CRA International Inc (CRAI) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to Charles River Associates fourth-quarter and fiscal year 2009 conference call. Today's call is being recorded. You may listen to the webcast on CRA's website located at www.crai.com. In addition, today's news release and prepared remarks from the Company's Chief Financial Officer are posted on the Investor Relations section of this site.

With us today are CRA's President and Chief Executive Officer, Mr. Paul Maleh; Chief Financial Officer, Mr. Wayne Mackie, and Vice President, Mr. Robert Young, who heads activities of the Global Industrial Consulting practice in the Europe and Middle East region.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Mackie. Please go ahead, sir.

Thank you, Jackie. 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 and prepared CFO remarks which are 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, while the third quarter being a 16-week quarter.

I should point out that the fourth quarter of fiscal 2008 was 13 weeks and subsequently fiscal 2008 was a 53-week year. Please keep that in mind when you doing your comparisons between fiscal 2009 and fiscal 2008.

In addition, let me remind everyone that we will be referring to some non-GAAP financial items on this call. I would encourage everyone to refer to today's earnings release for a full reconciliation of non-GAAP items to their GAAP equivalents. Our non-GAAP results exclude the results of our new co-subsidiary, expenses related to restructuring activities, gains resulting from the purchase of our convertible bonds at a discount and foreign currency exchange gains loss related to liquidation of some overseas operations.

In addition, in the prepared CFO remarks, we have presented normalized non-GAAP revenue and operating income for the third quarter of fiscal 2009 on a basis intended to convert the 16-week period to an as if 12-week period in order to provide an equivalent comparison to revenue and operating income for the 12-week fourth quarter of fiscal 2009.

And lastly, as I pointed out last quarter, within our consolidated statement of operations, we are now breaking out depreciation, amortization expense separately from selling, general and administrative expenses.

Let me turn it over to our CEO, Paul Maleh, for his commentary. Paul?

Thanks, Wayne, and good morning, everyone. Thank you for joining us on today's call.

When I joined CRA more than 20 years ago, I was attracted to a Company of outstanding individuals that had forged a great reputation in the industry. We were much smaller back then, but like today the Company had a steadfast commitment to deliver the highest quality, analytically rigorous results to clients and to create enrichment careers for its consultants. I look forward to carrying on these traditions as CEO and creating new opportunities for both our clients and employees and to deliver exceptional value to our shareholders.

Before we report on our fourth-quarter and full-year results, I would like to announce some changes we are making to the framework of our earnings call. Our goal is to spend more time discussing the strategic direction of our Company, our service offerings, industry trends and opportunities for growth. In that regard we will be inviting various business leaders from the Company to participate on these calls, and Vice President Bob Young, who heads our Global Industrial Consulting practice in Europe and the Middle East region, will be speaking today.

We have also changed the traditional format of Wayne's CFO presentation. In conjunction with the issuance of our press release, we have posted a detailed set of CFO remarks on the Investor Relations section of our website. Wayne will provide some key financial takeaways later in today's call.

Before I review our fourth-quarter performance, I would like to welcome Monica Noether, our Chief Operating Officer, and Arnie Lowenstein, our Chief Strategy Officer, to these calls. Monica is a 14-year CRA veteran and has led our litigation, regulatory and financial consulting service offerings in addition to our marketing and business development and the integration and growth of many of our startup practices. Arnie joined CRA in 1993 and has held various leadership roles within our management consulting services and was one of the key leaders in CRA's effort to bring Marakon to our Company. Both Monica and Arnie will be playing instrumental roles in leading the Company through the different elements of our strategy.

With that, let's turn to our results. While we reported a solid Q4 this morning, the three key financial highlights are, first, we grew the Company's non-GAAP revenue by more than 12% on a sequential basis from a normalized Q3 to $72.8 million. Second, we continue to do an excellent job in controlling our expenses as we took additional steps to further lower our cost structure. And third, we continue to generate a healthy cash flow as we increased our cash and short-term investment balances while purchasing more than $10 million of our convertible bonds at a discount.

Our Q4 performance was driven by an uptick in demand for Management Consulting, and a number of our management consulting practices rebounded from the levels we experienced in the first half of 2009. Our Global Industrial Consulting practice delivered a very strong Q4, highlighted by activity across the Middle East. On our Q3 conference call, we mentioned that our GIC practice had experienced some unexpected delays in obtaining signed contracts in the Middle East for some of the work that we have been awarded. We were able to record the vast majority of that revenue in Q4. Marakon, which we acquired in Q3, also made a strong contribution, and we are seeing great collaboration among our combined personnel.

