4

5 Revenue growth and EBITDA margin CRA Range of Sector Peers Revenue growth (LTM) 9.8% -3.1% 7.3% EBITDA margin (LTM) 8.6% 8.4% 23.1% Adjusted EBITDA margin (LTM) 16.3% N/A Notes: LTM = Last Twelve Months Adjusted EBITDA = EBITDA plus share-based compensation, amortization of forgivable loans and other (income) expense, net, less GNU results Adjusted EBITDA margin calculated using Revenues, less GNU results Data source: Capital IQ as of September 22, 2017 Peer set comprised of Exponent, Inc.; FTI Consulting, Inc.; Huron Consulting Group Inc.; Navigant Consulting, Inc. 5

6 Our objectives Strategic We are committed to being the firm of choice for our clients as they address their most important legal, regulatory, and strategic challenges, as well as for our employees as they seek a fulfilling and exciting place to work Each of our practices is highly regarded, and our consultants are recognized for their creative and multidisciplinary approach to solving clients complex problems in the US and throughout the world Financial We strive to be good stewards of the firm s financial resources Given the strength of our business and its ability to generate strong cash flows, we believe that we can both invest in the business and return capital to our shareholders 6

7 Capital allocation philosophy Portfolio of investments include organic growth pursuits, talent acquisitions and the redistribution of capital to shareholders Redistribution of capital to shareholders Share repurchases historically have been our method of returning capital to shareholders The initiation of a quarterly cash dividend in Q4 of 2016 provides another avenue by which we can return capital to shareholders Seek to deliver returns well above our cost of capital We aim to achieve adjusted cash flow from operations as a percentage of revenues greater than our historical average of 11% - 12% 7

8 Adjusted cash flow from operations FY2013 FY2016 (million) Average Cash flow from operating activities $ 18.4 $ 30.2 $ 20.4 $ 48.2 $ 29.3 Add: forgivable loan issuances $ 38.8 $ 10.9 $ 15.0 $ 6.9 $ 17.9 Adjusted cash flow from operations* $ 57.2 $ 41.1 $ 35.4 $ 55.1 $ 47.2 Total revenues $278.4 $306.4 $303.6 $324.8 $303.3 Total assets $320.1 $313.5 $313.7 $323.6 $317.7 Total shareholders' equity $224.6 $214.7 $211.1 $207.9 $214.6 Percent of revenues* 20.5% 13.4% 11.7% 17.0% 15.6% Return on assets* 17.9% 13.1% 11.3% 17.0% 14.9% Return on shareholders' equity* 25.5% 19.1% 16.8% 26.5% 22.0% *Presented on a non-gaap basis Forgivable loans are primarily used to acquire revenue generators and their associated profit stream, but unlike traditional acquisition consideration are reflected in cash flow from operating activities 8

9 Adjusted cash flow from operations FY2007 FY2016 $70 FY2007 FY2016 average = 12% 25% $60 $50 $47 $57 21% $55 20% (million) $40 $30 $20 $35 9% 13% $29 10% $18 $36 12% $41 13% $35 12% 17% 15% 10% (% of revenues) $10 6% $12 5% 5% $ % Adjusted cash flow from operations* Adjusted cash flow from operations as a percent of revenues* (Cash flow from operating activities plus forgivable loan issuances) 9 * Presented on a non-gaap basis

10 Sources and uses of capital FY2013 FY2016 Forgivable Loans, $72 Predominantly used as a talent-acquisition tool (in millions) Total Sources Adjusted cash flow from operations $57 $41 $35 $55 $189 Reduction of cash balance 2 Total sources $57 $41 $35 $55 $191 Adjusted Cash Flow from Operations Acquisitions, $17 CapEx, $38 Share Repurchases, $60 Uses Forgivable loans $39 $11 $15 $7 $72 Acquisitions CapEx Share repurchases Dividend payments Other 2 2 (0) (0) 3 Total uses $61 $44 $45 $40 $191 Reduction of Cash Balance Sources Dividend Payments, $1 Other, $3 Uses Largely driven by FY real estate outlays ($26) $191 million of investments during the period FY2013 FY2016 have been self-funded without reliance on any debt 10

11 Capital returned to shareholders FY2013 FY2016 (million) Average Share repurchases $2.2 $25.5 $12.8 $19.0 $14.9 Dividend payments $1.2 $0.3 Capital returned to shareholders $2.2 $25.5 $12.8 $20.2 $15.2 Average market capitalization $197.7 $242.1 $240.8 $214.8 $223.9 Shareholder yield 1.1% 10.5% 5.3% 9.4% 6.8% Source: Market capitalization data from Capital IQ 11

