Good day, everyone, and welcome to Charles River Associates' first quarter 2026 conference call. Please note that today's call is being recorded. The company's earnings release and prepared CFO remarks are posted on the investor relations section of CRA's website at crai.com. With us today are CRA's President and Chief Executive Officer, Paul A. Maleh, Chief Financial Officer, Eric Nierenberg, and Chief Corporate Development Officer, Chad M. Holmes. At this time, I'd like to turn the call over to Dr. Nierenberg for opening remarks. Eric, please go ahead.
Thank you, Rob, and good morning to everyone. Please note that the statements made during this conference call, including guidance on future revenue and non-GAAP EBITDA margin and any other statements concerning the future business, operating results, or financial condition of CRA, including those statements using the terms expect, outlook, or similar terms, are forward-looking statements as defined in Section 21E of the Exchange Act. Information contained in these forward-looking statements is based on management's current expectations and is inherently uncertain. Actual performance and results may differ materially from those expressed or implied in these statements due to many important factors, including the level of demand for our services as a result of changes in general and industry-specific economic conditions.
Additional information regarding these factors is included in today's release and in CRA's periodic reports, including our most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC. CRA undertakes no obligation to update these forward-looking statements after the date of this call to reflect new information or developments. Additionally, we will refer to some non-GAAP financial measures and certain measures presented on a constant currency basis on this call. Everyone is encouraged to refer to today's release and related CFO remarks for reconciliations 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. I will now turn it over to Paul for his report. Paul?
Thanks, Eric, and good morning, everyone. Thank you for joining us today. CRA continued its strong performance into the first quarter of fiscal 2026 as revenue increased by 10.5% year-over-year to $201 million. This represents the highest quarterly revenue in the company's history, besting the previous record set by the fourth quarter of fiscal 2025. Broad-based contributions drove the quarter's strong performance, with eight practices growing year-over-year. Four practices, Energy, Finance, Forensic Services, and Life Sciences , posted double-digit revenue growth, while the Antitrust & Competition Economics practice posted a new high for quarterly revenue. We generated growth across our geographies, with our North American operations increasing revenue by 8.5% and our international operations expanding 20.3% year-over-year.
For the company as a whole, consultant headcount increased 2.5% compared to the first quarter of 2025. Consultant utilization improved on a year-over-year basis to 77%. The increase in consultant headcount and utilization were supported by the continued replenishing of our sales pipeline. Average weekly project lead flow and new project originations each set quarterly records and posted double-digit growth relative to the first quarter of 2025. We continued to manage the business effectively during the first quarter, generating $23.2 million of non-GAAP EBITDA or 11.5% of revenue. As a reminder, historically, the first quarter is disproportionately affected by higher employee-related benefit costs and taxes due to the payment of annual bonuses.
Also embedded in the first quarter EBITDA figure is non-cash amortization of forgivable loans of $13.8 million or 6.9% of revenue. This represents an increase of $4.8 million or 53% year-over-year, which is consistent with our expectations and prior commentary when establishing our annual profit guidance for FY 2026. I would now like to spend a few minutes highlighting the markets for our services and some of the projects delivered during the first quarter. Revenue in the first quarter from CRA's legal and regulatory services increased 11.5%. This growth was in line with the broader legal market as total case filings and total court judgments increased 8% and 13% respectively compared to the first quarter of 2025.
Turning to the M&A market, worldwide M&A activity totaled $1.2 trillion during the first quarter of 2026, an increase of 27% compared to prior year levels. This represents the strongest opening quarter for deal-making since 2021 and the third consecutive quarter surpassing $1 trillion. Against this backdrop, CRA's Antitrust & Competition Economics practice delivered a record quarter, capitalizing on ongoing merger-related activity and continued demand for antitrust services. During the quarter, CRA's competition practice was jointly retained in a merger between two of the largest North American distributors of janitorial, sanitation, and food services products. CRA analyzed the merger's potential competitive impact by locality and across many customer verticals.
Leveraging the party's sales and bidding data, combined with industry-level and public data, CRA designed, prepared, and presented multiple empirical analyses to the Federal Trade Commission, culminating in the agency's unconditional clearance of the transaction. In another project, a CRA competition team advised REEL International, a designer and builder of industrial lifting and handling systems, in defending against a damages claim brought by a competitor, Fives ECL, before the Hamburg Local Division of the Unified Patent Court. ECL sought compensation for alleged lost profits, claiming that a patent infringement by REEL led to a price reduction. The CRA team supported REEL with an expert report emphasizing the importance of assessing the profits the claimants would likely have earned absent the infringement. In February 2026, the court dismissed the claim in full.
