Charles River Associates at Sidoti’s Small-Cap: Strategic Growth Amid Challenges

On Wednesday, 11 June 2025, Charles River Associates (NASDAQ:CRAI) participated in Sidoti’s Small-Cap Virtual Conference, celebrating its 60th anniversary. CEO Paul Malley highlighted CRAI’s strategic focus on organic growth and shareholder value while addressing challenges like macroeconomic uncertainty and sluggish M&A activity. The firm remains debt-free, with robust internal funding and a keen interest in strategic acquisitions.

Key Takeaways

• CRAI celebrates 60 years of providing legal, regulatory, and management consulting services.
• The company has achieved significant revenue growth and shareholder returns over the past decade.
• CRAI remains debt-free, focusing on organic growth and strategic share repurchases.
• Macroeconomic uncertainty and M&A activity are potential growth challenges.
• CRAI is open to taking on debt for the right acquisition opportunities.

Financial Results

• Legal and regulatory consulting accounts for 80% of revenue, with management consulting at 20%.
• Over the past decade, CRAI’s stock price increased sixfold, and revenue grew 2.5 times.
• Share repurchases averaged $1.62 per share in 2024, with a five-year average of $88 per share.
• The dividend rose from 14¢ per share in Q4 2016 to 49¢ per share per quarter in 2025.
• Shareholder yield is approximately 6%, with a 35% reduction in share count over 10-12 years.

Operational Updates

• CRAI has collaborated with 85 of the Fortune 100 and 98 of the Amlaw 100 firms in recent years.
• The company addressed excess capacity in the life sciences practice in Q2 2024.
• Headcount has grown by 3-4% annually, with expansions in competition, forensics, and energy practices.

Future Outlook

• CRAI focuses on maximizing long-term value per share through value-based decision-making.
• The firm aims to return about half of its adjusted cash flow from operations to shareholders.
• Growth opportunities are identified in antitrust, competition economics, and energy practices.
• CRAI is prepared to incur debt for strategic acquisitions and maintains an active acquisition pipeline.

Q&A Highlights

• CRAI is increasing headcount in both legal regulatory and management consulting areas.
• Macroeconomic uncertainty and sluggish M&A activity are seen as growth limitations.
• The company remains committed to share buybacks, viewing them as a valuable capital allocation strategy.

In conclusion, Charles River Associates continues to prioritize shareholder value and strategic growth, adapting to economic challenges while celebrating its 60th anniversary. For more detailed insights, refer to the full transcript below.

Full transcript - Sidoti’s Small-Cap Virtual Conference:

Mark Riddick, Senior Analyst, Sidoti and Company: Hey. Good morning, everyone. It’s now 10:45 here on the East Coast, and we’re ready to begin with our next presentation. My name is Mark Riddick. I’m a senior analyst with Sidoti and Company, and I thank you for joining us at the Sidoti June Small Cap Virtual Conference.

Now our next presenting company is Charles River Associates, the ticker is CRAI. And joining us today is Paul Malley, June and CEO, and Chad Holmes, chief corporate development officer and interim CFO. Now before we begin, we, as a reminder, we will have time for q and a following prepared remarks. However, if you’d like to ask a question, you could just feel free to submit that at any time. No need to wait at, until the end of the prepared remarks.

You just click the q and a button at the bottom of your screen to submit questions at any point during the time. And now we can turn the floor over to Charles River. Good morning.

Paul Malley, CEO, Charles River Associates: Good morning. Thank you, Mark, and good morning, everyone. I really do appreciate you joining us today. I’m gonna try to get through, an overview of CRA in about fifteen or so minutes, and, hopefully, you have some, questions for us. So let me see if we could do this.

I won’t waste time on the safe harbors. So CRA is celebrating its sixtieth birthday party in the month of June. A lot of what was the initial mission of the firm upon the founding from professors from MIT and Harvard still exists today, which is bringing academic quality research to the business world to help our clients make more informed decisions. We were lucky enough to ring the opening bell a week ago this Monday, in celebration, and I’ll come back, to some of the milestones achieved and on our sixtieth birthday. CRA has two main lines of business, legal and regulatory consulting and management consulting.

Legal and regulatory makes up a roughly 80% of our revenue with management consulting, remaining 20%. You may not have heard of CRA, but you definitely have heard of our clients, and you definitely have heard of the kind of matters we’re helping our clients, you know, deliver on that. So let me see here. Okay. As with any consulting company, it starts and ends with our people.