We also saw growth in our energy and environment practice and improved performance from life sciences compared to the third quarter.

With regards to the litigation, regulation and financial consulting, we continue to see a reasonable level of activity, and as we have highlighted on the past several calls, we have retained a number of potentially very large engagements. However, that activity has not translated into increased revenue as many of these large cases have yet to move forward. We experienced a significant shift in revenue mix between Management Consulting and litigation consulting in Q4. Partly because of this shift, our utilization in the quarter declined to 66%. Utilization in the full year 2009 was 69%.

During Q4 we further streamlined our cost structure. We lowered our rental cost by reducing or moving office space in several locations. For fiscal 2009 we have lowered our annual non-GAAP SG&A costs by nearly 22% or $19 million. The entire CRA team has done an excellent job in this area.

Reflecting our improved performance, operating margin grew sequentially in the fourth quarter by 40% at $1.9 million to $6.5 million on an annualized -- on a normalized -- excuse me -- and non-GAAP basis. For a more comprehensive review of our financial performance for the quarter, please refer to the posted CFO remarks, and as mentioned earlier, Wayne will provide some additional information in today's call.

I would now like to provide you with an overview of our strategy going forward. On our Q4 earnings call a year ago we talked about how the economic downturn was changing the dynamics of our industry and what we hope to accomplish in 2009. We said that CRA would manage through the downturn by focusing on three critical areas -- growing revenue, enhancing our relationships with clients and creating efficiencies in our administrative operations. We made some progress in all three.

Our outlook is cautiously optimistic as we enter fiscal year 2010, and I would like to discuss four key elements of our strategy going forward. Many of them build upon the areas we focused on in the past year. The four key areas of our strategy include, number one, leveraging what makes CRA distinct; number two, leveraging the diversity of our platform; three, ensuring that we are investing in our people; and four, creating a highly efficient and scalable infrastructure.

The first key element is leveraging what makes CRA distinct -- The combination of our functional capabilities and the industry insights to solve our clients' problems. We regularly hear from clients that this dual combination of experience is highly valued in solving their business challenges. It will be a priority in our marketing and business operations going forward.

Our litigation, regulatory and financial consultants are world renowned economists, former government officials and professors from prestigious universities. In-house counsel of corporations and our law firm clients seek our consultants expert analysis and testimony for challenges related to service offerings such as antitrust, finance, or intellectual property. At the same time, our management consultants serving corporate clients are highly skilled in such areas as business strategy, corporate transformation, operations optimization and product portfolio analysis. These skills are complemented by specific expertise and insight in the industries in which we serve. For both types of consulting areas, our team's industry expertise in such sectors as energy, chemicals and petroleum and life sciences places them in unique position to counsel clients. We find their practical insights very appealing. So when we talk about what distinguishes CRA, it's the unique combination of our functional expertise and industry insights.

The second key component of our strategy is leveraging the diversity of our platform to meet the broadest range of our clients' needs. This strategy will ensure that all parts of our portfolio are contributing to the vitality and profitability of CRA. Some of this will be accomplished through greater practice collaboration, teaming and presenting a more comprehensive view to our services to our clients.

The third component of our strategy going forward is ensuring that we are investing in our people. We are focused on their professional development and in the sustainable growth of our practices.

In November we announced that Elizabeth Ramos, a highly experienced operations and talent executive, had joined our Company as global leader of Human Capital. Earlier in Liz's career she oversaw Global Human Capital at Bain Consulting, and many of the programs she oversaw led to Bain's Best Place to Work awards. One of Liz's first assignments at CRA is a professional development initiative for our consultants and administrative professionals. We look forward to engaging our employees with this initiative in fiscal 2010.

The fourth element of our strategy is the creation of a highly efficient and scalable infrastructure that minimizes costs and fosters increased productivity. As I highlighted earlier, we have made some great strides as an organization in this area during the past two years. In 2010 we are planning additional investments and improvements in our internal infrastructure that will enable us to better share information across the Company, lower costs and boost productivity. These four strategies taken together are focused on reigniting CRA's organic growth. Given our efficiency gains, modest revenue growth should lead to substantive earnings improvements. Acquisition and group hires will also continue to be a part of our strategy as we look to supplement our service portfolio and geographic footprint.