The decision is among the first Unified Patent Court rulings on the assessment of causation and quantification of damages since the Pan-European Court's launch in 2023. Elsewhere, our Finance continued to be active in complex commercial disputes and investigations across all of its focus areas, including mergers and corporate governance, bankruptcy, trading, securities, insurance, and international arbitration. For example, a team of CRA consultants supported an expert who testified on damages related to food safety crisis in the first Caremark trial in Delaware Court of Chancery, addressing the fiduciary duties of company directors to ensure proper information and reporting systems. Separately, another team supported a CRA expert who testified at trial between excluded and participating lenders in Serta Simmons Bedding 2020 liability management uptier transaction.
During the first quarter, CRA's Forensic Services practice supported hundreds of matters across ransomware, wire transfer fraud, employee misconduct, trade secret disputes, and broader litigation engagements. For example, we recently assisted a global software company seeking assurance that its software development environments, including core code bases, had been compromised by threat actor activity. Our team conducted a comprehensive forensic review of build systems and orchestration infrastructure which oversee and control the software development lifecycle to assess any potential manipulation of code or the build process. The practice is also being retained on engagements that position us at the center of highly complex and emerging data challenges, particularly in the privacy and advertising technology space. For instance, we are supporting one of the world's largest advertising technology companies in defending a privacy class action involving online tracking technologies.
Our team performed detailed analysis across a multi-terabyte data set, produced a comprehensive expert report, and is prepared to provide expert testimony in support of the client's defense at trial. Turning to our management consulting services, both the Energy and Life Sciences practice delivered double-digit revenue growth. CRA's Energy practice supported a wide array of clients in the first quarter of the year, including utilities, electric system operators, private equity, large energy customers, electric equipment manufacturers, and regulators. For example, the practice advised a utility client regarding its data center tariffs and its approach for managing large loads to mitigate risk to customers. Elsewhere, the practice was hired by PJM, the Mid-Atlantic System Operator, to lead the high-profile backstop procurement auction related to increased loads amid data center growth.
Finally, the practice was hired by a private equity group to provide commercial and regulatory due diligence on a large community solar portfolio. In our life sciences practice, we continue to leverage strengths across the team's strategy and policy consulting capabilities. For example, working with a mid-sized global pharmaceutical company focused on immunology, the team developed a comprehensive strategy for board-level review regarding growth opportunities, pricing, and market access issues, and associated policy concerns. Another project involved a global pricing study for a new combination therapy containing an existing blockbuster product in the cardiovascular and nephrology space.
The analysis covered markets in North America, Europe, and Asia, with particular consideration for the Most Favored Nation pricing policies being put forth by the current U.S. administration. I'm grateful to all of my colleagues for their hard work during the first quarter in helping our clients address their most important challenges. We are pleased with the strong performance of the business to start the year and continue to fuel those practices that are able to capitalize on growth opportunities through additional talent investments and consultant hires. We took the opportunity to further optimize our service portfolio by reconfiguring the consulting team in targeted areas of the company. During the quarter, these optimization efforts affected 22 individuals across about a half dozen practices in various corporate departments, resulting in a restructuring charge of $2.6 million.
The charge is comprised of $1.6 million of cash charges and $1.0 million of non-cash charges. Anticipated annual cost savings from this action are estimated to be approximately $5 million, with minimal impact on revenue going forward. It is important to note that we continue to see numerous growth opportunities and our pipeline of talent acquisition remains robust. We intend to redeploy these annual savings back into the business to further strengthen the company and to pursue profitable growth in the quarters ahead. Turning now to guidance. We are reaffirming our full year financial guidance for fiscal 2026. We are encouraged by the strong start to the year, supportive market trends, and the continued replenishing of our sales pipeline. We remain mindful that evolving geopolitical, global macroeconomic and business conditions can affect our business.
Finally, I was not planning to directly address AI's impact on CRA's business and the services that we provide because I think our results speak for themselves. We continue to grow revenue and to grow it profitably. The demand environment for CRA services is very strong, perhaps the strongest that I have seen during my tenure at CRA. Having said all that, the market for CRA shares seems to signal a fundamental misunderstanding of what CRA does. Clients hire us because they are dealing with situations in which expert insights can have profound financial and strategic impact. Often the value at stake for our clients is many, many multiples of the fees paid to CRA. The source of our value lies in our expert judgment, framing the right question, choosing defensible assumptions, and supporting conclusions in an ever-changing and increasingly complex business climate.
