CRA International, Inc. — Q1 Fiscal 2023 Form 10-Q
Reporting period: Fiscal quarter ended April 1, 2023, compared with the quarter ended April 2, 2022. CRA provides litigation, regulatory, financial, and management consulting services and reports as one business segment.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $152.8 million | $148.4 million | Up 3.0% |
| Operating income | $13.7 million | $15.5 million | Down 11.8% |
| Operating margin | 9.0% | 10.5% | Down 1.5 percentage points |
| Net income | $8.9 million | $11.4 million | Down 22.0% |
| Diluted EPS | $1.23 | $1.52 | Down 19.1% |
| Cash and cash equivalents | $35.5 million | $31.4 million at Dec. 31, 2022 | Up $4.1 million |
| Operating cash flow | $(70.1) million | $(61.8) million | Greater cash use |
Costs of services rose 3.6% to $107.8 million, or 70.6% of revenue versus 70.1%. SG&A increased 9.9% to $28.4 million, or 18.6% of revenue versus 17.4%. Net interest expense was $0.6 million versus $0.2 million; foreign currency losses were $0.5 million versus gains of $0.2 million. The effective tax rate increased to 29.2% from 26.4%.
Consultant headcount grew 10.7% to 972, while utilization fell to 70% from 74%. Time-and-materials revenue increased to $126.1 million from $119.6 million; fixed-price revenue declined to $26.8 million from $28.8 million. Revenue outside the U.S. represented approximately 23% of net revenue, compared with 21%.
Financial position, debt, and liquidity
At April 1, 2023, total assets were $562.1 million and shareholders’ equity was $196.8 million. Working capital was $4.5 million, down $27.2 million during the quarter. Current liabilities included $100.0 million drawn on the revolving credit facility; there was no facility borrowing at year-end 2022. The $250.0 million facility had $5.7 million of letters of credit outstanding, leaving approximately $144.3 million available, subject to facility terms.
Operating cash use reflected the timing of payments, especially payment of a significant portion of fiscal 2022 performance bonuses and awards, which contributed to a $73.2 million decrease in accounts payable, accrued expenses, and other liabilities. Financing provided $74.8 million, including net revolver borrowings of $100.0 million; CRA also repurchased $20.6 million of stock and paid $2.7 million in dividends. Investing used $1.1 million, including capital expenditures and acquisition-related payments.
Management stated that cash, operating cash generation, and available revolver capacity should cover anticipated working capital and capital expenditure needs for at least 12 months. CRA was in compliance with its credit-agreement covenants at quarter-end. The facility requires a maximum net leverage ratio of 3.0 to 1 and minimum interest coverage of 2.5 to 1.
Changes, outlook, and risks
- Revenue grew modestly, but lower utilization and increased compensation, forgivable-loan amortization, travel, and other SG&A costs pressured operating and net margins.
- Share repurchases totaled 180,881 shares at an average $113.76 per share. The company expanded its repurchase authorization by $20.0 million in March and had approximately $22.3 million remaining at quarter-end. The quarterly dividend was $0.36 per share; a subsequent $0.36 dividend was declared May 4, 2023.
- CRA issued $16.8 million of forgivable loans during the quarter; the total carrying value was $66.5 million. These loans are generally forgiven over two to six years if recipients meet continuing service and contractual conditions.
- Management reported no material inflation impact to date, while cautioning that future effects are possible. It provided no specific revenue or earnings guidance in this filing.
- Risks include hiring and retaining professionals, utilization and project demand, client payment and contract-estimate uncertainty, foreign exchange, acquisition and financing needs, and compliance with debt covenants. Management reported no material changes to previously disclosed risk factors, no material market-risk changes, and no pending legal proceedings identified in Part II; ordinary-course legal matters are discussed in the notes.
- The U.K. statutory tax rate rose from 19% to 25% effective April 1, 2023; CRA cited this, reduced share-based compensation tax benefits, and less favorable meal deductions as reasons for the higher quarterly effective tax rate.
Investor verification points
- Assess whether headcount growth can translate into improved utilization and revenue without further margin pressure.
- Review the seasonality and timing of bonus payments and working-capital movements when evaluating negative quarterly operating cash flow.
- Monitor revolver borrowings, interest costs, covenant headroom, and cash availability against repurchases, dividends, and acquisition plans.
- Track forgivable-loan advances and amortization as a component of compensation costs and employee-retention strategy.
- Verify whether the higher tax rate and foreign-currency effects persist in subsequent quarters.