And with that, I would like to introduce Bob Young to provide more color around our activities in the Middle East. Bob is based in our London office and heads the activities of our Global Industrial Consulting practice in Europe and the Middle East. Along with a number of other senior colleagues, Bob joined CRA from Arthur D. Little in 2002, recognizing that our strategic aspirations to develop international consulting were well aligned with his own. Prior to becoming a consultant, Bob spent 14 years in the oil, gas and chemicals businesses with Exxon. Bob?

Thank you, Paul, and hello to everyone on the call. I am delighted to be here to talk about a critical part of the CRA growth strategy, which is the emergence of Consulting Services in the Middle East region.

While far from homogenous, the Middle East is a developing region with many of the needs one might associate with countries which have growing populations, increasing levels of education and rising expectations around wealth and quality of life. We see our Middle East position as a base from which to service the many clients in the Company across many parts of the region while creating a platform from which to serve other nations in the Middle East and, indeed, to Africa as they develop their economies in the future.

We developed our strategy for the region after talking to many senior contacts in our network, and their message was both clear and consistent. First, we need to be based in the region to service clients. So reliance on European or US fly-in support is not sufficient. Secondly, we have to provide only the highest quality locally-based consultants to serve the clients effectively. And thirdly, we must become part of our host economies by hiring and developing local talent.

Essentially the message was that while the Middle East may be a developing region at a different part of the economic development curve from the West, consulting needs are no less challenging than those in maturing economies.

In 2005 we established Bahrain as a regional hub. With a predominately industry-oriented service offering, we saw Bahrain has the logical center to develop our regional participation, and that move has proved to be both timely and successful.

In addition, we have invested in relocating some of our best talent on assignment from North America and Europe to establish our service quality. And lastly, we have begun to hire young Arabic professionals, which has been highly beneficial to our operations.

We have now developed an extensive portfolio of work throughout the region, including Jordan, Bahrain, Qatar, United Arab Emirates and Kuwait. The scope of our work has expanded to include projects in the public policy arena in diverse manufacturing and service sectors in addition to our traditional strains of chemicals, utilities, oil and gas. The functional offerings have also diversified from primarily strategy services to program management, transaction assistance, regulatory development and organizational support.

In fiscal year 2009, we generated approximately $20 million of revenues from Middle East clients, more than tripling the revenues of our operations since implementing our regional growth strategy. Our largest market and growth opportunity is the kingdom of Saudi Arabia, and we have been successful in overcoming entry barriers to enable participation in both public and private sector work. The kingdom of Saudi Arabia with 71% of the population and 57% of the GDP of the Gulf Corporation Council, or the GCC, is pivotal to our growth. The country like many others in the Arab world is facing a huge challenge to determine how to use its oil wealth to diversify its economy and provide jobs and infrastructure for its growing population. It faces a huge demographic challenge with around half of the population less than the age of 21. Those challenges are being met by investments in all levels of education, infrastructure and industrial diversification; all requiring advisory services of the type we offer.

In recognition of the importance of that market, we are now licensed in the Kingdom of Saudi Arabia. Our status will allow us to secure a larger part of the market in Saudi Arabia through superior local representation and presence. Our new office in Riyadh is already established and further hiring is on.

Our focus on development has provided CRA with a major platform for growth opportunities across the region as our public service clients address employment and other public policy challenges and our private clients pursue a range of projects to meet their growth and profit objectives. We have leveraged CRA's broad scale of expertise in a range of industries and sectors and have brought them to the region. We have a plan to carefully and gradually build our staff from the current level of around 20 resident professionals to support the continued growth and profitability of our business in the region.

In addition to a resident team, we staffed projects with people from the rest of the CRA circuit based on skills required to supplement the local presence. We have a program in place which allows for moving staff to the region for an extended period of time to work on projects and also help us build global CRA connections. Because our work in the region is very hands-on and entrepreneurial, it offers an exciting career opportunity to consultants who want to expand their capabilities, sharpen their project and client management skills and experience life in the Middle East.