Very proud and very lucky to have such a respected group of colleagues. As you see in the upper left hand corner, roughly 40% of my senior colleagues hold PhDs, the majority of them in economics, but also in the pure sciences of biology, chemistry, even a few medical doctors along the way. The other thing that I’m most proud of because we work really hard to achieve that is the retention of our colleagues. We take great care in selecting, the right colleagues to join our family at CRA. And once here, we try to earn the right for them to want to stay.

And as you see in the lower left hand corner, you know, we, have been very fortunate to have a large number of our senior colleagues stay for extended periods of time. It’s never even more evident than if I turn you to the upper right hand corner. Here, I’m looking at our top revenue generators. Every year, I present to our board the top thirty, twenty 30 or top 25 revenue generators in the firm. And if I look over that group, it’s about fifty, sixty people over a five year period of time.

In that window of time over the last five years, 10% in total, less than 10% in total, have voluntarily turned over at CRA. So less than five people out of that group. Okay? And the reason I highlight that is these large revenue generators can go anywhere they want. But they’re electing to stay at CRA.

It’s not something we take for granted, but it has to do with the environment that we strive to maintain at the firm. One that allows these people to flourish, one that allows homegrown talent to, you know, grow. We mentioned the two lines of business and I in terms of legal regulatory and that a management consulting. The management consulting is made up of in in order from largest, here is life sciences, the energy practice, American auctions, competitive bidding. The remainder of the practices all make up our legal regulatory.

I think I left out the energy practice or I’m not sure if I did. I apologize because they really have been one of the success stories, on finding lots of different ways to help our clients in the utility and energy sector make the most informed decisions. We mentioned that you may not have heard of CRA, but you definitely have heard of our clients. This is just in the past two years. In the past two years, we’ve worked with 85 of the Fortune 100 companies.

And if you go back to our deck from a year ago or deck from five years ago, you’re gonna see the same kind of share of the Fortune 100. We are a go to provider, for critical decision matters. And we we continue to provide services here. They’re not annuity contracts. So these clients, time and time again, turn to CRA for assistance.

Oftentimes in the legal regulatory arena, we are retained by the middleman, which is the law firm, for lots of reasons, for their expertise in navigating the legal regulatory proceedings, but also to maintain privilege and confidentiality in those matters. Here in the past two years, out of the Amlaw 100 law firms, we’ve worked for 98 of those law firms. The good news is that our goal is to add depth to relationships we already have. We’re not looking necessarily to go into the next 100 of, you know, the top law firms. We think there’s plenty of growth opportunities both within the Fortune 100 companies and within the Amlaw 100 companies.

I mentioned that we were at Nasdaq a week ago Monday, and we were sort of, waxing poetic there trying to thinking about our journey, to that anniversary, here. And we were lucky enough to also ring the bell at our fiftieth anniversary. And I remember sitting there with 50 of my closest colleagues up on the stage clapping like crazy. Why? Because we wanted to get our stock price north of $28, and a lot has changed.

A lot has changed. We have enjoyed more than a sixfold increase in stock price over those ten years. Our revenue has, grown two and a half times, and the number of colleagues, I get to enjoy at CRA has doubled. That’s over ten years. The amazing thing about our journey is no matter how you slice it, whether you wanna look at a ten year window, you wanna look at the last quarter, last year, or the last five years, CRA has delivered consistent and exceptional performance.

Whether you wanna look at revenue growth, we’re able to grow, and we’re able to grow profitably, over those periods of time enjoying expanding margins. Not only are we able to grow, we’re able to do this 100% funded by internal operations. Not only 100% funded by internal operations, we end up having excess capital after pursuing this value creating growth in which we return it back to our shareholders. You know, the dominant, area of redistribution has been share repurchases, and it’s not just because we have the excess capital, but because our stock price continues to be attractive here. If you look at the share repurchases through 2024, you know, just a year ago, average purchase price, $1.62.

That’s already a pretty attractive return to where we sit today. Previous five years, $88, on the average, share price. So we are driving the business forward and trying to create value for all our constituent groups, shareholders and colleagues alike. Our investment thesis is quite simple, maximize CRA’s long term value per share. We are value based decision makers.