12 Period-end shares outstanding (million) Repurchase activity has significantly reduced our shares outstanding Q $15.6 million available under share repurchase authorization as of Q2 FY

13 Talent acquisition strategy Historically, our growth has been balanced between organic and inorganic opportunities Going forward, our goal is to have a growth engine tilted toward organic initiatives and supplemented by inorganic pursuits to address gaps in our capabilities or to more rapidly build scale Talent investments will be focused on service offerings within our existing lines of business All decisions regarding growth pursuits will be made with a valuebased orientation (i.e., earning more than our cost of capital) 13

14 Revenues* $350 $300 $273 $302 $300 $324 $250 (million) $200 $150 $182 $100 $50 $ ** 2015 *** 2016 *** YTD Q *** *Presented on a non-gaap basis **FY 2014 reflects 53 weeks of operating results vs. 52 weeks for all other fiscal years presented ***On a constant currency basis relative to FY 2014, FY 2015 revenue would have been $306 million; on a constant currency basis relative to FY 2015, FY 2016 revenue would have been $331 million; and on a constant currency basis relative to YTD Q2 2016, YTD Q revenue would have been $186 million 14

15 Consultant staffing levels Q Q Officers Other Senior Staff Junior Staff 15

16 Utilization 100% 90% 80% 70% 67% 67% 78% 80% 78% 78% 75% 75% 78% 75% 73% 68% 75% 76% 73% 71% 72% 76% 60% 50% 40% 30% 20% 10% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q

17 Profitability measures* 20% 16.1% (percent of revenues) 15% 10% 5% 8.6% 6.4% 0% YTD Q Operating Income EBITDA Adjusted EBITDA *Presented on a non-gaap basis (EBITDA plus share-based compensation, amortization of forgivable loans, and other (income) expense, net) 17

18 Over the next several years and consistent with past performance, we intend to continue targeting the following metrics: Average annual revenue growth in the mid-single digits driven primarily from organic pursuits Utilization in the mid-70s Non-GAAP adjusted EBITDA margin of 16% - 17% Adjusted cash flow from operations as a percentage of revenues greater than our historical average of 11% - 12% 18

19 Primary demand drivers Legal Spend Mergers & Acquisitions Regulatory & Public Policy Strategy & Operations Consulting 19

20 Legal spend Our performance in Legal & Regulatory has been strong despite flat legal spending Legal Spending for a Typical Fortune 1000 Company $40 100% $35 (million) $30 $25 $ % 65.9% 61.6% 63.6% 60.6% 59.2% 57.7% 59.2% 56.8% $12.1 $9.6 $11.7 $11.0 $12.9 $13.6 $14.6 $13.5 $ % 50% $15 $10 $20.8 $18.5 $18.7 $19.1 $19.8 $19.7 $20.0 $19.6 $ % $5 $0 0% Outside counsel spending In-house counsel spending Outside counsel as a percent of total Source: BTI Consulting Group, BTI Litigation Outlook 2017, Survey of Corporate Legal Spending 20

21 Mergers & acquisitions Although there have been fluctuations in global M&A activity over the last few quarters, our business has continued to perform well $1,600 $1,400 Announced Deal Value (billion) $1,200 $1,000 $800 $600 $400 $200 $ Americas Europe Asi a Pacific Japan Africa/Mi ddle East Source: Worldwide M&A Activity by Target Region, Thomson Reuters Deals Intelligence and Breakingviews, July,

22 Regulatory & public policy Growing complexities in the regulatory markets have benefited both our Legal & Regulatory and Management Consulting businesses To be effective and to understand the changes occurring in the markets, we must be current. We must be adaptive. And we must evolve. SEC Commissioner Kara M. Stein, Closing Remarks at North American Securities Administrators Association Section 19(d) Conference, 9 May 2017 By focusing on practices that have already or are likely to harm consumers, we don t have to write prescriptive rules based on a guess about what harms might appear in the distant future and in this fast changing world, five years is the distant future. Instead, our approach frees entrepreneurs to explore innovative business models and data uses, and we can focus on addressing any harms that develop. Federal Trade Commissioner Acting Chairman Maureen K. Ohlhausen, Internet Privacy: Technology and Policy Developments, 1 May

