Q4 2022 CRA International Inc Earnings Call

Participants

Chad Holmes; Executive VP & Chief Corporate Development Officer; CRA International, Inc.

Daniel K. Mahoney; CFO, Executive VP & Treasurer; CRA International, Inc.

Paul A. Maleh; Chairman, President & CEO; CRA International, Inc.

Daniel Joseph Maxwell; Research Analyst; William Blair & Company L.L.C., Research Division

Kevin Mark Steinke; MD; Barrington Research Associates, Inc., Research Division

Marc Frye Riddick; Business and Consumer Services Analyst; Sidoti & Company, LLC

Presentation

Operator

Good day, everyone, and welcome to Charles River Associates Fourth Quarter and Fiscal Year 2022 Conference Call. Please note that today's call is being recorded. The company's earnings release and prepared remarks from CRA's Chief Financial Officer 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 Maleh, Chief Financial Officer, Dan Mahoney; and Chief Corporate Development Officer, Chad Holmes.
At this time, I'd like to turn the call over to Mr. Mahoney for his opening remarks. Dan, please go ahead.

Daniel K. Mahoney

Thank you, Rob, and good morning, 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 21 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 any forward-looking statements after the date of this call.
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?

Paul A. Maleh

Thanks, Dan, and good morning, everyone. Thank you for joining us today. CRA once again set financial highs as fiscal 2022 topped to record-setting fiscal 2021. Revenue increased by 4.4% to $590.9 million. This marked the fifth consecutive year in which CRA established a new record for annual revenue. Over this 5-year period of time as revenue increased by 60%, we expanded non-GAAP EBITDA, net income and earnings per diluted share by 120%, 167% and 211%, respectively. Capitalizing on the revenue growth in fiscal 2022, CRA posted record profits for the year with non-GAAP net income, earnings per diluted share and EBITDA, each growing faster than revenue.
We achieved this performance despite strong currency headwinds associated with the U.S. dollar that shaved $12.6 million or 2.2% year-over-year growth, from our reported revenue on a constant currency basis. CRA's revenue growth for fiscal 2022 was balanced geographically as our North American operations increased by 4% and international operations grew by 5%. Our expansion was led by legal and regulatory services, which grew by 8% year-over-year. Eight of CRA's practices grew their top line with 4 practices, Antitrust & Competition Economics, Intellectual Property, Labor & Employment and Risk, Investigations & Analytics delivering double-digit revenue growth in fiscal 2022.
For the fourth quarter, we continue to see broad-based strength across our portfolio. Reported revenue increased 7.6% compared with the fourth quarter of fiscal 2021. Currency headwinds reduced revenue by $4.4 million or 3.3% year-over-year growth on a constant currency basis. Geographically, we saw balanced contributions from our North American and international operations, which grew fourth quarter revenue year-over-year by 8.2% and 5.4%, respectively.
Leading the way with double-digit revenue growth in the fourth quarter were 6 practices: Auctions & Competitive Bidding, Finance, Financial Economics, Intellectual Property, Labor & Employment and Risk, Investigations & Analytics. In addition, our Antitrust & Competition Economics and Life Sciences Practices also expanded revenue year-over-year, which is impressive given the strong currency headwinds that CRA's largest global practices face during the fourth quarter.
I would now like to spend a few minutes highlighting some of the services provided during the fourth quarter. Approximately 1/5 of CRA's revenue in a given quarter is linked to M&A activity, principally arising from our Antitrust and Competition Economics practice. Worldwide M&A activity totaled $3.6 trillion in 2022, a decrease of 37% compared to 2021 and the largest year-over-year percentage decline since 2001. That decline was particularly acute in the second half of the year.
Transaction activity declined 33% in the second half of 2022 compared to the first half, representing the largest second half percentage drop since records began in 1980. Amid this backdrop, our Antitrust & Competition Economics practice experienced a slowdown in lead flow of merger-related opportunities in the fourth quarter of 2022 relative to a year ago. Yet in aggregate, the practice saw overall project lead flow growth, including both merger-related and nonmerger-related opportunities, expanded by more than 15% in the fourth quarter relative to a year ago, partially fueling the practices increase in revenue year-over-year.
During the fourth quarter, CRA's Antitrust & Competition Economics Practice worked on transactions across a range of industries and geographies. For example, a CRA team supported the merging parties in the acquisition of lease plan by ALD, a subsidiary of Societe Generale. The deal involved overlaps in vehicle leasing industry and associated leasing services in 25 effective countries. The CRA team of economists prepared analysis of competition in vehicle leasing across the affected countries in support of merger control filings and remedy preparation.
Following the market test of the proposed remedies, the European Commission concluded that the transaction would no longer raise competition concerns. This decision followed previous unconditional clearance by several national competition authorities, including the U.K.'s Competition and Market Authority and the Mexican Competition Authority. In addition to their merger review work, CRA's Antitrust & Competition Economics practice continued to support clients and legal disputes during the fourth quarter, CRA experts prepared and delivered expert reports and testimony and antitrust class actions and in international disputes that highlight the intersection of intellectual property and antitrust issues. Looking more broadly, revenue from CRA's legal and regulatory services during the fourth quarter increased 12% year-over-year despite mixed trends in the legal market.
Within the broader legal market, total case filings, during the fourth quarter of 2022, were up 3% year-over-year. Within the courtroom, the number of total court judgments during the fourth quarter was down 6% relative to the fourth quarter of 2021. The finance practice was active in all of its core areas during the fourth quarter, specifically, the practice was engaged in various insurance matters including numerous matters related to the lapse provision of the State of California's insurance code. The practice also continued its work on matters related to alleged spoofing in certain financial markets as well as various international matters, including international arbitrations and securities fraud matters with assets or disputes in Europe and Latin America.