We want to continue to grow quickly, but that is tempered by the need to manage the quality of our deliveries. We believe we have created a reputation based on that quality, and our growth must be able to sustain our high service levels. In fact, Paul and I had that discussion with a senior figure in the Saudi oil ministry during Paul's visit to Riyadh a couple of months ago. That gentleman was encouraging us to grow more quickly, but when challenged with the quality and growth balance, he certainly wanted to make sure he did not compromise quality by growing too aggressively.

As I have mentioned, what is important to note about our work in the Middle East is that we are continuing to diversify in terms of both the types of projects in which we are participating and in our geographic coverage. This ensures that we don't have too many eggs in one basket.

To close, I would like to mention a few of the more prominent examples of our recent work. In Saudi Arabia for much of 2009 we supported the Ministry of Commerce in administering the launch phase of the Saudi Arabian National Industrial strategy. This is part of an ambitious program to diversify the Saudi economy with non-oil GDP contributions. Specifically we were analyzing the new knowledge-based industries that could be of value to the kingdom in the future and the complex infrastructure needs for industrial development. We also supported the client in the overall program management.

Across the region in Jordan, we have completed some landmark infrastructure and alternative energy projects. In Bahrain we assisted the Bahrain National Petroleum Company with the development of a strategy for privatizing its retail network of gas stations and attracting parties for the development of its oil and gas resources. In the United Arab Emirates, we are helping the federal electricity and water authorities implement a new utility structure and electricity distribution system.

Finally, in Kuwait we are currently assisting a state oil company with the development of its research and development strategy.

Four years into our original strategy we believe that we have made a good start and built a strong platform for further growth with an excellent team of professionals. All the executive team and the boards are giving us complete backing, and we are dedicated to making the most of that support and of the opportunities open to us in the Middle East.

And with that, I will now turn the call back to Paul.

Thank you, Bob. We have great energy under way, and we thank you and the entire Middle East team for your contributions. On future earnings calls, we will continue to provide insights into our portfolio of service offerings. On our next quarterly call, we will turn to our litigation, regulatory and financial consulting. There has been much discussion in the press about increased scrutiny on merger regulation. We invited Dr. Steven Salop, a senior consultant to CRA, Professor at Georgetown University Law Center, and preeminent expert on mergers, and Margaret Sanderson, leader for our Global Antitrust and Competition Economics practice, to share their observation in this area with you.

Before moving to Wayne's financial review, I would like to briefly highlight several significant new projects that have just come in and congratulate our colleagues who have been involved with them. Our energy team in the United States is advising on two projects that are helping the United States move towards a clean energy future. We are serving as an economic consulting advisor to the Eastern interconnection planning collaborative as it studies the future needs of electric transmission infrastructure in the Eastern United States. Our energy consultants also completed a major wind integration study for the Southwest Power Pool. The study is a major engineering and policy analysis of the operational challenges of integrating potential wind generation resources into the Southwest Power Pool.

And lastly, using CRA's custom designed and managed Internet-based trading platform, Fonterra, a leading global dairy company, announced that sales reached $1 billion over the 19 trading events that have been held since the global dairy trade trading platform launched in July 2008. I'm also pleased to share that we have signed a significant new project to manage the sale of patents for a series of investment funds launched by a European bank.

With that, I will now turn the call over to Wayne for his financial review of Q4. Wayne?

Thanks, Paul. As mentioned, we have changed the format of presenting a more detailed review of our quarterly financial results on the call. This quarter we posted the comments I would typically make on this call on our Investor Relations website.

I will focus my remarks today on three areas. One, the recent trend in revenue improvement. Two, our improved international profitability and the resulting lower tax rate and other metrics and factors that may be useful in assessing our performance in the next year.

With respect to our revenue for the quarter, our Q4 GAAP revenue, a 12-week quarter, was $74.6 million, and excluding NeuCo revenue was $72.8 million on a non-GAAP basis. Our Q3 GAAP revenue, a 16-week quarter, was $89.3 million and $86.3 million on a non-GAAP basis excluding NeuCo.

On a normalized basis, we registered sequential growth on a non-GAAP basis of about $8 million. The principal factors driving our strong Q3 revenue performance were the uptick in business management; in business within the Management Consulting area, particularly GIC, our Global Industrial Consulting practice, and energy; and the addition of Marakon; a strong contribution from our Life Sciences practice, as well as the revenue that was deferred from earlier in the year.

