Business Context and Reporting Period
CRA International, Inc. (Nasdaq: CRAI) provides litigation, regulatory, financial, and management consulting services. This Form 10-K covers fiscal 2020, the 53 weeks ended January 2, 2021; fiscal 2019 was 52 weeks ended December 28, 2019. The filing therefore does not report a separate “2019 Q4” period.
Key Financial Metrics
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Revenue | $508.4 million | $451.4 million |
| Operating income | $34.8 million; 6.8% of revenue | $29.3 million; 6.5% of revenue |
| Net income attributable to CRA | $24.5 million | $20.7 million |
| Diluted EPS | $3.07 | $2.53 |
| Cash from operating activities | $54.7 million | $27.8 million |
| Cash and cash equivalents at year-end | $45.7 million | $25.6 million |
| Working capital at year-end | $19.8 million | $12.7 million |
Costs of services rose 16.7% to $370.7 million and increased to 72.9% of revenue from 70.4%. SG&A fell 3.8% to $90.0 million, or 17.7% of revenue versus 20.7%. The effective tax rate rose to 27.1% from 22.6%. CRA reported no borrowings under its revolving credit facility at year-end; the facility then had $125 million capacity, increased to $175 million on January 12, 2021. Cash dividends paid were $7.4 million; share repurchases were $13.4 million.
Material Changes Versus Prior Period
- Revenue increased 12.6%, including the effect of an extra fiscal week. Billable hours rose 9.4%, consultant headcount increased by 52, and utilization declined to 69% from 75%.
- Net income increased $3.8 million and diluted EPS increased from $2.53 to $3.07; diluted weighted-average shares fell to 7.948 million from 8.167 million, primarily reflecting repurchases.
- Operating cash flow increased to $54.7 million, with management citing strong collections and lower SG&A expenses. Capital expenditures were $17.1 million.
- Non-U.S. revenue was approximately 20% of total, compared with 21%. Fixed-price work remained 24% of revenue; time-and-materials work was 76%.
Outlook, Risks, and Unusual Items
Management said cash, operating cash flows, and available credit should be sufficient for anticipated needs for at least the next 12 months. It provided no specific revenue or earnings guidance. Management stated that COVID-19 did not materially adversely affect fiscal 2020 results, but pandemic-related restrictions could delay projects, disrupt operations, or affect demand. Results may not indicate future performance.
- Key business sensitivities include consultant utilization, billing rates, compensation costs, project timing, and retention and recruitment of highly qualified staff. Engagements can be terminated or reduced, and revenue is partly dependent on a limited number of large projects.
- Other risks include cybersecurity and confidentiality breaches, client payment and collection risk, fixed-price project cost overruns, conflicts that prevent accepting engagements, foreign-exchange exposure, and continued Brexit-related uncertainty.
- A hypothetical 10% foreign-exchange movement would have affected fiscal 2020 pretax income by approximately $3.1 million, holding other variables constant. CRA does not currently hedge its currency exposure.
- CRA paid $15.0 million of acquisition-related contingent consideration in February 2021. Its revolving credit agreement matures October 24, 2022 and includes financial covenants; CRA reported compliance at year-end.
- Previously disclosed material weaknesses in internal control over financial reporting were remediated during fiscal 2020. Management and the auditor concluded controls were effective as of January 2, 2021. The auditor identified fixed-price revenue estimates and performance-based deferred compensation estimates as critical audit matters.
- The filing reports no separately identified material legal proceeding. Management stated ordinary-course legal actions were not expected to materially affect financial position or results.
Most Important Facts for Investors to Verify
- Whether utilization recovers from 69% and whether revenue growth persists after accounting for the extra week in fiscal 2020.
- Whether rising service costs and incentive compensation affect operating margins and cash generation.
- Collection quality and trends in accounts receivable, unbilled services, and forgivable loans, which increased during the year.
- Future demand and project timing amid COVID-19 effects, client budget changes, and Brexit-related uncertainty.
- Capital allocation and liquidity after dividends, buybacks, the contingent-consideration payment, and the January 2021 credit-facility increase.
- Continued effectiveness of remediated financial controls and the assumptions used to estimate fixed-price contract costs and performance awards.