A significant portion of the work from the financial economics practice during the fourth quarter involved assisting multiple mortgage lenders and their responses to regulatory investigations into suspected red lining. Equal access to credit is a major policy focus of federal consumer financial protection regulators and CRA assisted clients by performing extensive analysis of their geographic lending patterns and benchmarking them against other lenders in the market. The team also assisted the client's legal counsel in formulating responses to the regulators' inquiries. The intellectual property practice advised on multiple high-stakes litigation, arbitration and valuation matters during the quarter.
In a patent-infringement matter, CRA was retained by the federal government and 2 of its contractors to evaluate damages arising from the alleged infringement of patented technology related to the alignment of images from soldier's night vision goggles with thermal images from their weapon sites. CRA reviewed extensive evidence and prepared analysis that demonstrates the plaintiffs claim damages significantly exceeded the value of the technological innovations allegedly distributed by the patents-in-suit. The Intellectual Property practice also consulted on economic issues and multiple investigations at the U.S. International Trade Commission and provided expert testimony in an ITC hearing involving floor cleaning devices.
CRA's Labor & Employment practice was engaged during the quarter across a variety of industries, including finance, health care, legal and technology to help clients navigate annual performance and compensation decisions. CRA's work assist clients in their efforts to promote internal equity among employee groups. The practice continues to be a critical partner for clients entering mediation on various lawsuits arising from California's wage and hour laws and the Federal Fair Labor Standards Act.
CRA's deep expertise and employment matters led to multiple experts being retained on actions brought by individuals, classes or collectives and the Equal Employment Opportunity Commission. For example, on behalf of an academic medical center, alleged to have violated the Age Discrimination and Employment Act and the Americans with Disability Act, CRA was retained to provide economic and statistical analysis of the center's policies.
The Risk, Investigations & Analytics practice continues to focus on executing matters, multidisciplinary, investigative and analytic assignments. During the fourth quarter, a team of forensic accounting, investigative and analytic professionals continued work on a fraud in the financial services industry related to asset misappropriation of hundreds of millions of dollars that stretched across multiple international jurisdictions over several years. The team reviewed and analyzed hundreds of thousands of financial records, e-mails and other supporting documentation, undertook a flow of funds analysis and prepared a factual report.
Within our management consulting offering, the auctions and competitive bidding practice during the fourth quarter, managed 13 global dairy trade events, 6 natural fiber exchangeable auctions and 5 electricity procurement auctions for clients in Ohio and Pennsylvania. In the fourth quarter, our dairy trade marketplace achieved the milestone of transacting more than $33 billion cumulatively and over 300 trading events since the GDT marketplace was established. Additionally, the team managed request for proposal, processes for a range of electric utility clients in the United States.
CRA's electric utility RFPs support the development of over 3 gigawatts of generating capacity, including renewable resources, energy storage and thermal resources. Commercialization and product launch strategy remain the mainstay of our strategy consulting work in CRA's Life Sciences practice. In the last quarter, we continued our client work in the expanding area of oncology. But we also were active across other therapeutic categories. For example, our Life Sciences practice has been working with a pharmaceutical manufacturer on the pricing and market access for a new antifungal drug. We are building our strategic recommendations on a foundation of market research with hospitals, physicians and health plans, analysis of patient and physician level data and econometric modeling.
In addition to the practices important work, I'm also extremely excited by the announcement we made in late November regarding CRA's acquisition of bioStrategies Group. Our 17 new colleagues from bioStrategies are focused on developing commercial strategies for health care products and technologies. Based in Chicago, this group strengthens the geographic map of our Life Sciences practice and better position CRA to serve clients in the Midwest.
On behalf of everyone at CRA, I want to extend a warm well to our new colleagues. Overall, I'm grateful to all my colleagues for their hard work during the fourth quarter and throughout the year as we helped our clients address their most important challenges. Recapping our record financial performance, CRA reported revenue for fiscal 2022 of $590.9 million or $603.5 million on a constant currency basis after adjusting for $12.6 million of currency headwinds. Full year non-GAAP EBITDA was $72.9 million or 75.3% on a constant currency basis after adjusting for $2.4 million of currency headwinds. Non-GAAP EBITDA margin was 12.5% on a constant currency basis.
Our fiscal 2022 performance demonstrates CRA's continued strength in the marketplace. We have invested in new generating talent and increased our consulting headcount. We also continued to replenish our sales pipeline with project lead flow in the fourth quarter, increasing by roughly 17% year-over-year. All of this positions us well for 2023 and beyond as we look to extend our trend of broad-based profitable growth.
Before I provide our financial guidance for fiscal 2023, I want to comment on a refinement to our approach for the coming year that was referenced in this morning's earnings announcement. Since 2016, we have provided financial guidance on a constant currency basis to highlight the operating performance that we as management can control. We believe that this approach provides transparency and comparability when evaluating CRA's reported financial performance.
Reflecting on our investor communications and financial results over the past several years, starting with the first quarter of 2023, we will be modifying our presentation of non-GAAP EBITDA to exclude the nonoperating effects of both gains and losses arising from foreign currencies. Under this revised definition, CRA's non-GAAP EBITDA margin on a constant currency basis was 12.2% for each of fiscal years 2021 and 2022.
With this as a backdrop for full year fiscal 2023 on a constant currency basis relative to fiscal 2022, we expect revenue in the range of $615 million to $640 million and non-GAAP EBITDA margin in the range of 10.8% to 11.5%. While we are pleased with CRA's strong performance in 2022, we remain mindful that short-term challenges arising from uncertainties around macroeconomic, business, public health and political conditions can affect our business. With that, I'll turn the call over to Chad and then Dan for a few additional comments. Chad?