23 Strategy & operations consulting Our positioning in Management Consulting has allowed us to effectively compete against much larger firms S&O Consulting Market Size and Growth Forecast, $120 $100 CAGR ( ): 3.2% $103 $106 $110 $113 $117 8% 7% 6% ( billion) $80 $60 $40 4.2% 3.0% 3.3% 2.8% 3.6% 5% 4% 3% (growth rate) 2% $20 1% $ % Source: Global Consulting 2016, ALM Intelligence estimates 23

24 Representative client matters 24

25 Legal, regulatory, and financial consulting Counsel to an international pharmaceutical company turned to CRA for advice throughout reviews of its multi-billion dollar merger in Europe and the US. We provided analysis demonstrating to the European Commission and Federal Trade Commission that the divestment of certain drugs would not hinder innovation and the development of new drugs. 25

26 Legal, regulatory, and financial consulting When a nationwide financial services company was hit by a targeted phishing campaign, thousands of customers became victims of wire fraud. Our cyber response experts traced the unauthorized network intrusions and identified impacted customers for timely notification. We helped the company assess its disclosure and regulatory reporting obligations, and prepare an insurance claim to recover costs and damages. 26

27 Legal, regulatory, and financial consulting CRA was retained to testify in an action involving the trading of interest rate futures. Our expert submitted a declaration in US federal court describing issues of market impact and price discovery related to Eurodollar futures trades by the defendant in an action launched by the Commodity Futures Trading Commission. 27

28 Management consulting When a leading provider of electronic payments needed assistance in evaluating its overall business strategy, the company turned to Marakon. We helped management assess their operating model and sales channel mix in an effort to build brand loyalty. 28

29 Management consulting Faced with low usage growth and rising retail rates, a large US utility retained CRA to help them develop a capital allocation strategy. Our team developed a first-of-its-kind rate benchmarking model that enabled the client to analyze their planned spending and rate growth against a peer set and optimize their strategic decisions. 29

30 Management consulting When Fonterra Co-operative Group, the world s leading dairy exporter, wanted to enhance price transparency, price risk management, and forward price information, they turned to CRA. We pioneered an Internet-based trading platform for commodity dairy products, and we independently manage the trading events. Cumulative sales of dairy product traded on this platform now with multiple sellers and buyers have surpassed US$20 billion. 30

31 31 Appendix: Supplemental Financial Disclosures and Safe Harbor Disclaimer

32 Reconciliation of non-gaap financial measures ($ in millions, except per share data) GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP Revenues $394.6 $0.0 $394.6 $376.8 $0.8 $376.0 $301.6 $8.9 $292.8 $287.4 $6.4 $281.0 Income (loss) from operations (14.9) (6.9) (9.4) 19.8 Operating margin (%) 11.7% 11.7% 5.3% 9.3% 5.7% 8.2% 3.6% 7.1% Net income (loss) attributable to CRA International, Inc (10.1) (5.2) (6.8) 9.4 Net income (loss) attributable to noncontrolling interest, net of tax (0.6) (0.6) 0.0 (0.6) (0.6) 0.0 Net income (loss) $30.2 $3.6 $26.6 $6.2 ($10.1) $16.3 $5.7 ($5.8) $11.5 $2.0 ($7.4) $9.4 Net income margin (%) 7.7% 6.7% 1.7% 4.3% 1.9% 3.9% 0.7% 3.3% Interest expense (income), net (0.5) 0.0 (0.5) Provision (benefit) for income taxes 18.0 (1.8) (4.4) (1.8) (2.8) 7.1 Depreciation and amortization EBITDA ($) $57.4 $1.8 $55.6 $34.0 ($10.6) $44.6 $25.5 ($5.9) $31.5 $15.2 ($9.6) $24.8 EBITDA (%) 14.5% 14.1% 9.0% 11.9% 8.5% 10.7% 5.3% 8.8% Share-based compensation expenses Amortization of forgivable loans Other expense (income), net (1.4) (1.8) 0.4 (1.5) (0.5) (1.0) (0.3) Adjusted EBITDA ($) $64.7 $0.0 $64.7 $43.5 ($11.1) $54.6 $35.7 ($5.5) $41.3 $27.4 ($8.9) $36.3 Adjusted EBITDA (%) 16.4% 16.4% 11.5% 14.5% 11.8% 14.1% 9.5% 12.9% Shares outstanding (diluted) Diluted earnings per share $2.48 $2.20 $0.57 $1.50 $0.59 $1.07 $0.24 $