A good deal of the recent revenue improvement occurred outside the United States, resulting in our international revenue growing to 31% of our total revenue for the quarter and 26% for the full year as compared to 22% for both the fourth quarter of 2008 and the full fiscal year of 2008. Our increased international revenue reflected improved performance in Europe and the Middle East region and included a positive contribution for Marakon.

As a result of improved profitability, our tax rates for both the quarter and full year reflect significant improvements. Our non-GAAP tax rate for the quarter was 39.8% compared to 41.5% for Q4 of 2008. For the full fiscal year 2009, our tax rate was 43.2% on a non-GAAP basis compared to a 2008 tax rate of 50.2%. Our goal is to repeat the gains in profitability outside the US in fiscal 2010. This would result in an effective tax rate for 2010 similar to our 2009 full-year non-GAAP rate.

Some other key metrics and factors you may want to consider in assessing our performance in the coming year is as follows. One, we reported our utilization was 66% for the quarter and 69% for the full year of 2009, which was below both our historical levels and our current goal of achieving full-year utilization in the low to mid 70s.

As we have indicated in past calls, our quarterly utilization performance has typically reflected a distinct seasonal pattern. The first and third quarters are generally lower than the second and fourth quarters. Two, we ended the year with consulting headcount of 586, of whom 449 are senior staff and 137 are junior staff. We continue to hire rainmakers to generate business, but we do not anticipate any major growth in overall hiring levels until utilization improves.

Three, our net revenue per consultant was $501,000 for fiscal 2009, down from $534,000 for fiscal 2008. The 6% decrease was due to lower utilization for the year and to some degree an adverse exchange rate effect.

With the modest rate increase we have put in place for fiscal 2009 and if we are successful in accomplishing the full-year utilization goal I mentioned, our revenue per consultant would be similar to the level we attained in 2008.

As noted in the detailed CFO report that was posted on our website this morning, we are required to adopt a new accounting standard that applies to our convertible bonds effective in the first quarter of fiscal 2010. The impact will be to increase our non-cash interest expense by approximately $1.4 million in fiscal 2010. I hope these factors are helpful in better understanding and assessing our Company going forward.

That concludes my financial remarks. With that, I will turn it back over to Paul for his concluding comments. Paul?

Thank you, Wayne. I know we have covered a lot of ground this morning. We thought it was important to lay out our vision as we enter fiscal 2010 and give you the opportunity to hear about our Middle East activities.

And with that, I will ask Jackie to open the call for questions. Jackie?

(Operator Instructions). Joseph Foresi, Janney Montgomery Scott.

My first question here is, I wonder if you can give us a little bit more insight into what is going on in the legal environment. I know that you talked a little bit in some of the prepared remarks. But it seems like you are cautiously optimistic. Why are cases stalling? Are they starting to pick up, and maybe any thoughts you have had heading into 2010 on the timing of a rebound?

Yes, what we have noticed is an increase in activity. And by activity we are referring to calls coming in, new contracts being signed with these various clients. But with respect to realizing revenue on these new engagements and engagements that have been stalled now for the past year or so, it has really been sort of ebbs and flows here. So I would not say that I think there is a permanent uptick that we have observed. But the fact that we are seeing just more activity and our clients starting to line up their experts is a positive sign.

So is it that the pipeline is getting stronger or some of the cases that were stalled out are starting to continue?

It is more that the pipeline is getting stronger. We still see the cases that are stalled out are still progressing slowly.

And just one last question on that. So maybe you can give us some color as to why they have not picked up at all and when you might expect them to pick up?

The question as to why they have not picked up yet, I still think it is a tough economy, not just for consulting firms but for all companies. People are being very prudent with their expenditures. Many of our clients are trying to litigate these as much as they can through various legal submissions and thus delaying the use of economic consultants in the process. Our hope is that litigation is discretionary only for a period of time. Eventually the court dockets will start coming due, and these cases have to progress. What we can note, even though there has not necessarily been an uptick in filings in 2009, the court dockets are definitely getting backed up.

And just my second and final question, you talked about a low 70s, maybe mid-70s utilization rate. What is baked into that assumption that you can get there? What would need -- what would get you to the low 70s and what would get you to the mid-70s as far as a rebound in spending in any particular area that you're looking to improve the utilization?

We would like to see our Management Consulting continue on the trend that it had during the second half of 2009. There are a lot of positive signs there. And on litigation we would like to start approaching some historical run rates there, having some of these large cases come to fruition during 2010. The big -- the larger uncertainty for me right now is when these larger cases will come to fruition.