Chad Holmes

Thanks, Paul. Hello, everyone. I want to update you on our capital deployment initiatives during the quarter. During the quarter, we repaid $45 million of our borrowings under our revolving line of credit to bring our year-end outstanding debt to 0 as we have done in prior years. Our cash balance increased during the quarter by $7.4 million to end the year at $31.4 million. The fourth quarter of 2022 saw cash outlays of $9.5 million for forgivable loans in connection with talent investments. We also spent $800,000 on capital expenditures bringing the full year amount to $3.8 million.
For fiscal 2023, we expect to spend $7 million to $8 million on capital expenditures with the year-over-year increase primarily related to expenditures on real estate. We paid $2.7 million of dividends to our shareholders during the fourth quarter. For the full year, we returned a total of $37.2 million to our shareholders through a combination of share repurchases and quarterly dividends. This represents 62% of CRA's 2022 adjusted net cash flows from operations and exceeds our previously stated aim of returning half of our adjusted cash flows from operations to shareholders.
As announced earlier today, CRA's Board of Directors authorized an expansion to our existing share repurchase program of an additional $20 million in value of shares of common stock. With this expansion, we have approximately $42.9 million available under our share repurchase program. Taken together, our capital allocation decisions in fiscal 2022 demonstrate continued confidence in CRA's long-term outlook as we look to invest in the business for profitable growth while simultaneously returning meaningful capital to our shareholders.
With that, I'll turn the call over to Dan for a few final comments. Dan?