AI can accelerate and in many cases enhance our work, but it does not replace CRA's expertise and credibility in complex and high-stakes environments. As discussed during our last earnings call, we see AI as both a demand amplifier and productivity enhancer. Furthermore, we believe it strengthens CRA's overall position due to our deep expertise, strong governance, and established credibility. We remain extremely confident about CRA's future and look forward to delivering long-term value to our colleagues, clients, and shareholders in the years ahead. With that, I'll turn the call over to Chad and then to Eric for a few additional comments. Chad?
Thanks, Paul. Hello, everyone. I want to update you on our capital and capital deployment during the quarter. The first quarter of 2026 saw net cash outlays of $62.3 million for talent investments. Approximately 1/4 of this amount was spent to acquire senior revenue-generating talent. Approximately one-half funded performance awards earned by previously acquired talent under their original transaction terms. The remaining 1/4 related to talent retention. During the first quarter, we returned $25.3 million of capital to our shareholders, consisting of $3.8 million of dividend payments and $21.5 million for repurchases of approximately 116,000 shares. This reflects the continued strong belief by the Board and Management in the cash-generating ability of the business and the company's fundamental value relative to the prevailing stock price.
We currently have $44.5 million available under our share repurchase program. During the quarter, we also spent $2.6 million for traditional capital expenditures. We concluded the quarter with $32.5 million of cash and $192 million of borrowings under our revolving credit facility, resulting in a net debt of $159.5 million. As a reminder, borrowings during the first quarter are typically elevated in part to fund annual bonus payments, which is consistent with our practice in prior years. More than 80% of the bonuses relating to FY 2025 were paid in the first quarter, with the final installments expected to be completed by the end of the second quarter.
We concluded the first quarter of fiscal 2026 with total liquidity of $86.7 million, consisting of $32.5 million in cash and cash equivalents and a further $54.2 million of available capacity on our line of credit.
As CRA's annual revenues approach $800 million, we are outgrowing the current revolving credit facility established in 2022 when CRA had revenue of less than $600 million. As detailed in our quarterly report on Form 10-Q filed today with the SEC, the company earlier this week increased its credit facility by $50 million, bringing the total from $250 million to $300 million of aggregate borrowing capacity. The expanded facility will provide financial flexibility to support CRA's continued growth and working capital needs. With that, I'll turn the call over to Eric for a few final comments. Eric?
Thanks, Chad. As a reminder, more expansive commentary on our financial results is available on the investor relations section of our website under Prepared CFO Remarks. Before we get to questions, let me provide a few additional metrics related to our performance in the first quarter of fiscal 2026. In terms of consultant headcount, we ended the quarter at 971, consisting of 170 officers, 598 other senior staff, and 203 junior staff. This represents a 2.5% year-over-year increase compared with the 947 consultant headcount reported at the end of Q1 fiscal 2025, and a 1.3% sequential increase relative to the 959 consultant headcount reported at the end of Q4 fiscal 2025.
Non-GAAP selling general and administrative expenses, excluding the 1.5% attributable to commissions to non-employee experts, was 15.6% of revenue for the first quarter of fiscal 2026, compared with 15.9% a year ago. The effective tax rate for the first quarter of fiscal 2026 on a non-GAAP basis was 30.3%, compared with 27.2% on a non-GAAP basis for the first quarter of fiscal 2025. The increase is primarily due to an increase in non-deductible executive compensation and a decreased benefit related to share-based compensation. Turning to the balance sheet, DSO stood at 100 days at the end of the first quarter, compared with 108 days at the end of the fourth quarter of fiscal 2025.
DSO in the first quarter consisted of 58 days of billed and 42 days of unbilled. That concludes our prepared remarks. We will now open the call for questions. Rob, please go ahead.
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from Kevin Steinke with Barrington Research. Your line is now live.
Great. Thank you, and good morning.
Morning, Kevin.
