CRA International, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter ended July 2, 2022, with year-to-date results compared with the period ended July 3, 2021. The request metadata says “2021 Q2,” but the filing itself covers fiscal 2022 Q2.
Business context and results
CRA provides litigation, regulatory, financial and management consulting services and reports as one business segment. Quarter revenue was nearly flat: higher utilization and consultant headcount were offset by a lower share of fixed-price work. The Welch Consulting acquisition added 37 consultants.
| Metric | Fiscal Q2 2022 | Fiscal Q2 2021 | Year to date 2022 | Year to date 2021 |
|---|---|---|---|---|
| Revenue | $149.1m | $148.2m | $297.5m | $294.8m |
| Operating income | $15.0m | $15.9m | $30.5m | $30.6m |
| Operating margin | 10.1% | 10.8% | 10.3% | 10.4% |
| Net income | $11.6m | $11.6m | $23.1m | $22.1m |
| Diluted EPS | $1.57 | $1.53 | $3.09 | $2.86 |
| Net cash used in operating activities | — | $(78.8)m | $(36.2)m |
Financial position, cash flow and material changes
- Quarter revenue increased 0.6%; year-to-date revenue increased 0.9%. Time-and-materials revenue rose while fixed-price revenue fell: fixed-price work was 18% of Q2 revenue versus 24% a year earlier, and 19% year to date versus 24%.
- Q2 costs of services fell 1.9%, improving that cost ratio to 69.1% from 70.9%. However, SG&A rose 16.3% to $28.0m, including higher travel, compensation, rent and professional fees. Year-to-date SG&A increased 13.8% to $53.8m. The higher expense ratio offset much of the cost-of-services improvement.
- Foreign-currency gains contributed $1.7m in Q2 and $1.9m year to date, compared with a small gain in Q2 2021 and a $0.5m loss year to date in 2021. Foreign-currency translation reduced Q2 comprehensive income by $3.9m.
- Cash and equivalents were $15.6m at July 2, down $50.5m from fiscal year-end. Operating cash outflow was driven largely by bonus and other liability payments, growth in receivables and unbilled services, and forgivable-loan advances. Investing outflow was $12.3m, including $10.2m net acquisition consideration and $2.1m capital expenditures.
- Working capital was $18.6m, down $17.6m from fiscal year-end. Accounts receivable and unbilled services totaled $199.7m.
- CRA had $70.0m drawn on its $175.0m revolving facility and $4.4m of letters of credit outstanding. The facility matures October 24, 2022; the company reported covenant compliance. Operating lease liabilities totaled $130.0m.
- Share repurchases were $22.6m year to date and cash dividends were $4.6m. The quarterly dividend was $0.31 per share; the board declared another $0.31 dividend after quarter-end.
Outlook, risks and unusual items
- Management said cash, operating cash flows and facility availability through maturity should fund anticipated working-capital and capital needs for at least 12 months. This assessment excludes unexpected significant spending and future acquisitions; the near-term facility maturity makes repayment or refinancing an important consideration.
- No specific revenue or earnings guidance was provided. Management expects regular quarterly dividends and stated it expects to continue repurchases, subject to board discretion and available resources.
- Welch Consulting was acquired in February 2022. Preliminary purchase-price allocation included $2.4m goodwill and $4.2m customer-relationship intangibles; CRA had paid $10.2m net by quarter-end and issued $7.9m of forgivable loans to key personnel. Purchase accounting remains subject to finalization.
- Management said inflation had not materially affected results to date, while noting future effects cannot be assured. It reported no material changes to the risk factors from the prior annual filing and no pending legal proceedings reported in this 10-Q. Management concluded disclosure controls were effective.
Important facts for investors to verify
- How CRA planned to address the $70.0m revolver balance at its October 24, 2022 maturity, and whether liquidity assumptions depended on refinancing or repayment.
- Whether cash conversion improves as receivables, unbilled services and accrued compensation normalize after the period’s substantial operating cash outflow.
- Whether higher SG&A and lower fixed-price revenue persist, and how utilization, hiring and consultant retention affect margins.
- Final Welch Consulting purchase accounting, integration results and the ongoing compensation cost associated with its forgivable loans and other arrangements.
- Potential effects of foreign exchange, tax-rate changes, incentive compensation and repurchases on reported earnings and cash needs.