Daniel K. Mahoney

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 fourth quarter of fiscal 2022. In terms of consultant headcount, we ended the year at 939, which consisted of 149 officers, 496 other senior staff and 294 junior staff. This represents a 9.1% increase compared with the 861 consultant headcount reported at the end of fiscal 2021. Non-GAAP selling, general and administrative expenses, excluding the 2.6% attributable to commissions to nonemployee experts was 16.7% of revenue for the fourth quarter of fiscal 2022 compared with 16.1% a year ago. This quarter's ratio was primarily impacted by an increase in travel and entertainment expenses and higher other operating expenses, including professional services fees.
For the full year fiscal 2022, the ratio was 15.5% compared with 14.2% for full year fiscal 2021. The effective tax rate for the fourth quarter of fiscal 2022 on a non-GAAP basis was 22.2% compared with 27.4% on a non-GAAP basis for the fourth quarter of fiscal 2021. The lower rate in the fourth quarter of 2022 was largely attributable to a higher benefit arising from the accounting for stock-based compensation.
Turning to the balance sheet. DSO at the end of the fourth quarter was 114 days compared with 123 days at the end of the third quarter of fiscal 2022. DSO in the fourth quarter consisted of 82 days of billed and 32 days of unbilled. We concluded the fourth quarter of fiscal 2022 with $31.4 million in cash and cash equivalents and a further $195.6 million of available capacity on our line of credit for a total liquidity of $227 million.
That concludes our prepared remarks. We will now open the call for questions. Rob, please go ahead.

Question and Answer Session

Operator

(Operator Instructions)
Our first question comes from Andrew Nicholas with William Blair.

Daniel Joseph Maxwell

This is Daniel Maxwell on for Andrew today. Just to kick things off, I was wondering if you could give a little detail on how you're thinking about headcount growth in '23 after strong growth in '22? And any detail you can give on what practices that might be concentrated in as well as any breakdown you can give between experience versus university hiring?

Paul A. Maleh

Sure. This is Paul. So I'll take a path at the headcount projection. Right now, we ended the year close to about a 10% year-over-year growth on headcount. And what we're going to try to do as the year goes on is try our best to match the supply of labor and the demand for our services. There are some portions of headcount that have already -- decisions have already been made starting in the fall of 2022 that will be joining us this summer. Those are the university hires that you referenced on that.
But in terms of an exact year-end number, really depends on the broader market that we're seeing and the rate of replacements that we undertake to offset any kind of attrition in the firm. But we're starting at a good place of strength, a lot of labor to deliver those services. And hopefully, we could continue to grow that head count. In any year, particularly absent that, if any large acquisition, the majority of the hires that we do at CRA come via the university route. Lateral hires are typically oriented towards senior level revenue-generating individuals. So the majority of hires are going to be coming via University, Daniel.
And with respect to the practices, now I realized I didn't finish my answer for you. The majority of the hires are going to come across our top 4 practices, that being Antitrust Competition Economics, Life Sciences, Forensic and Finance, as those 4 practices make up roughly 80% of the firm's revenue. The rest of the firm will be roughly proportional to their contribution to that revenue line.

Daniel Joseph Maxwell

Great. That's helpful. And for my follow-up. Just wondering if you can comment broadly on the macro assumptions that are baked into guidance maybe on the high and low end of the guidance range and any flow-through impact you expect from those in terms of upside or downside to margin estimates?