Everything we do, the way we distribute capital, the way we try to grow the organization, all has to do with creating value for our various constituent groups. If the value doesn’t exist for reinvestment in the business, I give the money back to all of you. That’s where the per share, component of this goal, comes through. Oops. And the revenue growth, we talked about some of the, CAGRs on the previous slide there.

The other thing I should highlight is we’re growing, and we’re growing with a nicely balanced, growth portfolio. About two thirds of our growth is organic growth. And whether you wanna look at the last five years, last ten years, it’s roughly two thirds organic and 1 inorganic. I don’t know how anyone achieves, value creating growth if you don’t have a robust organic engine. And thanks to my colleagues, we’ve been able to deliver on both.

One important thing when looking at the underlying economics of CRA is there is a little wrinkle in our financial statements that requires one to make a sort of a non GAAP adjustment to understand the true cash generating capacity of the firm. Our EBITDA margins are attractive on their own. And as you see, we’ve been able to grow that margin, where the q one, surpassed the previous, EBITDA margins over the last five years, and we’re not looking to give any of that back, with it. But with that said, that still doesn’t fully capture the cash generating capacity of CRA. There’s a charge called a noncash amortization of forgivable loans that flows through our income statement.

And forgivable loans are predominantly used as acquisition capital in our pursuit of inorganic opportunities. That amortization is not captured in the DNA of EBITDA. Okay? So if you think it is and you start with your cash flow forecast by just looking at EBITDA, you’re gonna miss a large component. We used to present a figure called adjusted EBITDA that added the two components to it.

The SEC was not a fan and told us, I can share with you what the EBITDA margin is. I can share with you the noncash amortization of forgivable loans as a percent of revenue. I just can’t add them together. What we do provide is we do provide an adjusted cash flows from ops that makes this adjustment so you’re not double counting the impact of our inorganic pursuits. This is a measure this adjusted EBITDA measure is used in evaluating the executive officers at CRA relative to budget.

It is used by our banking consortium in determining our borrowing capacity. So this is not a measure that we’re just sharing with you on a, here on Investor Day, but I believe it is the most informative profit measure available, for CRA. Okay. And the next handful of slides are really just trying to demonstrate that it is not smoke and mirrors. I mentioned earlier, everything is funded by internal operations.

We have no debt. We have a line of credit that we access during the year, but it is for working capital purposes. By the end of the year, for as many years as I can remember, that line of credit goes to zero by year end. So everything, all uses of our capital, have to foot since we are not taking on debt here. And here you just have a summary over the previous five years of those uses of capital.

To no surprise, our CapEx is rather minimal. We are a people business, and don’t require a lot of brick and mortar investments there. The majority of our, uses of capital, 90% of it, goes either for inorganic pursuits and talent or the maintenance of that talent, or we give the money back to you. About five years ago, we made an aim. We stated an aim of returning roughly half of our adjusted cash flow, some ops back to our shareholders.

If there are opportunities to invest in talent, I’m always gonna take that because of the temporary and episodic nature of how talent becomes available in the marketplace. But that hasn’t been our experience. I’m not capital constrained here, and we have no aversion to taking on debt. But taking on debt is gonna be dictated by the assets of the firm, not by trying to balance the liabilities and equity there. So let me quickly take you through these components.

Here, you see that, you know, we have revenue has increased by greater than 50% through these talent pursuits over the last five years or $230,000,000. So I think we’re doing a pretty good job at identifying talent, and we’re doing a pretty good job on making sure they’re successful within the CRA platform. Our IRRs, have consistently been in the mid teens, on our talent pursuits. So, you know, Chad and his team are, again, doing exceptional job identifying the talent, and the rest of our practice leaders and corporate leaders, are maximizing on their, potential once within the CRA platform. The CapEx we talked about, going forward, it’s even gonna be less.

Our expectations are we’ll probably be spending roughly $5,000,000 per year on CapEx. We have enough capacity in our offices that we don’t believe there’s gonna be a substantial need for more real estate in the next five years, and thus the CapEx is more for general infrastructure and computing needs. With respect to the talent, I mentioned it earlier. We we repurchase our shares because they are a good value on that. And as long as they’re a good value, I will continue to buy shares.