33 Reconciliation of non-gaap financial measures ($ in millions, except per share data) GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP Revenues $305.2 $6.2 $299.1 $270.4 $5.5 $264.9 $278.4 $5.1 $273.4 $306.4 $4.8 $301.6 Income (loss) from operations 29.1 (0.2) 29.2 (57.8) (77.5) (0.3) 24.3 Operating margin (%) 9.5% 9.8% (21.4%) 7.4% 6.7% 6.7% 7.9% 8.1% Net income (loss) attributable to CRA International, Inc (0.2) 17.0 (53.0) (63.1) (0.1) (0.3) 13.9 Net income (loss) attributable to noncontrolling interest, net of tax (0.0) (0.1) (0.1) 0.0 (0.2) (0.2) 0.0 Net income (loss) $16.9 ($0.1) $17.0 ($52.8) ($63.0) $10.1 $11.2 ($0.3) $11.5 $13.4 ($0.5) $13.9 Net income margin (%) 5.6% 5.7% (19.5%) 3.8% 4.0% 4.2% 4.5% 4.7% Interest expense (income), net (0.1) Provision (benefit) for income taxes 11.1 (0.1) 11.3 (5.2) (14.7) Depreciation and amortization EBITDA ($) $33.7 ($0.0) $33.7 ($50.8) ($76.1) $25.3 $24.7 $0.1 $24.7 $30.2 ($0.3) $30.5 EBITDA (%) 11.0% 11.3% (18.8%) 9.6% 8.9% 9.0% 9.9% 10.1% Share-based compensation expenses Amortization of forgivable loans Other expense (income), net Adjusted EBITDA ($) $44.6 ($0.0) $44.7 $32.0 ($4.5) $36.6 $42.2 $0.1 $42.1 $49.6 ($0.3) $49.9 Adjusted EBITDA (%) 14.6% 14.9% 11.8% 13.8% 15.1% 15.4% 16.2% 16.5% Shares outstanding (diluted) Diluted earnings per share $1.57 $1.60 ($5.21) $0.98 $1.12 $1.13 $1.38 $

34 Reconciliation of non-gaap financial measures YTD Q ($ in millions, except per share data) GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP GAAP Adjustments for GNU and Other Non-GAAP Revenues $303.6 $3.8 $299.8 $324.8 $0.8 $324.0 $181.7 $0.0 $181.7 Income (loss) from operations 12.4 (5.9) (0.8) (0.9) 11.7 Operating margin (%) 4.0% 6.1% 5.8% 6.1% 5.9% 6.4% Net income (loss) attributable to CRA International, Inc. 7.7 (2.5) (0.3) 7.0 Net income (loss) attributable to noncontrolling interest, net of tax (1.3) (1.3) Net income (loss) $6.3 ($3.8) $10.1 $14.2 $2.7 $11.5 $6.7 ($0.3) $7.0 Net income margin (%) 2.1% 3.3% 4.4% 3.6% 3.7% 3.9% Interest expense (income), net Provision (benefit) for income taxes 5.5 (1.6) (0.4) 4.2 Depreciation and amortization EBITDA ($) $18.9 ($5.3) $24.2 $30.3 $3.0 $27.2 $15.0 ($0.7) $15.6 EBITDA (%) 6.2% 8.1% 9.3% 8.4% 8.2% 8.6% Share-based compensation expenses Amortization of forgivable loans Other expense (income), net (3.4) (3.8) 0.4 (0.0) (0.3) 0.2 Adjusted EBITDA ($) $45.4 ($1.4) $46.8 $52.8 ($0.8) $53.6 $28.3 ($0.9) $29.2 Adjusted EBITDA (%) 15.0% 15.6% 16.3% 16.6% 15.6% 16.1% Shares outstanding (diluted) Diluted earnings per share $0.83 $1.10 $1.49 $1.33 $0.77 $