Tim McHugh, William Blair & Co.

First, I wanted to ask about the pickup in the Middle East and the contracts finally being signed. I just want to make sure I understand it correctly. Was there -- the revenue that had been deferred into the third quarter, was there a catchup there that you recognized revenue and so the revenue is unusually high, if you will, this quarter? Or is it just that the work finally started and you were able to recognize normal amounts of revenue from those contracts?

It is actually a little bit of both there. Work has definitely picked up during -- from the second quarter on in the Middle East, all the way through the fourth quarter. As we mentioned during our third quarter, there was a delay in finalizing some contracts, which prohibited us from recognizing revenue. On a net basis during Q3, we were able to realize approximately $3 million of revenue that we could not recognize in prior quarters.

To give a little context to that, in our line of business, there are always contract delays in trying to get those finalized and always a little bit of delays in recognizing the revenue. That usually bounces up and down about $1 million or so. So the $3 million was a little larger than average due to the delay that we mentioned in Q3.

Okay. And then can you touch on in Wayne's prepared remarks on the website, you mentioned reimbursables being higher than normal. Was that an unusually high number, or can we get that number, I guess, as well?

It was higher than usual, Tim. We expect that number would normally be down in the low to mid teens, and it slid more up around the 15% or 16% range. So it obviously affects margins, and I think that was the nature of the comment that I put in the comments you are referring to.

Okay. And then given where we sit in the calendar year right now, you have been past the sometimes difficult Christmas and New Year's vacation period. Can you give us any sense for was it a normal seasonal pattern you described there? Is there anything unusual we should be prepared for as we model forward? Have people taken more vacations? I know you saw that in August a little bit.

Well, what I said I'm sure you heard it a couple of minutes ago on this call, is that the pattern that we have historically experienced where Q1 and then Q3 to some degree is typically lower in utilization percentage than Qs 2 and 4. I think our basic expectation is that that pattern, which has been there for a long time, will probably continue to be part of the cycle we have here at the Company.

But I can look at the historical pattern. That is a fair representation of what you probably saw?

Yes, over a period of time, you may look at a given year like 2009, that the pattern may be slightly different. But I think in general what I said, Q1 and then Q3 to some degree being lower than the other quarters is typically the case.

I know you are trying, Tim, but I cannot give you specifics about Q1.

Alright, I appreciate that. And then lastly, can you touch on uses of cash? Obviously you are building up some cash here. I know there are some bonus payments that are reflected in there that will be paid out of that cash balance. But maybe what is left over after those bonus payments, and then how are you thinking about uses of cash at this point?

Well, there's a couple of things. The cash balance -- we will be paying bonuses probably it will slide into -- a piece of it is in Q1, the period, the quarter we are in now, but most of it will be in Q2. And so that will certainly have the impact of bringing the cash balance down, although we don't expect it is going to change the picture, and we will continue to generate cash from operations absent the payment of the bonuses. So we intend and expect to continue to be in a positive cash generation over the full year certainly, and we will be making bonus payments, as I said. A piece of it has been made here in Q1. Most of it will be in Q2.

Okay. And then can you just clarify actually, the cash balance, did you take the $10 million that was in an escrow account from the earnout payments that you won't be paying probably now? Is that back in that cash balance or --?

No, it is not.

(Operator Instructions). James Janesky, Stifel Nicolaus & Co.

Paul, that $3 million in the Middle East that was recognized from prior quarters that you classified as abnormal, is that one-time in nature, or could we expect that there will still be some business that shifted forward?

The way I would look at it is that the $3 million is more of a timing item. It properly belongs in the full fiscal year of 2009. It may have slid a bit in terms of where within the year it fit, but it belongs in 2009. But I think in terms of what we accomplished for the full year it does not distort it. I think we felt we needed to make it clear that Q4 had the impact of it in there, but the full year we think is a good representation.

But my question is, is this something that is one-time in nature on a fiscal basis, or is it something that could potentially recur in 2010, or are we going to just be building on any momentum that you have?

I'm going to try to answer the question. I'm not quite sure I'm going to get to the point you are going after here. We typically do not see a reversal of our unrecognized revenue to that magnitude. As I said, we usually balance plus or minus $1 million quarter to quarter. The contract and the consulting activity from which that $3 million comes from, we do not believe is a one-time occurrence. This is from long-standing relationships we have with our clients, and we continued those relationships and consulting activities to continue into the future.