And we have put quite a significant dent in our shares outstanding. I think over the last ten, twelve years, the share count has been reduced by about 35%. Just in the previous five years, that share count has been reduced by 13%. Not only are we returning capital via the shares outstanding, which makes up roughly 80% of those redistributions, we also have a dividend, that has grown significantly since initiation back in q four twenty sixteen. We initiated that with about 14%, 14¢ per share.

And this year, we are paying out at 49¢ per share per quarter, on our dividend. In total, we’re we’re enjoying a shareholder yield of roughly 6%. And the great thing about that is that is a shareholder yield that is computed computing on a growing market value for CRA. Our shareholder yield is not going up because of the prices declining. The shareholder yield is going up because we continue, to grow and grow profitably and are able to do this, with an efficient use of the capital at CRA.

And this just shows you a the chart, that tracks the shares outstanding over a period of time. So quite happy with that progress. And, again, until we see it’s not an attractive means, redistribution, that’s gonna be the dominant form. So, Mark, I think we have about ten minutes left. I will stop talking and see whether anyone would like to, jump into any of the topics covered or any of the topics I may have missed.

Mark Riddick, Senior Analyst, Sidoti and Company: Excellent. Thank you very much, Paul. And as a reminder, if you’d like to, submit a question, just click on the q and a button at the bottom of your screen to submit, a question. We actually do have a couple that are in queue. So why don’t we start there?

One of the questions is around headcount and talent, acquisition. Can you discuss where you’re adding headcount and how you think about a specific headcount additions and, specific lines of business, relative to segment growth outlooks?

Paul Malley, CEO, Charles River Associates: Sure. Right now, when I look at our portfolio, we’re we’re adding headcount in both the legal regulatory arena and the management consulting arena. We’re getting asked a lot of questions about headcount because on the surface, it appears that headcount is remaining flat or even declining over the past handful of quarters. The reason for that is we took an action back in q two of fiscal twenty four to address some excess capacity, that existed in our portfolio. The majority of that excess capacity existed in our life sciences practice.

That is we took the action not because we don’t think there’s continued growth opportunities there, but the slowdown of attrition within life sciences that was in large part due to the tightening of the belt in the pharmaceutical industries. We weren’t seeing the same kind of consultant into industry migration. And with continuing to hire at the university level, we found ourselves with too much capacity and thought it was necessary, to address. If you make the adjustment for the q two of fiscal twenty four action and then you compare q four headcount year over year or q one of fiscal twenty five’s headcount over year over year, you’re gonna see we have grown headcount by roughly three to 4% a year. Headcount and revenue growth are highly correlated, and you should not expect them, to break that relation going forward.

We continue to add heads. We continue to add heads, in practices such as competition, forensics, energy, life sciences, transfer pricing. So from our smallest practices to our largest practices, They are part of the portfolio because we think they could contribute to the value equation.

Mark Riddick, Senior Analyst, Sidoti and Company: Excellent. And then we do have a question around, the the factors that can lead to to growth and, specifically, what are the most important factors that that may limit growth maybe outside of talent acquisition as we’ve just talked about headcount, but are there any factors that that might limit growth opportunities going forward?

Paul Malley, CEO, Charles River Associates: Yeah. So one of the reasons I will always go back ten, twelve years of CRA, not just because they’re good numbers, make a good story. That you know, I guess that’s a good, enough explanation. But the reason is we’ve endured a lot of different, macroeconomic environments over the past dozen years, and we have fared pretty well across each of those kinds of environment. So are there some environments that are more conducive for growth and expansion?

Absolutely. But I think Sierra has demonstrated that quality of our portfolio will excel no matter what we encounter. With that said, there’s been some shocks to the system, right now, and they’re causing more uncertainty as opposed to any kind of permanent decline in demand, at least that we can see, momentarily. When uncertainty happens, sometimes people will hit pause on the investments they’re making. They will tighten their discretionary spend belt belt.

And no matter how critical CRA, is to helping them make more informed decisions, we are still a discretionary spend at some level. So if the economy slows down or the uncertainty increases, we may see a negative impact on that. The other thing that, would impact our business is the level of m and a activity, both initially as we help clients navigate the regulatory environment to get them, through and any kind of litigation or investigations that may happen subsequently, to m and a activity. We’ve been waiting for the last two, three years. Every year, the forecast is this is the year m and a is going to expand.

But quite frankly, it has been rather sluggish, over the last two, three years even with the optimistic forecasts. So that is an area that with the, statement of fewer regulation, that we may see a nice, tailwind to CRA’s demand profile if we could see m and a, start to expand over historical norms.