Paul A. Maleh

Sure. I don't think I would be the only 1 who voices uncertainty with respect to how to read our macroeconomic factors. It's sort of like with the weather here in New England, just wait a few minutes, and it will change. So right now, all I can observe are the larger factors hitting CRA and how CRA has responded to date. To date, we have been pretty resilient with different practices, stepping forward during different periods of time. So that portfolio seems to have weathered the volatility, I won't say a downturn.
With respect to -- I know a lot of people always ask about M&A activity. Our M&A revenue still remains relatively strong, particularly given the broader market statistics that we cited earlier. The one thing that I'm not expecting to change is that of the general regulatory environment. Regulators here in the United States and abroad are cracking down across various market sectors, whether it is in antitrust enforcement and technology or antitrust enforcement and the financial services sector. That doesn't seem to be changing, and we are clearly benefiting from that continued rise of demand there.
So we're keeping our eye on all the factors. I'm happy with the way the firm has performed to date. Lead flow into the first couple of months of fiscal '23 also continues that general trend that we've been enjoying. So more to come on that in that area, Daniel.

Operator

Our next question is from Marc Riddick with Sidoti & Company.

Marc Frye Riddick

So I wanted to go over just a couple of areas that sort of jumped out at me, the pickup of head count, which certainly kind of sort of indicates some positive views on the trends that you're talking about. I was sort of thinking about the -- for a lot of the folks that we cover, the acquisition of talent is a major challenge. And so I was wondering maybe you could talk a little bit about the -- maybe the pricing inflation or how we should think about -- I would imagine that it wasn't inexpensive to add this kind of talent, but maybe you could talk a little bit about that environment?

Paul A. Maleh

Sure. I'll give it a shot. You always hire based on what you think the long-term value proposition is of your firm. For firms like CRA, our livelihood is based on hiring the best and brightest individuals at any point in time. And the availability of those individuals varies. So if we have opportunities to enhance our pool of colleagues, we're going to take it. I'm not going to worry too much about any kind of short-term volatility that it may cause on profitability because it is just that, it's short term. We are value-based decision-makers, and thus, we'll continue to take these positive NPV projects.
As we've talked about in past earnings calls, the cost of labor has gone up. We're trying to see where that will shake out given some of the slight softness that has been introduced into the broader labor market. But to date, we've been able to largely mitigate those higher cost of labor through rate increases and the way we deliver our services. By that, I mean, if we're able to deliver our services on a more leveraged manner, thus being more junior professionals relative to senior professionals that also helps to offset the cost pressures.
But as you can see from the profitability in 2022, the margins relative to '21 were identical, and actually '21 -- fiscal '21 and fiscal 2022 margins were higher than we really have ever achieved as a firm. So I think we're doing a pretty good job on that mitigation. Hopefully, the future continues to cooperate.

Marc Frye Riddick

And that actually leads to my next question as far as the commentary, and I appreciate the clarification around currency and how you view that and how that flows into the guide. I was wondering if you could talk a little bit about the margin range that you have in the guide. And maybe this also ties into some of the comments in prepared remarks as far as picking up of travel and entertainment activity and expenses and maybe going out to see -- having to go out to see clients face to face a little bit more having some of that pickup. I was wondering if maybe you could sort of just talk maybe in a broad sense of maybe sort of where that is kind of relative to maybe pre-pandemic levels or kind of where we're heading and maybe what you're seeing there and how that flowed into your setting and expectations for '23?

Paul A. Maleh

Well, let me first answer what I think is a really easy question. You said in terms of pre-pandemic levels. Our margins are markedly higher than they were prior to March 2020. In that we are -- have been enjoying record levels of profitability now consecutively for several years. So what I'm going to try to spend the second half of my answer on is more the forward-looking on it.
If I'm not mistaken, the going in margin in '22 was roughly the same as the margin that we have just provided in for guidance for fiscal 2023. We begin with that largely because of the uncertainty that we have in our marketplace, not just in terms of the demand for our services, but COVID has sort of interfered with our ability to get out, to meet clients, to look -- interact with senior talent. And so that also remains uncertain heading into 2023.
I'm hoping we begin seeing a more stable environment in which we can interact with our clients and prospective recruits. But that is also unknown. With respect to CRA's travel and meals and incidentals, sometimes that could be a driver of SG&A. I don't think we're anywhere near doing too much marketing or client outreach at CRA. So if my colleagues see the opportunity and are willing to go out and seek out these kind of business opportunities, I'm going to gladly support them with higher SG&A levels. So going forward, I'm comfortable with the range. Do I think there's upside opportunity? Yes, as there always is upside opportunity, but it's really roughly in the same position that we have been for the last couple of years.