Okay. Is the margins -- the gross margins in the quarter came in much lower than I expected. You already commented on reimbursables. Was it also a business mix between Management Consulting and litigation? And specifically can you comment on your Middle Eastern margins versus the entire company?

Jim, we have not disclosed margins by region, and we have not and don't do segment reporting for a number of reasons, which is that so many of our activities cross practices, regions and so forth. And so we have not done that, and we are not going to be doing that today.

I think your broader question on margins between the consulting and the rest of our practice, they can vary somewhat in a given quarter. There are different profiles in the business consulting versus the litigation practices. But in general they approach each other with small differences in utilization can be quite close.

Then what is the reason behind the quarter having the lowest margins of the year, even the August quarter which has vacations in it?

It is driven by two things. One, the lower utilization in Q4 was certainly a factor in it. And then secondly, the reimbursable expenses in the quarter were a factor in it as well.

Okay.

Which reimbursable expense is not having much in the way of margin, if any margin in them, but they are included in revenue.

And state unemployment taxes, there are -- virtually every state is going to enact an increase. Some are going to be more significant than others. What are your expectations on the margin profile for that?

We don't expect that is going to be a major factor in what our margins will be.

Okay. Turnover trends, have you seen anything abnormal in the fourth quarter moving into 2010?

No, just to comment a little bit on our turnover at CRA. There are two things I just want to highlight. One, as you know, we have done some restructuring over the last few years. So I would classify that as sort of involuntary turnover. And second, a large portion of our consulting staff, namely our analysts and associates, go back to graduate school every year. If I adjust for those two factors, the turnover is still south of 10% on a Companywide basis and has been pretty steady at that level for a period of time now.

Okay. Thanks. Wayne, what was the organic growth rate in the quarter or organic in a year-over-year decline?

Well, the one item we have is the Marakon acquisition we did. We are happy with the way Marakon came out. It is tracking along with our plan. But we have not disclosed what the revenues solely associated with that are for a couple of reasons.

One is which there is a fair amount of collaboration that goes on between the new Marakon folks we have and our other practices. And so trying to score one practice or give credit to one for the other, we've concluded the better to do is to not to try to do so. But clearly that contributed to our revenue growth this year, the addition of Marakon.

Tim McHugh, William Blair & Co.

I just wanted to follow up with one or two questions. You mentioned as part of what you were describing the revenue per head could get back to 2008. You mentioned a slight bill rate increase. Can you talk again about the pricing environment as you're seeing it and what type of bill rate increase did you put in for 2010?

Bill rate increase is approximately 3%. Now that is the reported build rate increase. You know, time will tell on how much of that increase is fixed in the marketplace. Clients are very price sensitive, demanding value for all the services rendered, and rates always come into that equation.

Okay. And then, Wayne, can you also tell me -- I just wanted to make sure I understood your tax comments correctly. Were you saying -- so your goal is to mimic the 43% non-GAAP tax rate in 2010?

Yes, correct.

Joseph Foresi, Janney Montgomery Scott.

Just one last follow-up on the litigation stuff. You had talked about -- is there any way to characterize some of the cases that are stalled out? Do they fall into one particular category, or is it across the board?

It really is across the board. I can tell you that, gee, all the cases that are stalled out exist in our competition practice or our finance practice. Every one of our litigation and regulatory practices has a situation like what I described. So I mean that is sort of good and bad news, the fact that we're still getting retained on these large-scale engagements, but it is also frustrating to our consultants with respect to the delays.

And do you think that any of the cases get forced after a particular time period? I'm just trying to get a general sense, is it six months, is it 12 months, or can it vary so much that you would not even bother to try and peg it?

Yes, it is much more the latter. I wish I can tag it. It would make our life a lot easier, but I have not done that well in trying to handicap this.

Thank you. At this time we have reached the end of the Q&A session. I will now turn the conference back over to Mr. Paul Maleh for any closing or additional remarks.

I just want to thank everyone for their participation today. Hopefully the new format was informative and provided some more information, and we look forward to speaking with you again on our first-quarter conference call.

With that, this concludes today's call.

And that concludes our conference call. Thank you for joining us today.