Mark Riddick, Senior Analyst, Sidoti and Company: Excellent. And then we do have a question on, areas such as maybe particular, segments, sectors, practice areas in the market that you might think is, particularly appealing at this time or areas that maybe investors might, might underestimate a bit.

Paul Malley, CEO, Charles River Associates: Sure. I’m always gonna jump at an opportunity to invest in a antitrust and competition economics practice. They are the market leader. I think I have the best, group of colleagues in the industry, and they will get theirs irrespective of what we see in the broader, demand environment. So Chad and I and the entire leadership group jump at the opportunity to continue to invest there.

We’ve seen some nice growth and expansion opportunity in our forensic practice within the legal regulatory arena. We’re also actively looking to continue to expand finance, IP, which the lar with a large group hire a year ago. Our labor practice, continues to see growth opportunities, four years post the Welch acquisition in combination. So there’s a lot of components within legal regulatory that we think, have opportunities for expansion. On the management consulting side, over the past five years, a lot of time has been spent justifiably so talking about our life sciences practice.

I think once we see a bit of a stabilization in the industry, that practice will continue its growth trajectory. What has been a wonderful story and has been largely organic, largely, supplementing our team with talented individuals is our energy practice. The utility industry is going through some pretty rapid changes, as demand, for electricity increases. AI is creating a whole other layer of demand with the data centers here, and we are helping both, various fund managers on allocations of investments. We are helping, the the tech companies that are looking to add the data centers and negotiating their demand and helping the utilities.

So a nice surge, of demand there across a number of different areas, I think, paint a very bright future for that practice. But, again, it starts with the talent of the individuals, and we’re lucky to have, the team that we do.

Mark Riddick, Senior Analyst, Sidoti and Company: K. Excellent. We do have a question, which is in the the capital allocation, bucket, if you will. Would you be willing to take on debt to make a deal? Certainly, buybacks are already part of your your, what you do quite a bit, but maybe you could talk a little bit about, that as well as maybe the potential acquisition pipeline that you’re seeing out there in valuation levels.

Paul Malley, CEO, Charles River Associates: Sure. We are absolutely willing to take on debt. That’s what I was trying to reference earlier. But taking on debt Sure. You know, I’m still old school when I think of my balance sheet.

I don’t know whether anyone thinks of that, but the left side of the balance sheet and the right side of the balance sheet. I think the right side of of the balance sheet should be influenced, by what what’s on the left. That’s what I mean. If the asset dictates, it’s an appropriate size that go beyond, the internal cash generating capacity of the firm, we will take on debt. We have plenty of borrowing capacity, but I’m not gonna do that, you know, to fund my repurchases, for example.

We have enough capital from operations. So for the right asset, yeah, we are we are willing to take on debt, and change the capital structure of the firm. With that, the pipeline has been really active. There’s a lot of different participants. There’s been some disruptions in the industry, and people are looking at opportunities.

As we have in years past, I believe net net, CRA will be better off on you know, with respect to inorganic pursuits and any individuals we may have lost, during these kind of disruptions. But I think CRA remains an attractive destination, and Chad’s lack of sleep, is proof positive that, you know, CRA is getting the right candidates, and we are announcing a number of those acquisitions.

Mark Riddick, Senior Analyst, Sidoti and Company: Excellent. Well, time flies when you’re having fun. We’re we’re at the the the end of our allotted time, but but maybe you could just, share with us any any, final and concluding remarks.

Paul Malley, CEO, Charles River Associates: No. Again, sixty years is a long time, and the exiting remark is, besides Jim Burrows, my predecessor, who’s been here for fifty eight years, our success has come from a lot of different people, people that come into CRA, people that retire, and the new people that join and drive the business going forward. So we’re more than one individual. We’re more than one practice, more than one project. It’s the, you know, aggregation of all these talents that have made us a special place, for talent and a destination of choice for our clients’ most pressing matters.

So great celebration, but also very indicative, of what lies ahead for the firm.

Mark Riddick, Senior Analyst, Sidoti and Company: Well, congratulations on the the anniversary, and Thank you. We thank everybody for joining us this this morning. And everybody, have a wonderful and productive remainder of the day. Thank you so everyone.

Paul Malley, CEO, Charles River Associates: I appreciate it. Thanks.

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