Marc Frye Riddick

Okay. Great. And then shifting to the use of cash, and it seems as though you're lined up to be fairly consistent with historical practices and returning capital to shareholders with a multipronged approach as well as the announcement of adding to the share repurchase authorization. So I was wondering if you could talk a little bit about the acquisition side of the picture, maybe you can sort of talk to us about maybe what you're seeing there as far as the potential pipeline valuations, if that's changed much since we last spoke or at least maybe in the last 6 months or so?

Paul A. Maleh

Sure. I'll start with a few words, and then I'll going to kick things over to Chad on that front. Our commitment to maximize the long-term value per share of CRA remains strong here at CRA. By no means, am I capital constrained. I am not having to forgo positive NPV projects because of a lack of capital. In fact, I have $200 million of dry powder that I can access at any point in time if the right opportunity presents itself.
So we have been returning substantive capital back to our shareholders, and I see that continuing in the quarters and years ahead. With respect to the talent pipeline, I'm really excited that right now, our funnel has really never been any more robust than it is today. It's just our efforts to select the right talent to join this company. So with that, I'm going to turn it over to Chad, maybe he can provide a little more color in terms of the senior talent pipeline.

Chad Holmes

Thanks, Paul. So as you know and as we talked about in prior calls, we're always looking to add high-quality individuals to the CRA team and have been and continue to be active in the market for talent. We continue to see a strong and consistent flow of high-quality individuals who have been drawn to CRA's track record of strong performance over this extended period of time.
As Paul said, our pipeline is as rich as it's ever been. Regarding valuation, they remain healthy despite what's going on in the broader financial markets. So we have remained disciplined when evaluating opportunities, a strategic cultural fit, business fit remain our primary filters when we assess talent acquisition opportunities. And once we have cleared those hurdles and have identified a good opportunity, we can then consider the financial elements, including valuation, and we're mindful not to overpay.
So we were active last year. You can see that through the outflows that we spent throughout 2022. We were able to make investments across many of our practices, majority probably directed towards the legal and regulatory offering, which is our biggest offering. So it's roughly been proportional.
2023, I would expect a similar pattern. We're going to be active looking for those good opportunities to invest in the business, expand our contour and provide solutions to our clients.

Operator

Our next question is from Kevin Steinke with Barrington Research.

Kevin Mark Steinke

So I wanted to talk a little bit more about the Antitrust & Competition Economics practice, certainly impressive with 15% lead flow growth in the quarter despite you mentioned a slowdown in merger-related leads. Can you just talk about what's driving that lead flow growth? Is it -- I guess you touched on the Antitrust Enforcement. Is that the key driver there? Or are you gaining market share? Or what kind of -- what are some of the factors you'd highlight driving that demand?

Paul A. Maleh

Sure. Kevin. Let me start by saying, when we talk about our competition practice, I sort of do bows of praise to my practices, to my colleagues here in North America and Europe because we're not talking about easy comparables for that practice. They have been setting record levels of performance year after year after year.
So first, when I talk about lead flow in the M&A marketplace, declining for that practice in Q4, take that with a grain of salt, in that they've been at high levels quarter after quarter. So I'm not too worried about us getting our fair share of the M&A activity being contemplated both here in the States and abroad.
Secondly, we've been a go-to provider for company type of investigations being conducted here in the United States and in Europe for the major technology companies, for the major financial institution companies. And we're seeing that similar type of inbounds continuing for the firm. So I'm pretty pleased with that. It's hard to always ascertain the time line of when those leads will turn into projects, turn into revenue. But any time you have a 15% year-over-year growth for a practice of the magnitude of our competition practice, it just speaks to the excellence of those colleagues.

Kevin Mark Steinke

Great. And just more broadly across the firm, again, you mentioned 17% increase in project lead flow overall in the fourth quarter. That's at lease some impressive demand in the face of economic uncertainty. Could you just touch on, I guess, broader any trends or that you'd call out across maybe your top 4 practices or maybe outside of antitrust competition? Or again, is it just feel like it's the quality of your people being able to pull in the business or any other factors you'd point to there driving that demand?