I wanted to start out by asking about the demand environment. As you noted, Paul, perhaps the strongest you've seen in your tenure at the company. You know, obviously, you've done a great job as a firm aligning your services with what the market needs and what the market is demanding. I'm sure that's contributing to the demand trends you're seeing. Looking beyond that, can you pinpoint anything in the macro environment that's really spurring this demand? You know, case filings and court judgments continue to increase seemingly above trend. Obviously, the project lead flow and origination growth continues to be very strong. I don't know if you can have any more thoughts on the supportive market trends that you're seeing in light of macro uncertainties.
Yeah. I think you did a really good job answering the question. It's a little bit of a lot of things. I don't wanna lose sight. It's a lot to do with the quality of my colleagues and the services that they provide. Every quarter, every year, we are dealing with new record highs in revenue and profitability, with those new record highs in financials comes new record highs with input in terms of the opportunities and our ability to convert those opportunities into revenue generation. With that said, the last five or six months is at a higher rate than I have observed. It's pretty normally distributed relative to the revenue of our practices at CRA. Competition continues to get their share of the most prominent cases.
We're seeing Forensic to be very active, Life sciences, Energy, Finance. When about 98% of the revenue that is generated from CRA by those eight practices grows year-over-year by over 10% from record highs in the previous quarter, that's saying something. I wish I could point to one item, Kevin. The world isn't getting more simple, it's more complex, and thus the need for that kind of expertise in our services continues to grow. Fingers crossed that we see that continue throughout Q2 and the rest of 2026.
Okay, that's great. You mentioned their life sciences growing double digits, which was nice to see. Anything particularly going on in the market for your services that's helping to spur that growth and what do you see for that practice going forward?
Yeah. I think I've been particularly tough on Life Sciences. Every quarter I get questions about their growth trajectory, and I said, I keep answering that I would like to see a trend. Well, they've delivered on a trend. They have now multiple quarters of substantive growth. They grew double digits this year. We highlighted that our European operations grew more than 20%, and that was driven by more than 20% growth in our European Life Sciences practice and more than 20% growth in our Antitrust & Competition Economics practice. They are getting wonderful opportunities, and they're converting those opportunities. The lead flow is rather robust, not just for the firm, but for the practice in particular. Hopefully in Q2 we can be reporting another strong growth for that practice.
Okay, good. I wanted to also touch on the You mentioned a robust pipeline of acquisition talent. Again, could you talk about what's contributing to that? Just also, from a numbers perspective, when you formulated the guidance for 2026, are you also factoring in additional forgivable loan amortization from hiring throughout the year, this year? You know, given that robust acquisition pipeline, I assume, you know, perhaps there's something baked into the guidance for that already.
For our guidance on the revenue line-- on the revenue side, I try to look at the colleagues that are in place at the time I provide the guidance. I do not build in any anticipated inorganic revenue additions during 2026. I do try to build in into the profitability margin, some acquisition costs or the related amortization that goes with many of those costs into the EBITDA profit guidance. The reason I don't do the same on the revenue side is the timing of when those individuals join and their ability to ramp in a given year is very uncertain. Thus, we don't assume the revenue benefit, but try to assume the cost burden associated with those additions.
Okay, that makes sense. That's helpful. I'll turn it back over. Congratulations on the strong results.
Thank you, Kevin.
Our next question comes from Marc Riddick with Sidoti & Company. Your line is now live.
Hey, good morning.
Morning, Marc.
I wanted to start with again, very, very strong top line growth and broad-based as we've seen for several quarters now. I wanted to talk a little bit about your commentary around some of the assignment changes. Maybe you could delve a little bit into that and maybe is that something that you can foresee doing more often with talent as you sort of try to match the opportunities that you see in front of you? I have a follow-up around that.
I'm not quite sure, exactly. I lost you, midstream to your question. Let me start talking, and then I'm gonna pause and have you clarify for me. First, thank you for recognizing the top line growth. What I don't want to lose sight of is the profit margin is pretty damn impressive, okay? We posted 11.5% on that, relative to, I think at the time, was close to an all-time high for first quarter profitability in Q1 of 2025. The reason that you see a reported drop in EBITDA margin is because of that increase in forgivable loan amortization. We went from about 5% of revenue, in 2025 on forgivable loan amortization to 6.9% of revenue in Q1 of fiscal 2026.
When you add the EBITDA and the forgivable loan amortization and you compare them year-over-year, the fact is the margin is within 20 basis points of each other. Again, that's comparing it to record levels. The top line revenue, impressive. Congratulations to my colleagues, but we also shouldn't lose sight of the strong profitability that has been delivered. With respect to the recruitment, right now it continues to look for the best available talent. When I have, you know, eight practices delivering top-line growth. Many achieving record levels, many achieving double-digit revenue growth. We are not shy to add talent to any of those units. The individuals we were lucky enough to add in fiscal 2025 are producing ahead of our expectations into the first quarter of 2026.
