CRA International, Inc. — Form 10-Q Summary
Reporting period: The filing covers the fiscal quarter ended April 2, 2016, with comparison to the quarter ended April 4, 2015. The request metadata says “2015 Q1,” but the filing itself is for fiscal 2016 Q1. CRA provides consulting services in litigation, regulatory and financial matters, and management consulting; results also include its NeuCo subsidiary.
Financial results
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $80.9 million | $78.0 million | Up 3.7% |
| Gross profit / margin | $25.4 million / 31.4% | $24.2 million / 31.0% | Margin up 0.4 percentage points |
| Operating income / margin | $4.3 million / 5.3% | $4.5 million / 5.7% | Income down 3.4% |
| Net income attributable to CRA | $2.4 million | $2.8 million | Down about 13% |
| Diluted EPS | $0.27 | $0.30 | Down 10% |
| Net cash used in operating activities | $10.0 million | $24.2 million | Use decreased by $14.2 million |
Revenue growth came from finance, financial economics, labor and employment, and energy practices. Utilization fell to 75% from 78%, which management attributed to higher headcount. SG&A rose 6.1% to $19.2 million, and depreciation and amortization increased to $1.9 million. Diluted weighted-average shares declined to 8.927 million from 9.403 million, primarily reflecting prior share repurchases, partly offset by equity awards and exercises.
The effective tax rate increased to 46.5% from 37.4%. CRA cited a prior-year valuation-allowance benefit, earnings mix and state taxes; the current-quarter rate was also elevated by NeuCo’s loss, for which no tax benefit was recognized, and other permanent items. Prior-year results included a $606,000 NeuCo debt-extinguishment gain.
Balance sheet, liquidity and debt
- Cash and cash equivalents were $22.6 million at April 2, down $15.6 million from January 2, 2016. Working capital was $59.5 million.
- Current assets were $125.3 million and current liabilities were $65.8 million. Total assets were $299.0 million; total shareholders’ equity was $214.2 million.
- There were no revolver borrowings at quarter-end. The $125 million revolving facility had $2.1 million of letters of credit outstanding; CRA reported covenant compliance. On April 27, 2016, it drew $5 million for operations and capital investments.
- Operating cash use primarily reflected payment of fiscal 2015 bonuses and higher unbilled services. Capital expenditures were $5.1 million, principally for new New York and Washington, D.C. offices.
Developments, outlook and risks
- CRA said cash, expected operating cash generation and its credit facility should cover anticipated working capital and capital needs for at least 12 months. It gave no specific revenue or earnings guidance in the supplied filing text.
- NeuCo’s sale of substantially all business assets closed April 13, 2016, after quarter-end. The transaction included cash and other consideration and assumption of certain liabilities, subject to contingent liabilities relating to representations and warranties.
- CRA had $41.5 million of forgivable loans, including $38.0 million noncurrent. These loans are generally forgiven over three to eight years subject to continued employment or affiliation and contractual conditions.
- Management reported that disclosure controls were not effective at April 2, 2016 because of a material weakness involving allocation of NeuCo income or loss to noncontrolling interest and other financial-close deficiencies. Management nevertheless concluded the statements fairly presented the company’s financial position and results. Remediation was ongoing.
- CRA reported no material change to previously disclosed risk factors and no legal proceedings in Part II. It noted ordinary-course legal actions, but did not expect pending matters to materially affect results or financial position.
- Cash concentration at one financial institution was identified as a potential credit exposure; the company reported no related losses and said it monitored the institution. Share repurchases remained discretionary; the quarter’s Dutch-auction tender offer resulted in 1,164 shares purchased for about $23,000.
Important facts for investors to verify
- How the NeuCo asset sale’s final proceeds, assumed liabilities and any contingent obligations affect subsequent-period results and cash.
- Progress and effectiveness of remediation of the material weakness in financial reporting controls.
- Whether utilization and revenue growth improve, and whether higher staffing and SG&A costs pressure operating margins.
- Cash conversion and working-capital trends, particularly bonus payments and growth in unbilled services.
- The effect of the elevated tax rate and NeuCo-related losses on future earnings and cash taxes.