Business context and reporting period
CRA International, Inc. (Charles River Associates) provides litigation, regulatory and financial consulting, and management consulting services. The supplied filing is for the fiscal quarter ended October 1, 2022 (Q3 2022), not Q3 2021 as stated in the request metadata. Comparisons are with the quarter ended October 2, 2021; year-to-date comparisons cover the corresponding fiscal periods.
Key financial results
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| Revenue | $148.4 | $136.4 | $445.9 | $431.2 |
| Operating income | $14.9 | $12.8 | $45.4 | $43.4 |
| Operating margin | 10.0% | 9.4% | 10.2% | 10.1% |
| Net income | $11.9 | $10.9 | $34.9 | $33.0 |
| Diluted EPS | $1.63 | $1.44 | $4.72 | $4.31 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $(35.0) | $13.9 |
- Q3 revenue increased 8.8%; YTD revenue rose 3.4%. Q3 net margin was 8.0%, unchanged from the prior-year quarter; YTD net margin was 7.8% versus 7.7%.
- Q3 diluted EPS increased 13.2%, supported in part by lower diluted weighted-average shares (7.246 million versus 7.560 million). YTD diluted EPS rose 9.5%.
- YTD operating cash flow declined to a $35.0 million outflow from $13.9 million of inflow. Cash and cash equivalents were $24.1 million at October 1, 2022, down from $66.1 million at January 1, 2022.
- At October 1, 2022, current assets were $257.4 million and current liabilities $231.0 million, or working capital of $26.4 million. The balance sheet included $45.0 million drawn on the revolving facility; shareholders’ equity was $200.7 million.
Changes versus prior comparable periods
- Q3 time-and-materials revenue increased to $124.2 million from $104.7 million, while fixed-price revenue fell to $24.2 million from $31.7 million. Fixed-price work represented 16% of Q3 revenue versus 23% a year earlier; YTD it was 18% versus 24%.
- Utilization was 74% in Q3 versus 73%; YTD utilization was 75% in both periods. Consultant headcount was 911 at quarter-end, up 3.3% from 882, with 37 consultants added through the Welch Consulting acquisition.
- Q3 costs of services fell to 68.9% of revenue from 70.4%, while SG&A rose to 19.0% from 18.0%. YTD costs of services improved to 69.4% from 71.1%, but SG&A increased to 18.4% from 16.6%.
- YTD operating cash flow was pressured by working-capital needs, including higher receivables and unbilled services, payment of prior-year performance bonuses and awards, and increased forgivable loans.
Outlook, commentary, risks and unusual items
- Management stated that cash, expected operating cash generation and available revolving credit should be sufficient for anticipated working capital and capital expenditures for at least the next 12 months. The filing gives no numerical revenue or earnings guidance.
- CRA refinanced its facility in August 2022 with a $250 million revolving credit agreement maturing August 19, 2027. Availability was reduced by $4.4 million of letters of credit; the company reported covenant compliance at quarter-end. Interest margins vary with the leverage ratio and reference rates.
- The February 2022 Welch Consulting acquisition added 45 colleagues. CRA paid $10.2 million net by October 1 and issued $7.9 million in forgivable loans; the purchase-price allocation remained preliminary. Acquisition-related compensation is expensed as incurred.
- YTD foreign-currency gains were $3.6 million, compared with a $0.3 million loss in the prior-year period; Q3 gains were $1.7 million. Currency translation reduced YTD comprehensive income by $8.8 million.
- The YTD effective tax rate increased to 26.7% from 22.0%, principally due to reduced tax benefits for share-based compensation and foreign-derived intangible income, and higher nondeductible executive compensation.
- Management said inflation had not materially affected results to date, but could do so in the future. The filing reports no material change in risk factors and no legal proceedings; management cautions that legal outcomes are inherently uncertain.
- The Inflation Reduction Act includes a 1% excise tax on net share repurchases after December 31, 2022; CRA was evaluating its application. A $0.36 quarterly dividend was declared after quarter-end, payable December 9, 2022.
Most important facts for investors to verify
- Confirm the period: this is the Q3 2022 filing, despite the request metadata indicating 2021 Q3.
- Track whether receivables, unbilled services and bonus-related working-capital outflows convert into operating cash; YTD operating cash flow was negative $35.0 million.
- Monitor borrowings, interest expense, rate exposure and covenant headroom under the new revolving credit agreement.
- Assess whether revenue growth and improved service-cost ratios persist alongside higher SG&A, and whether utilization and hiring support profitable growth.
- Review the finalized Welch Consulting purchase-price allocation, forgivable-loan commitments and related compensation expense.
- Consider the effects of foreign-exchange movements, tax-rate changes and the new stock-repurchase excise tax on reported results and capital returns.