CRA International, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2022 Q2, but the supplied filing is for the fiscal quarter ended July 1, 2023, with comparisons to July 2, 2022. This summary covers the filing provided.
Business context and reporting period
CRA is a global consulting firm operating as Charles River Associates, providing litigation, regulatory and financial consulting, and management consulting. It reports one business segment. The filing presents unaudited second-quarter and year-to-date results for fiscal 2023.
Financial performance
| Metric | Fiscal Q2 2023 | Fiscal Q2 2022 | Year-to-date 2023 | Year-to-date 2022 |
|---|---|---|---|---|
| Revenue | $162.0 million | $149.1 million | $314.8 million | $297.5 million |
| Operating income | $15.9 million | $15.0 million | $29.6 million | $30.5 million |
| Operating margin | 9.8% | 10.1% | 9.4% | 10.3% |
| Net income | $9.5 million | $11.6 million | $18.4 million | $23.1 million |
| Diluted EPS | $1.34 | $1.57 | $2.56 | $3.09 |
Revenue increased 8.6% in the quarter and 5.8% year to date. Costs of services rose faster than quarterly revenue, and were 70.0% of revenue versus 69.1% a year earlier; year-to-date they were 70.3% versus 69.6%. Net income and diluted EPS declined in both comparisons. Quarterly interest expense, net, increased to $1.6 million from $0.5 million; year-to-date it was $2.2 million versus $0.7 million. Foreign currency results shifted from gains to losses: a $0.7 million quarterly loss versus a $1.7 million gain, and a $1.2 million year-to-date loss versus a $1.9 million gain.
Cash and cash equivalents were $14.3 million at July 1, 2023, down from $31.4 million at December 31, 2022. Year-to-date operating cash flow was negative $65.0 million, compared with negative $78.8 million in the prior-year period. Investing cash outflow was $1.9 million; financing provided $49.2 million, including $80.0 million of net revolving-credit borrowings. The balance sheet showed $80.0 million drawn under the revolver and $4.4 million of letters of credit; cash less revolver borrowings was approximately negative $65.7 million. Current assets were $254.7 million and current liabilities $239.0 million, or working capital of $15.7 million.
Material changes versus prior comparable periods
- Consultant headcount increased 12.5% to 971 from 863, while utilization fell to 72% in the quarter from 77%, and to 71% year to date from 75%.
- International revenue rose to approximately 22% of revenue in the quarter and year to date, from 19% and 20%, respectively. Fixed-price projects declined to 17% of revenue from 18% quarterly and 19% year to date.
- Higher employee compensation and forgivable-loan amortization contributed to increased service costs. SG&A as a share of revenue declined slightly in the quarter, to 18.4% from 18.8%, but rose year to date to 18.5% from 18.1%.
- Year-to-date cash outflow reflected, in part, payment of a significant portion of fiscal 2022 performance bonuses and awards, increased unbilled services, and share repurchases and dividends.
- Weighted-average diluted shares decreased to 7.08 million for the quarter from 7.38 million, primarily reflecting share repurchases; this partially offset lower earnings per share.
Outlook, commentary, risks and unusual items
Management said cash, operating cash generation and available revolving-credit capacity should be adequate for anticipated working capital and capital expenditure needs for at least the next 12 months. The company reported $80.0 million outstanding on a $250.0 million revolving facility, with covenant limits of 3.0-to-1 maximum net leverage and 2.5-to-1 minimum interest coverage; it was in compliance at July 1, 2023. No specific revenue or earnings guidance was provided.
Management attributed the higher effective tax rate mainly to increased nondeductible meals and entertainment expenses, the U.K. tax-rate increase effective April 1, 2023, and, year to date, a smaller tax benefit from share-based compensation. The company reported no material change to its risk factors, no material change in market-risk exposure, and no pending legal proceeding identified in Part II; it notes that ordinary-course legal outcomes remain inherently uncertain. Management stated inflation had not materially affected results to date but could do so in the future.
CRA repurchased $23.6 million of stock and paid $5.2 million in dividends year to date. Approximately $19.3 million remained available under the repurchase authorization at July 1. The Board declared a $0.36-per-share dividend payable September 8, 2023. The filing also reports $1.1 million of contingent consideration related to the bSG acquisition and approximately $2.8 million of future lease-related asset-retirement and redecoration obligations.
Most important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers fiscal Q2 2023, not Q2 2022.
- Track whether lower utilization and higher service-cost ratios persist as headcount grows, and how they affect operating margins.
- Assess working-capital movements and cash conversion, including collection of receivables and unbilled services and the timing of incentive-compensation payments.
- Monitor revolver usage, borrowing costs, covenant headroom, and the balance of capital returns against liquidity needs.
- Review future effective tax rates and foreign-currency impacts, which reduced reported earnings in the periods presented.