I anticipate them continuing to ramp, and Chad's been quite busy on the recruitment of people, both across the legal regulatory arena and on the management consulting side.
Okay, great. Sorry if I lost you there for a bit. I did wanna talk a little bit.
No, my fault.
I did wanna talk a little bit about the improvement in utilization as well. Maybe you could talk a little bit about the pacing of how that progressed through the quarter and certainly given your commentary, it sounds as though that continued since the end of the quarter, but maybe you could talk a little bit about that pickup in utilization and sort of how that paced through the quarter.
We basically have been at the upper 70s, at that 70% mark, starting in January. It wasn't a trend of improvement throughout the quarter. We were pretty strong from the get-go, as we got into 2026. We saw the improved utilization, not just on the legal regulatory side, but also on the management consulting side of the house. You know, when you have everyone billing more hours, you get the kind of top-line growth that we described. You know, our guidance, when we look at medium, long term, is to be in that upper 70s ballpark going forward. With that, and with our strong cost controls, it should result in impressive profitability and profitability that converts into high cash flow levels, you know, as it has historically and going forward.
Thank you. I wanted to touch a little bit on, I think you touched a little bit on this in your prepared remarks, but can you discuss maybe some of the changes that you've seen in the level of complexity, particularly on the M&A side? I mean, are you getting the sense that these things taking longer? Is it a matter of just, you know, what are we seeing just relative to maybe even two, three years ago as far as what we're seeing on M&A and what you're seeing there?
Yeah. It's been a while since I've been actively working on a case, so excuse me for the generalities on that. The amount of data that we're being asked to analyze, the complexity of the markets for which our clients serve, is becoming broader and more complex, and the desire for results, as expeditiously as possible, has never been higher. It's really across all of our business units. It's not just in the Antitrust & Competition Economics practice. Life Sciences practice is experiencing that. We try to highlight that in the case example of the Most Favored Nation pricing that's going on and the complexities in trying to roll out new drugs with that added wrinkle here. We have regularly talked about the Energy practice and what their clients are facing with the rapid growth of these data centers.
I can't really point to any practice in which their world is getting more simple. Lucky for CRA and lucky for our clients that we have the appropriate expertise to address that.
Excellent. Thank you very much.
Thank you, Marc.
Our next question comes from Andrew Nicholas with William Blair. Your line is now live.
Hi, good morning.
Good morning, Andrew.
Hey, Paul. I only have one. A lot of my questions got asked already, but I just wanted to check in on kind of rate realization and pricing. Obviously, really good top-line growth, I imagine that's a part of that equation. If you could just speak to pricing realization and kind of as a follow-up to what you were just describing, the extent to which you think increased complexity, bigger projects could be a boon for that part of the growth algorithm going forward. Thank you.
Sure. Like most years, at the beginning of the year, we will test the market and assess whether we should increase our bill rates across our practices. On average, we're in the low to mid-single digit rate increase in terms of our reported rates. Oftentimes, in the first quarter, we're seeing minimal contribution from those rate increases because typically, we do not get the benefit of those new rates on legacy projects that have been in place, but more often on new projects coming in the door. As the year progresses, we should get even more contribution from those rate increases. Now, that's not to say that the first quarter of 2026 didn't enjoy a benefit from rate increases. They were just more likely the rate increases that were implemented during 2025.
I think as we get into Q2, Q3 and beyond, you will see more of the full benefit of the rate increases. Early indications are quite positive. You know, we've always been a high-cost provider of services, right? The reason that that works for CRA, works for our clients, is we also are a high value-added provider of services. I think the balance exists. We haven't seen any increase in write-offs on the bills going out, but with another quarter or two under our belt, I'll be able to give you a more definitive answer. So far, so good on that, Andrew.
Thank you very much.
We have reached the end of the question and answer session. I'd now like to turn the call back over to Paul A. Maleh for closing comments.
Great. Thank you, Rob. I would like to thank everyone who joined us today. We appreciate your interest in CRA and the support you have provided the company over the years. We will be participating in investor meetings and conferences over the coming months, and we look forward to updating you on our progress on our second quarter call. This concludes today's call. Thank you.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.