CRA International, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended January 1, 2022 (52 weeks), filed March 3, 2022. The request metadata refers to 2020 Q4, but the supplied filing is the fiscal 2021 annual report. Comparisons below are to fiscal 2020, which had 53 weeks.
Business context
CRA is a global consulting firm providing litigation, regulatory and financial consulting, and management consulting. Revenue principally comes from employee consultants’ professional services, billed mainly on a time-and-materials basis. No client represented more than 5% of revenue in fiscal 2021, 2020 or 2019.
Financial performance
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Revenue | $565.9 million | $508.4 million | +11.3% |
| Income from operations | $55.7 million | $34.8 million | +60.2% |
| Operating margin | 9.8% | 6.8% | +3.0 percentage points |
| Net income | $41.7 million | $24.5 million | +70.1% |
| Diluted earnings per share | $5.45 | $3.07 | +$2.38 |
| Net margin | 7.4% | 4.8% | +2.6 percentage points |
| Operating cash flow | $75.7 million | $54.7 million | +$21.0 million |
Revenue growth reflected higher utilization (74%, versus 69%), 8.7% more billable hours and 30 additional consultants. Costs of services rose 7.9% to $400.1 million, but declined as a share of revenue to 70.7% from 72.9%. SG&A increased 8.2% to $97.4 million and fell to 17.2% of revenue from 17.7%. The effective tax rate declined to 23.2% from 27.1%, mainly due to a greater tax benefit from share-based compensation.
Fixed-price engagements contributed 24% of revenue and time-and-materials engagements 76%, broadly unchanged year over year. Revenue outside the U.S. was approximately 20% of the total. Fiscal 2021 revenue growth occurred despite having one fewer week than fiscal 2020.
Cash, debt and liquidity
- Cash and cash equivalents were $66.1 million at year-end, up $20.5 million. Working capital was $36.3 million.
- Operating cash flow was $75.7 million; capital expenditures were $2.6 million; financing activities used $52.0 million. Financing uses included $45.0 million of share repurchases and $8.3 million of dividends.
- No borrowings were outstanding on the $175.0 million revolving credit facility; $170.8 million was available after letters of credit. The facility matures October 24, 2022. Management expected to extend or refinance it, but provided no assurance of success or favorable terms.
- CRA reported compliance with credit covenants. It stated cash, operating cash flow and available facility capacity should cover anticipated needs for at least 12 months.
- Operating lease liabilities totaled $138.8 million; scheduled lease payments were $160.3 million before $21.5 million of imputed interest.
Material changes, outlook and risks
Share repurchases totaled 608,745 shares during fiscal 2021, including 337,837 shares bought in an April 2021 Dutch auction tender for $25.3 million including transaction costs. The board authorized a further $20.0 million repurchase-program expansion in February 2022. Fiscal 2021 dividends were $8.3 million; a $0.31-per-share quarterly dividend was declared for payment in March 2022.
CRA said COVID-19 did not materially adversely affect fiscal 2021 results, while warning that the pandemic could delay or disrupt client projects and operations. Management gave no quantified earnings or revenue guidance. It noted that future results may fluctuate with engagement timing, utilization, hiring and compensation, seasonality, client demand, collections, and foreign exchange.
Key risks include dependence on recruiting and retaining consultants and non-employee experts; intense competition and the ability to sustain billing rates and utilization; project cancellations, client payment risk and conflicts that limit engagements; cybersecurity and privacy exposures; fixed-price project cost-estimation risk; economic, regulatory, COVID-19 and Brexit-related uncertainty; currency movements; and refinancing the revolving facility before maturity. A 10% foreign-exchange movement, holding other factors constant, was estimated to affect fiscal 2021 pretax income by about $3.1 million. CRA does not currently hedge foreign-currency exposure.
Unusual and subsequent items: the C1 acquisition contingent-consideration measurement period ended and $15.0 million was paid in fiscal 2021; a further $2.4 million was classified as financing cash flow. On February 28, 2022, CRA acquired substantially all business assets of Welch Consulting, adding 45 colleagues; purchase accounting was not yet complete. The filing reports no material pending legal proceeding and no goodwill impairment in fiscal 2019–2021.
Investor verification points
- Check the full audited statements and notes for working-capital movements, receivables and unbilled-service collectability, and accrued compensation.
- Monitor renewal or refinancing of the $175.0 million credit facility before its October 2022 maturity, including replacement of LIBOR-based terms.
- Assess whether higher utilization and consultant headcount can be sustained without further labor-cost pressure.
- Review the purchase price, purchase accounting and post-acquisition performance of Welch Consulting when disclosed.
- Verify future capital returns and liquidity after buybacks, dividends, hiring, acquisitions and lease commitments.