Paul A. Maleh

Sure. The majority of the inbound inquiries during Q4 resides in the legal regulatory arena with the 2 largest practices driving that growth was competition, as we noted, and our Forensic Services practice. So to no surprise, 2 of the largest practices also have the largest contribution to our lead flow there. And it's just been a lot of hard work. Yes, the quality of the individuals are there, but they're getting out there hustling. The uncertainty is always, again, the conversion of those projects to revenue and the timing of it. But I think we've done a pretty good job to date over the medium to long term with bringing those opportunities to fruition.

Kevin Mark Steinke

All right. Great. And in terms of the margin guidance, is that -- do you still feel like the SG&A expenses excluding commissions around, what, 15.5% or so is a reasonable expectation, maybe 15.5% to 16%, somewhere in there. What are you thinking about where that settles out?

Paul A. Maleh

I think that is the range really is around 15.5% to 16% is our steady-state range, variations within that range. It could be because we find unique marketing opportunities we're jumping on, so the expense goes higher or it could be in just some volatility of the revenue quarter-to-quarter that may also drive the percentage higher. But I'm comfortable with SG&A in the range of 15.5% to 16%, not just for 2023, but also beyond. I think that is a sweet spot we're going to try to manage to.

Kevin Mark Steinke

All right. Great. I also wanted to ask about Life Sciences. You mentioned growth in the fourth quarter. And so what's the outlook there? Again, your largest practice on the management consulting side. What does lead flow look like there going into 2023? And I know you did a tuck-in there as well a tuck-in acquisition. But just any more comments on Life Sciences would be helpful.

Paul A. Maleh

Sure. The lead flow was not as robust in Life Sciences as we were talking about that in the legal regulatory arena. But yet positive, there's been no structural changes in the practice. So all the people that delivered our performance in 2022 are here as we begin 2023, and I expect their contributions to continue. And we're just always looking to supplement that. The inclusion of the bioStrategies Group has us really excited, not just for those 17 individuals, but it also gives us an additional geographic home from which to recruit from. So now Chicago becomes a location for us to place top talent.
And the other thing that Chad didn't elaborate on, but in terms of that talent funnel that he was referred to, a lot of that talent is in the Life Sciences area. So we're just trying to work through, make sure they're good fits and make sure they're right for CRA in the long run. No one benefits from us trying to optimize near-term quarters.

Kevin Mark Steinke

Great. That's helpful. And then just lastly, just kind of a numbers-related question, Dan. I don't -- if we wanted to recast the adjusted EBITDA margins historically to exclude the foreign currency gains and losses. I don't know if that's just as easy as excluding those and maintaining the tax rate? Or is it something we'll just have to wait for as the numbers come out to recast the historical quarters?

Daniel K. Mahoney

Yes, Kevin. So it is that simple by just adding back or excluding that FX gain loss line because of the way that if you follow our reconciliations, starting with our non-GAAP net income, which is already accounting for the -- or taking into effect those tax adjustments you're referring to. I would also refer you to our investor deck that we posted this morning. And in the back there, we have a number of reconciliations, which include, on an annual basis, recasted numbers both sets, historical presentation as well as under the new definition. So that's another resource you can look to.

Paul A. Maleh

And this is really -- yes, that adjustment really jumped out at us for Q4 in that when we updated our guidance at the -- during the Q3 earnings call, I had high confidence that we would hit our midpoint range of our profitability guidance on it. And that was with 1 month into the quarter. And the foreign currency impact just grew over those last 2 months, and it just prompted us to make this change for transparency for our shareholders and for comparability quarter-over-quarter. But for that foreign exchange, the quarter was pretty much exactly in line with our expectations for the quarter and for the year.

Kevin Mark Steinke

Great. Yes, that's helpful. And I agree. It definitely, I think, makes a lot of sense to exclude that going forward. And certainly, the bottom line looked better when you exclude that volatile items. So appreciate that color.

Paul A. Maleh

Thank you, Kevin, and thanks to everyone for joining us today. We appreciate your time and interest in CRA. We'll be participating in virtual meetings with investors in the coming weeks and months, and we look forward to updating you on our progress on our first quarter call. With that, that concludes today's call. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.