35 Reconciliation of non-gaap financial measures Adjusted Cash Flow from Operations ($ million) Average Cash flow from operating activities $25.9 $45.4 $21.7 $13.6 $30.0 ($8.5) $18.4 $30.2 $20.4 $48.2 $24.5 Add: forgivable loan issuances $8.7 $2.0 $7.2 $4.8 $5.5 $20.7 $38.8 $10.9 $15.0 $6.9 $12.1 Adjusted cash flow from operations $34.6 $47.4 $28.9 $18.4 $35.5 $12.2 $57.2 $41.1 $35.4 $55.1 $36.6 Total revenues $394.6 $376.8 $301.6 $287.4 $305.2 $270.4 $278.4 $306.4 $303.6 $324.8 $314.9 Total assets $451.4 $444.5 $422.1 $373.7 $364.5 $290.9 $320.1 $313.5 $313.7 $323.6 $361.8 Total shareholders' equity $252.7 $239.0 $255.7 $256.4 $268.4 $212.2 $224.6 $214.7 $211.1 $207.9 $234.3 Cash flow from operating activities Percent of revenues 6.6% 12.0% 7.2% 4.7% 9.8% -3.2% 6.6% 9.8% 6.7% 14.8% 7.8% Return on assets 5.7% 10.2% 5.1% 3.6% 8.2% -2.9% 5.7% 9.6% 6.5% 14.9% 6.8% Return on shareholders' equity 10.2% 19.0% 8.5% 5.3% 11.2% -4.0% 8.2% 14.0% 9.7% 23.2% 10.5% Adjusted cash flow from operations Percent of revenues 8.8% 12.6% 9.6% 6.4% 11.6% 4.5% 20.5% 13.4% 11.7% 17.0% 11.6% Return on assets 7.7% 10.7% 6.9% 4.9% 9.7% 4.2% 17.9% 13.1% 11.3% 17.0% 10.1% Return on shareholders' equity 13.7% 19.8% 11.3% 7.2% 13.2% 5.7% 25.5% 19.1% 16.8% 26.5% 15.6% 35

36 Reconciliation of non-gaap financial measures Notes: 1) Adjustments for GNU and Other These adjustments arise from activity related to GNU, our majority owned subsidiary, formerly known as NeuCo, in the Company's GAAP results. In April 2016, substantially all of GNU's assets were sold. Additional adjustments referred to as Other include goodwill impairment charges, restructuring charges, and certain other unusual charges. 2) Other (income) expense, net For all fiscal years, other (income) expense, net includes unusual expense and income items such as goodwill impairment charges, restructuring, and certain other unusual charges. 3) Constant Currency Calculations We believe that fluctuations in foreign currency exchange rates can significantly affect CRA s financial results. Therefore, CRA provides a constant currency presentation to supplement disclosures regarding its results of operations and performance. CRA calculates constant currency amounts by converting its applicable fiscal period local currency financial results using the prior fiscal year s corresponding period exchange rates. 36

37 Safe harbor disclaimer Statements included in this presentation which are not historical in nature, are forward-looking statements as defined in the Private Securities Litigation Reform Act of Forward looking statements may include statements concerning our plans, objectives, goals, strategies, and future events, including, but not limited to, future revenues, growth, profitability, performance and expectations such as non-gaap revenue and non-gaap Adjusted EBITDA margin, the declaration of future quarterly dividends and capital allocation strategies. These statements that are not historical may be reflected in words, graphs or diagrams. When used in this presentation, words such as believe, seek, aim, going forward, achieve, committed, pursuits, target, continue and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based upon management s current expectations and speak only as of the date of this presentation. Charles River Associates ( CRA ) cautions readers that there may be events in the future that CRA is not able to accurately predict or control, and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements or by the historical references. These risks include, but are not limited to, the possibility that the demand for our services may decline as a result of changes in general and industry specific economic conditions, the timing of engagements for our services, the effects of competitive services and pricing, our ability to attract and retain key employee or non-employee experts; the inability to integrate and utilize existing consultants and personnel; the decline or reduction in project work or activity; global economic conditions including less stable political and economic environments; foreign exchange rate fluctuations; unanticipated expenses and liabilities; risks inherent in international operations; changes in accounting standards, rules, and regulations; our ability to collect on forgivable loans should any become due; and professional and other legal liability. Further information on various potential factors and risks that could affect CRA s financial results are included under the heading Risk Factors in the annual and quarterly reports we file with the Securities and Exchange Commission (SEC), as well as in the other documents we file with the SEC, which are available on the SEC s website or in the Investor Relations section of CRA s website at The inclusion of such forward-looking information should not be regarded as our representation that the future events, plans, or expectations contemplated will be achieved. CRA cannot guarantee any future results, levels of activity, performance, or achievement and undertakes no obligation to update any of its forwardlooking statements, nor does it assume any liability for any investment decisions made or not made as a result of this presentation. 37

38 Investor Relations Charles River Associates 200 Clarendon Street Boston, MA Follow Us linkedin.com/company/charles-river-associates twitter.com/news_cra facebook.com/charlesriverassociates 38